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How knowledge management is

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How knowledge management is

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Mehdi Mahmoudsalehi and Roya Moradkhannejad

Saipa Corporation, Tehran, Iran, and

Khalil Safari
Industrial Management Department, Payame Noor University, Tehran, Iran
Abstract
Purpose Identifying the impact of organizational structure on knowledge management (KM) is the
aim of this study, as well as recognizing the importance of each variable indicator in creating, sharing
and utility of knowledge.
Design/methodology/approach For understanding relationships between the main variables
(organizational structure-KM), the authors used statistical analysis and a structural model. A
questionnaire was designed based on a literature review. The correlation between variables was
examined, then the effects of independent variables on dependent variable were recognized, and finally
a structural equation approach was used to perform path analysis, and to examine the effect of
exogenous variables on endogenous variables.
Findings The results suggest that organizational structure is positively related to knowledge
management. The findings extend theoretical implications for organizational factor effects on knowledge
management. In general, if the characteristics of organizational structure were less centralized, less
formalized, more complicated and more integrated, the levels of KM would be enhanced.
Research limitations/implications A couple of limitations of this study should be noted. The
first limitation is the sample size used. There was also inadequate access to scientific research and up
to date papers.
Originality/value The paper presents a clear relationship between organizational structure and
knowledge management.
Keywords Knowledge management, Organizational structures, Knowledge creation, Organizations
Paper type Research paper

The Learning Organization

Vol. 19 No. 6, 2012
pp. 518-528
q Emerald Group Publishing Limited
0969-6474
DOI 10.1108/09696471211266974

Introduction
APQC[1] defines knowledge management (KM) as an emerging set of strategies and
approaches to create, safeguard, and use knowledge assets (including people and
information), which allows knowledge to flow to the right people at the right time so
they can apply these assets to create more value for the enterprise. The success of a KM
initiative depends on many factors, some within our control, some not. Typically,
critical success factors can be categorized into five primary categories:
Leadership: Leadership plays a key role in ensuring success in almost any initiative
within an organization. Its impact on KM is even more pronounced because this is a
relatively new discipline.
Culture: Culture is the combination of shared history, expectations, unwritten rules,
and social customs that compel behaviors. It is the set of underlying beliefs that, while
rarely exactly articulated, are always there to influence the perception of actions and
communications of all employees.

Structure: Although there are many ways that organizational structure the
governance of their KM initiatives, APQC has found common elements among
best-practice partner organizations: a steering committee, a central KM support group,
and stewards/owners throughout the organization who are responsible for KM. It is a
combination of a centralized and decentralized approach.
Information technology infrastructure: Without a solid IT infrastructure, an
organization cannot enable its employees to share information on a large scale. Yet the
trap that most organizations fall into is not a lack of IT, but rather too much focus on
IT. A KM initiative is not a software application; having a platform to share
information and to communicate is only part of a KM initiative (Koenig and
Srikantaiah, 2007).
Identifying the impact of organizational structure to KM is the aim of this study. For
much understanding relationships between the main variables (organizational
structure-KM), we use statistical analysis and structural model. A questionnaire that
based this research has been designed on literature review. At first the correlation
between variables has been examined, then the effects of independent variables on
dependent variable have been recognized, finally we use structural equation approach
to perform path analysis, and examine the effect of exogenous variables on endogenous
variables. Recognizing the importance of each variable indicator in creating, sharing
and utility knowledge is another goal of this study.
Knowledge management
McKeen et al. (2006), define KM practices as observable organizational activities that
are related to KM. They identified four key dimensions of KM practice: the ability to
locate and share existing knowledge; the ability to experiment and create new
knowledge; a culture that encourages knowledge creation and sharing; and a regard for
the strategic value of knowledge and learning (McKeen et al., 2006).
KM encompasses the managerial efforts in facilitating activities of acquiring,
creating, storing, sharing, diffusing, developing, and deploying knowledge by
individuals and groups (Zheng et al., 2010). Many frameworks for KM processes have
been identified. This study examines three processes that have received the most
consensuses: knowledge generation, sharing, and utilization (Zheng et al., 2010).
Knowledge generation refers to the process in which knowledge is acquired by an
organization from outside sources and those created from within (Davenport and
Prusak, 1998).
Knowledge resources are an outcome of organizational culture, structure, and
strategy, because knowledge is created, made sense of, and utilized in accordance with
a set of cultural values and norms, embedded in structural relationships, and reflected
in strategic priorities. For example, knowledge sharing practices are affected by
cultural expectations such as what knowledge should be shared with the organization
and what should be hoarded by individuals, by structural relationships such as how
quickly the knowledge flows through formal reporting relationships, and by strategic
priorities such as what knowledge is to be paid attention to and what to be ignored. In
turn, organizational knowledge reflective of cultural, structural, and strategic
characteristics of the organization is utilized to help produce new products and
services, improve efficiency, and enhance effectiveness. Grant (1996) suggests that the
challenge of the knowledge-based view of the organization is effective coordination
among organizational members as their knowledge is specialized and needs to be

