Dety Nurfadilah
Sudarmawan Samidi- Sekolah Tinggi Manajemen IPMI, Jakarta, Indonesia
The objective of this study is to investigate talent development as a driver for strategic flexibility, digital readiness, and innovativeness and how these affect the business performance. This study used a quantitative approach using surveys from 391 managers and directors of Islamic rural banks in Indonesia, then the data were analyzed using structural equation modelling - partial least square (SEM-PLS). The results show that talent development has positive effects on innovativeness, strategic flexibility, and digital readiness. Moreover, strategic flexibility has positive mediating variables between digital readiness and innovativeness which also lead to business performance. This study provides contribution to the literature by integrating the digital readiness, strategic flexibility and innovativeness toward financial and non-financial performance. It also offers managerial implication that talent development drives those correlations.
Introduction
The COVID-19 crisis has created a serious multi-dimensional disruption throughout the world, leaving the Islamic financial institutions in a state of instability due to high credit risk and systemic risk (Rizwan et al., 2020). Interestingly, this crisis also has accelerated the rapid adoption of digital transformation (Nachit and Belhcen, 2020). It is widely seen by the intense competition between Islamic rural banks and bank digital or fintech that provide new digital channels and products to gain strategic positioning in the digital age. Cloud computing and blockchain technology are employed by the competitors to improve their efficiency (Muia, 2017). The use of advanced digital technology triggered much discussion into its impact on talent development (TD). It is also still a debate among scholars whether TD could improve the performance of Islamic rural banks due to limited studies.
Theoretically, there are two views related to talent development, namely micro and macro. From a micro perspective, talent development can be defined as small initiatives aimed at people and organizations development. It consists of activities to support the employee’s learning and growth. Employees would understand their roles and responsibilities. From a macro perspective, talent development can be considered as an integrated HR function that is designed to attract, develop, motivate and retain employees. It encompasses the company’s activities in recruiting the best candidates, retaining top talent, and developing leaders. This study is intent to fill the gap in the literature where majority of previous studies focused on talent development in Aziz et al. (2016).
From the empirical side, many companies are transforming their business structures, rapidly spending in new digital technology, experimenting with new possibilities in order to survive and compete with others (Farrington and Alizadeh, 2017; Nambisan et al., 2017). Numerous advanced technologies, such as Big Data, Artificial Intelligence (AI), Internet of Things (IoT), advanced manufacturing, robotics, and blockchain have been introduced to replace the traditional works in a new efficient way. Some scholars have documented talent development as a driver for strategic flexibility in Greek firms (Kafetzopoulos, 2022; Kafetzopoulos et al., 2022) and relate the strategic flexibility and business performance in emerging economies (Direction, n.d.; Yang et al., 2015; Xiao et al., 2021). Other academics link the firm’s level of innovation and its degree of flexibility (Khin and Ho, 2018; Nassani and Aldakhil, 2021). However, there is a limited study that discusses the role of talent development for Islamic rural banks. Therefore, the objective of this study is to analyze the talent development as a driver for digital readiness, strategic flexibility, and innovativeness and its effect on business performance in Islamic rural banks.
This study gives contribution in three ways. First, majority of previous studies only investigate the individual relationship between strategic flexibility and innovativeness (Hewapathirana and Almasri, 2021; Kafetzopoulos, 2022), while this study develops a framework that integrates the correlation between strategic flexibility, digital readiness, and innovativeness which has not been exposed by previous studies. Second, this study offers a managerial perspective for Islamic rural banks in relation to talent development, while previous studies in this sector focused on financing quality (Rizky and Mongid, 2022) and customer satisfaction (Wibisono and Harto, 2018). Third, Islamic rural banks play an important role for MSMEs and other marginalized sectors that have difficulty to get financing from commercial banks. However, recent advancements in technologies have raised industry and academic attention to analyze its implementation in business. Thus, this study is intended to fill the gap between theory and practice. The finding provides a critical analysis for their readiness toward digital transformation and its effect on business performance.
This paper scrutinized into the following sections: first section presents the introduction, second section reviews the literature on Talent Development and Digital Transformation, third section describes the methodology, fourth section presents and discusses the results, practical implications, and concludes with conclusions and recommendations.
Literature review
Talent development
Talent development (TD) has been identified as an integral part in the overall talent management (TM) process (Cappelli, 2008). Baron (2011) defines talent development as a set of practices that are implemented by the organization to reap the benefits in the long term. It can also refer to how the organizations attract, select, develop and manage talent’s skill in a strategic way (Scullion and Collings, 2011). Talent in this regard appears to be seen as an exemplary skill that people possess (Pruis, 2011). As explained by Gist et al. (1989), talent is a key in organizational success. Hamel (2009) suggests that developing talent skills results in a significant benefit to any organization (Charness et al., 1991).
