Eco-dynamic capability: A surest way to sustainability performance of SMEs?

Abstract

Purpose

To endure and cope in the rapidly changing environment, it is required of firms to gain a deeper acquisition of knowledge on market dynamics and subsequently concentrate on corporations' capacity to create, restructure and integrate their internal and external competences. Hence, the objective of this study is to investigate the influence of eco-dynamic capability (EDC) on the sustainability performance of small and medium-sized enterprises (SMEs).

Design/methodology/approach

Structured questionnaires were used to obtain primary data. The data were solicited from 500 employees and owner-managers of SMEs. The study’s hypotheses were tested using standard multiple regression through IBM SPSS Statistics (version 24).

Findings

The study revealed that EDC has a substantial positive effect on the economic, social and environmental sustainability performance dimensions.

Originality/value

The focus of this study is on EDC. Thus, although dynamic capability has been the subject of substantial study, little is known regarding the effect of EDC on the economic sustainability performance (ESP) (financial), environmental sustainability performance (ENSP) and social sustainability performance (SSP) of SMEs, predominantly amongst SMEs in emerging economies.

Citation

Asumah, S., Antwi-Boateng, C. and Benneh, F. (2024), "Eco-dynamic capability: A surest way to sustainability performance of SMEs?", IIMBG Journal of Sustainable Business and Innovation, Vol. 2 No. 1, pp. 24-42. https://doi.org/10.1108/IJSBI-08-2023-0043

Introduction

As a result of spiralling global environmental concerns in the contemporary volatile and competitive business environment, proactive green activities must increasingly be included in businesses' sustainability goals rather than being done in retrospect (Mensah, Afum, & Sam, 2021). Dynamic capabilities are, therefore, crucial and required for businesses to react to constant adjustments in the environment. Eco-dynamic capabilities denote an organisation’s ability to renew and advance green organisational skills using available resources and knowledge (Amaranti, Govindaraju, & Irianto, 2019). With this skill, the business is able to modify its goods and operations to satisfy environmental regulations and adjust to swift environmental changes. According to Arend (2014) and Chen and Chang (2013), dynamic capabilities are indispensable for helping organisations attain adaptive flexibility and make unremitting adaptations.

Thus, many academics have focussed on the crucial issue of how dynamic capabilities affect organisations' performance and many have forecast a favourable repercussion of dynamic capabilities on performance (Huang & Xiao, 2023). In the manufacturing sector, for instance, Felsberger, Qaiser, Choudhary and Reiner (2022), Eikelenboom and de Jong (2019) and Mousavi, Bossink and van Vliet (2018) have proven how innovation geared towards accomplishing environmental goals uses dynamic capacities. In the tourism sector too, it has been demonstrated by Duarte Alonso, Kok and O’Brien (2020), Forés, Camisón-Zornoza and Fernández-Yáñez (2023) and Reyes-Santiago, Sanchez-Medina and Dıaz-Pichardo (2019) that dynamic capability is indeed necessary for firm sustainability performance. Huang and Xiao (2023) proclaimed that given how rapidly the environment changes, businesses must continually update their resources and skills to be able to recognise and benefit from emerging opportunities and build lasting advantages over rivals.

However, the focus of these prior studies was not on eco-dynamic capability (EDC), which is not the same as dynamic capability. EDC consists of a business’s capacity to identify, evaluate and seize opportunities connected to “green” elements; the capacity to take advantage of “green” prospects by developing new goods, processes, or services; and the capacity to reorganise, coordinate and safeguard assets in a sustainable manner to accommodate environmental changes (Pavlou & El Sawy, 2011; Tseng & Lee, 2014; Wilden, Gudergan, Nielsen, & Lings, 2013). There have been several studies (example: El-Kassar & Singh, 2019; Firmansyah, 2017; Mensah et al., 2021; Mousa & Othman, 2020; Obeidat, Al Bakri, & Elbanna, 2020; Paillé, Valéau, & Renwick, 2020; Sheopuri & Sheopuri, 2015; Yusoff, Omar, Kamarul Zaman, & Samad, 2019) to support that indeed green or eco practices impact performance.

Hence, in drawing from the resource-based view (RBV), stakeholder and signalling theories, it could be said that amongst all the capabilities important for establishing and rearranging the required skills for sustainability (be it social sustainability, economic sustainability, or environmental sustainability), EDC is viewed as a more important aspect because of its sustainability-focussed qualities (Da Giau, Foss, Furlan, & Vinelli, 2020; Gruchmann, Timmer, Gold, & Geßner, 2021; Linde, Sjödin, Parida, & Wincent, 2021). Furthermore, the prior studies that looked at green management or organisational practices did not give much consideration to small and medium-sized enterprises (SMEs), particularly in emerging countries. For example, although Bresciani, Rehman, Alam, Ashfaq and Usman (2023) used green dynamic capability as a mediating variable in the relationship between environmental management control system packages and perceived environmental uncertainty on green performance, their focus was on Pakistani manufacturing organisations.

