J u r n a l S i a s a t B i s n i s V o l . 2 6 N o . 2 , 2022, 121- 1 3 7
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Creation of competitive advantage in improving the busi-
ness performance of banking companies
Dina Patrisia*, Muthia Roza Linda, Abror
Faculty of Economics, Universitas Negeri Padang, Padang, Indonesia
*Corresponding author: firstname.lastname@example.org
Received : 2021-05-03
Accepted : 2022-02-14
JEL Classification Code:
M10, L25, O32
Purpose – This study aimed to examine the impact of innovation,
intellectual capital and knowledge management, and competitive
advantage on business performance.
Design/methodology/approach – This study was conducted in Pa-
dang City, West Sumatra, Indonesia. The respondents are bank employ-
ees who have worked for more than five years and have structural posi-
tions in the company. The data has been collected using a survey with
questionnaires. This study got 109 responses out of 135 questionnaires,
so the response rate was 80.7%. It employed the Structural Equation
Modeling (SEM) approach using Smart-PLS as the data analysis software.
Findings – This study found that (1) innovation has a positive and
significant effect on competitive advantage; (2) knowledge manage-
ment has a negative but insignificant effect on competitive ad-
vantage; (3) intellectual capital has a positive and significant effect
on competitive advantage; and (4) competitive advantage has a posi-
tive and significant effect on business performance. Surprisingly, it
found that innovation significantly indirectly affects business per-
formance through competitive advantage as a mediating variable.
Intellectual capital has a significant indirect effect on business per-
formance through competitive advantage as a mediating variable.
Research limitations/implications – This study result can be more
impactful considering several factors. First, this study is a cross-sectional
study. Hence, it has a limitation in finding generalizations. Therefore,
for further research, it could be expanded to a longitudinal study. Sec-
ond, it is one country study. Future research might be extended to some
countries with similar cultures, such as Southeast Asian Countries.
Practical implications – This study has implications for the deci-
sion-makers. First, companies need to develop their intellectual
capital through improving employee skills and applying information
technology in business processes in order to maintain the company's
competitive advantage so that it has an impact on improving the
company's business performance. Second, the company is expected
to be able to manage the knowledge owned by the company so that
the knowledge it has can increase the creation of company innova-
tion it provides a competitive advantage for the company.
Originality/value –The contribution of this research is that the re-
sults of this study can be used as empirical evidence for banking
companies of the importance of the role of IC, innovation, and KM
in improving company performance by constantly creating the
company's competitive advantage.
Keywords: Innovation, intellectual capital, knowledge management,
competitive advantage, and business performance.
122 | Creation of competitive advantage in improving the busi-ness performance …
Amid the current development of the banking industry, there is increasing competition, so com-
panies must increase their competitive advantage to survive in the long term. The company's
business performance is a significant concern in ensuring competitiveness and sustainability by
utilizing existing resources (Muthuveloo et al., 2017). Therefore, banks need to understand what
and how to manage the various resources they have to win the competition and create a competi-
tive advantage (Kuncoro & Suriani, 2017), which will impact the company's business perfor-
mance. Organizations carry out various strategies such as innovation to create a competitive ad-
vantage. Innovation is often described in terms of what changes the company offers and how to
create these offers (Liao, et al., 2007). Various innovations in the banking world are currently
growing and adapting to the needs of society. For example, issuing electronic money, mobile
banking, internet banking, and others.
Another factor that affects competitive advantage is knowledge management, which will
affect the company's success. Knowledge management consists of infrastructure and information
technology to store and provide the knowledge generated, which can support the achievement of
company goals to create a sustainable competitive advantage (de Guimarães et al., 2018). Accord-
ing to de Guimarães et al., (2018), the application of knowledge management can provide bene-
fits, where knowledge management through work procedures and personal knowledge are re-
sponsible for impacting their performance. Improvement in the field of information technology
and increasingly competitive competition, many companies have transformed from a conven-
tional business relying on labour (labour-based business) to a business based on knowledge
(knowledge-based business), with the main characteristic being science. Knowledge-based busi-
ness is a business that is carried out by utilizing more intellectual capital (IC). Suppose the com-
petencies possessed by employees have a great opportunity to actualize and integrate them into
the management process. In that case, intellectual capital is believed to significantly increase asset
capabilities in terms of increasing profit, performance, job satisfaction, customer satisfaction, and
other interested parties in the organization (Adigüzel & Kayadibi, 2015).