Talent development is defined as an integrated process of planning, selecting, and carrying out talent development programs for all aspects of human resources (Garavan et al., 2012). Coaching, feedback, training, and mentoring are examples of processes in which Ibeh and Debrah (2011) characterized it as talent development. These processes are designed to elevate the talent’s capacity at maximum level so that they have skills to fulfill organizational strategic goals, such as financial or performance objectives, or both (Hedayati Mehdiabadi and Li, 2016).
Dalal and Akdere (2018) identifies talent development as an effort to ensure that the firm has qualified talent to satisfy future demand and job changes, especially in this dynamic era of globalized and technology-driven world, exposing to no “talent shortage” within the firm. In light of this, Gandz (2006) argues firms often use talent development aimed to ensure planned succession and to strengthen their position as a talent magnet.
There are key roles who are in charge of reinforcing succession in organizational talent development, as conceptualized by Kaye (2011). Key responsibilities for talent development lie in the role of employee, the manager, and overall organization. The organization offers assets, tools, values, and culture in accordance with talent development practices. Managers play a role in assessing the needs in talent, clarify goals, support the development, provide feedback and monitor development. While employees or individuals set career goals, seek development opportunities, maintain motivation and implement development of the action plans.
Strategic flexibility
Strategic flexibility refers to the capacity of a firm to respond quickly to a rapidly uncertain and high volatility business environment (Hitt et al., 1998). Kristal et al. (2010) posits strategic flexibility as a combinative capability which enables firms to synthesize and utilize both current and newly obtained external knowledge in their operations. Viewed from the nature of capability, Eisenhardt and Martin (2000) argues strategic flexibility as dynamic and firm-specific because problem-solving abilities are firmly embedded in and developed within firms. Teece et al. (1997) sum up that strategic flexibility is a dynamic characteristic that helps businesses to gain an edge in competitive markets.
The significance of a firm’s strategic flexibility is found in its adaptability and responsiveness in addressing problems arising from fast-paced settings. Moreover, with strategic flexibility, firms are more receptive towards reallocating and reconfiguring their organizational resource, process, and strategy to deal with the problems (Zhao et al., 2010). A firm may require strategic flexibility to handle shifts in customer’s preferences, competitive behavior, and other market factors (Chen et al., 2017). Strategic flexibility is also the key fundamental of firm resilience in dealing with crises, especially in COVID-19 crisis (Widiana and Soetjipto, 2021).
Innovations are more likely to occurred in a firm that values strategic flexibility. Being flexible allows firms to possess innovative ideas that are new to firms. This may benefit them in acquiring a competitive advantage, as innovations are the most important drivers. In their study, Nadkarni and Herrmann (2010) provides evidence that, by offering more adaptable processes and structures, it improves the firm’s innovation performance in a hostile environment.
Innovativeness
Innovativeness is a key for a company’s success as it represents openness in pursuit of a firm’s competitive advantage (Miller and Friesen, 1982). Garcia and Calantone (2002) reveals innovativeness as a degree on which the firm possessed newness or advancement in products and services. The level of innovativeness influences the firm’s existing resources, including capabilities, skills, and technology resources. Hence, in order to be innovative, firms must have a willingness to place emphasis on technology advancements, new offerings, enhanced product lines, and/or new services (Lumpkin and Dess, 1996).
Innovation is crucial to a firm’s emerging survival strategy in the dynamic character of most marketplaces, where there is an intense rivalry among firms. In times of turbulent and unpredictive conditions, like crises, Ali (2021) conveys that a firm’s innovativeness could aid firms to reduce the detrimental financial effects due to COVID-19, increasing their likelihood of survival. Reflecting an important means by which firms promote innovativeness, firms are likely employing an appropriate strategy through analysis of the external information (Dibrell et al., 2014).
The awareness about a firm’s external environment may help firms in seizing opportunity, and enhancing its ability to transform its resource base to realign with the current changes (Kyrgidou and Spyropoulou, 2013). This encourages creative thinking behavior that can result in the invention of new products, services, or procedures (Dibrell et al., 2014). Research on technological and customer behavior trends, fulfillment of customer’s needs, and new inventions of technology are several important inputs into the innovation process (Zahra et al., 2002).
Digital readiness
Digitalization has received tremendous attention from many practitioners and researchers in business management. Its existence has triggered a massive wave of technology transforming the overall global economy, business, and lifestyle (Moeini Gharagozloo et al., 2021). Matt et al. (2015), refers to this as a “digital transformation,” which changed the tone across many sectors and businesses (World Bank Group, 2016). As technology continues to transform professional environments and modern workflows, the need for adopting technology for business sustainability becomes increasingly important (Mujiono, 2021).
Digital transformation is not about technology, rather it is about people, and, in particular, based on their ability to use digital technologies (Tabrizi et al., 2019). Digital transformation undertakes a process of organizational change which embeds emerging digital technology into the overall business operations (Gong and Ribiere, 2021). It is about how the business is switching the old way into the new way to create value and deliver benefits to customers. This process requires a major effort for the realignment of people, culture, and strategies of a firm to match with desired end stage.
