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Relational
The relational model of model of
entrepreneurship and knowledge entrepreneurship

management toward innovation,

strategy implementation and
improving Islamic boarding Received 2 February 2018
Revised 28 May 2018

school performance 21 September 2018

Accepted 20 March 2019

Rofiaty Rofiaty
Faculty of Economics and Business, Brawijaya University, Malang, Indonesia

Abstract
Purpose – The influence of entrepreneurial orientation and knowledge management on innovation, the
influence of knowledge management on the implementation of strategies and the influence of entrepreneurial
orientation, knowledge management, innovation, implementation of strategies to organizational performance,
where the organization referred to is an Islamic boarding school.
Design/methodology/approach – This research applied quantitative causal design and was an
explanatory research. It was conducted at an Islamic boarding school in Malang in the period of April to
December 2017. The population of this study included the managers of the pesantren, teachers and employee
representatives making strategic decisions. The unit of analysis in this study consisted of Pondok Pesantren
Ar Rohmah Putra, Pondok Pesantren Ar Rohmah Putri, Pondok Pesantren Al Izzah, Tazkiyah IIBS, Pondok
Pesantren Darul Maghfirroh, Pondok Pesantren An Nur Putra, Pondok Pesantren An Nur Putri, PSBB MAN
3 Malang, Pondok Pesantren Ar Rifa’i Putra and Pondok Pesantren Ar Rifa’i Putri.
Findings – First, entrepreneurial orientation and knowledge management have a significant and positive
impact on the improvement of innovation. This means that the higher the entrepreneurial orientation and
knowledge management by Islamic boarding schools, the better the innovation in business competitiveness.
Second, knowledge management positively affects the strategy implementation. This means the better the
knowledge management, the better the strategy implementation of within the framework of business
competitiveness of Islamic boarding schools. Third, entrepreneurial orientation, knowledge management and
strategy implementation have a significant effect on the improvement of performance of Islamic boarding
schools. The higher the entrepreneurial orientation, knowledge management and strategy implementation,
the better will be the performance of Islamic boarding schools.
Originality/value – This study is one of the few studies that examine the influence of entrepreneurial
orientation, knowledge management on innovation, implementation of strategies and the impact on
organizational performance.
Keywords Innovation, Strategy implementation, Knowledge management,
Organizational performance, Entrepreneurship
Paper type Research paper