Based on previous research on how innovation, Knowledge Management, and IC in cre-
ating competitive advantage and then in the creation of a company's business performance, de-
termining the factors that will influence the achievement of business performance is a major con-
cern (Ferreira et al., 2018; Cheng et al., 2010; Hult et al., 2004; Katila & Ahuja, 2002; Martín-de et
al., 2011; Zaied et al., 2012). Many studies conducted only tested KM, IC, and innovations on
competitive advantage and were carried out partially (Zaied et al., 2012; Li et al., 2018; Ferreira et
al., 2018). However, limited studies have addressed how the competitive advantage will impact
the business performance. Besides, research on the effect of competitive advantage on business
performance is mostly carried out in the SME and manufacturing sectors (Meutia & Ismail, 2015;
Cantele & Zardini, 2018). So, this research needs to be done in banking, considering that for
banking, innovation creation is very important in increasing the company's ability to have a com-
petitive advantage to maintain the company's survival. The contribution of this research is that
the results of this study can be used as empirical evidence for banking companies of the im-
portance of the role of IC, innovation, and KM in improving company performance by always
creating the company's competitive advantage.
Literature Review and Hypotheses
Rosli & Sidek (2013) find that performance is a mirror of a company. If the performance is poor,
the company is experiencing a setback, whereas if the performance is great, the company is pro-
gressing. Business performance results from meeting internal and external company goals (Lin et
al., 2008). The measure of a company's success can be seen from the company's financial perfor-
mance. Financial performance is a tangible result achieved by a business entity in a certain period
which can reflect the level of the financial soundness of a particular business entity and can be
Jurnal Siasat Bisnis Vol. 26 No. 2, 2022, 121-137 | 123
used to demonstrate the achievement of positive results. To measure the performance of banking
in this study used profitability, productivity, and market value (Keown et al., 2005). In order to
achieve business performance, the company must increase and maintain the company's competi-
A competitive advantage illustrates that a company has one or more advantages com-
pared to its competitors. These advantages, in turn, will improve overall company performance
(Mentzer et al., 2000). Competitive advantage can provide high levels of economic performance,
customer satisfaction and loyalty, and relationship effectiveness. Companies that offer high-
quality products can reduce production costs, thereby increasing profit margins on sales and re-
turns on investment. Therefore, a positive relationship exists between competitive advantage and
business performance (Li et al., 2006).
Innovation and Competitive Advantage
Innovation is a change in the process or knowledge development towards better results. Udriyah
et al., (2019) said that the innovation ability of a company will guarantee the company's competi-
tiveness. According to Lin & Chen (2007), innovation is one of the determining aspects of com-
pany performance in an increasingly competitive environment. In understanding organizational
acceptance behavior and identifying the determinants of innovation, it is necessary to know the
types of innovation. Three types of core innovations have received broad attention, namely ad-
ministrative and technical, product and process, and radical and incremental (Damanpour, 2016).
Wang & Ahmed (2004) identified five main areas that define an organization's overall innovation,
namely (1) product innovation, (2) market innovation, (3) process innovation, (4) behavioral in-
novation, and (5) strategic innovation. This research discusses product and process innovation,
but management innovation is poured into process innovation because management changes are
also needed. Liao et al, (2007) measure innovation using three indicators developed into state-
ment items: product innovation, process innovation, and management innovation.
The ability to develop new ideas to encourage innovation and present something differ-
ent from competitors can be an added value for an organization in achieving maximum competi-
tive advantage. The application of innovation will impact the organization's competitive ad-
vantage (Hult et al. 2004). According to the resource-based view, innovation is the main source
of competitive advantage in the knowledge economy era (Ferreira et al., 2018). Based on previous
research conducted by Chatzoglou & Chatzoudes (2017; Linda et al., 2020), states that innovation
has a positive and significant effect on competitive advantage. In line with research by Sharabati
et al. (2010), innovation positively affects competitive advantage. Therefore, it hypothesizes that:
H1: Innovation have a significant relationship with competitive advantage.
Knowledge Management and Competitive Advantage
Knowledge management is a source of knowledge, innovation and renewal. Humans are intangi-
ble resources that are believed to be able to develop knowledge or knowledge. The better
knowledge or knowledge that humans receive, the knowledge will be able to create new
knowledge that is even better (Prabowo, 2010). The indicators used to measure knowledge man-
agement, according to de Guimarães et al., (2018) are as follows:
1) New knowledge for the sustainable development process, the leadership is always open to
every individual in developing their creativity towards new ideas for the sustainable develop-
2) Development and process for new ideas, the engagement of all parties in the organization for
the development of science and technology
3) Knowledge exchange between departments, between departments exchanging information
related to new ideas for sustainable development and innovation.
