Asri Laksmi Riani ABSTRACT

Transcription

1 RELATIONSHIP BETWEEN ENTREPRENEURIAL ORIENTATION, MARKETING ORIENTATION, KNOWLEDGE MANAGEMENT AND INNOVATIVE PERFORMANCE (Studies in Batik craftsmen in Surakarta, Sragen, Karanganyar, and Lasem) Asri Laksmi Riani ABSTRACT The purpose of this study is to analysis of the relationship between entrepreneurial orientation, marketing orientation, knowledge management, and innovative performance. The research was conducted in four regions: Surakarta, Sragen, Karanganyar, and Lasem Pati district. Respondents in this study are batik entrepreneurs and artisans in the four areas and already have a business for at least one year. The results showed that the entrepreneurial orientation has a positive and significant impact on the marketing orientation, entrepreneurial orientation has a significant positive effect on knowledge management. Entrepreneurial orientation has a significant positive effect on innovative performance, and marketing orientation but no significant positive effect on performance and innovation knowledge management, and significant positive effect on innovative performance. Keywords: Entrepreneurial orientation, knowledge management, marketing orientation, innovative performance. A. Background Entrepreneurship Education Program (EEP) intended to affect the future individual s entrepreneurship behavior and improve the business success. The program aims to increase entrepreneur s interest in entrepreneurship career and to raise government s awareness about the importance of entrepreneurship as a contributor to economic development (Hytti and Koupusjrvi 2004 in Fayolle et al., 2006). Entrepreneurship education is one of the educational process of teaching programs or entrepreneurial attitudes and skills, which involves the development of certain qualities from a person (Fayolle, 2006), which provides individuals with the ability to recognize commercial opportunities and the insight, self-esteem, knowledge and skills to act (Jones and English, 2004, in a Mwasalwiba, 2010). Furthermore, entrepreneurship education makes individuals involved in entrepreneurship become more innovative and indirectly, through the relationship between innovation and success, specific entrepreneurship education contributes to obtain better business results (Cruz et al., 2009). Young and Ho (2007) found that employers

2 are using the economy to drive the innovation-based strategy and structure based on innovative technologies. Companies should use strategies that can provide a competitive advantage in terms of differences in products and processes, which mean, that the company must always be innovative (Popadiuk and Choo, 2007). In these circumstances, where innovation in products and processes is considered as an important prerequisite for the survival and success of the organization, attention and understanding on entrepreneurial orientation and organizational change for employers attract many researchers and members of the organization (Wang and Ahmed, 2004). Ireland and Webb (2007) explain that entrepreneurial orientation embodied in product and process innovation. Lumpkin and Dess (1996), describe the entrepreneurial orientation as the processes, practices, and decision-making activities that lead to new entrants. Entrepreneurial orientation has five dimensions of innovation: risk taking, proactive, aggressive, competitive, and autonomy, which underlies virtually all of the entrepreneurial process. Indonesia is one of many countries in the world that is rich in culture. One of them is batik. Batik is one of Indonesian culture in the form of patterned fabric. On 2 October 2009, UNESCO (United Nations Educational, Scientific, and Cultural Organization) officially establish batik as one of the criteria Intangible Cultural Heritage for Humanity in Indonesia among as many as 111 competitors from around the world (Yudhoyono, 2010). However, this recognition from UNESCO is not last forever. If the world heritage batik originating from Indonesia is not treated and preserved by the people of Indonesia itself, the recognition of this status will expire. Therefore, the batik should be maintained, preserved, cultivated, and loved by all the people of Indonesia. Batik industry in Indonesia has grown rapidly after the archipelago's traditional cloth in 2009 received recognition from UNESCO as a world cultural heritage from Indonesia. The development of batik industry reached more than 300 percent in the last 3.5 years, and earned income up to100 billion dollars per year, which is a major cultural capital in the global creative industries, contribute to economic growth of 7 % of the Gross Domestic Product (GDP) (antaranews.com). This study will be conducted in four regions: Surakarta, Sragen, Karanganyar, and Lasem, Pati district. Respondents in this study are batik entrepreneurs and artisans in the four areas that have been actively undertake the business for at least 1 year. The chosen

