This document summarizes a study on the impact of organizational learning and innovation on business performance of small and medium enterprises in Indonesia. The study found that organizational learning and innovation both have a positive effect on business performance. Specifically, it was found that organizational learning positively affects innovation and business performance, while innovation also positively impacts business performance. The study recommends that SME managers boost organizational learning, innovation, and the sharing of information to improve business performance. However, the structural equation model used showed some poor fit with the data.

1. The 1st International Conference For Interdiciplinary Studies (ICIS)
Youngsan University, Busan, South Korea , September 22-23, 2014
Indra Muis
Universitas Pasundan, Doctoral Program in Management
Jl. Sumatra No 41 Bandung, Jawa Barat 40014, Indonesia
Email: indra_muis@yahoo.com

2.  Small-Medium Enterprises (SMEs) are national
assets when having a superior business
performance
 Factors influencing Business Performance
 Organizational Learning and innovation
 Global Market: Chinese Dominant
 Domestic Market: The undesirable rattan
products

3.  Organizational Learning, Innovation and Business
Performance
 Conceptual Framework
Business
Performance
Organizational
Learning
Innovation
Figure 1 : Conceptual Framework

4.  Organizational Learning has a positive effect on
Business Performance
 Innovation has a positive effect on Business
Performance
 Organizational has a positive effect on Innovation

5.  Organizational Learning and innovation as
independent variable and Business Performance as a
dependent variable
 Organizational Learning indicators: information
acquisition, Information Distribution, Information
Interpretation, Behavioral and Cognitive Changes
 Innovation indicators: Product and Service
Innovation, Process Innovation, and Innovation
Culture
 Business performance indicators: financial and non
financial indicators
 Using 5-level LIKERT scale
 Using Structural Equation Model (SEM)

6.  109 sample of 149 SMEs’ Owner
 Measurement & Instrumentation: Business Performance: 4
statements for Financial performance and 16 statements for
Non Financial Performance (Fairoz et al, 2010)
 Organizational Learning: Information Acquisition with 15
statements, Information Distribution with 4 statements,
Information Interpretation with 11 statements and Cognitive
and Behavioural Change with 14 statements, (Huber, 1991)
 Innovation; Product and Service Innovation with 9
statements, Process Innovation with 4 statements and
Innovation Culture with 5 statements (Piroozfar, et al, 2012)
 The instrument validity and reliability by SPSS 21: Valid 0.4
Pearson’s product moment and reliable 0.7 Cronbach’s
Alpha)

7.  Structural Equation Modeling (SEM) with IBM SPSS AMOS 21
software
Satisfactorily met criteria of GOF.
 Chi-Square (χ²) 101,554 with 0.00 p-value. The Chi-Square score
is then divided by the degree of freedom; 101,554 / 24 = 4,23.
The calculation indicates that the model fits if referred to the
criteria in which 1.0 is below limit and > 2 is above limit.
 Goodness of fit indices (GFI). GFI shows that the model fits. The
score of GFI is 0.851. The model fits when GFI score is in 0.80 
GFI < 0.90.
 Non-Centrally Parameter (NCP) that scores 77.554 and indicates
the model fit because is in the scale of 47.334  NCP < 146.511.
 Adjusted Goodness of Fit Value (AGFI) scores 0.72 and is
considered fit because it is in the scale of 0.666  AGFI < 0.807

8. Unsatisfactorily met model criteria of GOF
 RMSEA with 0.173 score should be  0,08 (good fit).
 ECVI default model with 1.329 score should be lower
than its saturated model (0.833) and its
independence model (3.431).
 CFI with 0,755 should be > 0.9.
 PNFI with 0.475 score should be > 0.7.
 NNFI with 0.633 should be > 0.9.
Root Mean Square Error of Approximation (RMSEA),
Expected Cross Validation Index (ECVI), Comparative
Fit Index (CFI), Incremental Fit Index, Parsimonius
Goodness of fit (PGFI), Parsimonious Normed Fit
Index (PNFI), and Non-Normed Fit Index (NNFI).

