An Empirical Investigation into Disruptive Innovation and Firm Performance in the Telecom and Banking Sectors of Pakistan: A Structural Equation Modelling Approach

Abstract

<p>In the contemporary world of stiff competition, the financial and non-financial performance of a firm has become a significant issue of concern for business organisations and a criterion for judging its management’s skills and capabilities. Different industries pose different challenges to firms’ management, which could hamper their performance and even threaten their very survival and sustainability. Disruptive innovations (DI) are among the most serious threats to business organisations currently, particularly in specialised tech-intensive industries. Firms in multiple sectors, ranging from the service to the manufacturing sectors, have been affected in the recent past by emerging DI. This aspect accords even more significance to studies on DI and firm performance (FP), and it is a trending topic in recent academic literature, particularly in the context of the service sector, due to the demand for innovative products and services in this sector and the challenges in the existing structures of incumbent companies. Therefore, this study empirically investigated the challenge of DI in two prominent, most significant service sector industries in Pakistan: telecom and banking.</p> <p>Pakistan is also not immune to the significant challenge of DI, given that the country faces a significant concern in the telecom and banking sectors because of the intense competition among services providers and the rapid technological transformation across both sectors. Consequently, the incumbents in both service sectors must not only confront a shortage of dynamic staff skills to incorporate technological developments efficiently and effectively in the DI space but also struggle to introduce innovative practices in their operations to keep up with customers’ expectations and demands. However, there is a dearth of robust empirical studies in this context to effectively address the issues faced by Pakistan’s two economically vital business sectors. This gap in extant literature motivated this current study. The aims of this study were to establish whether the negative aspects associated with DI undermine firms’ performance and whether this link is mediated by dynamic core competence (DCC). Further, to enhance firm productivity, the impact of innovative work practices (IWPs) was evaluated through moderating tests. This study also examined managers’ work-related perceptions during the coronavirus disease (COVID-19) pandemic and their moderating impact on the relationship between DCC and FP. Empirical data were collected from 730 participants working in selected telecom and banking firms in Pakistan, who were chosen for this study using stratified random sampling. A quantitative method was used to analyse data towards fulfilling the study objectives. A Qualtrics online survey was administered to managers for collecting data on their perceptions about the constructs in the research model. The conceptual hypothesised model was tested through structural equation modelling (SEM) using AMOS 26.0 software, and descriptive statistics were analysed using SPSS 26.0. The findings indicate that first, DI negatively influences FP and DCC. Second, DCC and IWPs have a significant positive effect on FP. Furthermore, the effects of DI on FP and DCC were moderated by IWPs, while the relationship between DCC and FP was also moderated by COVID-19. More importantly, DCC was found to have a significant mediating role in the relationship between DI and FP. Last, the findings indicate that the relationship between DI and FP differs for the two sectors. In addition, using these findings, the study’s contributions to, and implications for, theory, practice and policy, its limitations; and some directions for future research are also discussed</p>