Organizational Innovation and Performance on Embroidery and
Needlepoint SME’s in West Sumatera
Ratni Prima Lita, Ranny Fitriana Faisal and Meuthia Meuthia
Management Department, UniversitasAndalas, Padang, West Sumatera, Indonesia
ratniprimalita.unand@gmail.com, rannyfitriana@gmail.com, meuthia.ute@gmail.com
Keywords: Embroidery and Needlepoint SMEs, Organizational Culture, Learning Orientation, Organizational
Innovation, Organizational Performance.
Abstract: Innovation plays an important role in developing the economy, to expand and sustain the high performance
of firms, to maintain a competitive edge in the industry and improved the standard living and in creating a
better quality of life. The purpose of this study is to identify the effects of organizational culture and
learning orientation to organizational innovation and performance. The research method was quantitative
analysis using SmartPLS and conducted with purposive sampling technique on embroidery and needlepoint
SME owners in West Sumatera. Embroidery and needlepoint craft are the original products of West
Sumatera, which is already well-known not only in the country but also it has reached to abroad. Fifty-three
respondents involved in this study were located in Bukittinggi, Agam, Payakumbuh and Lima Puluh Kota.
The findings showed that organizational culture and learning orientation have significant effect on
organizational innovation; organizational culture and learning orientation have significant effect to
organizational performance. Although the previous study showed there is a significant effect of
organizational innovation to organizational performance, but in this study was not accepted.
1 INTRODUCTION
The background of the study lies on how owners
accomplished organizational innovation and
organizational performance. It is concerned on the
behavior that will enable firms to achieve
organizational innovation and lead to organizational
performance. This study focused on embroidery and
needlepoint Small and Medium Enterprise (SME)
owners.
Embroidery and needlepoint, the art of forming
decorative designs with hand or machine
needlework, has been around nearly as long as
clothing itself. As a country full with variety of
ethnic and races, each of embroidery designs,
patterns, themes and techniques contribute greatly to
the richness of designs. The traditional touch in
every product has made each of them a masterpiece
Sumatera possesses the greatest abundance of
embroidery and the widest range of style (Ministry
of trade of the Republic of Indonesia, 2008).
West Sumatera as well known as Minangkabau
traditional motif has very attractive and beautiful
design taken from the Chinese art embroidered in
red, yellow, green or black. The colors symbolize
the three territories, namely Tanah Datar, Agam and
Lima Puluh Kota. The embroidered textile is usually
used for the customary dresses (Pakaian Adat) and it
is also used for decoration of bridal podium.
As a state that produced embroidery products,
SMEs should innovative to create the products based
on the culture of organization and the method of
SMEs learning orientation. These things will lead
the organization to gain organizational performance.
Research questions are developed to obtain the
appropriate information that is required to fulfil the
research objectives. This research study attempts to
answer the following questions:
Does SME’s organizational culture play a role
in improving its organizational innovation?
Does SME’s organizational culture play a role
in improving its organizational performance?
Does SME’s learning orientation have any
influence to organizational innovation?
Does SME’s learning orientation have any
influence to organizational performance?
What is the association between SME’s
organizational innovation and organizational
performance?
566
Lita, R., Faisal, R. and Meuthia, M.
Organizational Innovation and Performance on Embroidery and Needlepoint SME’s in West Sumatera.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 566-572
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
2 LITERATURE REVIEW
2.1 Organizational Culture
Organizational culture plays an important role in
shaping values behavior of organizational members.
According to Deal and Kennedy (1982) performance
improvement in an organization is associated with
deliberate effort by management towards developing
organizational culture.
2.2 Learning Orientation
Organizational learning has been considered pivotal
for sustainable competitive advantage (Dickson,
1996; Fiol and Lyles, 1985; Garvin, 1993; Levitt and
March, 1988; Lukas, 1996; Stata, 1992). There are
two types of organizational learning: single-loop and
double-loop learning (Senge, 1990). Most of
organizational learning belongs to single-loop
learning, in which individuals, groups, or
organizations modify their actions through tactical
adjustments. Double-loop learning is higher-order
learning, capable of shifting more fundamental
strategies by questioning old values, assumptions,
and policies (Baker and Sinkula, 1999; Dickson,
1996).
Organizational learning has been treated and
measured as a process (i.e., behaviors) or a culture
(i.e., values and beliefs). From a process perspective,
Bennett (1998) proposed a scale with five elements
for non-profits: (a) an external approach, which
involves determining donors’ needs and
competitors’ skills, benchmarking, and fundraising
strategies; (b) innovation and change; (c) teamwork
and common values; (d) obtaining and disseminating
information, and (e) training.
