The Strategy of Knowledge Management driven SOE's Innovation Capability: The

Moderating Role of Corporate Strategic Entrepreneurship towards Sustainable

Competitive Advantage

CHAPTER I
INTRODUCTION

1.1 Background

In today’s highly competitive environment the goal of each organization is to defeat

competition and win new customers. Authors (Bartes, 2009; Hamel & Green, 2007;
Senge, 2007; Barták, 2006; Collinson, 2005) agree that the 21st century is based on
knowledge, information and innovative economy. Organizations’ success depends on
employees’ knowledge, experience, creative activity and qualification and emphasis is
placed on continuous learning and research and development. Already in 1986 Tushman
& Nadler stressed that “organizations can gain competitive advantage only by managing
effectively for today while simultaneously creating innovation for tomorrow” and
suggested that “there is perhaps no more pressing managerial problem that the sustained
management of innovation”.

In this sense, the identification of knowledge assets determinants to the organizational

sustainable competitive advantage is of pivotal importance. The knowledge necessary
for corporate innovation activities is, however, more complex, and even large-scale
firms face shortages of knowledge. Given their scarce resources, firms attempt to
cooperate with other firms to acquire knowledge and resources, and engage in cross-
organizational learning to enhance innovation capability (Casanueva et al., 2013; Yli-
Renko, Autio, &Sapienza, 2001, cited in Yung-Lung Lai,2013).

The term “innovation” as such was used for the first time by Schumpeter at the
beginning of the 20th century. His ideas and research have been developed by a number
of other authors. Schumpeter defined innovations as product, process and organizational
changes that do not necessarily originate from new scientific discoveries (Žižlavský,
2011), but may arise from a combination of already existing technologies and their
application in a new kontext (Žižlavský, 2011). Finally, knowledge that individuals
acquire in the innovation process spreads to different departments, and even different
organizations. Pitra (2006) states that innovation is the result of employees’ creativity
in an organization and must be always targeted at customers and bring added value. It is
therefore necessary to realise that the inventive part is based on people’s knowledge,
skills and experience (Molina Morales, Garcia-Villaverde & Parra-Requena, 2011). The
human factor is an indispensable element in the process of innovation. Innovation
capability of an organization according to Martín-de Castro, Delgado-Verde, Navas-
López & Cruz-González (2013) depends closely on its intellectual and/or organizational
knowledge assets and on its ability to employ these assets

According to Tidd et al. (2006) innovation contributes to achieving a competitive

advantage in several aspects. The most important characteristics of innovations include:
- A strong relationship between market capability and new products.
- New products help maintain market shares and improve profitability.
- Growth also by means of non-price factors (design, quality, individualization,
etc.).
- Ability to substitute outdated products (shortening product lifecycles).
- Innovation of processes that lead to production time shortening and speed up
new product
- development in comparison to competitors.

Autant-Bernard, Fadairo & Massard (2013) in their survey also show the importance of
the role of the regional innovation and they argue that organization must have original
strategies and support the knowledge flows from and to organization. With respect to
the above said it is important – within the frame of innovations – that are a necessity in
today’s knowledge, information and innovative society – to follow large organizations
that engage in innovation and set the direction for others (Zemplinerová, 2010).

A firm is conceptualized as an institution for creating and integrating knowledge (Grant,

1996) and Innovation consists of the successful exploitation of new ideas (Amabile et
al., 1996) and is therefore associated with the creation and use of knowledge.

1
Knowledge is embedded in multiple entities within the firm, such as individual
employees, organizational culture, routines, policies, systems, and documents (Alavi
and Leidner, 2001). Researchers are also devoting particular attention to the role of
knowledge management (KM) in creating sustainable competitive advantage.
Knowledge management consists of identifying and leveraging the collective
knowledge in an organization to contribute to its capability (Von Krogh, 1998). Thus,
the capability of organizations depends on the extent to which managers can mobilize
all of the knowledge resources at their disposal and turn them into value-creating
activities (Von Krogh, 1998; Alavi and Leidner, 2001).

Fundamentally, KM consists of the creation and application of knowledge as a resource

(Spender, 1996). The KBV focuses on knowledge as the most strategically important
resource at a firm’s disposal (Grant, 1996). Effective KM may contribute to better
capability in several business processes, including the implementation of best practices
and continuous improvement, operational problem solving, functional integration, and
new product development (Ettlie and Pavlou, 2006; Marsh and Stock, 2006; Palacios
and Garrigos, 2006).

