ORGANIZATIONAL CULTURE, MANAGEMENT SYSTEM, CORPORATE CAPABILITY AND PERFORMANCE: INSIGHTS FROM OIL PALM COMPANIES IN INDONESIA

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 9, Issue 2, February 2018, pp , Article ID: IJCIET_09_02_016 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed ORGANIZATIONAL CULTURE, MANAGEMENT SYSTEM, CORPORATE CAPABILITY AND PERFORMANCE: INSIGHTS FROM OIL PALM COMPANIES IN INDONESIA Albertien Enang Pirade Ph.D Student at Doctoral Program of Management and Business, Institut Pertanian Bogor, Indonesia Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar Doctoral Program of Management and Business, Institut Pertanian Bogor, Indonesia ABSTRACT Studies in organizational culture, management system, corporate capability and corporate performance have been subject to debates due to various results between these variables. Hence, this study aims to analyze, firstly, the influence of organizational culture and management system on corporate capability and, secondly, the influence of corporate capability on corporate performance which was conducted on the oil palm companies both private and public companies registered on the middle tax office (Kantor Pelayanan Pajak Madya-KPP Madya) Jakarta Barat and KPP Perusahaan Masuk Bursa (PMB). Questionnaires were distributed to respondents during June to December 2016 period. Implementing average score method and structural equation modeling (SEM) with SMART PLS, the result shows that corporate culture and management system influence significantly on corporate capability. Meanwhile, corporate capability has no significant influence on corporate performance. This study is the first to evaluate the link between organizational culture, management system, corporate capability and performance. Therefore, this study contributes in providing empirical evidence on this particular field which is useful for managers and future studies in evaluating the factors influencing corporate capability and performance, particularly in oil palm companies. Keynote: The paper is part of the dissertation and presented at the Seminar of Graduate School of Institut Pertanian Bogor (IPB), Indonesia Key words: organizational culture, management system, corporate capability, corporate performance, oil palm companies. JEL Classification: M12, M16, M

2 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar Cite this Article: Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar, Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia. International Journal of Civil Engineering and Technology, 9(2), 2018, pp INTRODUCTION In the global era, every company should be able to survive and grow in a competitive and dynamic business environment. One of the ways for a business to survive in a highly competitive business environment is by increasing the effectiveness and efficiency of the production process, which is a reflection of the company performance. The efforts to improve performance can also be said as a competitiveness strategy so that the company is able to excel in a particular business field compared to its competitors. Several studies have been done to find out the strategies used by companies in the face of competitive and dynamically changing global business environment. Ehmke (2011) explains that competitive advantage can be achieved for instance with the ability of companies to provide greater value to all customers that can be done by providing a cheaper price than competitors or the same price with better service. While Ekuma (2014) states that competitive advantage can be achieved for a company by building a strong human resource which is better than its competitors one of which by performing an efficient and effective production process. Moreover, to be able to win the competitive advantage in a very complex business environment, it is also required a good corporate capability. In the view of the company's capability, the company will focus its attention on the use of its resources to improve the quality of products and services provided to consumers, value-added work activities, and how roles and responsibilities are given within the company (Suyono et al., 2016). The main purpose of these things is to increase consumer satisfaction so that the company will be able to win the competition in a very complex and dynamic business environment. The corporate capability is strongly influenced by several factors, including organizational culture and company management system. Some of the existing scientific literature highlights that human resource management can be used as an important tool to improve company performance and to achieve the business vision. In this context, employees are considered as valuable assets for the organization. Therefore, an effective management of employees is required which is strongly influenced by the existing organizational culture (Denison and Mishra, 1995). Although the relationship between organizational culture and performance has been observed in many previous studies (Ogbonna and Harris, 2000; Rousseau, 1991; Kotter and Heskett, 1992; Marcoulides and Heck, 1993), few studies have examined the relationship between organizational culture and firm capability. Therefore, this study seeks to find out an empirical evidence explaining the link between organizational culture and corporate capability. This idea is built on Ansoff study (1990), which explains that the acceleration of environmental changes in the US that are becoming increasingly complex with so many changes also impacts equally to other countries including Indonesia, especially in terms of the frequency and level of acceleration involving products and services. Furthermore, Ansoff (1990) argues that organizational performance will synergize along with the environment when a company is able to implement optimization strategies or strategic fit. Therefore, an indepth analysis of the complexity and turbulence of the external business environment on the organization is needed, where it can be a threat or opportunity depending on how a company is able to manage it (Wheelen and Hunger, 2012) editor@iaeme.com

