The Role of Distinctive Organization Capability and Corporate Reputation in Formulating Co-Creation Strategy in the Age of Industry 4.0: Study on Indonesian Telecommunication Firms

This paper aims to provide the effects of corporate reputation and distinctive organizational capability in formulating co-creation strategy for incumbent firm in facing industry resolution 4.0. A co-creation strategy is critical to sustain the business in anticipating new entries that convey the new business model. The study focuses on incumbent telecommunication companies since the telecommunication industry, while the incumbent has strong corporate reputation and organization capability. Those both capabilities is required to become a distinctive capability to provide strong core competence among others. This study is a quantitative study that was conducted with 35 firms were used as a sample in the study as exploring the model. The analytical approach and the solution technique used is the Smart Partial Least Square (SmartPLS). The results of the study demonstrated that corporate reputation and distinctive operational capability influence co-creation strategy, while corporate reputation has a bigger role than distinctive capability in building co-creation strategy. These findings have practical implications for the management of the telecommunications industry in Indonesia, as the development of a co-creation strategy requires to be based on the development of corporate reputation with the support of the development of distinctive operational capability. Further research can be explored by expanding the sample, industry and in other countries. The study can also expand into a longitudinal study as part of the digital transformational model. to the and practice of co-creation in managing the ecosystem and co-creation and background of literature of respective research methodology, results and that includes a conclusion, practical


Introduction
Industry 4.0 creates a new paradigm for the new landscape of market and competition. The use of digital technology in the Industry 4.0 era brings major impact on the way business is done. The actors are involved greater interconnectedness and collaboration through networks that are borderless, global and less dependent on firm value propositions (Prahalad C. and Ramaswamy, 2004). The need of collaboration in order to create co-value to fulfill the value chains could not be realized by internal capabilities only. To anticipate the complexity, the digitation of products and services can deliver several solutions (Khorakian and Salehi, 2015) such as to drive processes to become more simple, faster decision making, and enable new capabilities. This also includes sharing economy (Monios and Bergqvist, 2015) and virtualization (Monios and Bergqvist, 2015). The digitization process could transform the traditional business to become more innovative, standardized, modular, interoperable, decentralized, real-time, and service-oriented (Ibarra et al., 2018). All the innovations are created based on the needs of customers to anticipate customer and market changes through business model innovations, herein called the disruptive innovation (Christensen, 1997).
Disruptive innovation does have an impact on incumbent firms, leading these firms to fail in maintaining superiority. This was mostly because the firms were not able to provide the right business model and develop distinctive capability to fulfill customer demands and needs (Christensen, 1997); (Markides and Oyon, 2010); (Sheth et al., 2000). Meanwhile, the new entries use the new business model to bring value proposition for customers, as well as collaboration and co-creation values for stakeholders Zott et al. (2011). Telecommunication is the sector that has been significantly impacted by disruptive innovation Loucks et al. (2016). The disruptive innovation phenomenon within the telecommunication industry has happened on the Internet of Things (IoT). The growth of startup companies that focus on digital collaboration businesses are able to disrupt traditional business. Some examples of these startups in the Indonesian market include Go-jek, Tokopedia, and Traveloka.
International Business Machines (IBM) has conducted an empirical study on innovation through collaboration and co-creation using a survey that sample CEO respondents all over the world. The study found that 69% of respondents agree that higher achievements in innovation require strong support from CEOs to collaborate and provide co-creation value with partners (IBM Global Business Services, 2012).
The network plays an important role in to accelerating the impact of value creation in the future (Giesen et al., 2007). However, business models with design innovations that are network-centric still have very limited research in strategy development (Coombes and Nicholson, 2013), hence the concept and antecedent of co-creation to create value is interesting to study. The network plays strong capabilities where the incumbent firms compare to new enters. This network value could benefit the incumbent firms due to the strong corporate reputation of capital and customer base (Lourenco et al., 2014). Reputation can be built by better product quality through virtualization (Fuller et al., 2006;Fuller et al., 2010), higher customer satisfaction (Nambisan and Baron, 2007), and risk reduction through customer relations to provide trust and loyalty (Maklan et al., 2008). The development of co-creation was first adopted in the marketing context required new capabilities that are different from the competitors and could be done over Internet and radical innovation (Sawhney, Verona, & Prandelli, 2005); Prandelli et al. (2006); (Von, 2004). The use of co-creation in the marketing context needs to go beyond customers, but also to stakeholders to create a strategy that attracts more attention. This is suggested to also improve organization competitiveness (Prahalad C. and Ramaswamy, 2004).
At a strategy level, the highly competitive environment created a new paradigm called the 7s McKinsey (D' Aveni and Gunther, 1994). The construct of co-creation strategy in this paper is done by combining the new 7s McKinsey with the concept of value chain (Porter, 1998) and co-creation within marketing. Currently the study of the role of corporate reputation as the main strong of incumbent firm and distinctive organization capability as another new strong capability toward co-creation strategy was not explore intensively, hence, this study has the objective to assess the effects of corporate reputation and distinctive organization capability in the development of co-creation strategy as part of digital transformation through empirical research to validate the model. This paper will contribute to the study and practice of co-creation in managing the ecosystem and co-creation management. The paper includes an introduction and background of the study, literature review of respective variables, research methodology, results and discussion that includes a conclusion, practical and theoretical implications, and suggestions for further study.

