The Innovation Paradox: When Service Innovation Improves Performance Without Building Human Capital Readiness

This study examines whether service innovation strengthens organizational performance directly and indirectly through Human Capital Readiness. It focuses on a theoretically important asymmetry: innovation may improve current organizational outcomes without becoming embedded in the human capabilities required to reproduce those outcomes over time. The study uses final survey data from 204 commanders of Indonesian Military District Commands representing 21 Regional Military Commands. The empirical setting is Military District Commands’ involvement in Indonesia’s national food-security program. The proposed relationships were estimated using partial least squares structural equation modeling with SmartPLS. Service innovation has a positive and significant direct effect on Military District Commands performance (β = 0.270; t = 4.300; p < 0.001), but it does not have a significant effect on Human Capital Readiness (β = 0.106; t = 1.466; p = 0.143). Human Capital Readiness strongly predicts performance (β = 0.483; t = 6.592; p < 0.001), whereas the indirect path from service innovation to Human Capital Readiness to performance is not significant (β = 0.051; t = 1.331; p = 0.183). The study distinguishes between performance-generating innovation and capability-embedding innovation. It shows that innovation can generate immediate organizational benefits without automatically creating durable, human-capital-based capability. This distinction extends resource-based and human-capital reasoning in a leader-intensive public organization with recurring leadership rotation. Managers should evaluate innovation not only by short-term outputs but also by the extent to which organizational members codify, transfer, train, standardize, and reproduce new practices.