The central role of business model innovation on firm performance in the creative industry

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This study examines variables that are within the organization, namely transformational leadership, innovation culture and information technology as antecedents of business model innovation and measures their impact on firm performance.

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International Journal of Mechanical Engineering and Technology (IJMET) Volume 10, Issue 03, March 2019, pp. 457-465. Article ID: IJMET_10_03_047 Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=10&IType=3 ISSN Print: 0976-6340 and ISSN Online: 0976-6359 © IAEME Publication Scopus Indexed THE CENTRAL ROLE OF BUSINESS MODEL INNOVATION ON FIRM PERFORMANCE IN THE CREATIVE INDUSTRY Indrawan Nugroho BINUS Business School, Doctor of Research in Management Bina Nusantara University, Jakarta Indonesia Harjanto Prabowo BINUS Business School, Doctor of Research in Management Bina Nusantara University, Jakarta Indonesia Firdaus Alamsjah BINUS Business School, Doctor of Research in Management Bina Nusantara University, Jakarta Indonesia Mohammad Hamsal BINUS Business School, Doctor of Research in Management Bina Nusantara University, Jakarta Indonesia ABSTRACT Previous studies on business model innovation were considered to have several problems specifically related to the clarity of the construct and gaps with antecedents, contingency and results. Most researches focused on variables outside the organization as antecedents of business model innovation. This study examines variables that are within the organization, namely transformational leadership, innovation culture and information technology as antecedents of business model innovation and measures their impact on firm performance. The study was conducted on 196 firms in the creative industry in Indonesia. Structural Equation Model was used to analyse statistical data. The result shows that transformational leadership, innovation culture and information technology do not directly impact firm performance. They need to be mediated by business model innovation. Keywords: Transformational Leadership, Innovation Culture, Information Technology, Business Model Innovation, Firm Performance http://www.iaeme.com/IJMET/index.asp 457 editor@iaeme.com
The Central Role Of Business Model Innovation On Firm Performance In The Creative Industry Cite this Article: Indrawan Nugroho, Harjanto Prabowo Firdaus Alamsjah, and Mohammad Hamsal, The Central Role of Business Model Innovation on Firm Performance in The Creative Industry, International Journal of Mechanical Engineering and Technology, 10(3), 2019, pp. 457-465. http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=10&IType=3 1. INTRODUCTION In recent years, research examining the role of business model innovation on firm performance has emerged [1-3]. However, analysis on 150 scientific studies related to business model innovations published between 2000 and 2015 concluded that those studies had several problems specifically related to the clarity of the construct of business model innovation and having gaps with antecedents, contingency and the results [4]. In regard to antecedents, previous researches focused on variables outside the organization as antecedents of business model innovation, such as competitors' business strategy and environmental constraints [5], disruptions and increasingly intense global competition [6], shifting of the basis of competition [7] and unexpected changes to the business environment [8]. Different from those previous researches, this study seeks to examine the variables that are within the organization, also called internal drivers, namely transformational leadership, innovation culture and information technology as antecedents of business model innovation and measure their impact on firm performance. Research on the internal drivers of business model innovations such as these are still very rarely done [4]. This research was conducted on 196 firms in the creative industry in Indonesia. Creative industry was chosen for its strategic contribution to the economic growth of a region or country [9-11]. From the point of view of scientific studies, currently researches carried out in the creative industry are still very few compared to researches in other industrial sectors [12]. In addition, existing those researches focus more on the role of government policy on the growth of creative industries [13-17]. Other studies focus on the technical aspects of creative industries, such as online sales [18], information technology utilization [19], cultural features [20] or marketing [21]. Hence, this research is expected to contribute to the study of business model innovation along with its internal drivers and its impact on firm performance in the creative industry in Indonesia. 