The competitive advantage (CA) will arise when there are management of knowledge
and intellectual capital exist in an organization. It is no doubt that organization’s
capability capacity it relies on these assets, knowledge and intellectual capital. The
knowledge of organization and intellectual capital may facilitate their activities and
generate income by using their critical resources, which is knowledge of its people, in
order to sustain their capabilitys, thus effectively increase the organization knowledge
assets (Kianto et al., 2014).

Successful innovations are never a one-off event, but a result of a long-term process in
which the human factor plays and important role. Innovations can only turn out to be
successful if they are supported by top management and if an innovative creative team
is developed and composed of people that may be considered knowledge employees. An
innovative team should be natural point around which the key employees of the

2
organization are gathered since the concentration of know-how in a team and its
development has a major impact on innovations in the entire organization.

In other hand, due to the globalization all sectors, companies, institutions and people
are facing intense global competition. Under this circumstance and pressure as well, for
businesses it is being more difficult to exceed their rivals and outperform. In order to
perform better than rival’s firms should gain competitive advantage which is one of the
most important subjects of management area. According to Barney (1991), in order to
have a competitive advantage a firm needs to implement a value creating strategy that is
not simultaneously implemented by any other potential competitors. In order to creating
a value, a firm should consider their resources to form a general strategy results from
the integration of strategy and entrepreneurship.

Corporate entrepreneurship is creating novel products/services, renewing the

organization, and developing entrepreneurial skills of the employees. Corporate
entrepreneurship is an antecedent of innovation. According to Kelley (2011)
commercialization of corporate entrepreneurship and innovation is a new growth source
for firms. Corporate entrepreneurship is developing new ventures or taking advantage of
new opportunities in the external environment and creating economic value (Parker,
2011). One of the points of interest in strategic management focus is the competitive
advantage of firms and the main sources of competitive advantage are resources such as
knowledge, technology, employee skills, and capabilities. Both individual and
organizational entrepreneurial activities play critical roles in the innovation process. So,
firms have to develop a corporate entrepreneurship strategy to lead in the market.

To summarize this research is to know how the effect of Corporate entrepreneurship as

moderating variable to connect Knowledge management and Innovation towards
sustaining an organization´s competitive advantage, thus the title of this research is: The
Strategy of Knowledge Management driven SOE's Innovation Capability: The
Moderating Role of Corporate Strategic Entrepreneurship towards Sustainable
Competitive Advantage.

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1.2 Research Problem

State-Owned Enterprises have a critical impact to economic growth, the next step is
how to maintain SOE’s Sustainable Competitive Advantage, Martín-de Castro et al.
(2013) say that developing successful technological innovations is essential for creating
and sustaining an organization´s competitive advantage.

The innovative activity of organizations significantly influences competitiveness which

is based on inimitable skills and abilities. Achieving higher competitiveness by means
of innovations means producing less costly products of better quality compared to those
manufactured by competitors. If an organization is not capable of introducing
innovations on an ongoing basis, it risks that it will lag behind and the initiative will be
taken over by other entities.

Knowledge management can boost the innovation as well as output capability of firms
in SOE’s. Firms should cooperate with supply chain agents, and foster industry–
academia cooperation, in an attempt to upgrade knowledge and technical management
capabilities. Corporate entrepreneurship is creating novel products/services, renewing
the organization, and developing entrepreneurial skills of the employees. Corporate
entrepreneurship is an antecedent of innovation. According to Kelley (2011)
commercialization of corporate entrepreneurship and innovation is a new growth source
for firms.

Based on those research problems, here are research question :

1. Is there the effect of the Knowledge Management Strategy on Innovation
Capability?
2. Is there the effect of Innovation Capability on Sustainable Competitive
Advantage?
3. Is there the effect of Corporate Strategic Entrepreneurship as a moderating
variable on the relationship between Corporate Strategic Entrepreneurship and
Innovation Capability on Sustainable Competitive Advantage?