3 entrepreneurs and batik artisans, because the batik business have been exist and growing in Surakarta and surrounding areas including Sragen, Karanganyar, and Lasem. B. Research Objectives The research objectives are developing the manual for using procedures and instruments that have been developed, conducting focus group discussion (FGD) to discuss the manual draft, test, and revise the manual draft. The combination of manual and draft model 1 then called draft model 2. C. Assessing Library and Hypotheses 1. Effect of entrepreneurial orientation on marketing orientation A business can achieve the full potential marketing orientation when driven by an entrepreneurial orientation (Slater and Narver, 1995). Matsuno et al., (2002) found that entrepreneurial orientation controlled the marketing orientation. The greater the level of entrepreneurial orientation, the greater the level of marketing orientation. It can be explained that the entrepreneurial orientation facilitates the ability of members of this organization and a willingness to recognize the need to reduce uncertainty, to commit market learning activities and take more calculated risks. Hassim (2011) conducted a study on the effect of entrepreneurial orientation on innovativeness and marketing firm orientation towards achievement of the company's business. This study examined the relationship between entrepreneurial orientation, marketing orientation, innovation, and corporate performance. The study was conducted on 398 Small Medium Enterprises (SMEs) in Malaysia. The result of the research is that the behavior of entrepreneurial orientation has a positive effect on the marketing orientation. Based on the descriptions that have been described, the first hypothesis in this study is: H1: Entrepreneurial orientation has a positive effect on marketing orientation. 2. Effect of entrepreneurial orientation on knowledge management Wiklund and Shepherd (2003) believe that the entrepreneurial attitudes and behaviors are very important for new businesses to facilitate the new utilization and the knowledge to find market

4 opportunities. On the other hand, companies with innovations have a tendency to support new ideas and concepts, and further increase the involvement in developing new processes or products (Lumpkin and Dess, 1996; Li et al., 2009). Thus, new product development process involves extensive and intensive knowledge. Company with an entrepreneurial orientation tends to rely on employees, knowledge, and skills as a key input in the process of knowledge (Lumpkin and Dess, 1996). Thus, knowledge has a significant role in discovering opportunities and new ideas that need to be managed. In this case, firms with an entrepreneurial orientation are more prone to focus their attention and efforts towards knowledge management. It was expected that there is a positive relationship between entrepreneurial orientation and knowledge management. Madhoushi et al., (2011) studied the effect of entrepreneurial orientation on knowledge management in SMEs in Iran. The hypotheses state that entrepreneurial orientation has a positive effect on knowledge management. The valid samples in the study are 164 respondents. The results in this study proved that entrepreneurial orientation has a significant effect on knowledge management. Based on the descriptions that have been described, the second hypothesis in this study is: H2: Entrepreneurial orientation has a positive effect on knowledge management 3. Effect of entrepreneurial orientation on innovative performance Most of the previous studies have investigated the independent effect of entrepreneurial orientation on innovative performance, and ignore the factors that may mediate the strength of entrepreneurial orientation and innovative performance of the firms. Entrepreneurial orientation can be considered as processes, practices, philosophy, and decisionmaking activities that lead to organizational innovation (Lumpkin and Dess, 2001b; Wiklund and Shepherd, 2005; Li et al., 2009). The importance of entrepreneurial orientation for the survival and performance of the firm has been recognized in the literature of entrepreneurship (Lumpkin and Dess, 2001b; Wiklund and Shepherd, 2005; Covin and Slevin, 1991; Smart and Conant, 1994; Tat et al., 2007; Hughes, Morgan 2007). Innovation is an important factor in the performance of the company due to the evolution of the competitive environment (Bueno and Ordoñez, 2004). The innovative performance is considered to have a direct effect on firm