2. LITERATURE REVIEW Transformational leadership is a leadership style where leaders encourage their team members to give their best efforts in achieving something higher than what they previously set for themselves [22]. Transformational leadership has positive and significant influence on employee empowerment and organizational climate that supports innovation [23]. This influence creates strong cultural consensus that may encourage or inhibit innovation in the company [24]. Previous study showed that corporate leaders with transformational leadership style have significant influence on employees' innovative behavior [25]. They trigger employee creativity both at the individual and organizational level [26]. While previous studies confirm positive influence of transformational leadership on innovation in the organization [27-28], studies that specifically measured the influence of transformational leadership on business model innovation were still very few. Some did not even directly measure both variables [29]. In this study, business model innovation is defined as the reconfiguration of various activities in the current business model which is new in the market where the company competes [30]. Innovation culture is defined as a multi-dimensional context that includes the intention to apply innovation, infrastructure that supports innovation, values and market-oriented http://www.iaeme.com/IJMET/index.asp 458 editor@iaeme.com
Indrawan Nugroho, Harjanto Prabowo Firdaus Alamsjah, and Mohammad Hamsal behaviors and the environment to implement innovation [31]. Many studies have shown positive correlations between organizational culture and radical innovation such as innovation on business models of the firms [32-33]. Another study showed CEO’s positive perceptions on the effects of innovation culture that support the process of business model innovation in their firm [34]. Information technology can be defined as a general terminology that represents software, hardware, technical information and telecommunications management, applications and tools used to create, analyse, process, package, distribute, retrieve, store and transform information [35]. The role of information technology in firms has developed from previously only focusing on improving efficiency or automation, to becoming an important tool that enables firms to build flexible business networks between organizations. Hence, firms adopt information technology at different levels [36]. This level of utilization of information technology in the firm becomes key that determines the impact of information technology on firm performance [37]. Empirical study proved that firms that have high information technology capabilities tend to outperform other firms in terms of profit and other cost-based performance measures [38- 39]. Information technology is indeed a high value contributor to firm performance, but the level of contribution varies depend on internal and external factors [40]. However, previous studies also stated that information technology cannot be seen as a magic bullet that automatically creates competitive advantage but must be seen as a lever for the success of a firm’s business strategy [36]. Information technology inspires business strategies or the design of more radical business models [35]. Ordinary technology that is executed using sophisticated business model can produce greater value for the firm compared to sophisticated technology exploited using ordinary business models [1]. Business models that have certain level of newness can also improve firm performance [41]. In short, business model innovation is key to transformational business growth [2-3]. Although there have been many studies examined the relationship between business model innovation and firm performance [42-43], no previous study has specifically examined business model innovation as a mediating variable between the impact of information technology and innovation culture on firm performance. 3. RESEARCH METHODS This study is conducted on firms in the creative industry in Indonesia. 309 questionnaires were distributed to firms from all 16 sub-sectors of creative industry. 196 questionnaires were deemed useable and have been entered for analysis in SPSS 23.0 and AMOS 23.0. This study used six anchored Likert scale (1 for strongly disagree to 6 for strongly agree) through self- administered questionnaire. The questionnaires were filled by firm’s owners or senior level managers of the firm. Structural Equation Modelling (SEM) method is used for the analysis of this study. Goodness of fit test was carried out to check whether the model is truly representing the population. Validity and reliability test of the questionnaire were conducted. Trimming model was used to eliminate variables or dimensions that have no significant standardized loading factors. Lastly, hypothesis testing was carried out on all hypotheses of this study. 4. DISCUSSION OF RESULTS Testing of the instruments used for this study were conducted on 30 creative industry firms. It was carried out to see if all indicators used in the instrument were good enough or if revisions to the instrument were needed to be done by removing or revising the indicators. The result showed that the instruments used in this study can be considered reliable. The Cronbach's http://www.iaeme.com/IJMET/index.asp 459 editor@iaeme.com
