Improving Business Performance through Operational Excellence and
Value Co-Creation
SRI SAFITRI, ACHMAD SUDIRO, FATCHUR ROHMAN, MUGIONO MUGIONO
Science Management, Faculty of Economics and Business,
Brawijaya University,
INDONESIA
Abstract: This study aims to determine the effect of Customer Experience Management on Business
Performance mediated by Operational Excellence and Value Co-Creation in the Information and
Communication Technology (ICT) Industry in Indonesia. This research was conducted in two stages of study
to fulfill the research objectives, namely exploratory and explanatory which focused on companies operating in
the Greater Jakarta area. A total of 132 samples were taken using a proportionate random sampling method in
three groups of companies. The results showed that Customer Experience Management formed by two
indicators, namely virtual environment, and service interaction, had no significant effect on improving Business
Performance, which was developed by two indicators, financial performance, and non-financial performance.
Customer Experience Management has a significant effect on Business Performance through the mediation of
Operational Excellence. Customer Experience Management significantly affects Business performance through
the mediation of Value Co-Creation. Operational Excellence and Value Co-Creation have a substantial effect
on increasing business performance.
Keywords: Business Performance, Marketing Performance, Customer Experience Management, Operational
Excellence, Value Co-creation, Customer Experience, Digital Transformation
Received: November 7, 2022. Revised: March 11, 2023. Accepted: April 2, 2023. Published: April 13, 2023.
1 Introduction
The Information and Communication Technology
(ICT) industry all over the world, including
Indonesia, faces tremendous challenges with
increasingly complex and rapidly changing market
competition beyond their control. These competitors
are coming from companies known as Over The
Top (OTT) providers which gained the latest
technological innovations to provide free digital
content with a different business model from
telecommunication operators and Internet Service
Providers (ISP). [1].
The OTT platform was formed as a push for
changes in customer preferences, technology
changes, and convenience that offers more customer
experiences that are better than those offered by
conventional services, [2]. The services provided by
these OTT providers, such as WhatsApp and
Telegram, have significantly affected the ICT
sector, including a decrease in revenue from Short
Messaging Services (SMS) and phone calls, which
were initially the primary sources of income for
telecommunications operators. The decline in
revenue due to competition threatens the ICT
industry with significant investments, while OTT
providers dominate revenue.
The digital services provided by these OTT
players also drastically increase internet bandwidth,
which impacted Return on Invested Capital
Expenditure (ROIC) decrease for ICT providers
without a corresponding increase in revenue which
in the end, impacted the bottom line, and a decrease
in the company’s profitability. Telecommunication
companies such as Telkom Indonesia, Telstra and
Singtel which must spend significant investments on
ICT network infrastructure have declining service
excellence problem, resulting in poor Customer
Experience, and eroding their market share due to
tight competition.
Low service satisfaction and customer loyalty
may influence customer churn rates in the ICT
industry and are the drivers of declining revenues
and profits. Due to intense competition and deep
quarterly revenue contractions, the average churn
rate in the telecommunications industry is around
1.9% per month, but can increase to 67% per year
for prepaid services, [3].
Customer Experience (CX) is gradually
becoming an essential attention in marketing as a
new formula to create competitive advantage.
Several previous studies have found a conflict in
journals and dissertation research results between
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Sri Safitri, Achmad Sudiro,
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the influence of Customer Experience Management
or abbreviated CXM, on marketing performance
which companies usually mentioned as Business
Performance. Some researchers look at this
influence in various industries, such as
telecommunications companies, retail companies,
manufacturing, ICT companies, and financial
services, at home and abroad.
According to Zaid, [4], in the market
capitalization of US public companies’ studies,
customer experience indirectly affects customer
satisfaction and loyalty. Mihardjo, [5], studies have
proven that customer experience orientation has no
direct influence on transformational performance
where co-creation elements are part of business
performance. Economic outcomes that may be
counterproductive for service providers following
the concept of co-creation include market
performance, [6]. The Customer Experience
dimension is measured for marketing results such as
intentions of customer satisfaction and loyalty but
not directly for financial performance, [7]. Other
studies on a superblock lifestyle center, Ciputra
World Surabaya, also fail to prove the influence of
CX on customer satisfaction and loyalty, [8].
