Open AccessFrom Internal Strategic Systems to Community-Centered Service Capacity: Evidence from Islamic Banking in Indonesia
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This study examines how internal organizational arrangements shape the way financial institutions respond to broader community needs. The analysis focuses on Islamic banking in Indonesia and considers whether strategic performance measurement systems (SPMS) are associated with the development of more community-centered service practices, as well as the role of organizational learning (OL) in this relationship. The empirical evidence is based on a survey of 142 middle managers from Islamic commercial banks and is analyzed using a partial least squares approach. The results suggest that SPMS are positively associated with both OL and community-centered service strategy (CCSS). More importantly, this relationship appears to operate largely through learning processes, indicating that the influence of formal systems depends on how organizations interpret and make use of performance-related information in practice. This study does not treat service strategy purely in market terms, but instead considers Islamic banks as institutions embedded within broader social and economic contexts. From this perspective, CCSS reflects the ability of banks to respond to issues such as access, service relevance, and trust in local financial systems. The findings point to the importance of internal alignment and learning in supporting this form of responsiveness. The analysis does not directly measure community-level outcomes, and the results should therefore be interpreted as evidence of organizational capacity rather than realized development impact. Nevertheless, this study provides a useful link between management systems and the broader question of how financial institutions may support community-centered development processes.1. Introduction
Islamic banking in Indonesia should not be understood merely as a financial service industry competing for market share but also as an institutional actor with the potential to contribute to broader social and economic development. In a dual-banking system, Islamic banks operate alongside conventional banks under distinctive competitive pressures (Risfandy et al., 2022). At the same time, Indonesia’s large Muslim population provides Islamic banking with a strategic position in supporting national economic development and expanding socially responsive financial services. In this context, the role of Islamic banking extends beyond improving internal performance or strengthening customer relationships. Islamic banks are also expected to widen access, build public trust, respond to the needs of diverse communities, and support inclusive local economic activity through services aligned with Sharia values and social responsibility.
This broader role is increasingly important because organizational performance in financial services cannot be assessed only through financial results or narrow market-based outcomes. Previous studies have shown that non-financial dimensions remain crucial in explaining organizational success, including the quality of relationships, service responsiveness, and the ability of organizations to adapt to changing stakeholder expectations (Hallikainen et al., 2020; Rehman et al., 2023). In the context of Islamic banking, this issue becomes even more relevant because service quality, trust, and Sharia compliance are closely related to how institutions are perceived by the communities they serve. Ahmad et al. (2023) show that Sharia compliance positively affects customer satisfaction in Islamic banking services. This suggests that the strategic orientation of Islamic banks should not be limited to conventional customer management but should be extended toward a more community-centered service orientation that is capable of supporting inclusion, strengthening trust, and responding to local socioeconomic needs.
Within this setting, strategic performance measurement systems (SPMS) are important not only as managerial tools for monitoring performance but also as organizational mechanisms that can translate strategy into action, provide feedback, improve communication, and guide institutional adaptation (Cadez & Guilding, 2008; Chenhall et al., 2011; Pinheiro d e Lima et al., 2009; Yuliansyah et al., 2019). Prior studies have shown that organizations with effective performance measurement systems tend to perform better than those without them (Aljuhmani et al., 2024; Baird, 2017; Baird et al., 2022; Davis & Albright, 2004; Spencer et al., 2009). However, the dominant discussion has largely emphasized business performance, managerial control, and customer-related outcomes. Such an orientation is still too limited when Islamic banking is viewed as an institution that should also contribute to broader development agendas. In other words, the question is no longer only whether SPMS help banks become more community-centered, but whether internal strategic systems enable Islamic banks to become more responsive to community needs and more capable of delivering inclusive and socially meaningful services.
Contingency theory helps explain why this issue matters. The design and use of management systems depend on organizational characteristics and the environment in which they operate (Cheng & Fisk, 2022; Chenhall, 2003). In dynamic financial environments, Islamic banks must continuously adjust their practices to social expectations, competitive pressures, and changing service demands. SPMS are therefore relevant because they provide a structured basis for aligning organizational priorities with external needs. Simultaneously, from the resource-based view (RBV), internal capabilities, such as learning, knowledge sharing, and adaptive capacity, are strategic resources that shape how organizations respond to environmental change and sustain their relevance over time (Chenhall, 2005; Henri, 2006). For Islamic banks, these internal capabilities are important not only for competitiveness but also for strengthening their developmental role in society.
