Digital leadership impacts on developing dynamic capability and strategic alliance based on market orientation

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

J. Environ. Treat. Tech.

ISSN: 2309-1185

Journal web link: http://www.jett.dormaj.com

Digital Leadership Impacts on Developing

Dynamic Capability and Strategic Alliance based

on Market Orientation

Leonardus WW Mihardjo*, Sasmoko, Firdaus Alamsjah, Elidjen

Business School, Bina Nusantara University, Jakarta, Indonesia

Received: 06/06/2019

Accepted: 29/08/2019

Published: 03/09/2019

Abstract

The in-depth study on the role of leadership especially digital leadership on the creation of strategic alliance and dynamic

capability has not being explored. Hence, the purpose of this paper is to examine what are the roles of digital leadership in

developing strategic alliance and dynamic capability based on market orientation. We argue that digital leadership behaviors have a

stronger influence on the development of strategic alliance to drive dynamic capabilities based on market orientation. A quantitative

method is used comprising 88 senior leaders of Indonesian telecommunication. The purposive sampling methods is used with the

statistical tool is Smart PLS. The findings confirm the significant influence directly and indirectly between digital leadership and the

development of strategic alliance and dynamic capabilities based on market orientation. The study has practical implication to take

the priority in developing of digital leadership in enforcing the transformation. the limitations of study could be identified as the

sample, time and used statistical tools, hence the further study can be extended in term of sample quantity, time horizon to become

longitudinal research.

Keywords: Digital Leadership, Dynamic Capabilities, Strategic Alliances, Market Orientation

environment that dealing with the complex and volatile

Introduction

environment, the firm shall apply the dynamic capability

including the flexibility to form dynamic alliance with

partners (36). The key success factor in managing partners is

relationship with partners and maintain governance to

provide trust with partners (44). The changing of

environment and capability to more dynamic due to digital

technology impact to the leadership behavior. In digital era,

the leadership behavior will combine the leadership style with

digital technology called by digital leadership (48). We

contribute to this study on the role and influence of digital

leadership within the alliance capability to perform the firms

on dynamic capability-based market orientation as a distinct

operational capability and determinant the relationship to

support the alliance success.

In Management context the development of capabilities

has been discussed intensively consist of routines activities

and how the organization has capability to reconfigure to

adapt with the dynamic change (1, 10, 40). Those dynamic

adaption change focus on the capability of resource to adapt

the change and reconfigure from routine operation (13).

However, the previous study has not clear find the

implication of dynamic capability in relation with

performance whether it will direct or indirect influence.

While some finding found that the dynamic capability has

Industry resolution 4.0 dominated by Digital technologies

have driven the change of paradigm in doing the business.

The organization firms form the alliance to leverage the

capabilities and fulfill the capability gap for driving

sustainability. The alliance appears an interested topic by

combining with business model innovation to maintain

survival of the firms (43). The critical part of the firm success

in alliance with partners was match with the company

criteria in term of culture, decision making process and

system in integrating with existing asset (8). Besides that,

the innovation can be explored and exploited when the parties

could perform trust and managing potential conflicting

strategic choices (27). The disruptive era with digital

technology imposes the market and customer become

complex and force complexity on the market called by

Volatility, Uncertainty, Complexity, and Ambiguity (VUCA)

(

Pandit, Joshi, Sahay, & Gupta, 2018). The firm is required to

have an orientation on the market and customers, while

another challenge is to manage alliance capability with

partners. On the previous study, in entrepreneurship

Corresponding author: Leonardus WW Mihardjo, Business

School, Bina Nusantara University, Jakarta, Indonesia. Email:

mihardjo@gmail.com.

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

indirect on performance through operational performance

creative, (2) deep knowledge (3) strong network and

collaboration, (4) loyal participation via vision (41) Another

study, Zhu (2015) found similar characteristic of digital

leadership consists of 5 style as follow (1) creative (2)

thinkers, (3) global visionary and willing to collaborate, (4)

inquisitive leader and (5) profound leader (48). In this study

we use 5 dimension driven from Zhu as follow: creative,

deep knowledge, Global vision and collaboration, thinker,

inquisitive.

(

10, 13, 36) and others recommend that dynamic capabilities

have a direct influence on firm performance (9, 19)

The development of dynamic capability has broad range

of firm operational activities to support business

development, innovation and alliance (37). In the business

development, the dynamic capability has intensively

discussed in development product and service innovation (6,

, 25). While the dynamic capability mostly used for

development innovation capability, especially for business

model innovation (4, 37, 45). As regard with alliance

capability, on the previous study, there has been no empirical

study on the development dynamic capability o base on the

alliance capability, nor the influence of digital leadership and

market orientation on the context of digital transformation.

