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Journal of Enterprise Information Management The effect of knowledge management capability and dynamic capability on
Journal of Enterprise Information Management The effect of knowledge management capability and dynamic capability on

Journal of Enterprise Information Management

The effect of knowledge management capability and dynamic capability on organizational performance Shu-Mei Tseng Pei-Shan Lee

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Received 6 June 2012 Revised 17 August 2012 Accepted 8 September 2012

The effect of knowledge management capability and dynamic capability on organizational performance

Shu-Mei Tseng and Pei-Shan Lee

Department of Information Management, I-Shou University, Kaohsiung, Taiwan

Abstract

Purpose – The current conventional strategic management model is incapable of dealing with various questions on organizational management in a dynamically discontinuous environment. Hence, how an enterprise can effectively apply its knowledge management (KM) capability and develop a uniquely dynamic capability in order to provide quick response to a dynamic environment has become an urgent need. The purpose of this paper is to discuss the above-mentioned issues. Design/methodology/approach – In order to gain best exploration on KM capability, dynamic capability, and organizational performance, the questionnaire and statistical analytical techniques were used. Findings – The results indicate that dynamic capability is an important intermediate organizational mechanism through which the benefits of KM capability are converted into performance effects at the corporate level. That is, KM capability enhances the dynamic capability of organizations. While dynamic capability, in turn, increases organizational performance and provides competitive advantages. Research limitations/implications – This research applied a purposive sampling method and obtained a slightly inadequate number of respondents. Therefore, it is suggested that future research should apply a random sampling method to collect more responses and increase the generalizability. Practical implications – This research aims to investigate KM capability, dynamic capability, and organizational performance, as well as establish and verify the patterns of the aforementioned relationships based on how enterprises implement their KM capabilities and dynamic capabilities to enhance organizational performance. Originality/value – There is still little related literature investigating the relationships among KM capability, dynamic capability, and organizational performance. Hence, this study applies questionnaire methods as the main research tools in order to conduct an in-depth investigation into the influence of KM capability and dynamic capability on organizational performance. Furthermore, this research is expected to provide enterprises with valuable suggestions for management practices. Keywords Organizational performance, Dynamic capability, Knowledge management capability Paper type Research paper

Knowledge management capability Paper type Research paper Journal of Enterprise Information Management Vol. 27 No. 2,

Journal of Enterprise Information Management Vol. 27 No. 2, 2014 pp. 158-179 r Emerald Group Publishing Limited

1741-0398

DOI 10.1108/JEIM-05-2012-0025

1. Introduction Knowledge is the most important intangible asset, therefore business managers strive in many ways to use this asset to create the highest value (Quintas, 2002). However, how to efficiently control, apply, and develop knowledge in order to effectively generate and reuse knowledge is determined by enterprises’ knowledge management (KM) capabilities (Davenport et al. , 1998; Leonard-Barton, 1995; Soo et al. , 2002). In other words, it is important to investigate how an enterprise effectively develops its KM capability in order to provide and share intangible assets to win market competition. Furthermore, the rapid development of technology and the internet not only accelerates the changes of external environments, but also pressures enterprises

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to recognize that they need to evolve along with the market trends and environmental changes. Due to the fact that the basic perspectives on traditional resources lack a mechanism for transforming resources into competitive advantages, an enterprise may be unable to identify the middle- and long-term dynamic changes in the environment in order to immediately respond to market changes. Therefore, the only solution for an enterprise to enhance organizational performance is through enhancing its corporate dynamic capability (Afuah, 2001). Based on the World Competitive Yearbook 2010-2011 by the World Economic Forum, Taiwan ranked 13th in the world and fourth in Asia, which is one position lower than 2009-2010. Based on this reality and a highly competitive environment, the difficult task for Taiwan’s business managers is how to enhance competitive advantage in order to integrate, establish, and reconfigure the dynamic capabilities to provide immediate response toward the dynamic environment. Furthermore, in previous studies, many scholars have confirmed that KM capability and dynamic capability influence organizational performance (Hasan and Al-hawari, 2003; Bassie, 1997; Wiig, 1997). However, most studies merely focussed on the influence of KM capability on organizational performance or the influence of dynamic capability on organizational performance. There are currently few studies that investigate the relationships among KM capability, dynamic capability, and organizational performance. Hence, this research aims to investigate KM capability, dynamic capability, and organizational performance, as well as establish and verify the patterns of the aforementioned relationships based on how enterprises implement their KM capabilities and dynamic capabilities to enhance organizational performance.