Meanwhile, according to Robu (2013), SMEs are the supporting platforms of every economy, both at regional and global levels. The contribution of SMEs to economic growth in very advanced or industrialised countries is as significant as in the case of emerging economies. Studies have highlighted that SMEs make up over 90% of all businesses in existence globally, whilst the Organisation for Economic Co-operation and Development (OECD) (2014) and Robu (2013) estimate this at approximately 95%–98% of all companies. With data from the World Bank, Munro (2013) estimates that SMEs are responsible for creating 63% of the total employment in the world. Thus, SMEs and employment creation are very important for countries all over the world.

Within developing counties, 22% of the employment of the adult workforce is contributed by SMEs. The study by Hayford (2012) proves that the Ghanaian SME sector is responsible for about 60% of the employment in the country. Abor and Quartey (2010) suggest that SMEs form up to 85% of the employment within the manufacturing sector alone, and their contribution to the Ghanaian gross domestic product (GDP) is estimated at 70%. To sum up, within the Ghanaian business landscape, an estimated 92% is constituted by SMEs. Nevertheless, according to Yeboah (2015), SMEs in Ghana fail at startling rates. In Ghana, only 60% of small and medium-sized businesses survive after five years of operation (Peprah, Mensah, & Akosah, 2016). Manufacturing executives frequently experience business failures as a result of failing to develop strategies to remain competitive in the market. The unique issue facing these Ghanaian SMEs is that they lack the strategies necessary to sustain their businesses after five years of operation (Amaglo, 2019).

Accordingly, in this work, we provide a thorough conceptual model to investigate the influence of EDC (as a remedy strategy) on the economic (financial), social and environmental sustainability performance (ENSP) of SMEs within Ghana. This is to help find out if, indeed, EDC is one of the surest ways of augmenting the sustainability performance of SMEs. The outcome of this research is very crucial, as SMEs ought to be enlightened about how incumbent it is to be green in their routine operations so as to sustain their performances and competitive advantages. Thus, the study is very important to owner-managers of SMEs since the findings can give them compelling reasons and recommendations for investing in eco-dynamic capabilities projects meant to improve sustainability performance. Finally, it will corroborate and broaden the findings of earlier investigations by including a novel perception of emerging countries. This is an important empirical and theoretical advancement in the field of environmental management.

Following is the format for the remaining portion of this study: The development of research hypotheses is the main emphasis of Section 2’s literature review. The procedures used, how the data was gathered and analysed and how the variables were measured are all covered in Section 3. Empirical results are provided in Section 4, along with a discussion of the findings. The conclusion is presented in Section 5, which also discusses the work’s shortcomings and suggested research areas. It concentrates on the theoretical contributions and management consequences of this paper.

Literature review and hypothesis development

Eco-dynamic capability

Business professionals and academics have given environmental concerns more attention as a result of economic or market changes (Chabowski, Mena, & Gonzalez-Padron, 2011). Particularly, research shows that an increasing number of businesses (particularly in industrialised nations) participate in environmentally friendly initiatives to help increase their financial stability and boost their competitive edge. Teece (2007) originally expounded dynamic capability as “the firm’s capacity to incorporate, shape and reconfigure internal and external proficiencies to address rapidly fluctuating environments.” A company uses dynamic capabilities, particularly those that absorb, reconfigure, acquire and release resources, in order to keep up with or even alter market conditions.

Consequently, dynamic capability is the administrative and strategic plan through which organisations acquire new resource configurations when markets emerge, grow, fragment, mature and perish (Witschel, Döhla, Kaiser, Voigt, & Pfletschinger, 2019). According to Inigo and Albareda (2019), a dynamic capacity is a learnt and consistent pattern of integrated activity that an organisation uses to deliberately create and modify its operational schedules in the quest for greater effectiveness. Winter (2003) defined dynamic capability as “those that function to outspread, modify, or create ordinary competencies.” They are “the capabilities that reconfigure a firm’s resources and schedules in the manner projected and deemed appropriate by its principal decision-maker” (Zahra, Sapienza, & Davidsson, 2006).

A recent definition by Wang and Ahmed (2007) is that dynamic capability is “a firm’s persistent behavioural orientation to assimilate, reconfigure, refurbish and recreate its resources and proficiencies and, most importantly, to upgrade and reconstruct its core capabilities in response to the fluctuating environment to attain and sustain a competitive edge.” Dias (2021) said that an organisation can advance a capability when it interrelates with the natural environment. Dynamic capability is that which enriches an organisation’s capacity for decision-making, problem-solving, seeing opportunities and dangers and modifying prevailing resources towards the firm’s advantage (Barreto, 2010).

