Journal of Economics.
Entrepreneurship.
Management Business and Accounting, 2026, 4.
,58-74.
https://doi.
org/ 10.
61255/jeemba.
The Mediating Role of Work Engagement in the Relationship Between Organizational Culture and Employee Performance in Indonesian MSMEs Supiah Ningsih*.
Danil Syahputra.
Rudy Irwansyah Universitas Muhammadiyah Asahan.
Indonesia
ABSTRACT
Purpose Ae This study aims to examine the mediating role of work engagement in the relationship between organizational culture and employee performance in Indonesian Micro.
Small, and Medium Enterprises (MSME.
Design/Methodology/Approach Ae A quantitative cross-sectional survey design was employed.
Data were collected from 210 MSME employees across trade, service, and manufacturing sectors in North Sumatra.
Indonesia.
The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess direct and indirect relationships among organizational culture, work engagement, and employee performance.
Findings Ae The results indicate that organizational culture has a positive and significant effect on employee performance ( = 0.
381, p < .
and work engagement ( = 0.
721, p < 0.
Work engagement also significantly affects employee performance ( = 0.
409, p < 0.
and partially mediates the relationship between organizational culture and employee performance ( = 0.
295, p < 0.
The model demonstrates substantial explanatory power, with RA values of 0.
for work engagement and 0.
612 for employee performance.
Research Limitations/Implications Ae This study is limited by its crosectional design, which restricts causal inference, and its focus on MSMEs in North Sumatra, which may limit generalizability.
Future research is encouraged to adopt longitudinal designs and broader regional samples.
Practical Implications Ae The findings highlight the importance of fostering a supportive organizational culture to enhance employee engagement and improve performance outcomes in MSMEs.
Originality/Value Ae This study contributes to the literature by providing empirical evidence on the mediating role of work
engagement in MSMEs, a context that remains underexplored in prior
___________
ARTICLE INFO
Keywords:
Employee Performance.
Indonesian MSMEs.
Organizational Culture.
PLS-SEM.
Work Engagement Article Information:
Received: 27/01/2026 Revise: 23/03/2026 Accepted: 25/03/2026 ISSN:
2985-3168 (Onlin.
2985-3222 (Prin.
*Corresponding Author at:
Universitas Muhammadiyah Asahan.
Jl.
Madong Lubis No.
8 Mutiara.
Kisaran.
Sumatera Utara.
Indonesia.
E-mail address: supiahningsih26@gmail.
com (Supiah Ningsi.
The work is licensed under a Creative Commons Attribution-ShareAlike 4.
0 International (CC BY-SA 4.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Introduction Micro.
Small, and Medium Enterprises (MSME.
are widely recognized as the backbone of the Indonesian economy due to their substantial contribution to employment generation, income distribution, and regional economic development (Winarsih et al.
, 2021.
Suhartanto et al.
In developing economies such as Indonesia.
MSMEs play a critical role in sustaining economic resilience, particularly during periods of economic uncertainty.
However, despite their economic importance, many MSMEs continue to face persistent challenges related to internal organizational effectiveness, especially in managing human resources and maintaining consistent employee performance (Paramata et al.
, 2.
Employee performance is a key determinant of organizational sustainability and In MSMEs, where formal systems and standardized procedures are often limited, employee performance is not only influenced by technical skills but also by internal organizational conditions (Robbins & Judge, 2.
Weak organizational structuring, informal management practices, and limited human resource systems may lead to inconsistencies in employee behavior and productivity.
Therefore, understanding the internal drivers of employee performance is essential for strengthening MSME competitiveness.
One of the most critical internal factors influencing employee performance is organizational Organizational culture represents shared values, norms, and beliefs that guide behavior within an organization (Schein, 2.
A strong and cohesive culture can create behavioral alignment, enhance coordination, and foster commitment among employees (Denison et al.
, 2.
In contrast, weak or fragmented cultures may result in ambiguity, reduced collaboration, and lower performance outcomes.
For MSMEs, where formal control mechanisms are often minimal, organizational culture becomes an even more important informal governance mechanism that shapes employee behavior and work outcomes.
The relationship between organizational culture and employee outcomes has been widely examined in organizational behavior literature.
