When Rivals Define Results: How Internal and External Competition Shape SME Performance

What is it about?

This study investigates how small and medium-sized enterprises (SMEs) can translate contextual ambidexterity—the ability to pursue both efficiency and innovation—into superior performance. It focuses on two critical contingency factors that may influence this relationship: internal rivalry, or competition within the organization, and external rivalry, or competition between firms in the marketplace. The research emphasizes that the benefits of ambidexterity depend not just on organizational balance but also on the surrounding competitive environment. Using data from Canadian-based SMEs, the findings reveal that the positive relationship between ambidexterity and performance is weakened by internal rivalry, which disrupts knowledge sharing and collaboration, making it harder for firms to exploit existing capabilities and explore new ones simultaneously. In contrast, external rivalry enhances the ambidexterity–performance relationship by motivating employees to be more innovative and adaptive in response to outside pressures. Together, these results suggest that ambidexterity pays off most when internal harmony aligns with external competition. For practitioners, the findings underscore the importance of aligning internal cooperation with external responsiveness. SME leaders should focus on reducing harmful internal competition—by fostering trust, information exchange, and shared goals—while encouraging employees to respond dynamically to external market forces. In doing so, they can ensure that ambidexterity translates into tangible performance gains rather than being undermined by internal discord.

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Photo by Vitaly Gariev on Unsplash

Photo by Vitaly Gariev on Unsplash

Why is it important?

This study is unique in highlighting the dual role of internal and external rivalry as critical boundary conditions in the ambidexterity–performance relationship. By showing that competition can both harm and help depending on its source, it advances a more nuanced understanding of the contextual factors that determine when ambidexterity enhances firm outcomes. It also broadens prior theory by applying these insights specifically to SMEs, where resource constraints and interpersonal dynamics make balance particularly challenging. Its timeliness lies in its relevance to Canadian SMEs and similar firms operating in increasingly competitive environments. As small and medium-sized enterprises strive to innovate while maintaining operational efficiency, this research provides actionable guidance: sustain internal cohesion, embrace external challenge, and leverage both to build lasting competitive advantage.