To effectively respond to ever-changing market circumstances and deliver strategic value, businesses have the option to acquire, integrate and modify both tangible resources (such as financial assets) and intangible resources (such as reputation) by employing dynamic capabilities (França & Rua, 2018). Activating organisational resources, altering their status and even defending their very existence are all possible thanks to dynamic capabilities. Briefly put, they serve as ties that enable the company to more successfully respond to changes in the broader business environment, strengthen its competitive advantage and boost its output.

Therefore, it appears that organisations' ability to adapt to changing external conditions is influenced by their dynamic capacities (Winter, 2003). “Sensing capability,” “absorptive capability,” “integrative capability,” and “inventive capability” are the four main elements of dynamic capability that Hou (2008) suggested. Dynamic capability theory is based on the idea that businesses must first gain a better understanding of market dynamics before concentrating on their capacity to integrate, develop and reconfigure their internal and external competencies in order to survive and thrive in the world of business, which is undergoing rapid change. The dynamic capacities of the state company chosen for this study are reflected in the firm’s characteristics.

EDC is a continuation of dynamic capability. It is about the high-level competency of firms to accomplish sustainable and eco-development in an ever-changing environment. The firm’s capabilities must, however, consistently outperform those of rivals to obtain a competitive advantage and improve company performance (Prahalad & Hamel, 1990). Organisational learning, connection development, cross-functional integration, technological sensing and reaction, and a common goal are some of the competencies crucial to an eco-friendly corporate strategy.

The green/EDC is focussed on combining, building and reconfiguring internal and external resources that are related to ecological conservation. Green dynamic capacity also gathers, detects and forecasts outside information such as changes in green technology, green consumer demand and various regulations relating to the ecological growth of organisations (Lin & Chen, 2017). Resource integration ability, resource reconfiguration capability and environmental understanding ability are all clearly included in the term “eco-dynamic capability.”

Eco-dynamic capability and sustainability performance

Sustainability practices are of utmost significance to the creation of opportunities and the management of economic (financial), social and environmental risks, as well as becoming valuable for a considerable period of time (Chakrabarty & Wang, 2012). Sustainability must be dealt with through interdisciplinary and integrated methods (McCormic et al., 2016). The most fundamental point of sustainability performance is putting together financial performance, ecology, society and appropriate control factors by the government (Kitsikopoulos, Schwaibold, & Taylor, 2018). The firm is able to cope with contemporary trends in the green environment if it improves its green dynamic capability. Firms gain competitive edges over competitors when they are able to respond to current environmental trends.

A company competes based on its capacity to continuously enhance the business process with its dynamic skills as the business environment’s complexity rises, especially in light of the requirement for green management. Businesses may adjust the resource base by creating, integrating, recombining and releasing resources, which is where dynamic capabilities provide value. A systematic search for new iterations of the process, their use and on-going improvement are referred to as the “continuous improvement process.” Firms use routine process execution techniques, which may involve alternate tactics in response to environmental changes, to reach this level. Through a variety of outlets, including consumers, rivals and partners, organisational learning can carry out these activities. Therefore, using dynamic capabilities, it is possible to deduce the capability to protect knowledge-sharing routes.

Sustainable practices enable organisations to gain a high status of financial soundness (Ameer & Othman, 2012). It is increasingly understandable for organisations to utilise their green dynamic capability to be innovative so as to satisfy customer requirements, gain competitor intelligence and get kicking in innovative opportunities (Randhawa, Wilden, & Gudergan, 2021). Organisations seek to mobilise resources to gain opportunities and prepare for challenges. In this regard, the organisation coordinates internal and external resources to be mobilised (De Marchi, 2012). The adjustment of organisational resources perpetually gives the firm a sustained competitive advantage. Organisations are able to improve financial soundness and uprightness if they resort to performing updates, utilising and allocating resources in a rapidly fluctuating external environment (Boons, Montalvo, Quist, & Wagner, 2013).

Organisations with strong eco-dynamic capabilities are able to meet the green demands of customers and the trends of the industry. Such firms prepare production or operations to meet customer requirements. One of the key components that affect an enterprise’s development prospects is its capacity to be dynamically green. The majority of global market champions are capable of quick and effective reorganisation as well as sensitivities and farsightedness in regards to alterations to the outside environment. These businesses not only have a strong resource base, but more significantly, they are able to operate effectively and creatively. Ha, Nguyen, Luan and Tam (2023) asserted that green practices could help firms start saving mineral wealth and power, avoid environmental damage and even result in the long-term development of businesses.