Organizational

performance

159

2. Theoretical background 2.1 KM capability Capability refers to the ability to implement and integrate resources to achieve corporate goals, as well as results acquired from long-term accumulation of interaction among various resources (Grant, 1995). KM capability is the ability of an enterprise to leverage existing knowledge through continuous learning to create new knowledge (Bose, 2003). Liu et al. (2004) stated that KM capability not only refers to the ability to acquire knowledge and information, but also to the organizational capability to protect knowledge and information in order to encourage staff to use this ability as a tool to work more efficiently. Freeze and Kulkarni (2007) further indicate that effective leverage of different knowledge capabilities can be done through differing strategies, processes, and technologies. Due to the fact that knowledge is a key strategic resource to create corporate value (Drucker, 1993; Zack, 1999; Bhatt et al., 2005), enterprises strive to develop knowledge resources to the maximum in order to achieve corporate goals. Furthermore, whether an enterprise can effectively utilize knowledge resources and develop knowledge determines the pros and cons of KM capability. Hence, it can be understood that KM capability has become a significant attribute of competitive advantage (Andrew, 2005). Gold et al. (2001) pointed out that KM capability consists of knowledge infrastructures and KM processes. The knowledge infrastructure includes technology, structure, and culture; while KM processes include the organizational capabilities of knowledge acquisition, conversion, application, and protection. Simultaneously, in order to effectively leverage knowledge infrastructure, it is crucial to rely on KM processes, which makes it possible to store, transform, and transfer knowledge. Tanriverdi (2005) investigated the influence of KM capability on the corporate

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performance of multi-business-unit corporations and divided KM capability into product KM capability, customer KM capability, and managerial KM capability. Furthermore, Tanriverdi also described knowledge creation, transfer, integration, and leverage as the four main dimensions to measure the influence of three kinds of KM capability on corporate performance. Fan et al. (2009) further combined knowledge infrastructure and KM processes and proposed seven attributes (i.e. technology, structure, culture, acquisition, conversion, application, and protection) to be applied in a fuzzy multiple decision-making method to measure organizational KM capability. On the other hand, Aujirapongpan et al. (2010) explained corporate KM capability based on the perspectives of resource-based and knowledge-based capabilities. Resource-based capability refers to different angles of resources to investigate KM capability and an assumption that possessing different resources will result in different KM capabilities and influence the infrastructure capability of KM capability, including technology, organizational structure, and culture. Furthermore, the knowledge-based capability perspective particularly emphasizes intangible assets, KM process, and managing different kinds of knowledge. Aspects that influence KM capability based on the knowledge-based perspective are expertise, learning, and information capabilities. As above-mentioned, this study defined that KM capability is the ability of an enterprise to leverage existing knowledge to create and protect new knowledge. Furthermore, an enterprise should combine personal skills and knowledge, physical and technical resources, structure and culture to stimulate the ongoing knowledge dynamism (Prieto and Easterby-Smith, 2006).

2.2 Dynamic capability Dynamic capabilities represent the ability of a firm to create new manufacturing processes and new products/services in order to rapidly respond to changing environments (Helfat et al., 2007; Teece, 1998). Dynamic capabilities also refer to a firm’s ability to integrate, establish, and redeploy internal and external resources into the best configuration in order to be able to create and develop new capabilities and create new market opportunities (Eisenhardt and Martin, 2000; Wu, 2007). According to Pavlou and El Sawy (2011), dynamic capabilities are usually embedded in organizational processes and routines that allow an enterprise to adapt to the changing market conditions in order to reconfigure its source base, enable morphing and adaptation, and eventually achieve an edge over competitors. Luo (2000) mentioned that there are three critical components of dynamic capability, which are: capability possession (i.e. having distinctive resources), capability deployment (i.e. allocating distinctive resources), and capability upgrading (i.e. dynamic learning and building new capability). Wang and Ahmed (2007) identified adaptive, absorptive, and innovative capabilities as three main factors of dynamic capability. Adaptive capability is the ability of a firm to identify and utilize potential market opportunities; absorptive capability is a firm’s ability to learn from partners, to integrate external information and transform it into firm-embedded knowledge; and, innovative capability refers to the ability to develop new products and/or markets through alignment of strategic innovative orientation with innovative behaviors and processes. Liu and Hsu (2011) indicated that dynamic capabilities consist of two dimensions, namely, capability exploitation and capability upgrading. Capability exploitation is how a firm exploits rent-generating resources that are firm specific, difficult to imitate, and have the ability to generate abnormal returns. On the other hand, capability

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upgrading is how a firm is engaged in building new capabilities through learning from organizations, creating new skills, or revitalizing existing skills in new circumstances. Pavlou and El Sawy (2011) further posited four dynamic capabilities, namely, sensing, learning, integrating, and coordinating capabilities, as a sequential logic to reconfigure existing operational capabilities. Sensing capability is the ability to identify, interpret, and pursue opportunities in the environment, while learning capability is the ability to enhance existing operational capabilities with new knowledge. Integrating capability is the ability to assimilate individual knowledge with the unit’s new operational capabilities, and coordinating capability is the ability to orchestrate and deploy tasks, resources, and activities in the new operational capabilities. Consequently, this study defined that dynamic capabilities area firm’s ability to create and utilize organizational embedded resources for achieving a sustainable competitive advantage. In other words, a firm should rely on its ability to create, maintain, and renew its bases of competitive advantage in turbulent environmental conditions (Easterby-Smith and Prieto, 2008). If a firm with highly dynamic capabilities is able to quickly cope with the dramatic changes in the external environment, it can establish competitive advantage and increase their market value. However, it is difficult to build a new capability as it demands effective organizational processes for new learning (Liu and Hsu, 2011).