3 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia The Strategic fit theory developed by Ansoff (1990) clearly states that the organizational success in addressing the four main issues, i.e., organization's accuracy in selecting the right strategy for environmental change, organizational response to strategy, organizational capability, and organizational response chosen to be the determining factor for the organizational success in the future. Of these four, the organizational capability is the intangible asset (Stalk et al., 1992), which is a contributing factor to the implementation of the strategy, because it describes the complete and total organizational strength and capability in achieving the objectives. Ansoff (2007) introduces the concept of balancing the external characteristics of a product market strategy and creating an internal fit between business strategy and resources. Ansoff's work is based on the development of an instrument that facilitates the capability of top managers to analyze data with the aim of exploring and exploiting future profit potentials. As a result, It will improve the company's competitive position. This approach will be able to measure information in a way that allows management to adjust their behavior and capability with the external operating environment. Furthermore, according to Gianos (2013) Ansoff's approach underlines that managers often try a "one-size fits all" approach and do not change their plans and behavior based on current conditions. Instead they tend to develop plans and manage in ways that are based solely on historical data. Ansoff can prove empirically that using data to explain historical and future scenarios as well as changing plans and behaviors to fit this scenario as they evolve is a valid method to optimize the company's success (Ansoff, 2007; Gianos, 2013). Besides it is being influenced by organizational culture, the corporate capability will also be strongly influenced by the management system within the company. The management system in a company can be described as a system that will optimize management work within the company with the achievement of optimal individuals performance. This condition can be realized if supported by certain characteristics such as good performance, good relationship and communication with fellow employees, intrinsic individuals related to integrity and honesty, and managerial skills (Zwell, 2000). Furthermore, this study will also examine the effect of corporate capability on company performance. As mentioned above, numbers of previous studies have examined various factors that influence the corporate performance, such as organizational culture (Ogbonna and Harris, 2000; Rousseau, 1991; Kotter and Heskett, 1992; Marcoulides and Heck, 1993). However, only a few previous studies that specifically examine the relationship between corporate capability and company performance with different results. Sutapa (2014) and Suhaji (2012) argue that corporate capability positively affects competitive advantage and organizational performance. Anidar and Indarti (2015) and Adiputra (2016) find a positive effect of corporate capability on employee performance. However, Tanuwijaya and Soenhadji (2009) state that corporate capability has no effect on performance. Thus, it is expected that this study will give a positive contribution by bridging the gap on the difference of previous research results, particularly in Indonesia. This study is conducted in the oil palm industries because this group of industry is considered to have a huge contribution to Indonesia s income as the main product of Indonesian agricultural exports (Rifai et al., 2016; Krishna et al., 2017). The companies that are selected in this study are those with company age more than 10 years, whether listed or unlisted on the Indonesia stock exchange during the research period. It requires a minimum company age of 10 years to ensure that these companies have been proven to survive in a highly dynamic and complex business environment that will be able to fully explain the editor@iaeme.com

4 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar variables under this study. The findings of this study are expected to be useful in the assessment of human resource competencies, especially in agro-industry companies (oil palm) related to the process of acceptance, placement, promotion, and compensation to employees fairly and effectively to support the company's strategy. Based on the above-mentioned contexts, the purpose of this study is, firstly, to analyze the influence of organizational culture and management system on corporate capability; secondly, to analyze the effect of corporate capability on corporate performance in Oil Palm Companies in Indonesia. Furthermore, This paper is organized into five sections with the introduction as the first section. Section 2 highlights the literature review and hypotheses development. Section 3 provides the research methods while Section 4 elaborates on findings and discussion. Section 5 closes the paper with the conclusion. 2. LITERATURE REVIEW AND HYPOTHESIS 2.1. Literature Review Resource-based theory (hereafter RBT) developed by Wernerfelt (1984) is a business approach to achieve competitive advantage by exploiting external opportunities with focusing on existing resources in a new way rather than trying to acquire new skills for each different opportunity as cited by Suyono et al. (2016). According to the resource-based view, the sustainable competitive advantage is achieved by continuously developing existing and creating new resources and capability in response to rapidly changing market conditions (Suyono et al., 2016). Moreover, in the capability model, senior managers are predominantly concerned with issues about the quality of products and services provided to customers (external and internal), the flow of value-added work, and roles and responsibilities. Besides RBT, this study is also based on a strategic fit theory developed by Ansoff (1990) stating that organizational success in handling issues related to organizational capability will be the key to the organization's success in achieving its objectives. Hagel III and Brown (2005) define capability as the ability to mobilize