The Influence of Systematic Strategic Planning and Strategic Business Innovation on the Sustainable Performance of Manufacturing SMEs: The Case of Palestine

Abstract

Small and Medium Enterprises’ (SMEs) impact on economic growth is widely acknowledged. Nevertheless, the literature lacks empirical evidence as to how the sustainable performance of manufacturing SMEs in developing countries with unstable and turbulent business environments, such as Palestine, could be enhanced. Relying on the Triple Bottom Line (TBL), Resource-based View (RBV) theory, and sustainable performance literature, this study explores the influence of systematic strategic planning (SSP) and strategic business innovation (SBI) on the sustainable performance (SP) of Palestinian manufacturing SMEs. Based on a sample of 377 manufacturing SMEs in Palestine, 245 valid surveys have been subjected to Partial Least Squares Structural Equation Modeling for analysis using Smart PLS 3.0 software. The results show that various factors can enhance manufacturing SMEs’ sustainability performance, such as adopting a supporting national policy to enhance the concept of sustainability at the policy level. However, implementing proper systematic strategic planning (SSP) and strategic business innovation (SBI) in a collaborative culture and a participatory management style at the firm level in manufacturing SMEs positively influences and enhances the sustainable performance of those firms. This study’s contribution to the literature expands the knowledge on sustainable performance in manufacturing SMEs in developing countries experiencing political and economic uncertainty. Hence, the research findings demonstrate how (SSP) and (SBI) are crucial management tools for businesses operating in a highly competitive and turbulent environment.

1. Introduction

With the emergence of globalization, business practices have changed significantly; in this situation, the client’s requirements and expectations are shifting, competition is becoming more assertive, and high-tech methods are being deployed in the industry. In addition, the problem of rising energy prices because of the COVID-19 pandemic and the war in Ukraine has complicated the situation concerning global energy [1], which has led to a significant increase in electricity purchase prices and urged countries and businesses to explore alternative energy sources such as wind energy [2]. For these reasons, it is challenging for businesses to maintain growth and a competitive advantage in today’s rapidly dynamic economic environment [3]. Therefore, a company’s strategy needs to be developed and modified accordingly to keep firms competitive in the long run. Hence, firms that can deliver real superior value to the customer experience via an innovative corporate strategy built on a long-term viable, sustainable basis will endure and be sustained for a long time [4,5]. Similarly, the COVID-19 pandemic has resulted in thousands of SMEs shutdown worldwide and caused the global economy’s rearrangement [6]. Thus, all kinds of enterprises, mainly SMEs, are recommended to adopt new business models with resilient and innovative business strategies through which they can attain sustainability [7,8,9].

Similarly, sustainability has become a priority in modern production sectors due to the challenges posed by conventional manufacturing techniques and rules enforced by stakeholders. In this context, sustainable manufacturing entails low-cost items that require few resources, have minimal environmental adverse effects, and are safe for society [10]. Therefore, manufacturing SMEs’ adaptation of sustainability concepts has become a priority for confronting the challenges detailed above.

The manufacturing SME sector in Palestine is suffering from several issues and challenges that hinder its prosperity and limit its ability to attain a higher level of sustainable performance. Those challenges can be categorized into three main issues: substantial, structural, and internal. The first significant challenge is external due to the political conflict, which restricts economic growth in Palestine [11]. Equally, the second challenge is internal and classified as a structural obstacle attributed to the Palestinian policy’s weak role in controlling, regulating, and fostering the enabling environment for the private sector and the manufacturing industry to prosper [12,13,14]. The third main challenge, which will be the main focus of this study, consists of the internal issues at the company level, which are attributed to the weakness of managerial best practices at the firm level, such as implementing proper strategic planning and business innovation. Furthermore, the majority of Palestinian SMEs are family-owned businesses that have begun to face real challenges to their survival and sustainability, resulting in the bankruptcy of a large number of SMEs [15,16,17,18,19,20].

More precisely, previous studies of the Palestinian manufacturing sector revealed that these challenges can be summarized by the fact that the market share of locally manufactured products in the domestic market does not exceed 20 percent [21]. Most notably, the manufacturing SMEs in Palestine do not fully utilize their capacity. They are working only at 50 percent of their available production capacity, and raising it to 70 percent would result in the creation of about 40,000 new jobs [11,14,22]. Correspondingly, the manufacturing SMEs in Palestine encounter severe competition from imported products, resulting in a trade deficit of USD 5.4 billion [23]. Furthermore, most SMEs in the country encounter significant barriers that jeopardize their sustainability, which is attributed to a lack of institutionalization at the firm level. They also face structural management concerns and export limitations [15].

The above concise issues reduce the ability of the Palestinian SMEs to grow, compete, and sustain themselves. These issues severely affect SMEs’ efficiency and sustainability. Therefore, this study proposes that addressing most of the internal mentioned issues and attaining a higher degree of sustainable performance at the economic, environmental, and social levels with respect to manufacturing SMEs in Palestine could be achieved by efficiently implementing systematic strategic planning and strategic business innovation. Hence, several SMEs’ challenges in Palestine could be classified under and resolved through two components: systematic strategic planning and strategic business innovation.

Usually, SMEs operate less formally; hence, the aspects of systematic strategic planning and innovation would not be adequately addressed. Few empirical research studies have found a correlation between strategic-planning aspects, business innovation, and SMEs’ improved performance leading to SMEs’ sustainability [24,25,26,27]. Consequently, this study aims to determine the influence of systematic strategic planning (SSP) and strategic business innovation (SBI) on the sustainable performance of Palestinian manufacturing SMEs. This research could support the ability of SMEs living in dynamic and turbulent environments to enhance their sustainable performance. It could also help the country’s policymakers develop ways to improve formal strategic thinking and orientation, adopt strategic innovation in business, and enhance creative skills that lead to long-term success. Furthermore, this study contributes to the literature by expanding the knowledge on sustainable performance in manufacturing SMEs in developing countries experiencing political and economic uncertainty. Hence, the research findings demonstrate how (SSP) and (SBI) are crucial management tools for businesses operating in a highly competitive and turbulent environment

The rest of the paper is structured in the following manner. Section 2 provides a theoretical review of the literature, including theories, variables, and concepts. Section 3 provides a methodological overview of the methods used to collect and analyze the data. Section 4 shows the results of the study. Section 5 discusses the findings of this study in light of previous research. Finally, Section 6 provides the conclusions and recommendations.

