Analysis of Innovation Capability and Technological Innovation on The Business Performance of SMEs in Batam City

Abstract

This study examines the effect of innovation capability and technological innovation on the business performance of SMEs in Batam City. Innovation capability and technological innovation are the independent variables, and SME performance is the dependent variable. Primary data were collected through an online questionnaire from 96 owners, owner-managers, and staff of service sector SMEs selected by purposive sampling. Technological innovation is limited here to digital technology already used in daily operations, and the questionnaire recorded the specific tools each business applies. Digital payment instruments were reported by 50.0 percent of respondents, while social media and online marketplace platforms and bookkeeping and business management applications were each reported by 26.0 percent. The data were analyzed by multiple linear regression after validity, reliability, and classical assumption testing. Innovation capability has a positive and significant effect on SME performance (B = 0.330; SE = 0.102; t = 3.246; p = 0.002), and technological innovation also has a positive and significant effect (B = 0.450; SE = 0.070; t = 6.401; p = 0.000). Together, the two variables explain 66.0 percent of the variation in SME performance (adjusted R-squared = 0.660), leaving 34.0 percent to variables outside the model. The standardized coefficient for technological innovation (0.575) is about twice that for innovation capability (0.292), which indicates that putting digital tools to work in daily operations contributes more to performance in this sample than innovation capability on its own.