both tangible and intangible resources to produce value. The tangible resources include physical assets, financial resources, and human resources, while the intangible resources include talent, intellectual property, cooperative networks, and brands. Organizational capability is skills-capability and way to combine the assets, labor, and processes used by a company to convert inputs into outputs. The capability is vital to the company because well-developed capability can be a source of sustainable competitive advantage. This advantage allows a company to use the same input factors as their competitors and convert them into products and services, either with more efficient processes or with higher quality output, or both (Budiastuti and Versia, 2011). The process of organizational capability analysis, not separated from the strategic management mindset. Since this mindset can accommodate the increasing environmental problem of the entire organization, then the managerial decisions and actions taken can determine the long-term company's performance. It is as described by Wheelen and Hunger (2012) that interactions in strategic management models include analysis of the external environment (business and competitive environment conditions) and internal (organization, management, and business strategy). The analysis is done by using knowledge-based SWOT (Strengths, Weaknesses, Opportunities, and Threats) which affect the internal (i.e., organization, management, business strategy) and external (i.e., the condition of the business environment and competition) factors to generate competitive advantage in terms of products and services editor@iaeme.com

5 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia The external environment is an environment that is not within the control of the organization, however, it often affects the organization. This includes two factors (Wheelen and Hunger, 2012): The task environment includes two elements that directly affect and are affected by the organization's main operations such as government, shareholders, suppliers, competitors, local communities, customers, creditors, unions, associations and interested groups. The community environment includes general forces not directly related to the organization but is capable of influencing long-term organizational activities, such as political, economic, social and cultural, technological and legal forces. This study also uses organizational culture theory developed by Denison and Mishra (1995). This theory focuses on four cultural traits, i.e., mission, adaptability, consistency, and involvement (Iliuta, 2013). The ability of an organization to adapt quickly to its environment can be one of the performance indicators because the quickness of adaptation reflects the organization's ability to solve problems. Then, related to the mission, the successful organization is an organization that is able to demonstrate its mission clearly to its employees, including the strategies used in achieving the company's goals and targets. While consistency is a major source of integration, coordination, and control. Successful companies have a clear set of values that support employees and managers in making consistent decisions. Finally, involvement reflects the organization's responsibility to its environment so that it can create a good working commitment. In addition, this theory explains the characteristics of organizational performance culture, while performance management practices maintain the view that organizational members benefit from culture seen as contextual factors. Culture is defined by Schein (1985) in terms of basic assumptions, shared beliefs or values. From his point of view, culture is at three levels within the organization, i.e., basic assumptions, values, and artifacts and creations. Organizational culture contains a set of norms that describe which behavior is appropriate and not for an organization. However, culture is not always homogenous in all departments within the company, as some norms may apply to all members of the organization. Moreover, different groups within organizations can develop their own sub-culture over time. Increased interest in learning organizational culture is generated by the belief that an organization's culture can affect its short-term and long-term performance. Furthermore, Schein (2004) defines organizational culture as a set of shared implicit assumptions, taken for granted belonging to the group and which determines how perceptions, thoughts and reactions to their various environments. This definition shows the three main characteristics of organizational culture, i.e., organizational culture is passed on to new members of the organization through socialization, workplace behavior is influenced by organizational culture, and that organizational culture operates at different levels. In general, value is the basis of every company, thus, to form a strong organization, it should have a strong value. They should be related to innovations and methodologies on the efficient use of resources. If these conditions are met, the organization will create a sustainable vision to continue to embody a good organizational culture that will drive business efficiency and employee productivity Hypotheses Development Organizational Culture and Corporate Capability editor@iaeme.com