Organizational

performance

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2.3 Organizational performance An organization is a group of people allocated based on responsibilities and levels as a complete organization in order to achieve the same goal through adapting and coping with the changing environments. Performance is the level of target achieved by an organization (Sloma, 1980), or as an evaluation on the effectiveness of individuals, groups, or organizations. At the individual level, it refers to job satisfaction, achieved goals, and personal adjustment; at the group level, it refers to morale, cohesion, efficiency, and productivity; and at the organizational level, it is about profit, efficiency, productivity, absenteeism rate, turnover rate, and adaptability (Ivancevich, 1977). Lin (2005) pointed out that performance is not only about previous achievements, but also includes the potential ability to successfully achieve future goals. Robbins and Coulter (1996) further pointed out that performance is an objectively existing fact that provides both objective and subjective evaluation. Organizational performance constitutes all behaviors related to organizational objectives depending on the contribution levels of individuals to the organization (Borman and Motowidlo, 1993). The final goal of an enterprise is to enhance performance; therefore, the enhancement of organizational performance is at the core of corporate strategic management, which itself influences prospects of an enterprise (Venkatraman and Ramanujam, 1986). Enhancing organizational performance is the focus of every manager in every enterprise. In order to succeed at enhancing organizational performance, it is crucial for an organization to establish a comprehensive measurement index that provides managers and staff with clear directions and goals set by the enterprise. Ruekert et al. (1985) divided the organizational performance measurement index into three dimensions: efficiency, effectiveness, and adaptability. Keats (1988) pointed out that the organizational performance measurement index could be classified into univariate and multivariate effectiveness measures. Currently, the performance measurement index is mostly based on multivariate effectiveness measures, which itself can be divided into financial and non-financial measurement indexes. Venkatraman and Ramanujam (1986) also assumed that performance could not only be measured based on the financial measurement index, but also by organizational performance, which can be

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measured based on financial performance, business performance, and organization effectiveness. Financial performance is measured based on the following standards:

return on investment, sales growth rate, and revenue; while business performance not only includes the financial measurement index, but also includes operational performance that covers market share, product quality, new product introduction, marketing effectiveness, production added value, and other non-financial matters. Organizational effectiveness is the most widely used measurement type, which includes the two types of measurement indexes abovementioned, and resolves various internal conflicts to meet various goals of the staff, such as staff morale and so on. Kaplan and Norton (1996) proposed a balanced scored card as a tool to measure the overall organizational performance and includes four perspectives, namely, the customers, the internal business process, learning, and growth. In recent years, other scholars have continually discussed the organizational performance measurement index. For example, Tippins and Sohi (2003) suggested profitability, rate of return on investment, customer retention, and sales growth rate as the organizational performance measurement indexes, while Lee and Choi (2003) suggested market share rate, comparisons of success with other companies, growth rate, profitability, and ability to innovate as the organizational performance measurement indexes. Further, Maltz et al. (2003) developed the dynamic multi-dimensional performance and five organizational performance measurement indexes including financial performance, market/customer, process, people development, and future to measure the success of different types of corporate management. Im and Workman (2004) proposed the relative market share rate, relative sales value, relative return on investment rate, relative revenue rate, and degree of target achievement as the five dimensions to measure organizational performance. Shang and Marlow (2005) adopted pre-tax profit, return on assets, and return on investment as three dimensions to measure organizational performance; and finally, Bolat and Yilmaz (2009) divided organizational performance into seven measurement indexes, namely, organizational effectiveness, productivity, profitability, quality, continuous improvement, work quality, and social responsibility.

3. Conceptual model and hypotheses This research investigates the relationship among KM capability, dynamic capability, and organizational performance to understand how to apply an enterprise’s KM capability to enhance their dynamic capability in order to enhance organizational performance for acquiring competitive advantage. Figure 1 shows the correlation between KM capability and dynamic capability on organizational performance.