2. Literature Review

This section provides a theoretical overview of the theories, concepts, and variables used in this study. The aim is to develop a theoretical model and hypothesis.

The literature has focused on the impact of strategic planning and business innovation on sustainable performance in large enterprises. However, the SMEs’ perspective is significantly neglected, especially in developing countries. SMEs are a crucial pillar to the success of the development cycle of economies in industrialized, emerging, and developing nations as they are considered the significant primary source of employment generation [7,28]. Nevertheless, governments in developing countries are significantly dependent on the efficiency of SMEs to absorb jobs compared to established economies, which are heavily reliant on the success of large domestic and international firms [7,29,30,31]. In the meantime, a country’s overall economic health may suffer if SMEs do not have enough clear strategies, financial, and non-financial resources, such as adequate human capital and affordable raw material and energy. For this reason, authorities and other support organizations should provide all the necessary assistance to SMEs, such as policy support and business-enabling environmental regulations and actions [8,32,33].

Although SMEs contribute considerably to economic growth worldwide, they face a challenge concerning material scarcity as they contribute to global raw material consumption, which will quadruplicate by 2060 due to the development of the global economy and the rise in the average quality of life [34]. Therefore, SMEs must successfully adapt their operations to the sustainability model since different organizations frequently face sustainable development challenges [35]. They should be prepared to encounter the expected scarcity in raw materials by enhancing their resource efficiency, energy efficiency, and production techniques [36]. In parallel, industrial firms must consider complying with strict environmental requirements and rising societal pressure due to deteriorating climatic circumstances [37]. Thus, all kinds of enterprises, mainly SMEs, are recommended to adopt new business models with resilient and innovative business strategies through which they can attain sustainability [7,8,9].

In Arab countries, SMEs lead to economic development through creating sources of employment and promoting innovation [8]. Yet, SMEs in developing economies encounter managerial issues that limit their growth, lower their aimed performances, and threaten their sustainably. These challenges can be summarized as follows: first, difficulties in long-term planning; second, the absence of vision and strategic orientation; third, a lack of planning skills; fourth, the absence of creative and innovative solutions to keep pace with the dynamic changes in business surroundings; fifth, not being sufficiently resilient to be able to react to dynamic environments, sixth, high operation costs; and seventh, a weak ability to articulate a given challenge, and an inability to define constraints [19,38,39,40]. Additionally, SMEs’ top management in developing countries lacks business-related skills [40,41].

Scholars and experts worldwide have argued for more strategic planning and resilience in SMEs. They have cited the importance of implementing strategic tangible and intangible enablers such as business innovation. Consequently, several studies highlighted that systematic strategic planning (SSP) and Strategic Business innovation (SBI) could help any company, big or small, improve its economic, environmental, and social performance individually or collectively [40,41,42,43,44,45]. However, few studies have investigated the influence of the mentioned strategic variables collectively on the sustainable performance of firms working in the manufacturing sector, mainly SMEs, specifically in developing countries. Hence, this study will investigate the impact of the strategic factors, SSP and SBI, on the sustainable Performance (SP) of manufacturing SMEs in Palestine operating in a fully turbulent environment [46].

2.1. Triple Bottom Line (TBL) and Resources Based View (RBV)Theories

The underpinning theories used for the research model in this study are the triple bottom line (TBL) and resource-based view (RBV) theories. Sustainability and the triple bottom line (TBL) are two closely related concepts frequently and equally used in the literature [47,48]. Furthermore, the TBL establishes a framework for evaluating business entities’ performance and achievement via three balanced dimensions: economic, social, and environmental [49]. Consequently, the term TBL has been used to refer to the operational basis for sustainability [50]. Back in the early 1990s, the phrase TBL was unknown. TBL terminology was invented in the 1990s by John Elkington, a business development advisor; “TBL introduced the economic, environmental, and social value of the asset that may accumulate outside a firm’s financial bottom line”. Elkington defined the TBL using profit, people, and the planet as the line segments [51].

Regarding balance, the TBL assigns equal weight to each of the three lines; this results in the construct being more balanced and coherent [51,52,53]. The TBL methodology uses the value properties more precisely and uses the available tangible and intangible resources most sufficiently. Hence, firms’ assets must be utilized competently and efficiently [50,54]. Therefore, firms are gradually evaluated according to their stakeholders’ environmental impacts and critical economic and social performance results. Sustainable performance implies that companies can achieve preferred public, environmental, and economic results, called “People, Planet, and profit 3Ps”, the three-layered, value-adding, and combined value [55]. As a result of the TBL, sustainability management includes several proportions equally: environmental, social, and economical.

On the one hand, the perception of companies’ performance and strategic management is initiated and derived from various underpinning theories such as the Resource-Based View (RBV) [56]. In this regard, Barney (1991) emphasized that each company has its own unique intangible and physical assets, which are different from others in terms of their capabilities, competitive advantages, skills, competencies, experience, systems, procedures, and information systems. Therefore, to sustain a business firm, its competitive advantages and capabilities become the RBV’s main priority [57]. Subsequently, a firm that complies with quality, uniqueness, inimitableness, and non-substitutability can achieve long-term competitiveness [57]. Moreover, The Resource-Based View RBV theory emphasizes the company’s physical and intangible resources and the employees’ competencies, stating the uniqueness of these assets, which empowers companies to attain sustainable performance [58]. Similarly, a review paper studying the application of RBV theory to a firm in an empirical work highlighted that the RBV has been profusely examined and studied as a way to describe the conditions under which a company can gain a long-term competitive edge [59].

Through the triple bottom line (TBL) and Resource-based view (RBV) theories, businesses, mainly SMEs, can better understand how to maintain a sustainable business performance and develop a competitive edge in an unstable environment by fully utilizing their capabilities and available resources efficiently. As a result, the TBT and RBV theories were applied in this research study to evaluate the sustainable performance of manufacturing SMEs in Palestine by assessing their environmental, economic, and social performances.