4) Development and the process of creating works, creating works in an organization from the
new ideas that are obtained.
Needs an organization of knowledge management for competitive advantage in order to
124 | Creation of competitive advantage in improving the busi-ness performance …
last it is very necessary because organizations that can be said to be successful are those who can
create new knowledge and manage to pass it on to all individuals and quickly utilize it in the or-
ganization (Dewi, 2013). Naturally, most knowledge management is dynamic and intangible, with
unique characteristics that can sustainably create competitive advantage because knowledge is the
basis of differentiation which is difficult to imitate (Curado & Bontis, 2007). Knowledge man-
agement is one of the companies' most important strategic resources and a main source of value
creation (Nonaka, 1991). Therefore, knowledge management becomes a knowledge-centered
process that allows employees to contribute to the company's competitive advantage (Wang &
Noe, 2010). In line with that, previous research by Alavi & Leidner (2001) found that well-
managed knowledge management can help companies gain a competitive advantage. This is also
in line with (Chatzoglou, & Chatzoudes, 2017; Ode, & Ayavoo, 2020), where their research
shows that knowledge management positively affects competitive advantage. Thus, this study
proposes a hypothesis that:
H2: Knowledge management has a significant relationship with a competitive advantage.
Intellectual capital against the competitive advantage
The results of the study from Hermawan (2013) suggest that intellectual capital (IC) is an intangi-
ble asset that is beneficial for companies to improve performance, competitiveness, and welfare.
This is in line with the results of previous studies, which state that IC is crucial and influences
business performance, company value-added, organizational effectiveness, competitiveness, and
creating prosperity (Belkaoui 2003; Chen et al. 2009; Cabrita et al. 2007; Sharabati et al. 2010;
Khalique et al. 2011). Bontis & Richarson (2000) stated that the researchers generally identified
three main constructs of IC: human capital, structural capital, and customer capital.
Research Kamukama, (2013) states that IC is correlated with a competitive advantage.
Wang & Ahmed (2004; Li et al., 2006) state that a positive influence exists between competitive
advantage and performance as measured by sales volume, profit rate, market share, and return on
investment. Furthermore, Barney & Clark (2007) explained that intellectual capital is the compa-
ny's main capital to survive and achieve superior performance. IC provides the resources and ca-
pabilities to create a sustainable competitive advantage in the organization. Without IC, it will be
difficult for companies to gain a competitive advantage in the market (Yaseen et al., 2016).
H3: Intellectual capital has a significant relationship with a competitive advantage
Competitive Advantage and Business Performance
Competitive advantage is the ability of a company to create value that is not owned and cannot
be imitated by existing competitors (Boyer & Lewis, 2009). As explained in (Bratic, 2011; Li et al.,
2006) in their research, competitive advantage is the company's ability to create a defensible posi-
tion from competitors. Competitive advantage implies creating a system that has a unique ad-
vantage over competitors. This competitive advantage consists of the ability that enables the
company to differentiate itself from its competitors and result from critical management deci-
sions. Competitive advantage can be measured from Differentiation, Cost Leadership, and Out-
reach levels (Kamukama, 2013)
Competitive advantage is a strategy that can be applied by a company to achieve its ulti-
mate goal, namely to improve company performance that generates profits. A Competitive ad-
vantage allows a company or a group of businesses in an industry to achieve superior business
performance (Wright et al., 1995). Competitive advantage will improve business performance
through profit growth, sales growth, and customer growth. The result from Chan et al., (2004;
Ferreira et al., 2021; Anwar, 2018) states that competitive advantage positively affects firm per-
formance. Li (2000) stated that companies that excel in the competition will have a higher com-
pany performance. Hence, this study proposes that:
H4: Competitive advantage has a significant impact on business performance.
Innovation, Competitive Advantage, and Business Performance
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Lin & Chen (2007) assert that innovation is related to company performance. On the contrary,
Ferreira et al., (2021) argue that innovation is the main influence factor of competitive advantage.