One of the key mechanisms that may connect internal systems to outward-facing outcomes is organizational learning (OL). SPMS significantly influence organizational capacity, particularly by facilitating learning processes that help organizations interpret feedback, adjust routines, and improve strategic actions (Appuhami, 2019; Hall, 2011; Henri, 2006; Mahama, 2006). OL allows managers to acquire and use knowledge from organizational experience, and this process can reshape behavior and strengthen organizational capability (Jiménez-Jiménez & Sanz-Valle, 2011). Studies by Dragoni & Kuenzi (2012), Faulks et al. (2021) and Wahab & Tyasari (2020) suggest that managers shaped by a learning orientation are more attentive to knowledge generation, innovation, and adaptive actions. Do et al. (2022) emphasize that OL strengthens resilience and innovation in dynamic environments. For Islamic banking, this means that learning may serve as a crucial institutional mechanism through which strategic systems are translated into community-centered service strategies that are more inclusive, adaptive, and socially responsive.
Although previous studies provide valuable insights into the relationship between SPMS, learning, and strategic outcomes, important gaps remain. Existing research has largely examined SPMS in relation to performance, managerial effectiveness, and customer orientation, while giving less attention to how these internal organizational capabilities may support broader community-centered outcomes, especially in Islamic financial services (Yuliansyah et al., 2019; Yuliansyah et al., 2022). Moreover, studies that address the mediating role of OL have not sufficiently explained how internal strategic systems can be converted into institutional capacity to serve communities more effectively. Consequently, the literature offers limited explanations of how Islamic banks can move from internally focused strategic control toward a more community-centered service orientation that supports access, trust, responsiveness, and local economic strengthening.
This study repositions the problem by examining how SPMS and OL may support a community-centered service strategy (CCSS) in Islamic banking in Indonesia. Rather than viewing Islamic banks solely as firms pursuing customer-related performance, this study treats them as organizations whose internal strategic capabilities can shape their contribution to inclusive development. In this way, the study extends prior management accounting and OL research by showing that SPMS and learning are not only instruments of competitiveness but also important organizational enablers for translating internal strategic alignment into broader community development capacity within Islamic financial services.
2. Literature Review and Hypothesis Development
Contingency theory explains that the design and use of management control systems depend on organizational conditions and the environment in which the organization operates (Cheng & Fisk, 2022; Chenhall, 2003). SPMS therefore should not be understood as neutral technical devices, but as strategic mechanisms that help organizations respond to changing external demands through aligned planning, monitoring, feedback, and adaptation. Rey-Márston & Neely (2010) describe SPMS as managerial tools that enable strategy implementation, performance control, organizational feedback, and learning. Robert et al. (2022) view SPMS as an integrative system that connects business dimensions with strategic actions across functions.
In dynamic service environments, the relevance of SPMS extends beyond internal efficiency. Organizations are increasingly facing demands that require responsiveness not only to competition and performance targets but also to broader stakeholder expectations, service inclusiveness, and institutional legitimacy (Otley, 2016). For Islamic banking, this issue is especially important because banks are expected not only to compete in the financial sector but also to provide services that are trustworthy, adaptive, and socially meaningful. In this context, the strategic orientation of Islamic banks should not be limited to a narrow customer focus. Rather, it should be directed toward a CCSS, namely a strategic orientation that emphasizes inclusive access, responsiveness to underserved groups, support for local economic actors such as MSMEs, and the strengthening of community trust through service quality and Sharia-consistent practices.
OL is central to this broader orientation. It is one of the main foundations for innovation, adaptation, and long-term growth (Escandon-Barbosa & Salas-Páramo, 2023). Antunes & Pinheiro (2020) and Akgün et al. (2023) define OL as a cultural and capability-based process grounded in openness, change, and the continuous development of new knowledge. Prior studies have shown that OL helps organizations improve performance, respond to environmental change, and strengthen internal capabilities (Jiménez-Jiménez & Sanz-Valle, 2011; Saha et al., 2016). In Islamic banking, this capacity matters because institutional responsiveness depends on whether banks can interpret community needs, translate strategic priorities into service practices, and sustain trust through reliable and adaptive service delivery. Ahmad et al. (2023) show that Sharia compliance positively affects customer satisfaction in Islamic banking, indicating that service strategy in this sector is closely tied to public trust and institutional legitimacy. Accordingly, this study positions SPMS and OL as internal organizational capabilities that may help Islamic banks move from purely firm-centered logic toward a more community-centered strategic orientation. Figure 1 presents the conceptual framework of this study. The model predicts the positive influence of SPMS on OL and community-centered service strategies in the context of Islamic banking.