2.2. Sustainable Performance

The recent economic and social development trends have increased the consumption of goods dramatically, resulting in the depletion of natural assets and possibly even endangering the continued good health of human communities [55,60,61]. In this regard, the evaluation of the performance of companies and businesses is being expanded and shifted to consider social and environmental aspects along with financial results [58]. Most business owners, CEOs, and specialists have recently measured firm performance by only monitoring financial indicators such as revenue, profitability, and market share and ignoring other intangible indicators [62]. Therefore, the measurement of only the tangible performance indicators of businesses has become insufficient for dynamic competition, has limited natural and talented human resources, and has widened environmental limitations [63]. Consequently, business firms now need to account for sustainable performance measures, such as community satisfaction and ecological indicators, which must be applied alongside the usual financial-economic measures of profitability [64]. Nevertheless, lately, private businesses have begun to take proactive steps to balance their high economic viability with their environmental and social performance in order to enable their firms to attain a high long-term sustainable performance, which is a sign of a more positive change [63,64,65].

Early in 1969, The American National Environmental Policy Act (NEPA) expressed an increasing interest in realizing the critical interaction between humans and the environment in response to these challenges [66]. In 1987, the United Nations Brundtland Commission advocated the international endorsement of these principles. It offered the definitive and most frequently used definition of sustainable development: “meeting the needs of the present without compromising the ability of future generations to meet their own needs” [65]. Sustainability has become an effective term with various interpretations depending on the focus and knowledge discipline. Subsequently, sustainability is a multidimensional concept encompassing economic, social, political, technical, and environmental considerations [67]. Nevertheless, since the Brundland Report (1987), the majority of scholars have agreed that sustainability may be divided into three categories, namely, economic, social, and environmental, with the balance between them in the framework of the company [63,64,67,68,69,70]. Additionally, sustainability strategies highlight business growth and high performance for the benefit of the public, society, and the environment [71,72]. In this context, previous studies revealed that social, environmental, and economic performance should be considered concurrently as one package, not independently, as a means of conducting business through profit making, contributing to enterprise performance, engaging in social harmony, and protecting the environment [67,73,74,75,76]. With the growing attention to sustainable development, business firms must plan strategically and clarify how their operations positively influence the surrounding environment and the community [77,78].

Economic performance at the enterprise level is recognized as the capacity of a business entity to attain its short, medium, and long-term goals economically [79]. Additionally, the traditional method of evaluating a company’s successful economic performance is to track conventional metrics such as the return on equity (ROE), return on assets (ROA), return on capital employed (ROCE), and return on sales (ROS) [80]. In other words, the primary drivers of economic sustainability in business companies, mainly SMEs, are huge savings, high profitability levels, first-mover advantage, and strong competitive advantages [81]. Thus, economic performance refers to business strategies that respond and react to market expectations by supplying products in a timely, efficient, and profitable manner to maintain or improve the overall quality of life [82,83].

Environmental performance usually refers to a company’s efforts to develop environmentally friendly practices and restore environmental conservation, including preserving the environment and ecosystems. Thus, environmental protection aims to sustain the natural ecosystem, such as the individual bodies and life support systems [55,84]. Moreover, the ecologically sustainable development of manufacturing SMEs and implementing friendly environmental strategies are essential to maintaining industrial rivalries and sustainability. Furthermore, In the manufacturing business, environmental performance also refers to activities that use natural resources to reduce environemtnally adverse effects [85,86].

An industrial firm’s environmental performance can be measured by its tendency to react, manage, and reduce the environmental emissions of CO₂, solid waste, water, and energy consumption. It also includes the firm’s dedication to minimizing the use of risky, insecure, and poisonous products and limiting the occurrence of accidents that harm the environment [86,87]. Subsequently, numerous measures have been used, including a reduction in energy, electricity, and resource consumption; a decrease in pollution and waste; conformance to environmental legislation; and the firm’s environmental image, which are all said to be beneficial [73,84,88,89]. Additional environmental performance variables to be considered by SMEs are ecology, environmental compliance with national and international standards, and other vital information, including environmental spending or the environmental effects of products and services, among other things [89,90]. As a result, the top management’s commitment and the distinguishing characteristics of senior executives will be essential for integrating the environmental standards of SMEs. Thus, firms will be able to achieve credibility and secure access to financial and nonfinancial resources by adapting and embracing the aspects of environmentally sustainable performance [60].

In addition to the economic and environmental components of sustainability, social responsibility is the third critical component of sustainability that has received less emphasis in the literature; therefore, the interrelatedness amongst the environmental, economic, and social dimensions is fundamental to sustainability in developing, emerging, and developed countries [91,92]. With the customers’ growing need for businesses to demonstrate their compliance with social responsibility, achieving financial and environmental results is no longer sufficient. Therefore, successfully managing social performance concurrently with economic and environmental performance is crucial for managers, who must be aware of methods to effectively manage social performance [91,93]. Although social sustainability is far more difficult to evaluate than economic growth or environmental effects, it is the most overlooked triple-bottom-line-monitoring component compared to economic and environmental performance. Similarly, most social sustainability indicators are too broad to be practical, and customized measures for individual firms must be established [94]. Thus, the pursuit of sustainability, primarily social sustainability, has already begun to reshape the competitive marketplace, forcing businesses to rethink their approaches to goods, technology, processes, and business models due to this transformation [95]. Therefore, the primary purpose beyond social responsibility is preserving and conserving community cohesion. Hence, social performance is associated with the business strategies influencing the essential needs of the company’s investors, staff, neighborhoods, and societies [83,96].

Numerous studies in the management literature have investigated the factors influencing financial performance. Nevertheless, few studies have explored how manufacturing SMEs can prepare and implement long-term strategies to deal with sustainable performance challenges [97]. Similarly, additional studies are still required, mainly empirical research in SMEs. Therefore, further studies are recommended to construct a typical combination of the three main dimensions of firm sustainability through the organization’s objectives, competitive advantages, and internal/external legality [98,99].

The attention to studying sustainable performance in business firms, specifically SMEs, has gradually evolved in recent years in developed and emerging countries [100]. Yet, this measure needs further studies in different business sectors in developing countries. Similarly, the growth of the research into sustainable performance in SMEs is attributed to two main reasons: SMEs play critical and dynamic roles in developing nations’ economies. Hence, SMEs are required to deal with internal and external influences that influence the financial, social, and environmental results [61,101,102]. The second reason entails the vital participation of SMEs in the attainment of the sustainable development goals (SDGs) at the country level [82,102,103].