1. Introduction
Indonesia is the fourth most populous country in the world after China, India and the USA.
Based on the data from Trade Economics, Indonesia has the highest percentage of Journal of Modelling in
Management
unemployment, which is 5.13 per cent, compared to China (3.89 per cent), India (3.52 © Emerald Publishing Limited
1746-5664
per cent) and the USA (3.90 per cent). One way to solve the problem is to create employment DOI 10.1108/JM2-05-2018-0068
JM2 through entrepreneurship. On the basis of the data from the Central Bureau of Statistics, the
current ratio of Indonesian entrepreneurs is 3.1 per cent; the amount is already exceeding the
lower limit of 2 per cent, but it is not good enough when compared to China with an
entrepreneurial ratio of 10 per cent and the USA, with an entrepreneurial ratio of 12 per cent.
Denanyoh et al. (2015), Audretsch and Keilbach (2008) and Wennekers et al. (2010) in
Kusmintarti et al. (2017) affirm that a country must develop entrepreneurship to support the
country’s economic growth and that entrepreneurship education must be carefully designed
to sufficiently prepare entrepreneurial skills. The irony in Indonesia is that the higher the
education levels of a person, the higher the probability for the person to be unemployed
(Darmaningtyas, 2015). On the basis of the data, the number of educated people being
unemployed during 2010-2015 rose from 5.71 to 7.41 per cent.
Some of the factors contributing to the increase in the number of educated unemployed in
Indonesia are as follows. First, there seems to be a mismatch between the characteristics of
recent graduates entering the workforce (labor-supply side) and available employment
(labor-demand side). This mismatch may be geographic, occupation types, status
orientations or special skill issues. Then, this is supported by the fact that Indonesia’s
human development index ranks at 111 out of 182 countries compared to other countries
such as China (92), Philippines (105), Malaysia (66), Singapore (23) and Thailand (87; UNDP,
2016). Second, the more educated a person, the greater the person’s expectation on having a
secure job. This group rates high on stable employment rather than high-risk jobs, and they
prefer to work for larger companies than to start a business on their own. Symptoms of
increasing unemployment are educated in Indonesia, among others, owing to the desire to
choose a job safe of risk (Darmanigtyas, 2016). Thus, the educated workforce prefers to
choose to be unemployed rather than having jobs that are not in accordance with their
wishes. Third, the limited absorptive capacity of the formal sector workforce (large number
of educated labor leads to a strong pressure on relatively small formal sector employment),
in which the absorption of industry as an end user is only 10-15 per cent, leads to an increase
in the new labor force not absorbed by the industrial environment each year. Fourth, the
inefficient job market function, in which imperfect and non-current labor flow information,
causes many labor forces to work outside their fields. Then, prestige factor also causes the
college or university graduates to choose to be unemployed because they find it hard to get a
job in their field of expertise.
It is obvious that unemployment is such a big problem for Indonesia, especially with
those holding a bachelor degree. The unemployed figure is increasing each year, considering
the high number of graduate universities and colleges produce. Such a situation would have
a negative impact on social and community stability (www.ditkelembagaan-dikti.net), and
efforts to address unemployment should focus on creating jobs and other measures that can
fuel real economic growth.
Entrepreneurship is one of the best breakthroughs to solve the problem of educated
unemployment. According to David McCelland in Ciputra (2009), a country will prosper
when 2 per cent of its population is into entrepreneurship. Indonesia with a population of
234.2 million people needs 4.4 million entrepreneurs and, yet, thus far, we only have 400,000
entrepreneurs (0.18 per cent of the population). This is very much different from other
countries such as Singapore with a population of only 4.24 million, in which it records 7.24
per cent of its population in 2005 as entrepreneurs (Sumiati dan Asra, 2008). This shows a
great opportunity for college graduates to become entrepreneurs.
In poor and densely populated countries like Indonesia, economic development processes
are highly dependent on small businesses and start-ups. Therefore, supporting the
development of entrepreneurship is one of the most important priorities in formulating
public policies in relation to accelerating economic growth and development. Relational
Entrepreneurship is the decisive factor in current economic knowledge and a driving force in model of
the achievement of economic development and job creation. The role of entrepreneurs,
including self-employment, in development is reducing the burden of unemployment
entrepreneurship
through job openings, increasing community income, becoming a catalyst for development
through productive business, distribution and trading, increasing national resilience as it
reduces dependence on foreign nations and increasing productivity to become an
independent nation.
The need for self-employment is urgent in relation to limited employment, especially in
the formal sector owing to the high number of job seekers as well as the low quality of
workforce, especially those engaged in independent business. The low interest in
entrepreneurship among college graduates makes matters even worse. Sakernas’s (2015)
data shows only 5 per cent of college graduates as interested in opening their own
businesses employing workers. University graduates tend to be unprepared for the world of
work because universities are sending wrong selection signals, not competency-oriented,
and are using too academic curriculum, making graduates not professional. This is coupled
with the image that working in an office is more prestigious than being an independent
entrepreneur; the mindset and environment leads Indonesian to become employees, not to
become business owners.
One of the main cities in Indonesia chosen as a place for this study is Malang in East
Java. Malang has long been known as “Kota Pendidikan.” There have been changes in the
development of Islamic-based education as well, as public confidence is increasing in
education that relies on both religious teaching and general knowledge, especially through
the Islamic boarding school system, or generally referred to as “pesantren”. Islamic-based
education is now of high quality and is professionally managed.
On the basis of the phenomenon and the shift in public confidence, the researchers conduct
the study. Focus on the entrepreneurial orientation may be a driving force for the boarding
school manager to improve the performance of the organization. It also seems that the strategy
shows involvement innovation so it can boost the performance of the organization and
business competitiveness. An entrepreneurial and innovation-oriented strategy is proven to
significantly improve organizational performance. Increasing organizational performance is a
benchmark and a reflection of its ability to enhance its business competitiveness. Innovation is
essential for the organization to face rapid changes in the environment. Innovation will help
organizations to ensure its business competitiveness (Chen, 2007). Companies with high
innovation power can generally maintain their competitive advantage (Weerawardena and
O’Cass, 2004).
Boarding school is one of the public sector organizations engaged in the field of Islamic
religious education services and general education that has the task of implementing an
effort to increase education based on Imtak (faith and piety) and science and technology that
is efficient and highly competitive and to be implemented in a harmonious and integrated
way by the organizers of boarding school organization which is in the adherence to the
appeal and Decree of the Minister of Religious Affairs and the Minister of Education of the
Republic of Indonesia. Islamic Boarding schools not only accommodate people who learn
Islam (Diniyah) but also should pay more attention to the aspect of satisfaction for the users
of its services, in this case students or santriwan santriwati and their parents. Students are
not merely expecting religious and general education services but are also expecting an
improvement in their emotional intelligence, comfort, good accommodation and harmonious
relationship between the school manager, teacher (in the Islamic boarding school of male
teachers called ustadz and female teacher called ustadzah) and employees.
JM2 As an educational industry service, Islamic boarding school should be responsive and
able to adapt in the face of environment that changes very quickly and complex
accompanied by the swift flow of information. This complex change can come from two
things, namely, the environmental change from the internal source or the external
environment of the pesantren, where the internal factors affecting environmental change are
resource management, activity management and overall management, whereas the external
factors affecting the environment include increasing public awareness of the needs of
Islamic religious science education and general science, increasing competition for the
quality of Islamic boarding school services, increasing of the cost of implementation in
Islamic boarding schools resulting from the increasingly sophisticated technology of
education and information technology and increased awareness of the cost and efficiency of
organizational organization (Sintaasih, 2011).
Competition among Islamic boarding schools especially in Malang has been tight; this is
marked by the continuing increase of boarding schools (pesantren) in Malang as well as the
existence of pesantren that already holds a high accredited status. In addition, if viewed
from the aspect of competition among industries globally, the existence of MEA (ASEAN
Economic Community), which has been enforced in 2015, can be an opportunity or threat to
domestic products and services industry (Liputan6, 2014). Leibold et al. (2005) mention that
firms are aware of when environmental change, competition and information-based
enterprise management methods have fundamentally changed toward being knowledge-
based, where strategic collaboration is important as a mindset and competitive strategy
practice.
The above conditions resulted in the need for new ways of dealing with everything that
happened to survive. Emphasis on the importance of human resource quality is one of the
responses in addressing these changes, and this of course requires efforts in improving and
developing human resources, especially in Islamic boarding schools. Currently, leaders/
managers recognize that the knowledge within the organization is a valuable asset that is no
less valuable than the other intangible assets, and even intangible assets are the most
valuable elements because of the actual human factor as the driver of other intangible assets
(Devie and Tarigan, 2006). Knowledge is seen as an important weapon to achieve
sustainable competitive advantage and mark the birth of a new economic era of knowledge-
based economy era, as indicated by the increasingly widespread knowledge-based
competition. The changes are characterized in the following Table I:
Knowledge, as the fundamental basis of competition (Grant, 1996, Agarwal, et al., 2012),
and, in particular, tacit knowledge, can be a source of excellence because it is immovable,
cannot be perfectly imitated and cannot be substituted. Yet, knowledge processing itself
does not guarantee strategic advantage (Zack, 2002); on the contrary, knowledge must be
managed. In addition, the paradigm shift from resource-based view to knowledge

