INTERNAL CAPABILITIES AND ORGANISATIONAL PERFORMANCE OF TRADITIONAL WEAVING MICRO, SMALL, AND MEDIUM ENTERPRISES (MSMEs): EVIDENCE FROM INDONESIA

Abstract

This study investigates the effects of internal organisational capabilities on organisational performance among traditional Lurik weaving micro, small, and medium enterprises (MSMEs) in Indonesia, drawing on the dynamic capabilities perspective. A quantitative, cross-sectional design was employed using survey data collected from 30 owners or managers of Lurik weaving MSMEs in Klaten, Central Java. Data were analysed using Partial Least Squares Structural Equation Modeling (PLS-SEM), which is suitable for exploratory research with relatively small sample sizes. The findings reveal that financial literacy has a positive and statistically significant effect on organisational performance, indicating that effective financial management plays a crucial role in improving business outcomes. In contrast, however, human resource readiness and innovation capability do not show significant direct effects on organisational performance, suggesting that these capabilities may not immediately translate into measurable performance improvements in traditional cultural MSMEs. From a theoretical perspective, this study extends the application of dynamic capabilities theory to a culturally embedded MSMEs context and demonstrates that internal capabilities do not uniformly influence performance outcomes across different organisational settings. Practically, the findings highlight the importance of prioritising financial management capabilities to enhance performance in micro-scale traditional enterprises. This study is limited by its cross-sectional design, small sample size, and reliance on perceptual performance measures within a single regional context. Despite these limitations, the study offers original insights by focusing on traditional weaving MSMEs and identifying financial literacy as a dominant driver of organisational performance.