It is crucial to study how factors such as systematic strategic planning and strategic business innovation affect sustainable performance in a developing country with a turbulent environment and low firm performance, such as Palestine. Therefore, this research defines sustainable performance as a business’s capability to incorporate social, environmental, and economic factors [104]. Thus, social, environmental, and economic performance are considered concurrently as one bundle, not independently, as a means of conducting business through profit making, contributing to enterprise performance, engaging in social harmony, and protecting the environment [67,73,74,75,76], which could help discover practical recommendations and theoretical frameworks that help SMEs grow, thrive, and stay in business.

2.3. Systematic Strategic Planning (SSP)

Strategic planning is comparatively attractive as a research field in different organizations. It has been extensively employed in all kinds of businesses, such as manufacturing and services firms, and even in governmental and non-governmental sectors, until it became recognized as a crucial management pillar [105,106]. In a dynamic business environment, the capacity of businesses to adapt swiftly and effectively is a critical success factor that requires a clear strategy. Therefore, systematic strategic planning has grown to the point where its principal value is assisting firms in successfully operating in a dynamic and complicated environment and navigating increasingly unpredictable surroundings [106,107]. Systematic strategic planning, also known as formal strategic planning, is a series of interrelated phases, including strategy formulation, where internal and exterior aspects are subjected to careful study and diagnosis. This process includes the development phase of the strategy (including the mission, vision, strategic objectives, plans, and strategic alternatives), the implementation phase (the process of putting a strategy into action), and then the mentoring and evaluation phases [27,101,108].

Systematic strategic planning enables firms to empower themselves by adding value and generating, discovering, strengthening, and overwhelming their competitive position in the market [109]. Moreover, it equips leaders with proper arrangements and actions that should be employed to attain sustained competitive advantages [110]. Likewise, all kinds of firms are requested to develop strategic plans that let them compete and survive; hence, top management should adopt and develop strategies using modern tools to achieve outperforming results. Moreover, companies are urged to frequently revise the surrounding internal and external atmosphere and modify their plans accordingly, in addition to conducting monitoring and evaluation, all of which are essential for the strategic planning process [27,109]. Hence, firms accomplish better performance and ensure sustainable performance at the financial, operational, and nonfinancial levels when strategic planning is formally and officially implemented [106,111,112].

Despite the numerous research efforts in this arena, there are still several notable gaps in the literature, such as an examination of integrative models of the systematic strategic process, including analyzing all the phases as one package regarding sustainable performance. Clearly, the studies conducted in developing countries are limited, insufficient, inconclusive, and need to be further explored [27,40,46,113]. As a result, the purpose of this research is to test the influence of implementing systematic strategic planning on sustainable performance in the manufacturing SMEs in Palestine in order to conceive of recommendations and guidelines that may enhance the process of systematic strategic planning, which may lead to improvements and sustain the performance of such SMEs that are already encountering several issues that risk their existence and sustainability.

2.4. Strategic Business Innovation (SBI)

Most firms classified as SMEs face several limitations that impede their ability to invent new products and services, negatively impacting the attainment of a higher level of sustainable performance [114,115,116]. Moreover, the COVID-19 pandemic has created new problems and opportunities for manufacturing SMEs. Simultaneously, it has limited their capacity to sustain and maximize their output levels, requiring them to innovate and evolve by using innovation to increase their sustainable business performance and confront future problems [24]. Equally, SMEs need to adopt the concept of invitation in business strategically. Otherwise, SMEs will be trapped in business by following old methods of producing and distributing their goods [31].

The root cause of innovative constraints is mainly attributed to the associated threat to innovation, its complication, and the intrinsic ambiguity in implementing the invention. Also, the inadequate financial capabilities of SMEs and their limited access to financial resources compared with large-sized corporations is a major challenge to SMEs’ ability to innovate [100,110,117]. Therefore, the owners and directors of SMEs are recommended to find creative solutions to overcome the obstacles mentioned above to engage in business innovation strategically, thereby improving their capacities to accomplish sustainable performance at economic, ecological, and social levels [118,119]. Therefore, adapting and deploying innovation in business activities as an essential strategic factor that impacts the performance of SMEs has become a key point of interest amongst researchers and experts.

Most of the prior empirical studies investigating innovation’s effect on SMEs’ sustainable performance revealed a positive influence on economic, social, and environmental performance. Yet, controversial results were found. Moreover, despite considering innovation in business activities with respect to companies’ progress, the researchers still did not reach a unified definition of an innovative company and innovation [24,120,121]. Hence, more studies need to be conducted to investigate the effect of this vital driver on performance in different economies and different business surroundings [40,118,122,123]

The OECD’s Oslo Manual 2018 defines innovation as “a new or improved product or process that differs significantly from previous products or processes and is made available to users; innovation can be classified into four types: product, process, marketing, and organizational”. Moreover, the OECD claims that nations’ and firms’ adoption of the four types of innovation may help them hasten the retrieval and place countries on a sustainable path regarding economic growth, environmentally friendly operations, and satisfying society [124]. Similarly, the International Organization for Standardization (ISO) emphasizes the importance of innovation; the ISO recently developed the first edition of a specialized international standard that deals with establishing and implementing an effective innovation management system, IMS (ISO56000), which applies to all kinds of firms and organizations. According to the ISO Innovation Standard (2020), innovation is not about dazzling new technology or discoveries. Instead, innovation requires a firm to identify and explore new opportunities and react to environmental changes; it helps organizations achieve value while controlling uncertainty and using the workers’ skills and abilities [125,126]. Covin and Slevin (1989) defined innovativeness as “the willingness to place a strong emphasis on research and development, new products, new services, improved product lines, and global technology in the industry” [126].

Subsequently, the firm that is the first to introduce specific methodological or technical changes is considered an innovator [127]. Hence, firms need to understand and scrutinize the hidden dimensions of strategic innovation, precisely the innovation capabilities at all levels in the firms, mainly at lower levels, such as operations and the workers’ ability to provide details, openness, and inventiveness [128].

The directors of SMEs must benefit from prior practices of other firms’ achievements and failures with respect to implementing business innovation. Learning from others allows SMEs to adopt the readiness to substitute the old-style nature of managing, recognizing, and encountering challenges while developing a resilient structure that quickly absorbs the learning process and implementation method of modern know-how and technology together with all kinds of innovation [40,129]. Equally, SMEs can adopt Business Model Innovation (BMI) as a crucial enabler to adopt SBI, which helps firms strengthen their competitive advantages in the new era of digitizing economic activities and transactions [130]. Researchers and SME practitioners need to learn and focus on understanding the association of the main types of innovation in business, including managerial and product innovation. While simultaneously investigating their impact on the efficiency and growth of firms in different economies, the effects are not the same and vary from one business setting to another [131].