Businesses compete in the market using the resources and talents they now possess; nevertheless, in order to thrive in an unpredictable climate, they must also update their capabilities. According to Qiu, Jie, Wang and Zhao (2020), green dynamic capabilities are considered the main variables that analyse the growth of manufacturing companies. Businesses need to use their green capabilities to develop new solutions by fusing distinctive knowledge acquisition with already-existing information (Ellström, Holtström, Berg, & Josefsson, 2022; McKinsey & Company, 2017). A small number of researchers have discovered a favourable relationship between environmental performance and green capabilities (including green innovation) (Bresciani et al., 2023; Ha et al., 2023; Kraus, Rehman, & García, 2020; Rehman, Kraus, Shah, Khanin, & Mahto, 2021). Green dynamic capabilities are essential for organisations to measure their green performance (Rehman, Bhatti, Kraus, & Ferreira, 2020).

The evaluation of social sustainability performance (SSP), on the other hand, involves assessing the positive contributions an organisation makes to society and mitigating any negative social impacts (Liang, Lee, & Jung, 2022). Eco-dynamic capabilities, or the skills to recognise, act on and change environmental chances and threats (Li, Hassan, Murad, & Mirza, 2023), have been linked to better SSP in several studies (Rebs, Thiel, Brandenburg, & Seuring, 2019; Shang, Chen, & Li, 2020). According to Yuan and Cao (2022), organisations that invest in environmentally friendly practices often find that these initiatives also contribute to positive social outcomes, such as enhanced reputation, customer loyalty, employee satisfaction and stakeholder engagement. For instance, the adoption of renewable energy sources not only reduces ecological footprints but also fosters community development through job creation and improved access to clean energy (Burger & Gochfeld, 2012; Horowitz, 2021; Kabeyi & Olanrewaju, 2022; U.S. Environmental Protection Agency, 2023).

Theoretically, how eco-dynamic ability and sustainability performance are related is supported by the signalling theory, the RBV theory and the stakeholder theory. According to the signalling theory, people frequently make judgements regarding an organisation after receiving limited information (such as cues or signals) (Mensah et al., 2021). Therefore, it is thought that using eco-dynamic capabilities communicates positively to potential workers and other stakeholders about how an organisation values the environment (Cheema & Javed, 2017). Stakeholders are satisfactorily evaluating companies with an ecological focus; the desire of the stakeholders to do business with such a firm is likely to become stronger, which in turn helps in the achievement of sustainable financial success.

According to Kang and He (2018), the focus of the RBV theory is on how heterogeneous firm resources result in a variety of strategic choices, even in comparable situations. According to the RBV, EDC is a valuable organisational resource that may not be imitated and gives businesses a long-term competitive advantage and increased performance (Huang & Xiao, 2023). In addition, the stakeholder theory postulates that organisations tend to have a good reputation when they meet or exceed stakeholders' expectations, which improves company performance (Afum et al., 2020). Therefore, a good reputation for being environmentally responsible generates income for enterprises, but a negative reputation brings disdain from stakeholders (Afum et al., 2020). Using the just-stated defence, this study proposes that:

H1.

EDC positively affects economic (financial) sustainability performance.

H2.

EDC positively affects SSP.

H3.

EDC positively affects ENSP.

Study methods

This study used an explanatory survey design to expound on how EDC could influence the sustainable performance of firms. Again, the approach was quantitative. The quantitative method was chosen because it enables both objective study and forecasting of the relationship between variables. Additionally, a survey allows for the extremely efficient collection of a substantial amount of data from a huge population. This study focusses on SMEs as the units of analysis. The questionnaires included in this research were completed confidentially by the SMEs' owner-managers as well as staff members. Most of the employee respondents were operations, human resources and sales managers. However, some of the employee respondents, particularly those from small enterprises, were multitaskers who handled multiple responsibilities simultaneously. The survey encompassed Kumasi, situated in the Ashanti area, as well as Sunyani, located in the Bono region of Ghana. The research focussed on a sample size of 600 participants, although only 500 completed and useable questionnaires were obtained, representing a response rate of 83.33%.

Measurement of variables

Independent variables: eco-dynamic capability (EDC)

To assess this particular concept, the researchers adapted the unidimensional measure proposed by Pavlou and El Sawy (2011). The scale utilised in this investigation consisted of a total of six items. This encompassed statements or items like “The firm has the ability to quickly monitor the environment to identify new eco-dynamic capabilities” and “The firm’s routines are effective to identify and develop green technology.” The survey items were assessed using a rating system in the range of 1 (highly disagree) to 5 (highly agree).

Dependent variables: sustainability performance

We used the multi-dimensional measure that Chow and Chen (2012) developed to evaluate this particular concept. The metric encompassed three elements, namely, economic sustainability performance (ESP), SSP and ENSP. The measure consisted of a total of 20 elements. The measure for ESP initially consisted of five components and examples include “The firm gains revenue from selling waste products” and “The firm minimises costs of inputs for equal levels of outputs.”