3.1 KM capability and dynamic capability Drucker (1993) pointed out that a knowledge- and economy-based society is a management-oriented social pattern, while the main purpose of management is to

Figure 1. Basic research model

Knowledge H3 Organizational management performance capability H1 H2 Dynamic capability
Knowledge
H3
Organizational
management
performance
capability
H1
H2
Dynamic capability

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enable knowledge to generate effects or effectively implement KM to facilitate an enterprise’s smooth operation. Zahra and George (2002) further divided knowledge absorptive capacity into potential knowledge absorptive capacity and realized knowledge absorptive capacity. Potential knowledge absorptive capacity includes knowledge acquisition and assimilation capability; while realized absorptive capacity includes transformation and exploitation capabilities of new knowledge. Potential knowledge absorptive capacity provides enterprises with strategic flexibility and freedom to grasp the trends of external environments in order to quickly adjust and evolve into the changing market that eventually enhances dynamic capabilities. On the other hand, realized knowledge absorptive capacity aims to systematically integrate knowledge into the organization in order to enhance organizational performance. Zollo and Winter (2002) considered that an organization should transform knowledge owned by individuals into organizational knowledge, as well as maintain the learning process, knowledge sharing, and reusing in order to enhance dynamic capability to adapt and respond to the changing environment. Many studies have further explained that dynamic capability is the ability of an enterprise to innovate, integrate, reconfigure, and liberate internal and external resources. These processes of transformation are related to the capabilities of utilizing and managing organizational knowledge resources (Bowman and Ambrosini, 2003; Iansiti and Clark, 1994; Cepeda and Vera, 2007). Shuen (1994) also pointed out that dynamic capability is generated from a learning mechanism consisting of the three following processes – accumulation of experience, knowledge linking, and knowledge coding – therefore, organizational management and knowledge learning are crucial sources of dynamic capability. Sher and Lee (2004) assumed that KM capability could be seen as a way to improve products and processes, improve decision-making strategy, and adjust and refresh organizational core capabilities, which is also the key of an organization to establish and maintain dynamic capability. Therefore, if an enterprise is equipped with excellent KM capability, it is possible to strengthen its dynamic capability. Iris and Vikas (2011) also pointed out that there is a close relationship among e-learning, KM, and dynamic capability. An organization can promote knowledge sharing through e-learning to enhance KM capabilities, as well as to positively influence the dynamic capability. Hence, it is known that KM capability is an important source for organizational dynamic capability. Based on this fact, this research further investigates the influence of KM capability to enhance dynamic capability. Therefore, this study proposes the following hypothesis:

Organizational

performance

163

H1. The degree of KM capability will have a positive effect on dynamic capability.

3.2 Dynamic capability and organizational performance Many studies have found that the integration and coordination of internal and external knowledge and resources not only enhances the dynamic capability, but also improves the performance of developing new products (Grant, 1996a; Petroni, 1998; Tripsas, 1997). Hunt and Morgan (1996) stated that learning is a kind of resource that is simultaneously crucial and complex; enterprises should strive to learn faster than their competitors in order to obtain competitive advantage. Therefore, an enterprise cannot only understand and fulfill potential customer needs through learning, but also accelerate development of new products and services to improve operational process in order to enhance customer satisfaction and organizational performance (de Geus, 1988).

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Teece et al. (1997) and Eisenhardt and Martin (2000) also pointed out that enterprises should be equipped with the ability to detect and reconfigure assets, structures and resources to be faster and more sensitive to acknowledge changes in the environment, to grasp opportunities, and reform organizational resources in order to create strategies that can generate customer value and increase organizational performance. Therefore, it can be understood that coordination, learning, and cognitive abilities are the most important resources for an enterprise to create organizational value (Kogut and Zander, 1996). Whether an organization can utilize its dynamic capability to successfully build, integrate, and reconfigure resources that will be the key to the success is of primary concern (Zott, 2003). Wu (2006) further found that dynamic capability is a crucial intervening variable that transforms resources into performance, which means that if enterprises can utilize dynamic capabilities, it is possible to manage internal and external resources to enhance organizational performance and gain high competitive advantage. Wang and Ahmed (2007) further explained that dynamic capability helps enhance corporate performance, particularly when an enterprise has a synchronized development capacity and corporate strategy, which can lead to superior performance. Therefore, it can be said that dynamic capability is crucial for an enterprise to be able to cope with changes in the environment by delivering the right knowledge at the right time to the right person, as well as encourage knowledge sharing in order to achieve organizational goals, thereby enhancing organizational performance (Quinn, 1999). Hence, this research proposes the following hypothesis:

H2. The degree of dynamic capability will have a positive effect on organizational performance.

3.3 KM capability and organizational performance Grant (1991) pointed out that enterprises should be equipped with richer resources and better abilities than their competitors in order to be able to maintain their competitive advantages in the ever-changing market. Grant (1996a) further elaborated that if an enterprise can possess heterogeneity, value, and specification in its knowledge resource as well as integrate its expertise with external and internal resources, then it not only enhances its ability to solve problems, but also enhanced its competitive advantage (Afuah, 1998). Dosi et al. (2003) also pointed out that the prerequisite for acquiring the leading position in the market is whether an enterprise is able to accumulate past experiences and transform knowledge owned by individuals into organizational knowledge, as well as be able to adapt to the environment through continuous learning and development. It is understood that knowledge sources are the most important resource of an enterprise to operate its business, while organizational KM capability not only directly influences the capability to innovate, grasp business opportunities, respond toward the dynamic environment, and coordinate both external and internal resources, but also influences the organizational performance (Felin and Hesterly, 2007). Kiessling et al. (2009) further explained that there is a tight relationship among KM capability, innovation, product improvement, and enhancement of staff skills. When an enterprise possesses rich strategic resources and capabilities, it is easier to survive, grow, and earn profit in the competitive market. Therefore, an enterprise should continuously enhance its KM capability in order to enhance its organizational performance (Bharadwaj, 2000; Bollinger and Smith, 2001). Chih et al. (2008) pointed out that KM capability is an important factor that influences organizational performance.