Based on the previously reviewed literature, there are preconditions that firms should fulfill to implement sustainable business innovation efficiently and achieve sustainability: first, the preparedness of businesses to create new services or products; second, the capacity of firms to drive innovation; and finally, the attitude of companies toward inventing new processes, innovating new products, developing innovative distribution methods, implementing creative marketing methods, and developing innovative services.

Despite the importance of strategically considering innovation in business activities, prior researchers still did not reach a unified definition of an innovative company and the impact of executing SBI on the efficiency of firms. Hence, further studies need to be conducted to explore the impact of this vital strategic driver on performance in different economies and different business settings [40,118,122,123].

The previous empirical studies that focus on the impact of innovation on SMEs’ performance display debated findings and recommend scholars to conduct further empirical studies on the impact of innovative business strategies on sustainable performance in different business settings, economies, and countries. Specifically, such studies include those focusing on SMEs in the Arab region as a developing economy, since the number of prior studies in this regard is minimal and non-inclusive [118,127,132]. Therefore, this research will be one of few studies dealing with strategic business innovation and systematic strategic planning as strategic components toward sustainable performance in Arab firms, mainly Palestinian manufacturing SMEs. Consequently, we developed a model to examine how these variables could influence sustainable performance and applied it. Moreover, the model investigated whether the variables are crucial in the context of Palestine.

This study adapts unitary variables from the literature, meaning that each variable is formed from a set of measurable items, for the following reasons. Firstly, the authors claim that multidimensional variables are more suitable for large enterprises. Large enterprises usually have a more significant number of employees, several hierarchical levels, and many specialized and large departments such as the innovation and R&D departments, corporate responsibility departments, corporate strategic-planning departments, etc. Thus, measuring the multidimensionality of such variables is logical for large business settings. Nonetheless, SMEs usually have fewer employees and specialized departments. Therefore, SMEs have a less formal systematic strategic-planning process and strategic business innovation focus and a less sustainable performance-monitoring process. Secondly, several studies have criticized the use of multidimensional variables for SMEs. For example, [3] used both multi-item and uni-item scales to measure the theoretical constructs in their conceptual model. For instance, they measured the innovation scale via ten items: product innovation (two items), managerial innovation (two items), process innovation (two items), and market innovation (four items). On the other hand, they measured the performance scale through five uni-items.

This current study is different as it explores the variables at the strategic level. Thus, a unitary construct for the SBI scale is more appropriate for our study. Similarly, the literature also showed that the SSP and SP scales could be used as multi-dimensional or uni-dimensional scales.

2.5. Hypotheses Development

This study’s research model and hypotheses were developed and validated based on a thorough review of the literature to assess the capacity of the following variables: systematic strategic planning and strategic business innovation. Furthermore, this study explores how these variables are associated with the sustainable performance of the SME manufacturing sector in Palestine.

Systematic strategic planning was selected as an independent variable for several reasons. George, Walker, and Monster (2019), in a literature review of more than thirty related empirical studies, recommend that future studies need to explore the direct influence of strategic-planning formality on the effectiveness of an organization, which leads to sustainability [106]. Secondly, most prior studies that explored the influence of systematic strategic planning on the performance and sustainability of business firms were conducted in the US, Western, and emerging nations, with limited studies completed in developing countries such as Arab countries [3,130,131,132]. Thirdly, the studies of the influence of systematic strategic planning on performance were primarily conducted on large corporations, such as IT, electronics, and consulting firms. However, very little research was performed on SMEs, mainly manufacturing SMEs in Palestine [46]. Likewise, Palestinian manufacturing SMEs are among the leading importers of raw materials and one of the largest employment generators [18]. Thus, this contextual gap requires more investigation. Lastly, the effective strategies derived from proper SSP have also been seen as an intangible resource that may offer a competitive advantage to business firms [57].

For these reasons, further empirical research is needed in Palestine to verify the previous results regarding the link between systematic strategic planning and sustainable performance. Moreover, the Palestinians’ different surroundings, their way of practicing business, and the nature of their culture may help discover new insights into this connection. As a result, the study’s hypothesis regarding systematic strategic planning is as follows.

Hypothesis 1 (H1).

Systematic strategic planning positively influences sustainable performance in manufacturing SMEs in Palestine.

On the other hand, Palestine is not listed as innovative on the Global Innovation Index [133]. Likewise, according to the business performance classification of the World Bank, it is considered a nonattractive country for foreign investors [13,18]. Therefore, the study analyzes strategic business innovation and provides a framework for conceptualizing it in several distinct ways. This could provide numerous recommendations at the policy level to support manufacturing SMEs in Palestine.

In conclusion, in previous studies on strategic business innovation, there were several reasons why SBI was chosen as another independent variable. First, AlQershi et al. (2018) recommend exploring the influence of strategic innovation on the performance in Arab manufacturing SMEs to extract suggestions to enhance performance at the policy and company levels [118]. Second, most of the prior studies focused on investigating the links between executing strategic business innovation and traditional financial performance, e.g., [118,129,134], whereas this study will expand the concept of performance by investigating the effect of implementing strategic business innovation on sustainable performance. Third, most strategic business innovation studies were conducted in developed and emerging nations, with only limited studies completed in Arab countries, which are largely considered less developed [40,132,135]. As a result, this study’s related hypothesis to strategic business innovation is as follows.

Hypothesis 2 (H2).

Strategic business innovation positively influences sustainable performance in manufacturing SMEs in Palestine.

Based on the above rationale, this study uses uni-item scales to measure the three theoretical constructs: SP, SSP, and SBI. The SP scale is adapted from [111,136], as shown in Appendix A, is measured by nine items. The SSP scale is adapted from [137] and measured by seven items, as shown in Appendix B. The SBI scale is adopted from [40,138,139] and measured by seven items, as shown in Appendix C. These items were used to measure each construct in the same way they were measured by the stated past studies for the same constructs. They were also used for collecting data from similar respondents in an SME context.