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1.3 Research Objectives

The aim of the research is to present the findings of a survey targeted at innovations and
to identify knowledge as an important element in the process of innovations which was
moderated by Corporate Strategic Entrepreneurship in the framework of Sustainable
Competitive Advantage in State-Owned Enterprise in the field of Inspection, Testing
and Certification Services. The following is a description of the research objectives:

1. To know the effect of the strategy in knowledge management on the company's

innovation capabilities.
2. To know the effect that arises from the company's innovation capability towards
the Company's Sustainable Competitive Advantage.
3. To know the effect of the Corporate Strategic Entrepreneurship role as a
moderating variable on the relationship between Corporate Strategic
Entrepreneurship and Innovation Performance on Sustainable Competitive
Advantage.

1.4 Research Benefit

The benefit of this research is to explain the meaning of corporate strategic

entrepreneurship about exploration and exploitation carried out by State-Owned
Enterprises in the field of Inspection, Testing and Certification Services in Indonesia,
understanding the concept can practically reflect the company to open opportunities for
innovation opportunities in preparing strategies for companies in future, the following is
a description of the research benefits:

1. Practical Implication
The findings of this study are expected to be able to provide recommendations for
practices in BUMN Companies Inspection, Testing and Certification Services in
order to achieve sustainable competitive advantage. Recommendations can be in the
form of knowledge management strategies such as what is appropriate for
generating innovation capabilities of the company and how to implement the

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 Entrepreneurship Strategy to support the relationship between knowledge
management strategies and company performance.

2. Theory Implication

The findings generated from this study are expected to contribute to State-Owned
Enterprises in Indonesia to achieve sustainable competitive advantage through the
ability to innovate. Recommendations can be in the form of knowledge management
strategies such as what is appropriate to produce the company's innovative
capabilities and how to implement the Entrepreneurship Strategy to support the
relationship between knowledge management strategies and company performance.

3. Future Research Implication

The findings of this study are possible to provide valuable information for further
research, especially in the field of Knowledge Management, Innovation, Corporate
Entrepreneurship Strategy, and Sustainable Competitive Advantage.

1.5 Research Systematic

1. Chapter 1 : Introduction
2. Chapter 2 : Literature review
3. Chapter 3 : Methodology Research (Model and Hypothesis)
4. Chapter 4 : Research Object
5. Chapter 5 : Data Analysis and Discussion
6. Chapter 6 : Conclusion

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 BAB II
LITERATURE REVIEW

1.1 Knowledge Management Strategy

Knowledge in the new economic landscape is a critical ingredient to reach the

sustainable competitive advantage (Kane et al., 2005). Knowledge is a resthece located
in the organization core and people and knowledge management is very important as the
sthece of prosperous for organization, addressing the critical issue of organizational
adaptation, survival, and competitiveness in the face of increasingly discontinuous
environmental change (Malhotra, 2002).

KM is basically a process to extracted, process and disseminated knowledge throughout

the company, hence it can be shared and thus reused, i.e. the function of KM is to make
information useful. According to Nonaka and Takeuchi (1995), organizational
knowledge arises as the result of the dissemination of the knowledge generated
individually by organizational structures prepared to support their storage and
availability across the organization. The creation of organizational knowledge, should
be understood as a process that expands the sum of individual knowledge, securing it as
part of the organization's knowledge network.

The RBV argues that a firm can obtain sustained competitive advantage from its
controllable restheces and capabilities, while they are valuable, rare, imperfectly
imitable and non-substitutable (Barney, 1991). In the theoretical development of the
RBV, the definition for organizational restheces has been mixed. Early research tended
to define organizational restheces broadly, including assets, capabilities, organizational
structure and culture, that are valuable for firms to conceive and implement strategies
and thereby improve their outcomes (Barney, 1991).

Based on the knowledge-based review, the emergence of KM primarily concerns the

creation, access, transfer and application of knowledge assets in all fields of human
activities (Alavi and Leidner, 2001). This invisible association with knowledge assets in
an organization’s processes embodies the rise of KM in which knowledge process

7
capabilities in managing knowledge assets become the core competence of a firm to
gain competitive advantage (Gold et al., 2001; Lee and Choi, 2003).