From a contingency perspective, performance measurement systems are valuable because they help organizations align strategic actions with external conditions (Cheng & Fisk, 2022; Chenhall, 2003). SPMS provide managers with financial and non-financial information that helps them interpret business conditions, monitor implementation, and adjust actions when environmental demands change (Mio et al., 2022). In addition, performance measurement systems can shape organizational culture, systems, and procedures in ways that support the realization of strategic vision. Similarly, Artz et al. (2012) show that SPMS can positively influence strategic decision-making, while Yuliansyah et al. (2019) emphasize that organizations should continuously develop their performance measurement systems to improve responsiveness.
In the present study, this responsiveness is not interpreted only as responsiveness to individual customers in a competitive market. In Islamic banking, strategic responsiveness should also be understood as responsiveness to communities whose needs may involve service accessibility, trust, practical support, and inclusion in formal financial services. Because Islamic banks operate in a service sector closely associated with public values, religious legitimacy, and developmental expectations, internal strategic systems must help organizations identify and address broader community needs rather than solely transactional customer preferences. A well-developed SPMS can support this orientation by translating strategic objectives into operational priorities, improving coordination across units, and providing managers with relevant information to design services that are more adaptive, inclusive, and beneficial to communities.
This argument is also consistent with the view that performance measurement systems should support strategic alignment and long-term outcomes rather than narrow short-term control (Rey-Marston & Neely, 2010; Robert et al., 2022). In Islamic banking, such alignment can be expressed through service strategies that are more attentive to underserved groups, more supportive of MSME-related needs, and more capable of building community trust. Therefore, SPMS are expected to positively contribute to the development of a CCSS.
H1: SPMS positively influence CCSS.
The relationship between SPMS and OL is well supported in the literature. Pinheiro de Lima et al. (2009) argue that performance measurement systems do not only function as implementation tools, but also as mechanisms for redesigning management control systems through learning. Micheli & Manzoni (2010) similarly explain that the success of SPMS depends greatly on whether the system is used for learning rather than only for control. This is important because learning allows organizations to interpret information, reflect on outcomes, and continuously improve strategic actions.
From the RBV, internal resources and capabilities are crucial for sustaining performance and responding to changing environments. OL represents one such strategic capability because it enables firms to develop new knowledge, adjust routines, and improve collective competence (Akgün et al., 2023; Antunes & Pinheiro, 2020). Saha et al. (2016) emphasize that positive attitudes at the individual, group, and organizational levels contribute to better performance through learning processes. Empirical studies by Do et al. (2022), Garengo et al. (2022), Rompho & Siengthai (2012) and Yuliansyah & Jermias (2018) also show that SPMS significantly shapes OL.
For Islamic banks, this relationship is particularly relevant because service institutions must interpret changing expectations, regulatory environments, and community needs. SPMS can facilitate this process by generating strategic feedback, encouraging reflection, clarifying priorities, and supporting communication across managerial levels. Through these mechanisms, SPMS are expected to strengthen OL.
H2: SPMS positively influence OL.
OL provides the internal capability needed to transform strategic information into adaptive and socially responsive actions. Escandon-Barbosa & Salas-Páramo (2023) describe learning-oriented organizations as those that foster creativity and growth, while Jiménez-Jiménez & Sanz-Valle (2011) explain that OL enhances capabilities by enabling managers to acquire and use knowledge from experience. In dynamic environments, learning helps organizations interpret emerging problems, adapt to change, and innovate in service delivery (Do et al., 2022; Gomes et al., 2022).
The relevance of this process in Islamic banking extends beyond conventional competitiveness. A learning-oriented bank is more likely to understand the practical needs of communities, recognize barriers to service access, and refine service processes in ways that strengthen inclusion and trust. Garengo et al. (2022) and Do et al. (2022) suggest that learning enables organizations to respond to changing environments through improved capability and innovation.
