Mediating Roles of Innovation Capability and Customer Performance in Seniority Management–Financial Performance Relationship: Experience of SOEs in Indonesia


This study aims to investigate the mediating effect of innovation capability and customer performance on the relationship between seniority-based management and financial performance. The main contribution of this study is to empirically test the resource-based theory using a structural equation model. This is designed as a quantitative study at explanatory level using a structural equation modelling. As many as 115 managers of state-owned enterprises (SOEs) and their subsidiaries in Indonesia participated. Results show the following: First, seniority-based management affects financial performance. Second, innovation capability does not mediate the relationship between seniority-based management and financial performance. Third, customer performance does not mediate the relationship between seniority-based management and financial performance. Finally, innovation capability and customer performance mediate the relationship between seniority-based management and financial performance. This study concludes the strategic roles of innovation capability and customer performance.



Keywords: seniority-based management, innovation capability, customer performance, financial performance

[1] Bolen, A. (2016). Seven Characteristics of the Modern Consumer. Retrieved from htpp: //

[2] Carmichael, C. W. (1991). Intercultural perspectives of aging, in L. A. Samovar and R. E. Porter (eds.) Intercultural Communication: A Reader, pp. 128–135. Belmont, CA: Wadsworth.

[3] Chen, G. M. and Chung, J. (2002). Seniority and superiority: A case analysis of decision making in a Taiwanese religious group. Intercultural Communication Studies, vol. XI-1, pp. 41–56.

[4] Chenhall, R. H. (2005). Integrative strategic performance measurement systems, strategic alignment of manufacturing learning and strategic outcomes: an exploratory study. Accounting, Organizations and Society, vol. 30, no. 5, pp. 395–422.

[5] Chin, W. W. (1998). The partial least squares approach to structural equation modelling, in G. A. Marcoulides (ed.) Modern Methods in Business Research. London: Lawrence Erlbaum Associates.

[6] Chin, W. W. and Newsted, P. R. (1999). Structural modelling analysis with small samples using partial least squares, in R. H. Hoyle (ed.) Statistical Strategies for Small Sample Research. Thousand Oaks: SAGE Publications.

[7] Chung, K. H., Yi, H. C., and Jung, K. H. (1997). Korean Management: Global Strategy and Cultural Transformation. Berlin: Walter de Guyter & Co.

[8] Condon, J. C. and Yousef, F. (1975). An Introduction to Intercultural Communication. Indianapolis, IN: Bobbs Merill.

[9] Dobni, C. B. (2010). The relationship between an innovation orientation and competitive strategy. International Journal of Innovation Management, vol. 14, no. 2, pp. 331–357.

[10] Francis, D. and Bessant, J. (2005). Targeting innovation and implications for capability development. Technovation, vol. 25, no. 3, pp. 171–183.

[11] Globalinnovationindex. (2017). Global Innovation Index 2017 Report. Retrieved from

[12] Hair, J. F., Jr., Black, W. C., Babin, B. J., et al. (2006). Multivariate Data Analysis (sixth edition). Pearson Education Inc.

[13] Hartman, F. and Slapnicar, S. (2009). How formal evaluation affects trusts between superior and subordinate managers. Accounting, Organizations and Society, vol. 34, no. 6/7, pp. 695–886.

[14] Hulland, J. (1999). Use of partial least squares (PLS) in strategic management research: A review of four recent studies. Strategic Management Journal, vol. 20, no. 2, pp. 195–204. Retrieved from itswayout/#.WgI5y2iCw2w

[15] Kallio, A., Kujansivu, P., and Parjanen, S. (2012). Locating the loopholes of innovation capability before launching development project. Interdisciplinary Journal of Information, Knowledge, and Management, vol. 7, no. 1, pp. 21–38.

[16] Kaplan, N. and Norton, D. P. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston, Massachusetts: Harvard Business School Publishing Corporation.

[17] Kume, T. (1985). Managerial attitudes toward decision-making: North American and Japan, in W. B. Gudykunst, L. P. Stewart, and St. Ting-Toomey (eds.) Communication, Culture, and Organizational Processes, pp. 231–252). Beverly Hills, CA: SAGE Publishing.

[18] Nishiyama, K. (1971). Interpersonal persuasion in a vertical society–The case of Japan. Speech Monographs, vol. 38, pp. 148–154.

[19] Nunnaly, J. C. (1967). Psychometric Theory. New York, NY: McGraw-Hill.

[20] Saunila, M. (2014). Innovation capability for SME success: Perspectives of financial and operational performance. Journal of Advances in Management Research, vol. 11, no. 2, pp. 163–175.

[21] Saunila, M. and Ukko, J. ( June 2011). Intangible aspects of organizational innovation capability in Finnish SMEs. Proceedings of 6