Previous research has shown that Customer
Experience Management, or abbreviated CXM,
which consists of three levels of CXM, namely pre,
core, and post-service experience management, has
a positive effect on business performance, [9].
CXM also affects business performance and the
supply chain, [10]. This level of customer
experience management investment raises the
question of whether it is worth it. One of the basic
principles for implementing customer experience is
to try to meet customer expectations, [11].
The various previous studies mentioned above
indicate discrepancy among researchers regarding
the influence of CXM on Business Performance.
The effect of customer service management on
Business Performance was found to be inconsistent.
The inconsistency in these results provides a gap
that this study will fulfill. This contradiction is of
course, also an opportunity for new topics for
further research, especially for the ICT industry in
Indonesia.
Based on phenomena and problems as well as
theoretical studies and empirical results in the ICT
Industry in Indonesia, a different model is needed to
cover gaps and intensify previous research to
improve Business Performance in this new digital
era. It is not sufficient to have Customer Experience
Management variables only but also needs two
additional mediator variables, Operational
Excellence, and Value Co-Creation, to evaluate the
influence of CXM on Business Performance. All the
variables in this study will be tested on companies
that have implemented digital technology.
Companies in this modern era are concerned
with internal efficiency and progress in Operational
Excellence in their fast-changing industry. In
response, they put their efforts behind new systems
that transform operations digitally, streamline
internal processes, reduce information overload,
integrate business applications with information
storage and enter massive digital storage, [12].
On the other hand, Colli's, [13], research states
that companies adopt various strategies to overcome
obstacles in the digital transformation era by
translating the adoption of old technology,
integrating, and using new technology to enable the
availability of information, and translating it into
improving operational performance. Digital
transformation is becoming a fundamental matter
for global enterprises, [14]. The adjustment of
operational activities has a significant role in the
perceived value of marketing activity, [15]. The
relationship between these two variables makes this
research lift this variable as an independent variable
to change Customer Experience in achieving
operational excellence. No research specifically
discusses the Digital Operation Excellence variable,
so that this research will close the gap.
In addition, Digital Value Co-creation is a
process in which customers and companies can
collaborate on many activities by sharing
knowledge, skills, and networks, thereby creating
mutual synergistic value for both parties, [16].
Shared value creation mechanisms to support the
delivery of the company's emotional customer value
proposition need careful consideration, [17].
Companies must jointly create value with
customers on digital platforms to improve
performance, [18]. The critical role of shared value
creation is also discussed in [19] which states that
these indicators bridge the gap in marketing
performance. The impact affects the relationship
with customers and business performance. No
research discusses the influence between Customer
Experience Management and Digital Value Co-
Creation, so that this research will close the gap.
Thus, this study was conducted to develop a new
conceptual model and bridge the gap by including
Operational Excellence and Value Co-Creation as
meditations to improve Business Performance. This
model was tested empirically on an ICT industry in
Indonesia.
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2 Problem Formulation
2.1 Research Hypotheses
Based on the background of this research, this study
proposes five hypotheses in Figure 1 as follows:
1. H1: The direct influence of the Customer
Experience Management variable on the
variable of Business Performance
2. H2: The direct influence of the Customer
Experience Management on Business
performance through Operational Excellence
3. H3: The direct influence of the Customer
Experience Management on Business
performance through Value Co-Creation
4. H4: The direct influence of the Operational
Excellence on Business performance
5. H5: The direct influence of the Value Co-
Creations on Business performance
Fig. 1: Research Concept Framework
2.2 Research Methodology
This research was conducted in two stages of study
to fulfil the research objectives, exploratory and
explanatory. Based on Sekaran and Bougie, [20],
this research uses a mixed approach, qualitative and
quantitative (mixed method). The research data was
gathered either through virtual or face-to-face
meetings with the respondents representing a
company with senior management positions
including Assistant Vice President, General
Manager, Vice President, or Director. This research
started in October 2021 until its completion.
3 Results and Discussion
The researcher in this section elaborated on the
study result, including explanatory study, instrument
testing, and hypothesis testing. The discussion of the
exploratory study includes the results of the Focus
Group Discussion (FGD) from the expert panel to
explore the indicators and items of each research
variable. Researchers tested the instrument (validity
and reliability) after distributing questionnaires to
the first 30 respondents. Subsequently, the
researchers conducted explanatory tests and
hypothesis testing, then conducted a final Expert
Panel from practitioners in the ICT industry through
FGD to validate the results of the research
hypothesis testing.