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If an enterprise is able to acquire the right knowledge and integrate both external and internal knowledge, it is possible to enhance organizational performance (Scherer, 2000). Therefore, it is understood that KM capability has become a priceless intangible resource, while the sophistication of KM has an even stronger influence on organizational performance (Talisayon, 2002). If an enterprise can create new knowledge from existing knowledge and reuse it through learning, then the organizational performance can be enhanced (Baker and Sinkula, 1999; Bassie, 1997; Slater and Narver, 1995). Hence, this study proposes the following hypothesis:

Organizational

performance

165

H3. The degree of KM capability will have a positive effect on organizational performance.

4. Method

4.1 Sample and measures

As the objective of this research was to investigate the influence of KM capability and dynamic capability on organizational performance, this study was aimed at small- medium enterprises that have implemented KM as a sampling frame. The sampling method applied in this research was purposive sampling. As for questionnaire respondents, the main target subjects were the senior managers in the service, technology, and manufacturing industries. The questionnaire was anonymous, mainly distributed on-site and online through e-mails. Simultaneously, in order to facilitate the questionnaire distribution and high responsiveness, the enterprises were contacted via telephone and e-mails to be informed of the research objective in order to ease their suspicions of the questionnaire. Finally, the statistical results obtained from the questionnaire were analyzed. The measurement items of the questionnaire were based on relevant literature and verified by a panel discussion with some experts. The language used in explaining questions was plain Chinese and easily understood. Therefore, content and construct validities of this research design were fulfilled. The final questionnaire comprised four parts. It included KM capability, dynamic capability, organizational performance, and the demographics of the sample. A seven-point Likert-type scale, ranging from 1 (strongly disagree) to 4 (neutral) to 7 (strongly agree), was used to measure the research variables. Moreover, the Pearson’s correlation analysis and regression analyses were conducted based on the summated scores.

4.2 The questionnaire collection and data analysis

The questionnaire was conducted between January 3 and 28, 2012, and distributed onsite. In total, there were 237 questionnaires collected. Among them, 232 were valid;

the other five were incomplete or unclear, and hence discarded. Table I shows the demographic breakdown of the sample which includes gender, age, education level, type of occupation, average monthly income, job position, and years of experience.

4.3 Reliability and validity

First, this research applied item analysis to measure the relevance of each questionnaire item. The results show that the research variables (i.e. KM capability, dynamic capability, and organizational performance) were appropriate. Second, exploratory factor analysis was employed and questionnaire items which had not reached the standard for factor selection were deleted. Factors were then named based

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Table I. Demographic characteristics of the responding firms

Variable

Type

%

Variable

Type

%

Gender

Male

53.4

Average monthly

p19,999 NTD

0.9

Female

46.6

income

20,000-49,999 NTD

27.6

Age

p22

0.4

50,000-79,999 NTD

53.0

23-27

10.8

80,000-99,999 NTD

12.5

28-32

12.1

X100,000 NTD

6.0

33-37

16.8

Job position

Basic-level staff

57.8

38-42

21.6

Basic-level manager

15.1

X43

38.4

Middle-level manager

12.9

Education level

High school and lower Undergraduate Graduate Post-graduate and above Service industry Manufacturing companies High tech industry Others

3.0

High-level manager

14.2

58.2

Years of work experience

o1 year

7.8

34.1

1-3 years

9.5

Type of

4.7

4-6 years

15.1

occupation

62.9

7-9 years

11.6

16.4

10-12 years

9.9

14.2

13-15 years

9.5

6.5

X16 years

36.6

Note: n ¼ 232

on the relation of the questionnaire items for each factor. From the results of factor analysis, this research eventually divided KM capability into knowledge transfer and knowledge protect; dynamic capability was divided into sensing capability and integrating capability; and, organizational performance was divided into financial performance and non-financial performance. The final questionnaire items are shown in the tables below. Measurements of KM capability are listed in Table II, measurements of dynamic capability in Table III, and measurements of organizational performance in Table IV. Table V outlines the results of the reliability and validity tests performed on the final questionnaire items. Internal consistency measures (Cronbach’s a) were obtained in order to assess the reliability of the measurement instruments. The item-to- total correlation, which was calculated between each individual item and the sum of the remaining items, was used to determine the convergent validity. When the item-to-total correlation score was lower than 0.4, the case was eliminated from further analysis. The reliability level is acceptable if the value is at least 0.8 for the basic research and 0.7 for the exploratory research (Nunnally, 1978). The content validity of the instruments was established by adopting the constructs that have already been validated by other scholars and experts. From the analyses mentioned above, it was found that the questionnaire items on each factor met the requirements of reliability and validity.