We argue that in digital era the firm that focus on market

orientation and has the digital leadership based on market

orientation has an effect directly or indirectly to form the

alliance capability in development of dynamic capability.

Market orientation is defined as an organization culture

where it could be more effective and efficient in creating

superior value of buyers to achieve superior performance

firms (26). Market orientation in the context of organization

have meaning that the customers has to be well known by

firms as part of market intelligence where the information of

customer have been disseminated across organization unit

2.2 Dynamic Capability

The enhancement of study in resources base view as the

anticipation of complex and dynamic environment creates

Dynamic capability to address the organization capability to

adapt with the change from existing routine resources,

process, product and services to new capabilities (13, 37).

The dynamic capability emphasized that the resources

capabilities of organization can be created, extended and

modified to align with the changing up to creating new

paradigm of transformation (35). The transformation can be

done integrating, building and reconfiguring the competence

as part of sensing, seizing and transforming (10, 40). The

capability development in dynamic capability consists of

adaptive capability, strategic capability, management

capability and innovation capability (24, 39).

(

32). The development of market orientation as part of

2.3 Alliance Capabilities

organization culture could be driven from manager or leader

vision of the firm (24). In the context of digital era, the

leadership has the role to provide a tangible vision and

direction based on the analysis of market and combine with

resources to drive the alliance outcomes (38). The reason

behind alliance is the construct of leadership behavior,

cognitive and decision (31). Hence, leadership becomes a

critical and influence in developing alliance capabilities. The

combination of leadership competence and capability to

optimize the use of digital technology called by digital

leadership. However, the empirical study of relation of digital

leadership directly or indirectly influence to alliance

capability and dynamic capability as well as market

orientation has not been intensively explored. Hence, this

study aims on influence of digital leadership in making

Building up the alliance in history of management

describes a special capability of the organization to cooperate

with other partners to grow together and strengthen the

position of participant called as alliance capabilities (10, 40).

The coordination and integration of knowledge and resources

to achieve a common goals become an critical for alliance to

success (16, 38). In previous study, it finds that alliances are

source of competitive advantages (16, 45). However, some

potential risk associate the form of alliance could be break up

(8, 42). The most reason fails in alliance related with the

relationship with partners and maintain governance to

provide trust with partners (16, 44) . Lack of trust may lead to

confusion impacts to the failure to achieve common

objectives. Cravens & Piercy (2013) has defined the alliance

capabilities consists of customer alliance, supplier alliance,

lateral alliance and internal alliance. The vertical

collaboration consists of the alliance between customer and

supplier, while the horizontal alliance consists of

collaboration between internal and lateral alliance. This study

uses the dimension based on Craven’s definition.

“

(

capability-building” in term of organization behavior

market orientation, alliance capability and dynamic

capability) to have a sustainability capability.

Literature Review

.1 Digital Leadership

2.4 Market Orientation

The leadership style as

core competence in

The market orientation explains the behavior of

communication, computing, content and telecommunication

to contribute functionality toward development of knowledge

society by optimize the digital technology called as digital

leadership (33). The digital leadership is the critical part to

drive the transformation toward digital capability firms (28).

The development of digital leadership consists of integration

organization to focus on the market in all activities in

development of product and services (26). There are two

organization concept in Market orientation concept related

with behavior and cultural approach (11). The behavior

emphasis on the organization style in delivering service and

product to increase customer engagement and experience

of culture and digital competence

to utilize digital

(

17). While the cultural approach focusses on the believe and

technology as part of leadership style to create value to the

firm (24). Due to the nature of digital where the information

can be assessed globally, real time, transparent, hence the

leadership in digital era have following characteristics: (1)

the value proposition of organization to set the customers as

the first priority. In the marketing orientation concept, the

organization has the intelligence ability to adapt the

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

capability based on customer and market information and

generate response to the market based on that information to

enhance the firm performance. Hence, the organization based

on market orientation has three intelligence capability as

follow intelligence dissemination, intelligence generation and

intelligence responsiveness (1, 32).

survey was done started from November 2017 until January

2018. According to Hair, et al (2014) the minimum required

sample size is 52 respondents for the model with an

endogenous construct has 2 arrows directed, 0.05 significance

level, 80% statistical power and minimum R2 = 0.25 (12).

However, this sample of this study was made up of 88

respondent. This sample is higher than the recommended

sample with the following respondents: 75% was Manager

and General Manager and the rest 25% was VP and Board

leader. 88% respondents were men and 12% were women.