5 performance (West and Iansiti, 2003; Brockman and Morgan, 2003). Also, Ireland and Webb (2007) argue that entrepreneurial actions have a direct effect on product and process innovation. Thus, entrepreneurial orientation can enhance an enterprise autonomy, competitive aggressiveness, proactiveness, and willingness to take risks and innovate (Zahra et al., 1999; Lumpkin and Dess, 2001b), entrepreneurial orientation and innovative performance can be linked to each other. Madhoushi et al., (2011) studied the effect of entrepreneurial orientation on innovative performance in SMEs in Iran. The valid samples in the study are 164 respondents. The results in the study proved that entrepreneurial orientation has a positive effect on innovative performance. Based on the description that have described, then the third hypothesis in this study is: H3: Entrepreneurial orientation has a positive effect on innovative performance 4. Effect of marketing orientation on innovation performance Marketing orientation is one of the core aspects of strategic marketing (Liu et al., 2002; Webster, 1992; Gatignon and Xuereb, 1997) together with the company's performance, the performance of new product and firm innovativeness (Gima, 1995; Gatignon and Xurebeb, 1997; Bear and Frese, 2002; Calontone et al., 2002). Increase of the attention is given to marketing orientation by both researchers and practitioners based on the assumption that the marketing orientation and organizational performance improvement depends not only on the concept of competitive orientation (Choe, 2003). Competitive influences play an important role in corporate strategy, innovation strategy, and their performance. As commonly reported in the literatures, marketing orientation may have direct and indirect impact on performance. Research and development (R & D), and marketing orientation and interaction is encouraged firm innovativeness (willingness and ability to innovate) which in turn is received by the customer (Harmsen et al., 2000). Erdil et al., (2003) analyzed the impact of the marketing component orientation on firm innovativeness and innovative performance. The collection and utilization of market information, marketing strategy development, and implementation orientation found to be associated with firm innovativeness. The collection and utilization of market information and marketing strategy development orientation found to be associated with innovative performance. Based on the descriptions that have been described, the fourth hypothesis in this study is:

6 H4: Marketing orientation has a positive effect on innovative performance. 5. Effect of knowledge management on innovative performance Nonaka (1991) believe that in today's competitive climate, in which the only certainty is uncertainty, knowledge is considered to distinguish the main factors of business success and is viewed as the basis of innovation. Knowledge management is an approach that better utilize the knowledge and expertise to create value and enhance organizational effectiveness (Zheng et al., 2009). Lin (2005) defined, structured process for managing the acquisition, sharing, and applying knowledge as an organizational asset to drive innovative performance. The acquisition knowledge is defined as the process using the knowledge and gained new knowledge. Sharing knowledge is defined as the process of distributing knowledge among all individuals who participate in the activities. Application of knowledge is defined as the effective business processes through storage and decision-making mechanism that allows firms to access knowledge easily (Lin, 2005). Previous research confirms that effective knowledge management facilitates communication and exchange of knowledge that required in the innovation process and further improves the innovative performance through the development of new insights and capabilities (Nonaka and Takeuchi, 1995; Argote et al., 2003). Therefore, knowledge management can play an important role in supporting and encouraging innovation (Chen and Huang, 2009). Thus, this study proposes that knowledge management in terms of acquisition, sharing, and application of a positive contribution to the company's innovation performance. So, with an effective knowledge management, companies will be able to transform knowledge into innovative products and processes. Previous relevant research has been conducted mainly in developed countries, leaving the generalizability of their findings as an open issue for research other regulations, such as for example the economic transition in Iran. Iran is now transformed from central planning toward a market-based economy. Such rapid changes and a high degree of uncertainty increases major challenge for SMEs to boost innovation. This study promotes innovation through knowledge management in an environment largely unknown orientation. The SMEs will provide an exciting opportunity to see the influence of entrepreneurial orientation and knowledge management in innovation. Based on the above discussion, this study aims to examine the relationship between entrepreneurial orientation, knowledge management, and innovative performance of SMEs. The