Readiness is one of the steps necessary for a digital transformation to be successfully implemented (Welter, 2011). Readiness, as described theoretically by Weiner (2009) is a state of an individual being psychologically and behaviorally prepared to do something. Digital readiness refers to the level to which individuals in a firm perceive benefits of use and actual uses of digital transformation (Trischler and Li-ying, 2022). Fostering this digital readiness, in which individuals in a firm are willing to and capable of using such technologies, is key to successful digital transformation. Based on Nguyen (2022), a firm may foster a digital readiness through leveraging its human capital or development process.
Business performance
Business performance measures the success of a firm in achieving its goals. The success of a company in pursuing its goals can be viewed in two ways: financial and non-financial performance (Simon et al., 2015). Van Rompuy (2012) implies these two metrics are constructed based on the requirements and expectations of key parties involved in the company’s strategy implementation. The overall performance of a firm is later compared to those of its top competitors (Tsai and Yang, 2013).
Two approaches measuring business performance were proposed by Kafetzopoulos et al. (2019). The first focuses on the outcomes, such as financial and market performance. The extent to which a firm achieves monetary results is considered as financial performance (Hogan and Coote, 2014). It attempts to measure how well a business uses its assets and resources to generate revenue and how well it can pay off debts, showing the stability and health of a company. Market performance assesses the success of a firm’s products and programs in existing businesses and in those related to its future positioning (Kandemir et al., 2006). Three separate dimensions of market performance are captured: sales growth, market share, and market development.
The second method for assessing business performance, based on Kafetzopoulos et al. (2019), relates to the variables that have indirect-effects on the outcomes, such as quality management, the firm’s flexibility, resource use, and innovation level. These factors contend to have effects on how well the firm performs in terms of increasing firm value.
Development of Islamic rural banks in Indonesia
Over the past decades, Indonesia’s Microfinance Institutions (MIs) industry has experienced significant growth. The number of MIs that received permits from the Financial Services Authority (OJK) increased by 149.42% annually on average between 2015 and 2019. There were about 223 MIs with a total asset value of IDR 1.13 trillion as of October 2020 (Otoritas Jasa Keuangan, 2020).
In their continued development, MIs are growing into Islamic Microfinance Institutions, emphasizing Shariah principles in their product or services offerings, where the concepts of riba (interest), maisir (gambling), and gharar (speculative trading) are prohibited. Four distinct discoveries in the Qur’an mention the ban of riba: Surah al-Rum (Chapter 30), verse 39; Surah al-Nisa (Chapter 39), verse 161; Surah al-Imran (Chapter 3), verses 130–2; and Surah al-Baqarah (Chapter 2), verses 275–81 (Aburime, 2008). Gross Financing of Shariah MI is recorded in the form of Mudharabah Financing, Musharaka Financing, and Murabahah Fincancing. Increased number of Muslims is one of the factors affecting the growth of Islamic MIs in Indonesia, which also raises awareness of Islamic finance (Aburime, 2008).
Islamic rural banks or Bank Pembiayaan Rakyat Syariah (BPRS) are included as Islamic Microfinance Institutions. According to successor Act No. 10 of 1998 concerning “Banking” which expressly positions BPRSs as a part of the national banking system adopting the Islamic philosophy (Khan et al., 2019). The business operations of BPRSs are governed by OJK regulation No. 3/POJK.03/2016 concerning “BPRS.” Seen from their role, BPRSs strive to improve economic empowerment and society productivity by providing access to funds to low-income groups and Micro Small Medium Enterprises [MSMEs; Sakai, 2014; Law No. 1 (2013)]. BPRSs have a substantial effect on the country’s economy, because 99% of Indonesian businesses are classified as MSMEs (Disli et al., 2022).
BPRS has grown robustly since its first establishment in 2009. This is reflected in the growth of 7% Year-on-Year (YoY), with total assets of IDR 12.36 trillion by the end of 2018 and estimated to reach IDR 20.69 trillion by the end of 2024. In 2022, assets grew 9.15% (YoY) from IDR 14.91 trillion to IDR 17.29 trillion (Otoritas Jasa Keuangan, 2022). In 2018, there were 160 Islamic rural banks in Indonesia; by 2021, there were approximately 163 Islamic rural banks, with BPRSs playing a larger role in their expansion (Otoritas Jasa Keuangan, 2021).
In the context of the financing disbursed by BPRSs, an upward trend was also evident. Murabahah Financing is the largest portion with a value of IDR 7.45 trillion in 2019, dramatically grew by 11% (YoY) on average per year from IDR 4.49 trillion in 2015. Musharaka Financing and Mudharabah Financing, respectively, took the second and third positions with a financing value of IDR 1.12 trillion and IDR 0.24 trillion in 2019. When compared to IDR 10.22 trillion in 2019, the total financing provided by BPRSs to MSMEs increased by 3.61% (YoY) or IDR 10.60 trillion in 2020 despite the COVID-19 pandemic. Overall, this sums up that the development of BPRS in Indonesia has great potential to grow.