The industrial age The knowledge age

Physical assets Intangible assets

Job fragmentation Job integration and cooperation
Mass marketing Just in time
Operating efficiency Innovation
Table I. Control management Goal achievement
Characteristics of the Training Learning
industrial age and
the knowledge age Source: Manasco (1996)
management requires the company to further improve the management and use of all Relational
knowledge owned by the company and its employees (Tobing, 2007). In such a context, model of
knowledge-based economy can no longer simply rely on natural resources but, instead, on
entrepreneurship
resources of knowledge, ideas and creativity. Management here is not limited to preparing it
but also creates a culture of learning in the environment employees through the process of
knowledge exchange. Then, in the coming years, a company that is able to create new
knowledge and implement it effectively and efficiently would be gaining advantage in the
competition.
The KM process is divided into three parts. Honeycutt (2001) describes the first of
knowledge management is the creation process of knowledge (creation). Knowledge creation
is an activity to create knowledge, while knowledge itself is the stock of knowledge in the
form of experience and individual expertise. The second of knowledge management is
knowledge utilization, which includes activities related to the application of knowledge in
the form of technical tools such as machinery and equipment used to increase the value add
or productivity. The third of knowledge management is knowledge sharing, which involves
the transfer of knowledge from one party to another. Sharing knowledge means that
individuals can work together and realize the importance of knowledge for the company and
share the knowledge gained with other individuals.
Strategic management experts and even the government through the department or
related agencies have issued many strategic policies and service programs in the fields of
education, health, small and medium enterprises, etc., which require organizations or
educational institutions to orient to the principles of economic, equity and quality. This
policy requires the organization to be managed effectively and efficiently (economic), service
for all walks of life ranging from the poor to the rich (equity) and professional services and
quality (quality). In addition to knowledge management, the implementation of functional
strategies is necessary to support the success of organizational performance. Rapert et al.
(2002) argue that there is a positive relationship when vertical communication is often done
and strategy is implemented as proven by improved net operating, gross revenue and net
income growth. Besides, based on P. 23 on the management of Badan Layanan Umum
(BLU) finances in Indonesia, it is mentioned that organizations or government agencies that
have become agencies of the Public Service Agency are required to formulate a five-year
strategic plan with reference to the Strategic Plan of State Ministries/Institutions or Regional
Medium-Term Development Plans. Perhaps, or even already, many educational institutions
such as Islamic boarding schools have developed strategic plans and implementation
strategies appropriately, not because of the demands of stakeholders.
These environmental changes also require companies to be more proactive and
innovative. Innovation is considered an important mechanism to becoming more
competitive and to survive in the global business world (Salaman and Storey, 2002).
Innovation is provided by companies with several strategic advantages such as eliminating
costs, differentiation through new products and service development and quality
improvement (Yesil et al., 2013). Scholl (2005) states that if there is no innovation then
nobody can talk about growth and competitiveness. Specifically, Samsons (1989) in Elitan
and Anatan (2009) asserts there are three types of innovation namely technical innovation,
administrative innovation and managerial system innovation.
Islamic boarding schools in Malang also cannot be separated from a competition. In this
matter, the institution must continue to improve its quality and service. Islamic boarding
schools also are known to continue innovating by completing the existing equipment and
facilities as an effort to provide the best service for their users.
JM2 Furthermore et al. (2011) examine the relationship between relationship orientation,
innovation orientation and organizational performance in a family company in Turkey,
providing findings of the effect of innovation on organizational performance. Assessment of
performance in public organizations is very important to be able to improve the quality of
public services. Performance appraisal is used to assess the performance of a public
organization in providing services for the community. Basically, the orientation of public
organizations is not to seek profit (profit-oriented), but more priority public service (service
that is public-oriented). In addition, performance appraisal in public organizations used as a
tool for evaluating performance over the past period and as a basis for the preparation of the
company’s next strategy (Srimindarti, 2004).
The research from Kaya et al. (2013) showed that the capabilities of human resource
management (HRM) have a positive effect on the capabilities of knowledge management
(KM), which turn into innovation. Furthermore, it is known that HRM capabilities have a
direct and indirect influence mediated by KM capabilities on Innovation. Lopez et al. (2011)
also supported this study that both KM strategies (codification and personalization) can
affect the innovation and performance of the organization either directly or indirectly
(through an increase in innovation capabilities).
Rofiaty (2012) asserted that one dimension of KM, which is knowledge sharing
behavior affects the performance of innovation. However, the findings from Yesil et al.
(2013) proved that the hypothesis of the influence of knowledge sharing process on
innovation performance is rejected while the effect of innovation ability on innovation
performance is accepted.
This study is one of the few studies that examine the influence of entrepreneurial
orientation, KM on innovation, implementation of strategies and the impact on
organizational performance. Research by Kaya et al. (2013) shows that HRM capability
positively affects the KM capability, which transforms into innovation. Furthermore, HRM
capability has a direct and indirect influence, mediated by the KM capability on innovation.
Lopez et al. (2011) also provides support for this research, with the findings of both KM
(codification and personalization) strategies affecting innovation and organizational
performance directly or indirectly (through the enhancement of innovation capability). The
Relationship of Entrepreneurial Orientation and Organizational Performance has been
reviewed by Al-Dhaafri and Al-Swidi (2016), Lumpkin and Dess (2001) and Lee et al. (2011);
The Relationship of Knowledge Management and Innovation has been reviewed by Awad
and dan Ghaziri (2004), Kaya et al. (2013), Lai et al. (2014); The Relationship of Innovation
and Organizational Performance has been reviewed by Al-Ansari et al. (2013), Zehir et al.
(2011); The Relationship of Knowledge Management and Organization Performance has
been reviewed by Bose and Sugumaran (2003), Massa and Testa (2009), Annette and Trevor
(2010); Hsiao et al. (2011); The Relationship of Knowledge Management and Strategy
Implementation has been reviewed by David (2010), Kersten (1986), Digman et al. (2007);
The Relationship of Strategy Implementation and Organizational Performance has been
reviewed by David (2010), Rapert et al. (2002); Joanna et al. (2014).
From the above background, this study aims to examine:

the influence of entrepreneurial orientation and knowledge management on innovation;

the influence of knowledge management on the implementation of strategies; and

the influence of entrepreneurial orientation, knowledge management, innovation
and implementation of strategies on organizational performance, where the
organization referred to is an Islamic boarding school.
This research used a quantitative (survey-based) approach to examine the effects of Relational
entrepreneurship orientation and KM on innovation and strategy implementation to model of
improve organizational performance. The data was completed by using the actual statistical entrepreneurship
method that is partial least square (PLS). The theoretical framework that is formed was
based on fairly strong theoretical sources such as

entrepreneurship (Covin and Slevin, 1991);

KM: Honeycutt (2001), Elias (2008);

innovation: Elitan and Anatan (2009); Rofiaty (2012);

strategy implementation: Hunger and Wheleen (2003); and

organizational performance: Kaplan and Norton (1996).

The results of this study are expected to confirm the theory of entrepreneurial orientation
and the resource-based view developed into the concept of KM in relation to strategic
management, which is innovation and strategy implementation (Grant, 1996; Digman et al.
2007; Al-Hakim and Hassan, 2013). In this study, KM plays a role in achieving
organizational performance through innovation and strategy implementation. The results of
the study are also expected to enrich the empirical evidence on strategic HRM theory, in
particular to strengthen the concept by Honeycutt (2001) and Awad and dan Ghaziri (2004),
in relation to the role of KM on organizational performance. On the other hand, this study is
useful to provide information for boarding schools in an effort to improve organizational
performance. In addition, it is also useful to provide information for relevant agencies to
establish policies to improve the competence of human resources and knowledge
management in improving organizational performance.