83% respondents come from network provider, while 17%

from service providers. Data were collected via self-

assessment through an online questionnaire and distributed

through messenger, WhatsApp, Telegram and email. Since

there is a limitation of data sample, the statistical a tool of

analysis is SmartPLS.

2.5 Hypothesis Development

The previous study on the relation between the leadership

and market orientation has found that the leadership has

influence to market orientation as part of organization

behavior (22, 30) in the digital era, the previous research

found the relation between digital leadership and market

orientation (24), hence the formulation of hypothesis as

follow: (H1) Digital leadership has significant impact to

market orientation in the Indonesian telecommunication

industry. Leadership contributes significant influence in

maintain stability of alliance capabilities as found in previous

studies (15, 34). This finding also is happen in digital era

Results and Findings

The measurement test is being used to measure the

(

24). According those previous, we formulate hypothesis as

relationship between latent variables and their indicators and

follow: (H2) Digital leadership has significant impact to

alliance capabilities in the Indonesian telecommunication

industry. The market orientation has been found an critical

part in enhancing alliance capability, especially in marketing

alliance (18, 46). This phenomenon impacts as well in digital

era (24), hence the following hypothesis can be stated as

follow: (H3) Market orientation has significant impact to

alliance capabilities in the Indonesian telecommunication

industry. The role of leadership in developing dynamic

capability was found significant influence (37, 38) , hence the

hypothesis formulation can be stated as follow: (H4) Digital

leadership has significant impact to dynamic capability in the

Indonesian telecommunication industry. The market

orientation has been found as part of dynamic capability of

the organization behaviour (14, 24), hence it strengthens the

hypothesis formulation that marketing orientation has

influence to dynamic capability. (H5) Market orientation has

significant impact to dynamic capability in the Indonesian

telecommunication industry. While the alliance capability has

been found has significant impact in driving dynamic

capability (3, 16, 47). This previous study strengthening the

third hypothesis where innovation management has relation

to dynamic capability: (H6) Alliance capabilities has

significant impact to dynamic capability in the Indonesian

telecommunication industry.

structural test to test the hypothesis and model.

Table 1: Construct’s Reliability Test

Cronbach's

Alpha

Composite

Reliability

rho_A

AVE

Digital leadership

0.972

0.974

0.975

0.675

Deep Knowledge

0.913

0.916

0.939

0.794

Global Vision and

Collaboration

0.931

0.933

0.951

0.830

Inquisitive

0.945

0.915

0.872

0.951

0.791

0.876

0.920

0.959

0.857

0.948

0.922

0.908

0.959

0.917

0.817

0.915

0.851

0.946

0.915

0.875

0.956

0.821

0.879

0.927

0.960

0.859

0.949

0.925

0.912

0.962

0.918

0.826

0.922

0.865

0.960

0.946

0.912

0.956

0.866

0.907

0.935

0.964

0.933

0.975

0.945

0.943

0.964

0.948

0.892

0.940

0.900

0.858

0.854

0.723

0.553

0.622

0.619

0.646

0.709

0.875

0.951

0.812

0.845

0.657

0.858

0.734

0.797

0.694

Thinker

creative

Market Orientation

Intelligent Dissemination

Intelligent Generation

Responsiveness

Alliances Capabilities

Customer Alliance

Internal Alliance

The Figure 1 illustrates the research model of this study

Lateral Alliance

Supplier Alliance

Dynamic Capabilities

Adaptive Capabilities

Innovation Capability

Management Capabilities

Strategic Capability

Figure 1: Research Model

Methodology

The empirical study is done through survey and

questioner method with purposive sampling methods. The

telecommunication company was a Unit analysis with the

observer on senior leader with manager level above. The

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

.1 Evaluation of Measurement

Path

0.974

0.976

0.863

0.930

0.884

0.924

0.931

0.935

0.892

0.919

0.862

0.881

0.909

0.916

0.930

0.927

0.844

0.901

0.913

0.905

0.768

0.873

0.698

0.899

0.870

0.777

0.831

0.687

0.879

0.902

0.771

0.925

0.921

0.879

0.918

T Statistics

114.883

131.024

17.670

59.702

31.691

57.638

53.247

48.674

25.266

49.926

26.142

27.405

43.326

49.775

62.631

48.383

23.352

33.932

50.880

38.725

15.081

24.085

9.855

P Values

0.000

To measure Validity and reliability consists of following

KI1 <- Internal Alliance

KI2 <- Internal Alliance

parameter:

Cronbach alpha to test reliability with minimum threshold

KL1 <- Lateral Alliance

Composite Reliability with minimum threshold 0.7

Average Variance Extracted (AVE), expected to be more

KL2 <- Lateral Alliance

than 0.5.