Chan et al., (2004) have highlighted that competitive advantage is directly linked to firm perfor-
mance. Udriyah & Azam (2019) concluded that competitive advantage moderates between inno-
vation and business performance. Even though some previous studies have partially examined
the link between innovation and competitive advantage and the relationship between competitive
advantage and business performance, the mediating effect of competitive advantage on the link
between innovation and business performance remains limited. Therefore, this study proposes a
H5: competitive advantage is a mediating factor of the relationship between innovation and busi-
Intellectual Capital, Competitive Advantage, and Business Performance
According to Kamukama (2013), IC has a significant relationship with a competitive advantage.
Meanwhile, Li (2000) has investigated the significant role of competitive advantage on business
performance. Therefore, it may argue that IC has a relationship with business performance. Even
though some prior studies have partially addressed these relationships and Barney & Clark (2007)
have asserted a possible relationship between IC, competitive advantage, and business perfor-
mance, studies that have addressed the indirect relationship remain neglected. Jain et al., (2017;
Anwar, 2018) suggests that competitive advantage mediates the relationship between intellectual
capital and business performance. Intellectual capital can create a competitive advantage, and its
competitive advantage will improve the company's business performance. Hence, this study de-
velops a hypothesis that:
H6: Competitive advantage has a significant mediating effect on the relationship between IC and
Knowledge Management, Competitive Advantage, and Business Performance
According to Chatzoglou, & Chatzoudes (2017), knowledge management significantly impacts
competitive advantage. Wright et al., (1995) have asserted a significant link between competitive
advantage and business performance. Therefore, knowledge management may have a relationship
with business performance through competitive advantage as a mediator. Although the mediating
impact of competitive advantage on the link between knowledge management and business per-
formance is still neglected previously, Wijaya & Suasih (2020) found that the study state that
competitive advantage significantly mediates the influence of knowledge management on
knowledge management on business performance. This study argues that:
H7: competitive advantage has a significant mediating impact on the link between knowledge
management and business performance
The population of this research is structural officials of banking companies located in Padang
City, West Sumatra Province. This research is survey research where one of the advantages lies in
generalization, so the more respondents used, the better (Kerlinger & Lee, 2000. The minimum
number of respondents for survey research is 30 people (Hair et al., 2010). Therefore, this time
the researcher tries to get more respondents than the minimum requirements. The samples of
this study were taken using a purposive sampling technique, with the criteria that each respondent
must be a company employee who has the lowest structural position as a manager or head of a
branch. This study used a survey with a questionnaire as a data collection tool. A Likert scale with
5 levels, starting from Strongly agree to strongly disagree, is used as a measurement tool. 109
questionnaires were returned from 135 questionnaires distributed, so the response rate for the
study was 80.7%.
126 | Creation of competitive advantage in improving the busi-ness performance …
This study has 5 variables. In more detail, the research variables can be seen in Table 1.
Table 1. Operational Definition
Measuring the ability of bank
management to gain profit or profit
as a whole
3. Market value
(Keown et al., 2005)
Organizational ability to produce
superior performance and be able to
survive in the long term.
2. Cost Leadership
3. Outreach Level
Innovation is one of the determining
aspects of company performance in
an increasingly competitive envi-
1) Product innovation
2) Process innovation
3) Management innovation
(Liao et al., 2007)
Technology infrastructure and
information to store and provide the
resulting knowledge, in addition to
facilitating the structural and
1. Creativity and teamwork
2. New knowledge for the
sustainable development process
3. Knowledge exchange between
4. Development and the process of
(de Guimarães et al., 2018)
knowledge resources in the form of
employees, customers, processes or
technology that can be used in the
process of creating value for the
1. Human Capital
2. Structural Capital
3. Customer Capital
Source: Various Sources
The data was analyzed using Partial Least Square Structural Equation Modeling (SEM-PLS) and
SmartPLS as the data analysis software. SEM-PLS is a variant-based structural equation analysis
(SEM) that can simultaneously test structural models. SmartPLS in the analysis to overcome if there
is multicollinearity between the variables used and the research data was not normally distributed
(Ramzan & Khan, 2010). The measurement model is used to test the validity and reliability, while
the structural model is used to test the causality (hypothesis testing with predictive models).
1) Measurement Model (Outer Model)
An Outer model, also called (outer relation or measurement model), defines how each indica-
tor block relates to its latent variable.
1. Convergent validity test
Rule of thumb those used for convergent validity were outer loading > 0.7, communality
> 0.5 and average variance extracted (AVE) > 0.5 (Jogiyanto & Abdillah. 2014).
