Does Organizational Performance Increase with Innovation and Strategic Planning?

In today's competitive world, organizations face numerous challenges, including rapid changes in products, new technologies, and evolving customer needs. These environmental threats can put the survival of organizations at risk [1]. Therefore, appropriate organizational performance becomes crucial for protecting organizations. Poor performance can damage the trust of existing and potential customers, reducing the chances of attracting new ones. Improving performance becomes essential for all private and public economic sectors. In organizational analysis, interpretation is fundamental, and no theory can be complete without it [2].

As the world continues to evolve, increased organizational performance through innovation and strategic planning has become a crucial factor for an organization's success. An innovative culture can aid the development of new products and services in any organization [3]. Innovation can be considered a supreme strategy to enhance and develop unique products or services, which can lead to increased performance and competitive advantage [4]. Therefore, innovative strategies are vital in improving performance [5]. Numerous empirical studies have examined the relationship between strategic planning, innovation, and organizational performance in various business sectors [6], [7].

Although organizations pay attention to innovation to enhance performance [8], studies on the positive role of innovation are not conclusive. While some evidence indicates that innovation improves performance, the findings of these studies are mixed and lack agreement [9]. It should be noted that public sector organizations are based on services, while private sector organizations are based on product production. A strategic program, one of the modern management tools, plays a significant role in improving an organization's performance. According to [10], strategic planning is crucial in a corporate environment. Adeleke [11] believes that strategic planning establishes and reaches the organization's objectives and helps bridge the gap between where an organization is and where it wants to be.

However, implementing a strategic plan is not easy and requires skill, knowledge, methods, and resources to achieve the desired outcomes. Organizations that ignore strategic planning can experience poor performance and a reduced chance of surviving in the market [12]. Strategic planning needs to identify the organization's strengths and weaknesses and its goals to identify factors that significantly affect the organization. This way, strengths can be maximized, and disadvantages can be overcome to achieve set and planned goals. Private organizations have a long history of successful strategic planning, and public sector organizations can also benefit from strategic planning by improving public services, customer satisfaction, and managing limited resources more efficiently and effectively [12].

Some public and private sector organizations, such as hospitals, aim to provide services to meet people's necessities. Without proper implementation of plans and goals, such organizations may experience inefficiency, decreased service quality, and lower beneficiary satisfaction. The poor performance of such organizations can have negative long-term consequences for society [13]. Poor planning only leads to poor performance for these organizations in any country, and they play an important role [14].

Given the limited number of studies in this field, this study aims to examine the impact of innovation and strategic planning on hospital organizational performance. The researchers expect that this study will expand the frontiers of knowledge by exploring the relationship between innovation, strategic planning, and organizational performance.

Performance refers to the state or quality of an organization's function. Neely et al. [15] define performance as the process of explaining the quality of effectiveness and efficiency of past actions. Effectiveness and efficiency are the two key components of organizational performance. Therefore, the organizational performance index measures the degree of efficiency and effectiveness in achieving organizational goals.

Measuring organizational performance is crucial to ensure that organizations follow strategies that lead to goal achievement. There are different approaches to measuring performance, including objective and subjective scales, each with its advantages and disadvantages [16]. The balanced scorecard approach, introduced by Kaplan and Norton [17], is one of the widely used approaches for measuring organizational performance. This approach uses both financial and operational scales to measure performance.

Organizational performance includes multiple dimensions, such as goal achievement, profitability, return on investment rate, employee job satisfaction and productivity, and quality of services and products [18]. Improving performance is a significant goal for any organization, and various tools and mechanisms are utilized to enhance performance. In for-profit organizations, performance mainly refers to profitability and income, while government and non-profit organizations primarily focus on client satisfaction and service quality [19].

Performance is considered one of the most critical indicators of an organization's success, and all efforts of managers and employees are directed towards improving it. Overall, organizational performance refers to the outcomes that organizations achieve according to predetermined goals and includes three main factors: financial results, employee satisfaction and productivity, and customer satisfaction with the services and products provided [20].

The term innovation has its roots in the Spanish word "Innovar" and the English word "Innovation," which means "creating something new." Joseph Schumpeter [21], a leading economist, defined innovation for the first time as a new combination of wealth-generating resources linked to economic development. In everyday language, innovation may be used synonymously with invention, but in research, the two terms have different meanings. In general, invention refers to creating an idea or concept, while innovation refers to implementing that idea in an organizational or social context. Therefore, innovation means adding something new to the socioeconomic system.

Like many organizational concepts, innovation has been used ambiguously and has different meanings depending on the context in which it is used. Regarding innovation in an organization, Knight [22] stated that there are problems with this term that result from the value judgment associated with its nature. Therefore, it is necessary to clarify the meaning of this term to address these problems. Vrakking [23] also believes that innovation is anything that is revised, designed, and realized to strengthen an organization's position in front of its competitors and enable a long-term competitive advantage. In other words, innovation involves creating something new that pursues and implements a specific goal.

