Does Firm Capability Determine Performance?

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Firm performance is related to how to manage existing financial, material, and human resources in an organization and use them wisely to achieve the firm’s overall objectives. Firm performance must be measured, reported, and accounted for by the firm’s management. The main purpose of performance measurement is to encourage management to be more proactive in carrying out firm activities. However, performance measurement is not considered the top priority in the firm due to the limited knowledge of managers in measuring performance. Managers generally recognize that performance measurement used in a firm does not encourage the commitment of all managers to achieve optimal performance,

The problem of performance can be overcome if the firm has reliable resources in carrying out strategic activities. Firm capability is a strategic activity that prioritizes the ability to compete in a unique manner to achieve the expected goals. Thus, the question arises whether the firm’s capability is the main motivation to achieve optimal firm performance?

Focus on firm capability and performance – in our research – capability is seen as the strength that can improve overall performance so to achieve it, firms must continue to improve market orientation, keep making innovations, carry out organizational learning in a sustainable manner, and improve entrepreneurial skills. This way, the firm’s capability will be the strength in improving performance optimally.

Market Orientation, Innovation, Organizational Learning, and Entrepreneurship

The firm capability that we use in this research includes market orientation, innovation, organizational learning, and entrepreneurship. Market orientation refers to an organization’s emphasis on customer needs that are expressed and developed for long-term needs. Thus, market orientation is often used as a basis for improving firm performance.

The firm’s performance can also continue to rise if the firm continues to innovate. Innovation is considered very important for firms to compete effectively and is one of the most important components in a firm’s strategy. Firms with higher capacity to innovate can develop competitive advantages and achieve more optimal levels of performance.

The impact of science development makes the organization continue to learn. Organizational learning focuses on learning as an essential component in implementing the firm’s vision and goals. Continuous and proactively organizational learning emphasized to facilitate learning activities and develop strategies to encourage organizational learning. In addition to organizational learning, firms must have a strong entrepreneurial orientation. Entrepreneurial behavior in organizations, in general, has been known as a means to improve organizational growth and profitability, strategic renewal, organizational change and services adding value to customers. Some of those views prove that entrepreneurship orientation is a crucial thing to possess by each firm.

This research used a survey method, which collected information from respondents. The number of respondents was 63 people. From the respondents, 7.94 percent was firm directors, and 92.06 percent was managers. Furthermore, work experience as a director and manager in a firm is dominated by tenure above ten years at 39.68 percent, a 6-10 year tenure at 36.51 percent, and the rest have a working period of fewer than five years or equal to 5 years by 23.81 percent. It showed that the respondents already understand the strategies carried out by the firm because they have adequate strategic positions and have sufficient work experience. Thus, the firm has an excellent opportunity to achieve the expected goals.

The results of the analysis proved that organizational learning influences firm performance. The firm continues to improve the ability of its resources in conducting organizational learning because organizational learning is the key to improving performance. In addition to organizational learning, entrepreneurship also affects firm performance. It shows that the firm continues to focus on improving entrepreneurship by developing new product lines, new techniques, and adopting a competitive attitude so that the firm can continuously improve its performance. However, market orientation and innovation do not affect firm performance.

The results of this study showed that firms must prioritize organizational learning and entrepreneurship because they can improve firm performance. Furthermore, firms should continue to improve market orientation and continue to innovate so that the firm can achieve its expected goals. (*)


Dr. Ismail, SE.,M.Si.,Ak.,CA.,CSP

Prof. Dr. I Made Narsa., SE., M.Si., Ak., CA.

Details of this research available at:

Ismail, I Made Narsa, and Basuki (2019). The Effect of Market Orientation, Innovation, Organizational Learning and Entrepreneurship on Firm Performance. Journal of Entrepreneurship Education, vol. 22 (3): 1-13

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