How to cite:
Akbar Pahlevi, Rahab Rahab. (2022). The Effect of Innovation, TQM
Implementation and Entrepreneurship Orientation on Competitive
Advantage Strategies in Building MSME Performance. Journal
Eduvest. Vol 2(8): 1.503-1.513
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Eduvest –Journal of Universal Studies
Volume 2 Number 8, August, 2022
p-ISSN 2775-3735-e-ISSN 2775-3727
THE EFFECT OF INNOVATION, TQM IMPLEMENTATION
AND ENTREPRENEURSHIP ORIENTATION ON
COMPETITIVE ADVANTAGE STRATEGIES IN BUILDING
MSME PERFORMANCE
Akbar Pahlevi
1
, Rahab Rahab
2
1,2
Universitas Jenderal Soedirman,
1
Wijayakusuma Purwokerto, Indonesia
Email: [email protected]
1
, rahab@unsoed.ac.id
2
ABSTRACT
The number of MSMEs engaged in timber requires companies
to determine strategies that can make MSMEs seek and retain
consumers. A model of MSME business continuity has been
developed by placing the dependent variable on company
performance as a proxy for MSME business continuity. In this
model there are three antecedents of business continuity
which include innovation, entrepreneurial orientation and
TQM. In this study, the total population of wood processing
MSMEs was 189 MSMEs spread across Banyumas which were
recorded at the Banyumas Cooperatives and MSMEs Service.
The data was collected by using a questionnaire and using
measurements with a Likert scale. This research concluded
that innovation and entrepreneurial orientation play an
important role in creating a competitive advantage strategy
for MSMEs in Banyumas Regency
KEYWORDS
Organizational Politics, Commitment, Satisfaction, OCB
This work is licensed under a Creative Commons
Attribution-ShareAlike 4.0 International
INTRODUCTION
One of the business entities that contribute to economic growth is Micro, Small and
Medium Enterprises (MSMEs). The development of micro, small and medium enterprises
(MSMEs) is strived to be able to reach and evenly reach rural areas. Data from the Ministry
of Cooperatives and Small and Medium Enterprises in 2014 stated that there were around
Akbar Pahlevi, Rahab Rahab
The Effect of Innovation, TQM Implementation and Entrepreneurship Orientation on
Competitive Advantage Strategies in Building MSME Performance 1.504
57.8 million MSME actors in Indonesia with a labor absorption rate of around 97 percent
of the entire national workforce. The profile of MSMEs in Banyumas Regency is 128,133
units and is divided into nine business sectors. If detailed, the MSMEs in Banyumas
Regency can be seen in the following table:
Table 1. MSME Sector in Banyumas Regency
Sector MSMEs
Percentage
Agriculture, animal husbandry, forestry and timber
40,16
Mining and excavation
2,18
Processing industry
19,29
Electricity, gas and clean water
0,18
Building
0,98
Trade, hotel and restaurant
21,85
Transportation and communication
7,78
Finance, leasing and services
1,18
Private services
7,08
Total
100,00
Source: Department of Industry, Trade and Cooperatives, Banyumas Regency, 2020
Table 1 shows that MSMEs in Banyumas Regency are engaged in agriculture,
animal husbandry, forestry and timber for 40.16 percent of the total MSME businesses.
The number of timber companies that have sprung up, requires companies to compete
competitively in finding or retaining consumers. The emergence of intense competition
between companies, makes companies need a good marketing strategy so that consumers
do not switch to other products. Marketing strategy is a way for companies to market
products as something that is offered in order to achieve the company's long-term targets.
Strategy is also defined as a pattern or activity plan regarding how businesses compete, the
goals to be achieved and what policies are needed to achieve the goals.
A model of MSME business continuity has been developed by (Al-Dhaafri et al.,
2016) by placing the dependent variable on company performance as a proxy for MSME
business continuity. In this model, there are two antecedents of business continuity which
include entrepreneurial orientation and total quality management. The findings of the
model show that the determination of entrepreneurial orientation and Total Quality
Management (TQM) simultaneously on business continuity is 71%, so it is recommended
for further researchers to complete several variables. That TQM is a variable about people
and processes so that the resulting results can be trusted to be generalized to each type of
company. Therefore, the future model should place business continuity as a separate
variable from the company's performance. The last recommendation of Dhaafari (2016) is
the importance of a research approach to detect dynamic changes in the relationship
between variables through the process. As a development of this model, this research
includes innovation as a new antecedent variable.
(Valeria, 2017) concludes that companies need technological innovation, market
product variations, fast processes to keep up with business developments. Especially for
SMEs, the determination and selection of new strategies is needed to continue to survive.
