Mediating effect of marketing capability and reward philosophy in the relationship between entrepreneurial orientation and firm performance

The complex relationship between firm performance and entrepreneurial resources raises attention to development program with aim of promoting entrepreneurial mindset to the SMEs. This study has intention to determine the impact of entrepreneurial orientation on firm performance, which involves two mediating variables: reward philosophy and marketing capability. Reward philosophy and incentive system are the most under-researched area in human resource, especially in the context of small business. With SMEs data survey in Indonesia, the result reveals that reward philosophy is not sufficient to explain the relationship between entrepreneurial orientation and firm performance. It requires marketing capability, which can transform reward philosophy to performance. This study contributes to the development of resource-based theory, through discussing the role of dynamic capability. The research uses quantitative approach with the SMEs in Surabaya as unit analysis. Data analysis involves 390 SMEs taken from random sample selection process. The analysis involves descriptive, regression and structural equation modeling (SEM) approaches to test the hypotheses. The finding explains full mediating effect of employee compensation and marketing capability in converting entrepreneurial orientation to gain greater firm performance.