Previous study
Based on the academic literature discussed above, several existing studies addressing the same issue can be seen from Table 1.
Table 1. Previous study.
Hypothesis development
Digitalization helps companies in customizing products as per customer needs, changing business values and increasing focus to meet customer expectations for product quality and service standards (Xiu et al., 2017; Tsou and Chen, 2021). However, digitalization is also pushing people in organizations to change faster, which promotes the urgency for digital readiness (Tabrizi et al., 2019; Jun et al., 2021; Susanty et al., 2022). The help of talent development leads to the development of a lot of positive attitudes within the employee, such as an increase in motivation (Panda and Sahoo, 2015; Sheel and Nath, 2019). On the other hand, the acceleration of digital readiness is associated with attitudes of the employees (Nguyen, 2022; Trischler and Li-ying, 2022). Based on these arguments, the suggested hypothesis is:
H1: Talent Development has a positive and significant impact toward Digital Readiness.
Strategic flexibility can be a source of competitive advantages as they possess their willingness to revise strategic plans based on their assessment of changing environmental conditions (Zhao et al., 2010; Vyas and Jain, 2021; Ruan and Mezei, 2022). The succession of talent development can be a source of such competitive advantage. In a hostile environment, learning and skills development are significant factors for talent-focused organisations to grasp the advantage of environmental opportunities (Dalal and Akdere, 2018; Bouranta et al., 2022). Armed with analysis and insights gained from the effective talent development process, firms can make more effective decisions about the types of resources to develop or acquire (Hedayati Mehdiabadi and Li, 2016; Prentice et al., 2020). Based on these arguments, the suggested hypothesis is:
H2: Talent Development has a positive and significant impact toward Strategic Flexibility.
Innovativeness is a key towards sustainable growth of a firm (Jun et al., 2021). Barney (1991) has strongly argued that the competitive benefits which accrue to innovative firms are generated through unique capabilities which are difficult for competitors to imitate, are rare, and provide value. Innovativeness is conceptualized here mainly as cultural and behavioral aspects of the firm (Ferraresi et al., 2012; Nwankpa and Roumani., 2016; Papagiannidis et al., 2020). The roots of a firm’s innovative capability may be derived from talent development processes. As employees’ knowledge, skills and competencies are maximized and developed, they add value to the firm by possessing the capacity to yield innovative ideas, which may lead to new and improved products and services (Dibrell et al., 2014; Susanty et al., 2022). Based on these arguments, the suggested hypothesis is:
H3: Talent Development has a positive and significant impact toward Innovativeness.
A large body of empirical research, summarized in Chen et al. (2017), Xiu et al. (2017), and Bouranta et al. (2022) strongly suggests that strategic flexibility improves a firm’s performance. The presence of a strong, strategic flexibility enables firms to conduct frequent internal and external analyses, scan for emerging trends, and evaluate a number of strategy alternatives (Dibrell et al., 2014). Firms’ ability to “act” or “react” as a result of their analyses have been shown to significantly influence their performance (Mithas et al., 2011; Noparumpa et al., 2021). Given this point, firms capable of concurrently acting and reacting are in a better competitive position than those that are unable, which makes them more superior (Xiu et al., 2017). Similarly, Bouranta et al. (2022) have exerted strategic flexibility as a valuable firm-specific resource that benefitted firms in terms of improved innovation performance, thereby potentially boosting customer’ satisfaction. Based on these arguments, the suggested hypothesis is:
H4: Strategic Flexibility has a positive and significant impact toward Business Performance.
Firms with the higher level of employee’ digital readiness will enjoy more options among digital tools and are thus likely to attain a higher level of productivity (Jun et al., 2021). Digital readiness refers to a perception of the positive consequences that are caused by digitalization (Laurenza et al., 2018; Susanty et al., 2022). A greater digital readiness in a firm, increasing the likelihood of a firm to devote resources, such as financial resources, human resources, and R&D resources, to adopt digital technology (Moldabekova et al., 2021). Correspondingly, the adoption of digital technology in a firm plays an important role in creating competitive value if it is deployed in a way that leverages a firm’s core competencies (Khin and Ho, 2018; Martínez-Caro et al., 2020). Further, in their study Chen et al. (2017), it is evident that embedding digital technology in core competencies can create competitive advantage for a firm and improve its performance. Based on these arguments, the suggested hypothesis is:
H5: Digital Readiness has a positive and significant impact toward Business Performance.