2. Theoretical background
2.1 Orientation of entrepreneurship
Corporate orientation is an ongoing activity to improve innovative capabilities, risk
management, resource use effectiveness and value development to retain customers and
organizational benefits (Morris and Lewis, 2002). This variable includes the following indicators:

autonomy, the ability to make decisions related to performance achievement;

risk-taking, the courage to take advantage of uncertainty in decision making; and

proactive (activity), active, dynamic and vibrant entrepreneurial activity and
durability toward obstacles and challenges toward achievement (Papasolomou-
Doukakis, 2002).

2.2 Knowledge management

KM by Dalkir (2005) is the deliberate and systematic coordination of people within
organizations, technologies, processes and organizational structures to add value through
reuse and innovation. Meanwhile, Honeycutt (2001) explains that the concept of KM as
including three things: knowledge creation, use and sharing.

2.3 Innovation
According to Damanpour and Schneider (2008), innovation is an introduction to equipment,
systems, laws, products or services, new production process technologies, a new structure or
administrative system or a new planning program for an organization to adopt. The
question items of this research are adapted and developed from Rofiaty (2012) and
JM2 Huang and Lai (2012)’s research with indicators for innovation variables including technical
innovation, managerial innovation and administrative innovation, as given below.

technical innovation, innovation related to product, service and production process
technology;

administrative innovation, innovation that implements ideas for new policies and
resource allocation; and

managerial innovation, change in management position where products and
services are developed, built and sent to consumers.

2.4 Strategy implementation

The relationship between strategic planning and execution is two critical points. Without
effective implementation, no strategy can work. However, most managers know much more
about strategy development than they need to implement (Hrebiniak, 2006). Implementing a
strategy means encouraging or mobilizing managers and employees to implement the
strategy that has been formulated. Strategy implementation is often considered the most
difficult stage in strategic management because in the implementation of the strategy is
really required the discipline, commitment and personal sacrifice (Sintaasih 2011).
According Hunger and Wheleen (2003), strategy implementation is the process by which
companies implement their strategies and policies in action through program development,
budgets and procedures.
In strategy implementation, companies are expected to establish or formulate company
goals, think and formulate policies, motivate employees and allocate resources so that
formulated strategies can be implemented. Implementing means moving employees and
managers to put the strategy that has been formulated into action, the implementation of the
strategy requires high performance and discipline but is also balanced with adequate
rewards. Implementing a strategy affecting an organization from the top to bottom of this
action impacts all the functional and divisional areas of a business (David, 2010). The
implementation challenge is to stimulate the managers and employees through the
organization to be willing to work full of pride and enthusiasm toward the achievement of
predetermined goals.

2.5 Organizational performance

Organizational performance variables (Y3) in this study is the end result obtained by the
organization RS for the activities that have been done. In this study, organizational
performance is measured from a balanced perspective between internal-external and non-
financial finance, referring to the concept of balance scorecard (Kaplan and Norton, 1996).
Organizational performance is measured from four perspectives or indicators, namely,
financial perspective (Y3.1), customer perspective (Y3.2), operational process perspective
(Y3.3) and learning and growth perspective (Y3.4). Furthermore, the question items of this
research indicator is adapted and developed from the research of Sintaasih (2011) and the
indicators of this study are described as follows:

financial perspective: objectives and financial measures that have multiple roles,
which determine the financial performance expected from the strategy and become
the final target or goal from another perspective. Performance from a financial
perspective can be in the form of increased revenue, decreased costs and increased
productivity, increased utilization of assets and decreased risk;

customer perspective: organizational view that must always be oriented to Relational
customer satisfaction. Customer satisfaction is closely related to the quality of model of
service provided by the organization of the hospital, where customer/patient
entrepreneurship
satisfaction is created if the quality of service provided is in accordance with
customer/patient expectations. In this research, customer satisfaction assessed
internal perspective of the organization by referring SERVQUAL from
Parasuraman et al. (1988) consisting of five items, as follows: rarely complains/
complains on the indicators of quality of physical services (tangible); rarely
complains/complains on the quality of service indicators (reliability);
rarely complains/complains on the quality of service indicators (responsiveness);
rarely complains/complains on the quality of service indicators (assurance trust);
and rarely complains/complains on service quality indicators such as pain care
(empathy);

internal business process perspective: internal business processes focus on internal
process steps that will have a big impact on customer satisfaction and provide a
good financial return for the organization. In the perspective of internal business
processes, executives identify important internal processes in which organizations
must excel. This process focuses on measuring service orientation from perceptive
employees working in hospital organizations; and

learning and growth perspective: growth, identifying the infrastructure that must
build the organization to create long-term growth and improvement. In this study,
the performance of the learning and growth perspective is measured from employee
satisfaction that is the positive emotional state that is the result of the evaluation of
work experience of the employees.

2.6 Conceptual framework

Figure 1 explains that there is a direct relationship between X1 to Y1, X1 to Z and X2 to Y1
and Y1 to Z, X2 to Z, X2 to Y2 and Y2 to Z. The indirect relationship is shown in the
relationship of X1 to Z through Y1, that of X2 to Z through Y1 and that of X2 to Z through
Y2. On the basis of the research framework, the following research hypotheses can be
proposed:

Innovation (Y1)

H7 H3
Entrepreneurship
Orientation (X1) H1
H2 Organizational
Performance (Z)
H4

Knowledge
Management (X2) H6

Figure 1.
H5 Strategy Conceptual
Implementation
(Y2)
framework
JM2 2.7 The relationship of entrepreneurial orientation and organizational performance
Entrepreneurship is a process that considers three dimensions, namely, innovation, risk
taking and proactiveness (Covin and Slevin, 1991). The implementation of these three
dimensions requires changes to established norms and behaviors accepted or adopted
within the organization (Morris and Paul, 1987). Entrepreneurial orientation can become a
driving force for the boarding school manager to improve the performance of the
organization. It also seems that the strategy shows involvement innovation so it can boost
the performance of the organization and business competitiveness. An entrepreneurial and
innovation-oriented strategy is proven to significantly improve organizational performance.
Increasing organizational performance is a benchmark and a reflection of its ability to
enhance its business competitiveness. Innovation is essential for the organization to face
rapid changes in the environment. Innovation will help organizations to ensure its business
competitiveness (Chen, 2007). Companies with high innovation power can generally
maintain their competitive advantage (Weerawardena and O’Cass, 2004):

H1. The entrepreneurial orientation significantly affects organizational performance.