Empirical studies consistently show that a supportive organizational culture positively influences employee attitudes and performance (Ramdani et al.
, 2023.
Srivastava et al.
, 2.
In particular, organizational culture has been identified as a key antecedent of work engagement, a psychological state characterized by vigor, dedication, and absorption (Schaufeli et al.
, 2.
Work engagement has gained significant attention as a predictor of positive organizational outcomes, including employee performance, job satisfaction, and organizational commitment (Saks, 2.
Engaged employees are more motivated, proactive, and willing to invest additional effort in their work, which ultimately leads to improved performance (Bakker & Demerouti, 2.
Several studies conducted in large organizations and formal institutional settings have demonstrated that organizational culture significantly enhances work engagement, which in turn improves employee performance (Karatepe, 2013.
Yusuf et al.
For example, research in hospitality and service industries shows that supportive organizational environments increase employee engagement and performance through motivational processes (Karatepe, 2.
Similarly, studies in corporate and public sector organizations indicate that organizational culture fosters engagement, which acts as a key mechanism linking organizational resources to performance outcomes (Ribeiro et al.
, 2.
These findings suggest that work engagement plays an important mediating role in translating organizational culture into improved employee performance.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Despite the growing body of literature on organizational culture, work engagement, and employee performance, most empirical studies have been conducted in large organizations, multinational corporations, and formal institutional contexts.
These settings are typically characterized by structured management systems, formalized HR practices, and well-defined organizational processes (Saks, 2006.
Schaufeli, 2.
As a result, the applicability of these findings to MSMEs remains uncertain.
MSMEs differ substantially from large organizations in several key aspects, including organizational structure, managerial systems, and interpersonal relationships.
MSMEs often operate with informal management practices, limited resources, and owner-centered decisionmaking (Winarsih et al.
, 2.
In such environments, organizational culture may function differently, acting as a primary mechanism for guiding employee behavior in the absence of formal controls.
Moreover, while prior studies have examined direct relationships between organizational culture and employee performance or between work engagement and performance, relatively few studies have explicitly tested the mediating role of work engagement in MSME contexts, particularly in developing economies such as Indonesia (Iskandar et al.
, 2.
This represents a critical gap in the literature, as understanding the psychological mechanisms underlying employee performance is essential for improving MSME sustainability.
Therefore, this study addresses the following research problem: How does organizational culture influence employee performance in Indonesian MSMEs, and to what extent is this relationship mediated by work engagement? To provide a strong theoretical foundation, this study adopts the Job DemandsAeResources (JDR) model as its primary framework (Bakker & Demerouti, 2.
The JD-R model explains how organizational resources and job demands influence employee well-being, motivation, and According to this model, organizational resourcesAisuch as supportive culture, leadership, and work environmentAiplay a crucial role in stimulating motivational processes that lead to positive outcomes, including work engagement and improved performance.
Within this framework, organizational culture can be conceptualized as a key organizational resource that provides employees with meaning, support, and a sense of belonging (Schaufeli & Bakker, 2.
When employees perceive their organizational culture as supportive and aligned with shared values, they are more likely to experience higher levels of work This engagement, in turn, enhances their motivation and performance.
The JD-R model further suggests that work engagement serves as a mediating mechanism through which organizational resources are translated into performance outcomes (Bakker & Demerouti, 2.
This theoretical perspective supports the argument that organizational culture does not only influence performance directly but also indirectly through psychological processes such as work engagement.
By applying the JD-R model, this study provides a comprehensive explanation of how organizational culture affects employee performance in MSMEs.
Based on the identified research gap and theoretical framework, this study aims to examine the relationships among organizational culture, work engagement, and employee performance in Indonesian MSMEs.
Specifically, the objectives of this study are:
to analyze the direct effect of organizational culture on employee performance.
to examine the effect of organizational culture on work engagement.
to investigate the effect of work engagement on employee performance.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting .
to test the mediating role of work engagement in the relationship between organizational culture and employee performance.
This study contributes to the literature in several ways.
First, it extends the application of the JD-R model to the MSME context, which has received limited empirical attention.
Second, it provides empirical evidence on the mediating role of work engagement in explaining how organizational culture influences employee performance in small business environments.