6 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar Previous studies on the topic of organizational culture have been widely practiced in recent decades. In the early 1980s, it has been argued that a company's success is strongly influenced by organizational culture (Deal and Kennedy, 1982). Since then, many authors have studied organizational culture and its relationship to the success of the company (e.g, Gordon and DiTomaso, 1992; Kotter and Heskett, 1992). There are various approaches that can be used to conceptualize the organizational culture. Some researchers view organizational culture as a system of values and shared norms that determine attitudes and behaviors appropriate for members of the organization (eg, O'Reilly and Chatman, 1996; Sorensen, 2002). Since culture is primarily established by the values and norms prevailing in the said environment, every employee must be able to adapt to those values and norms. The organizational culture has two basic functions essential to the survival and growth of an organization, i.e., external adaptation and internal integration. The center of external adaptation is responsive to external constituencies and environmental changes. Meanwhile, internal integration focuses on maintaining and facilitating internal consistency by building a shared vision and shared values between employees and units as well as consolidating the identification with the organization (Zhang et al., 2011). This study uses organizational culture theory developed by Denison and Mishra (1995) which includes involvement, consistency, adaptability, and mission. When a company is able to manage its business with the involvement of all employees actively and productively, consistent in running the rules and achieve its goals, adaptable to the environment, and have a very clear mission embodied with a clear strategy in achieving its objectives, then the company is categorized as a company with a good organizational culture. In other words, when a company is able to implement a good organizational culture, this condition will be able to improve the corporate capability which reflects the company's ability to organize all its resources both tangible and intangible resources to achieve organizational goals. So when the organizational culture that includes involvement, consistency, adaptability, and mission can run optimally in the organization, it will directly improve the company's ability in organizing all its resources to achieve the company's goals. This argument is supported by several previous studies which found a positive relationship between organizational culture and corporate capability (e.g., Rashid et al., 2003; Tseng, 2010). Rashid et al. (2003) find a significant relationship between corporate culture and corporate commitment and ultimately affecting the performance of the Malaysian corporations. Furthermore, Tseng (2010) finds that organizational culture can drive hidden initiatives within the company that will ultimately increase the company's success. Based on above arguments, the first hypothesis is developed as follows: H 1 : Good organizational culture influences positively on corporate capability Management System and Corporate Capability In order for each individual to work optimally within the company, it is necessary to be supported by certain characteristics such as good performance, good relationship and communication with fellow employees, intrinsic individuals related to integrity and honesty, and managerial skills. Zwell (2000) argues that the process of regulating individuals greatly determines the efficiency, effectiveness, and quality of the organization. Therefore, the measurement is done to the level of employee satisfaction on company management indicators in the form of the process of setting individual that will determine the efficiency, quality, and effectiveness of the organization editor@iaeme.com

7 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia Moreover, Zwell (2000) argues that there are five categories of competence namely task achievement, relationship, personal attribute, managerial, and leadership. Task achievement describes a satisfaction when an employee successfully completed the task that becomes his responsibility. While the relationship depicts a condition in which two or more concepts, objects, and people in an organization can be well connected. Furthermore, personal attributes refer to nature, circumstances, conditions, or other items, which are thought to result from certain causes by each individual. Therefore, personal attributes will consist of traits in individual thinking resulting from certain causes, such as: being calm, deliberative, observant, personable, resourceful or risk taker, all of which can be the result of experience or mindset. The managerial reflects the ability of a leader in the organization to manage the company. Finally, the leadership has the art of having someone to motivate a group of people in order to achieve common goals. In the management system is strongly influenced by a comprehensive human resource system and prioritizing professionalism in achieving company goals, prioritizing group interests, training opportunities to improve skills, and the role of leaders in creating a conducive working atmosphere. When the above conditions are met then the company is categorized as having a good management system. Drawing conclusions from the above arguments, it is expected that when a company has a good management system, it will enhance the company's ability in organizing all its resources to achieve organizational goals. So the next hypothesis is developed as follows: H 2 : Good management system influences positively on corporate capability Corporate Capability and Corporate Performance Corporate performance is the result of business processes within an organization and the company's success (Zhang, 2005) which has two main components, namely financial and nonfinancial performance. Financial performance is essentially related to profitability estimates, including return on investment, net profit, return on sales, profit margins, return on equity, and return on assets. Meanwhile, non-financial performance is based on organizational effectiveness that includes several variables, such as increased production, innovation ability, customer loyalty, customer support, the introduction of new product or service introductions, customer satisfaction, and market share. By using the concept of the resource-based theory developed by Wernerfelt (1984), the company will maximize its resources to gain competitive advantage. While the capability reflects the company's ability to organize all resources owned either tangible or intangible to achieve its business goals. Thus, the resource base view will argue that the greater the company's ability to organize its resources to achieve the company's goals will improve the company's performance, both financial and non-financial. In other words, the greater the company's capability the better the company's performance. Furthermore, the above view is also supported by the majority of previous studies which found a positive relationship between capability and performance (Ulum et al., 2008; Mithas et al., 2011; Bangun, 2011; Wati, 2012; Suhaji, 2012; Sutapa, 2014; Anidar and Indarti, 2015; Adiputra, 2016; Suyono, 2016). Bangun (2011) found a positive relationship between intellectual capital measured by physical capital (VACA), human capital (VAHU) and structural capital (STVA) with firm performance. Mithas et al. (2011) find empirical evidence that the capability of the company is able to improve managerial performance so that ultimately also contribute in improving the overall performance of the company through effective organizational management. Sutapa (2014) and Suhaji (2012) argued that capability positively affects competitive advantage and organizational performance. Anidar and Indarti editor@iaeme.com