Strategic planning is a process that guides and advances an organization's plans and activities over a long-term horizon to accomplish its mission, goals, and objectives. Large organizations often use this type of planning, which, if formulated correctly, leads to the selection of strategies that bring excellence and leadership to the organization and create a competitive advantage. With the increasing importance of small companies in the world's economic activities, they also need to benefit from strategic planning to succeed in the competitive world. In this section, after introducing the concept of strategic planning, defining large and small organizations, and presenting some critical models of strategic planning for both large and small organizations, these models will be comparatively compared. This comparison will provide a conceptual model of strategic planning for small organizations to achieve their goals and increasing success.

Planning involves determining how the organization will achieve its goals and objectives, and it aims to decide which performance is required on a preventative basis [10]. The primary goal of a strategic plan is to understand the organization's goals and how to achieve them. Planning identifies the organization's mission, vision, and goals and determines its actions and resources [24]. According to Wilkinson and Monkhouse [25], strategic planning is a method used to determine the organization's position by prioritizing the use of resources based on specified objectives to guide its direction and development over time. Organizations use strategic planning to take advantage of changing environments [26] and gain an edge over competitors [27] by managing various environmental aspects.

Odumeru [28] conducted research on how organizations' performance results are affected by their innovation strategies. The findings indicate that innovation strongly affects competitiveness, profitability, productivity, and more. Karim Suhag et al. [29] investigated the impact of innovation on the performance of telecommunications organizations. They found that process, product, and organizational innovation positively affect performance, with organizational culture as a moderating factor. Heller and Weisberg [30] combined strategic human resource management and organizational behavior insights to examine how HR practices can facilitate creativity and innovation and strengthen firm performance. They concluded that commitment-based HR practices enhance creativity and support the transformation of creativity into innovation, creating a social atmosphere that promotes knowledge-sharing behavior.

Stoffers et al. [31] investigated workplace innovation in hotels and compared it with other industries. Their results showed that a more strategic orientation on innovation and talent development in the work environment positively affects four organizational performance factors. AlTaweel & Al-Hawary [32] examined how strategic agility affects organizational performance through the mediating role of innovation capability. They found that strategic agility significantly affects organizational performance and innovation capability, and innovation capability improves the relationship between strategic agility and organizational performance. Dwikat et al. [33] found that strategic business innovation and systematic strategic planning enhance the sustainability of Palestinian small and medium manufacturing enterprises.

Shrader et al. [34] evaluated the effects of strategic planning on corporate performance in Nigeria, and their analysis showed that companies must identify all relevant strategic factors when formulating their plans to ensure that their actions align with the company's goals. Eas et al. [35] found that both mission statements and strategic planning significantly impact the performance of the University of Uyo. Okolocha and Bonaventure [36] found that the level of organizational structure and employee well-being affects organizational performance. Cetin [37] investigated the positive effect of strategic planning on organizational performance. Khalid and Nusari [38] found that three components of strategic planning significantly affect operational performance in the UAE public sector. Maharmeh [39] found a strong positive relationship between strategic planning and organizational performance in a case study of a public organization in Qatar. Oludele [40] found that the development and implementation of strategic planning directly affect the effectiveness and efficiency of health institutions in Nigeria's healthcare sector. Obaid [41] found a strong positive effect of strategic planning on organizational performance in private universities and higher education institutions.

H1: Innovation has a positive influence on an organization's performance.

H2: Strategic planning can positively influence an organization's performance.

The statistical population of this study comprises mid-level managers and employees of public and private sector hospitals, with a population of 87 according to the latest employment statistics for 2022. Due to the limited population, random sampling was utilized, and a questionnaire was collected from 63 participants, resulting in a response rate of approximately 72.41%. Both descriptive and inferential data were analyzed in this study using statistical analysis. Descriptive statistics were used to determine the number of respondents and their demographic characteristics using SPSS22 software. Structural equation modeling analysis was also conducted using Smart PLS3 software to examine and test the hypotheses and examine causal relationships between variables.

The techniques for measuring variables used in this study were derived from previous literature. To measure organizational performance, the index from Mafini and Pooe's [42] study was employed. Questions related to innovation were obtained from Pinar and Girard [43], while measurements related to strategic planning were obtained from Samson and Terziovski [44]. Quantity responses were collected using a five-point Likert scale ranging from "1" (strongly disagree) to "5" (strongly agree). The study's conceptual model is illustrated in Figure 1.

This section provides an overview of the demographic characteristics of the statistical sample, which are presented in Table 1 and Table 2.

Table 3 describes the research variables based on descriptive statistics.

To check the normality of the research variables, the one-sample Kolmogorov-Smirnov test was conducted. Table 4 shows the results of the test.

To measure validity, various methods are available, but in this study, the confirmatory factor analysis test was used since the variables consisted of several dimensions or components. The KMO index and Bartlett's test were employed to conduct this analysis. The KMO index should be greater than 0.6 and close to one, while the significance for Bartlett's test should be less than 0.05 for factor analysis to be conducted. As shown in Table 5, the results of these tests are as follows.