In this study, this logic is extended to the idea of a CCSS. If Islamic banks continuously learn from their internal experience, stakeholder interactions, and service challenges, they are more likely to design strategies that are not merely customer-retention tools, but mechanisms for wider access, better service responsiveness, and stronger community trust. OL, therefore, should help Islamic banks translate their strategic orientation into service approaches that are more inclusive and developmentally relevant.
H3: OL positively influences community-centered service strategies.
Although SPMS can provide direction, information, and strategic alignment, their influence on outward-facing service strategy may not occur automatically. The effect of SPMS is likely to be stronger when the information and feedback generated by the system are absorbed through OL processes. Hall (2011) found that learning mediates the relationship between performance measurement systems and managerial performance, while Appuhami (2019) highlighted the mediating role of OL in the relationship between SPMS and strategic outcomes. These studies suggest that performance measurement systems become more meaningful when they are used to stimulate reflection, interpretation, and improvement.
In Islamic banking, this mediating mechanism is particularly plausible. While SPMS may establish strategic priorities, OL enables managers to internalize those priorities, interpret service-related challenges, and adapt institutional practices to the needs of communities. Without learning, SPMS may remain procedural and control-oriented. However, with learning, SPMS can become the foundation for a CCSS by helping organizations refine service delivery, strengthen inclusion, and improve responsiveness to local socioeconomic conditions.
Therefore, OL is expected to mediate the positive influence of SPMS on community-centered service strategies.
H4: OL mediates the positive influence of SPMS on CCSS.
3. Methodology
This study employed a structured questionnaire survey targeting middle managers of Islamic Commercial Banks (Bank Umum Syariah, BUS) in Indonesia. Middle managers were selected because they play an important role in translating organizational strategy into operational practices and service delivery. Their competencies are associated with management effectiveness, integrity, people’s orientation, work effectiveness, and knowledge, which makes them relevant respondents in evaluating how internal strategic systems are implemented in Islamic banking institutions (Ekaterini, 2011). In the context of this study, middle managers are also important because they are directly involved in shaping how strategic priorities are translated into service practices that can strengthen institutional responsiveness, improve access, and support broader community-centered banking services.
The sampling technique used was purposive sampling. The criteria included employees holding middle-level managerial positions in BUS, such as relationship and financing managers, funding sales managers, operations managers, and branch office heads. BUS refers to Islamic commercial banks that operate independently of conventional banks. Although some BUS are affiliated with conventional parent banks, their activities and reporting systems are conducted separately. This institutional context is relevant because Islamic banks in Indonesia operate within a dual banking system and therefore face distinctive strategic and service-related pressures (Risfandy et al., 2022).
Nine BUS participated in this study, yielding 142 usable responses. Male respondents accounted for 62.7% of the sample, while female respondents accounted for 37.3%. Most respondents held a bachelor’s degree (76.1%), followed by postgraduate degrees (16.2%), and the remainder had completed senior high school or diploma education. The use of middle managers as respondents is appropriate because the study focuses on organizational capabilities and strategic implementation rather than direct community-level outcomes. Accordingly, the findings provide evidence of the institutional capacity of Islamic banks to support community-centered service strategies, rather than direct measures of community development outcomes.
SPMS refer to the use of financial and non-financial performance measures that collectively help translate an organization’s strategy into coherent operational actions (Chenhall, 2005; Silvi et al., 2015). SPMS support organizations in focusing on long-term strategic objectives, monitoring implementation, and communicating strategy across different managerial levels. In this study, SPMS were measured using a 13-item instrument developed by Yuliansyah & Jermias (2018). The items capture whether the performance measurement system translates business strategy into operational activities, provides action guidelines for middle and lower management, facilitates strategic outcomes, monitors strategy implementation, and offers feedback for managerial decision-making.
OL is defined as the process through which organizations acquire, interpret, and use knowledge derived from employee experience and organizational interactions (de Weerd-Nederhof et al., 2002; Do et al., 2022; Jiménez-Jiménez & Sanz-Valle, 2011). This process enhances organizational capabilities and supports adaptive behavior. In this study, OL was measured using a four-item instrument previously applied by Henri (2006) and Yuliansyah et al. (2019). The instrument captures the extent to which learning is viewed as an investment, a core organizational value, a necessary condition for future sustainability, and a primary means of organizational improvement. All items were assessed using a five-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree).