2.8 The relationship of knowledge management and innovation

According to Awad and dan Ghaziri (2004), KM is the process of capturing and exploiting
the collective expertise of a company related to business in the form of writing, documents
and databases, called explicit knowledge, or in people’s heads, called tacit knowledge.
Knowledge management programs are typically associated with organizational goals and
are directed toward achieving specific outcomes, such as sharing intelligence, improving
performance, enhancing competitive advantage, or encouraging innovation in a higher
direction as suggested by Nonaka and Takeuchi (1995).
KM has been known to contribute to innovation, as supported by Kaya et al. (2013) and
Lai et al. (2014), which puts the role of KM as a mediating variable. On the basis of the
explanation, the following hypothesis is proposed:

H2. Knowledge management significantly influences innovation.

2.9 The relationship of innovation and organizational performance

Innovation is an early commercialization of an invention by producing new products or
processes from existing knowledge (Pearce and Robinson, 2008). The ability of corporate
innovation can have an impact on performance. Some studies support the relationship
between innovation and organizational performance as in Al-Ansari et al. (2013) and Zehir
et al. (2011), which put innovation as a mediation between relationship orientation and
organizational performance. On the basis of the explanation, the following hypothesis is
proposed:

H3. Innovation significantly affects organizational performance.

2.10 The relationship of knowledge management and organization performance

KM is a business concept, encompassing efforts that are held with mutual consent,
coordinated deliberately to manage the organization’s knowledge through the process of
creating, structuring, disseminating and applying it to improve organizational performance
and create value (Bose and Sugumaran, 2003, Massa and Testa, 2009). Some studies, both
conceptually and empirically, provide findings on KM and its relationships to the Relational
achievement of performance (Annette and Trevor, 2010; Hsiao et al. 2011). On the basis of model of
the explanation, the following hypothesis is proposed:
entrepreneurship
H4. Knowledge management significantly affects organizational performance.

2.11 The relationship of knowledge management and strategy implementation

According to David (2010), implementation of a strategy affects an organization thoroughly
across all functional and divisional fields of the business. Thus, the rationale for a purpose
and strategy should be clearly understood and communicated throughout the organization.
Maintaining the most fundamental knowledge, culture and normative reality of
organization through daily interaction between members is one of the most important things
to do (Kersten, 1986); so, in this case, the sharing of knowledge is one of the KM indicators.
Digman et al. (2007) suggest that KM, divided into knowledge capability process (KPC) and
knowledge infrastructure (KIC) have an effect on effectiveness of strategy implementation.
On the basis of the explanation, the following hypothesis is proposed:

H5. Knowledge management significantly affects strategy implementation.

2.12 The relationship of strategy implementation and organizational performance

Successful strategy formulation does not guarantee the success of strategy implementation.
Managers and employees throughout the organization must participate early and directly in
strategy implementation (David, 2010). Some studies, both conceptually and empirically,
provide findings on the relationship of strategy implementation and organizational
performance (Rapert et al. 2002; Joanna et al. 2014). On the basis of the explanation, the
following hypothesis is proposed:

H6. Strategy implementation significantly affects organizational performance.

3. Methodology
This research applied quantitative causal design and this type of research was explanatory
research. This research was conducted at Islamic boarding school in Malang in the period of
April to December 2017. The reason for choosing a boarding school in Malang as the
research object was because the community shows high interest in accessing Islamic-based
education as well as for the general knowledge education implemented in a professional yet
fun ways. The high demand is evidenced by the queues to becoming students in the
pesantren. The pesantren seeks to improve performance to achieve competitive advantage
by improving its entrepreneurial capability and human capital functionality in managing
knowledge to improve organizational performance through innovation and strategy
implementations.
The population of this study included the managers of pesantren, teachers and employee
representatives making strategic decisions. The unit of analysis in this study consisted of
Pondok Pesantren Ar Rohmah Putra, Pondok Pesantren Ar Rohmah Putri, Pondok
Pesantren Al Izzah, Tazkiyah IIBS, Pondok Pesantren Darul Maghfirroh, Pondok Pesantren
An Nur Putra, Pondok Pesantren An Nur Putri, PSBB MAN 3 Malang, Pondok Pesantren
Ar Rifa’i Putra and Pondok Pesantren Ar Rifa’i Putri. The reason for the selection of these
Islamic boarding schools was that they had the criteria of having various business units and
JM2 managing their school, both in Tsananawiyah, Aliyah and at institute level. The sample was
selected using a stratified random sampling method, in which every pesantren had 10-15
people as representatives; thus, the sample was 100 to 120 respondents.
The data collection used in this study was a survey method that is a primary data
collection method obtained directly from original sources. According to Solimun (2013), the
survey method is carried out by taking a sample from one population and using a
questionnaire as the main data collection tool. The researchers will create, disseminate and
collect questionnaires that are directly distributed to respondents.
This study also used an instrument in the form of a list of statements. This means that
the respondents give an answer to the statement submitted by being limited to the choices
that have been provided by the researchers. The measurement scale in this study is an
agreement used as a reference to determine the length of the interval in the measuring
instrument. Therefore, the measuring instrument will be able to produce quantitative data.
In this study, all questionnaire items will be measured by using a Likert scale.
The measurement reliability was determined by calculating the Cronbach alpha
coefficients of each instrument in a variable. Validity test in this research was done by
calculating correlation of Pearson (Pearson correlation) between the score of each item with
the total score of the question. The research approach used was quantitative with the
analysis tool is partial least square (PLS). The reason to use PLS in this study because the
approach helps estimate latent variables considered a linear combination of indicators;
hence, it avoids the problems of indeterminacy and provides a definite definition of the
scoring component (Solimun, 2013). When the structural model to be analyzed meets the
recursive model and the latent variable has a formative, reflexive or mixed indicator, then
the appropriate method applied is PLS. According to Ringle et al. (2010), the PLS (variance-
based or VB-SEM) can execute the analysis using small sample size, outlier and does not
require normal distribution. These two requirements are the main reasons social science
researchers are switching to PLS for their analysis. PLS can execute its bootstrapping
procedure in the situation, in which the normality assumption is not met or for the analysis
of non-normal data (Sharma and Kim, 2013) and handling the outlier data cause of non-
normal data (Lleti et al. 2005).
Before the PLS analysis is carried out, there is an assumption test to underlie the SEM
model. The multivariate normal assumption test was conducted using skewness and
kurtosis. On the basis of the test results, it is known that |CR|>2.58; on the skewness and
kurtosis statistics test, it is equal to 46,332 so that the normal multivariate assumptions have
not been met. In addition to the normal multivariate assumptions, there is an assumption
that there are no outliers. The test the outlier assumption was done by mahalanobis distance
method. It is found that the value of chi-square table with 43 degrees free is 77,419. From the
mahalanobis value, d-squared is known to be not more than 77,419 so that the non-outlier
assumption is fulfilled. Because the normal assumption has not been met, the analytical
method of PLS is suitable to be used in this case. The operational definition of variables is
presented in Table II.
The hypothesis model presents the relationship between entrepreneurship orientation
(OK), knowledge management (KM), innovation (INO), strategy implementation (SI) and
organizational performance (OP). In this study, the variables of KM acts as an exogenous
construct, also known as independent variables that cannot be predicted by other variables.
The variables of innovation and SI act as endogenous constructs known as intervening
variables predicted by the KM variables. Besides that, OP variables act as endogenous
constructs.
Variable Indicator Item Source

