Abstract

Classical Organizational Theory explains that learning organizations are accumulated experiences and routinely develop and

transfer knowledge to its members. Furthermore, various researches explain that the organizational theory is not enough if it only

develop the tacit knowledge that is possessed, so it requires deliberate learning efforts that come from direct or indirect learning

so that it becomes a knowledgeable organization. This knowledge can be from a variety of experiences, derived from failures or

sources of knowledge that rarely become the attention of the organization.

The success of an organization can create a dominant position in the various competitive situations that is faced. Goal

Setting Theory based on Islamic values includes Stakeholder welfare, working hard, lawful and not exploiting human resources

with Knowledge Management Quality mediation will produce good Innovation Capabilities. The empirical model that is built is

organizational excellence in determining goals based on challenging Islamic values will have an effect in increasing the dominant

position and creating knowledge quality which ultimately can improve innovation capabilities.

Small and Medium Industries that is owned by Muslims in Java will be the object of this research. Research with SEM

techniques will answer the various hypotheses proposed to enrich existing theories, especially regarding the strengthening of

Islamic values and knowledge management.

Keywords: Knowledge Organization, Goal setting based Islamic Value, Quality Knowledge Management, Innovation

Capabilities, and Central Gravity Dominant Logic.