<p>This study investigated the effects of inter-functional coordination and responsiveness on business performance, mediated by innovation, in medium and large manufacturing firms in Sidama, Ethiopia. Ethiopia’s manufacturing sector struggles with low-value production and lacks competitiveness. Most studies on market orientation have mainly focused on developed economies, leaving a gap in understanding how developing contexts face unique challenges. The study used an explanatory research design and a quantitative approach to fill this gap. Data were collected from 257 managers and department heads through structured questionnaires. Structural Equation Modeling (SEM) using AMOS version 23 analyzed the relationships. The findings showed that working together across functions and being responsive greatly improve business performance. Furthermore, innovation played a significant mediating effect in these relationships. The study adds to the literature by addressing a research gap in developing economies and provides practical insights for policymakers to encourage innovation-driven strategies. It is recommended for managers to improve collaboration between departments, increase market responsiveness, and invest in innovation to drive growth. Future research should implement longitudinal designs and examine various industries to enhance the generalizability of the findings.</p>