Does strategic agility and innovation capability have an impact on firm performance? A study on the Indonesian motorcycle industry

Abstract

Agility and innovation are two of the most important capabilities that organizations have to deal with in disruptive environments. This research aims to examine the effect of strategic agility and innovation capability on firm performance in the Indonesian motorcycle industry. The research was conducted on 208 companies comprising both OEM (original equipment manufacturer) and tier 1 component suppliers in the supply chain of the Indonesian motorcycle industry. The validity was tested using the content, construct and convergent validity tests, the construct reliability was tested using the one-shot measure reliability test, and the hypothesis testing was carried out using structural equation modeling. The results show that innovation capability has a significant direct effect on strategic agility and firm performance, but in contrast to previous research findings, strategic agility does not have a significant direct effect on firm performance. In addition, strategic agility does not mediate the relationship between innovation capability and firm performance. These findings provide practical guidelines for the motorcycle industry in Indonesia to focus on developing innovation capabilities, particularly process innovation, which is related to the industry's ability to manufacture products at a lower cost and become a pioneer of the latest technology in its field. In the current conditions, companies are advised to focus more on other types of agility, such as operational or supply chain agility rather than strategic agility.