Micro small business innovation recovery performance

Abstract

Purpose – Grounded in dynamic capabilities theory (DCT), this study investigates the mechanisms linking innovation strategy to post-COVID-19 recovery performance of micro-, small- and medium-sized enterprises (MSMEs) in Ghana. It critically teststhe presumed mediating roles of three micro-foundations, namely business agility (seizing), new idea search (sensing) and frugal spending (transforming), in a resource-constrained, postcrisis context. Design/methodology/approach – A survey was administered to 243 owners and managers of Ghanaian MSMEsin the manufacturing and service sectors during the post-pandemic recovery period. Data were analysed using covariance-based structural equation modelling (SEM) to test the hypothesised mediation model. Findings – Innovation strategy has a significant positive direct effect on MSME recovery performance. However, contrary to expectations derived from literature on constrained environments, only business agility significantly mediates this relationship. New idea search and frugal spending show no significant mediating effects. Originality/value – This study provides a critical contextual refinement of DCT. First, it reveals a temporal hierarchy of dynamic capabilities in post-crisis recovery, in which the seizing function (agility) is paramount oversensing (search) or transforming (frugal reconfiguration). Second, it challengesthe narrative of frugality as a key dynamic capability in such settings, positing it instead as a universal “hygiene factor” rather than a performance-differentiating mediator. Third, it demonstrates that, in this context, agility is enacted through informal, tactical adjustments rather than formal strategic planning. These findings advance theory by delineating boundary conditions for DCT’s micro-foundations and offer counter-intuitive insights for MSME support in an emerging economy. Finally, the study translates these insights into targeted policy actions for MSME recovery in emerging economies, directly linking entrepreneurial capability to economic development strategy.