8 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar (2015) and Adiputra (2016) found a positive effect of company's capability on employee performance. Wati (2012) and Suyono (2016) found a positive relationship between good corporate governance and company performance. However, Tanuwijaya and Soenhadji (2009) state that capability has no effect on performance. Based on the concept developed on resource based theory (Wernerfelt, 1984) and findings of the majority of previous studies that examine the relationship between corporate capability and company performance then the next hypothesis is developed as follows: H 3 : Corporate capability influences positively on company performance. 3. RESEARCH METHODOLOGY 3.1. Sampling Method This study uses purposive sampling approach for oil palm companies either listed on the Indonesian Stock Exchange or un-listed but registered in the middle tax office (KPP Madya) West Jakarta and KPP Perusahaan Masuk Bursa (PMB). The criteria used in sampling selection are oil palm companies with the company age at least 10 years. This is to ensure that the companies have survived in a volatile business environment that allegedly affects the variables studied. There are 15 oil palm companies listed on the Indonesian Stock Exchange and 12 un-listed companies registered in KPP Madya Jakarta Barat. Of these, only 5 companies are listed on the Indonesian Stock Exchange and 5 are registered at KPP Madya Jakarta Barat having 10-years company age. In other words, the total sample that meets the criteria in this study is 10 companies. Moreover, the questionnaires were distributed to those 10 companies during June to December 2016 period, and all questionnaires returned (i.e., response rate 100%) Variables Definition and Measurement Organizational Culture The cultural elements of the Denison model (in Denison and Mishra, 1995) include adaptability, involvement, consistency, and mission. This study adopts Denison model, i.e., adaptability and involvement, then combines it with the entrepreneurial orientation survey (EOS) indicator by Thornberry (2006). Thornberry (2006) compiled an EOS questionnaire with the aim of understanding the strengths and weaknesses of a company's entrepreneurial orientation. Thornberry (2006) notes that EOS is not designed to provide an answer as to how a company can become more entrepreneurial but provides a foundation for discussing and prioritizing focus and entrepreneurial action. Seeks related and relevance change elements are characterized by cultures and customs in the company that demonstrates challenges, product mixing habits, service delivery, and new cultural systems. In the other word, this study measures the organizational culture by questionnaires which the indicators are developed from the combination of Denison model (in Denison and Mishra, 1995) and Thornberry (2006) Management System The measurement of management system variable in this study adopts a model developed by Zwell (2000), which suggests that the process of regulating individuals greatly determines the efficiency, effectiveness, and quality of the organization. Therefore the measurement is done on the level of employee satisfaction on the company's management indicators in the form of the process of setting individuals who will determine the efficiency, quality, and effectiveness of the organization. This regulatory process is based on the competencies of the individuals. Therefore, Zwell (2000) argues that there are five categories of competence, i.e., task achievement, relationship, personal attribute, managerial, and leadership. This study uses editor@iaeme.com

9 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia dimensions of management system from Zwell (2000), namely task achievement, relationship, personal attribute, managerial. The leadership is not used in measuring the management system because it has become an independent variable in this study that affects the company's capability. Task achievement is related to good performance and is shown by orientation on outcomes, managing performance, influencing, initiative, production efficiency, flexibility, innovation, quality care, continuous improvement, and technical expertise. Relationship deals with communication and works well with others and satisfies their needs. These competencies include cooperation, service orientation, interpersonal care, organizational intelligence, relationship building, conflict resolution, attention to communication, and cross-cultural sensitivity. Personal attributes relate to the intrinsic individuals and connect how people think, feel, learn, and develop. These competencies include integrity and honesty, self-development, firmness, decision quality, stress management, analytical thinking, and conceptual thinking. Managerial is concerned with the management, supervision and development of human resources. These competencies include motivating, empowering, and developing others Corporate Capability This study follows Bangun (2011) in measuring corporate capability which has five dimensions, i.e., speed, customer connectivity, strategic unity, efficiency, and strategic flexibility. Speed describes an organization's ability to recognize opportunities and act quickly, exploit new markets, create new