To align the study with the context of Islamic banking as a socially responsible financial institution, the original customer-oriented construct is reframed in this study as a CCSS. CCSS refers to an organizational orientation that emphasizes service responsiveness, practical accessibility, broad service provision, adaptability, and service quality in ways that can support wider access, strengthen trust, and improve the relevance of banking services for communities. This construct reflects the idea that Islamic banking should not be understood solely as competing for customers but also as developing service capabilities that can respond to broader social and economic needs. Empirically, this construct was operationalized using service differentiation indicators derived from Porter (1980) and previously employed by Auzair & Langfield-Smith (2005). The retained items reflect whether the bank provides distinctive services, offers a wider range of services, delivers practical services, maintains high service quality, and introduces products, services, or procedures quickly. In the present study, these indicators are interpreted not simply as tools of market differentiation but as manifestations of the bank’s capacity to design and deliver service strategies that are more responsive, adaptive, and potentially more inclusive for communities served by Islamic banking institutions.
The data were analyzed using SmartPLS. The analysis followed two stages. First, the measurement model (outer model) was evaluated through convergent validity, discriminant validity, and reliability tests. Second, the structural model (inner model) was examined using R-square (R2), effect size (f2), path coefficients, and mediation testing (Hair et al., 2019; Sarstedt et al., 2021). Because the study reinterprets the dependent construct as a CCSS while retaining the original empirical model, the statistical results remain unchanged; however, their interpretation is redirected toward the organizational capacity of Islamic banks to support broader community-centered service outcomes.
4. Results
Outer model evaluation was conducted to assess convergent validity, discriminant validity, and reliability. Table 1 presents the indicator loadings for all the constructs. In this revised framing, the dependent construct is labeled CCSS. The loadings indicate that one CCSS indicator and four SPMS indicators fell below the commonly accepted threshold and were therefore removed from the model before the final analysis.
Table 1 shows that the indicator removed from the CCSS construct was CCSS5, whereas the indicators removed from the SPMS construct were PMS6, PMS7, PMS8, and PMS11. After eliminating these items, discriminant validity was assessed using the heterotrait-monotrait ratio of correlations (HTMT) and the Fornell–Larcker criterion.
Table 2 presents the HTMT values used to assess discriminant validity, or whether the three constructs are empirically distinct from one another. The HTMT values for OL–CCSS (0.656), SPMS–CCSS (0.388), and SPMS–OL (0.439) are all well below the common threshold of 0.85, and even below the more lenient cutoff of 0.90. This means the constructs do not excessively overlap and can be treated as separate variables in the model. Among the three pairs, OL and CCSS have the highest association, which suggests that they are more closely related conceptually; however, the value is still low enough to confirm adequate discriminant validity. The HTMT results indicate that the measurement model meets the discriminant validity requirement.
Table 3 presents the Fornell–Larcker criterion, which is used to test discriminant validity by comparing the square root of the AVE for each construct with its correlations with other constructs. The diagonal values, shown in bold conceptually, are CCSS = 0.813, OL = 0.810, and SPMS = 0.793. Each of these values is higher than the corresponding inter-construct correlations: CCSS correlates with OL at 0.566 and with SPMS at 0.363, while OL correlates with SPMS at 0.395. Because the diagonal values are all greater than the off-diagonal values in their rows and columns, each construct shares more variance with its own indicators than with other constructs. This means that CCSS, OL, and SPMS are sufficiently distinct from one another. Overall, the Fornell–Larcker results confirm that the measurement model has adequate discriminant validity.
The evaluation results above indicate that all indicator items meet the criteria for validity tests (convergent and discriminant validity) and reliability tests (Table 4). This implies that the model developed in this study is capable of explaining the relationships between latent variables and their indicators. Consequently, the research model is deemed suitable for further analysis in the structural model evaluation (inner model).
Figure 2 presents the partial least squares structural equation modeling (PLS-SEM) results linking SPMS, OL, and CCSS. The model shows that SPMS has a positive effect on OL (β = 0.395) and a smaller direct effect on CCSS (β = 0.165), whereas OL also positively influences CCSS (β = 0.501). The explained variance indicates that SPMS accounts for 15.6% of the variation in OL, whereas SPMS and OL together explain 34.3% of the variation in CCSS. The indicator loadings are generally acceptable, with most items loading above 0.70 on their respective constructs, suggesting that the measurement model has adequate convergent validity.
