European Journal of Social Sciences – Volume 19, Number 1 (2011) 114 Learning Orientation, Innovation and Performance: Evidence from Small-Sized Business Firms in Iran Abbas Toloie Eshlaghy Industrial management Ddepartment, Science and Research Branch Islamic Azad University, Tehran, Iran E-mail: toloie@gmail.com Tel: +98-912-310 8756 Alireza Maatofi Financial management Ddepartment, Gorgan Branch Islamic Azad University, Gorgan, Iran E-mail: alirezamaetoofi@gmail.com Abstract In the world where the only thing one can trust in is lack of confidence, for organizations to respond to this wavy environment, they need innovation, which by itself has a central role in the movement toward the comparative advantage and supreme performance. Although many researchers have in the past been carried out investigating the effect of innovation on organization's performance, it seems that in future we will face lack of applicable studies on the effect of learning orientation on innovation in general, and on the innovation of small firms in particular. Having investigated 82 small firms of Tehran with the aim of filling the gap existing in the research literature of the country, the present study showed that organization’s commitment to learning, open-mindedness and shared vision have significantly positive effects on the innovation of small firms. The results obtained from the regression analysis also indicated the presence of significantly positive relationships between innovation and profitability, sale and ROI in small firms. Keywords: Learning Orientation, Innovation, Performance, Small Firms. 1. Introduction Quick changes in customers, technology and competition, which are the main characteristics of today's dealings (e.g. [13]), have encountered firms with fundamental challenges with regard to keeping and also increasing their products and services from the point of view of customers [28]. Hence, for organizations to survive and continue their life, they need to continuously seek for obtaining a stable competitive advantage [41]. Some believe that the ever-increasing attention of firms to innovation originates from the role of innovation as a key factor in obtaining the stable competitive advantage [18], [30]. In fact, this is because innovation, in addition to developing firm's capabilities, enables it to correspond with the environmental changes, and thus is necessary for organization to have a long- lasting life [9], [37]. Therefore, learning is observed as a stimulus that can increase the capacity of a firm's innovation [8], [20]. In other words, it is the process of learning through which innovation is directly promoted [24]. Through the extension of learning or the spreading of a new vision in organization [20], and in addition to increasing the ability to perform new ideas, processes or products, and also apart from creating the capacity of innovation in organization [25], the learning process causes