The metric for SSP initially consisted of six components. This was composed of items like “The firm places employee or community health and safety first” and “The firm prioritises the need to fund community initiatives.” The measure for ENSP formerly had a total of nine components. This included items like “The firm minimises energy consumption” and “The impact of the firm’s operations on animal species and natural habitats is minimized.” In the context of our research, the dimensions under consideration were treated as separate dependent variables. Again, in this study, each item was assessed using a rating system in the range of 1 (highly disagree) to 5 (highly agree).

Control variables

This comprised information about the respondents' demographics. The questions included personal profiles of gender, age and position, in addition to firm-level data inclusive of firm type, size, age and research unit availability. These control variables were identified through the studies of Pfeifer and Wagner (2014), Younis and Sundarakani (2020) and Yu and Lee (2017). Younis and Sundarakani (2020), for instance, examined the impact of firm size and firm age as control variables on different dimensions of corporate performance. Pfeifer and Wagner (2014), on the other hand, assessed whether innovative firm behaviour correlated with age and gender composition of the workforce, whilst Yu and Lee (2017) examined how innovation orientation, firm size and age as internal characteristics influence the relationship between collaboration with research organisations and innovation performance.

Data analysis

Software packages IBM SPSS Statistics (version 24) and IBM SPSS AMOS (version 26.0) were used to conduct this study’s analysis. A series of analytical procedures were used. The initial components of the acquired data underwent exploratory factor analysis (EFA) using IBM SPSS Statistics. These components specifically pertain to objective measures such as EDC and sustainable performance. The selection of the extracted components was based on the criterion that required eigenvalues to be greater than or equal to one. The main aim of this was to determine the underlying factor structure of the collected data related to EDC, ESP, SSP and ENSP.

The confirmatory factor analysis (CFA) was performed using the IBM SPSS AMOS programme. This was done to verify the factors that were extracted and then assess the model fit indices of the different factor sets. The researchers employed the fit indices known as “root mean square error of approximation (RMSEA)” in accordance with the criteria established by Hu and Bentler (1999), which stipulate that values of 0.08 or below are considered acceptable.

Moreover, the criteria for the comparative fit indices (CFI) were established to be greater than 0.90, as recommended by Kline (1998). The validity of the converging and discriminating tests was assessed using the recommended criteria by Fornel-Larcker (1981). According to Hair, Sarstedt, Matthews and Ringle (2016), the established benchmark for assessing convergent validity is a composite reliability criterion of 0.70 or above, together with a minimum need of 50% for average variance extracted (AVE). In order for the discriminant validity criterion to be satisfied, according to Hair et al. (2016) and Fornell and Larcker (1981), the minimum AVE must have a square root greater than the maximum inter-construct correlation.

Upon satisfying all the necessary criteria, the data was further subjected to a multiple regression analysis using IBM SPSS Statistics. In so doing, the impact of EDC on the three facets of sustainable performance—ESP, SSP and ENSP—was ascertained during the investigation.

Results and discussion

Measurement model

Kissi, Adjei-Kumi, Twum-Ampofo and Debrah (2020) indicated that it is important to verify the sampling adequacy before conducting a factor analysis. By using the Kaiser–Meyer–Olkin (KMO) calculation and the Bartlett’s test, the reliability of the variables was assessed to validate sample adequacy. The KMO value of 0.896 exceeds the permissible perimeter of 0.6, and the associated Bartlett’s valuation of all the variables yields an approximate chi-square value of 4243.890. The resulting estimate showed statistical significance at a significance level of less than 0.05. The implications of the findings suggest that the data utilised in the study were sufficient for conducting factor analysis.

The data underwent the EFA approach and was subsequently rotated by means of the Varimax function, as suggested by Hair (2015) and Yong and Pearce (2013). The rotation explained a cumulative variation of 36.04% by resolving six factors. The initial unrotated component explained a mere 9% of the variability seen in the dataset. The problem of common method variance, according to Harman’s single-factor test, is not present in this work (Chang, VanWitteloostuijn, & Eden, 2010; Podsakoff, MacKenzie, & Podsakoff, 2012; Tehseen, Ramayah, & Sajilan, 2017).

Following the establishment of the factor structure, an additional CFA was carried out. The investigation of troubling variable loadings and the determination of the ideal model fit were conducted using the AMOS-SPSS software version 26.0. To enhance the model fit, any variables that posed problems were removed. A total of two subgroups were estimated. The initial set employed the three constituent elements of sustainable performance, namely ESP, SSP and ENSP. The final set of measurements included the EDC measure. After the purification process, several components were extracted from the models.