5. Analysis and results 5.1 Pearson’s correlation analysis Table VI shows that the correlation coefficient between KM capability and dynamic capability is 0.815, which is a highly positive correlation. The correlation coefficients of each KM capability factor – knowledge transfer and knowledge protect – with dynamic capability are 0.786 and 0.652, respectively. For the correlation among all dynamic capability factors, the results show a strong correlation reaching a

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Factors

Measurements

Sources of previous research

Organizational

performance

 

Knowledge

We are already equipped with adequate professional knowledge

Gold et al. (2001), Chih et al. (2008), Fan et al. (2009), Tanriverdi (2005),

 

transfer

We able to proactively obtain Aujirapongpan et al. (2010) new knowledge We are adept in utilizing information technology to search and obtain the required knowledge We are able to proactively share their knowledge We already equipped with the ability to record and store various knowledge (or techniques) We are already equipped with the ability to filter knowledge We are already equipped with the ability to methodically classify and summary knowledge We are already equipped with the ability to transfer organizational knowledge to individuals Our company is already equipped with the ability to retrieve knowledge from individuals into the organization We are already equipped with the ability to apply their knowledge to develop new products/ services We are already equipped with the ability to apply knowledge to improve work efficiency Our company is already equipped with the ability to apply knowledge to adjust strategic direction We are already equipped with the ability to use knowledge to solve problems Our company is already equipped with the ability to apply knowledge to face challenges from the competitors Our company has clearly pointed out which knowledge should be strictly protected We are already equipped with the ability to apply information technology to prevent any inappropriate knowledge accessing Our company has established an incentive scheme as an effective way to protect knowledge Our company has established an effective protective policies and procedures to prevent knowledge theft Our company has established an effective protective policies and procedures to prevent knowledge from any inappropriate access Our company has established an effective policies and procedures to prevent knowledge from any inappropriate usage We are already equipped with the concept of knowledge protection

167

Knowledge

 

protect

Table II.

Measurements of

KM capability

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Factors

Measurements

Sources of previous research

 

168

Sensing

capability

We frequently scan the environmental changes to identify new business opportunities We periodically review on how environmental changes influence on customer We frequently review our products to reassure that they fulfill our customer demand We put a lot of efforts on the functions of our new and existing products We periodically absorb new information and knowledge Compared with other companies in the same industry, we possess better learning ability We are able to integrate individual capabilities to become organizational capability We are able to thoroughly understand the responsibility of each staff We are able to clearly understand who possess technique and knowledge relevant to our work When encountering unexpected circumstances (environmental changes), we are able to cope with them We are able to succeed interacting and collaborating with staff from other divisions Compared with other companies in the same industry, we possess better integrating capability Our output are synchronized with the output generated by other staff The resource deployment in the organization is appropriate Our expertise and work processes are compatibility Compared with other companies in the same industry, we possess better communication skills and coordinating capability

Luo (2000), Zahra and George (2002), Sher and Lee (2004), Wang and Ahmed (2007), Pavlou and El Sawy (2011)

 

Integrating

capability

Table III.

Measurements of

dynamic capability

significant level (**p o0.01). Thus, KM capability had significant positive correlation with dynamic capability. The correlation coefficient between KM capability and organizational performance is 0.685, which is again a highly positive correlation. In terms of knowledge transfer and knowledge protect, their correlation coefficients with the organizational performance are as follows: 0.618 and 0.615, respectively. The result shows that all measured items had a strong correlation and reached a significant level (** po0.01). Thus, KM capability had a significant positive correlation with

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Sources of previous research

Organizational

Factors

Measurements

performance

Financial

Our sales amount is very high Our profit rate is very high Our revenue is very high Our return on investment is very high Our company is able to grasp the right timing for launching new products or services Our company is equipped with the ability to develop high-quality new products The launch speed of new products is faster than other companies in the same industry The degree of automation operation is much higher than other companies in the same industry Our company is able to adjust or change our management process based on the market competition Our company is able to retain outstanding staff Our company is active in nurturing staff’s leadership Our company puts high value on our staff’s satisfaction on our corporate measures Our company has an excellent staff welfare policy Our company possess comprehensive plans for our future Our company vigorously invest on the development of new market Our company vigorously invest on the development of new technology

Lee and Choi (2003), Maltz et al. (2003), Tippins and Sohi (2003), Im and Workman (2004), Shang and Marlow (2005), Bolat and Yilmaz (2009)

performance

Non-financial

169

performance

 
 

Table IV.