Figure 1 below shows the theoretical framework developed for this study.

3. Methodology

The data utilized in this research were collected from manufacturing SMEs in Palestine from April to July 2022 using a well-structured survey. A straightforward random sample method was employed in this study since probability sampling is an excellent way to obtain statistics from multiple sources and acquire an idea of the nature of the whole population because it involves examining a random sample [140]. The senior management level in manufacturing SMEs in Palestine is the unit of analysis in this research investigation due to senior managers’ direct engagement in strategic planning, strategic innovation, production process, level of knowledge, and expertise in their companies; this demographic was asked to respond to the study’s questionnaire, in which the responsible individuals inside the manufacturing SMEs holding senior positions can influence their firms’ overall sustainable performance. Such individuals, including owners, chair people, board members, general managers, senior executives, and/or senior technical staff, are the respondents [141]. The Palestinian Federation of Industries provided the sample list.

Within the current research design, the dependent variable (sustainable performance) is influenced by two independent factors: systematic strategic planning and strategic business innovation. Hence, we utilized the popular computation software G*power to determine the minimum sample size [142]. A sample size of 166 was found sufficient for this research. However, to be more conservative, a larger sample size of 377 was required to represent the population precisely, according to [143]. Consequently, 377 questionnaires were distributed to units of executives and owners of these firms, and 245 were considered appropriate after being collected, resulting in an acceptable response rate of 65%.

The conceptual model’s variables were measured by employing multi-item measures. A 5-point Likert-type scale, from “strongly disagree” to “strongly agree,” was used to assess the research variables; the questionnaire’s questions were designed to measure the level of respondents’ agreement with each statement to quantify their attitude toward the variables [144,145]. Therefore, respondents of the Palestinian manufacturing SMEs were asked to rate each statement from 1 to 5. Additionally, three academic experts reviewed the questionnaire to ensure clarity and avoid ambiguity to improve the instrument’s validity.

Operationalization of the first independent variable must consider the dynamism of Strategic Planning as an integrated package. Hence, Systematic Strategic Planning Includes sub-variables such as strategic analysis, strategy formulation, strategy implementation, and monitoring and evaluation [146]. Consequently, operational subdimensions of this independent variable, SSP, were adapted from [137], measured by seven items.

The strategic business innovation independent variable was operationalized by measuring eight aspects of strategic innovation, including product, service, technological, and market innovation, adapted from [40], and measured eight items.

The standard operational measurement of business performance is related to gauging economic indicators such as total revenue, net profit, and market share. However, operational measurement of sustainable performance must simultaneously include a company’s social, environmental, and economic performance [147]. The measurement of the company’s sustainable performance was adapted from [91,111], which consists of 9 items: three measuring economic performance, three measuring environmental performance, and three measuring social performance.

The analysis of the gathered data was performed using the partial least squares structural equation-modeling (PLS-SEM) method using the Smart PLS 3.0 software package. This type of analysis was employed due to the exploratory nature of the research [148,149]. The collected data were analyzed following a two-stage procedure. In the first stage, called the measurement model, the validity and reliability of the constructs were examined and tested. In Step Two, the hypotheses were examined [136,150].

4. Results

The Smart PLS 3.0 software package was employed to analyze the dataset. The analysis includes two main parts: the measurement and the structural models.

4.1. Measurement Model

The analysis of the PLS algorithm for the measurement model indicates that all the items’ reliability has been established. The items’ reliability is verified by checking the outer loadings of the reflective indicators. Both

Table 1. Outer loadings of the reflective indicators.

Indicators		Variables
	Items	SBI	SP	SSP
SBI1	Our company always makes new products or upgrades old products to meet consumer demands.	0.793
SBI2	Our company implements new designs of the product to show their uniqueness.	0.767
SBI3	Our company makes improvements to the quality of materials.	0.794
SBI4	Our company has found new ways to deliver products to their customers.	0.763
SBI5	Our company develops new marketing methods (advertising, public relations, promotions).	0.705
SBI6	Our company has increased the use of high technology in order to enhance the efficiency of the production.	0.775
SBI7	Our company improves their outbound logistics (i.e., new customer interaction channels, distribution systems, or technological concepts).	0.779
SBI8	Our company uses some methods to acquire goods or services at the best possible total cost.	0.718
SP1	Our company periodically discloses our business impact on the environment.		0.667
SP2	Our company increases energy efficiency.		0.709
SP3	Our company minimized the emission of hazardous waste substances.		0.674
SP4	Our company is financially stable.		0.763
SP5	Our company is making a profit.		0.761
SP6	Our company’s return on capital employed is high.		0.653
SP7	Our company pays all our workers their entitlements.		0.651
SP8	Our company improved the overall customer satisfaction.		0.754
SP9	Our company pays significant attention to social well-being in all operations.		0.765
SSP1	Our company has developed a strategy through a systematic-planning process.			0.877
SSP2	Our company has completed a formal strategic plan or updates at least every four years.			0.800
SSP3	Our company has conducted situational analyses (strengths, weaknesses, opportunities, and threats).			0.839
SSP4	Our company has established strategic goals to use in decisions and actions.			0.871
SSP5	Our company has regularly utilized performance information to track the accomplishment of strategic goals.			0.872
SSP6	Our company regularly utilizes performance information to develop strategic plans or help inform strategy more generally.			0.830
SSP7	Our company is being developed on an ongoing basis according to a strategy.			0.807

and Figure 2 show that all the outer loadings are more than 0.6, indicating a good item reliability. It also indicates that the items are well-loaded into their variables [151,152]. Hence, a bootstrapping procedure has been conducted to check the significance of the outer loadings. The standardized outer factor loadings for the created items in Table 1 is found very suitable as they surpass the threshold value of 0.70 (p < 0.001), except for two constructs deemed insufficient because they are greater than the permissible cutoff value of 0.60.

Furthermore, PLS-SEM is recommended over covariance-based SEM software since it was initially created for predictive purposes [153]. Moreover, the requirement for multivariate normal sample data is not essential because PLS-SEM is less sensitive to sample size [154]. Additionally, the measurement model’s results regarding kurtosis and skewness are ±1, indicating that the sample data’s normality assumptions have not been violated. Thus, various sources also assess the measurement model’s quality. Moreover, Figure 3 shows that all indicators are significant because the t-values are greater than 1.96 [155].