Thus, we evaluated the psychometric properties of the model by taking construct and indicator reliability, as well as convergent validity, into account in order to look for reliability and validity issues. Through factor loadings (FL), indicator reliability was assessed. Satisfactory FL values are defined as 0.704 or greater (Benitez, Henseler, Castillo, & Schuberth, 2020). For the purpose of evaluating construct dependability, composite reliability (CR) and Cronbach’s alpha (CA) were utilised. According to Hair (2015), the CA and CR criteria should each be at least 0.70 and 0.60, respectively. As already indicated, through the use of AVE, the convergent validity was evaluated. The AVE threshold is 0.50 or more (Hair, 2015). Table 1 displays the results pertaining to the constructs of CA, CR, AVE and FL.

From Table 1, estimations for CA (0.714–0.884) and CR (0.630–0.884) satisfied the requirement. All construct-related indicators that were recorded below 0.40 in this investigation were eliminated. Again, Table 1 shows that the range of acceptable values of AVE (0.510–0.653) satisfied the requirement. We may thus infer that there were no issues with our model’s convergent validity and reliability.

As previously mentioned, discriminant validity in this study was assessed using the Fornell-Lacker criteria. Our model met the Fornell-Lacker criteria because the square root of each construct’s AVE was higher than the correlational values of the other variables (constructs). This can be seen in Table 2. Our model does not have discriminant validity issues; thus, we can draw a satisfying conclusion about it.

The interrelationships between the construct scores, as displayed in Table 2, can be employed for the purpose of investigating multicollinearity. A correlation coefficient of 0.9 or above indicates the presence of multicollinearity amongst constructs (Pallant, 2016). According to the findings shown in Table 2, none of the correlation coefficients exceeded 0.9. Therefore, it can be concluded that we have no evidence of multicollinearity in the current study.

Model fitness indices

The chi-square test was used to evaluate the goodness of fit of the precise model. Table 3 also presents the extra model fit tests that were analysed. The findings of the study indicated favourable values for several indices, including the RMSEA, non-normed fit index (NNFI), CFI and standardised root mean square residual (SRMR). These indices were deemed adequate according to the suggested thresholds of <0.08, >0.90, >0.90 and >0.05, respectively (Bagozzi & Yi, 2012). In conclusion, we can affirm that our model met high requirements for reliability and validity; hence, we move on to the study’s hypotheses in the next section.

Hypothesis testing and discussion

In order to find out if truly EDC is one of the surest ways of enhancing the sustainability performance of SMEs, the model measured the impact of EDC on all dimensions of sustainability performance, including economic, social and environmental aspects. The regression analysis was conducted to examine the relationship between EDC and sustainability performance across all three domains. The findings of the regression analysis for hypotheses H1, H2 and H3 are displayed in Table 4.

The results show that all the hypothesised relationships (HI, H2 and H3) were validated. The outcomes, as displayed in Table 4, confirm that EDC significantly improves ESP (β = 0.261, t = 4.840, p-value = 0.001), SSP (β = 0.209, t = 2.376, p-value = 0.01) and ENSP (β = 0.465, t = 6.062, p-value = 0.001). The results of this study show that using EDC may help Ghanaian small and medium-sized businesses do better at being sustainable. This is similar to research that has been done in other countries and industries, such as Boons et al. (2013), Bresciani et al. (2023), De Marchi (2012), Ha et al. (2023), Huang and Xiao (2023), Qiu et al. (2020), Randhawa et al. (2021) and Rehman et al. (2021). These studies have largely opined that organisations need to utilise their green dynamic capability to be innovative so as to satisfy customer requirements, gain competitor intelligence and get kicking in innovative opportunities.

EDC, specifically green innovation, is positively related to a firm’s overall performance (Qui et al., 2020; Kraus et al., 2020). According to research by Arend (2014), in order to deal with the always shifting sustainable environment, businesses must be adaptable and flexible through a process of continual learning, developing and modifying themselves adaptively. According to Arend (2014), Chen and Chang (2013) and Huang and Xiao (2023), dynamic capabilities are necessary for enabling businesses to attain such adaptive flexibility and create on-going changes. By so doing, organisations with strong EDC are able to meet the green demands of customers and the trends of the industry. There is high consumer awareness of ecological tendencies and the need to incorporate conservation management to advance their ecological goodwill and competitiveness (Murga-Menoyo, 2014).

In the perspective of Delgado-Verde, Amores-Salvadó, Martín-De Castro and Navas-López (2014), it was argued that environmental consciousness positively affects the manufacture of goods that are in line with and surpass strict environmental conventions. A business could be sustainable when it goes beyond considering economic and social gains to look critically at ways to invest in green innovation to sustain its business. Environmentalism and sustainability are becoming crucial to organisations’ activities in contemporary times (Omar, Mohd, & Kamarul, 2019). The increasing voices that clamour for awareness of and regulations regarding sustainability, especially those relating to the environment, have laid emphasis on green human resource management (GHRM) to pursue ecological management in businesses (Ren, Tang, & Jackson, 2018).