Indicators/Questions | Code | Outer Loadings |
Community-centered service strategy (CCSS) |
|
|
Providing services that are distinctive and relevant to community needs | CCSS1 | 0.822 |
Offering a broader range of services to respond to diverse community needs | CCSS2 | 0.807 |
Delivering practical and accessible services | CCSS3 | 0.806 |
Delivering excellent service quality | CCSS4 | 0.793 |
Providing follow-up service and support | CCSS5 | 0.562 |
Introducing new products, services, or procedures quickly | CCSS6 | 0.837 |
Organizational learning (OL) |
|
|
Employee learning is an investment, not an expense | OL1 | 0.814 |
Core values include learning as the key to improvement | OL2 | 0.822 |
Once we stop learning, we endanger our future | OL3 | 0.797 |
The ability to learn is a critical improvement | OL4 | 0.806 |
Strategic performance measurement systems (SPMS) |
|
|
The performance measurement system provides a way to translate business strategy into operational activities | PMS1 | 0.824 |
The performance measurement system offers guidelines for operational actions for middle and lower management | PMS2 | 0.739 |
The performance measurement system serves as a vehicle to achieve strategic outcomes | PMS3 | 0.801 |
The performance measurement system enables the company to monitor the implementation of corporate strategy | PMS4 | 0.798 |
The performance measurement system provides useful information to detect problems in strategy implementation | PMS5 | 0.815 |
The performance measurement system drives continuous improvement of strategic objectives | PMS6 | 0.535 |
The performance measurement system shows how the activities of one business unit affect those of others within the organization | PMS7 | 0.507 |
The integrated performance measurement system crosses functional boundaries and connects all business unit activities to achieve organizational goals and objectives | PMS8 | 0.518 |
The performance measurement system is available in a fully documented form that provides records for performance evaluation | PMS9 | 0.788 |
The performance measurement system enhances communication among company employees | PMS10 | 0.82 |
The performance measurement system enables the company to change organizational behavior | PMS11 | 0.473 |
The performance measurement system ensures fairness among employees regarding bonuses, reward systems, or job promotions | PMS12 | 0.766 |
The performance measurement system provides feedback information | PMS13 | 0.781 |
Variable | Heterotrait-monotrait Ratio of Correlations (HTMT) |
OL–CCSS | 0.656 |
SPMS–CCSS | 0.388 |
SPMS–OL | 0.439 |
Variable | CCSS | OL | SPMS |
CCSS | 0.813 | - | - |
OL | 0.566 | 0.810 | - |
SPMS | 0.363 | 0.395 | 0.793 |
Variable | Cronbach's Alpha | Composite Reliability rho_a | Composite Reliability rho_c | Average Variance Extracted (AVE) | Results |
CCSS | 0.872 | 0.878 | 0.907 | 0.661 | Reliable |
OL | 0.826 | 0.828 | 0.884 | 0.656 | Reliable |
SPMS | 0.927 | 0.936 | 0.938 | 0.629 | Reliable |
Structural model evaluation was conducted using several criteria, namely R², f², and path coefficients (Hair et al. 2019; Sarstedt et al. 2021). The test results show that the R² value for customer focus strategy is 0.334, indicating that 33.4% of the variance in customer focus strategy is explained by SPMS and OL, while the remaining 66.6% is influenced by other factors beyond these two variables. OL has an R² value of 0.150, indicating that 15.0% of the variance in OL is explained by SPMS. f² values are presented in Table 5:
The table below shows that the f² value of OL on customer focus strategy is 0.322, indicating a strong effect. The f² value of SPMS on customer focus strategy is 0.035, categorized as a very weak effect, while the f² value of SPMS on OL is 0.185, representing a moderate effect.
Variable | f2 |
OL → CCSS | 0.322 |
SPMS → CCSS | 0.035 |
SPMS → OL | 0.185 |
Model fit assessment was conducted to determine the degree of correspondence (fit) between the research model and the ideal model for the study. The evaluation of model fit was performed using SmartPLS version 4, based on the following criteria: (1) Standardized Root Mean Square Residual (SRMR) with a cutoff value of 0.08; (2) Unweighted Least Squares Discrepancy (d_ULS), where the model is considered acceptable if the 95% confidence interval is greater than d_ULS value; and (3) Geodesic Discrepancy (d_G), where the model is deemed suitable if the 95% confidence interval is above d_G value.