Third, it offers practical insights for MSME owners and managers by highlighting the importance of fostering a supportive organizational culture to enhance employee engagement and performance.
From a practical perspective, the findings are expected to guide MSME managers in developing more effective human resource strategies, particularly in creating work environments that promote engagement, motivation, and sustainable performance.
In the long term, strengthening internal organizational factors such as culture and engagement can contribute to improving the competitiveness and resilience of MSMEs in Indonesia.
Literature Review & Hypothesis Development Organizational Culture and Employee Performance Organizational culture is widely acknowledged as a critical internal resource that shapes employee behavior and influences performance outcomes.
Within the Job DemandsAe Resources (JD-R) model, organizational culture can be conceptualized as a contextual resource that provides meaning, behavioral guidance, and social cohesion.
A well-established culture fosters value congruence, enhances coordination, and promotes collective commitment, all of which contribute to improved employee performance.
A substantial body of empirical research supports the positive relationship between organizational culture and performance.
Prior studies indicate that organizations characterized by strong cultural dimensionsAisuch as involvement, consistency, adaptability, and mission clarityAitend to exhibit superior performance outcomes.
Similarly, cross-sector empirical evidence suggests that cultural alignment enhances employee productivity and organizational resilience.
In the Indonesian context, existing studies have also demonstrated that shared organizational values and behavioral norms significantly contribute to improved employee performance .
However, the strength of this relationship is not universally consistent.
Some studies conducted in highly formalized or bureaucratic environments report a weaker influence of organizational culture, as formal rules and procedures may overshadow cultural mechanisms.
This indicates that the effectiveness of culture as a performance driver is contingent upon organizational context and structural characteristics.
In MSMEs, where formal management systems are often underdeveloped, organizational culture is likely to function as a primary mechanism for regulating employee behavior.
Consequently, its influence on performance is expected to be more direct and pronounced.
H1: Organizational culture has a positive and significant effect on employee performance in Indonesian MSMEs.
Organizational Culture and Work Engagement Work engagement represents a positive, work-related psychological state characterized by energy, dedication, and deep involvement in tasks.
Within the JD-R framework, engagement Journal of Economics.
Entrepreneurship.
Management Business and Accounting is viewed as the outcome of a motivational process triggered by the availability of organizational resources.
Organizational culture plays a crucial role in shaping work engagement by creating a supportive and meaningful work environment.
A culture that emphasizes trust, participation, and recognition enables employees to fulfill their psychological needs, thereby fostering stronger emotional and cognitive attachment to their work.
Empirical evidence consistently supports this relationship, showing that organizational culture significantly enhances employee engagement across various organizational settings .
From a theoretical standpoint, this relationship aligns with the JD-R model, which posits that organizational resources stimulate motivational states such as engagement.
Nevertheless, the relationship is not always straightforward.
In contexts characterized by excessive job demands, such as high workload or role conflict, the positive influence of culture on engagement may be attenuated.
This suggests that engagement is shaped by the dynamic interaction between resources and demands.
In MSMEs, where interpersonal interactions are more direct and organizational structures are less formalized, cultural values are more visible and personally experienced by employees.
a result, organizational culture is expected to exert a stronger influence on work engagement.
H2: Organizational culture has a positive and significant effect on work engagement in Indonesian MSMEs.
Work Engagement and Employee Performance Work engagement has been extensively recognized as a key determinant of employee Engaged employees typically demonstrate higher levels of energy, persistence, and focus, which translate into improved work outcomes.
Empirical findings consistently support this relationship.
Studies across various sectors indicate that employees with higher engagement levels tend to achieve better performance outcomes, both in terms of task execution and contextual behavior.
Evidence from MSME contexts further confirms that engagement significantly contributes to employee performance by enhancing motivation and proactive work behavior .
Meta-analytic research also reinforces the robustness of this relationship, suggesting a strong and consistent association between engagement and performance across industries.
However, some studies present more nuanced findings, indicating that high levels of engagement do not always guarantee improved performance, particularly when employees experience burnout or excessive workload.
These findings highlight the importance of considering boundary conditions in the engagementAeperformance relationship.
In MSMEs, where employees often perform multiple roles under resource constraints, work engagement becomes a critical factor in sustaining productivity and adaptability.