products, build new employee contracts, and implement new business processes. Customer connectivity depicts the company's ability to connect with its targeted customers. Strategic unity consists of 3 (three) levels, i.e., intellectual, behavioral, and procedural. In the intellectual level, it should be a monitoring activity to convince the unity at the intellectual level by ensuring that employees in all level of the organization must understand the importance of strategy. Moreover, it is also important to remind all employees that it can be done by repeating a simple message consistently to employees about company strategy and then by measuring and recording employees consistency in responding when asked about the company strategy. Then, to measure the strategic level of behavior is done by asking employees in terms of the length of time they spend in supporting the strategy and whether their suggestions for corporate improvement are heard and acted upon by the company. Efficiency describes a company's ability to operate efficiently by managing costs, therefore it is able to provide an opportunity to grow or even to be at the best of growth. Strategic flexibility is the company's ability to manage economic conditions and political risks with appropriate responses made proactively and reactively to the market barriers and opportunities Corporate Performance editor@iaeme.com

10 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar The concept of corporate performance has been extensively examined with an emphasis on both financial or non-financial performance. This study combines the emphasis on those two type of perforamnce, i.e., financial and non-financial performance. Financial Performance is a financial measure that can be seen as the end result (performance) a company in a certain period. Financial performance is a dimension of how well the company or organization in satisfying the interests of the fund s owners (i.e., shareholder's expectations). This study uses financial performance measures consisting of return on assets, return on equity, and profitability. In addition, this study also uses other performance measures, i.e, constant market share (CMS) and revealed comparative advantage (RCA). Several previous studies on CMS and RCA are done for instance by Poramacom (2002), and Haque et al. (2013). Poramacom (2002) uses RCA and CMS proxies to measure the export performance of rubber products in Thailand. While Haque et al, (2013) use RCA and CMS proxies in measuring Malaysia's export performance of telecommunication products. CMS explains export growth performance Data Analysis After the data are collected, because the number of samples is only 10 companies which are considered as a small sample, then performed structural equation modeling analysis (hereafter SEM) with Microsoft Excel and Partial Least Square (hereafter PLS). It is because the PLS in its parameter estimation used the calculation process iteratively with the least squares method, so it does not require the existence of certain distribution assumptions. Therefore, the parametric technique to test or evaluate the significance in the PLS is not required. In another word, evaluating the PLS model can be done by assessing the measurement model and structural model (Ulum et al., 2008). This study uses both primary and secondary data. Primary data were obtained through surveys using structured questionnaires which were distributed to the selected companies as a sample of this study. Secondary data includes two categories of sources, internal and external which is obtained from the Directorate General of Taxation, Central Bureau of Statistics, and Indonesia Stock Exchange. The analysis is performed on a number of dependent and independent variables. Moreover, the SEM model of the study can be seen in Figure 1 as follows: Figure 1 Research configuration with Structural Equation Modeling editor@iaeme.com

11 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia Figure 1 above presents the link among variables on this study. The dependent variables consist of corporate capability and corporate performance. Meanwhile, the independent variables are organizational culture and management system which are related to company capability. Corporate culture is influenced by adaptability, involvement, and entrepreneur orientation (EO). The management system emphasizes on task achievement, relationship, personal attributes, and managerial. The management system is strongly influenced by a comprehensive human resources system and prioritizing professionalism in achieving company goals, prioritizing group interests, training opportunities to improve skills, and the role of leaders in creating a conducive working atmosphere. 4. FINDINGS AND DISCUSSION 4.1. Findings This study uses SEM with smart PLS to analyze the link among the variables which is done through three stages, i.e., evaluation of measurement model (outer model), testing of structural model (inner model), and validation of the model (goodness of fit) The Outer Model The outer model is used to evaluate the relationship between each indicator with its latent variable, which could be seen from the test of construct validity (i.e., convergent and discriminant) and reliability. Table 1 above shows the result of validity for the convergent of initial measurement where the dimensions of organizational culture (i.e., adaptability, involvement, and entrepreneur orientation (EO) have a valid relationship with corporate capability. These findings mean that the first hypothesis stating that good corporate culture influences positively on corporate capability is supported. Moreover, on the link between the management system and corporate capability, the results of validity for the convergent of initial measurement for management system (i.e., task achievement, relationship, personal attributes, and managerial) also document a valid relationship with corporate capability. It means that the second hypothesis stating that good management system influences positively on corporate capability is supported. With regard to the link between corporate capability and corporate performance, however, the result from the