title: SUSTAINABILITY-ORIENTED INNOVATION CAPABILITIES IN INDONESIAN MANUFACTURING INDUSTRY
Creators: name: Harsanto, Budi
Publisher: name: University of Liverpool Repository
Year: 2025

description: Sustainability-oriented innovation (SOI) has recently been generating considerable attention among researchers and practitioners. However, despite the growing attention, to date, research on SOI from the capability perspective is still under-explored. To follow up on this opportunity, this study aims to investigate the capabilities required to develop SOI at the firm-level in the Indonesian manufacturing industry. The key research questions proposed are related to, how do firms approach SOI, what barriers they face, and what specific SOI capabilities are needed to become a more sustainable innovator. Understanding existing firms’ SOI approach is crucial to provide a path to achieve sustainable competitive advantage. Awareness of SOI barriers is also critical to develop sustainable innovative practices. Both the SOI approach and SOI barriers are pivotal to identify further the specific capabilities required to be a sustainable innovator. The nature of this research is exploratory, considering the fact that the research on SOI from a capability perspective is still lacking, and very limited empirical data is available in emerging economies context. The data collection approach used is semi-structured interviews. Archival documentation and site visit are also used as other sources of data. In total, 33 semi-structured interviews were conducted involving 25 different firms with diverse characteristics in terms of industry and size. Data were analysed using radar charts and thematic analysis approaches, supported by visualisation of the thematic map and data structure technique. Indonesia is chosen as a context for this study, considering its status as a typical developing country that has a large market but faces enormous challenges in developing innovative and sustainability practices in firms. The findings of this study suggest that the majority of firms studied adopted SOI with an operational optimisation approach, and no firm is found to be following systems building approach. However, firms in different transition phases between SOI approaches were identified. The prominent SOI barriers faced by firms internally was ‘lack of resources’, while externally was ‘lack of demand’ for SOI products. The findings also suggest that firms following a more advanced SOI approach face fewer barriers than firms with a basic SOI approach. Further, there was no difference in ordinary SOI capabilities between firms that followed advanced and basic SOI approaches; however, differences were found in their dynamic SOI capabilities. Firms with higher dynamic SOI capabilities have better orientation in both innovation and sustainability as well as a better integration (Intra and inter-organisational; exploitation and exploration; manufacture and end-of-use) than firms with lower dynamic capabilities. It helps them overcome various SOI barriers and adopt SOI approach at the advanced level. This study provides noteworthy contributions to the academic literature by providing a more complete picture of SOI phenomena. It first discussing the SOI approach, then SOI barriers, and SOI capabilities. Moreover, this study also considers a balanced and holistic perspective in the analysis by involving dynamic capabilities as an overarching theoretical foundation combines with the pertinent theoretical concept in the innovation and sustainability field, including innovation management capability (IMC), natural resource-based-view (NRBV), and social resource-based-view (SRBV). The unique contributions of this study for practitioners include assisting them in understanding their SOI approach, potential SOI barriers, and specific capabilities required to develop themselves to become a more sustainable innovator. For policymakers, this study could be useful to help them in evaluating existing firms’ SOI approach as an important step to realise Indonesia’s ambition to become a more innovative and sustainable economy. The originality of this study lies in the synthesis of SOI dimensions based on the evolution of SOI literature to present as well as based on underlying theories and concepts. More specifically, this study has introduced ambidexterity as one of the SOI dimensions that have never been used before in SOI literature. This study has also provided new evidence to enhance SOI literature in the form of discovery of the transition phase between SOI approaches that did not exist in previous conceptual frameworks. Empirical data from an emerging economy has been analysed in this study, which is still under-explored in SOI literature. In the Indonesian context, this is one of the first studies to understand SOI approaches. Lastly, the capability-based perspective in this study is a follow-up to the research direction suggested in past literature in SOI, which highlights important contributions to the SOI body of knowledge.