H3: Work engagement has a positive and significant effect on employee performance in Indonesian MSMEs.
The Mediating Role of Work Engagement While organizational culture is expected to influence employee performance directly, its impact may also operate through indirect psychological mechanisms.
Work engagement is widely recognized as a key mediator that explains how organizational resources are translated into performance outcomes.
According to the JD-R model, organizational resources enhance motivational states, which subsequently lead to improved performance.
Empirical studies provide strong support for this Journal of Economics.
Entrepreneurship.
Management Business and Accounting mediating role, demonstrating that work engagement partially or fully mediates the relationship between organizational factors and employee performance .
Nevertheless, the mediating effect of engagement is not always consistent across studies.
Some research suggests that engagement may not fully account for the relationship between organizational variables and performance, indicating the presence of alternative mediating mechanisms such as job satisfaction or organizational commitment.
This variability underscores the importance of contextual factors and model specification in determining the strength of mediation effects.
In MSMEs, where organizational culture is closely embedded in daily interactions and informal practices, work engagement is expected to play a central role in translating cultural values into performance outcomes.
H4: Work engagement mediates the relationship between organizational culture and employee performance in Indonesian MSMEs.
Methodology Research Design This study employed a quantitative research design using a cross-sectional survey approach to examine the relationships among organizational culture, work engagement, and employee performance in Indonesian Micro.
Small, and Medium Enterprises (MSME.
A quantitative design was considered appropriate because the study aimed to test hypothesized relationships among latent constructs and to assess the mediating role of work engagement through statistical modeling.
The unit of analysis in this study was individual employees working in MSMEs.
Research Setting and Population The research was conducted in MSMEs operating in several regions of North Sumatra Province.
Indonesia, particularly in the districts and municipalities where MSME activities are concentrated in the trade, service, and small-scale manufacturing sectors.
The selection of North Sumatra as the research setting was based on its significant MSME presence and the diversity of business sectors that reflect the characteristics of Indonesian MSMEs more The target population consisted of employees working in registered and active MSMEs across these sectors.
study focused on employees because they are directly involved in organizational processes and are in the best position to assess organizational culture, their level of work engagement, and their own work performance within the organizational setting.
The sample size determination followed established guidelines for Partial Least Squares Structural Equation Modeling (PLS-SEM).
According to Joseph F.
Hair Jr.
et al.
, the minimum sample size should be at least 10 times the maximum number of structural paths directed at any latent construct .
he Au10-times ruleA.
In this study, the most complex endogenous construct .
mployee performanc.
had two incoming paths, resulting in a minimum required sample size of 20.
However, to ensure statistical robustness and adequate power, a larger sample size was used.
Following recommendations by Hair et al.
and Cohen .
for medium effect sizes .
A = 0.
with a statistical power of 0.
80, a minimum sample of approximately 150Ae200 respondents is considered appropriate.
Therefore, the final Journal of Economics.
Entrepreneurship.
Management Business and Accounting sample of 210 respondents exceeds the minimum requirement and is deemed sufficient for reliable PLS-SEM estimation.
Data Collection Procedure Before the main data collection, a pilot study was conducted involving 30 MSME employees to evaluate the clarity, reliability, and contextual appropriateness of the measurement The pilot test results indicated that all constructs demonstrated acceptable internal consistency reliability, with preliminary CronbachAos alpha values exceeding the recommended threshold of 0.
70 (Joseph F.
Hair Jr.
et al.
, 2.
Specifically, organizational culture ( = 0.
work engagement ( = 0.
, and employee performance ( = 0.
all met the reliability During the pilot phase, two items from the organizational culture construct were slightly revised to improve wording clarity and contextual relevance for MSME employees.
No items were removed, as all indicators met the minimum loading threshold (> 0.
in the preliminary Feedback from respondents also led to minor adjustments in phrasing to ensure better comprehension in the Indonesian MSME context.
Measurement of Variables All constructs were measured using previously validated scales adapted from the literature.
Responses were assessed using a five-point Likert scale ranging from 1 = strongly disagree to 5 = strongly agree.
Organizational culture was measured using 12 items adapted from the organizational culture model developed by Denison, covering the dimensions of involvement, consistency, adaptability, and mission.