Industry 4.0
Industry 4.0 is also known as the conceptual era (Pink, 2005), the continuing era after the information age. Industry 4.0 is characterized by innovation, business model development and co-creation development through optimizing digital, Internet and information technology. It also has a large impact on the globalization of market drive, open innovation and the changing of ecosystems (Teece, 2012). Within the Indonesian telecommunication industry, the development of digital technology is still at an early stage in industry 4.0. However, some business model innovations have grown significantly, which indicates the opportunity to grow in telecommunications and other industries (IMD, 2017). The development of digital technologies has become a priority for both private and government sectors, with digital solution and digitization developments significant growth Das et al. (2016). Therefore, startup companies have become a major target for investors aiming for startups such as Gojek, Tokopedia, Traveloka. This flow of investments has also led to the intense development of smart cities, e-health, ehospitals.
To anticipate the changes due to industry revolution 4.0, incumbent firms are required to transform their existing business and internal capabilities by strengthening their business model (Ibarra et al., 2018). The transformation is aimed to turn these incumbent firms into digital firms to ensure their sustainability and generate value creation Kiel et al. (2017). Incumbent firms are also required to develop business model innovations through a digitized system (Kagermann, 2015), shared economy (Matzner et al., 2018) virtualization (Monios and Bergqvist, 2015) and an integration with existing operation processes of digital capabilities (Berman, 2012)

Corporate Reputation
Corporate reputation could take a long time to develop. It can be defined as an aggregation of all previous transactions and activities over the life of a firm and a larger picture of the corporate's image within a snapshot of time that is related with its value Walsh et al. (2009). In terms of digital disruptive innovation, corporate reputation is strength for incumbent firms compared to the new entries, other than its capital and customer base Loucks et al. (2016). Corporate reputation is a competitive advantage to increase profit due to corporate brand performance. It is also a competitive advantage in terms of development sustainability (Gardberg and Fombrun, 2002). The development of corporate sustainability will also have an impact on creating the value of a firm (Lourenco et al., 2014) based on the intangible values such as customer and organization values, which could generate more incomes Walsh et al. (2009).
Therefore, the development of corporate reputation should be related with the long-term journey of firms. This especially applies when it is customer related, such as customer loyalty, customer trust towards firms, customer satisfaction related to product quality and brand reputation Walsh et al. (2009);Lourenco et al. (2014). Hence, this paper discusses corporate reputation based on customer loyalty, trust, the quality of product, and brand reputation.

Distinctive Organizational Capability
Theory-based resources discuss the leveraging of internal capabilities to develop the sustainable competitive advantage (Barney, 1991). The distinction of internal capabilities shall be valuable, rare, imperfectly imitable, and non-substitutable, as the concept of capability itself formulated by Hubbard et al. (2011).
Capability is defined as an organizational process, system or routine used to coordinate resources for productive use. At a strategic level, strategic capability is defined as a capability used to create value for stakeholders, especially customers. Distinctive organizational capabilities can be explained as a process of identifying, investigating, developing, exploiting and exploring certain products with a diverse and unique characteristic that includes knowledge and routines compared to competitors within a competitive market (Darsono, Yahya, & Amalia, 2016). Collaboration is one way to establish knowledge and distinct behavior (Lorenzoni & Lipparini, 1999). Since it has become a habit and a part of the knowledge, distinctive capabilities are embedded within the organization Hitt et al. (2015). The organization capability is an aggregate of source competence.
Leadership and people are key factors in the digital transformation. Digital leadership is one of the leadership capabilities that helps optimize the strengthening of digital knowledge, innovation and exploration of business opportunities (Wasono and Furinto, 2018). Rudito and Sinaga (2017) defines the characteristics of digital leadership consisting of technology leadership, digital visioning and digital execution, where the people and culture shape the successor of a leader. In the digital era, the speed in decision-making and agility are driving the distinct capabilities, therefore personalization helps leverage the competitiveness of firms to shorten the digitization process Henfridsson et al. (2014). Digitization makes firms a lot more agile towards the changing market within the industry and turbulent ecosystem (Teece, 2012). However, this could be done through a process of governance.
Therefore, in this study, distinctive capability uses the dimension of digital leadership value, digital culture, digital agility, and governance.