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Table I.
The KM component

integrated. The division of tasks between individuals and departments and the
specification of the interface between them lie within the domain of organizational
design (Grant, 1996).
The KM capability of a firm refers to the degree to which the firm creates, shares,
and utilizes knowledge resources across functional boundaries. This definition focuses
on the firms KM activities at the organization level rather than at the department,
team, or individual levels because the purpose of this study is to understand how the
firm adds value to its departments. This study examines firms KM capability in terms
of their emphasis on three KM activities: knowledge creation, sharing, and utilization
(Liao et al., 2011).
Knowledge creation refers to the degree to which the firm develops or creates
knowledge resources across functional boundaries. The creation of knowledge resources
does not occur in abstraction from the current knowledge and capability of the firm (Alavi
and Leidner, 2001) since knowledge is path dependent (Cohen and Levinthal, 1990). The
creation of knowledge across functional boundaries requires the capability to generate
new applications from existing knowledge and to exploit the unexplored potential of new
skills (Liao et al., 2011). Nonakas (1994) dynamic theory of organizational knowledge
creation provides a theoretical backdrop on which to conceptualize the knowledge
creation process. Knowledge sharing refers to the degree to which the firm shares
knowledge resources across functional boundaries. The ability of sharing and
distributing knowledge resources across functional boundaries enables the firm to
fundamentally change its business processes. The sharing of knowledge resources not
only facilitates cross-functional interaction but also allows the sharing of knowledge
repositories among process participants, thereby allowing greater collaboration and
understanding of the entire process rather than having fragmented parts of the process.
Knowledge utilization refers to the degree to which the firm applies the knowledge
resources that are shared across functional boundaries. It allows the firm to reap returns
on its knowledge resource. A firm may have capabilities in creating, sharing, and utilizing
knowledge resources, but these capabilities are irrelevant if the firm cannot ultimately
utilize the knowledge resources efficiently. The capability to utilize a related knowledge
base in decision making and problem solving allows the firm to respond more effectively
to environmental changes, which, in turn, has a positive impact on the organizational
structure such as integration mechanisms. In the absence of firm capabilities to use and
act on knowledge, knowledge resources cannot have a positive effect on organizational
structure (Liao et al., 2011). Table I shows KM components.
KM process

Reference

Knowledge acquisition, knowledge dissemination, use or responsiveness to

knowledge
Create, share, and utilize
Knowledge generation, knowledge sharing, and knowledge utilization
Knowledge capture and creation, knowledge organization and retention,
knowledge dissemination, and knowledge utilization
Create, capture, organize, access, and use

Darroch, 2003
Liao et al., 2011
Zheng et al., 2010
Anand and Singh, 2011
Mahmoudsalehi and
Jahanyan, 2009

Organizational structure
Organizational structure is usually categorized into three elements including
formalization, centralization, and integration. Formalization refers to the degree to
which jobs within the organization are standardized and the extent to which employee
behavior is guided by rules and procedures. In organizations with high formalization,
there are explicit rules and procedures which are likely to impede the spontaneity and
flexibility needed for internal innovation. Standardization would eliminate the
possibility that members engage in alternative behaviors and remove the willingness
for members to discussions on considering alternatives. As tasks are preprogrammed
by the organization, there is less need for organizational members to discuss how work
is done. Conversely, in organizations with low formalization, job behaviors are
relatively unstructured and members have greater freedom in dealing with the
demands of their relevant tasks (Chen and Huang, 2007).
Organizational structure indicates an enduring configuration of tasks and activities.
A most studied dimension is centralization. Centralization refers to the extent to which
decision-making power is concentrated at the top levels of the organization. A
decentralized structure has often been seen as facilitative to KM success. High
centralization inhibits interactions among organizational members, reduces the
opportunity for individual growth and advancement, and prevents imaginative
solutions to problems Structure can influence KM processes through shaping patterns
and frequencies of communication among organizational members, stipulating locations
of decision-making, and affecting efficiency and effectiveness in implementing new
ideas. KM can carry over the structural impact onto organizational effectiveness, because
the way knowledge is organized, KM activities are coordinated, and the extent to which
KM practices are embedded in the daily work processes influence the effectiveness and
efficiency of organizational performance (Zheng et al., 2010).
Ghani et al. (2002) and Robbins (1990) define organizational structure as the formal
allocation of work roles and administrative mechanism to control and integrate work
activities. This study focuses on the four most important aspects of structure which
include centralization, formalization, complexity, and integration (Lee and Grover,
2000). Centralization describes the degree to which the right to make decisions and
evaluate activities is concentrated. Formalization measures the extent to which an
organization uses rules and procedures to prescribe behavior. Complexity refers to the
degree to which different functions are distinguished with respect to goals, task
orientation, and degree of autonomy. Integration describes the degree to which the
activities of separate players in the organization can be coordinated through formal
coordination mechanisms. Although these are not the only structural factors affecting
organization design, they are the four fundamental elements in control and
coordination and are often vital to firm performance (Liao et al., 2011) (see Figure 1).
Research hypothesis
In the field of organizational research KM has been regarded as a function of various
organizational factors. In this study these factors refer to organizational structure, size
and ownership type. At the first we describe relationship between KM and
organizational structure. Organizational structure has four dimensions that effect on
KM. Centralization, formalization, complexity, and integration are structure
component that have considered in this study. Based on Zheng et al. (2010), KM and
organizational structure (centralization) are correlated negatively (Zheng et al., 2010).