2. Discrimination Validity Test
The validity test of discrimination is measured based on cross-loading with the construc-
tor by comparing the AVE root for each construct with the correlation between the con-
struct and other constructs in the model.
3. Reliability Test
The reliability test in PLS can use two methods: Cronbach's alpha and Composite reliabil-
ity. Rule of thumb alpha value or composite reliability > 0.7.
2) Evaluation of the Structural Model (Inner Model)
The Structural model describes the relationship between latent variables based on substantive
Jurnal Siasat Bisnis Vol. 26 No. 2, 2022, 121-137 | 127
theory. The structural model was evaluated using the R-square for the dependent construct,
the Stone-Geisser Q-square test for predictive relevance, and the t-test and the significance of
the structural path parameter coefficients. Assessing the model with PLS starts by looking at
the R-square for each latent dependent variable. The interpretation is the same as the inter-
pretation in regression.
Sofyan (2011) described the criteria for limiting the R-square value in three classifica-
tions, namely the R-square values of 0.67, 0.33, and 0.19, as substantial, moderate, and weak.
Changes in the R-square value can be used to see whether the effect of exogenous latent vari-
ables on endogenous latent variables has a substantive impact.
Results and Discussion
Exams The convergent validity of the reflexive indicator can be seen from the loading factor val-
ue for each construct indicator. A rule of thumb is usually used to assess convergent validity with
the condition that the loading factor value must be more than 0.7. The following is the loading
factor value for each indicator can be seen in the table below:
Table 2. Outer Loading Factors
Source: Primary Data Processing (2020)
From Table 2, it can be seen that the loading factor value of all indicators has a loading fac-
tor value above 0.7, meaning that all of these indicators can be used for further analysis. After en-
suring that the loading factor of all indicators is above 0.7, then the measurement of the construct
validity is carried out. It can be seen that the data reliability from the Cronbach alpha, rho-A, and
composite reliability values above 0.7, then to see the validity of the data by looking at the AVE
value, where the AVE value is ≥ 0.5. The results of the construct validity can be seen in the Table 3.
Table 3. Construct Validity and Reliability
128 | Creation of competitive advantage in improving the busi-ness performance …
Source: Primary Data Processing (2020)
The final structural model shows that the AVE values of all variables have met the re-
quired rule of thumb (AVE > 0.50). Referring to the rule of thumb, the outer loading necessary
value is 0.70. Then all indicators in this study are declared valid because each indicator has met
the requirements for the outer loading value > 0.70 and the Cronbach's alpha value > 0.70.
Discriminant validity is related to the measuring principle (manifest variable) of different con-
structs which should not be highly correlated (Ghozali & Latan, 2015). Measuring discriminant
validity can be done in two ways: by using a cross-loading table or by comparing the value of the
square root of AVE.
Table 4. Square Roots of AVE
Source: Primary Data Processing (2020)
From the output results shown in Table 4, the diagonal is the value of the square root of
AVE and the value below is the correlation between constructs. So it can be seen that the square
root value of AVE is higher than the correlation value. Based on the table above, it can be con-
cluded that the estimated model is valid because it has met the criteria for discriminant validity.
Structural Model (Inner Model)
After The estimated h model meets the discriminant validity criteria, testing the structural model
(inner model). Structural model testing is done by looking at the goodness-fit model test's R-
square value. The following is a table of the R-square values of this study:
Table 5. R-Square table
R Square Adjusted
Source: Primary Data Processing (2020)
From Table 5 above, it can be seen that the R-square value of the business performance
variable (Y) shows the number 0.143. This shows that intellectual capital, innovation, knowledge
management and competitive advantage contribute 14.3% to the company's business perfor-
mance, while other variables explain the rest with the competitive advantage (Z) variable. From
the table above, it can be seen that the R-square value for the competitive advantage variable is
0.284. It can be concluded that competitive advantage has contributed as much as 28.4% of intel-
lectual capital, innovation, and knowledge management.
Goodness of Fit
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Based on Hairs (2013), a model is said to be fit if it has an SRMR value < 0.11. The SRMR value in
this study is 0.080, where the value is smaller than 0.11, which means that this research model fulfils
the goodness of fit.