Entrepreneurial Autonomy
Encourage employees to be responsible for their work Covin and Slevin (1991)
orientation (X1) Minimum supervision of employees Morris and Lewis (2002)
Encourage employees to prioritize their work Looy et al. (2003), Papasolomou-
Risk-taking Seeing uncertainty as a challenge Doukakis (2002), Kuratko and
Encourage employees to enter the unknown market Hodgetts (2001), Stevenson and Jarillo
Acceptance in case of implementation failure (1990)
Emphasize the success opportunities rather than failure Pitt et al. (1997), Yeoh and Jeong,
Seeing business failure as a learning (1995)
Proactiveness Being consistent in finding new opportunities related to existing operations
Pioneering in introducing new products or services in the industry
Responsive to business opportunities
Being consistent in finding new opportunities to develop its performance
Precede competitors in responding to market challenges
Knowledge Knowledge Creation of knowledge derived from external observations of the company Sintaasih (2011), Basuki (2013)
management (X2) creation Creation of knowledge from experts or management consultants
Creation of knowledge derived from the observation of the service users or customers
Creation of knowledge from cooperation with related external institutions
Knowledge Use of knowledge from learning errors and past experiences Sintaasih (2011), Basuki (2013)
utilization Use of knowledge to identify new opportunities
Use of knowledge to improve the resource efficiency and work processes
Accuracy of use or application of knowledge for decision making when require
Use of knowledge to be transformed into innovation
Knowledge Knowledge sharing between employees Sintaasih (2011)
sharing Learning knowledge of different fields Basuki (2013)
Knowledge sharing with management consultants Yesil et al. (2013)
Knowledge sharing done online via intranet
Innovation (Y1) Technical Launch new product (service) Rofiaty (2012)
innovation Provision of equipment using the latest technology (update)
Updates in the use of integrated information networks
Administrative Policy on student registration process policy Rofiaty (2012)
innovation Policy on teaching and learning process
Policy on the payment process facility
Managerial More effective resource allocation Rofiaty (2012)
innovation Renewal in inter-departmental management
(continued)
Relational

indicators and items

entrepreneurship
model of

Research variables,
Table II.
 JM2

Table II.
Variable Indicator Item Source

Strategy Marketing Promotion through printed and electronic media Ekasari (2013)
implementation strategy Competitive pricing
(Y2) Friendly and professional service
Strategic location of pesantren
Comfortable environment for Students
Prioritizing promptness and quick respond in giving services
High quality services
Parking availability
Operational Learning room volume and facilities Ekasari (2013)
strategy Laboratory volume and facilities
Concept and design of pesantren
Advanced technology and information
Human resource High turn over Ekasari (2013)
management Giving bonus in the form of incentive or allowance
strategy Award for outstanding employees
Supportive working situation
Organizational Financial Growth perception of sales or income Sintaasih (2011), dan Basuki (2013
performance (Z) perspective Growth perception of net income for services
Growth perception of assets
Customer Less complaints on indicators of service quality (tangible) Sintaasih (2011), dan Basuki (2013)
perspective Less complaints on the process of teaching and learning (reliability)
Less complaints in the absence of teachers and employees (responsiveness)
Less complaints on services (assurance)
Fewer complaints on attention given by employees. (empathy)
Internal Hospitality in providing services Sintaasih (2011), dan Basuki (2013)
Business Clear procedures in serving
Perspective Enhance the capability or service capability using the latest technology
Learning and Employee learning is a top priority of organizational culture. Sintaasih (2011) dan Basuki (2013)
Development Rarely receive employee complaints over their employment relationship with the
Perspective superiors
Rarely receive employee complaints related to the comfort of the working environment
Rarely receive employee complaints on the facilities provided to complete the work
4. Result and discussion Relational
4.1 Construct model testing model of
Based on Table III, all measuring indicators of the five research variables have a loading
factor (coefficient) value above 0.5. This explains that all indicators have fulfilled the
entrepreneurship
validity of the study.
Entrepreneurship orientation (X1) is measured by three indicators, namely, autonomy
(X1.1), risk-taking (X1.2) and proactiveness (X1.3). The results of SEM analysis show that
the highest loading factor value is risk-taking (X1.2), which means that the risk-taking
indicator (X1.2) has a dominant role toward entrepreneurial orientation (X1). The
respondents said that if a boarding school wants to be seen as having a good entrepreneurial
orientation, the main indicator that must be considered is the courage of the managers to
take risks in the management.
KM (X2) is measured by three indicators, namely, knowledge creation (X2.1), knowledge
use (X2.2) and knowledge sharing (X2.3). From the SEM analysis, it can be seen that the
highest loading factor value is knowledge use (X2.2), which means that the indicator of
knowledge use (X2.2) has a dominant role in KM (X2). Respondents considered that to have
good KM, the main indicator that must be taken into account by the Islamic boarding
schools is the use of knowledge.
Innovation (Y1) is measured by three indicators such as technical innovation (Y1.1),
administrative innovation (Y1.2) and managerial innovation (Y1.3). The SEM analysis
points out that the highest value of the loading factor is managerial innovation (Y1.3). This
means that the managerial innovation indicator (Y1.3) has a dominant role in innovation
(Y1). Respondents believed that to have a good innovation, the main indicator that must be
considered is the innovation in the managerial field carried out by the boarding school
managers.
The strategy implementation (Y2) is measured by three indicators, namely, marketing
strategy (Y2.1), operational strategy (Y2.2) and human resource strategy (Y2.3). The results