Success is increasingly a function of a firm’s ability to develop and to deploy resources in an innovative way (Dibrell et al., 2014; Flannelly et al., 2014). Firms rely on innovativeness as a key value-enhancing activity, which transforms the benefits of innovation processes into increased financial performance (Susanty et al., 2022). Innovativeness allows firms to enhance their competitive posture through the development and delivery of innovative products and services (Hult et al., 2004; Dibrell et al., 2014). Firm’s acceptance towards new ideas will result in economies of scale (continuously increasing efficiency and effectiveness of their operations) that have direct-effects towards both growth and financial performance (Yeniyurt et al., 2019; Gotteland et al., 2020). Accordingly, by emphasizing innovation, a firm can easily link their market, learning, and entrepreneurial orientations to business performance (Hult et al., 2004; Farrington and Alizadeh, 2017). Based on these arguments, the suggested hypothesis is:
H6: Innovativeness has a positive and significant impact toward Business Performance.
Kafetzopoulos (2022) has confirmed that strategic flexibility is in association with innovativeness. The more innovative the firm is, the more it is associated with the complementary strategic plans capacity to respond and the flexibility of those plans. In other words, innovativeness is an action resulting from a strategic flexibility process. Further, there is a congruence between strategic flexibility and innovativeness (Alabbadi and Al-Masaeed, 2020). In Lokuge et al. (2019), strategic flexibility represented by the extent to which a firm may possess strong motivation to adapt to the external environment, is an important precursor to innovation. Digital readiness refers to attitudes and behaviors that underpin people’s preparedness and comfort in using digital tools (Horrigan, 2016; Asokan et al., 2022). Firms possessing the capacity to implement adaptive strategies in response to an emergence of new technologies are likely to transform their workforce–combining features of knowledge, skill, and attitude of workforce–towards digitalisation, which causes the rate of readiness to increase (Alabbadi and Al-Masaeed, 2020; Fachrunnisa et al., 2020). Hence, digital readiness is fully correlated with the rate of flexibility of a firm. Thus, strategic flexibility processes and readiness are nearly equally positively associated with innovativeness. Based on these arguments, the suggested hypothesis is:
H7: Digital Readiness has a positive and significant impact Strategic Flexibility.
H8: Strategic Flexibility has a positive and significant impact Innovativeness.
Research methodology
Research design
In this study, the objective is to examine the impact of talent development toward digital readiness, strategic flexibility, innovativeness, and how these impact the business performance. Simultaneously, it investigates the mediating effect of strategic flexibility between digital readiness and innovativeness in Islamic rural banks. The present study used a quantitative research approach by utilizing primary data. Kowalczyk and Pounders (2016) defines quantitative research as a methodology which entails the use of numerical data measures to test the established hypothesis and interpret the results. Sugiyono (2013) applies this approach to survey or questionnaire data that are distributed to respondents.
Population and sampling
According to Sekaran and Bougie (2010), sampling begins with defining the research population. Sugiyono (2013) defines population as a generalization of territory that consists of items or subjects with certain characteristics chosen by the researcher to be examined and used to draw conclusions. The selected population is the internal stakeholders in Indonesian Islamic rural bank (Bank Pembiayaan Rakyat Syariah), while the sampling technique is convenience with the respondents hold position at least at the top management level, e.g., Chief Executive Officers (CEOs), Chief Financial Officers (CFOs), managers, etc.
The 10-times rule is widely used by the researchers in gauging sample size adequacy in SEM-PLS analyses (Wasko and Faraj, 2005; Van Raaij and Schepers, 2008). Incorporating the ten thumbs rule (10-times rule) proposed by Barclay and Smith (1995), the minimum required sample size is 250 respondents. The 10-times rule in SEM-PLS is made up of 10 times the number of predictors of: (1) the largest number of formative indicators used to measure one construct, (2) the largest number of structural paths directed at a particular latent construct in the structural model (Hair et al., 2021). This study received 420 data and removed 29 invalid data. Thus, the total sample in this study is 391 respondents.
Data collection
Partial Least Squares-structural equation modeling (PLS-SEM) was considered a key approach in this study (Hair et al., 2021). As can be seen from Table 2, a questionnaire survey instrument is distributed to the selected respondents via online form in order to collect the data in an acceptable amount of time. A questionnaire refers to a set of written formula questions (Sekaran and Bougie, 2010). Interval scales based on the Likert scale are frequently used to gauge a person’s intention, attitudes, opinions, or perceptions regarding social phenomena (Joshi et al., 2015). In a Likert scale, the response takes the shape of a five-point scale. All variable measurements representing their own constructs were assessed by applying Likert scales. In this study, the researcher uses a scale range of 1–5 with each meaningful scale as follows: “1” Strongly Disagree, “2” Disagree, “3” Neutral, “4” Agree, and “5” Strongly Agree. SmartPLS 3 software was utilized for data analysis (Ringle et al., 2015).
Table 2. Measurement items.
Data analysis
In the current study, five variables have been used among which talent development, strategic flexibility, digital readiness, and innovativeness are considered as exogenous variables, while firm performance is a representative for endogenous variables. Descriptive statistics are used to measure the extent of agreement of the respondents for each of the items.