Figure 2. Structural Model
Testing can be done by looking at the results of the path coefficient table which will be ex-
plained as follows:
Table 6. Path Coefficient
(| O /
Innovation → Competitive
Knowledge Management →
Intellectual Capital → Competitive
Competitive Advantage → Business
Innovation → Competitive
Advantage → Business Performance
Intellectual Capital → Competitive
Advantage → Business Performance
Knowledge Management →
Competitive Advantage → Business
Source: Primary Data Processing (2020)
Significant at level 0.05 *, Level 0.10 **
Direct Influence of Innovation on Competitive Advantage
The ability to develop new ideas to encourage innovation to present something different from
competitors will be an added value for an organization and achieve maximum competitive
advantage. Table 6 shows that, which is the result of the relationship between constructs, it states
that innovation has a positive and significant effect on competitive advantage with a parameter
130 | Creation of competitive advantage in improving the busi-ness performance …
coefficient of 0.494 and significant at alpha 0.05 and alpha 0.1, where the P-value is 0.003. Thus,
the first hypothesis in this study is accepted, meaning that innovation directly affects competitive
Added value to the company can be obtained through the creation of innovation by the
company through creativity in creating new products, services, or processes within the company
or outside the company. Companies with a high level of innovation will perform better in gaining
a competitive advantage. The value of innovation is a way to reduce the intensity of competition,
in other words, to get out of the competition with an emphasis on delivering quality products
accompanied by competitive prices (Alim, 2017). Sandvik & Sandvik (2003) state that the more
innovative a product is, the higher the value it will give to consumers and the higher the level of
differentiation offered. Linda et al. (2020) said that innovation made by banking companies would
create competitive advantage because innovation will help design, improve, and enhance
sustainable advantage. Therefore, the greater the capacity for organizational innovation, the
greater the competitive advantage.
Direct Influence of Knowledge Management on Competitive Advantage
Table 6, the result of the relationship between constructs, states that knowledge management has
a negative and insignificant effect on the competitive advantage at alpha 0.05 and alpha 0.1 with a
parameter coefficient of -0.060 and a P-value of 0.671. Thus, the second hypothesis in this study
is rejected, namely that knowledge management has a significant effect on competitive advantage.
This second hypothesis is rejected because the company should acquire knowledge as an
important resource to create and maintain a competitive advantage. (Hitt et al., 2000). However,
not all companies understand this. Competitive advantage is often seen as something that can be
built from good products and services to customers or outsiders of a company. This second hy-
pothesis's rejection is also because knowledge management has a more direct impact on increas-
ing innovation. It happens because sharing and codifying tacit knowledge helps transform tacit
knowledge into explicit knowledge and creates a culture that promotes the creation and sharing
of knowledge and collaboration (Mehrdad et al, 2014). The results of this study are in line with
the results of previous studies conducted by Elda et al. (2021), whose research results show that
knowledge management has a positive effect on competitive advantage. Through this innovation,
a competitive advantage will be created. Therefore, knowledge management does not influence
Direct Influence of Intellectual Capital on Competitive Advantage
Intellectual capital can be defined as company resources in the form of employees, custom-
ers/customers, processes, or technology that can be used in the value creation process by a com-
pany (Bukh et al., 2005). Technology, products and services from a company can be imitated, but
intellectual capital is difficult to imitate, which is why human resources are unique and strategic
(Duica et.al., 2010). As stated by Sawarjuwono & Kadir (2003) intellectual capital is the sum of
the results of the three main elements of an organization, namely human capital, structural capi-
tal, and customer capital related to knowledge and technology that provides added value to the
company in the form of competitive advantage.
Based on Table 6 above, intellectual capital has a positive and significant effect on the
competitive advantage at alpha 0.05 with parameter coefficients of 0.195 and P-values of 0.032.
Thus, the third hypothesis in this study is accepted, namely that intellectual capital has a signifi-
cant effect on competitive advantage. This illustrates that maximizing the use of intellectual capi-
tal owned by the company can encourage the company to create a competitive advantage
Direct Effect of Competitive Advantage on Business Performance
Table 6 above which is the result of the relationship between constructs. It states that competi-
tive advantage has a positive and significant effect on business performance at alpha 0.05 and al-
pha 0.1 with a parameter coefficient of 0.378 and P-values 0.000. Thus, the fourth hypothesis in
Jurnal Siasat Bisnis Vol. 26 No. 2, 2022, 121-137 | 131
this study is accepted, namely that competitive advantage has a significant effect on business per-
formance. This illustrates that the company's ability to create a competitive advantage will be able
to influence the company's business performance in a better direction. The higher the company's
ability to create competitive advantage, the higher the company's business performance.
