Business strategy – MSMEs' performance relationship: innovation and accounting information system as mediators

Purpose This study provides empirical evidences on the relationship between business strategy and micro, small and medium enterprises (MSMEs) performance. Additionally, the study aims to explore the role of innovation and accounting information systems (AISs) in the strategy performance linkage among MSMEs in Indonesia. Design/methodology/approach A questionnaire-based survey was conducted, which produced 102 valid responses. Surveys were distributed to MSME owners throughout Solo, Yogyakarta and Semarang, Indonesia. Data were analyzed by using structural equation model with partial least squares. Findings The result shows that business strategy has indirect impacts on MSMEs' performance. Both innovation and AIS positively mediate the relationship between business strategy and MSMEs’ performance. Research limitations/implications The performance variable was measured based on the owners' perception. This makes the results not to be reflective of the real performance situation. Practical implications Alignment between strategy and innovation plays a vital role in improving the performance of MSMEs. The differentiation strategy that focuses on product uniqueness and quality requires innovation to add value to the product and the customer. The innovation process is at high risk of failure, so MSMEs owners need accurate calculations in decision making. AISs are part of management control to reduce risk by identifying standards and directing organizational goals. Originality/value This study considers the contingency factors in the relationship between strategy and performance by providing innovation variables and AIS.