Does intellectual capital matter in performance management system-organizational performance relationship? Experience of higher education institutions in Indonesia

Purpose: The purpose of this paper is to investigate whether performance management system (PMS) has a positive effect on organizational performance. Furthermore, it also investigates whether intellectual capital (IC) mediates PMS-organizational performance relationship. Design/methodology/approach: This study is designed as a quantitative research employing a partial least squares structural equation modeling (PLS-SEM). Using an online survey, data are collected from the HEIs managers under the Ministry of Research, Technology and Higher Education, the Government of Indonesia (MRTH-GOI). This research uses a mediation model approach to test the indirect effect of IC. Findings: The results reveal that PMS has a positive direct effect on organizational performance of the HEIs in Indonesia. Further analysis proves that IC partially mediates PMS-organizational relationship. Research limitations/implications: This research is context-specific for Indonesia and caution should be used when generalizing it to other countries. It implies that the better the organizational performance of the HEIs, the better the quality of life in the society. PMS and IC play a crucial role in the era of knowledge economy. Practical implications: The HEIs managers should design and implement a reliable PMS. They also should properly manage the IC (human capital, structural capital, relational capital) so that they can enhance organizational performance in areas of teaching, research and community service as the core business of the HEIs. Social implications: As the global education competition has become a serious issue in each HEI in Indonesia, the results of this study contribute to providing an approach on how to achieve a better organizational performance which brings more benefits to the society. The HEIs display a strategic role in improving the quality of life of society. The knowledge economy requires society to enhance the quality of education at all levels. This research model and results provide empirical evidence of the importance of IC which mediates the relationship between PMS and organizational performance. When the HEIs in Indonesia implement this model of managing IC, the society will get more benefits in terms of the improvements in the quality of education, teaching, research and community service from the HEIs. The better the HEIs performance, the better the quality of life of the society in the era of knowledge economy. Originality/value: This research brings together issues that are usually examined separately in previous studies. It employs a mediation research model to explore the central role of IC in PMS- organizational performance relationship which is rarely researched. This is also the first study exploring the three constructs of PMS, IC and organizational performance in the Indonesian HEIs research setting.