10.  Organizational Learning affects the business
performance (0.07 co-efficient)
 Innovation has a positive effect on the
business performance (0.4 co-efficient)
 organizational learning and innovation has a
positive correlation (0.4 co-efficient)
 The study has found significant results of
association of all three variables studied. It
has found a positive effect of organizational
learning on Business Performance

11.  The stronger the organizational learning the
higher the business performance will be.
Incorporating new knowledge and using it in
SMEs leads to more business performance.
 The present of innovation also strongly affects
business performance. The more innovative the
enterprise is, the better its business
performance will be.
 The presence of organizational learning and
innovation are proven to be affected one
another

12. Reinforcing the implementation of organizational learning and innovation
in order to increase the business performance.
 The managers are suggested to :
1. boost learning atmosphere and culture in their organizations
2. acquire information from various sources and in various ways
3. distribute and interpret the information in order to create
cognitive and behavioral changes in their entire organization.
4. boost product and service innovation in an attempt to create high
quality products and services and process innovation to create
efficiency in the business process.
5. to create innovation culture in their organization to help an
organization cope with customers’ need and wants.
6. create organizational innovation by improving organizational
learning because great innovation is created through great
learning and learning drives people to innovate

14.  Calantone. Roger J (2002):” Learning orientation, firm innovation capability, and firm
performance”. Industrial Marketing Management 31 – 2002 P. 515–524
 Eshlaghy, Abbas Toloie and Maatofi, Alireza (2011):” Learning Orientation, Innovation and
Performance: Evidence from Small-Sized Business Firms in Iran”. European Journal of Social
Sciences – Volume 19, Number 1 (2011) P.114-122
 Fairoz, Fauzul Mafasiya, et al (210): “Entrepreneurial Orientation and Business Performance of
Small and Medium Scale Enterprises of Hambantota District Sri Lanka. Asian Social Science Vol. 6
No.3 March 2010 P.34-46
 Gathungu, James M, et al (2014): “Entrepreneurial Orientation, Networking, External
Environment, and Firm Performance: A Critical Literature Review”. European Scientific Journal
March 2014 edition vol.10, No.7 P.335-357
 Ma’atoofi, Ali Reza and Tajeddini,Kayhan (2010):” The Effect of Entrepreneurship Orientation on
 Learning Orientation and Innovation: A Study of Small-Sized Business Firms in Iran”.
International Journal of Trade, Economics and Finance, Vol.1, No.3, October, 2010, P 254-260
 Onyema, Eugene Ofoegbu (2014):” Effects of Entrepreneurial Orientations on Organizational
Learning in a Manufacturing Firm in Nigeria”. International Journal of Business Administration
Vol. 5, No. 2; 2014 P. 94 – 106
 Piroozfar, Shahnaz (2012):” A Review: Enterprise Resource Planning Impacts On Innovation Types
In SMEs”. Journal of Basic and Applied Scientific Research Vol 11 no 2, 2012 P.11361 – 11369

15.  Rashidi, Parvin and Motlagh, Mehri Ghadiri (2013):” A Study of
the Impact of Organizational Learning on Organizational
Innovation”. International Journal of Research in Organizational
Behavior and Human Resource Management, Vol. 1, No. 3, 2013,
pp. 48-56.
 Rauch, Andreas, et al (2009): “Entrepreneurial Orientation and
Business Performance: An Assessment of Past Research and
Suggestion for the Future”. The paper was presented at the 2004
Babson-Kauffman Entrepreneurship Research Conference in Glasgow,
Scotland.
 Suryana, Tatang (2013):” The influence of external, internal
environment and Business Ethics to the Business Partnership and
implication on the small enterprises performance in West Java-
Study on Batik Cap Small Enterprises), Dissertation in
Management Science, Pasundan University

16.  Therin, François (2003):” Learning Organization and Innovation
Performance in High-Tech Small Firms”. Working Paper, hal-
00451466, version 1 - 29 Jan 2010
 Wahyuningsih, Andilala (2013):”The Effect of Organizational
Learning on Knowledge Management, Capability and Performance
of Organization (Case Study in University of Brawijaya, Malang).”
Journal of Basic and Applied Scientific Research, Vol 3 No 5 ,
2013, ISSN 2090-4304 P. 159-169