Five latent variables are examined to test the relationships between them using the PLS-SEM technique. PLS-SEM, which originated from Wold (1980), is a method to assess the causal relationships between endogenous and exogenous variables. PLS-SEM helps to assess the direct and indirect effects of coefficients of variables (Choo and Mokhtarian, 2007). There are two stages that must be completed to run PLS-SEM, (1) evaluation of the measurement model, and (2) evaluation of the structural model (Mehmetoglu and Venturini, 2021).
In the first stage, the measurement model must demonstrate construct reliability, construct validity, and absence of multicollinearity. Rho is used to measure the construct’s reliability. Mehmetoglu and Venturini (2021) suggested that rho should be larger than 0.7 and less than 0.93. Meanwhile, the construct of validity can be seen in terms of convergent and discriminant reliability. Convergent and discriminant reliability can be used to describe the validity construct. While the discriminant validity is linked to the Fornell-Larcker criterion, the convergent validity is linked to indicator reliability (factor loadings) and Average Variance Extracted (AVE). The factor loadings are typically greater than 0.7, the AVE is usually at least 0.5, and the Fornell-Larcker criterion is expected to indicate that the AVE of the construct should be greater than its squared correlation (Mehmetoglu and Venturini, 2021).
In the second stage, the structural model must possess the coefficients of determination (R2), path coefficients, and multicollinearity. The fundamental suggestions for R2: small, moderate, and significant effects, respectively, are represented by values of 0.19, 0.33, and 0.67 (Mehmetoglu and Venturini, 2021). A statistically significant path coefficient (t-stat.) is one with a value greater than 1.96 or a value of p lower than 0.05 (Benitez et al., 2020). Multicollinearity was a problem that needed to be taken into account when assessing a structural model. In order to investigate this problem, the Variance Inflation Factors (VIF) values should be lower than 5 (Hair et al., 2014).
Results and discussion
Demographic respondents
Table 3 shows the demographic characteristics of the respondents. A total of 391 samples were received from the selected population. Based on the result, Male (71.4%) portion made up the majority of the samples out of the total respondents, compared to female (28.6%). More than 88% (88.46%) of the respondents reside in Java Island, the remaining samples are domiciled outside Java for about (11.54%). In terms of Work Experience, most of the respondents are having more than eleven years (>11 years) working experience (51.4%), followed by respondents with 9 to 11 years (20%), and 3–5 together with 6–8 years (11.4%), while the other respondents are having less than 2 years (5.7%). The obtained samples came from a range of educational backgrounds; the highest number of students earned Bachelor (62.9%), followed by Master (20%), while other remaining respondents earned Highshool Degree (8.6%), Vocational (5.7%), and Doctoral (2.9%). In terms of income level, majority of the respondents have a salary less than 10 million (48.5%), followed by between 10 million to 20 million (40%), while the lowest percentage was from a salary more than 20 million (11.5%).
Table 3. Demographic respondent.
Figure 1. Conceptual framework.
Assessment of measurement model
The construct reliability and convergent validity for the measurement model assessment are presented in Table 4. The model shown in Figure 2 served as the foundation for the three measurements model. The figure shows the eighteen indicators (TD1, TD2, TD3, DR1, DR2, DR3, DR4, SF1, SF2, SF3, I1, I2, I3, I4, BF1, BF2, BF3, and BF4) are represented by five latent variables (Business performance; Digital readiness; Innovativeness; Strategic flexibility; Talent development).
Table 4. Assessment of construct reliability and convergent validity.
Figure 2. Outer loading.
Construct reliability
The correlation between latent and indicators is measured using Dillon-Goldstein’s rho (DG rho). Table 4 shows all Dillon-Goldstein’s rho values of the latent variables match the acceptance values (exceed the value 0.7 but lower than 0.93) (Business performance = 0.855; Digital readiness = 0.871; Innovativeness = 0.875; Strategic flexibility = 0.875; Talent development = 0.876), implying the construct’s reliability was deemed satisfactory. Thus, demonstrating high internal consistencies as well as composite reliability.
Convergent validity
Average Variance Extracted (AVE) of each latent variable, which has a recommended threshold value of 0.5 and loading factors at least 0.7 served as a confirmation of the constructed model’s validity. Figure 2 and Table 4 show the values of loading factors all exceeded 0.7 and AVE with value at least demonstrating 5% significance level (Business performance = 0.694; Digital readiness = 0.720; Innovativeness = 0.727; Strategic flexibility = 0.797; Talent development = 0.799), suggesting all values correspond to the acceptable range. This exhibits the least errors captured in the construct.
Assessment of structural model
The structural model is evaluated after the performance of the measurement model has been assessed by looking at three quality systems of measurement: path coefficient, coefficient of determination, and multicollinearity. Tables 5, 6 present the measurement’s results.
Table 5. Path coefficients.
Table 6. Hypothesis testing.