outer model shows that some indicators do not meet the criteria or invalid. These indicators include, Y6 (return on assets / ROA); Y7 (return on equity / ROE); Y8 (profitability); Y11 (effect of product composition); and finance. This indicates that there is no significant link between measurement instruments in representing a construct. Therefore, the third hypothesis stating that corporate capability influences positively on company performance is not supported. However, the difference in these results is not an absolute thing. Hair et al. (2010) describe one alternative to improving the model construct, in addition to changing the content (conformity of variable characteristics conceptually with operational), i.e., by increasing the number of samples. However, this cannot be done in this study, because there are criteria for the age of the company resulting in limited financial data company. Thus, the removal of invalid indicators from the construct becomes an option taken for further analysis model. It performed with modified the results of the initial result measurement of the convergent model. Convergence validity test results of the modified initial measurement model can be seen in table 2 wherein all indicators have met the measurement criteria, so it is valid. This condition indirectly shows the interrelationship between variables or instruments in a construct. Other tests carried out to ensure this capability model is discriminant (average variance extract/ave) and composite reliability (CR and communality) values. The results of the validity test and the reliability can be seen in Table 3 below: editor@iaeme.com

12 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar Table 3 Diversity test validity and reliability of initial measurement model Latent Variables AVE Composite Reliability Communality Adaptability Culture Company CMS EO Involvement Corporate Capability Company Performances RCA Management system Table 3 at above presents that all variables have met the criteria of each test, i.e., the value of AVE> 0.5; CR value> 0.7; and the value of communality> 0.5. It indicates that each indicator is valid to measure the model construct; as well as reliable or consistent Testing the Inner Model This test is performed to determine the link between latent constructs. Tests for structural models include r-square calculations and estimate for path coefficients. Based on the r-square calculation, values for adaptability variables, CMS, EO, involvement, capability, performance, and RCA are 0.73; 1.00; 0.93; 0.89; 0.68; 0.05; and 1.00 respectively. The criteria of the r-square value can be categorized into three types, namely r-square 0.67, which means strong; 0.19 r-square 0.33, which means moderate; and r-square <0.19, which means weak. Among the seven variables above, it appears that only the performance variables fall into the weak category. This indicates that the performance variable is less explicable by the model construct (only 5% of the diversity of performance variables can be explained by the indicator). These conditions may occur, given that the indicators explaining the performance variables have been reduced to two kinds, namely CMS and RCA. Thus, more performance variables are explained by other indicators outside the model. Furthermore, the calculation of estimate for path coefficients shows a significant relationship between the variables under the study which is presented in Table 4 below: Table 4 The calculation result of path coefficient (hypothesis test) Relationship of causality Path t-test Explanation (direct influence) Coefficient Corporate Culture -> Corporate Capability ,770 Significant Management System -> Corporate Capability ,210 Significant Corporate Capability -> Company Not Significant ,239 Performance Note: If t> 1.96, then it is significant and if the t-test 1.96, then it is not significant Table 4 above shows that there are two significant causality relationships at a 95% level with positive directions, i.e., organizational culture with corporate capability and management system with corporate capability. It means that the better the corporate culture or management system, the higher the increase in the corporate capability. Meanwhile, related to the relationship between management system with the corporate capability, it is known that the dimensions used (i.e., task achievement, relationship, personal attributes, and managerial) can explain the variables management system well. Furthermore, Table 4 also shows that there is an insignificant causality relationship between the corporate capability and the performance of management. This condition is indeed an anomaly because it means that changes in corporate editor@iaeme.com

13 Organizational Culture, Management System, Corporate Capability and Performance: Insights from Oil Palm Companies in Indonesia capability have no direct effect on company performance due to the limitations of this study as described in the outer model evaluation The Goodness of Fit This study uses the goodness of fit (GoF) to validate the model as a whole. The GoF index is a single measure to validate the combined performance between the measurement model and the structural model, where when the GoF 0.1 which means weak validation; 0.1 GoF 0.25 which means moderate validation; and Gof 0.26 which means strong validation. The value of GoF index is derived from the average firing of communality multiplied by the mean squared. The result shows the GoF value of the model construct is 0.76 which means that the modified model construct is entirely valid Discussion The findings for the first hypothesis stating that corporate culture influences positively on corporate capability is supported. This finding is in line with the idea of organizational culture theory developed by Denison and Mishra (1995) which includes involvement, consistency, adaptability and mission, whereas all dimensions of organizational culture are well implemented in the company it will enhance the company's capability to organize all resources it has to support the achievement of corporate goals. Further findings in this study are also in line with the resource-based theory developed by