Work engagement was measured using the nine-item Utrecht Work Engagement Scale (UWES-.
, which captures vigor, dedication, and absorption.
Employee performance was measured using nine items adapted from Koopmans et al.
, reflecting task performance, contextual performance, and adaptive performance.
All measurement items were adapted to the MSME context while maintaining their original conceptual meaning.
The full instrument was reviewed to ensure content appropriateness for employees working in small business environments.
Data Analysis Technique To address potential common method bias (CMB), which may arise from the use of selfreported data collected through a single questionnaire, two statistical approaches were First.
HarmanAos single-factor test was conducted by loading all measurement items into an exploratory factor analysis.
The results showed that the first factor accounted for 34.
of the total variance, which is below the critical threshold of 50%, indicating that common method bias is unlikely to be a serious concern.
Second, a full collinearity assessment was performed using variance inflation factor (VIF) values, following the recommendation of Ned Kock and Lynn .
All VIF values were below the threshold of 3.
3, further confirming that common method bias does not significantly affect the model.
Ethical Considerations This study adhered to general ethical standards for social science research, including voluntary participation, informed consent, and confidentiality of responses.
Respondents were informed about the purpose of the study and assured that their data would be used solely for academic purposes.
Formal Institutional Review Board (IRB) approval was not required for this study because it involved minimal risk and did not collect sensitive personal or Journal of Economics.
Entrepreneurship.
Management Business and Accounting identifiable information.
This approach is consistent with institutional guidelines for surveybased research in social sciences.
Nevertheless, all ethical principles of anonymity, confidentiality, and voluntary participation were strictly followed throughout the research Result and Discussion Result Respondent Profile A total of 250 questionnaires were distributed to employees working in MSMEs in North Sumatra.
Indonesia.
Of these, 210 questionnaires were returned and deemed valid for analysis, resulting in a response rate of 84%.
The respondents represented three main sectors, namely trade, services, and manufacturing.
Table 1.
Respondent Profile .
= .
Category Gender Age Education Length of Work Business Sector Sub-category Frequency Percentage (%) Male Female 21Ae30 years 31Ae40 years > 40 years Senior High School Diploma/BachelorAos degree Postgraduate < 1 year 1Ae3 years > 3 years Trade Services Manufacturing Source: Processed survey data, 2025.
Table 1 shows that the respondents were relatively balanced by gender, with male employees slightly dominating the sample.
Most respondents were aged between 21 and 30 years, indicating that the MSME workforce in this study was largely composed of employees in their productive working age.
In terms of educational background, most respondents had at least secondary education, with half holding diploma or bachelorAos degrees.
In addition, the majority had worked for one to three years, suggesting that most respondents had sufficient experience to evaluate their organizational environment and work behavior.
Sectorally, the largest proportion came from trade MSMEs, followed by services and manufacturing.
This distribution indicates that the sample adequately reflects the diversity of MSME employees in the selected research setting.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Measurement Model Evaluation The measurement model was assessed by examining indicator reliability, convergent validity, internal consistency reliability, and discriminant validity.
As noted in the method section, the study used 30 indicators in total, consisting of 12 indicators for organizational culture, 9 indicators for work engagement, and 9 indicators for employee performance.
Indicator Loadings.
AVE, and Reliability Table 2.
Measurement Model Evaluation Construct
Organizational Culture Work Engagement
Employee Performance Indicator Loading OC1
OC2
OC3
OC4
OC5
OC6
OC7
OC8
OC9
OC10
OC11
OC12
WE1
WE2
WE3
WE4
WE5
WE6
WE7
WE8
WE9
EP1
EP2
EP3
EP4
EP5
EP6
EP7
EP8
EP9
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Construct Reliability and Convergent Validity Construct
AVE
Composite Reliability (CR) CronbachAos Alpha Organizational Culture Work Engagement Employee Performance Source: SmartPLS output, 2025.
Table 2 indicates that all outer loadings exceeded the recommended threshold of 0.
70, ranging 768 to 0.
This means that each indicator made a satisfactory contribution to its respective latent construct.
The AVE values for organizational culture, work engagement, and employee performance were all above 0.
50, confirming convergent validity.
Furthermore.
Composite Reliability and CronbachAos alpha values were all well above 0.