Mean
Variable Indicator Coef. CR p-value Explanation

Entrepreneurship orientation (X1) X1.1 0.818 – – –

X1.2 0.940 12.513 0.000 Significant
X1.3 0.754 7.730 0.000 Significant
Knowledge management (X2) X2.1 0.929 – – –
X2.2 0.989 25.117 0.000 Significant
X2.3 0.803 12.683 0.000 Significant
Innovation (Y1) Y1.1 0.943 – – –
Y1.2 0.912 26.687 0.000 Significant
Y1.3 0.972 24.903 0.000 Significant
Strategy implementation (Y2) Y2.1 0.946 – – –
Y2.2 0.941 20.606 0.000 Significant
Y2.3 0.851 12.887 0.000 Significant
Organizational performance (Z) Z.1 0.954 – – –
Z.2 0.996 32.395 0.000 Significant
Z.3 0.988 30.666 0.000 Significant
Z.4 0.643 9.118 0.000 Significant
Table III.
Notes: Coef = coefficient (loading factor); CR = critical ratio (>1.96 significant), p-value = probability value Convergent validity
(< 0.05 significant) variables
JM2 of SEM analysis reveal that the highest loading factor value is found in marketing strategy
(Y2.1), which means that the marketing strategy (Y2.1) indicator has a dominant role in
strategy implementation (Y2). To implement the strategy properly, the respondents
proposed that the Islamic boarding school managers must pay attention to its marketing
strategy.
Organizational performance (Z) is measured by four indicators such as financial
perspective (Z.1), customer perspective (Z.2), bilateral perspective (Z.3), as well as learning
and growth perspective (Z.4). From the SEM analysis, it is shown that the highest loading
factor value is bilateral perspective (Z.3). This means that the indicator of bilateral
perspective (Z.3) has a dominant role on organizational performance (Z). Respondents
suggested that to have a good performance, the Islamic boarding schools must consider the
performance of the organization from a bilateral perspective.

4.2 Direct influence

Explanation of influence of each exogenous variable to endogen is used to answer the
research hypothesis. The explanation of the influence of each exogenous variable on
endogen on the research hypothesis is described in the Table IV.
The Table IV and Figure 2 show the coefficient of value of each exogenous variable’s
influence on endogen and p-value value of each influence coefficient. The results of the
hypothesis test in Table IV show that all the relationships from H1 to H7 excluding H3
have a significant, positive and one-way coefficient. This means that if the exogenous
variable increases, it will significantly increase the endogenous variable and vice versa. In
H3, the relationship of innovation (Y1) and organizational performance (Z) is positive, one-
way and insignificant, which means that any improvement of innovation done by the school
board will not affect the performance of the Islamic boarding school although there is
tendency of performance improvement if there is an innovation advancement done by the
school managers.

4.3 Indirect influence

The indirect influence testing of this research model is done by observing at the direct path
coefficient of the exogenous variable to the mediation variable and the direct path coefficient
of the mediation variable to the endogenous variable. The path coefficient on the indirect
effect test is described in the Table V.
The Table V above shows the indirect hypothesis in this study states that the orientation
of entrepreneurship (X1) and KM (X2) have no significant effect on organizational
performance (Z) through innovation (Y1), while KM (X2) has significant effect on
organizational performance (Z) through strategy implementation (Y2). This shows that
strategy implementation (Y2) proved able to mediate the influence of KM (X2) on
organizational performance (Z).

5. Discussion
5.1 The relationship of entrepreneurship orientation on organizational performance
Organizational entrepreneurship is a process that considers three dimensions, namely,
innovation, risk-taking and proactiveness (Covin and Slevin, 1991). The implementation of
these three dimensions requires changes to established norms and behaviors that have been
accepted/adopted within the organization (Morris and Paul, 1987). Orientation of
entrepreneurial strategy may be a “driving force” for the boarding school manager to
improve the performance of the organization. Another thing that became a temporary
concern of the researcher is a strategy innovation that shows the existence of “involvement
Hypotheses Relationship Coefficient CR p-value Explanation

H1 Entrepreneurship orientation(X1) ! organizational performance (Z) 0.351 2.091 0.037 Significant

H2 Knowledge management (X2) ! innovation (Y1) 0.905 16.816 0.000 Significant
H3 Innovation (Y1) ! organizational performance (Z) 0.133 1.511 0.131 Not Significant
H4 Knowledge management (X2) ! organizational performance (Z) 0.294 2.030 0.042 Significant
H5 Knowledge management (X2) ! strategy implementation (Y2) 0.948 18.276 0.000 Significant
H6 Strategy implementation (Y2) ! organizational performance (Z) 0.927 3.495 0.000 Significant
H7 Entrepreneurship orientation (X1) ! Innovation (Y1) 0.318 2.448 0.011 Significant
Relational

Structural model of
Table IV.
entrepreneurship
model of

influence
SEM results: direct
JM2
Innovation (Y1)

0.318 0.133
Entrepreneurship
Orientation (X1) 0.351
0.905 Organizational
Performance (Z)
0.294

Knowledge
Management (X2) 0.927

0.948 Strategy
Implementation
(Y2)

Figure 2. Supported Relation

Analysis result Non-Supported Relation

Coefficient of
Indirect influence Coefficient of direct influence indirect influence p-value Explanation
Table V. X1 ! Y1 ! Z X1 ! Y1 = 0.318 Y1 ! Z = 0.133 0.042 0.198 No significance
Hypothesis testing of X2! Y1! Z X2! Y1 = 0.905 Y1! Z = 0.133 0.006 0.165 No significance
indirect influence X2 ! Y2! Z X2! Y2 = 0.948 Y2! Z = 0.927 0.879 0.002 Significant

innovation” in organizing the education process in boarding school so that it can boost the
performance of the organization and improve business competitiveness. Strategies oriented
to entrepreneurship and innovation proved to have significantly improved the capability of
organizational performance. Increasing organizational performance is a benchmark and a
reflection of its ability to enhance its business competitiveness. Innovation is essential for
the organization in its efforts to defend itself in the face of rapid changes in the environment.
The company’s innovation power will ensure its business competitiveness (Chen, 2007).
Firms with high innovation power can generally maintain their competitive advantage
(Weerawardena and O’Cass, 2004).