3.1 Exploratory Study Results
Researchers conducted FGDs with three groups,
containing participants who are ICT industry
leaders, regulators, researchers, and academicians
who meet the research respondents' criteria,
including having a doctoral education, working in
national companies & institutions, and holding
senior managerial positions. Participants in the FGD
came from companies and institutions that have
implemented digital technology. The FGD was
conducted to explore the views and opinions of the
participants who were considered to represent the
population in the ICT Industry in Indonesia.
Researchers through the FGD received statements
that could strengthen statement items or indicators
on the variables Customer Experience Management
(CXM), Operational Excellence (OE), Value Co-
creation (VC), and Business Performance (BP)
adopted from [21], [22], and [23]. In addition,
through the FGD, new statement items or indicators
emerged, which were then tested through CFA to
determine the validity and reliability of each
statement item so that the indicators formed were
able to measure the latent variables tested in this
study. Participants in the FGD stated that the
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participating companies & institutions had
implemented digital technology.
3.2 Explanatory Study Results
A component-based or variance-based approach
with the Partial Least Square (PLS) method is used
in this study. The results were tested using
Structural Equation Modelling (SEM) with the PLS
approach by examining the results of the outer
model (measurement model) and the results of the
inner model (structural model) of the model under
study. Evaluation of the outer model aims to analyse
the correlation between items and latent variables,
whereas the assessment of the inner model is to
analyse the association among latent variables.
3.2.1 Measurement Model
The path diagram result for the outer loading value
of each statement item on the indicators and
variables is presented in Figure 2 below.
Furthermore, the validity results will be explained
based on the outer loading value of each variable in
the second-order analysis.
Fig. 2: Measurement model diagram
Items in each variable can be considered valid if
the value of the outer loading indicator is more than
0.7. Based on the outer loading values and AVE
obtained through the SEM-PLS Algorithm, it is
found that each statement item is greater than 0.7 so it is
considered valid in measuring indicators and
variables. The results of the outer model test
concluded that all variables and item constructs
were valid and reliable so that they could be used
for further analysis.
3.2.2 Structural Model
For the structural model analysis, the inner model
analysis was conducted to evaluate the relationship
between the latent variable constructs. In this study,
the inner model was tested by analysing the value of
R-square (R2) on the latent endogenous construct,
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and the value of predictive relevance (Q2) to
measure how well the observed values and
parameter estimates generated by the model were.
Table 1. Evaluation of the inner model
Construct
R2
Q2
Virtual Environment
0.896
0.897
Service Interaction
0.916
Lean Transformation
0.882
Decision Support System
0.830
Quality Assurance
0.857
Co-Production
0.836
Value in Use
0.807
Partnership
0.872
Financial Performance
0.850
Non-financial performance
0.915
Operational Excellence
0.559
Value Co-creation
0.401
Business performance
0.610
The results of these calculations as in Table 1
indicate that the R-square value in this research
model can be categorized into strong and
moderately strong criteria, iso it can be concluded
that the variables in the model have a greater effect
ion the dependent variable than other factors coming
from outside the research model. Meanwhile, the
result of the iQ2 calculation in this study is 0.897, iso
it can be concluded that the model in this study has
a relevant predictive value.
In this section, the results of the research
hypothesis testing will be shown, namely the test of
direct and indirect effects (mediation) between
latent variables. Hypothesis testing in PLS is done
by bootstrapping the sample. Multigroup analysis as
applied using the Partial Least Squares Structural
Equation Model (PLS-SEM) is a way to test
preselected data sets to determine if there are
significant differences in the estimates of group-
specific parameters. This method, as implemented in
Smart PLS, is an extension of the bootstrap-
based multigroup analysis approach originally
proposed for PLS-SEM, [24].
There are two models of analysis involving
mediator variables: (1) full mediation: the
independent variable is not able to significantly
impact the dependent variable without involving the
mediator variable; and (2) partial mediation: the
independent variable is able to directly influence the
dependent variable without going through the
mediator variable, [24].
Table 2 below presents the results of the inner
model evaluation by looking at the association
between constructs. If the t-value is greater than t-
table (1.96), it means that there is a significant
influence on the relationship among the constructs
of the latent variables being analyzed.