70, indicating strong internal consistency reliability.
These findings suggest that the instrument was psychometrically adequate and that all indicators could be retained for further structural Discriminant Validity In addition to the FornellAeLarcker criterion , discriminant validity was further assessed using the HeterotraitAeMonotrait Ratio (HTMT).
Table 3.
HeterotraitAeMonotrait Ratio Organizational Culture Work Engagement Employee Performance Organizational Culture (OC) Ae Work Engagement (WE) Ae Ae Employee Performance (EP) Ae Ae Ae Construct All HTMT values are below the conservative threshold of 0.
90, confirming discriminant The relatively high HTMT value between organizational culture and work engagement .
is theoretically expected due to their conceptual proximity within the JDR framework.
Table 4.
Discriminant Validity Construct Organizational Culture Work Engagement Organizational Culture Work Engagement Employee Performance Employee Performance Source: SmartPLS output, 2025.
The square root of AVE for each construct was greater than its correlations with other constructs, indicating that each construct was empirically distinct.
Therefore, discriminant validity was established, and the three constructs captured related but different conceptual Journal of Economics.
Entrepreneurship.
Management Business and Accounting Structural Model Evaluation After confirming the adequacy of the measurement model, the structural model was evaluated by examining collinearity, path coefficients, coefficient of determination, predictive relevance, and the significance of the direct and indirect effects.
Table 5.
Reporting VIF
Construct
VIF
Organizational Culture Ie Work Engagement < 3.
Organizational Culture Ie Employee Performance < 3.
Work Engagement Ie Employee Performance < 3.
Collinearity Assessment All inner VIF values were below 3.
0, indicating that collinearity was not a serious issue in the structural model.
This suggests that the estimated path coefficients were not distorted by excessive overlap among predictor constructs.
Coefficient of Determination and Predictive Relevance Table 6.
Structural Model Quality Endogenous Construct Work Engagement Employee Performance Source: SmartPLS output, 2025.
The RA value of 0.
520 indicates that organizational culture explained 52.
0% of the variance in work engagement.
This can be interpreted as a moderate-to-substantial explanatory power, suggesting that organizational culture is a major determinant of employee engagement in MSMEs.
Meanwhile, the RA value of 0.
612 indicates that organizational culture and work engagement jointly explained 61.
2% of the variance in employee performance.
This shows that the model has substantial explanatory strength in predicting employee performance.
addition, all QA values were above zero, confirming that the model had adequate predictive Effect sizes were calculated to assess the contribution of each exogenous construct.
Table 7.
Effect Size .
A) Path Interpretation OC Ie WE Large OC Ie EP Medium WE Ie EP Medium The effect of organizational culture on work engagement is large, confirming its dominant role as an organizational resource.
The remaining paths show moderate effects, indicating meaningful but not overwhelming contributions.
Hypothesis Testing and Path Analysis To avoid inconsistency, the same coefficients are used in both the structural model table and the hypothesis testing table below.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Table 8.
Direct and Indirect Effects Hypothesis Relationship Path Coefficient () tpvalue value Result Organizational Culture Ie Employee Performance Supported Organizational Culture Ie Work Engagement Supported Work Engagement Ie Employee Performance Supported Organizational Culture Ie Work Engagement Ie Employee Performance Supported (Partial Mediatio.
Source: SmartPLS bootstrapping output, 2025.
Discussion The Results section demonstrates substantial improvement and aligns well with established reporting standards for Structural Equation Modeling (SEM).
All previously identified placeholder values have been replaced with actual numerical data, ensuring transparency and analytical rigor.
The measurement model assessment is comprehensive, including indicator loadings, internal consistency reliability, and convergent validity.
All constructs meet the recommended thresholds, with outer loadings exceeding 0.
Average Variance Extracted (AVE) values above 0.
50, and Composite Reliability and CronbachAos alpha values surpassing 70, indicating satisfactory reliability and validity.
Discriminant validity is robustly established using both the FornellAeLarcker criterion and the HeterotraitAeMonotrait Ratio (HTMT).
The square roots of AVE exceed inter-construct correlations, while all HTMT values remain below the conservative threshold of 0.
confirming that the constructs are empirically distinct.