Organizational performance is increasingly a knowledge-related issue. The two key

academic discussions addressing knowledge in organizations are the literatures of
intellectual capital and knowledge management. Several authors have discussed the two
key concepts of Intellectual Capital (IC) and Knowledge Management (KM). While the
first focuses on intangible restheces that contribute to value creation (e.g. Edvinsson and
Malone, 1997; Sullivan, 1998; Spender et al., 2013), typically in terms of human,
structural and relational capital assets governed by an organization (Bontis, 2001;
Guthrie, 2001), the latter concentrates on the knowledge-related processes and
management activities in firms (Choi and Lee, 2003; Kianto et al., 2014). In other
words, the IC literature examines the kind of intangible restheces there are in firms,
while the KM literature addresses the mechanisms by which these restheces can be
controlled and managed.

In literature, the definition of IC and its taxonothe, reflects the holistic approach of this
concept as the sum of knowledge and capabilities of employees in creating firms’ value
(Komnenic and Pokrajcic, 2012; Edvinsson and Malone, 1997). KM is defined as the
program that have been developed in order to create and disseminate the knowledge in
achieving the organization goals (Kianto et al., 2014); as the way in which "an
organization uses its IC (Bontis, 2002), and is the root in gaining, rising and ntheishing
the IC in the organizations (Marr et al., 2003).

As part of strategic management, intangible assets allude to a wider range of

components that help to create value and stand sustainable CA. Even thought, there is
no general consensus about the categorization of the KM assets and IC assets, several
theoretical and empirical approaches, use a tridimensional perspective. For instance,
Fonseca (2006) and Edwards (2011) suggest that KM is comprised of three key
dimensions: people, processes and systems.

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Based on the knowledge-based view, knowledge restheces can be categorized into
knowledge assets and process capabilities. Knowledge assets refer to any intangible
asset gained through experience and learning that can be used in a series of value
creation processes to further produce performance gains (Marr and Moustanghfir, 2005;
Miller et al.,2007). Since the work by Stewart (1997), the term of knowledge assets was
used as a synonym for intangible assets or intellectual capitals.

Knowledge assets are either the outputs of knowledge transformation processes or the
accumulated stocks of skills, knowledge and experience of organization’s workforces
(Namasivayam and Denizci, 2006). They can form the basic competences of intangible
properties that allow an organization to create and maintain competitive advantage,
most researchers agreed that knowledge assets should include at least fthe basic
components: human, relational, structural and information capital. When talking about
IC components, Edvinsson and Malone (1997); Bontis (1998); Roos et al., (1997;
2005); Sveiby (1997); Vergauwen (2007) and Santos-Rodrigues et al. (2015) (among
other researchers) consider that the IC comprise three dimensions: Human Capital (HC),
Structural/Organizational Capital (SC) and Relational/Costumer Capital (RC).

- Human capital refers to the knowledge, skill, capability, work-related

competence, experience, expertise and psychometric assessment of firm’s
employees. It is tacitly embedded in employee’s brain and cannot be owned by
the organization. Employees take it with them when they leave firms at the end
of day (Chen and Huang, 2009).
- Relational capital is defined as the knowledge of market channels and network
with external stakeholders, such as customers, suppliers and competitors, who
have the critical influence on the organization (Carson et al., 2004).
- Structural capital refers to organizational routines, organizational structure,
management processes, corporate culture, collaborative mechanisms and reward
systems that can support employees in their quest for optimal intellectual
performance (Gold et al., 2001; Lee and Choi, 2003). Researchers even argued
that structural capital includes all non-human storehouses of knowledge in an

9
 organization (Banker et al., 2006) or the knowledge that does not go home at
night (Stewart, 1997).
- Information capital is the IT portfolio of infrastructure and applications that
support organization’s processes, decision making and strategies.

The basic components of KM are knowledge creation, retention and transfer (Grant,
1996; Spender, 1996; Spicer and Sadler-Smith, 2006; Zhang et al., 2006). Knowledge
creation depends on internal and external learning (Bierly and Chakrabarti, 1996; Zhang
et al., 2006). Knowledge retention and knowledge transfer allow the organization to
have an ‘organizational memory’ by organizing and making available important
knowledge, wherever and whenever it is needed (Cegarra-Navarro and Sánchez-Polo,
2011).