5.2 The relationship of knowledge management on innovation

According to Awad and dan Ghaziri (2004), KM is the process of capturing and exploiting the
collective skills of a company in a business in writing, documents and databases, called explicit
knowledge or in the head of a person (called tacit knowledge). KM programs are typically
associated with organizational goals and are directed toward achieving specific outcomes, such
as sharing intelligence, improving performance, enhancing competitive advantage or
encouraging innovation in a higher direction, as suggested by Nonaka and Takeuchi (1995).
The relationship which states that KM contributes to innovation is supported by Kaya et al.
(2013) and Lai et al. (2014), which considers the role of KM as mediation.

5.3 The relationship of innovation on organizational performance

Innovation is an early commercialization of the invention by producing new products or
processes from existing knowledge (Pearce and Robinson, 2009). The ability of corporate
innovation can have an impact on the company’s performance. Some studies support the Relational
relationship between innovation and organizational performance, as in Al-Ansari et al. model of
(2013) and Zehir et al. (2011), that put innovation as a mediation between relationship
orientation and organizational performance.
entrepreneurship

5.4 The relationship of knowledge management on organizational performance

KM is a business concept, encompassing efforts that are held with mutual consent,
coordinated and deliberately to manage the organization’s knowledge through the process of
creating, structuring, disseminating and applying it to improve organizational performance
and create value (Bose and Sugumaran, 2003, Massa and Testa, 2009). Some studies, both
conceptually and empirically, provide findings in the form of KM and KM relationships to
the achievement of the OP. The relationship that states that KM contributes to OP is
supported by research of Annette and Trevor (2010) and research Hsiao et al. (2011).

5.5 Relationship of knowledge management on strategy implementation

According to David (2010), implementation of a strategy affecting an organization from the
top to the base of this action gives impact to all functional and divisional fields of a business.
So, the rationale for purpose and strategy should be clearly understood and communicated
throughout the organization. Maintaining the most fundamental organization of knowledge,
culture and normative reality, created through daily interaction between members of the
organization is one of the most important things of (Kersten 1986). So in this case, the
sharing of knowledge is one of the KM indicators that become interesting conversation.
Digman et al. (2007) suggest that KM, which is divided into knowledge capability (KPC) and
knowledge infrastructure (KIC) capabilities, affect the effectiveness of implementation
strategies.

5.6 Relationship of implementation strategy on with organizational performance

Successful strategy formulation does not guarantee the success of strategy implementation.
Managers and employees throughout the organization must participate early and directly in
strategy implementation (David, 2010). Some researches, both conceptual and empirical,
show findings of the relationship of IS and OP. The relationship that shows that KM
contributes to OP is supported by research of Rapert et al. (2002) and Joanna et al. (2014).

5.7 Relationship of entrepreneurship orientation on organizational performance through

innovation
Entrepreneurship, innovation and new businesses energize the organization in the face of
constantly changing and volatile environment (Milewicz and Herbig, 1994).
Entrepreneurship is considered a new way of entering a new market or an existing market
with new or existing products/services (Lumpkin and Dess, 2001; Slater and Narver, 1995;
Hurley and Hult, 1998). Empirical results conducted by Slater, 1997 discuss the relationship
of entrepreneurship with innovation and found that the value of user-oriented
entrepreneurship can provide a significant effect on the success of innovation and
improvement of organizational performance. The result of the research shows that there is a
significant influence of the entrepreneurship orientation on the performance of the
organization is done by Barrett and Odum (2000), stating that the entrepreneurship of the
organization gives positive impact to the organization’s performance. A person’s proactive
actions to achieve goals can be said to be the application of entrepreneurial orientation, as
well as if a company emphasizes proactive actions in its business activities then the
JM2 organization has undertaken an entrepreneurial activity that will promote high
performance. (Weerawardena, 2003)

5.8 The relationship of knowledge management, innovation on organizational performance

The researches that have been done by previous researchers have succeeded in providing an
overview of the support relationship of KM on innovation, KM with organizational performance
and innovation with organization performance. This research bridges the gap of previous
research by giving the role of Innovation as a mediator or intervening variable in the relationship
between KM and organizational performance. Referring to the definition of KM, as proposed by
Nonaka and Takeuchi (1995), which expresses knowledge management support to innovation
and research (Bose and Sugumaran, 2003; Massa and Testa, 2009) and states knowledge
management support to organizational performance and gap obtained from previous studies.

5.9 Relationship of knowledge management, strategy implementation on organizational

performance
This research bridges the gap of previous research by giving a role in strategy
implementation as a mediator or intervening variable in the relationship of KM on
organizational performance. Referring to previous research Joanna et al. (2014), Rapert et al.
(2002) and Digman et al. (2007).

6. Conclusion
From the results of the above analysis and discussion, some conclusions can now be drawn.
First, entrepreneurial orientation and knowledge management have a significant and positive
impact on the improvement of innovation. This means that the higher the entrepreneurial
orientation and knowledge management by Islamic boarding schools, the better the innovation
in business competitiveness. Second, KM positively affects the strategy implementation. This
means the better the KM, the better the strategy implementation within the framework of
business competitiveness of Islamic boarding schools. Third, entrepreneurial orientation, KM
and strategy implementation have a significant effect on the improvement of performance of
Islamic boarding schools. The higher the entrepreneurial orientation, KM and strategy
implementation, the better will be the performance of the Islamic boarding schools.
The results of this study confirm the theory of entrepreneurial orientation. The theory of
resource-based view is developed into the concept of knowledge management in relation to
strategic management such as innovation and strategy implementation. In this study, KM plays
a role in achieving organizational performance through innovation and strategy implementation.
This result is expected to enrich the empirical evidence on the theory of strategic human resource
management in regard to the role of KM on organizational performance.
This research is useful to provide information for Islamic boarding schools in an effort to
improve organizational performance. Besides that, this research is expected to provide
information for relevant agencies to establish competency improvement policies for human
resource and knowledge management to realize a better organizational performance.

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