MSMEs need to make strategies that are right on target to face today's competition. MSMEs
need to innovate or create new products that keep up with the times so that consumers are
interested in the market. Innovation assessment is carried out as a company mechanism to
adapt to changes in the business environment (Setiawan, 2012). Companies that are able to
innovate and be sustainable in business will be able to increase the value of a company,
which allows a company to gain a competitive advantage as a market leader (Schroeder et
al., 2018).
Eduvest –Journal of Universal Studies
Volume 2 Number 8, August 2022
1.505 http://eduvest.greenvest.co.id
MSMEs in addition to innovating, also need other strategies by implementing
TQM which is a management management system and MSME services for customer
satisfaction. TQM is used to increase sales, profit and competitiveness of the company
(Tjiptono & Diana, 2003). TQM provides direction on the quality standards of the
performance of MSME companies with a philosophy of tools to improve existing quality
(Sallis, 2006). The quality of MSMEs is the main thing, so the important role of TQM in
improving the quality of MSMEs occurs in every company development, this is because
many MSME business actors are only concerned with profit without looking at the
continuation of the business which will have an impact on MSME products, and ultimately
have an impact on consumer satisfaction itself.
TQM in SMEs plays an important role in providing customer satisfaction through
prevention and reducing the causes of errors. MSMEs that implement TQM will treat
personnel to work properly from the start and continuously, so that MSMEs that have
implemented the concept well will have an impact on increasing sales and company profits.
Based on research by (Mulyani & Wijayani, 2017), it states that the implementation of TQM
that is carried out optimally affects management performance with improvements from
each stage of management carried out so as to increase sales from the company.
Micro, Small and Medium Enterprises (MSME) in running their business also
require an entrepreneurial orientation because this is the main capital for Micro, Small and
Medium Enterprises (MSME) to go through a period of doing business. The influence of
entrepreneurial orientation with the company's own performance is the main capital for
Micro, Small and Medium Enterprises (MSME) to develop. Because without an
entrepreneurial orientation, Micro, Small and Medium Enterprises (MSME) will be easily
shaken because they are not based on the main capital, namely entrepreneurial orientation.
Entrepreneurship orientation is a way for Micro, Small and Medium Enterprises (MSME)
to form and maintain their business by prioritizing creativity, courage to take risks and
innovation by working hard.
Moving from the phenomenon of business competition, researchers want to do
research in the field of wood processing SMEs. This study will take samples from the
owners or entrepreneurs of wood processing in Banyumas. Researchers want to review how
MSME actors engaged in the wood processing industry are able to maintain competitive
advantage, business continuity and review the performance of their company's
performance, through several research variables that researchers try to examine through
questionnaire questions.
In this study, the researchers took the key variable, namely Competitive
Advantage, which will examine how much the values of Competitive Advantage in this
wood-processed MSME are in increasing the value of the Company's Performance. The
basic variables that the researcher wants to take are Innovation, Total Quality Management
(TQM) and Entrepreneurship Orientation from these business people. In the academic field,
there have actually been many studies that have been researched on Total Quality
Management (TQM), innovation, and entrepreneurial orientation on the business
performance of a company through the core variable, namely competitive advantage. This
study was conducted to find out whether Total Quality Management (TQM),
entrepreneurial orientation, and innovation have an effect on competitive advantage so as
to improve company performance
The Effect of Innovation, TQM Implementation and Entrepreneurship Orientation on
Competitive Advantage Strategies in Building MSME Performance 1.506
RESEARCH METHOD
In this study, the total population of wood processing MSMEs was 189 MSMEs
spread across Banyumas which were recorded at the Banyumas Cooperatives and MSMEs
Service. The data was collected by using a questionnaire and using measurements with a
Likert scale where the questions in the questionnaire were made in the form of statements
using a scale of 1-5. Then it was analyzed using PLS (partial least square) quantitative
analysis tool.
There are four indicators used to measure innovation (Ebrahimi et al., 2016; Lee &
Hsieh, 2010). TQM is measured by four indicators adapted from Sallis (2006).
Entrepreneurship orientation is measured by four indicators adapted from (Alhnity et al.,
2016; Buli, 2017; Hacioglu et al., 2012; Jajja et al., 2017; Lee & Hsieh, 2010; Sáiz-
Manzanares et al., 2019). The indicators used to measure competitive advantage are five
and adapted from research by (Audretsch et al., n.d.; Chen et al., 2007; Longenecker, 2001)
Company performance is measured by four indicators from (Ambler et al., 2001; Best,
2013; Falshaw et al., 2006; Iscan, 2015; Richard et al., 2009).