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Figure 1.
Conceptual model

Zheng and his colleague represent such fact and argue decentralized structure has
often an important effect on knowledge management success (Damanpour, 1991; Deal
and Kennedy, 1982; Gold et al., 2001). High centralization inhibits interactions among
organizational members (Gold et al., 2001), reduces the opportunity for individual
growth and advancement (Kennedy, 1983), and prevents imaginative solutions to
problems (Deal and Kennedy, 1982). On the contrary, decentralization facilitates
internal communication (Bennett and Gabriel, 1999), adoption of innovation (Miller,
1971), and higher levels of creativity (Khandwalla, 1977). Chen and Huang indicated
when the organizational structure is less formalized, more decentralized and
integrated, social interaction is more favorable; and that social interaction is positively
related to knowledge management (Chen and Huang, 2007). Therefore, it is expected
that when the organizational structure is less formalized, less centralized, more
complexity, and more integrated, KM is more favorable:
H1.

Organizational structure relates positively to KM.

H-1-1. Organizational structure (centralization) relates negatively to KM.

H-1-2. Organizational structure (formalization) relates negatively to KM.
H-1-3. Organizational structure (complexity) relates positively to KM.
H-1-4. Organizational structure (integration) relates positively to KM.
Research methodology
According to the purpose, this study is in the category of applied research and
according to data collection procedure is in the category of correlation research, and it
is obviously based on Structural equation modeling. The population of this study
includes all the company in Iran that is working in the field of automobile industry.
The sample of this study consists of 112 companies that have been chosen through
random sampling. In this study, organizational structure is independent variables and
knowledge management is dependent variable. The main tool for gathering
information is questionnaire. In order to assess the reliability, an initial sample of 30
in pre-test questionnaire was performed. And then using of data obtained from
questionnaire The reliability coefficient was calculated using Cronbachs alpha, and for

all categories were higher than 0.75. The results of this analysis are presented in
Table II. For assessing questionnaire validity, was used Factorial validity. Factorial
validity is construct validity which obtained through factor analysis.
Results
Correlation coefficients, mean and standard deviation of the variables of the study are
illustrated in Table II. All of data show in Table II. As can be seen in the Table II,
complexity and integration have positive correlation with KM component which is
meaningful at the level 0.01.
Also we can see negative correlation between centralization and formalization with
KM component which is meaningful at the level 0.05. There is significant and positive
coefficient between KM components. Cronbachs alpha has been shown on the Table II
diameter (italic items).
Results from the confirmatory factor analysis show that all of the scales used in the
study formed adequate measurement models and thus provided evidences for the
construct validity of the measures. Table III shows this model results.
As shown in Table III all indicators are significant, this shows consistently between
components questionnaire.
In the next step using of structural equation model, we study the effect of exogenous
variable (organizational structure) with endogenous variable (KM).
Organizational structure affects 0.39 on KM (t-value 5.31). Base on the LISREL
output, the goodness of fit statistics is good and appropriate. This indicator has
presented in Table IV. Main index are: Chi-Square, GFI, AGFI, RMSEA.
It is better that the Chi-Square test value be at least because it shows difference
between data and model. At this research, Chi-Square value equal to 53.41 and x2/df
equal to 1.3, GFI, AGFI test ought to be greater than 0.90 (Tabachnick and Fidell, 2007).
In this research GFI and AGFI values are 0.96 and 0.93, respectively. RMSEA test was
made based on the Error of approximation. And if it was the lower, would be better.
Acceptable range of it is 0.08. Thus, if it be below 0.08, would be rational, and if it be
below 0.05, would be very good. (MacCallum et al., 1996). Based on Table IV and
appropriate result of every index that was shown previously, all of the Goodness of Fit
Statistics is at the suitable and appropriate level.
Table of regression analysis for predicting knowledge management on the basis of
organizational structure factors along with necessary explanations follow (see Tables V
and VI). The amount of KM variance explain by organizational structure factors is 0.59
Construct
Centralization
Formalization
Complexity
Integration
Create knowledge
Share knowledge
Utility knowledge