Measurements of

organizational

performance

organizational performance. The correlation coefficient between dynamic capability and organizational performance is 0.770, showing a highly positive correlation. The correlation coefficients of both dynamic capability factors – sensing capability and integrating capability – with organizational performance are 0.708 and 0.733, respectively. The results show that all dynamic capability factors had a strong correlation and reached a significant level (** po 0.01). Thus, dynamic capability had a significant positive correlation with organizational performance.

5.2 Simple-regression analysis

The simple-regression analyses for KM capability on dynamic capability, dynamic capability on organizational performance, and KM capability on organizational

for KM

performance are shown in Table VII. The b values, p-value and adjusted R 2

capability on dynamic capability are 0.834, 0.000 (**po0.01), and 0.662, respectively. The results show that KM capability will have a significant effect on dynamic capability. Consequently, the research result favored H1, and indicates that the degree of KM

capability will have a positive effect on the degree of dynamic capability. Hence, H1 is

proven valid. The b values, p-value, and adjusted R 2

organizational performance are 0.897, 0.000 (**po0.01), and 0.592, respectively. This result

for dynamic capability on

shows that dynamic capability will have a significant effect on organizational performance. Consequently, the research result favored H2, and suggests that the degree of dynamic

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27,2

Constructs

Items

Convergent validity (item to total correlations)

Reliability (Cronbach’s a )

KM capability

Knowledge transfer

14

0.770;0.774;0.738;0.807;0.758;

0.960

0.962

 

0.793;0.798;0.799;0.743;0.696;

170

0.769;0.766;0.776;0.772

 

Knowledge protect

7

0.693;0.822;0.850;0.928;0.923;

0.953

 
 
 

0.898;0.733

 

Dynamic capability

Sensing capability

4

0.825;0.855;0.847;0.791

0.921

0.957

Integrating

capability

12

0.712;0.752;0.745;0.726;0.752;

0.950

 
 

0.690;0.777;0.820;0.662;0.728;

0.683;0.788

 

Organizational performance Financial performance Non-financial

4

0.853;0.908;0.879;0.801

0.944

0.965

Table V. Reliability results for each construct

performance

12

0.745;0.798;0.777;0.789;0.747;

0.963

 

0.683;0.815;0.775;0.776;0.791;

0.811;0.827

 

Knowledge transfer

Knowledge protect

KM capability

 

Dynamic capability

Correlation coefficient

0.786**

0.652**

0.815**

p

value

0.000

0.000

0.000

Organizational performance

 

Correlation coefficient

0.618**

0.615**

0.685**

p

value

0.000

0.000

0.000

Table VI. The correlation analysis

Sensing capability

Integrating capability

Dynamic capability

Organizational performance Correlation coefficient

0.708**

0.733**

0.770**

p

value

0.000

0.000

0.000

Note: ** p o0.01

capability will have a positive effect on the degree of organizational performance. Hence, H2 is proven valid. The b values, p-value, and adjusted R 2 for KM capability on organizational performance are 0.817, 0.000 (**po0.01), and 0.467, respectively, and shows that KM capability has a significant effect on organizational performance. Consequently, the research result favored H3, which means that the degree of KM capability will have a positive effect on the degree of organizational performance. Hence, H3 is proven valid.

5.3 Multiple-regression analysis The multiple-regression analyses for knowledge transfer and knowledge protect on dynamic capability, sensing capability, and integrating capability on organizational performance, and knowledge transfer and knowledge protect on organizational performance are shown in Table VIII. The b values for knowledge transfer and knowledge protect on dynamic capability are 0.627 and 0.218, respectively.

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Variable

b

SE

Beta

t-value

p -value

Dynamic capability KM capability Adjusted R 2 Organizational performance Dynamic capability Adjusted R 2 Organizational performance KM capability Adjusted R 2

0.834

0.039

0.815

21.308

0.000**

0.662

0.897

0.049

0.770

18.321

0.000**

0.592

0.817

0.057

0.685

14.255

0.000**

0.467

Note: ** po 0.01

Organizational

performance

171

Table VII.

The simple-regression

analysis

The b values for sensing capability and integrating capability on organizational performance are 0.363 and 0.530, respectively. The b values for knowledge transfer and knowledge protect on organizational performance are 0.459 and 0.345, respectively. All variables showed a positive significant relation. The adjusted R 2 are 0.668, 0.604, and 0.474, respectively. The explained variation for all variables are higher. Therefore, it means that knowledge transfer and knowledge protect will have significant effects on dynamic capability; sensing capability, and integrating capability will have significant effects on organizational performance, and knowledge transfer and knowledge protect will have significant effects on organizational performance. Table IX presents the multiple-regression analysis for KM capability and dynamic capability on organizational performance. The b value, Beta value, t-value and all other values achieved the positive level. The b values for model one in Table IX are 0.203 and

0.735, respectively. The model is y^ ¼ 0 :148 þ 0: 203 X 1 þ 0: 735 X 2 þ e , (where y^ is organizational performance, x 1 is KM capability, x 2 is dynamic capability). All

is 0.600 and the

variables showed a positive significant relation. The adjusted R

explained variation for all variables is higher. Therefore, it means that KM capability and dynamic capability will have significant effects on organizational performance.