7 assumption of this model is that knowledge management mediates the effects of entrepreneurial orientation on innovative performance of SMEs. Based on the description that have described, than the fifth hypothesis in this study is: H5: Knowledge management has a positive effect on innovative performance. D. Research Methods This research aims to retest and develop existing research models to describe and explain the influence between variables. Analysis and studies conclusion based on many data sources that acquired using survey that conducted by giving a questionnaire that contains closed questions to the sample. 1. Population, Sample, and Sampling Technique The population in this study is businessmen and batik artisans in the city of Surakarta, Sragen, Karangnyar and Lasem, Pati district. The sample selection use non-probability sampling procedure, because the probability of population element of being selected into the sample is not known (Cooper and Schindler, 2006).This study uses purposive sampling method with judgment type because the sample members selected by a judgment or a certain criteria (Cooper and Schindler, 2006). The criteria used for the sample is batik entrepreneurs and artisans in the city of Surakarta, Sragen, Karanganyar, and Lasem, Pati district that already have a minimum of 1 (one) year businesses and are willing to become respondents. Because of the analytical techniques used in this research is the analysis technique with structural equation modeling approach (SEM), where the number of samples that meets the requirement cannot be determined before the analysis of the adequacy test of samples performed, the number of samples that must be met in the modeling are 100 to 200 samples or 5 times of the indicators of the latent variables used (Hair et al., in Ferdinand, 2005). The numbers of indicators use are 27 items. So the numbers of samples that must be met in this modeling is 27 x 5 = 135. To be safer, then the samples taken are 200 samples. 2. Measurement of Variables Independent and dependent variables requires a five-point Likert scale with the standards of the respondents ranged from 1 = "strongly disagree", to 5 = "strongly agree". The variables in the

8 questionnaire include entrepreneurial orientation, market orientation, knowledge management, and innovative performance. The following is an operational definition and measurement of each variable in this study: a. Entrepreneurial orientation (EO) Entrepreneurial orientation is measured by five dimensions: innovation, risk taking, proactiveness, competitive aggressiveness, and autonomy (Lumpkin and Dess, 1996). The definitions of the EO dimensions are as follows: 1). Innovation consists of three questions to measure the company's willingness to support creativity and experimentation in introducing new product / service, and R & D in developing new processes. 2). Risk-taking consists of two questions to measure the tendency of companies to determine business development into new markets, doing most of the resources used for the business with the certainty of being produced. 3). Proactiveness consists of three questions to measure the company's relationship to the market opportunities in the market to seize the initiative. 4). Competitive aggressiveness consists of two questions to measure reaction to the company's competitive trends and demands that already exist in the market. 5). Autonomy consists of three questions to measure the independent action by individuals or teams who aim to acquire a business concept or vision and resolve the issue. b. Market orientation (MO) Market orientation is measured by four items adopted from Narver and Slater, (1990). c. Knowledge management (KM) Knowledge management is measured by the dimension of knowledge acquisition and sharing of knowledge (Chen and Huang, 2009). The definition of KM dimensions are as follows: 1). Factors knowledge acquisition consists of three questions, the respondents indicated the extent to which they gain knowledge of customers, partners, and employees. 2). Knowledge sharing factor consists of three questions to reflect the extent to which knowledge openly shared between supervisors and subordinates, between colleagues, and between units. d. Innovative performance (IP)