4.2. Structural Model

The structural model includes the analysis of the coefficient of determination, R²; the reliability of the constructs; and hypothesis testing. As shown in Figure 1, the R² of the dependent variable SP indicates a good value (equal to 0.6), which clarifies that 60% of the variation is explained by the two independent variables, SSP and SBI.

As shown in

Table 2. Construct reliability.

Variable	Cronbach’s Alpha	Composite Reliability	Average Variance Extracted (AVE)
SBI	0.897	0.917	0.581
SP	0.878	0.902	0.508
SSP	0.932	0.945	0.71

, the Cronbach’s Alpha and composite reliability values of all the variables are more significant than 0.7, in addition to the Average Variance Extracted (AVE), which is more than 0.5 for all variables [151,155,156]. Thus, the results indicate a good construct reliability.

In addition, as shown in

Table 3. Discriminant validity according to the Fornell–Larcker criterion.

Variables	SBI	SP	SSP
SBI	0.762
SP	0.706	0.712
SSP	0.604	0.681	0.843

, the discriminant validity has been established for all the variables, which was checked using the Fornell–Larcker criterion [157,158]. Following the Fornell–Larcker criterion, the square root of the AVE of a construct is higher than the construct’s correlation with any other construct.

The results also indicate good path coefficient values (B-values). For example, the B-value of the relationship between the independent variable SSP and dependent variable SP is 0.4, which is greater than 0.1 [159]. Also, the B-value of the relationship between the independent variable SBI and the dependent variable SP is 0.46, which is greater than 0.1.

Moreover, as shown in

Table 4. Hypothesis Testing.

Hypothesis	T Statistics	p Values	Conclusion
H1: SSP → SP	6.677	0	H1 is supported
H2: SBI → SP	6.907	0	H2 is supported

, the T-Statistics and p-values indicate that the relationships between SBI and SP and between SSP and SP are significant since the p values are less than 0.05 and the T Statistics are greater than 1.96. This implies that both hypotheses are significant.

5. Discussion

In reference to the primary objective of this study, SSP and SBI are considered significant components (drivers) in improving the sustainable performance SP of manufacturing SMEs. The direct effect of SSP on the SP of manufacturing SMEs in Palestine is positive and significant since the B-value of the relationship between the independent variable SSP and dependent variable SP is 0.4, which is greater than 0.1. Similarly, the T- Statistics and p-values indicate that the relationships between SSP and SP are significant since the p values are less than 0.05 and the T Statistics are greater than 1.96, implying that hypothesis H1 is significant. This finding is in line with several recommendations and prior studies that revealed a substantial and positive effect of strategic planning on performance and sustainability [160,161,162].

In contrast, the findings confirmed a positive association between SBI and SP; the B-value of the connection between the independent variable SBI and the dependent variable SP is 0.46, which is greater than 0.1.

Moreover, as shown in Table 3, the T-Statistics and p-values indicate that the relationships between SBI and SP are significant since the p values are less than 0.05 and the T Statistics are greater than 1.96. This implies that hypothesis H2 is significant; the empirical evidence confirmed that strategic business innovation (SBI) positively influences sustainable performance (SP) in Palestinian manufacturing SMEs, supporting hypothesis H2. This finding agrees with the results of various earlier investigations that have discovered a consequence that is both positive and remarkable regarding the influence of strategic innovation on business results and sustainability [24,40,163,164]. These results affirm the TBL and RBV theories in which executives can apply systematic strategic planning (SSP) and strategic business innovation (SBI) to their operational work to attain an advantage in a market and, ultimately, maintain their company’s success to achieve economically, environmentally, and socially sustainable performance. The results suggest that systematic strategic planning and strategic business innovation are essential factors determining how well an organization performs in order to spur SMEs to undertake creative and proactive activities and initiatives.

5.1. Theoretical Contribution

This study contributes to the literature by expanding the knowledge on sustainable performance in manufacturing SMEs in developing countries experiencing political and economic uncertainty. Hence, the research findings demonstrate how SSP and SBI are crucial management tools for businesses operating in highly competitive and turbulent environments. Considering the scarcity of prior empirical research on the link between SSP, SBI, and SP in Palestinian manufacturing SMEs [19,165], this research problem can be viewed from different theoretical perspectives, as discussed thoroughly in the literature review. Such theories are the sustainable performance theory, the Triple Bottom-Line (TBL) Theory, and the Resource-Based View (RBV).

Nevertheless, the study uses the TBL and RBV as a theoretical lens to investigate the research problem. The implication and significance of the theory are part of the research subject. Thus, this article aims to address this theoretical gap in the existing literature.

The literature is rich in studies investigating the effectiveness and impact of strategic planning and business performance in large enterprises such as large corporates, consulting firms, and giant manufacturers in a stable political environment. However, a few studies were carried out in different developing nations with a turbulent business environment [40,166,167]. This research analyzes the relationship between systematic strategic planning (SSP), strategic business innovation (SBI), and sustainable performance (SP) in the Palestinian manufacturing SMEs sector, which is suffering from an unstable and dynamic environment that is hindering its growth and prosperity.

Furthermore, the previous studies that investigated the connection between strategic planning and a firm’s performance tended to emphasize businesses in developed and emerging countries. Simultaneously, this research is one of the first studies that modeled and analytically inspected the association among SSP, SBI, and SP in the context of under-developing countries, specifically in a country experiencing a unique turbulent circumstance.

On the other hand, few studies investigated the multiple components of strategic-planning dynamism, specifically in a turbulent context, i.e., as in [166,167,168,169]. Thus, this study objects to collectively examining the multiple components of systematic strategic planning factors, which some did not discuss in the previous studies of developing countries. Therefore, this study contributes to the body of knowledge by presenting a conceptual framework that explores the relationship between independent variables, which includes SSP, SBI, and SP as dependent variables.

This study also investigates the consequences of the categories of strategic business innovations and manufacturing SMEs’ sustainable performance in a developing country. Unlike most prior studies, this research emphasizes expanding the perception of measuring the performance of manufacturing SMEs—for which the latter focused on measuring financial indicators only—to non-financial indicators by incorporating economic, social, and ecological metrics identified as SP by this research [170,171].