Competitive advantage is the company's strategy to achieve its ultimate goal, namely per-
formance that generates high profits. Competitive advantage is not the end goal but a means to
achieve the company's ultimate goal, namely improving company performance. Ferdinand (2003)
states that in a competitive market, the company's ability to produce good performance is highly
dependent on the company's ability to create a competitive advantage. To maintain the existence
of the company in the long term, the company must maintain sustainability from the company's
competitive advantage. Setyawati & Abrilia (2013) stated that for a company to benefit from im-
plementing strategy, it must go through competitive advantage. These results align with the re-
search conducted by Ferreira et al., (2021; Anwar et al., 2018), where the study results support the
relationship between competitive advantage and business performance.
After testing the hypothesis above, the next step is to test the indirect effect of the variables used.
The model in this study is Full Mediation, namely, the independent variable can directly influence
the dependent variable through or involves the mediating variable. Cohen (1998). Based on the
result of research with SmartPLS version 3.2.6, it was found that the Q2 Business Performance
value was 0.664, and the Q2 competitive advantage value was 0.484. According to Hair et al
(2014), if the Q2 value is greater than 0.3, it shows a strong relationship. So based on the research
results, competitive advantage as a mediating variable has a strong influence in mediating be-
tween the independent variable and the dependent variable.
Indirect Effect of Innovation on Business Performance
In order to maintain the company's survival in today's fast-paced and competitive market, the
application of innovation by companies is considered a very important necessity. Zainul, et al,
(2016) state that innovation is an organizational culture that reflects the extent to which a com-
pany is open to new ideas, accepts and stimulates new approaches to encourage ideas that are
challenging, take risks, and are proactive. The success of a company in creating innovation can be
said if the company is one step ahead of its competitors, it requires intelligence and courage in
carrying out innovation activities so that innovation can create a competitive advantage to im-
prove performance for the company. Competitive advantage can be generated from a company's
ability to manage and utilize its resources and capital. In turn, competitive advantage is an im-
portant factor to produce a good performance. Story et al. (2011) stated that skills development,
incubation, and acceleration are important indicators in triggering the creation of competitive ad-
vantages to improve company performance.
Based on table 16, it shows the result of the relationship between constructs. Thus, the
fifth hypothesis in this study is accepted, that innovation significantly affects business perfor-
mance through competitive advantage as a mediating variable. This illustrates that the company's
ability to create innovation can affect the company's business performance in a better direction
where the innovation made by the company creates the company's competitive advantage. Thus,
competitive advantage can be accepted as a mediating or intervening variable in the relationship
between innovation and firm performance.
This study's results align with research conducted by Udriyah & Azam (2019). The re-
search results show that competitive advantage as a moderating variable between innovation and
business performance has a positive and significant influence. Ferreira et al. (2021) said that in-
novation is one of the main instruments that can increase market share and provide a competitive
advantage for the company, which will positively impact the company's performance.
Indirect Influence of Intellectual Capital on Business Performance
132 | Creation of competitive advantage in improving the busi-ness performance …
Intellectual capital is the main resource and driver (driver) for the performance and value creation
in the company, so intellectual capital plays an important role in creating or maintaining a com-
pany's competitive advantage. (Cheng, et al., 2010). Competitive advantage can be achieved by
companies that are successful in utilizing and integrating their intellectual capital in the form of
knowledge, technology skills, experience and strategic capabilities. Tovstiga & Tulugurova (2009;
Barney, 1991; Prahalad & Hamel, 1990; Kamukama, 2013) emphasized that the company's com-
petitive advantage and company performance are largely influenced by the company's intellectual
Based on table 6 above, which is the result of the relationship between constructs, states
that the indirect relationship of intellectual capital to business performance is significant at alpha
0.1 with a parameter coefficient of 0.074 and P values 0.051. Thus, the sixth hypothesis in this
study is accepted that intellectual capital has a significant effect on business performance through
competitive advantage as a mediating variable. It means that when competitive advantage be-
comes a mediation between intellectual capital and company performance, it can have a positive
effect. This is because the competitive advantage that banks have is a characteristic that can dif-
ferentiate between banks and banks from other financial institutions. This competitive advantage
can ultimately have a positive effect on improving company performance. Thus, a competitive
advantage can be accepted as a mediating or intervening variable in the relationship between in-
tellectual capital and company performance.