Mean SD
5.16
4.55
3.66
3.27
3.68
3.47
3.94

1.19
0.81
1.33
1.1
1.21
1.17
0.69

0.71
0.408 *
2 0.108
2 0.263 *
2 0.525 *
2 0.287 *
2 0.359 * *

0.94
2 0.179
2 0.122
2 0.197 * *
2 0.439 *
2 0.340 * *

0.84
0.319 *
0.372 * *
0.366 *
0.308 * *

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0.91
0.549 * * 0.82
0.344 * 0.212 * * 0.79
0.518 * * 0.510 * * 0.622 * * 0.72

Notes: *Correlation is significant at the 0.01 level (two-tailed). * *Correlation is significant at the 0.05
level (two-tailed)

Table II.
Correlation relation
between variables and
Reliability (Cronbachs
alpha method)

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Table III.
Confirmatory factor
analysis

Table IV.
Goodness of fit statistics
indicators

Table V.
Multiple regression
Coefficients for
organizational structure
factors and KM

Construct

Standardized loading

t-value

0.69
0.77
0.75
0.73
0.72
0.76
0.75
0.72
0.81

6.05
8.24
8.23
7.48
7.08
5.34
10.08
9.13
8.88

0.65
0.62
0.69

10.44
11.02
10.12

0.79
0.61
0.78

11.87
10.55
11.25

0.74
0.76
0.68

8.98
7.64
13.21

0.72
0.79
0.76

12.36
10.82
9.36

Knowledge Management
creat1
creat2
creat3
share1
share2
share3
utility1
utility2
utility3
Centralization
centr1
centr2
centr3
Formalization
form1
form2
form3
Complexity
comp1
comp2
comp3
Integration
integ1
integ2
integ3

Goodness of fit statistics

Value

Degrees of freedom
Chi-square
x2/df
Root Mean Square Error of Approximation (RMSEA)
Goodness of Fit Index (GFI)
Adjusted Goodness of Fit Index (AGFI)

41
53.41
1.3
0.052
0.96
0.93

Multiple R

R-square

Adjusted
R-square

0.769

0.591

0.575

Regression
Residual
Total

Sum of squares

Df

Mean square

40.776
28.255
69.031

4
107
111

10.191
0.264

Sig.

38.605 0.00

which is meaningful at the level 0.00 with respect to F 38:605. Therefore the
research hypothesis on the relationship between organizational structure factors and
KM is confirmed and it is concluded that organizational structure factors are able to
predict KM. Since the observed F and the equation of predicting KM are meaningful.
The amount of obtained b for centralization is 2 0.30 which is meaningful with
respect to t 2 4.24 which means that with one unit of increase in centralization,
knowledge management is decreased by 0.30.
The amount of obtained b for formalization is 2 0.19 which is meaningful with
respect to t 2 2.79 which means that with one unit of increase in formalization,
knowledge management is decreased by 0.19.
The amount of obtained b for complexity is 0.26 which is meaningful with respect to
t 3.88 which means that with one unit of increase in complexity, knowledge
management is increased by 0.26. The amount of obtained b for integration is 0.41 which
is meaningful with respect to t 6.13 which means that with one unit of increase in
integration, knowledge management is increased by 0.41. Finally, it is observed that
among organizational structure factors, integration, formalization, complexity and
centralization have the capability of predicting knowledge management respectively.

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Hypothesis testing
Main hypothesis: organizational structure affects positively on knowledge management
For responding to this hypothesis, we should refer to the information in Figure 2. Based
on this information, organizational structure and KM have correlations about 0.39. So
based on output which is related to t-value, we can show meaningful relationship
between organizational structure and KM (t 5.31). There is direct and positive
relationship between organizational structure and KM and this hypothesis is right.
Predictor variables
(Constant)
CENTRALIZATION
FORMALIZATION
COMPLXITY
INTGRATION
Dependent variable: KM

Std. error

Beta

Sig.

