THE EFFECT OF STRATEGIC FLEXIBILITY, STRATEGIC INNOVATION, JOB SATISFACTION AND EMPLOYEE PERFORMANCE: STUDY ON SMALL AND MEDIUM CLOTHING INDUSTRY IN EAST JAVA PROVINCE

Abstract

Objective: This study investigates the relationships between strategic flexibility, strategic innovation, job satisfaction, and employee performance in Small and Medium Enterprises (SMEs) within East Java’s clothing industry. The research specifically aims to examine the mediating role of job satisfaction in these relationships. Theoretical Framework: The study is grounded in organizational behavior and strategic management theories, proposing that strategic flexibility and innovation positively influence job satisfaction, which in turn enhances employee performance. Job satisfaction is posited as a mediator that impacts the effect of strategic flexibility and innovation on employee outcomes. Method: The research employs an explanatory design with Partial Least Squares (PLS) analysis to test hypotheses and establish causal relationships. Data were collected from 160 employees in East Java’s clothing sector through stratified random sampling. A Likert scale-based questionnaire was utilized to measure variables, and SmartPLS 3.0 was used for data analysis. Results and Discussion: The findings indicate that strategic flexibility significantly enhances both job satisfaction and employee performance. Strategic innovation impacts employee performance indirectly by improving job satisfaction. The mediation analysis reveals that job satisfaction fully mediates the relationship between strategic innovation and employee performance, and partially mediates the effect of strategic flexibility on performance. Research Implications: The study underscores the effectiveness of PLS analysis in exploring these relationships and offers insights into how SME managers in East Java can improve employee outcomes by focusing on strategic flexibility, innovation, and job satisfaction. Originality/Value: This research contributes to the literature by highlighting the mediating role of job satisfaction in the relationship between strategic management practices and employee performance. The findings provide practical recommendations for SME managers to enhance performance by prioritizing employee satisfaction and adaptability.