Wernerfelt (1984) as cited by Suyono et al. (2016) stating that companies should prioritize the internal resources currently owned to maximize the achievement of corporate objectives before deciding to use external resources. So when the dimensions of the organizational culture can work well in the company then the capability of the company will also increase. Furthermore, these findings are also in line with the concept of the strategic fit theory developed by Ansoff (1990) which states that organizational success in handling organizational capability becomes the determinant of organizational success in the future. Thus the findings in this study are in line with previous studies which have found a positive relationship between organizational culture and company capability (e.g., Rashid et al., 2003; Tseng, 2010). Furthermore, the findings in this study also support the second hypothesis stating that the good management system influences positively on corporate capability. This finding is in line with the view of Zwell (2000) which states that for every individual to be able to work optimally within the company, it should be supported by certain characteristics such as good performance, good relationship, and communication with fellow employees, intrinsic individuals related to integrity and honesty, and managerial. However, because it is adapted to the model in this study where only 4 dimensions of management system from Zwell (2000) are used, namely task achievement, relationship, personal attribute, and managerial. The acceptance of the second hypothesis in this study shows that oil palm companies in Indonesia have been able to optimize the four dimensions in the management system that includes task achievement, relationship, personal attributes, and managerial. Therefore, the better the implementation of the four dimensions in the company's management system will increase the capability of the company which is the ability of the company to organize all resources owned both tangible and intangible to maximize efforts in achieving organizational goals. Since there is still no previous research that examines the relationship between the management system and the company's capability, the findings in this study contribute to the empirical evidence of a significant positive relationship between the management system and the corporate capability. Finally, with regard to the third hypothesis stating that corporate capability influences positively on company performance which is not supported, indicates that the results of this editor@iaeme.com

14 Albertien Enang Pirade, Hermanto Siregar, Eriyatno Eriyatno, Setiadi Djohar study have not succeeded in confirming the various theories and concepts related to company performance. For example, the findings in this study do not support the concept in resourcebased theory developed by Wernerfelt (1984) which states that a company will maximize its resources to gain a competitive advantage. While the capability reflects the company's ability to organize all resources owned either tangible or intangible to achieve its business goals. Thus, the resource base view will argue that the greater the company's ability to organize its resources to achieve the company's goals will improve the company's performance, both financial and non-financial. So it should be, the greater the company's capability the better the company's performance. However, the findings of this study so that the ability of the company to recognize opportunities and act quickly, connect with customers or target customers, strategic unity from lower to upper levels, the ability to operate efficiently by managing costs and managing economic conditions and political risks with the right response has no significant relationship with the corporate performance which seen from the company's financial capability and competitiveness. Therefore, findings relating to firm performance in this study are also inconsistent with the majority of previous research findings that found a positive relationship between firm capability and firm performance (Ulum et al., 2008; Mithas et al., 2011; Bangun, 2011; Wati, 2012; Suhaji, 2012; Sutapa, 2014; Anidar and Indarti, 2015; Adiputra, 2016; Suyono, 2016). The difference of the findings in this study with various theoretical concepts and the majority of previous research findings that explain the relationship between corporate capability and company performance allegedly because of the limited sample in this study that only 10 companies and the short observation periods which is only one year. So it becomes the limitation of this study which provides an opportunity for the next researchers to further deepen the analysis by increasing the sample size and extending the observation period. Nevertheless, this study continues to provide positive contributions in the form of additional empirical evidence on the link between organizational behavior, system management, corporate capability, and corporate performance. 5. CONCLUSIONS The results of this study show that the adaptability, involvement, and EO which are independent variables of organizational culture have a significant relationship to the corporate capability of oil palm companies. The employee's role, the company's ability to adapt and the company's ability to develop breakthroughs and new innovations in product development have a significant effect on the corporate capability. Furthermore, the management system has a significant effect on corporate capability. The influence of leaders, the opportunity to develop themselves in training and teamwork greatly affect the success of oil palm companies. However, it was found that corporate capability does not influence significantly on corporate performance. Based on the conclusions above, it is advisable to do further study on the relationship between corporate capability with corporate performance. With regard to the performance, it is advisable to use broader performance measures both financial and non financial. Moreover, it would be better if further studies are conducted on different industries, such as the chocolate, coffee, food and beverage industries, and so forth editor@iaeme.com