9 Innovative performance is measured by the dimension of product innovation and process innovation (Wang and Ahmed, 2004). Definition of innovative performance dimensions are as follows: 1). Product innovations include two questions to measure the level of responsiveness to changes in environmental goods and services. 2). Innovation process consists of two questions to measure the extent to which firms develop marketing processes and manufacturing processes to improve quality and lower costs. 3. Statistical Methods Test Validity, reliability testing, and test hypotheses are done using structural equation model analysis (SEM) assisted with the statistical program AMOS version The large sample size has an important role in the interpretation of the results of SEM. Sample size provides the basis for estimating sampling error. F. Results Analysis and Discussion 1. Test Research Instruments a. Test Validity Validity testing conducted on four variables in this study, the Entrepreneurial Orientation, Marketing Orientation, Knowledge Management, and Innovative Performance. The results of validity test with 200 respondents, all item looks valid with factor loading values >0:50, but the item EO8, EO9, and KM2 are not valid and should be reduced (not fit for use in this study). b. Test Reliability The calculation results show that the reliability test of the construct of each variable has a value greater than the threshold used, 0.7, so the question that exist are considered reliable. The entire test instrument consisting of validity and reliability have met the requirements for use in decision-making research. 2. Testing Assumptions SEM Evaluation of the fulfillment of assumptions made at the time of operating SEM Amos runs. The following evaluation of the assumptions in the SEM: a. Sample Sufficiency Assumptions This study s respondents totaled 200 batik artisans residing in 4 areas namely Surakarta, Sragen, Karanganyar, and Pati district. The large sample size has an important role in the estimation and

10 interpretation of the results of SEM. The sample size recommended and should be used when using ML estimation method lies between (Ghozali, 2005). b. Evaluation of the fulfillment of the assumption of normality in the data Based on the results of testing normality, univariately can be known that CR values in skewness, and kurtosis CR, there is no item that has a value above ± 2.58 which means that it has a univariate normal distribution of data. Ghozali and Fuad (2005) provide criteria for normality testing in univariate and in multivariate must have a value of CR kurtosis < 7 then it is said to be normally distributed, the results showed at < 7, which indicates that the data in this study are multivariate and normally distributed. c. Evaluation of outliers Multivariate outlier test results obtained chi-square value (χ2) of (DF = 24; 0.001), with the highest squared Mahalanobis distance is > It shows that there are cases which are categorized as outliers, but the case does not need to be issued. It is because in the analysis of the study, if there is no particular reason to exclude cases that indicate outliers, then the case must still be included in subsequent analyzes (Ferdinand, 2005). d. Assessment Model Fit Table 1 Evaluation Goodness-of-Fit Indices Index Goodness of fit model Cut-off Value Result Initial model Note Models after modificatio n Note Chi Square Expected to be small Not Fit Fit Probability Chi Square (p) > ,000 Not Fit Fit CMIN/DF < Fit Fit Adjusted goodness of fit index (AGFI) > Not Fit Fit Goodness of Fit Index (GFI) > Not Fit Fit Comparative fit index (CFI) > Not Fit Fit Tucker-Lewis Index (TLI) > Not Fit Fit

11 Root mean square error approximation (RMSEA) < Fit Fit Source: Primary data, 2013 Table 1 shows summary of the results obtained in the study and the recommended value to measure the model's fit. As shown in the table above, from eight measurements of goodness of fit, there are only 2 measurements are fit, while the other 6 measurements are not fit. Due to the overall data is not fit or are not met the criteria, then the next step that should be done is modified the model to obtain the better results of goodness of fit or fulfilled criteria. The result of the model modification indicate that the eight measures of goodness of fit all been fit or meet the criteria for measurement, so it can be concluded that the data and the model in this study is appropriate. 3. Hypotheses Testing Structural Model Causality analysis was conducted to determine the relationship between variables. In this study, it is expected by performing the causality test the effect that occur between exogenous variables the endogenous variables can be determined. The results of each relationship will be more explained in the following table: Table 2 Hypotheses Testing Result Variable relationship Estimate S.E. C.R. (t-count) P Conclusion MO <--- EO Accepted KM <--- EO Accepted IP <--- EO Accepted IP <--- MO Rejected IP <--- KM Accepted Source: Primary data, 2013 Based on the results of causality tests summarized in Table 2 above, can be note that Entrepreneurial Orientation has a positive and significant impact on Marketing Orientation with