The goodness-of-fit test yielded a d_ULS value of 0.700, which is above the 95% confidence interval and therefore does not meet the recommended cutoff. The d_G value was 0.353, which is below the recommended cutoff of 95% confidence interval. SRMR for this study also met the recommended cutoff, below 0.08. According to Hair et al. (2010), a model is considered satisfactory and eligible to proceed to the next stage of analysis if one or two fit criteria are fulfilled. Therefore, based on the SRMR criterion, the research model can be considered to have an acceptable fit.
The path coefficients for the structural model are presented in Table 6.
Variable | Original Sample (O) | Sample Mean (M) | t-Statistics | p-Value |
OL → CCSS | 0.501 | 0.504 | 7.990 | 0.000 |
SPMS → CCSS | 0.165 | 0.169 | 2.282 | 0.023 |
SPMS → OL | 0.395 | 0.405 | 6.236 | 0.000 |
Hypothesis 1 states that SPMS positively affects customer focus strategy. The path coefficient test shows an f2 of 0.165, a t-statistic of 2.282, and a p-value of 0.023. This indicates that at the 5% significance level (α = 0.05), SPMS positively influences customer focus strategy. Therefore, Hypothesis 1 is supported. Hypothesis 2 states that SPMS positively affects OL. The path coefficient test shows an f2 of 0.395, a t-statistic of 6.236, and a p-value of 0.000. This means that at the 1% significance level (α = 0.01), SPMS positively affects OL. Thus, Hypothesis 2 is supported. Hypothesis 3 states that OL positively affects customer focus strategy. The path coefficient test shows an f2 of 0.501, a t-statistic of 7.990, and a p-value of 0.000. This suggests that at the 1% significance level (α = 0.01), OL positively influences customer focus strategy. Hence, Hypothesis 3 is supported.
Variable | Original Sample (O) | Sample Mean (M) | t-Statistics | p-Value |
SPMS → OL → CCSS | 0.198 | 0.204 | 4.694 | 0.000 |
Variable | Original Sample (O) | Sample Mean (M) | t-Statistics | p-Value |
OL → CCSS | 0.501 | 0.504 | 7.990 | 0.000 |
SPMS → CCSS | 0.363 | 0.373 | 5.347 | 0.000 |
SPMS → OL | 0.395 | 0.405 | 6.236 | 0.000 |
Tables 7 and 8 present the mediating role of OL. H4 states that OL mediates the positive influence of SPMS on CCSS. The indirect effect is 0.198, with a t-statistic of 4.694 and a p-value of 0.000, indicating that the mediation effect is statistically significant. Therefore, H4 is supported. The direct effect of SPMS on CCSS is 0.165, whereas the indirect effect through OL is 0.198, yielding a total effect of 0.363. Because the indirect effect is larger than the direct effect, while the direct effect remains significant, OL can be interpreted as a partial mediator in the relationship between SPMS and CCSS.
This study applies RBV to explain how internal organizational capabilities support strategic outcomes in Islamic banking. RBV emphasizes that organizational resources and competencies shape firms’ ability to respond to environmental challenges and build sustained advantages (Henri, 2006; Malhotra et al., 2025). In the present study, SPMS and OL are treated as internal capabilities that help Islamic banks move beyond narrow internal controls and develop stronger strategic responsiveness in service delivery.
The findings show that SPMS positively influences CCSS. This result is consistent with prior studies, which have shown that SPMS supports strategic implementation, improves managerial decision-making, and strengthens organizational responsiveness (Aljuhmani et al., 2024; Artz et al., 2012; Yuliansyah et al., 2019). However, the present study extends this logic by interpreting the outcome not merely as customer orientation in a market sense, but as the bank’s organizational capacity to deliver service strategies that are more responsive, practical, and adaptive for the communities it serves. In Islamic banking, this is important because competitive performance and public legitimacy are closely linked. Institutions are expected not only to compete effectively but also to provide services that are trustworthy, accessible, and socially relevant. Thus, SPMS should be viewed not solely as performance control devices but also as mechanisms that help Islamic banks align internal priorities with broader service responsibilities.