- Knowledge creation includes the activities involved in the development,

acquisition, codification and storage of knowledge. In this stage, knowledge can
be developed by internal knowledge workers through research, experimentation
or experiential learning. Besides, knowledge may be acquired from external
stheces, such as market channels, customers, suppliers and competitors, through
scanning and searching (Turner and Makhija, 2006).
- Knowledge transfer refers to the distribution or dissemination of knowledge
between the point of generation and the point of use (Shin et al., 2001; Walter et
al., 2007). It can occur at various organizational levels, including individuals,
groups, departments and divisions, through both formal and informal channels
(Alavi and Leidner, 2001). Without knowledge transfer, the impact of existing
knowledge on organizational performance will be minimized. However,
knowledge transfer mabe difficult in nature, as valuable knowledge is embedded
in individuals, contexts or locations (Hoetker and Agarwal, 2007; Turner and
Makhija, 2006). Thus, fostering the abilities of an organization to promote
knowledge sharing is an important issue concerning knowledge transfer.
- Knowledge integration is defined as the abilities of a firm to organize,
restructure and interpret existing knowledge for reducing redundancy, enhancing
consistence, replacing outdated knowledge and maximizing knowledge synergy
(Gold et al., 2001). Knowledge integration cannot be performed without a

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 common representation standard, as no consistent interpretation can be finished
to render priori knowledge base into new meaningful knowledge (Turner and
Makhija, 2006). Knowledge application indicates the actual use of valuable
knowledge for developing organization’s competencies and locating the sthece
of competitive advantage.

Based on the above discussion, knowledge process capabilities are described as the
actual use of knowledge assets to create valuable knowledge through a series of
coordinated knowledge processes. More specifically, some studies have articulated the
linkage between knowledge assets, such as tangible and intangible ones, and knowledge
acquisition or dissemination (Darroch, 2005; Lee and Choi, 2003

Knowledge management involves the application of knowledge through the

operationalization of organizational practices to store and disseminate knowledge (Alavi
and Leidner, 2001).
- Knowledge dissemination practices include processes that spread explicit and
tacit knowledge across the organization, through formal and informal channels,
in order to facilitate the application of knowledge. Informal channels are useful
in exchanging ideas, but formal ones have the advantage of being more
systematic (Zahra and George, 2002). Explicit knowledge is not hard to codify
and disseminate. However, disseminating tacit knowledge is difficult and
requires interaction among employees (Nonaka, 1994; Fahey and Prusak, 1998).
Although the benefits of knowledge dissemination are widely accepted (Palacios
and Garrigos, 2006), we have to outline that these processes might involve
important costs (Lapointe and Rivard, 2005).
- Knowledge storage systems. They refer to a class of systems and procedures for
storing and managing knowledge. These systems include IT-based solutions
developed to support and enhance the processes of operational knowledge
retrieval and storage (Alavi and Leidner, 2001). Knowledge storage allows the
organization to have an ‘organizational memory’, that is internal knowledge
accumulated over time (Chang and Cho, 2008; Cegarra-Navarro and Sánchez-
Polo, 2011)

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 Tabel 2.1 : Variable Knowledge management
1 Knowledge creation and acquisition
The company establishes special project feedback to improve the performance of
future projects.
The company values the creation of new knowledge and methods through internal
cooperation
The company has good mechanisms to enctheage the employees to propose
creative or effective improvements
The company develops many creative ideas through various creative methods
The company systemizes the information collected and constructs a knowledge
system
The company records and reorganizes work knowledge as the employees' database
2 Knowledge dissemination and storage
Employees have the ability to disperse and transfer personal experience and
knowledge in the organizations
The company can completely preserve professional techniques and knowledge of
work.
Employees of the company can obtain data required for work from databases or
other members
Employees of the company usually communicate with other members to solve
work problems
The company has complete management mechanisms for professional techniques
and knowledge
The company manages professional techniques, knowledge, and content by a
computer system

3 Intellectual Capital
efficient and relevant information system to support business operation
having tools and facilities to support cooperation between employees
Having a great deal of useful knowledge in documents and databases
Existing documents and solutions are easily accessible
4 Human Capital
Having highly motivated in their work
having a high level of expertise
5 Internal Relational Capital
Different units and functions within the company – such as R&D, marketing and
production understand each other well
Internal cooperation in the company runs smoothly