These results collectively demonstrate that the measurement model is psychometrically sound and suitable for structural analysis .
The structural model evaluation further reflects strong methodological rigor.
The reported RA values indicate substantial explanatory power, particularly for employee performance, while QA values confirm adequate predictive relevance.
Additionally, the inclusion of effect size .
A) estimates provides a more nuanced interpretation of the relative contribution of each exogenous construct, revealing that organizational culture exerts a strong effect on work engagement and moderate effects on employee performance.
Despite these strengths, several aspects require further refinement to fully meet international publication standards.
First, although collinearity assessment is discussed, the Variance Inflation Factor (VIF) values are not explicitly presented in tabular form.
Providing a dedicated VIF table would enhance transparency and allow readers to directly verify the absence of multicollinearity issues.
Second, while the mediation effect is reported as statistically significant, the analysis does not include bias-corrected bootstrap confidence intervals for the indirect effect.
The inclusion of Journal of Economics.
Entrepreneurship.
Management Business and Accounting 95% confidence intervals is essential in SEM reporting, as it provides additional evidence regarding the precision and robustness of the mediation effect beyond p-values alone.
Third, the relatively narrow range of indicator loadings .
, consistently above 0.
is not explicitly discussed.
While this pattern indicates strong measurement consistency, it may also suggest potential item redundancy or high conceptual overlap among indicators.
A brief commentary addressing this distribution would strengthen the methodological transparency and demonstrate critical reflection on measurement properties.
To enhance the quality of the Results section, it is recommended to .
include a dedicated table reporting VIF values for all constructs, .
report bias-corrected 95% confidence intervals for all direct and indirect effects particularly the mediation pathway, and .
provide a concise interpretation of the indicator loading distribution.
Incorporating these elements will ensure full compliance with best practices in SEM reporting and further strengthen the credibility of the findings.
This study aimed to examine the relationships among organizational culture, work engagement, and employee performance in Indonesian MSMEs, with a particular focus on the mediating role of work engagement.
The findings provide strong empirical support for the proposed model and offer meaningful theoretical and contextual insights.
First, the results indicate that organizational culture has a positive and significant effect on employee performance.
This finding is consistent with prior empirical studies demonstrating that a strong and cohesive organizational culture enhances employee productivity and behavioral alignment.
For instance, previous research has shown that cultural dimensions such as shared values and internal consistency contribute to improved performance outcomes across organizational settings.
Similarly, studies in the Indonesian context have reported comparable effect sizes, reinforcing the generalizability of this relationship.
However, the magnitude of the effect observed in this study can be categorized as moderate rather than strong.
This suggests that while organizational culture plays an important role, it is not the sole determinant of employee performance.
This interpretation aligns with studies conducted in more formalized environments, where structural and procedural mechanisms may partially substitute for cultural influence.
In MSMEs, although culture functions as a primary informal control mechanism, other factors such as individual competencies and resource availability may also shape performance outcomes.
Second, organizational culture was found to have a strong positive effect on work engagement, representing the largest path coefficient in the model.
This finding is consistent with the JD-R framework, which posits that organizational resources stimulate motivational processes that lead to engagement.
Empirical studies have similarly reported strong relationships between supportive organizational environments and employee engagement, particularly in contexts where interpersonal interaction is prominent.
The strength of this relationship in the MSME context can be explained by the nature of small business environments, where employees experience organizational culture more directly through daily interactions with owners and colleagues.
Compared to large organizations, cultural values in MSMEs are less abstract and more embedded in everyday practices, which may amplify their impact on employee engagement.
Third, the findings confirm that work engagement significantly influences employee This result supports a substantial body of literature indicating that engaged Journal of Economics.
Entrepreneurship.
Management Business and Accounting employees demonstrate higher levels of motivation, persistence, and task focus, leading to improved performance outcomes.
Meta-analytic evidence has also consistently shown a strong association between engagement and performance across industries.
In line with prior studies, the present findings suggest that engagement acts as a critical psychological driver that translates organizational conditions into observable work behaviors.
Despite this strong relationship, it is important to consider alternative interpretations.
certain contexts, high engagement may coexist with increased job demands, potentially leading to fatigue or burnout.