The Central Role Of Business Model Innovation On Firm Performance In The Creative Industry Alpha for each measured variable is above 0.7 and for each item, the value of Corrected Item- Total Correlation is above 0.3. Therefore, this measuring instrument can be used for the actual sample of the population that was the target of this study. The goodness-of-fit index produced from testing the measurement model shows the suitability of the measurement model with data 2 (444) = 715,767; p = 0,000; SRMR = 0.050; RMSEA = 0.056 (90% CI = 0.048 - 0.063) (good fit); TLI = 0.930 (acceptable fit); CFI = 0.937 (acceptable fit)). A good goodness-of-fit index in this measurement model shows that all variables in the study are well measured through the measuring instruments used, so that testing of structural models and hypothesis testing can be done. Figure 4.1 below shows the measurement model of the research. Figure 4 1. Measurement Model of the Research Meanwhile the goodness-of-fit index resulted from testing the structural model (as shown in figure 4.2 below) also shows the suitability of the measurement model with data (2 (445) = 727,782 p = 0,000; SRMR = 0.055; RMSEA = 0.057 (90% CI = 0.050 - 0.064) (good fit); TLI = 0.927 (acceptable fit); CFI = 0.934 (acceptable fit)). Therefore, the structural model used in this study is considered to have represented the phenomenon to be studied. http://www.iaeme.com/IJMET/index.asp 460 editor@iaeme.com
Indrawan Nugroho, Harjanto Prabowo Firdaus Alamsjah, and Mohammad Hamsal Figure 4 2. Structural Model of the Research There are nine hypotheses proposed in this study. Table 4.1 below lists the hypothesis and show the results of all hypothesis testing. Table 4 1 Results of Hypothesis Testing Hypotheses B t-value LLCI ULCI Result H1: TL  IC 0,448* 7,661 0,314 0,599 Accepted H2: TL  BMI -0,002 -0,014 -0,285 0,254 Rejected H3: IC  BMI 0,714* 3,493 0,211 1,290 Accepted H4: TL  FP 0,109 0,932 -0,183 0,379 Rejected H5: BMI  FP 0,546* 4,825 0,311 0,805 Accepted H6: IC  FP -0,002 -0,010 -0,731 0,584 Rejected H7: TL  IT 0,588* 7,602 0,416 0,753 Accepted H8: IT  BMI 0,374* 4,645 0,231 0,549 Accepted H9: IT  FP 0,117 1,332 -0,075 0,310 Rejected *p
The Central Role Of Business Model Innovation On Firm Performance In The Creative Industry that form the basis of previous research, resulting in different conclusions. Second, the role of transformational leadership requires appropriate mediation variables to influence firm performance [44]. Third, transformational leadership needs to be combined with transactional leadership to be able to exert maximum influence on firm performance [45]. Nevertheless, transformational leadership has a positive and direct impact on information technology. This finding reinforces previous researches which concluded that transformational leadership has a positive relationship with the perception of the value of benefits from the use of information technology [46], as well as the level of information technology adoption in companies [47] and improvement performance expectations, business expectations, and social influences related to the implementation of information technology [48]. In regard to innovation culture, the test results show that innovation culture has a positive and direct impact on business model innovation. This finding support previous studies [32-34]. However innovation culture does not have a direct impact on firm performance. This finding does not contradict previous research because mostly they did not specifically use innovation culture as a variable. Therefore, the results of hypothesis testing in this study has made contribution to the studies on innovation culture, especially its influence on firm performance in creative industry in Indonesia. The results of the hypothesis testing show that information technology has a positive and direct impact on business model innovation. This is consistent with previous research which concluded that information technology is an enabler for the implementation of the design of a business model [36]. Information technology also inspired business strategies or the design of more radical business models [35]. However, information technology does not play a direct role on firm performance. Explanation of the rejection of this hypothesis might be because the value of the contribution given by information technology to firm performance depends on internal and external factors [40] or in other words, information technology requires mediating variable to impact firm performance. In regards to business model innovation, the test results show positive and direct impact of business model innovation on firm performance. This is consistent with previous researches [1-3, 41]. 5. CONCLUSION This study concludes that business model innovation has a central role in the firm performance in the creative industry in Indonesia. None of the four independent variables in this study has direct influence on firm performance except business model innovation. Innovation culture and information technology must be mediated by business model innovation to impact firm performance. Meanwhile transformational leadership needs to be mediated by two variables, namely innovation culture or information technology and business model innovation to be able to impact firm performance. Therefore, firms in the creative industry in Indonesia should begin to seriously invest in the development of business model innovations that can provide a competitive advantage, as such investment will directly impact financial and market performance of the firm. In order to do so, leaders in the firms need to practice transformational leadership. Such leadership style is key to the formation of innovation culture and utilization of information technology, both of which are enablers for the development of business model innovations. http://www.iaeme.com/IJMET/index.asp 462 editor@iaeme.com
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