For a cultural approach, organizational learning
is clearly linked to learning orientation in order to
indirectly measure organizational learning. Sinkula
et al. (Sinkula, Baker and Noordewier, 1997)
defined learning orientation as “a set of
organizational knowledge-questioning values that
influence a firm’s propensity to value double-loop
learning,” and proposed three values of learning
orientation: (a) commitment to learning, (b) open-
mindedness, and (c) shared vision. Commitment to
learning fosters investments in education and
training (Norman, 1985). Shared vision enables
learning to translate into action. Without shared
vision, many creative ideas would not be
implemented for the lack of a common direction
(Hult, 1998). Open-mindedness is related to
unlearning (Sinkula et al., 1997). Unless they are
open-minded, organizations are less likely to
question the familiar ways of thinking and acting.
Although learning orientation has been
confirmed to be closely related to innovation in for-
profits, it is still considered to be a relatively new
idea in non-profits (Garrido and Camarero, 2010).
However, non-profits need to be learning oriented in
order to innovate and survive, given the changing
environmental conditions and the importance of
developing the human resource capacity (Betts and
Holden, 2003; Garrido and Camarero, 2010; Murray
and Carter, 2005).
The theory applied in the study of the effect of
learning orientation on organizational innovation is
organizational learning theory. An organization can
adapt as long as they can learn. Consequently, the
fact that learning is primarily concerned with
sustainable organizational issues and the use of
knowledge in an uncertain competitive atmosphere
(Morgan and Strong, 1997), has initiated a more
convincing concept stating that effective learning
orientation deals with innovation. Indeed, Hurley
and Hult (1998) propose evidence to show that
higher level of innovation is associated with the
development of culture of learning.
2.3 Organizational Innovation
Innovation has been conceptualized diversely,
according to the different views on various issues
(e.g., to consider it broadly or narrowly, to regard it
as culture or behaviors, how to define the innovation
unit, the innovation target, and the speed of change).
Regarding this, Damanpour (1991) states that
innovation has been conceptualized as lying between
“diffusion” and “adoption” (Kimberly, 1981) and
between “innovating” and “innovativeness” (Van de
Ven & Rogers, 1988). Although a certain overlap
between these concepts may exist, this study focuses
primarily on the adoption of innovation. Innovation
can be a new product or service, a new production
process technology, a new structure or
administrative system, or a new plan or program
pertaining to organizational members. Since the end
product of human service organizations is a service
or program, this study defines innovation as
“adopting new ideas and actions generated or
developed inside or outside the organization into
services, programs, and processes.”
Previous studies have attempted to distinguish
types of innovation in order to understand behaviors
of organizations and examine the determinants of
Organizational Innovation and Performance on Embroidery and Needlepoint SME’s in West Sumatera
567
innovation (Downs and Mohr, 1976; Knight, 1967;
Rowe and Boise, 1974). Among numerous
typologies of innovation, three have gained the most
attention: administrative vs. technical, product vs.
process, and radical vs. incremental (Damanpour,
1991). The distinction between administrative and
technical innovation focuses on the decision-making
process. Administrative innovations are related to
organizational structure and administrative
processes, whereas technical innovations are
connected to products, services, and production
process technology (Damanpour and Evan, 1984).
Radical and incremental innovation is classified
according to the degrees of change. Non-routine
innovations that create fundamental changes are
radical, whereas innovations creating tactical and
instrumental changes are incremental (Dewar and
Dutton, 1986; Ettlie, Bridges and O’keefe, 1984).
Product and process innovation is distinct according
to the stages of business development (Utterback
and Abernathy, 1975). While product innovations
are new products or services introduced to meet
market needs, process Innovations are new elements
introduced into an organization’s production or
service operations (e.g., input materials, task
specifications, work- and information-flow
mechanisms, and equipment used to produce a
product or render a service; Knight, 1967; Utterback
and Abernathy, 1975).
The study follows the distinction between
process and product innovation, which involves not
only the innovations in end products but also the
innovations occurring in the whole process of
organizations (i.e., organizational structure and
administrative system). This classification entails the
systems approach. A small but growing number of
studies have conceptualized innovation from a
systems perspective, which has been judged to
enable a better understanding of innovation drivers
and outcome (Kempt, Folkeringa, De Jong, &
Wubben, 2003). Community Innovation Surveys
(CIS; Organization for Economic Cooperation and
Development [OECD], 2006), designed to give
information on the innovatively of different sectors
and regions, are representative studies based on the
system oriented framework. CIS measures
innovatively with four factors: (a) innovation input,
(b) innovation process, (c) innovation output, and (d)
innovation outcome. Similarly, Kempt et al. (2003)
introduced complex systems innovation model
(CSIM), combining the process approach and the
systems approach. CSIM conceptualizes innovation
with three factors: (a) innovation intensity, (b)
innovation process, and (c) innovation output.