3.74
20.15
20.12
0.18
0.24

0.35
0.04
0.04
0.05
0.04

20.30
20.19
0.26
0.41

10.83
24.24
22.79
3.88
6.13

0.00
0.00
0.01
0.00
0.00

Table VI.
Multiple regression
Coefficients for
organizational structure
factors and KM

Figure 2.
Structural equation model

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The following hypotheses, are related to the main hypothesis, they pay attention to
effect of organizational structure on KM.
H1. Centralization effect on KM negatively.
H2. Formalization effect on KM negatively.

526

H3. Complexity effect on KM positively.

H4. Integration effect on KM positively.
Table II shows correlation values between organizational structure factors with
knowledge management. Tables V and VI presents the standard values, t-values and
significant level. Based on Tables V and VI, centralization effect on KM negatively
(p 0:00). According to Table II, there is negative correlation between centralization
and knowledge process (knowledge creation, sharing, and utility) (p , 0:01).Therefore,
we can confirm that the relationship between centralization and KM is negatively at
the significant level of 0.01.
Tables V and VI show negative standardized coefficient between formalization and
KM which is on the significant level of 0.01 (p 0:01). Also, in Table II, there is
negative correlation between formalization and knowledge creation, sharing, and
utility (p , 0:01). Therefore, we can confirm that the relationship between
formalization and KM is negatively at the significant level of 0.01.
Tables V and VI show the positive standardized coefficient between complexity and
knowledge management, at significant level of 0.01 (p 0:00). There are positive
correlation (see Table II) between complexity and knowledge creation, sharing, and
utility (p , 0:01). Therefore, we can confirm that the relationship between complexity
and KM is positively at the significant level of 0.01.
Tables V and VI show the positive standardized coefficient between integration and
knowledge management, at significant level of 0.01 (p 0:00). There are positive
correlation (see Table II) between integration and knowledge creation, sharing, and
utility (p , 0:01). Therefore, we can confirm that the relationship between integration
and KM is positively at the significant level of 0.01.
Discussion and conclusion
This study examines the interaction between organizational structure, and KM. The
results of the structural equation modeling explain the effects of organizational structure
on KM. In general if the characteristics of organizational structure are less centralized,
less formalized, more complicated and more integrated, the levels of KM would be more
enhanced. Although there are positive correlation between two organizational structure
elements such as complexity, and integration with knowledge creation, sharing and
utility but there is negative correlation between centralization and formalization with
knowledge creation, sharing and utility. Although in Chen and Huangs work when
organizational structure is less formalized, KM would be enhanced (Chen and Huang,
2007) but in Liao et al.s work, formalization positively related with KM (Liao et al., 2011).
The results show positive relationship between organizational structure and KM.
At the first we describe the correlation between organizational structure items
(centralization, formalization, complexity and integration) and KM items (create, share
and utility). The finding illustrates positive coefficient between complexity and
integration with KM items. Regarding to literature review and base on Liao et al.s
work this relations are confirmable (Liao et al., 2011). There is negative coefficient

between centralization and formalization with knowledge creation, share, and utility.
Although there is insignificant and negative correlation between centralization and
KM in Liao et al.s work, but in Chen and Huangs work, negative and significant
correlation between centralization and formalization with KM was illustrated (Chen
and Huang, 2007; Liao et al., 2011). Based on structural equation modelings results,
organizational structural effect on KM positively, our study confirms the argumets of
perior study (e.g. Zheng et al., 2010, Liao et al., 2011).
A couple of limitations of this study should be noted. The first limitation is the
sample size in this study. Organizations to respond to this survey did not have enough
passion. Although the small sample size causes less input is needed to run the SEM,
but not create problems in implementing the model in categorical level (organizational
structure relate on KM). But in the variable components, the low sample size did not
allow the analysis with SEM approach, so we used multiple regressions analysis.
Inadequate access to scientific bases and download valid and up to date papers are
another limitation of this research.
Future research needs to clarify the impact of formalization, centralization,
complexity and integration as independent variable on create, share and utility of
knowledge with SEM approach. Also more research may explore casual relationship
between organizational components (strategy, size, environment, and technology) with
KM and design an excellent model to evaluate KM implementation.
Note
1. American Productivity & Quality Center.
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Further reading
Chen, D.-N. and Liang, T.-P. (2011), Knowledge evolution strategies and organizational performance:
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Lee, H. and Choi, B. (2003), KM enablers, processes and organizational performance: an
integrative view and empirical examination, Journal of Management Information
Systems, Vol. 20 No. 1, pp. 179-228.
Corresponding author
Mehdi Mahmoudsalehi can be contacted at: mahmoudsalehi@saipacorp.com
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