Table 2. Path coefficient value and t-statistic constructs
Path Coefficient
t-test /t-value
T-table
Results
0.054
0.503
1.96
Insignificant
0.291
2.945
1.96
Significant
0.244
3.027
1.96
Significant
0.389
3.016
1.96
Significant
0.386
3.172
1.96
Significant
0.747
17.222
1.96
Significant
0.633
12.181
1.96
Significant
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Hypothesis 1: The Effect of Customer Experience
Management (CXM) on Business performance
(BP)
Based on Table 2, the t-statistic value on the
Customer Experience Management path to Business
performance directly is 0.466 which is smaller than
the t-table value (1.96), so it can be concluded that
hypothesis 1 is rejected, meaning that CXM has no
significant effect on Business performance. The
path coefficient value is 0.054 which indicates the
direction of a positive relationship, which means
that increasing CXM will cause an increase in BP,
but the effect is not significant.
The test results are in accordance with [5] which
states that customer experience orientation has no
effect on increasing transformational performance in
the Information and Communication Technology
industry in Indonesia. In this study, customer
experience orientation is formed by four indicators,
namely image quality, customer engagement, trust
personalization, and service potential, where
customer engagement is one of the indicators used
in measuring Customer Experience Management
variables in this study.
Similar results also state that although there is an
association between Customer Experience
Management and Business Performance, there is no
association between CXM and financial
performance in the study of the Sri Lankan printing
& publishing industry (Colombo Region), [25].
Other results can be seen in Chandra’s research, [8],
which states that the results of this study failed to
prove that customer experience has a significance
for customer loyalty through customer satisfaction
iimediation at a superblock lifestyle center Ciputra
World Surabaya. Meanwhile, customer loyalty and
customer satisfaction are used as items that measure
non-financial performance indicators on the
marketing performance variable in this study.
The ineffectiveness of Customer Experience
Management on the performance of a company,
both financial performance, and non-financial
performance can be caused by various factors that
also influence the scope of a company or industry.
This makes it somewhat difficult to interpret
whether there is an association between CXM and
business performance in general because business
performance consists of non-financial performance
and financial performance.
In this study, it is stated that the influence of
political factors and economic factors directly
affects Business Performance rather than Customer
Experience Management strategies when
considering their financial performance. Meanwhile,
financial performance is one of the indicators used
to measure the business performance variables in
this research on the ICT industry in Indonesia.
Hypothesis 2: The Effect of Customer Experience
Management (CXM) on Business performance
(BP) through Operational Excellence (OE)
Based on Table 2, the value of t-statistics on the
path of Customer Experience Management through
Operational Excellence towards Business
Performance of 2.945 is greater than the value of t-
table (1.96), so it can be concluded that hypothesis 2
is accepted, meaning that CXM through OE as
meditation has a significant effect on Business
Performance. The path coefficient value is 0.291
which indicates the direction of a positive
relationship, which means that increasing CXM will
cause an increase in OE which in turn causes an
increase in BP. This shows that the relationship
between constructs is a “full mediation” model
meaning that the independent variable (CXM) is not
able to significantly impact the dependent variable
(BP) without involving the mediator variable (OE),
[24].
Operational Excellence as a mediator between
the effect of Customer Experience Management on
Business Performance is a novelty in this research
as the variables is tested in a digital context, where
the results obtained are as expected, namely,
Customer Experience Management can improve the
Business Performance of companies in the
Indonesia ICT industry Indonesia through the
mediation of Operational Excellence.
Digital operational excellence improves business
dexterity where digital business is not just about
customer experience — it's also a way of driving
operational agility, [26]. Digital operations can
make employees more productive, promote leaner
processes, intensify speed to market, and maximize
asset utilization. Meanwhile, research by [27] shows
that the adjustment of operational activities plays an
important role in the perceived value of marketing
activity.
This study is also in accordance with a case
study of the banking industry in Africa, [27].
Around 2010, retail banks in Africa had improved
their customer service beyond customer
expectations indicating that the move was to
increase customer satisfaction and customer loyalty.
Based on this, the researcher sees that good digital
platform management is one of the Operational
Excellence efforts to improve Customer Experience
and company performance.