The significant positive impact of EDC on economic sustainability implies that any SME that is able to take advantage of “green” prospects by developing new goods, procedures, or services stands a great chance of gaining income from the sale of its waste products and minimising input costs to produce outputs at the same level (Da Giau et al., 2020; Gruchmann et al., 2021; Linde et al., 2021). It also implies that the firm’s spin-off technology may be profitable to implement in other company sectors, which all go a long way towards sustaining the firm economically or financially. The finding about EDC and social sustainability also means that small and medium-sized businesses should support EDC initiatives if they want to better meet the needs of the local community and give priority funding to community projects (Chitimira, Hamadziripi, & Mopipi, 2022; Serfontein-Jordaan & Dlungwane, 2022). Thus, for firms to prioritise the well-being and security of employees or the community, or to be able to consider stakeholder interests in investment decisions, an EDC initiative is one way to go.

Moreover, from the findings on EDC and ENSP, we could infer that SMEs that embrace EDC initiatives will be able to minimise energy consumption, minimise waste and emissions in their operations and minimise environmental impacts on their products or services (Huang & Xiao, 2023). In congruence with Ha et al. (2023), the findings of our study suggest that SME administrators can effectively adapt their business strategies to attain greater financial results and a comparative position in the market whilst utilising green initiatives to grow their businesses and preserve the natural environment in a sustainable manner. Again, the finding suggests that EDC could go a long way towards helping SMEs choose inputs from sources that are replenished and minimise the risks of ecological accidents, spills and releases. The potential reduction of the firm’s influence on animal species and natural ecosystems may be achieved through the use of eco-dynamic capabilities.

Bresciani et al. (2023) suggest that organisations must have the ability to identify and develop new green knowledge and new green opportunities and successfully allocate resources to create green innovation. Per the findings of our study, one of the best ways SMEs, particularly those in emerging economies, could achieve this is through investment in green (eco)-dynamic capability initiatives. Due to green innovation (capabilities), new products and processes may radically transform the existing methods of operations, significantly reducing their negative impact on the environment (Rehman et al., 2021). Again, Rehman et al. (2021) claim that green innovation may lead to the creation of novel products and processes that can contribute to environmental cleaning, healing and recovery. Finally, the outcomes of our study are matched to the natural RBV theory, stakeholder theory and signalling theory that green dynamic capabilities significantly determine sustainable performance and competitive advantage.

Conclusion and implications

Research on sustainability is exploding amongst professionals, policymakers and academics worldwide. However, there are still knowledge gaps about how organisations, especially SMEs within the African context, could thrive competitively on grounds of ecological uprightness and consciousness. To fill these knowledge gaps, our investigation looks at the effect of EDC across performance in terms of social sustainability, economic or financial sustainability and environmental sustainability by collecting data from Ghanaian SMEs. The findings show that EDC is truly a crucial antecedent to economic, social and ENSP, signifying that the execution of EDC initiatives improves the sustainability performance of SMEs.

Theoretical and managerial implication

On top of augmenting the scholarly research on environmental management in the shape of sustainability performance and EDC, this research has substantial implications for managers and policymakers, particularly SMEs in Ghana and other emerging nations like it, as well as a significant theoretical contribution. This study creates a thorough conceptual model from a theoretical perspective and tests it to see how EDC affects ESP, SSP and ENSP. Our research thereby expands the application of the RBV theory, stakeholder theory and signalling theory. The stakeholder theory provides the foundation for the topic of sustainability. The stakeholder theory seeks to examine how an organisation interacts with economic and social actors (individually or collectively) who have an impact on, are impacted by and are interested in the substantive and procedural aspects of business operations (Afum et al., 2020).

A crucial assumption in the RBV follows that the internal resources of businesses, in addition to their capabilities, tend to have a heterogeneous form, which differentiates the firm from their competitors and presents them with an upper hand in the market, which generates sustainable turnover. Boohene (2018), thus, opines that the RBV is focussed on enhancing the knowledge base of the actions that firms take in reaching and preserving a competitive advantage through the heterogeneity of their resources. Per the signalling theory, individuals and even institutions will form a positive image of an organisation and will be ready to do business with such an organisation that could exhibit that it is an eco-friendly organisation (Mensah et al., 2021; Cheema & Javed, 2017). Thus, the stakeholder theory, the RBV and the signalling theory are important theoretical frameworks that firmly support our investigation.