This study measures innovation with two
dimensions of process innovation and output
innovation from a systems perspective. Input
innovation, which means the investment in
innovation, is not included in the study because the
focus is only on the innovations implemented.
Process innovations are adopted changes in
organizational structure and administrative process,
and output innovations are new services, programs,
and service target and service delivery systems to
meet external market needs.
2.4 Organizational Performance
Olosula (2011) explained the performance concept
as an ability to assess the level of success of a
business organization is it small or big. SMEs can be
evaluated in terms of employment level, firm size,
strength in working capital as well as its
profitability. According to Shariff, Peous and Ali
(2010) measures of performance can be seen from
an objective perspective that is more about the
financial assessment to organizational performance
such as return on equity, return on assets and sales
growth. Minai and Lucky (2011) further opined that
performance in small firms is viewed from two
perspectives: the monetary (financial) and the non-
monetary (non- financial) measures.
Some studies have some inclination in using
financial performance measures as an indicator of
overall firm performance (Murphy, Trailer & Hills
1996). On the other hand, other studies prefer the
subjective measure performance. For example, Ittner
and Lacker (2003) opined that subjective measures
help owner/managers to determine the level of
success or otherwise of their respective SMEs, while
Davood and Morteza (2012) viewed performance as
the ability of a firm to create acceptable outcome
and actions. Hence, firm performance is a central
issue in business activities that need adequate
planning and commitment. Trkman and McCormack
(2009) asserted that measuring performance is
important for all firms because it helps the
organization to attain the level of organizational
success or failure and also serve as a yardstick for
achieving significant improvement in the overall
organizational activities.
The concept of performance describes how
individuals or groups reach a conclusion to attain an
aim. Performance is a concept which is shown by
organization’s prominent employees while fulfilling
their tasks. This is why organizations’ success is
directly proportionate to their employees’
performance (Benligiray, 2004). Organizational
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
568
performance is a description of level of fulfilled task
of organization’s aim or target according to obtained
output/ conclusion at the end of a business period
(Yıldız, 2010).
Organizational performance can be scaled only
by subjective method or only by objective method. It
can also be seen in the literature that both subjective
and objective methods are used together to avoid
short-comings of each method. It has become
evident that while profitability, sales and market
share are the most used criteria in subjective method,
ROA and ROE are the most used ones in objective
method (Yıldız and Karakaş, 2012). Although
various measurement methods of business
performance has been developed by scholars and
practitioners, it can’t be said that there is always a
valid method.
Based on previous studies, we can develop some
hypotheses:
H1: organizational culture has influence on
organizational innovation
H2: organizational culture has influence
organizational performance
H3: learning orientation has influence on
organizational innovation
H4: learning orientation has influence on
organizational performance
H5: organizational innovation has influence on
organizational performance
3 METHODS
3.1 Sample and Data Collection
According to the sampling technique applied by Hair
et. al (2014), target of the survey is fifty three SME
owners of embroidery and needlepoint in West
Sumatera that were located in Bukittinggi, Agam,
Payakumbuh and Lima Puluh Kota. The unit of
analysis is the organization. To ensure that the
collected data accurately represent the organization,
all the owners who have to sell the products directly
to the market were asked to answer the survey. A
questionnaire was used for data collection.
Questionnaires were directly distributed to the
owners.
3.2 Measures
Organizational culture measurement was adopted
from Al-Swidi and Mahmoud (2012) and replicated
by Shehu and Mahmood (2014). There are 17 items
that explained organizational culture. The items
included employees understanding of what need to
completed, good mission that gives direction and
meaning, systemic organization of jobs, capabilities
are treated as a source of competitive values,
changes in marketing practices, customers decisions
are very important, excitement and motivation for
employees are the result of vision development,
acceptable code of conduct, emphasis on team work,
clear set of values, employee involvement in work,
respond to competitor actions, information sharing,
invention and risk taking encouraged,
disappointment as a chance for learning and
improvement, encourage direct contact with
customers.
Learning Orientation scale by Sinkula et al.
(1997) was used to measure learning orientation.
This questionnaire was also distributed for the study
of Choi (2014). This continuous measure includes
11 questions that explained three factors:
commitment to learning, shared vision and open-
mindedness. Each question reflects respondents’
assessment of learning oriented culture for the
organization they are owned. Respondents rate each
statement on a Likert-type scale ranging from 1 to 5,
with 1 indicating strongly disagree and 5 indicating
strongly agree.