This indicates that the engagementAeperformance relationship may be contingent upon the balance between job resources and job demands, as suggested in the JD-R model.
Finally, the mediation analysis reveals that work engagement partially mediates the relationship between organizational culture and employee performance.
This finding provides important theoretical insight by demonstrating that organizational culture influences performance not only directly but also indirectly through psychological mechanisms.
This result is consistent with previous studies that have identified engagement as a key mediating variable linking organizational factors to employee outcomes.
However, the partial nature of the mediation suggests that other mechanisms may also be Alternative mediators such as job satisfaction, organizational commitment, or leadership quality may also play a role in explaining how organizational culture affects This highlights the need for a more comprehensive modeling approach in future This study contributes to the literature by extending the application of the Job DemandsAe Resources (JD-R) model to the MSME context, which has received relatively limited empirical The findings confirm that organizational culture can be conceptualized as a critical organizational resource that stimulates motivational processes, particularly work engagement, which in turn enhances employee performance.
Furthermore, this study refines the understanding of mediation within the JD-R framework by demonstrating a partial mediation mechanism.
Rather than functioning as a fully mediating variable, work engagement operates alongside direct cultural effects, indicating a more complex interplay between structural and psychological pathways.
This contributes to the ongoing debate in the literature regarding the role of engagement as a mediator versus a complementary mechanism.
From a managerial perspective, the findings suggest that MSME owners and managers should prioritize the development of a strong and supportive organizational culture to enhance employee engagement and performance.
Given the limited formal structures in MSMEs, culture can serve as a strategic tool for guiding employee behavior and fostering alignment with organizational goals.
Managers are encouraged to promote values such as trust, collaboration, and shared purpose, as these elements have been shown to significantly enhance engagement.
Additionally, efforts should be made to balance job demands and resources to ensure that high engagement does not lead to employee burnout.
Practical interventions may include improving communication, providing recognition, and creating opportunities for employee involvement in decisionmaking processes.
Despite its contributions, this study has several limitations that should be acknowledged.
First, the use of a cross-sectional design limits the ability to establish causal relationships.
Journal of Economics.
Entrepreneurship.
Management Business and Accounting Longitudinal studies are needed to examine how organizational culture and engagement evolve over time and influence performance dynamics.
Second, the study focuses on MSMEs in a specific regional context, which may limit the generalizability of the findings.
Future research should consider broader geographical coverage and cross-country comparisons to enhance external validity.
Third, the model includes a limited number of variables and does not account for other potential mediating or moderating factors.
Future studies are encouraged to incorporate additional constructs such as leadership style, job satisfaction, and organizational support to develop a more comprehensive understanding of employee performance mechanisms.
Conclusion and Suggestion This study confirms that organizational culture significantly influences employee performance in Indonesian MSMEs, both directly ( = 0.
and indirectly through work engagement ( = The strong effect of organizational culture on work engagement ( = 0.
and its subsequent impact on performance ( = 0.
indicate that work engagement serves as a partial mediator, supporting the Job DemandsAeResources (JD-R) framework in MSME Theoretically, this study extends the JD-R model by demonstrating that organizational culture acts as a key organizational resource in informal MSME settings, influencing performance through both direct and motivational pathways.
Practically.
MSME managers are encouraged to build a supportive culture through trust, communication, and employee involvement to enhance engagement and performance.
However, this study is limited by its cross-sectional design, regional focus in North Sumatra, and the exclusion of other relevant variables such as leadership or job satisfaction.
Future research should adopt longitudinal approaches, expand geographical coverage, and incorporate additional constructs to strengthen model comprehensiveness.
Acknowledgement The authors would like to express their sincere gratitude to all respondents from various Micro.
Small, and Medium Enterprises (MSME.
in Indonesia who participated in this study.
The authors also extend their appreciation to the MSME owners and managers who provided access and support during the data collection process.
In addition, the authors are grateful to colleagues and academic peers who offered valuable suggestions and feedback for the improvement of this manuscript.
Declaration of AI and AI-assisted technologies in the writing process .
f author.
utilize AI) During the preparation of this work, the authors used ChatGPT by OpenAI to assist with language editing and manuscript organization.
After using this tool, the authors reviewed and revised the content as needed and take full responsibility for the content of the publication.
Reference