The Effect of Core Competency on Competitive Strategy and Its Implication on the Performance of Islamic Banking and Islamic Microfinance in the Province of Aceh, Indonesia

Abstract

The main purpose of the research are to describe and investigate the causal relationship between core competency (e.g Valuability, Rarity, In-imitability, Non-substitutability) on the performance (e.g. revenue growth, market share, and customer satisfaction) of the Islamic banking and Islamic microfinance in the Province of Aceh, Indonesia with competitive strategy (e.g. overall low cost leadership strategy, best cost provider strategy, and focused differentiation strategy) as an intervening variable 

The research employed a quantitative survey toward  252 managers (top manager, middle managers, and operational managers) selected from 79 Islamic banking and Islamic Microfinance in the entire Province of Aceh. Hence, the type of research designs used is descriptive, verificative, and explanatory survey.  While the research employed a five-rating likert scale measurement, and distributed the questionnaires as a data collecting tools, the collected data are processed by using Structural Equation Model (SEM) approach – AMOS SPSS version 22.

The main finding of research indicated that core competency has a significant and positive influence on the performance of the Islamic banking and Islamic microfinance in the region either directly or through intervening variable of competitive strategy; the direct effect of core competency variable on performance is lower than  that of the indirect effect of core competency on performance through  intervening variables of competitive strategy The other findings are the dimension of Rarity was  the main determinant  contributing to core competency,   the dimension of focused differentiation strategy was a dominating dimension affecting of competitive strategy, and market share was a main determinant that forming the performance of the firm.  The empirical research investigating the causal relationship between core competency and business performance employing competitive strategy as an intervening variable in the context of Islamic banking and microfinance is the novelty of the research. It is expected to give a valuable inputs for managers and stakeholders in the industry and contribute the literature of strategic management and Islamic finance and banking

Keywords: Core Competency, Competitive Strategy, Performance, Islamic Banking and Islamic Microfinance