KL3 <- Lateral Alliance

The result as follow. The convergent validity to assess the

indicator where the value of the loading factor in t-value

higher than 1.96 and p-value less than 0.05. The result shows

in Table 2. Table 2 shows that all indicators have a path score

higher than 0.7 with t-statistics has value higher1.96 and p-

value was less than 0.05, it means all indicators has good

convergent validity.

KL4 <- Lateral Alliance

KS1 <- Supplier Alliance

KS2 <- Supplier Alliance

KS3 <- Supplier Alliance

MC1 <- Management Capabilities

MC2 <- Management Capabilities

MC3 <- Management Capabilities

MC4 <- Management Capabilities

P1 <- Thinker

Table 2: Outer Path Analysis

Path

0.952

0.923

0.903

0.891

0.894

0.780

0.596

0.842

0.886

0.798

0.771

0.746

0.841

0.756

0.801

0.800

0.917

0.940

0.903

0.946

0.756

0.910

0.864

0.939

0.932

T Statistics

81.615

47.432

31.933

35.205

42.861

13.266

6.286

P Values

0.000

AC1 <- Adaptive Capabilities

AC2 <- Adaptive Capabilities

AC3 <- Adaptive Capabilities

IC1 <- Innovation Capability

IC2 <- Innovation Capability

IC3 <- Innovation Capability

ID1 <- Intelligent Dissemination

ID2 <- Intelligent Dissemination

ID3 <- Intelligent Dissemination

ID4 <- Intelligent Dissemination

IG1 <- Intelligent Generation

IG2 <- Intelligent Generation

IG3 <- Intelligent Generation

IG4 <- Intelligent Generation

IG5 <- Intelligent Generation

IG6 <- Intelligent Generation

IT1 <- Inquisitive

P2 <- Thinker

P3 <- Thinker

PM1 <- Deep Knowledge

PM2 <- Deep Knowledge

PM3 <- Deep Knowledge

PM4 <- Deep Knowledge

R1 <- Responsiveness

20.859

30.422

16.659

15.779

12.691

26.728

17.440

14.729

20.016

44.225

50.155

42.509

60.843

18.148

44.238

20.612

18.724

69.343

55.984

R2 <- Responsiveness

R3 <- Responsiveness

R4 <- Responsiveness

37.233

25.679

12.338

16.268

7.249

R5 <- Responsiveness

R6 <- Responsiveness

R7 <- Responsiveness

R8 <- Responsiveness

SC1 <- Strategic Capability

SC2 <- Strategic Capability

SC3 <- Strategic Capability

SC4 <- Strategic Capability

VG1 <- Global Vision and Collaboration

VG2 <- Global Vision and Collaboration

VG3 <- Global Vision and Collaboration

VG4 <- Global Vision and Collaboration

40.292

38.465

15.444

12.236

44.026

47.473

17.214

50.586

IT2 <- Inquisitive

IT3 <- Inquisitive

IT4 <- Inquisitive

K1 <- creative

K2 <- creative

K3 <- creative

K4 <- creative

KC1 <- Customer Alliance

KC2 <- Customer Alliance

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

Fig 2: The Complete Research Model

.2 Structural Model (Inner Model)

1.96 and P Values is less than 0.05. The alliance capability

has no significant impact on dynamic capability. The

simultaneous test to assess the indirect effect of independent

variable to depend variable. The result can be seen in Table 4.

Similar with the partial test result, the simultaneous Table 4

reveals that digital leadership has strong influence on

dynamic capability alliance capabilities indirectly through

market orientation. Since alliance capabilities has not

significant influence on dynamic capabilities hence the path

of digital leadership has no indirect significant on dynamic

capability through alliances capability since the t-statistics

result has less than 1.96 and p value more than 0.05.

On blindfolding score result, the Q2 for the alliance

capability has score 0.499, it means that the structural model

has adequate predictive relevance with the complete figure of

research model can be shown in Figure 2.