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 Kerja sama internal di perusahaan kami berjalan dengan lancer
6 External Relational Capital
The company and its external stakeholders – such as customers, suppliers and
partners – understand each other well
Cooperation between the company and its external stakeholders runs smoothly
7 Structural Capital
Having acquired a great deal of new and important information
Having acquired a great deal of important skills and abilities
The company can described as a learning organization
The operations of the company can be described as creative and inventive
8 Informational Capital
The organization has processes in place to distribute knowledge throughout the
organization
The organization has formal processes to share the best practice among the different
fields of activities
The organization can generate new knowledge from existing knowledge
The organization has processes for using knowledge to develop new products or
services

2.2 Corporate Entrepreneurship as a Sustainable Strategy

Corporate entrepreneurship has provided organizations established for various purposes,

including profitability (Vozikis et al., 1999; Zahra, 1993), strategic strategies (Guth and
Ginsberg, 1990), innovation (Baden-Fuller, 1995), finding out developing waves future
income (McGrath et al., 1994), international success (Birkinshaw, 1997), and regulating
effective restheces as a path to developing competitiveness (Borch et al., 1999; Covin
and Miles 1999; Covin et al. 2000 ; Covin et al. 2003; Kuratko et al. 2009).

Kuratko and Audretsch (2013) attempted to provide a clear understanding of what

comprises the concept of CE. Outlining the depiction used by Morris et al. (2011) CE
can be manifested in companies either through corporate venturing (CV) or strategic
entrepreneurship (SE).

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 Figure 1. Model of corporate entrepreneurship Morris et al, (2008)
Corporate venturing includes various methods for creating, adding to or investing in
new businesses (Covin et al, 2003). Corporate venturing has as their commonality the
adding of new businesses (or portions of new businesses via equity investments) to the
corporation. This can be co-operative corporate venturing and external venturing. By
contrast, strategic entrepreneurship approach has as their commonality the exhibition of
large-scale or otherwise highly consequential innovations that are adopted in the firm’s
pursuit of competitive advantage. These innovations may or may not result in new
businesses for the corporation. With strategic entrepreneurship approaches, innovation
can be in any of the 5 areas the firm’s strategy, product offerings, served markets,
internal organization (i.e. structure, processes and capabilities) or business model
(Morris et al. 2008).

2.2.1 Corporate Venturing

Corporate venturing activities have generally been categorized in two main activities.
The first activity would be any innovation that is created within the firm, referred to as
internal corporate ventures (ICVs). With internal CV, new businesses are created and
owned by the corporation and typically reside within the current corporate structure.
The second activity would be any innovation that is created outside of the firm, referred
to as external corporate ventures (ECVs). External CV involves new businesses that are
created by parties outside the corporation and subsequently invested in or acquired by
the corporation. These external businesses are typically very young ventures or early
growth-stage firms (Covin and Miles 2007; Morris et al. 2011).

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 Miles and Covin (2002) reported that firms pursue CV for three primary reasons: (1) to
build an innovative capability as the basis for making the overall firm more
entrepreneurial and accepting of change; (2) to appropriate greater value from current
organizational competencies or to expand the firm’s scope of operations and knowledge
into areas of possible strategic importance; and (3) to generate quick financial returns.

2.2.2 Strategic Entrepreneurship

Strategic entrepreneurship approaches refer to a broad array of significant entrepreneurial

activities or innovations that are adopted in the firm’s pursuit of competitive advantage
which usually do not result in new businesses for the corporation. With strategic
entrepreneurship approaches, innovation can be found within any of five areas—the
firm’s strategy, product offerings, served markets, internal organization (i.e., structure,
processes, and capabilities), or business model (Kuratko and Audretsch 2013). These
innovations can also represent a firm’s fundamental differentiation from its industry
rivals.

Hence, there are two possible reference points that can be considered when a firm
exhibits strategic entrepreneurship: (1) how much the firm is transforming itself relative
to where it was before (e.g., transforming its products, markets, internal processes, etc.)
and (2) how much the firm is transforming itself relative to industry conventions or
standards (again, in terms of product offerings, market definitions, internal processes, and
so forth).