5.2. Managerial and Practical Implications

Due to its political situation, Palestine is treated globally as an unstable country; its direct foreign investment is modest and does not focus on manufacturing sectors [14,172]. Moreover, global companies such as Google, Intel, Facebook, Burger King, Starbucks, etc., do not even have branches in Palestine [23,173]. Considering that most Palestinian manufacturing firms are SMEs (for which fewer resources are available), little is known about the impact of strategic factors on sustainable business performance. Moreover, SMEs usually spend less on strategic planning, while most focus on quick business results but ignore strategic business outcomes [16,174]. Thus, Palestinian manufacturing firms face external and internal issues hindering their business performance and sustainability from a practical perspective, for example, the absence of a strategic orientation; a lack of governance and institutionalization; weaknesses in the managerial, operational, and production environments; poor marketing and technological systems; limited research and development initiatives; and the failure of many manufacturers to adopt quality control systems and international standards such as ISO9001, ISO50001, Environmental Management System ISO14001, Six Sigma, and so forth. Most of these issues can be handled under the umbrella of systematic strategic planning [15,18,172]. On the other hand, local investors do not plan for long periods because of unpredictable situations.

Similarly, to some extent, most industrial firms are family businesses where the managers/owners are reluctant to dedicate a portion of their revenues/profits to institutionalizing and systemizing their companies. Correspondingly, they are unwilling to expand their operations and investments due to an absence of strategic vision and turbulence in the business atmosphere.

According to the study’s recommendation at the policy level, the government must provide manufacturing SMEs with training assistance in terms of innovation and encourage innovative initiatives. This statement assumes that only competent and well-trained human capital can foster strategic business innovation. Moreover, this study has policy implications regarding how to increase strategic business innovation among Palestinian manufacturing SMEs. Although this study offers eight distinct approaches for manufacturing SMEs in Palestine to innovate strategically, it may not be feasible for them to implement all of the suggested types of innovation, especially in a developing nation such as Palestine. Nevertheless, product, market, and financial innovation are the main crucial types of business innovation.

Strategic business innovation has increased in importance as a critical factor influencing a business’s overall performance. Yet, its impact on the relationship between the types of strategic innovation practices and performance needs to be explored further. Similarly, strategic business innovation and its impact on sustainable performance are fraught with confusion. In developing countries, such as those in the Arab World, little attention has been paid to investigating this association; it has become an intriguing topic for further research.

5.3. Future Research

This study’s scope focuses only on Palestinian SMEs engaged in manufacturing activities. This research could be expanded and applied to other private and public sector institutions. Interesting conclusions could be drawn from the study of a model that integrates these practices into other institutions, particularly service-oriented organizations such as banking and telecom industries. Furthermore, the authors suggest future research to explore the relationship between the variables by expanding the mode and adding controlling variables. An investigation of the mediating and moderating effects of another variable is also suggested.

6. Conclusions

This study contributes to providing guidelines to the owners and managers of companies to implement resilient and proper strategic-planning practices, implement innovative strategies that focus on business innovation, invest in human capital and involve its components in the strategic planning process, and analyze the influence of turbulent environments on business performance to avoid any potential obstacles and threats that might influence their businesses.

The significance of this study’s findings for actual manufacturing SMEs’ management and policymakers is manifold. Initially, SME manufacturing managers should assume that systemic, strategic planning (SSP) and Strategic Business Innovation (SBI) are not meaningless exercises to abide by due to an executive requirement. Effective planning is possible due to the influence systematic strategic planning has on other enterprise elements, such as an organization’s skills and decision-making style. The managerial relevance of this research is that manufacturing SMEs need to apply a decision-making style characterized by rationalism and systematic quantitative analysis in addition to adopting a systematic strategic planning method to achieve better economic, ecological, and social outcomes. Managers may realize the benefits of systematic strategic planning by encouraging a scientific orientation rather than an emotional one.

Similarly, systematic strategic planning benefits SMEs, which is a process relevant to boosting planning efficiency to optimize efficiency and output, leading to sustainability. Another conclusion is that the development of a strategic plan, its implementation, and the monitoring of its progress are not mutually exclusive processes. Instead, the best planning usually occurs when systematic strategic planning and decision-making processes are performed together. To better navigate the uncertain business climate in Palestine, manufacturing SMEs could benefit from the study’s proposed systematic strategic planning approach. Likewise, manufacturing SMEs can be better prepared for emergencies, develop realistic alternatives for dealing with crises, and make immediate strategic choices when they arise if they engage in systematic strategic planning and strengthen their organizational capacities and decision-making approaches. Moreover, as manufacturing SMEs grow and sustaining them becomes more complicated, systematic strategic planning needs to become more structured and transparent, so that company goals and strategies can be spread throughout the enterprises effectively.

This study offers implications for manufacturing SMEs’ decision-makers with respect to managing resources and enhancing sustainable performance. The top management of manufacturing SMEs must grasp the need for systematic strategic planning, which can result in enhanced sustainable performance. Additionally, as strategic business innovation is crucial to manufacturing SMEs’ sustainability and is a significant source of competitive advantage, additional focus should be placed on developing an innovative culture inside SMEs. This indicates that these practices must exist for this culture to emerge. Thus, the decision-makers of SME firms must realize the value-adding potential of strategic business innovation and systematic strategic planning practices.

Moreover, this research has focused on the impact of systematic strategic planning and strategic business innovation on the sustainable performance of Palestine’s manufacturing SMEs. Consequently, it is anticipated that the latest empirical findings of this research will help improve the way SMEs are run and managed, as long the recommendations are considered. Subsequently, this research could be applied to both private and public entities. An interesting conclusion can be obtained from the study of a model that integrates these practices into other institutions, particularly service-oriented ones such as banking, insurance, and telecom industries.

Finally, learning how systematic strategic planning and strategic business innovation support the sustainable performance of the manufacturing sector, precisely SMEs, is of great value to the research community. This is crucial because scholars have long ignored that manufacturing SMEs should extensively depend on systematic strategic planning and innovation. It is likely that the rapid and continuous change in the business environment places strain on the resources and ability of firms to function smoothly, which in turn affects the decisions made by management and workers. As a result, the synergy between the two areas will produce new insights that may be used to drive SMEs properly. Moreover, this research aimed to fill a gap in the literature by focusing on the unique setting of manufacturing SME businesses and the interactions between these factors. The results can help managers, practitioners, and decision-makers in both the public and private sectors.