Path coefficient
Path coefficients evaluate the structural model’s hypothesized relationships. It investigates the direct and indirect effects of predictor variables as well as the outcome. A good fit of path coefficient one with a value greater than 1.96 or a value of p lower than 0.05. Based on Table 5, it can be seen that all the coefficients range from 0.214 to 0.842 and are statistically significant with value of p lower than 5% of significance level. They also have a positive sign, which denotes a positive relationship, meaning that as a predictor rises, so does the outcome.
Coefficient of determination (R2)
R-squared (R2) is the measurement of “goodness of fit.” It quantifies the variation in the outcome explained by a group of predictor variables. Based on Table 6, the result of R2 values of all variables are showing large effects, as it appears to exceed 0.67 in the rule of thumb (Business performance = 0.775; Digital readiness = 0.710; Innovativeness = 0.778; Strategic flexibility = 0.770).
Multicollinearity
The absence of multicollinearity among variables is one of the fundamental tenets in structural measurements. Multicollinearity refers to any confounding effects as a result of highly correlated variables, and is assessed using the Variance Inflation Factor (VIF). Hair et al. (2014) suggests limiting the VIF values to less than 5. Based on Appendix Table A1, the findings demonstrate that there is no discernible multicollinearity among the variables used because all VIF values are below 2.5.
Hypothesis testing
Based on Appendix Table A2, talent development is found to have a positive impact on digital readiness where value of p is less than alpha value (0.000 < 0.05). Thus, we accept the first hypothesis. Talent development is found to have a positive impact on strategic flexibility where value of p is less than alpha value (0.000 < 0.05). Thus, we accept the second hypothesis. It also found that talent development has a positive impact on innovativeness where value of p is less than alpha value (0.000 < 0.05). Thus, we accept the third hypothesis.
In mediating variables, strategic flexibility is found to have significant and positive impact toward business performance where value of p is less than alpha value (0.000 < 0.05). Digital readiness is found to have significant and positive impact toward business performance where value of p is less than alpha value (0.001 < 0.05). Moreover, Innovativeness is also found to have significant and positive impact toward business performance where value of p is less than alpha value (0.003 < 0.05).
In addition, digital readiness is found to have significant and positive impact toward strategic flexibility where value of p is less than alpha value (0.000 < 0.05) and strategic flexibility is found to have significant and positive impact toward innovativeness where value of p is less than alpha value (0.000 < 0.05).
Discussion
Previous studies have discussed the relationship between talent development and business performance. Gathungu and Mwangi (2012) viewed talent development as an important role for performance. Talent development is a new contribution to existing talent management practices, not a replacement. An addition that makes the link between talent management and strategy (even) more explicit and can assist organizations in taking the next step toward realizing their ambitions through targeted deployment and development of top talent in key positions (Schreuder and Noorman, 2019).
The study shows that talent development positively and significantly affects digital readiness. Talent development programs provide benefits for the individual, for example it assists them to create more strategic solutions, provide a platform to improve their skills and increase work motivation. In the digital era, numerous advanced technologies, such as Big Data, Artificial Intelligence (AI), Internet of Things (IoT), advanced and blockchain have been introduced to replace the traditional works in a new efficient way. Many companies are transforming their business structures, rapidly spending in new digital technology, experimenting with new possibilities in order to survive and compete with others (Farrington and Alizadeh, 2017; Nambisan et al., 2017). The company’s training and development programs, in particular digital literacy, are designed to develop the employee’s skills in using new technologies and provide them with a good ability to accept new challenges.
Talent development also shows a positive and significant impact on strategic flexibility where the individual and organization have an ability to adapt with new changes, in particular during technological advancement. Training and development programs developed by islamic rural banks together with the support from government programs, improve the ability of companies to respond to the customer demand. This finding is in-line with the previous study conducted by Kafetzopoulos (2022) that talent development positively and significantly affects the managers in Greek firms to be more flexible in its strategy. In addition to that, talent development also plays an important role in the Islamic rural banks which trigger them to be more innovative in producing more competitive products. Training and development programs also encourage them to identify better innovative strategies to stay competitive.
Digital readiness is found to have significant and positive impact on business performance of Islamic rural banks. Wade and Shan (2020) defined digital transformation as the integration and deployment of digital technology which fundamentally alters their business model. Many industries have benefited from integrated, shared, and updated real-time mobility systems both personally and professionally (Dwivedi et al., 2021). The inclusion of smart-based technologies leads to shifting in people’s behavior, for example, the adoption of remote working, distance learning, and cashless society (Piccinini et al., 2015). The adoption of new advanced digital technologies must be followed by preparedness of the people. Firms with higher degree of employee’ digital readiness will result in greater productivity, thus likely to attain improved firm performance (Jun et al., 2021; Moldabekova et al., 2021).
In addition, strategic flexibility is also found to have significant and positive impact on Islamic rural bank’s performance. This finding is in-line with previous studies that analysed the relationship between strategic flexibility on business performance (Cingöz and Akdoğan, 2013). In this study, digital readiness drives the strategic flexibility and innovativeness. Digital technologies have paved the way for developing innovative Shari’ah compliant products, which strengthen the competitive advantage of Islamic financial sector (Hasan et al., 2020).