Strategic entrepreneurship can take one of five forms—strategic renewal (adoption of a

new strategy), sustained regeneration (introduction of a new product into an existing
category), domain redefinition (reconfiguration of existing product or market categories),
organizational rejuvenation (internally focused innovation for strategy improvement), and
business model reconstruction (redesign of existing business model), (Covin and Miles
1999; Hitt et al. 2001; Ireland et al. 2003; Ireland and Webb 2007; Morris et al. 2011).

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Furthermore, Corporate Entrepreneurship refers to the process of creating new business
within established firms to improve organizational profitability and enhance a firm’s
competitive position or the strategic renewal of existing business (Zahra, 1991).
Corporate entrepreneurship is a process of organizational renewal (Sathe, 1989) that has
market developments by undertaking product, process, technological and administrative
innovations. The second dimension of corporate entrepreneurship embodies renewal
activities that enhance a firm’s ability to compete and take risks (Miller, 1983).
According to Kuratko et al, (1990), the need to pursue corporate entrepreneurship has
arisen from a variety of pressing problems including:
- Required changes, innovations, and improvements in the marketplace to avoid
stagnation and decline (Miller and Friesen, 1982);
- Perceived weakness in the traditional methods of corporate management; and
- The turnover of innovative-minded employees who are disenchanted with
bureaucratic organizations.
Corporate entrepreneurship helps to respond to these new competitive forces, either
through innovations or imitating competitor’s practices (Dess and Beard, 1984; Miller,
1987; Russel, 1995; Zahra, 1991). According to Damanpthe (1991), Innovation would
include “… the generation, development, and implementation of new ideas or
behaviors. An innovation can be a new product or service, an administrative system, or
a new plan or program pertaining to organizational members.”
Table 2.2 : Variable Corporate Entrepreneurship Strategy
1 Corporate Entrepreneurship Strategy
In general, the top managers of the firm prefer to lead the industry in new product
introductions
In general, the firm is often the first to introduce new products in the industry
In general, the top managers of the firm respond to competitors by introducing new
product innovations
In general, the top managers of the firm prefer to be ahead of the competition when
introducing new products
Commitment to learning
The company strives to improve employee skills
The company continues to explore employee expertise

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 The learning process given to employees is an investment for the company
Share vision
The employee is committed to achieving the goals of the company
The owner of the company and its employees have goals that are in line
Open Mindedness
The company provides an opportunity for employees to dare to issue ideas and ideas
The company stimulates employees to take risks and teach responsibility
The company accommodates complaints and suggestions from customers
The company conducts regular evaluations regarding business activities carried out
2 Entrepreneurial Orientation
Proactive
In general, company leaders have a great deal of attention regarding the process of
business research and development, technological innovation
In dealing with competitors, the company is often the first to introduce new products or
new services
There are administrative techniques and operating technologies
In general, the company leaders have a strong tendency to be at the forefront of other
competitors in terms of introducing new products
In dealing with competitors, the company often leads the competition and starts
movements that will be responded by competitors
In dealing with competitors, companies use competitive techniques to defeat competitors
Risk Taking
In general, the company leaders have a tendency to work on high-risk project projects
with high profit rates
When there is uncertainty the company is usually more likely to "wait and see" to avoid
losses that might be suffered
Innovation
The management of the company actively pays attention to and responds to the
application of innovations by competitors
We are willing to try new ways to do new things and always look for new, unusual
solutions
We encourage people to think and act with a new approach

2.3 Innovation Capability

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Innovation is a critical of competitive advantage (Hult et al, 2004). Current literature
has documented innovation’s outcomes, nature, and categorization (for example,
products, services and processes) (Schumpeter, 1994; Tidd et al, 1997). Adler and
Shenbar (1990) delineate two types of innovation capability; developing new products
and applying appropriate processes or technologies to produce them. Christensen (1995)
proposes fthe generic categories of innovative assets: scientific research, process-
innovative, product-innovative and aesthetic design assets. One major sthece of
innovation is internal R&D drawing on the firm’s accumulated knowledge (Knight and
Cavusgil, 2004). Therefore, the notion of innovation capability applies to new process
technologies, product technologies, R&D and, furthermore, how a particular production
technique or facility is chosen, organized and managed.