12 the acquisition of the CR for 7142, estimate the value of 0.821, and a probability value of < Based on the results test of causality tests summarized in the table above, can be note that Entrepreneurial Orientation has a positive and significant impact on Knowledge Management with the acquisition of the CR value of 2.830, estimate the value of 0.285, and a probability value of < Based on the results of causality tests summarized in the table above, can be note that Entrepreneurial Orientation has a positive and significant impact on the Innovative Performance with the acquisition of CR value of 1.976, value estimate for 0.251, and a probability value of < Based on the results of causality tests summarized in the table above, can be note that Marketing Orientation has a positive but no significant effect on the Innovative Performance with the acquisition of the CR value of 0.883, the value estimate for 0.079, and a probability value of > Based on the results of causality tests summarized in the table above, can be note that Knowledge Management has a significantly positive effect on Innovative Performance, with the acquisition value of CR for 6736, the value estimate for 0564, and a probability value of < Full results can be seen also on the structural model of research in image below: 0.821* Marketing Orientation Entrepreneurial Orientation 0.251* Innovation Performance 0.285* Knowledge Management 0.564* Picture 2 Structural Equation Model (SEM) 4. Analysis of Direct Effect, Indirect Effect, and Total Effect

13 This analysis is used to determine the strength of the influence between constructs, either direct, indirect, and total effects. Effect (direct effect) is the coefficients of all coefficients lines with one end arrow. Indirect effects are effects that arise through an intermediate variable. The total effect is the effect of the various relationships, i.e. the total effect of the direct effects and indirect effects. The results of model testing above indicate direct effects, indirect effects, and total effects as stated in the following table: Table 3 Direct Effect, Indirect Effect, and Total Effect Variable Effect (β) Independent Dependent Direct Indirect Total MO EO KM MO IP KM Table 3 shows the standardized beta coefficient on the direct effect of EO, MO, KM, and IP with the each values of 0.619; 0.228; 0.188; and the direct influence of MO and KM on IP with values of 0.078, While the indirect effect of EO on the IP is Discussion Based on the results of causality testing using AMOS 18 to test the structural relationship model, the results obtained are: H1: Entrepreneurial orientation has a positive effect on marketing orientation The first findings in this study shows that entrepreneurial orientation has a positive and significant impact on the marketing orientation with the acquisition of the CR for 7.142, the estimate value of 0.821, and a probability value of < Thus, the first hypothesis in this study is proved or accepted.

14 This result is consistent with the result of previous study conducted by Matsuno et al., (2002) who found that entrepreneurial orientation controlled the marketing orientation. The greater the level of entrepreneurial orientation, the greater the level of marketing orientation. It can be explained that the entrepreneurial orientation facilitates the ability of members of this organization and a willingness to recognize the need to reduce uncertainty, to commit market learning activities and take more calculated risks. Hassim (2011) also found that the behavior of entrepreneurial orientation has a positive effect on marketing orientation on 398 SMEs in Malaysia. H2: Entrepreneurial orientation has a positive effect on knowledge management The second finding in this study indicate that Entrepreneurial orientation has a significant positive effect on knowledge management with the acquisition of the CR value of 2.830, the estimate value of 0.285, and a probability value of < Thus, the second hypothesis is proven or accepted. This f in finding is in accordance with previous study conducted by Madhoushi et al., (2011) who found that entrepreneurial orientation have a significant effect on knowledge management. Wiklund and Shepherd (2003) believe that entrepreneurial attitudes and behaviors are very important for new businesses to facilitate the new utilization and the knowledge to find market opportunities. On the other hand, the companies with innovations have a tendency to support new ideas and concepts, and further increase the involvement in developing new processes or products (Lumpkin and Dess, 1996; Li et al., 2009). New product development process involves extensive and intensive knowledge. Company with an entrepreneurial orientation tends to rely on employees, knowledge, and skills as a key input in the process of knowledge (Lumpkin and Dess, 1996). Thus, a significant role in discovering knowledge of opportunities and new ideas that needs to be managed. In this case, firms with an entrepreneurial orientation are more prone to focus attention and efforts towards knowledge management. It is expected that there is a positive relationship between entrepreneurial orientation and knowledge management. H3: Entrepreneurial orientation has a positive effect on innovative performance The third finding in this study indicate that entrepreneurial orientation has a significant positive effect on innovative performance with the acquisition of the CR value of 1,976, the value