Conclusion, limitation and recommendation
Conclusion
This study is aimed to investigate the impact of talent development toward digital readiness, strategic flexibility, innovativeness, and how these impact the business performance. Simultaneously, it investigates the mediating effect of strategic flexibility between digital readiness and innovativeness. According to the result, talent development significantly affects digital readiness, strategic flexibility, and innovativeness. Those variables also significantly affect the business performance. Furthermore, digital readiness significantly affects the company to be more flexible in developing their strategy, which also leads to more innovativeness. Overall, the proposed model explained 77.5% of the variance that can predict and explain the drivers of business performance in Islamic rural banks.
From the theoretical perspective, this study expands the literature of talent development where it provides a new framework that digital readiness, strategic flexibility, and innovativeness could lead to the business performance. By looking into the digital transformation in business processes, it has a significant impact on the structure of organizations, including their goals and identities (Holmström, 2022). On the other side, it also creates opportunities for information technology security threats such as cyber-attacks in the form of intrusion into organization’s existing information technology through the distribution of malware, viruses, ransomware, and spam on users’ emails, resulting in the attempted theft of sensitive data. Upgrading employees’ skills in digital training courses strengthen organizations’ defenses to protect company assets and information, increases employee discipline to comply with security regulations, reduces the risk of cyber-attacks, and increase customer satisfaction and trust. Thus, this study also assists future researchers in better understanding the relationship between cyber security readiness, technology readiness, and performance.
From the managerial perspective, this study can be used as a reference for Islamic rural banks to fully integrate its talent development strategy with digital transformation. Digital technology will create powerful banking and financial institutions to completely reimagine how they operate, launch ground-breaking products and services, and, most importantly, reduce customer experience disruptions. One of the digital technology, Artificial intelligence (AI), has been used by this industry for customer identification and authentication. It helps the organization to enhance customer experiences and improve middle office function. In addition to AI, the existence of robotic process automation (RPA) and augmented reality also provide numerous benefits to businesses, such as improve customer experience and employee productivity, save money, time, and reduces the manual process.
However, many companies are facing increasing pressure to make digital investment as a strategic priority and to transform these investments into innovative business processes, new products, and business models. Digital investment, which refers to a firm’s strategic technology investment in order to investigate how cutting-edge digital technologies may potentially differentiate the firm’s business, transactions, and operations, is viewed as a critical imperative for firms seeking to remain competitive and maintain market positions. The success implementation of digital technology is not solely based on the investment, but also skills and competencies. It proved that the training and development program could improve the ability of an individual and organization to adapt with new changes in digital disruption and market conditions. Therefore, the manager and directors of Islamic rural banks develop organizational structure and boost the innovative culture.
Limitation and recommendation
For future research, there are several possible considerations: (1) the number of respondents is small compared to the total numbers of employees at Islamic rural banks in Indonesia. Thus, this study encouraged further research to expand the sample size that covers at least 80% of the population; (2) this research does not differentiate staff based on their unit/departments. Perhaps it is beneficial to include the adoption level of the digital readiness between different units to enrich the discussion; (3) the study only focused on strategic flexibility, digital readiness, and innovativeness as mediators. Further studies could expand the model by examining the perceptions of employee through several digital talent programs and compare these with employee performance; (4) the research model can be extended to the antecedents to predict digital readiness, such as organizational culture of using technologies.
Data availability statement
The raw data supporting the conclusions of this article will be made available by the authors, without undue reservation.
Author contributions
All authors listed have made a substantial, direct, and intellectual contribution to the work and approved it for publication.
Funding
This research has been funded by Research Grant according to Keputusan Kuasa Pengguna Anggaran Direktorat Riset, Teknologi, dan Pengabdian Kepada Masyarakat No. 033/E5/PG.02.00/2022, 27 April 2022 about “Pendanaan Penelitian Program Kompetitif Nasional dan Penugasan,” Ministry of Education, Culture, Research and Technology Indonesia and with support from Sekolah Tinggi Manajemen IPMI.
Conflict of interest
The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.
Publisher’s note
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Appendix
Table A1. Coefficient of determination.
Table A2. Multicollinearity.
Keywords: talent development, strategic flexibility, business performance, digital readiness, innovativeness, Islamic rural banks
Citation: Nurfadilah D, Samidi S and Daryanto WM (2022) The role of talent development on business performance in Islamic rural banks. Front. Educ. 7:1045729. doi: 10.3389/feduc.2022.1045729
Edited by:
Antonio Palacios-Rodríguez, Sevilla University, SpainReviewed by:
Mohamed Rafik Qureshi, King Khalid University, Saudi ArabiaYaohui Jiang, Shanghai University of Finance and Economics, China
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*Correspondence: Dety Nurfadilah, ZGV0eS5udXJmYWRpbGFoQGlwbWkuYWMuaWQ=