Innovation capability (IC) as the firm’s ability to sense, acquire and utilise new
technologies, ideas, and approaches, not only to develop new solutions but also to
enhance organizational process across the organization. IC is the ability to sense
environmental changes, quickly introduce new products, and adopt new processes in
order to create competitive advantage. As Kim (1997) claims, IC is the creation of new
and useful knowledge based on previous knowledge, and is tacit and non-modifiable,
and thus a special asset of a firm. The importance of IC derives from the fact that it is
presumed to contribute to the dynamic competitive advantage of companies, since it
enhances their capacity to keep up with, respond to, and initiate technological changes
on an on-going basis.

Therefore, IC is a decisive dynamic capability, since it is not only a firm’s proclivity or

inclination to adopt ideas but also a willingness to forgo old habits, and an activity
involved in experimental execution of untested ideas. According to Košturiak &Chaľ
(2008), Skarzynski & Gibson (2008), Tidd, Bessant & Pavitt (2007) an innovative
process can be divided into two essential parts. One part is inventive – associated with
the generation of the original idea, thought or concept – and the second innovative,
during which the invention is implemented and marketed. Innovation Capability splits
into two variables, with five items for market performance and five itemsfor product
performance (10 items):

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 Table 2.3. Innovation Capability
1 Market performance
Customers of the company have high demand for products and techniques
Customers of the company are highly satisfied with products and techniques
Market share of the company increases continuously
Market share of the company increases continuously
Profit rate of the company is increasing year by year
2 Product performance
Senior supervisors are highly satisfied with innovative products and techniques
Because of the development of product innovation, frequency of design and
revision is lower
Because of product innovation development, manufacturing costs of similar
products are lower
Because of product innovation development, time of similar products to the
matrix is shortened
The company's product innovation programs are usually successful
New Product introduction rate relative to largest competition
New product success rate relative largest competitor
Degree of product differentiation
First to market with new applications
New product cycle time (i.e. inception to rollout) relative to competition)
3 Product Innovation
The firm is able to replace obsolete products
The firm is able to extend the range of products
The firm is able to develop environmentally friendly product
The firm is able to improve product design
The firm is able to reduce the time to develop a new product until its launch in
the market
4 Process innovation
The firm is able to create and manage a portfolio of interrelated technologies
The firm is able to master and absorb the basic and key technologies of business
The firm continually develops programs to reduce production costs
The firm has valuable knowledge for innovating manufacturing and
technological process
The firm has valuable knowledge on the best processes and systems for work
organization

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 The firm organizes its production efficiently
The firm assigns restheces to the production department efficiently
The firm is able to offer environmentally friendly processes
The firm manages production organization efficiently
The firm is able to integrate production management activities

In an attempt to address the sustainability issue regarding corporate entrepreneurship,

Miles et al. (2009) propose a different model. Their model focuses on innovation as its
core element. According to the categorization they use there are five types of different
innovations, namely product innovations, process innovations, strategy innovations,
business model innovations, and domain innovations. These different types of
innovations help create a sustainable corporate entrepreneurship as long as they lead to
social accountability, economic performance, and environmental management.

2.4 Sustainable Competitive Advantage

Landscapes and environmental conditions and business climate that are always
changing rapidly and uncertainly, even in some cases, these changes have a significant
impact that affects the core competencies of the company (Frederikson and Mitchell,
1984). For this reason, an organization strives to achieve "sustainability" so that the
excellence they achieve can be maintained. Sustainable competitive advantage comes
from the implementation of a strategy that adds something value (Barney, 1991), and
depends on the superiority of the strategy itself which can be offered several favorable
provisions or blocking their ability to achieve large results (Besanko, 2000).

According to Ana Isabela Torres et.al., (2018), that in fact competitive advantage (KK)
will grow when there is knowledge management and intellectual capital that exists
within an organization. It can be said that an information and knowledge is a real /
actual weapon for an organization to show its superiority.
Table 2.4 : Sustainable Competitive Advantage
SCA Sustainable Competitive Advantage
The firm frequently organizes customer meets
The firm is more customer caring than other firm

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The firm provides superior services than other firms
Sustainable Competitive Advantage
The quality of the products or services that the firm offers is better than that of the
competitor’s products or services
The firm is more capable of R&D than the competitors
The firm has better managerial capability than the competitors
The firm’s profitability is better
The corporate image of the firm is better than that of the competitors
The competitors are difficult to take the place of the firm’s competitive advantage

22
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