Figure 1. Research Model
RESULT AND DISCUSSION
Results
Table 2. Path Coefficiet
Hypotesis
Original Sample (O)
P Values
Hypotesis H1 (X1 Z)
0,163
0.024
Hypotesis H2 (X2 Z)
0,283
0.064
Hypotesis H3 (X3 Z)
0,329
0,078
Hypotesis H4 (X1 Y)
0,137
0,028
Eduvest –Journal of Universal Studies
Volume 2 Number 8, August 2022
1.507 http://eduvest.greenvest.co.id
Hypotesis
Original Sample (O)
P Values
Hypotesis H5 (X2 Y)
0,009
0,512
Hypotesis H6 (X3 Y)
0,331
0,024
Hypotesis H7 (Z Y)
0,300
0,038
Hypotesis H8 (X1.Z Y)
0,088
0,004
Hypotesis H9 (X2.Z Y)
0,015
0,888
Hypotesis H10 (X3.Z Y)
0,129
0,564
Based on table 2, it can be seen that H1, H4, H6, H7, and H8 are accepted, ha; this is
because the p-value is less than 0.05. Meanwhile, H2, H3, H5, H9 and H10 were rejected
because they had a p-value of more than 0.05.
Discussion
The results of hypothesis testing show that innovation has an effect on competitive
advantage (p < 0.05). From 50% of MSMEs in Banyumas that have been established for
more than 5 years, it turns out that they are making product innovations. (Antunes et al.,
2017) research proves that companies that adopt innovative strategic processes can achieve
higher business performance in both operational and financial aspects, while product
innovation can only improve organizational financial performance. TQM practices drive
product and process innovation strategies.
The test results prove that innovation in addition to affecting the sustainability of
MSMEs also affects the company's performance (p < 0.05). Companies that are able to
innovate can dominate the market and develop new markets, which play a role in the
company's survival in future competition (Datta et al., 2013). However, not all innovations
can increase business. In some cases, innovation actually jeopardizes the uniqueness of
MSME products.
However, there are differences in the implementation of innovations carried out by
small, medium and large companies. Samuel's research (2017) shows that innovation
implemented in a company has a positive influence on the performance of the company.
This means that failure in an organization in achieving superior performance is the result
of the inability to realize innovation. As many as 35.2% of MSMEs in Banyumas feel that
changes in products and services are not significant in income. Especially because there is
a habit of the Banyumas people who tend to be interested in emerging businesses.
The results of hypothesis testing show that MSMEs lack good managerial skills (p >
0.05). This means that MSME management is carried out conventionally. Whereas
according to Antunes (2016) TQM practices should encourage product and process
innovation strategies. As many as 64.8% of MSMEs in Banyumas adopt process strategy
innovations that can implement TQM practices. The important role of quality management
practices for manufacturing SMEs is that SMEs must know the concepts and objectives of
TQM. In contrast, 35.2% of MSMEs in Banyumas do not implement Total Quality
Management so that the company is not comprehensive enough to achieve sustainable
innovation to achieve productivity, improve quality and reduce business financing. This
group of MSMEs has not led to a focus on processes or systems in achieving organizational
goals that are oriented towards excellence in all dimensions of the products and services
developed by the company (Tunggal, 1993).
The results of the study do not show enough evidence that MSMEs in Banyumas
implement TQM well even though they are able to advance the company and there is an
increase in company performance according to the targeted goals. The practice of TQM is
carried out by some MSMEs in Banyumas because there are improvements in the vision,
Akbar Pahlevi, Rahab Rahab
The Effect of Innovation, TQM Implementation and Entrepreneurship Orientation on
Competitive Advantage Strategies in Building MSME Performance 1.508
mission, teamwork, focus on customer satisfaction. In addition, there is a change in the
culture of the company which is oriented towards good quality, so that the various elements
of TQM are able to make the company's performance both financially and marketing
increase.
As many as 55.6% of MSMEs in Banyumas have a workforce of less than 5 people.
Compared to large organizations, MSMEs have the advantage of an organizational
structure with minimal bureaucracy and this has a positive impact on flexibility, adaptation
and speed in responding to changes in the TQM environment (Sahoo & Yadav, 2017). The
relationship between quality management practices, entrepreneurial strategies and
performance may change and evolve over time, especially if the setting is dynamic and
involves many people with various behavioral, organizational and environmental factors.
Basically all MSMEs in Banyumas Regency have a good business orientation, but
the results of statistical tests show insufficient evidence (p > 0.05). MSME activity in
Banyumas Regency by itself, is entrepreneurial behavior which consists in identifying and
exploring new ones. Business opportunities in a new environment require an innovative
attitude, as well as consider the additional risks involved in acting in a competitive
environment (Zhou et al., 2005). This orientation is only owned by 64.8% of MSMEs in
Banyumas Regency.
