The mediating effect of strategic orientation and innovations on the effect of environmental uncertainties on the performance of business in the Indonesian aviation industry

This study aims to (1) examine the mediating effect of strategic orientation on the effect of environmental uncertainties on business performance, and (2) examine the mediating effect of innovations on the effect of environmental uncertainties on performance of the business in the aviation industry in Indonesia.

The research design was conducted through a survey, and the testing form was carried out using “Relationship Causal Studies” or a study to analyze the causality among environmental uncertainties, strategic orientation, innovations and performance of branches/stations of airlines in the Indonesian aviation industry. The sample was selected by determining the number of branches/stations of the Indonesian airlines to be selected into the sample, then more than one unit managers were selected as respondents representing their respective branches/stations. The number of the target sample in this study was 250 branches. Techniques used to address the hypotheses of the present study were Descriptive Analysis and Structural Model Analysis. The inferential statistical analysis focuses on the subject of the analysis and data interpretation to draw conclusions.

These research findings provide a contextual overview of the aviation industry in Indonesia that activities to make innovations in airline branches play a vital role in encouraging business performance. Moreover, the analysis shows that the more innovative a branch the better its business performance. This corroborates the finding (Spacapan and Bastic, 2007; Talke, 2007) that being highly innovative can ensure sustainable and long-term business performance.

The findings of this research suggest that innovations mediate the effect of environmental uncertainties on business performance. These findings corroborate the results of previous studies that suitability between strategic orientation and innovations of a company in response to environmental uncertainties will affect performance of the company (Li and Gima, 2001; Manu, 1992). These findings also strengthen the view that companies with a higher level of innovations (innovative) have better business performance and competitive advantages (Kessler and Chakrabarty, 1996; Salavou et al., 2004; Spacapan and Bastic, 2007). Furthermore, based on findings, it can be interpreted that management that is able to overcome barriers to innovations, maximize innovation resources and achieve the target of innovations in the form of creation of better products/services will have better performance. The ability of the management to identify and overcome barriers to innovations and maximize the sources of innovation will generate products or services that can be accepted by the customers and eventually these products and services will be able to compete with better business performance (Blumentritt and Danis, 2006).

Findings of this research indicate the positive and significant mediating effect between environmental uncertainties on business performance, through the mediation of innovations, competitive conditions of the industrial environment which can encourage organizations to evolutionarily be more innovative in managing business to compete in the long term (Franke, 2007). This is also consistent with the theory of evolutionary economics (Nelson and Winter, 2000) that the old strategy may not suit the changes in the environment, and therefore companies should continue to seek new breakthroughs with persistent improvement and innovations.

Dynamic and competitive conditions of the industrial environment require organizations to more intensively explore sources (capabilities) of innovations and accelerate generation of the innovations (Franke, 2007; Berry et al., 2006; Dobni, 2006; Davila et al., 2006; Spacapan and Bastic, 2007). Contextually, it appears that the competitive conditions of the aviation industry in either the short term or in the long term require business actors to be more innovative and to survive (Franke, 2007).

Innovations in business models as a new effort in improvisation specific to the business stage of the basic model (not very valuable) become more advanced business processes to produce products that are more valuable for consumers, at a more efficient cost with better profitability (Chesbrough, 2007b). So far, research on the role of innovations in response to environmental uncertainties and implementation of strategies to improve the performance of the environment-strategy-performance (ESP) model is still done partially so that there is no comprehensive model to describe the role of innovations in this ESP model, or let us say that a gap between theories and opportunities to do further research on the role of innovations in the ESP model exists.