Co-Creation Strategy
Collaboration with customers is the basis of co-creation in order to develop the co-value of firms (Prahalad C. K. and Ramaswamy, 2000); Sheth et al. (2000). Co-creation does not place customers as an object, but a subject in involving value chain business activities. Co-creation in innovation with external partners such as customers has also been discussed intensively, known as an open innovation (Chesbrough, 2003), the concept also relies on the concept of value creation. The bigger value is driven from intangible assets, especially in the form of services to customers.
At a strategic level, co-creation is a new source of value (Kambil, Friesen, & Sundaram, 1999). It is used to transform the value proposition by working closely with customers. In this paper, the extended concept of value creation is driven from marketing co-creation based on the new 7s McKinsey framework (D'Aveni and Gunther, 1994) and value chain (Porter, 2001) and place co-creation as part of the business strategy. In the new 7s McKinsey, the strategy that is used to face the hyper-competition that is relevant to industry 4.0, is divided into 3 categories: strategy capability and tactical. At a strategy level, the co-creation strategy is defined as the vision and direction of senior leaders in the development of co-creation vision and direction. Co-creation capability is the development people, processes and technology to support the implementation of vision and strategy. Tactical strategy focuses on collaboration ranging from co-design, co-production, co-delivery, and co-promotion Sheth and Uslay (2007); Roser et al. (2009a); Roser et al. (2009b) Based on the analysis above, this study assesses co-creation strategy based on the dimensions of co-creation strategy, co-creation capability and co-creation tactical.

Hypothesis Development
In his empirical study, (Sánchez and Sotorrío, 2007) have found a strong relationship between corporate reputation and value creation. Another study by Zarkada and Polydorou (2013) has found a strong correlation between the reputation of a firm that uses social media and the improvement of customer experience and co-creation value. This means that in the digital era, the use of digital technology will be able to provide opportunity in value cocreation with customers. Similar results is found in the study done by Dijkmans et al. (2015), with results showing the use of social media as positively related to customer engagement and customer engagement is also positively related to corporate reputation. Based on those indications, the hypotheses are established as the following: Hypothesis 1: Corporate reputation has a positive relationship with co-creation strategy within the Indonesian telecommunications industry. (Khorakian and Salehi, 2015) in his study of distinctive capabilities found that the capabilities are a result of the collaborative strategy in creating value together. The study in supply chain conducted by Wu et al. (2011) found that there is a significant effect of internal capabilities on collaboration in creating value. The relationship is needed for internal and external variables to balance, hence the relationship between distinctive internal capability and collaboration (Mundy, 2010). Empirical study by Hurley and Hult (1998) shows that an organization's capability of learning and market orientation supports innovation. Hence, another hypothesis can be defined as following: Hypothesis 2: Distinctive organization capability has a positive relationship with co-creation strategy in the Indonesian telecommunications industry.

Research Model
The research model in this study was developed based on the strategy formulation framework as shown in figure 1. Distinctive organization capability has positive relation to co-creation strategy as well as corporate reputation.

Methodology
This study is a quantitative research. The units of analysis in this study are telecommunication firms in Indonesia, while the observation unit is the management of these firms. The population is a combination of all elements that has a series of similar characteristics Error! Reference source not found.. The target population includes 445 companies made up of 312 Internet Service Provider (ISP) firms (APPJI, 2017) and network provider and partners (34 satellite firms, 27 towers, and 72 Telkom subsidiaries and affiliates). According to Cohen (1992) the recommended sample size is 33 respondents for the model with an endogenous construct has 2 arrows directed, 5% Probability error, 80% statistical power and minimum R2 = 0.25. The purposive sampling method was used to gather a sample size of 35 firms in which 95% of the respondents are represented by senior leaders (GM level and above) from each respective firm. Data was collected via self-assessment through an online questionnaire and distributed through Messenger, WhatsApp,, Telegram and email. With the limited sample, SmartPLS (Partial Least Square) is used the statistical tool used for data analysis.

Evaluation of Measurement Model (Outer Model)
The analysis on the outer model specifies the relationship between latent variables and their indicators. Tests performed on outer models include:  Convergent Validity. Based on Average Variance Extracted (AVE). The value of convergent validity is the value of the loading factor on the latent variable with its indicators. Expected value > 0.5.  Composite Reliability. Data that has a composite reliability > 0.7 has high reliability.  Discriminant validity. Where the diagonal bold numbers are larger than the horizontally listed numbers, it means that the measurement model has good discriminant validity.   Table 3, where the diagonal bold numbers indicate the square root of AVE. Table 3 shows that only digital culture has that are listed horizontally is slightly higher than the diagonal values, but the rest of the dimensions have good discriminant validity.
The value of convergent validity is the value of the loading factor of the outer path analysis. t value > t table (2.04) and p value < 0.05 means that each indicator is a valid measurement tool in measuring latent variables.  Table 4 indicates that all constructs have path coefficient scores with t-statistics of more than 1.96 and p-value = 0.000 <0.05, which means that all constructs have significant associations with their dimensions.