This study finds the same results as Berzkalne & Zelgalve (2014; Jain et al., 2017), where
the results of their research show that intellectual capital is a set of intangible assets. Furthermore,
resources can assist companies in creating a competitive advantage, providing higher perfor-
mance and profitability benefits. Anwat et al. (2018) suggested that competitive advantage fully
mediates the relationship between intellectual capital and business performance.
Indirect Influence of Knowledge Management on Business Performance
Knowledge management is a process that helps organizations find, select, organize, disseminate
and transfer important information and expertise required for activities. Knowledge management
is the formalization and access to experience, knowledge and expertise. It creates new capabilities
that enable superior performance, encourages innovation and increase customer value (Khan,
2012). Nonaka & Takeuchi (1995) emphasize the organizational need for knowledge manage-
ment, who says, "In an economy where the only sure thing is uncertainty, the one sure source of
making a lasting competitive advantage is knowledge. Table 8 above, the result of the relationship
between constructs, states that the indirect relationship between knowledge management and
business performance is insignificant at alpha 0.05 and 0.1 with P-values 0.680. Thus, the seventh
hypothesis in this study is rejected: knowledge management has a significant effect on business
performance through competitive advantage as a mediating variable, which means that competi-
tive advantage does not mediate between knowledge management and company performance.
This is because knowledge management owned by banking companies does not directly contrib-
ute to the company's competitive advantage, except that existing knowledge management can
create innovation so that, the company can achieve a competitive advantage and improve com-
pany performance through this innovation.
The results of this study are not in line with the research conducted by Wijaya & Suasih
(2020), where their results show that optimizing knowledge will produce competitive products.
When the product has a competitive advantage, it will undoubtedly improve business perfor-
Based on the results of the research and discussion presented in the previous chapter, several
conclusions can be drawn in this study, including:
1. Innovation has a positive and significant effect on competitive advantage with a parameter
coefficient of 0.494 and significant at alpha 0.05 and alpha 0.1 where the P value is 0.003.
Jurnal Siasat Bisnis Vol. 26 No. 2, 2022, 121-137 | 133
This shows that better innovation made by the company, the greater the chance for the com-
pany to gain a competitive advantage.
2. Knowledge management has a negative and insignificant effect on the competitive advantage
at alpha 0.05 and alpha 0.1 with a parameter coefficient of -0.060 and a P-value of 0.671. This
shows that the company's knowledge management does not influence the company's compet-
3. Intellectual capital has a positive and significant effect on the competitive advantage at alpha
0.05 and alpha 0.1 with a parameter coefficient of 0.195 and P value 0.032. This illustrates
that maximizing the use of intellectual capital owned by the company can encourage the
company to create a competitive advantage
4. Competitive advantage has a positive and significant effect on business performance at alpha
0.05 and alpha 0.1 with a parameter coefficient of 0.378 and P-values 0.000. This illustrates
that the company's ability to create competitive advantage will be able to influence the com-
pany's business performance in a better direction. The higher the company's ability to create a
competitive advantage, the higher the company's business performance.
5. The indirect relationship between innovation and business performance is significant at alpha
0.05 and alpha 0.1 with a parameter coefficient of 0.187 and P values 0.035. This illustrates
that the company's ability to create innovation can affect the company's business perfor-
mance in a better direction where the innovation that the company makes creates a competi-
tive advantage for the company.
6. The indirect relationship of intellectual capital to business performance is significant at alpha
0.1 with a parameter coefficient of 0.074 and a P value of 0.051. This means that intellectual
capital significantly affects business performance through competitive advantage as a mediat-
ing variable. When competitive advantage becomes a mediation between intellectual capital
and company performance, it can positively affect.
7. The indirect relationship between knowledge management and business performance is in-
significant at alpha 0.05 and 0.1 with P values 0.680. This means that competitive advantage
does not mediate between knowledge management and business performance.
Research implications for decision-makers
1. Companies need to develop their intellectual capital by improving employee skills and apply-
ing information technology in business processes to maintain the company's competitive ad-
vantage to improve the company's business performance.
2. Companies must be able to change knowledge in the form of tacit knowledge into explicit
knowledge by collecting and storing every knowledge and information that employees have
into a system that can be accessed by employees who need that information or knowledge.
3. The company is expected to be able to manage the knowledge owned by the company so that
the knowledge it has can increase the creation of company innovation and provide a competi-
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