4.3 Hypothesis Testing

The partial Test of hypothesis to measure the significant

direct relation between variable. The result of partial testing

can be shown in Table 3. Table 3shows that digital leadership

has direct significant influence on market orientation, alliance

capability, and dynamic capability. While the market

orientation has direct influence on alliance capability and

dynamic capability as the result of T-statistics has higher than

Table 3: Partial Hypothesis Testing

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

Standard

Deviation

Path

T Statistics

P Values

Remarks

Alliances Capabilities -> Dynamic Capabilities

Digital leadership -> Alliances Capabilities

Digital leadership -> Dynamic Capabilities

Digital leadership -> Market Orientation

Market Orientation -> Alliances Capabilities

Market Orientation -> Dynamic Capabilities

0.152

0.556

0.189

0.754

0.376

0.639

0.093

0.079

0.089

0.044

0.079

0.073

1.636

7.028

2.129

16.950

4.776

8.758

0.102

0.000

0.033

0.000

not supported

Supported

Table 4: Simultaneous Hypothesis Testing Result

Path

T-Statistics

P-Values

Digital leadership -> Market Orientation -> Alliances Capabilities

Digital leadership -> Alliances Capabilities -> Dynamic Capabilities

0.283

0.084

0.059

4.798

0.000

0.052

1.640

0.101

Digital leadership -> Market Orientation -> Alliances Capabilities ->

Dynamic Capabilities

.043

0.030

0.061

1.456

7.942

0.146

0.000

Digital leadership -> Market Orientation -> Dynamic Capabilities

0.482

.4 Discussion and Implication

The study reveals that the issue in agility for incumbent

has to defines vision and for growth and develop a vision of

the future. The finding of the result of the study align with the

phenomenon where the most important on digital leadership

is global vision and collaboration follow by thinker and deep

knowledge. This finding is revealed the previous study done

by Shoemaker (2018) and Zhu (2015). The thinker and

inquisitive are related with challenge and interpretation of the

leaders to have ability to sense of the market change and

support the seizing of the opportunity and mitigate the threat

by having curiosity. The next capability is required from

digital leadership are deep knowledge. This capability is

related with the decision making based on deep knowledge

due to the digital technology support. The deep knowledge is

part of continuous learning of leaders. The last capability is

creativity, where in digital era is critical to unleash numerous

business model innovation. the emerge of Internet of things

(IoT) has enable the connecting all industry parties. The

combination of collaboration with virtual connectivity could

mutate the new paradigm and form a remarkable innovation.

still an issues in the development of dynamic capability based

on alliance capability (20). Hence, the result of alliance

capability has not influence on dynamic capabilities in

Indonesia telecommunication industry. This finding reveals

the study on the risk and the failure rate on the alliance

success (8, 16). This results demonstrated even though the

leaders has intention for collaboration (Global vision and

collaboration T-score: 99.366), and the organization has

focussed on responsiveness to the market (highest t-score in

market orientation: 155.412), but the constraint related with

the partners in term of right partners, the trust, the culture and

common goals become an constraint in development of

dynamic capability. Hence the incumbent firms still rely on

the development of dynamic capability based on internal

capability supported by market orientation behaviour. This

finding reveals the concept of alliance based dynamic

capability, where the trust and relation with the partners

become an critical factors for the incumbent firms to form

dynamic alliance capability (16) as shown in Figure 3.

The development of dynamic capabilities is emphasised

by the strong adaptive capability and management capability

decision. This finding reveals the previous study that with the

dynamic capability could enable an organization innovation

to sense market change in detecting the weak signals, seize

opportunities and threats to develop scenario and mitigate the

risk, lastly transform the new paradigm and reshape their

environment to navigate volatile future environments in

turbulence environment (37, 40)

In Digital era, the navigating in dynamic environment and

a VUCA requires special leadership who combine the

leadership capability and optimize the digital technology as

part of opportunity to enhance the top line and mitigate the

threat. Leaders must develop the individual capacity and

competence to better manage uncertainty and create

organizations adapt with strong dynamic capabilities. Leaders

Figure 3: Dynamic Alliance Capability Framework

(

16)

The digital leadership is a central on development of

dynamic capability that enabler the firm capability in

transforming the digital capability. The continuous learning

to adapt the changing take significant role on development

digital leadership.

Journal of Environmental Treatment Techniques

2019, Volume 7, Issue 4, Pages: 673-680

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Conclusion

The digital leadership has significant influence in driving

market orientation, alliance management, and dynamic

capability. However, the alliance management has not

significant influence in development dynamic capability duet

to the potential failure of alliance with partners related

constraints with trust, culture and common goal. Hence, the

incumbent firms’ choices the development of dynamic

capability through development of internal organization that

focus on market orientation. This study has limitation in term

of sample size, methodology, time study, and research model

hence further development the study can be enhance through

enhancing the sample not only for ICT and Indonesia market,

it can be across industry and countries. The sample and

methodology were also limited; hence the future study can be

enhanced through enhancement the sample and methodology

of the research use large sample and advance statistical tool

analysis. The longitudinal study can be enhancing to assess

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