MSMEs in Banyumas Regency that are newly established or even less than 5 years
old (there are as many as 35.2%) have a low entrepreneurial orientation. Therefore,
Entrepreneurial Orientation is an important concept in competitive business (Mehrabi et
al., 2019). MSMEs in Banyumas Regency tend to feel comfortable with the market
segmentation that has been achieved so they are not interested in an entrepreneurial
orientation that supports innovation. Tendency MSMEs in Banyumas Regency are not
involved and support new ideas, novelty, experimentation, and creative processes that may
result in new products, services, or technological processes.
Statistical testing shows that there is sufficient evidence to test the effect of
entrepreneurial orientation on company performance (p < 0.05). This finding is interesting
because entrepreneurial orientation only has a low correlation with competitive advantage
but is significant on company performance. An indication that the TQM implemented by
MSMEs in Banyumas Regency is still conventional without implementing planning,
forecasting, directing and evaluating.
Business opportunities in new environments require an innovative and proactive
attitude, as well as acknowledging additional risks. This concept is rarely adopted by SMEs
in Banyumas Regency. Therefore, the importance of Entrepreneurial Orientation in
developing MSME businesses in Banyumas Regency is important
The results of this study empirically prove that there is a close correlation between
competitive advantage strategy and company performance (p < 0.05). The relationships
formed develop and maintain competitive advantage in order to improve superior
performance. Although several studies have suggested that competitive advantage may not
lead to firm performance, most studies conclude competitive advantage as a value-creating
strategy that contributes to firm performance. This fact can be seen from the cross section
between the length of time MSMEs in Banyumas Regency have been established and the
number of workers they have. MSMEs in Banyumas Regency that are able to survive for a
long time have a workforce of more than 5 people.
Competitive advantage is the benefit that exists when MSMEs in Banyumas Regency
have a product or service that the target market believes is better than its competitors.
The Effect of Innovation, TQM Implementation and Entrepreneurship Orientation on
Competitive Advantage Strategies in Building MSME Performance 1.512
Competitive advantage is the ability of an organization or institution to create products or
processes that have added value compared to competitors.
Innovation and competitive advantage can affect the company's competitiveness. It
is necessary to take into account the company's ability to innovate which causes a
competitive advantage for the company. Considering innovation requires resources to turn
a company into a competitive one. In addition, company resources are needed to innovate.
Another important factor is that consumer behavior can be considered as a force that can
completely influence the innovation behavior of the company.
Competition is getting tougher and customers are increasingly critical in determining
product choices, which forces companies to be more innovative in generating demand for
their products. Therefore, TQM plays an important role in forming MSMEs in Banyumas
Regency which have a competitive advantage. The success of this product will lead to its
market performance. Compared to other competing products, this is where consumers
consider the product, whether the product is different and has a competitive advantage.
An entrepreneurial orientation is needed to gain a competitive advantage that
differentiates SMEs from their competitors and enhances their market position. More
importantly, the findings of this study suggest that SMEs should always consider that
before planning to implement a new strategy or practice, must develop a supportive culture.
Competitive advantage can be achieved through entrepreneurial orientation,
environmental adaptability and innovative creativity, where the competitive advantage
generated by the company can improve business performance. In addition to competitive
advantage, entrepreneurial orientation as well as innovation and creativity can improve
business performance.
CONCLUSION
Innovation and entrepreneurial orientation play an important role in creating a
competitive advantage strategy for MSMEs in Banyumas Regency. Most MSMEs in
Banyumas Regency still carry out traditional management so they are less able to compete
with similar companies. MSMEs in Banyumas Regency that run a competitive business
strategy that is ultimately able to survive in the long term. The basic problem lies in the
low quality of human resources. Competitive advantage strategy has not been fully
supported by reliable management quality. Therefore, MSMEs in Banyumas Regency
should rely on innovation and sharpen their entrepreneurial orientation.
Most of the MSMEs in Banyumas Regency run their business with conventional
management. Planning to innovate mostly states unscheduled. One of the limitations in this
research is that it does not include a dummy variable for the Covid-19 pandemic case
because it turns out that MSMEs in Banyumas Regency feel less confident that their
business will continue to be sustainable. Therefore, only some of them still stick to the
brand name that has been accepted by the community, not because of the incessant
innovation.
In relation to the constraints and business prospects, they were asked about the state
of the business a year ago, as well as the obstacles experienced by entrepreneurs in
controlling the company/business. Some MSME owners in Banyumas Regency feel less
confident about the economic climate, especially as a result of the Covid-19 pandemic.
Regarding assistance for business development through agencies/institutions, as well as the
form of such assistance whether capital, raw materials, machinery and equipment
assistance and others. Those who do not have access to additional capital because they do
Akbar Pahlevi, Rahab Rahab
The Effect of Innovation, TQM Implementation and Entrepreneurship Orientation on
Competitive Advantage Strategies in Building MSME Performance 1.508
not know the procedure, the proposal is rejected, is not interested, does not know or other
reasons.
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