Track: Business Management

Abstract

The increasingly fierce global competition, dynamic changes in customer demand and rapid technological advances are the dominant factors in environmental changes, making it difficult for companies to achieve and maintain their competitive advantage. These changes create environmental uncertainty for the company. Environmental uncertainty puts pressure on company performance due to the large investment costs incurred to overcome increasing uncertainty. Management seeks to create strategies to minimize the impact of environmental uncertainty on company performance, one of the strategies that can be used is innovation. Innovation encourages companies to produce quality products or services at low costs, improvise products with new attributes, and produce products that are different from before. Efficiency is an important concept in innovation, because innovation requires large funding. We examine the relationship between environmental uncertainty and firm performance, as well as the moderating effect of innovation efficiency on this relationship. We tested manufacturing companies listed on the Indonesia Stock Exchange from 2013 to 2019 with 564 total observations. We find evidence that environmental uncertainty has a negative effect on firm performance, and innovation efficiency can reduce this negative effect. The evidence shows that environmental uncertainty as a contingency problem is an opportunity for companies to improve their performance, by being more active in carrying out innovation projects. When environmental uncertainty increases, policy makers within the company must ensure that the innovation projects carried out can run efficiently, thus providing great benefits for improving company performance.The increasingly fierce global competition, dynamic changes in customer demand and rapid technological advances are the dominant factors in environmental changes, making it difficult for companies to achieve and maintain their competitive advantage. These changes create environmental uncertainty for the company. Environmental uncertainty puts pressure on company performance due to the large investment costs incurred to overcome increasing uncertainty. Management seeks to create strategies to minimize the impact of environmental uncertainty on company performance, one of the strategies that can be used is innovation. Innovation encourages companies to produce quality products or services at low costs, improvise products with new attributes, and produce products that are different from before. Efficiency is an important concept in innovation, because innovation requires large funding. We examine the relationship between environmental uncertainty and firm performance, as well as the moderating effect of innovation efficiency on this relationship. We tested manufacturing companies listed on the Indonesia Stock Exchange from 2013 to 2019 with 564 total observations. We find evidence that environmental uncertainty has a negative effect on firm performance, and innovation efficiency can reduce this negative effect. The evidence shows that environmental uncertainty as a contingency problem is an opportunity for companies to improve their performance, by being more active in carrying out innovation projects. When environmental uncertainty increases, policy makers within the company must ensure that the innovation projects carried out can run efficiently, thus providing great benefits for improving company performance.