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Hypothesis 3: The Effect of Customer Experience
Management (CXM) on Business performance
(BP) through Value Co-creation (VC)
Based on Table 2, the value of t-statistics on the
Customer Experience Management path to Value
Co-creation on Business Performance is 3.027
greater than the value of t-table (1.96), so it can be
concluded that hypothesis 3 is accepted, meaning
that CXM through variable VC mediation has a
significant effect on Business Performance. The
path coefficient value is 0.244 which indicates the
direction of a positive relationship, which means
that increasing CXM will cause an increase in VC
which in turn causes an increase in BP. This shows
that the relationship between constructs is a “full
mediation” model meaning that the independent
variable (CXM) is not able to significantly influence
the dependent variable (BP) without involving the
mediator variable (VC).
Value Co-creation as a mediator between the
influence of Customer Experience Management on
Business Performance is a novelty in this research,
where the results obtained are as expected, namely
Customer Experience Management can increase the
Business Performance of ICT providers in Indonesia
through the mediation of Value Co-creation in a
digital context.
The results of this study are in conformity with
[5] which states that customer experience orientation
influence increasing co-creation strategy, and co-
creation strategy influences transformational
performance in the Indonesia ICT industry. In this
study, the co-creation strategy was built by vision,
collaboration sharing, and benefits value.
Similar findings also show a positive and
significant effect of emphasizing value-creation
strategies on company performance. Another study
shows the relationship between Customer
Experience Management can affect the co-creation
of product and service value creation by customers.
Hypothesis 4: The Effect of Operational
Excellence (OE) on Business performance (BP)
Based on Table 2, the t-statistic value on the Digital
Operational Excellence path to Marketing
Performance directly is 3.016 greater than the t-table
value (1.96), so it can be concluded that hypothesis
4 is accepted, meaning that Operational Excellence
has a significant effect on Business Performance.
The path coefficient value is 0.389 which indicates
the direction of the positive relationship, which
means that increasing OE will cause an increase in
BP.
This study is in accordance with Ojha, [28],
which states that operational excellence has a
greater impact on customer retention which is a
business performance variable. Meanwhile, different
findings are found in [5] where the distinctive
operational capabilities built by digital leadership
values, culture leaders, high technology assets, and
adaptation to environmental agility have no effect in
increasing transformational performance in the
Indonesian ICT industry. There are other aspects
that have a greater influence than distinctive
operational capability in improving transformational
performance, namely business model innovation and
co-creation strategy. This indicates that there are
associations between Customer Experience
Management, Operational Excellence, and Business
Performance initiatives, [28].
Similar results stated that innovativeness,
creativity, business alertness, and risk-taking had a
significant effect on the successful implementation
of Business Process Management (BPM) and
affected the performance of Bulgarian companies.
The study concludes that management mindset or
lack of it has a major influence on business
performance and if any organization leans towards
development and growth should embrace the
concept of BPM.
Hypothesis 5: The Effect of Value Co-Creation
(VC) on Business performance (BP)
Based on Table 2, the t-statistic value on the Value
Co-creation path to Business Performance directly is
3,172 greater than the t-table value (1.96), so it can
be concluded that hypothesis 5 is accepted, meaning
that Value Co-creation has a significant effect. on
Business Performance. The path coefficient value is
0.386 which indicates the direction of the positive
relationship, which means that increasing VC will
cause an increase in BP.
The results of this study are in conformity with
[5] which states that the co-creation strategy built by
vision, collaboration sharing, and benefits value
influences transformational performance in the
Indonesian ICT industry. Benefit value has the
biggest influence in improving transformational
performance, followed by collaboration sharing and
vision.
The research from [19] also discusses the
important role of shared value creation, where in the
journal it is stated that these indicators bridge the
gaps that exist in marketing performance. The
impact affects the relationship with customers and
business performance. In [18] the authors also
mention that companies need to jointly create value
with customers on digital platforms to improve
performance to face competitiveness.
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The finding of this research showed that
Customer Experience Management has no
significant effect on Business Performance. From a
managerial perspective, this means that the capacity
of the Indonesian economy to adopt and explore
digital technologies that lead to transformations in
government practices, business models, and society,
in general, is still low, especially in terms of
knowledge. Compared to other countries, the
researcher looked at the countries in previous
studies which showed that Customer Experience
Management and innovation had a significant effect
on company performance, namely the USA,
Denmark, and Italy.
