The performance of the state-owned enterprises (SOB) in Indonesia seen from the total assets, income, and net income for the period of 2012 to 2016, is still not optimal. Such conditions are related to the formulation of business strategy that are based on capability and leadership style. So this study aims to examine the effect of leadership style and capability on business strategy. This study uses quantitative methods with verification analysis. The umt of analysis is SOEs in Indonesia with the observation umt is the management of the company. Data and information are collected in a cross section / one shoot time horizon. The design of the analysis used to test hypotheses is Partial Least Square (PLS). The resuhs of the study show that leadership style and capability play a role in the formulation of business strategy. Capability has a greater role than leadership style in the formulation of the right business strategy. This resuhs have implications for SOE's management that the formulation of the right strategy is built by superior capabilities and driven by appropriate leadership styles
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