Eco-oriented culture and financial performance: roles of innovation strategy and eco-oriented continuous improvement in manufacturing state-owned enterprises, Indonesia

Abstract

This study focuses on investigating the mediating effect of innovation strategy and eco-oriented continuous improvement on the relationship between eco-oriented culture and corporate financial performance. This study provides empirical evidence to the resource-based theory stating that a corporate needs to have valuable, rare, inimmitable, and nonsubstitutable resources to remain competitive. Organization culture, innovation and continuous improvement capabilities are considered as the critical resources that must be developed by a corporate to gain competitive advantage. This study is designed as quantitative research using a variance-based or the partial least square structural equation modeling (PLS-SEM). Study on 103 managers of the manufacturing state-owned enterprises (SOEs) in Indonesia reveals that innovation strategy and eco-oriented continuous improvement partially mediate the relationship between EOC and corporate financial performance. This study contribute to provide greater understanding regarding the need to consider eco-orientation within a corporate life. It implies that for boosting the corporate financial performance, a corporate needs to adapt the eco-orientation and understand the mechanism on how eco-oriented culture affects corporate financial performance using innovation strategy and continuous improvements in eco-oriented operation management processes, customer management processes, innovation management processes, as well as regulatory and social processes. A strong eco-oriented culture will lead to beneficial innovations and eco-oriented continuous improvement; hence it has a positive association to financial performance. Many studies have been conducted on how a culture affects financial performance. However, there are still few studies describing the mechanism of how a culture can improve financial performance using innovation strategy and eco-oriented continuous improvement, especially in the context of environmental issues and in a developing country. Focusing on explaining the mediating effect, this study employs a more comprehensive structural model integrating four eco-oriented variables.