The nexus between control mechanisms, innovation capability, innovation dimensions, and innovation performance

In manufacturing specifically, small and medium-sized enterprises (SMEs) play a pivotal role in China’s industrial transformation, yet often face constraints that hinder innovation and performance. This study investigates how management control systems (MCSs), specifically belief systems (Bs) and interactive control systems (ICs), foster innovation capability (IC) and, through it, stimulate multiple types of innovations: product (PRDI), process (PROI), organizational (OI), and marketing (MI), and ultimately enhance innovation performance (IP). Drawing on the dynamic capability theory (DCT), MCSs are conceptualized as enabling mechanisms that help SMEs to transform limited resources into innovation outcomes. Leveraging survey data obtained from 505 employees in Chinese equipment manufacturing (SMEs) and analyzing with partial least squares structural equation modeling (PLS-SEM), the results reveal that both Bs and ICs significantly strengthen IC, with ICs exerting the stronger effect. IC most strongly drives OI and PROI, while OI contributes most to IP. The results reveal the role of MCS-enabled IC as a strategic pathway for enhancing adaptability and competitiveness among Chinese manufacturing SMEs.