15 estimate for 0251, and a probability value of < Thus, the third hypothesis is proven or accepted. This result supports previous research conducted by Madhoushi et al,. (2011) who studied the effect of entrepreneurial orientation on innovative performance in SMEs in Iran. The results in this study proved that entrepreneurial orientation has a positive effect on innovation performance. Ireland and Webb (2007) also argue that entrepreneurial actions have a direct effect on product and process innovation. Thus, entrepreneurial orientation can enhance an enterprise autonomy, competitive aggressiveness, proactiveness, and willingness to take risks and innovate (Zahra et al., 1999; Lumpkin and Dess, 2001b), entrepreneurial orientation and innovative performance can be linked to each other. H4: Marketing orientation has a positive effect on innovative performance The fourth finding in this study suggest that marketing orientation does not have a significant positive effect on innovative performance with the acquisition of the CR value of 0.883, the value estimate of 0.079, and a probability value of 0.377> Thus, the fourth hypothesis is not proven or rejected. This results are not in line with the opinion of Liu et al., (2002); Webster, (1992); and Gatignon and Xuereb, (1997), who stated that marketing orientation is one of the core aspects of strategic marketing together with the company's performance, the performance of new product, and firm innovativeness (Gima, 1995; Gatignon and Xurebeb, 1997, Bear and Frese, 2002; Calontone et al., 2002). The increase of the attention given to marketing orientation by both researchers and practitioners, based on the assumption that the marketing orientation improve organizational performance and depends not only on the concept of competitive orientation (Choe, 2003). This result also not in line with the research of Erdil et al., (2003) who analyze the impact of the marketing component orientation on firm innovativeness and innovative performance. Collection and use of market information, marketing strategy development and implementation orientation found to be associated with firm innovativeness. The collection and utilization of market information and the development of marketing orientation strategy found to be associated with innovative performance. H5: Knowledge management has a positive effect on innovation performance

16 The fifth finding in this study indicate that knowledge management has a significant positive effect on innovative performance with the acquisition of the CR of 6.736, the value estimate of 0.564, and a probability value of < Thus, the fifth hypothesis in this study proved or accepted. This result support the previous research results which confirm that effective knowledge management will facilitate the communication and exchange of knowledge required in the innovation process and further improve the innovative performance through the development of new insights and capabilities (Nonaka and Takeuchi, Argote et al., 2003). Therefore, knowledge management can play an important role in supporting and encouraging innovation (Chen and Huang, 2009). So, with an effective knowledge management, companies will be able to transform knowledge into innovative products and processes. G. Conclusion From the results of hypotheses testing and the discussion in this study, several conclusions can be drawn as follows: 1. The first hypothesis in this study is accepted that Entrepreneurial orientation has a positive and significant impact on the marketing orientation. 2. The second hypothesis in this study is accepted that Entrepreneurial orientation has a significant and positive effect on knowledge management. 3. The third hypothesis in this study is accepted that Entrepreneurial orientation has a positive and significant impact on innovative performance. 4. The fourth hypothesis in this study is rejected, because the marketing orientation has a positive but not significant effect on innovative performance. 5. The fifth hypothesis in this study is accepted that Knowledge management has a significant and positive effect on innovative performance. H. Limitations of Research

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