Our study’s findings demonstrate how these ideas, regardless of location, are applicable to SMEs looking to benefit from the adoption of EDC activities. The study has various implications for owner-managers and policymakers, as was previously stated. First, the study’s empirical findings reveal that EDC enhances ESP, SSP and ENSP pleasure. Owner-managers of SMEs are urged to carefully consider investing in EDC as a result, since such moves tend to improve both the company’s sustainability performance and reputation. Particularly, SMEs' owner-managers and politicians should make sure that enough funding is allocated to EDC efforts to produce the desired results.

Second, in order to adjust to environmental changes, owner-managers of SME should make it a habit to carry out sustainable asset reorganisation, alignment and protection. Owner-managers need to be aware that stakeholders are likely to highly assess an organisation’s green perspective through its EDC initiatives, as the introduction of EDC provides a signal that an organisation is dedicated to resolving environmental challenges. Finally, managers are urged to consistently and honestly tell the public about their EDC activities and related ENSP and SSP efforts. Press releases may be used for this to attract the public’s attention and perhaps even spur purchases to raise ESP.

In essence, our study makes a significant contribution to policy by offering valuable insights into the dynamics of EDC and its impact on sustainability performance, particularly within the context of Ghanaian SMEs. Policymakers can consider implementing programmes, subsidies, or tax incentives to encourage SMEs to adopt eco-friendly practices and enhance their adaptive capabilities. Our study highlights that EDC positively influences SSP amongst SMEs. Policymakers can use this insight to design initiatives that not only focus on environmental aspects but also emphasise social responsibility. This may involve promoting fair labour practices, community engagement and inclusive business models.

Again, our study suggests that policymakers should invest in capacity-building programmes and awareness campaigns tailored to SMEs in the Ghanaian context. This may involve training programmes, workshops and the dissemination of best practices to enhance the understanding and implementation of eco-dynamic capabilities amongst SMEs. Finally, policymakers can facilitate international collaboration and knowledge exchange to ensure that SMEs in Ghana benefit from global best practices in EDC and sustainability. This could involve partnerships with international organisations, research institutions and collaboration platforms that facilitate the exchange of knowledge and experiences.

Limitations and future research directions

Notwithstanding the theoretical and empirical contributions of this study, it has some shortcomings. First, cross-sectional data was used to analyse the correlations. As a result, this opens up a potential area for further investigation in a longitudinal study due to the potential temporal variability in the EDC process of an organisation. Second, SMEs in Ghana were the subjects of this study. As a result, it is rather challenging to extrapolate our study’s findings to other significant economies or industries. Hence, we invite you to test our thorough conceptual model in various settings. Since this study was mainly quantitative, we advise future research to take a hybrid strategy or use a case study technique to get more provocative results.

Table 1

Summary statistics item validity and reliability measurements

Construct	CA	CR	AVE	FL
Eco – dynamic capability (EDC)	0.799	0.799	0.544
EDC1				0.584
EDC2				0.741
EDC4				0.701
EDC5				0.628
EDC6				0.667
Sustainability performance
Economic sustainability performance (ESP)	0.714	0.630	0.510
ESP1				0.510
ESP4				0.595
Social sustainability performance (SSP)	0.769	0.660	0.520
SSP2				0.549
SSP3				0.487
SSP6				0.449
Environmental sustainability performance (ENSP)	0.827	0.832	0.653
ENSP1				0.696
ENSP2				0.769
ENSP3				0.671
ENSP4				0.696
ENSP6				0.579
ENSP7				0.612

Source(s): Field data (2023)

Table 2

Fornell–Lacker criterion of determining discriminant validity

Construct	ESP	SSP	ENSP	EDC
ESP	0.714
SSP	0.365**	0.721
ENSP	0.405**	0.336**	0.808
EDC	0.310**	0.283**	0.614**	0.738

Source(s): Field data (2023)

Table 3

Model fit statistics

Measure	Construct	χ2	DF	RMSEA	NNFI	CFI	SRMR
A	Sustainable Performance	67.09	41	0.051	0.955	0.967	0.0400
B	Eco-Dynamic Capability	9.22	5	0.058	0.975	0.987	0.0263

Note(s): Measurement A – (Economic, Social, and Environmental Sustainability Performance)

Measurement B – (Eco-Dynamic Capability)

χ² – Chi-square, DF - Degree of freedom, RMSEA - Root mean square error of approximation, NNFI - Non-normed fit index, CFI- Comparative fit index and SRMR- Standardised root mean square residual, “Standardized estimates”

Source(s): Field data (2023)

Table 4

Regression summary of effect of EDC on SSP, ESP and ENSP

Hypotheses	Path	Beta coefficient	T-statistics	p-values	Decision
H1	EDC → ESP	0.261	4.840	0.001	Supported
H2	EDC → SSP	0.209	2.376	0.01	Supported
H3	EDC → ENSP	0.465	6.062	0.001	Supported

Source(s): Authors’ own construct through field data (2023)