Table 5 presents the KMO and Bartlett index values, along with their significance. In this study, the KMO index was found to be 0.847, which is above the recommended value of 0.6. This indicates that the sample size is sufficient to perform factor analysis. Moreover, Bartlett's index is significant at P ≤ 0.01, indicating that the obtained matrix has the necessary sufficiency to proceed with factor analysis. Therefore, we can conclude that this research data can be factored.

Table 6 presents the results of the factor analysis conducted on the research questionnaire. To evaluate the model, factor loadings, composite reliability check, average variance extracted, root mean square variance check of the structures, and correlation of the structures were used in this research. To achieve convergent validity and correlation, composite reliability and average variance tests were evaluated.

Table 6 shows that the factor loading for no question is below 0.5, indicating that no question needs to be excluded from the analysis. The composite reliability (CR) values for all structures are reported to be higher than 0.7, which indicates that the structures have good composite reliability. Convergent validity exists when the composite reliability is greater than 0.7, and the average variance extracted (AVE) is greater than 0.5, and the composite reliability is greater than AVE. As per Table 6, all three conditions have been met, and therefore, the questionnaire has convergent validity.

After examining the measurement model, the next step is to explore and test the structural model of the research. The graphical output of the research model is presented in Figure 2.

The coefficients of the paths are indicated by the numbers written on them in Figure 2. To test the significance of path coefficients, t-Student test values have been calculated using the Bootstrapping method. If the t-Student test values are greater than 1.96, the path coefficient is considered significant at the 0.05 level. Figure 3 presents the t-Student test values for the path coefficients.

Table 7 presents the software's output that was used to test the significance of the path coefficients between the variables and to check the hypotheses. The table shows the path coefficients and the results related to their significance.

Table 7 shows that the significant statistic between the innovation variable and organizational performance is 2.183, which is greater than 1.96, indicating a significant relationship between innovation and organizational performance at a 95% confidence level. The path coefficient of 0.149 suggests a positive relationship between innovation and organizational performance. This means that for every unit change in innovation, organizational performance will increase by 0.149 units. Therefore, innovation has a direct positive impact on organizational performance, confirming the research hypothesis.

Similarly, Table 7 also indicates that the significant statistic between the strategic planning variable and organizational performance is 5.257, which is greater than 1.96, indicating a significant relationship between strategic planning and organizational performance at a 95% confidence level. The path coefficient between these two variables is 0.658, indicating a positive impact of strategic planning on organizational performance. This means that one unit change in strategic planning will increase organizational performance by 0.658 units. Therefore, strategic planning has a direct positive impact on organizational performance, confirming the research hypothesis.

The aim of the current research was to investigate the impact of innovation and strategic planning on increasing organizational performance, specifically in the context of middle managers and employees of public and private sector hospitals. The study had a response rate of approximately 72.41%, with 63 participants completing the questionnaires by 2022.

The research findings confirmed the hypothesis that innovation has a positive impact on organizational performance. Innovation is considered a crucial force in developing companies and improving their performance. Research literature has consistently shown that companies need innovation to gain a competitive advantage and survive. Enterprises with high innovation capacity can achieve competitive advantage and high performance by adapting to their environment and developing new capabilities.

Moreover, organizations can gain and maintain a competitive advantage by utilizing innovation to improve performance, increase profits, and maintain their position in the market. Tajuddin et al.'s study [45] found that innovation was an important factor in enhancing organizational performance. The adoption of more innovation allows organizations to respond better to their environment, improve their capabilities, and maintain their competitiveness [46], [47]. Walker [8] also believes that innovation strengthens organizational performance in both the private and public sectors. Even if success is not guaranteed through innovation, its adoption can still enhance organizational performance.

In order to achieve long-term growth and reduce risks, organizations must consider increasing their capabilities through strategic planning. The planning process must consider the organization's policy, goals, missions, size, dynamics, complexity, and structure, and use a systems thinking approach to recognize and analyze opportunities, threats, and limitations existing in the external environment, as well as strengths and weaknesses internally. This information can be used to strengthen the organization's capacities, creating the circumstances for implementing strategies.

Various factors can affect the strategic planning system, such as the size of the organization, the type of management, the complexities of the production process, and the goals of the organization's planning system. Before making any decisions about strategic planning, a planning guide or instruction should be prepared to coordinate operations and develop strategic plans. Organizational leaders can create ideas to bring the organization a sustainable competitive advantage. Strategic thinkers who implement the strategy are more likely to implement the strategy successfully and improve organizational performance.

According to Capon et al. [48], organizations can increase their performance by adopting strategic planning, considering environmental compatibility and utilizing systematic thinking to deal with strategic issues. Boyd [49] found a relatively positive correlation between organizational performance and strategic planning. He suggested that measurement errors might have underestimated the relationship in the studies.

Hospital managers are recommended to use their personnel optimally to play an important role in the organization's performance. Creating a learning environment to continually increase the level of organizational performance with the help of strategic planning of human resources is also recommended. Overall, the study highlights the importance of strategic planning as a crucial factor in enhancing organizational performance, especially in the healthcare industry.