In order to measure the frequency of
organizational innovation, we replicated an
organizational innovation scale based on the study of
Widiartanto and Suhadak (2013). Organizational
innovation scale reflects the respondents’ assessment
for how the innovation has been implemented at the
organization they are owned. There are six items that
distributed to explain this variable: improving
working practices, training employees routinely,
creating new products, creating modification of
products, developing new ideas, encouraging
initiatives. Organizational innovation is a Likert-
type scale with score ranging from 1 to 5, with 1
indicating strongly disagree and 5 indicating
strongly agree.
Organizational performance was measured by
four items based on Brewer and Selden’s (2000)
scale. Items related to service quality, customer
satisfaction, as well as commitment to cost reduction
were included. The measurement is also adapted by
Im, Campbell and Jeong (2016). Organizational
performance is using a Likert-type scale with score
ranging from 1 to 5, with 1 indicating strongly
disagree and 5 indicating strongly agree.
Organizational Innovation and Performance on Embroidery and Needlepoint SME’s in West Sumatera
569
3.3 Data Analysis
After measurement model was verified, the
theoretical model was tested using structural
equation modelling (SEM) with Partial Least Square
software.
4 RESULTS AND DISCUSSION
4.1 Collinearity of Indicators
In a formative measurement model, the problem of
indicator collinearity may occur if the indicators are
highly correlated to each other (Wong, 2013). The
formative indicators of a latent variable are set as
independent variables, with the indicator of another
latent variable as dependent variable.
Table 1: Collinearity of indicators.
Model
Collinearity Statistics
Tolerance
VIF
Organizational
culture
.424
2.360
Organizational
innovation
.288
3.473
Learning orientation
.326
3.071
a. Dependent variable: Organizational performance
As shown in Table 1, all of the indicators’ VIF
values are lower than 5 and their Tolerance values
are higher than 0.2, so there is no collinearity
problem.ss
4.2 Reliability of Variables
Reliability test is done to find out the extent of the
measurement tools have the accuracy and precision
of measurement that are consistent over time.
Reliability instrument on this research is determined
from the value of composite reliability for each
block of indicators on reflective invalid constructs.
Rule of thumb value for cronbach's alpha and
composite reliability must be greater than 0.7, 0.6
value though still acceptable. Table 2. Will show us
about the value of composite reliability of variables
in this study.
Table 2: Reliability of variables.
AVE
Reestimation
2
Composite
Reliability
Commitment to
learning
(Learning
Orientation)
0.723968
0.724129
0.912869
Organizational
Culture
0.586465
0.578333
0.888401
Open-
Mindedness
(Learning
Orientation)
0.541055
0.539655
0.775063
Organizational
Innovation
0.566473
0.633251
0.872990
Organizational
Performance
0.717285
0.717234
0.883629
Shared Vision
(Learning
Orientation)
0.519763
0.520314
0.808037
4.3 Hypotheses testing
The hypothesis H1, H2, H3 and H4 are accepted
significantly as in Table 3, all values were above
1.96, indicating there were had significant effects in
each hypothesis. The relationship between variables
showed that influence of learning orientation
significantly on organizational innovation with value
of statistical value 2.896793 > 1.96. The effect of
learning orientation with respect to organizational
performance is significantly influence with statistical
value 7.271449 > 1.96. Organizational innovation is
significantly influenced by organizational culture
with value of 5.065154 > 1.96. Organizational
Culture has significantly influence organizational
performance by table showed statistical value by
2.921830 > 1.96. The influence of organizational
innovation to organizational performance was not
significant by statistical value for 1.784150 < 1.96.
Table 3: Hypotheses testing.
T Statistics
(|O/STERR|)
Learning Orientation ->
Organizational Innovation
2.896792
Learning Orientation ->
Organizational Performance
7.271449
Organizational Culture->
Organizational Innovation
5.065154
Organizational Culture ->
Organizational Performance
2.921830
Organizational Innovation->
Organizational Performance
1.784150
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
570
5 CONCLUSIONS
This study examined the influence of organizational
culture, learning orientation, organizational and
organizational performance on embroidery and
needlepoint SME’s in West Sumatera, Indonesia.
This research uses fifty-three respondents
questionnaires and SEM/PLS. Four of five
hypotheses were significant influences and the rest
that is one hypothesis was insignificant. It means,
the organizational culture and learning orientation
give impact on the organizational innovation and
organizational performance. But, the organizational
innovation is not really affects organizational
performance on SME.
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