Structural Model (Inner Model)
In calculating the score of blindfolding, Q2 was obtained for co-creation strategy = 0.297. If Q2 is greater than zero, it indicates that the structural model has adequate predictive relevance. The evaluation of the inner model can be done through three ways, namely by viewing the value of R 2 and GoF, shown in table 5 below. According to Tenenhaus et al. (2004), the value of GoF small = 0.1, GoF medium = 0.25 and GoF large = 0.38. From the testing of R 2 , and GoF, it is seen that the model formed is robust. So that hypothesis testing can be done.

Fig-2. Complete Path Diagram of Research Model
Based on the research framework, a structural model can be formulated as the following: η= 0.495 1 + 0.337 2 +  1

Hypothesis Testing
Below is the result of hypothesis testing:  Table 6 indicates that within the degree of confidence of 95% (=0.05), there is an influence of customer experience and distinctive operational capability on business model innovation, amounted to 82.3%. Meanwhile, the 17.8% is affected by other factors that were not examined.
Partially, the relationship between corporate reputation and co-creation strategy has a path coefficient score of 0.495 with t-statistics = 2.224 and p-value = 0.026. This means that H0 is rejected and H1 is accepted. It proves that corporate reputation has a positive and significant impact on co-creation strategy. Path coefficient of distinctive organizational capability has a path score of 0.337 with t-statistics = 1.486 and p-value = 0.138. It means that H0 is accepted while H2 is rejected. There is no significant impact of corporate reputation on co-creation strategy.

Discussion
The results are aligned with the study conducted by Zarkada and Polydorou (2013) that demonstrates that cocreation has a strong relationship with corporate reputation in generating customer experience and value creation. This brings an implication on incumbent firms to use their strong capabilities in corporate reputation to establish cocreation and collaboration by optimizing digital technology. Since corporate reputation has significant impact on cocreation, it will also have impact on the acceleration of value creation (Sánchez and Sotorrío, 2007). This finding has an implication on the development of co-creation strategy and for firms to use strong point of corporate reputation as a basis of attracting customers and stakeholders from outside to put in the domain of value chain. With strong reputation, firms can control and attract valuable customers and stakeholders to create value in a series of activities. Meanwhile, from a customer or stakeholder's point of view, there is benefit in part of the system for value creation. They can both influences to generate value together with firms, which will bring benefit for both parties. Corporate reputation is more dominantly formed by customer loyalty, trust and product quality, however less by brand reputation. This means that in the digital era, product quality will have a more significant influence in creating value with customers and stakeholders. This finding supports the study by Dijkmans et al. (2015) and (Zarkada and Polydorou, 2013).
Other results show that corporate reputation and distinctive organizational capability have a positive relationship with co-creation strategy. It means that firms are required to develop distinctive organizational capability to be valuable, rare, imperfectly imitable and non-substitutable (Barney, 1991). The result also strengthens the phenomenon of industry 4.0 to leverage and sustain incumbent firms for a longer term through providing business model innovations by combining distinctive organizational capabilities and strong relationship with customers (Christensen, 1997); (Markides and Oyon, 2010). Firms are also required to build distinctive organizational capability to compete with competitors and new entries. Agility rather than digital culture and digital leadership more dominantly shape distinctive organizational capabilities. Whereas, in innovation, governance is an important aspect but is less prioritized compare to others. These results support the findings of the study on distinctive organizational capabilities by Wu et al. (2011), Mundy (2010 and (Hurley and Hult, 1998).
The findings support incumbent firms to optimize strong corporate reputation Loucks et al. (2016) and develop distinctive capabilities to create co-creation values with customers and stakeholders. Co-creation is used to develop business models and compete with new entries to mitigate the risk of being disrupted by emerging entries.

Conclusion
Based on the results and testing of hypotheses, it can be concluded that distinctive operational capability and corporate reputation influences the development of co-creation strategy in Indonesian telecommunication firms. Cocreation strategy is more dominantly significant influenced by corporate reputation rather than distinctive organization capability. These findings have practical implications on the management, as the development of cocreation strategy needs to be based on strong corporate reputation. Corporate reputation is primarily developed by customer loyalty, trust and product quality, while brand reputation is a slightly less priority in facing industry 4.0 and digital transformation.

Limitation and Further Study
This study has limitation in term of time of study and sample since this study is aims to explore the model, hence further study can be explored through extended sampling, industry and also other markets outside of Indonesia. A longitudinal model could also be used to ensure that business model innovations continue to have significant contribution to telecommunication firms.