Organizational Structure and SMEs Financial Performance: A Structural Equation Modelling Approach

Abstract

A company's bottom line is determined by its ability to learn and generate new ideas. These attributes are influenced by an organization's organizational structure, which includes factors like adaptability, openness, authority, communication, delegation, and decentralization. This study examines how a company's internal structure impacts its performance, with a focus on how organizational learning and innovation serve as a bridge between the two. A theoretical, conceptual, and structural equation model is developed using the literature and hypotheses, a questionnaire survey, and a sample of small and medium-sized firms (SMEs) from Pakistan. The findings indicate that the structure of a small or medium-sized business is critical to its success. The structure of a company has a greater impact on its employees' ability to learn and be innovative than it does on their performance. Organizational learning can have a variety of effects on the performance of SMEs. One of these methods is the invention process. According to our findings, innovation is a more crucial link between an organization's structure and its performance. Rather than focusing on the effects, innovation should be fostered at the strategic level.