Based on [29] if we try to look at the rankings on
each factor, USA was ranked 1st overall, ranked 3
for knowledge, ranked 4 for technology, and ranked
1 for future readiness. Denmark is ranked 4th
overall, ranked 8th for knowledge, ranked 9th for
technology, and ranked 2nd for future readiness.
Italy is ranked 40th overall, ranked 40th for data,
ranked 42nd for technology, and ranked 30th for
future readiness. While in Indonesia, the country is
ranked 53 out of 64 countries, ranked 60th for
knowledge, 49th for technology, and 48th for future
readiness from 64 countries.
Based on the data and the findings of this
research, it is known that developed countries such
as the USA, Denmark, and Italy have the better
economic capacity to adopt and explore digital
technologies compared to a developing country such
as Indonesia. Therefore, the researcher concludes
that the ability to adopt and explore a country's
digital technology affects the transformation and
implementation of Customer Experience
Management in companies and organizations in that
country, which has an impact on the performance of
companies and organizations.
The novelty generated through the minor
analysis in this study proved that the mediating
factors could significantly affect the dependent
variable, Business Performance (BP). The results of
this study contribute to the development of
theoretical knowledge, especially in the field of
marketing management. It also contributes to the
theoretical concept development of Customer
Experience Management, Business Performance,
Operational Excellence, and Value Co-creation. The
results found in this study can be used as an
alternative solution model to improve Business
Performance, as well as a practitioner's
consideration, especially in developing countries, to
thrive in a competitive global market and to solve
current problems faced by companies in this digital
age.
4 Conclusion
This study intends to determine the effect of
Customer Experience Management on Business
performance in the ICT Industry in Indonesia, as
mediated by Operational Excellence and Value Co-
creation. Based on the results of research in the
Information and Communication Technology
industry in Indonesia, it can be concluded that
Customer Experience Management does not
significantly affect Business Performance. From a
managerial perspective, this result makes Business
Performance and Customer Experience
Management somewhat difficult to interpret in
general, because Business performance consists of
non-financial performance and financial
performance. This study also found that the
influence of political factors and economic factors
directly affects Business Performance rather than
Customer Experience Management strategies when
considering their financial performance. Meanwhile,
financial performance is one of the indicators used
to measure the Business performance variables in
this research on the ICT industry in Indonesia.
This study found that Customer Experience
Management has a significant effect on Business
Performance through the mediation of Operational
Excellence and Value Co-creation. Furthermore,
this study also showed that Customer Experience
Management has a significant effect on Operational
Excellence and Value Co-creation. Based on these
findings, it can be concluded that Customer
Experience Management can affect the ability of a
company's innovation advantage such as the ability
to create other new marketing indicators that
increase company profits or performance. This
research has proven that a company's ability to adapt
and explore digital technology in a country can
create a transformation that influences the
implementation of Customer Experience
Management in that country, which has an impact
on the company’s performance itself.
The results of this study contribute to the
development of theoretical knowledge, especially
in the field of marketing management. This study
can be used as a consideration for managers and
policymakers in public organizations to prioritize
enhancing Customer Experience Management on
Marketing Performance, especially concerning
Digital Operational Excellence and Digital Value
Co-creation, which are relevant and very much
needed nowadays.
The limitation of this study is data collection
during Covid-19, which impacts economic stability
and affects the stability of the condition and
performance of companies in the Information and
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Communication Technology industry in Indonesia.
There are big challenges for companies in the ICT
industry in Indonesia, most significantly because not
all companies have dynamic and agile organizations
to meet changing needs during the Covid-19
pandemic, and not all companies have institutions
with proper Customer Experience Management.
This condition can indirectly affect the mindset and
point of view of the company's management, so
possibly it might not reflect Customer Experience
Management, Operational Excellence, Value Co-
creation, and Business Performance data on
companies in the Indonesia ICT industry in the new
normal. Some data was obtained through online
questionnaires due to restrictions on community
mobility due to the Covid-19 pandemic, so it could
not directly target some respondents from ICT
company management.
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DOI: 10.37394/23207.2023.20.79
Sri Safitri, Achmad Sudiro,
Fatchur Rohman, Mugiono Mugiono
E-ISSN: 2224-2899
868
Volume 20, 2023