This study also confirms that SPMS positively affects OL. This is in line with earlier work showing that performance measurement systems shape learning by generating information, encouraging reflection, improving communication, and supporting continuous development (Do et al., 2022; Garengo et al., 2022; Yuliansyah & Jermias, 2018). In the context of Islamic banking, this result suggests that internal measurement systems can help managers interpret strategic information more effectively and improve institutional responsiveness. This is particularly relevant in dynamic financial environments, where service institutions must adapt not only to competitive pressures but also to changing social expectations and service needs.
OL has the strongest direct effect on CCSS in the model. This result is consistent with studies showing that OL strengthens innovation, adaptability, and strategic responsiveness (Badu & Micheli, 2025; Do et al., 2022; Gomes et al., 2004; Soomro et al., 2020). In this study, the importance of OL lies in its role as a mechanism that helps Islamic banks interpret experience, refine procedures, and adapt service approaches. This interpretation is compatible with the broader role of Islamic banking as a socially embedded financial institution, whose services are expected to contribute to trust, service accessibility, and local economic support. This interpretation is compatible with the broader role of Islamic banking as a socially embedded financial institution whose services are expected to contribute to trust, service accessibility, and local economic support.
This mediation finding further reinforces this argument. OL significantly mediates the relationship between SPMS and community-centered service strategies, and the indirect effect is larger than the direct effect. This means that SPMS are more effective when they are not used merely as formal monitoring systems, but as systems that stimulate learning and adaptation. This result is consistent with the findings from Appuhami (2019), Hall (2011) and Yuliansyah et al. (2019), showing that learning is a critical mechanism that links performance measurement systems to strategic outcomes. In Islamic banking, this implies that the contribution of SPMS to community-centered service strategies is realized more strongly when managers and organizations actively learn from performance information and use it to improve service practices.
The practical implications are straightforward. Islamic banking managers should not treat SPMS only as internal control instruments. They should use them as tools for developing learning-based service capabilities that can strengthen the bank’s responsiveness to wider service demands. From a community development perspective, this can support better service accessibility, stronger trust, more adaptive outreach, and more relevant support for communities and local economic actors. At the same time, the study’s findings should be interpreted carefully. Because the data were collected from middle managers rather than community members or service beneficiaries, the findings do not directly measure community development outcomes. Instead, they demonstrate that SPMS and OL are important organizational conditions that can strengthen the institutional capacity of Islamic banks to pursue community-centered service strategies.
5. Conclusion
This study concludes that SPMS and OL are important organizational factors in shaping CCSS in Islamic banking. The results show that SPMS positively influence CCSS, SPMS positively influence OL, and OL positively influences CCSS. In addition, OL partially mediates the relationship between SPMS and CCSS. These findings indicate that internal strategic systems in Islamic banks are not only relevant for managerial control or customer-related performance, but also for strengthening the organizational capacity needed to design service strategies that are more responsive, adaptive, and socially relevant.
This study contributes to the literature by extending the discussion of SPMS and OL into the context of Islamic banking as a socially embedded financial services sector. Within management accounting research, this study demonstrates that SPMS can be interpreted not only as a tool for firm competitiveness but also as an institutional enabler that helps organizations support broader service responsiveness. In this sense, this study reframes the role of Islamic banks from being merely customer-oriented firms to organizations whose internal capabilities may support wider access, trust, and more community-centered service provision.
This study also has practical implications. Islamic banking institutions should strengthen the use of SPMS as a system for strategic feedback, communication, and learning. When supported by OL, these systems can help managers improve service design and implementation in ways that are more aligned with broader community needs. However, these conclusions should be interpreted with caution. Because the dependent construct was measured through managerial perceptions of service strategy and not through direct community-level indicators, this study provides evidence of organizational capacity for CCSS rather than direct evidence of financial inclusion, MSME empowerment, or community development outcomes.
Future research should therefore extend this line of inquiry by developing measurement instruments that are more directly aligned with community development outcomes in Islamic financial services. Further studies may incorporate indicators such as service access for underserved groups, outreach to MSMEs, trust in Islamic banking, and community-based financial inclusion outcomes. This would allow future work to test more directly how internal strategic capabilities are translated into measurable developmental outcomes in the communities served by Islamic banks.
The data used to support the research findings are available from the corresponding author upon request.
The authors declare no conflict of interest.
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