The Concept of Dynamic Capability Theory and Islamic Values in Improving the Innovation Performance of Village-Owned Enterprises in Indonesia

Dynamic capabilities remain the focus of attention of many researchers due to their great impact on innovation performance. Although some previous studies have explored the factors that contribute to this, few have considered Islamic perspectives. Therefore, this paper presents a concept as a basis for improving organizational performance through Tawazun Response Capability (TRC). TRC represents the ability of human resources to adapt based on organizational capacity which is rooted in the idea of balancing worldly and hereafter needs, harmonizing goals and benefits, synchronizing the organization with its environment, and harmonizing spiritual and physical aspects. Increasing TRC has the potential to improve innovation performance. This research concept plays a very important role in increasing innovation in Village-Owned Enterprises (Indonesian: Badan Usaha Milik Desa [BUMDes]) which is an organization that has two goals, namely profit and social, so a balance is needed to improve organizational performance. This balance is a holistic balance in accordance with the characteristics of Indonesian society. This concept will be implemented in the province of Central Java, Indonesia, which has 7232 Bumdes entities.