Does intellectual capital matter in performance management system-organizational performance relationship? Experience of higher education institutions in Indonesia

Pages533-554
DOIhttps://doi.org/10.1108/JIC-12-2018-0209
Date24 September 2019
Published date24 September 2019
AuthorBambang Tjahjadi,Noorlailie Soewarno,Elga Astri,Hariyati Hariyati
Subject MatterInformation & knowledge management
Does intellectual capital matter in
performance management
system-organizational
performance relationship?
Experience of higher education
institutions in Indonesia
Bambang Tjahjadi, Noorlailie Soewarno and Elga Astri
Department of Accounting, Faculty of Economics and Business,
Airlangga University, Surabaya, Indonesia, and
Hariyati Hariyati
Department of Accounting, State University of Surabaya, Surabaya, Indonesia
Abstract
Purpose The purpose of this paper is to investigate whether performance management system (PMS) has a
positive effect on organizational performance. Furthermore, it also investigates whether intellectual capital
(IC) mediates PMS-organizational performance relationship.
Design/methodology/approach This study is designed as a quantitative research employing a partial
least squares structural equation modeling (PLS-SEM). Using an online survey, data are collected from the
HEIs managers under the Ministry of Research, Technology and Higher Education, the Government of
Indonesia (MRTH-GOI). This research uses a mediation model approach to test the indirect effect of IC.
Findings The results reveal that PMS has a positive direct effect on organizational performance of the
HEIs in Indonesia. Further analysis proves that IC partially mediates PMS-organizational relationship.
Research limitations/implications This researchis context-specific for Indonesiaand caution should be
used when generalizing it to other countries. It implies that the better the organizational performance of the
HEIs,the better the quality of lifein the society. PMS and IC playa crucial role in the era of knowledgeeconomy.
Practical implications The HEIs managers should design and implement a re liable PMS. They also
should properly manag e the IC (human capital, st ructural capital, rel ational capital) so tha t they can
enhance organization al performance in areas o f teaching, research and c ommunity service as the cor e
business of the HEIs.
Social implications As the global education competition has become a serious issue in each HEI in
Indonesia, the results of this study contribute to providing an approach on how to achieve a better
organizational performance which brings more benefits to the society. The HEIs display a strategic role in
improving the quality of life of society. The knowledge economy requires society to enhance the quality of
education at all levels. This research model and results provide empirical evidence of the importance of IC
which mediates the relationship between PMS and organizational performance. When the HEIs in Indonesia
implement this model of managing IC, the society will get more benefits in terms of the improvements in the
quality of education, teaching, research and community service from the HEIs. The better the HEIs
performance, the better the quality of life of the society in the era of knowledge economy.
Originality/value This research brings together issues that are usually examined separately in previous
studies. It employs a mediation research model to explore the central role of IC in PMS- organizational
performance relationship which is rarely researched. This is also the first study exploring the three constructs
of PMS, IC and organizational performance in the Indonesian HEIs research setting.
Keywords Intellectual capital, Higher education institutions, Organizational performance,
Performance management system
Paper type Research paper
Journal of Intellectual Capital
Vol. 20 No. 4, 2019
pp. 533-554
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-12-2018-0209
Received 5 December 2018
Revised 7 January 2019
11 March 2019
26 May 2019
27 June 2019
Accepted 27 June 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The authors thank five anonymous referees for the insightful comments and helpful suggestions. The
authors are also pleased to acknowledge the financial support from Universitas Airlangga.
533
Higher
education
institutions in
Indonesia
1. Introduction
Performance is always crucial for both profit-oriented and nonprofit-oriented organizations
because it is the actual achievement of the desired organizational goals and objectives
(Beitsch et al., 2015; Para-González et al., 2018; Geys and Sørensen, 2018). Performance refers
to the results of activities in the form of outputs and outcomes (Van Dooren et al., 2015;
Angiola et al., 2018). Performance is also related to the achievements of organizational vision
and mission (Bititci et al., 2016; Duygulu et al., 2016). Recently, there has been a growing
tendency throughout the world that public organizations are facing great pressures to
improve performance and to reform public management regarding the use of public
resources (West and Blackman, 2015; Gerrish, 2015; Angiola et al., 2018). Using the story of
the financial crisis, Massey (2018) stated that public organizations must be reformed in
terms of improved policy capacity and good governance. A strong state in a free economy
must be capable of balancing between deregulation for economic growth and regulation for
the public goods (Hvidman and Andersen, 2014; Bergquist and Keskitalo, 2016; Hazelkorn
and Gibson, 2019).
One of the most important public institutions is the HEI. All over the world, the HEIs
have experienced the dynamics of rapid changes. The ideology of the HEI as a legal entity
has become increasingly important (De Boer et al., 2007; Oertel, 2018). Initially, the HEIs are
built to improve the quality of students by using resources available (Bagley and Portnoi,
2014; Pucciarelli and Kaplan, 2016; Rodionov et al., 2016). Nowadays, the HEI is not only a
public organization that is closely related to the government and community, but also an
organization that can do business and collaborate with various parties around the world
(Moon et al., 2017; Tseng et al., 2018). The globalized relationships that can be formed by the
HEIs rely on the organizationsreputation and affect the competition that the HEIs face
(Naidoo, 2016; Musselin, 2018).
The HEIs face intense competition not only among individuals and countries but also
among institutions. This leads to multilevel competition and makes another university as a
competitor (Musselin, 2018). Competition is triggered by the development of global rankings
of HEIs (Bagley and Portnoi, 2014). Currently, the QS World University Rankings (QS WUR)
and the World University Rankings (THE WUR) are used to access the quality and
reputation of universities around the world (Salmi, 2013; Collins and Park, 2016; Altbach
and Salmi, 2017). In addition to university rankings developed by private sectors, each
government has also developed its own ranking schemes.
Basically, performance of the HEI is evaluated based on three areas, namely: teaching,
research and community service or national development (Altbach, 2015; Bisogno et al.,
2018; Pinheiro et al., 2015; Fitzgerald et al., 2016). It relates to the tasks of the HEI as a public
organization that serves the community. Thus, nonfinancial measures in addition to
financial measures should be considered in measuring the HEI performance. To fulfill these
obligations, the HEIs are required to improve their performance by adopting PMS used by
the private sector. The obligations require a systematic, fair, intelligent, effective,
appropriate and motivating PMS (Pavlov et al., 2017). Beeri et al. (2018) stated that PMS is
associated with higher levels of citizenstrust in and satisfaction with local government.
This study has a different perspective compared to the work of Asiaei et al. (2018) stating
that IC is indirectly associated with organizational performance through the intervening
variable of the balanced use of interactive and diagnostic PM systems. This study proposes
a mediation model in which IC mediates the relationship between PMS and organizational
performance. It based on the theoretical argument that the strategic PMS should access the
human capital readiness, information capital readiness and organizational readiness
(Kaplan and Norton, 2004) in order to develop intangible assets or IC initiatives. It is also
based on some previous studies by Hassan et al. (2016), Severgnini et al. (2018) as well as
Yuliansyah and Jermias (2018) involving the mediating variables related to IC elements,
534
JIC
20,4

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