2

Variable

b

SE

Beta

t-value

p -value

Dynamic capability KM capability Knowledge transfer Knowledge protect Adjusted R 2 Organizational performance Dynamic capability Sensing capability Integrating capability Adjusted R 2 Organizational performance KM capability Knowledge transfer Knowledge protect Adjusted R 2

0.627

0.048

0.618

12.948

0.000**

0.218

0.037

0.280

5.869

0.000**

0.668

0.363

0.059

0.373

6.188

0.000**

0.530

0.069

0.463

7.676

0.000**

0.604

0.459

0.071

0.388

6.464

0.000**

0.345

0.054

0.381

6.340

0.000**

0.474

Note: ** po 0.01

Table VIII. The multiple-regression analysis

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172

5.4 Testing the mediating effects of dynamic capabilities

The simple-regression analysis for KM capability on organizational performance and dynamic capabilities are shown in Table VII. The multiple-regression analysis for KM

capability and dynamic capabilities on organizational performance is shown in Table IX. As indicated in these tables, the b value, Beta value, t-value and all other values achieved

a positive level. Based on Tables VII and IX, it was found that the standardized coefficient of KM capability on organizational performance was 0.685. The standardized coefficient of KM capability and dynamic capabilities on organizational performance was 0.203 and 0.735. The path coefficient for KM capability on organizational performance decreased from 0.685 to 0.203, showing that dynamic capabilities had a partial mediating effect on KM capability and organizational performance. Furthermore, this implies that the influence of KM capability on organizational performance during the process will partially affect dynamic capabilities and then in turn, will affect the organizational performance.

5.5 Path analysis

This research applied path analysis to investigate the influence of KM capability and dynamic capabilities on organizational performance. The results of the path analysis show that the value of direct impact of KM capability on organizational performance is 0.685; while the value of direct impact of KM capability on dynamic capability is 0.815, and the value of direct impact of dynamic capability on organizational performance is 0.770. Hence, the indirect impact of KM capability on organizational performance is 0.815 0.770 ¼ 0.628. The total value of KM capability on organizational performance is 0.685 þ 0.815 0.770 ¼ 1.313. Based on the results showing the values of both direct and indirect impact of KM capability on organizational performance, KM capability and dynamic capability possess significant influence on organizational performance. Therefore, if a firm would like to enhance its organizational performance, it not only has to improve its KM capability but should also invest in dynamic capability so that it is possible to effectively enhance overall performance.

6. Discussion and implication The results of this study indicate that KM capability is significantly associated with the degree of dynamic capability and organizational performance. According to the

result of the Pearson’s correlation analysis (Table VI), there is a significant positive correlation between KM capability with dynamic capability and organizational performance. Moreover, the factors of KM capability show a significantly positive correlation with dynamic capability and organizational performance. This means that

if the KM capability factors knowledge transfer and knowledge protection are superior,

Table IX. Multiple-regression analysis for KM capability and dynamic capability on organizational performance

Organizational performance

Variables

b

SE

Beta

t -value

p-value

KM capability Dynamic capability Adjusted R 2

0.203

0.086

0.170

2.374

0.018**

0.735

0.084

0.631

8.796

0.000**

0.600

Note: ** p o0.05

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it can significantly enhance dynamic capability and organizational performance. This study further found that the b value of knowledge transfer is more than the knowledge protection, particularly shown in Table VIII. This implies that the knowledge transfer can effectively enhance dynamic capability and organizational performance than knowledge protection. Thus, an enterprise endeavor to attract and encourage their employees to participate in knowledge transfer and knowledge protection activities, as well as enhance their dynamic capability and organizational performance, particularly knowledge transfer. For example, in knowledge transfer, an enterprise should encourage their employees to proactively retrieve, filter, store, transfer, and share knowledge from individuals to the organization (Coakes et al. , 2010). Furthermore, a firm should allow their employees to equip themselves with the ability to apply their knowledge to develop new products/services, solve problems, and improve work efficiency; while in knowledge protection, an enterprise should established an incentive scheme as an effective policy to protect knowledge and prevent any inappropriate access and usage. On the other hand, this study also found that dynamic capability is significantly associated with the degree of organizational performance. According to the result of the Pearson’s correlation analysis (Table VI), there is a significant positive correlation between dynamic capability and organizational performance. This implies that if the dynamic capability factors – sensing capability and integrating capability – are superior, organizational performance is significantly enhanced. This study further found that the b value of integrating capability is more than sensing capability, particularly shown in Table VIII. This means that the integrating capability has the potential to significantly enhance organizational performance than sensing capability. Thus, an enterprise should strive to enhance employees’ sensing capability and integrating capability, as well as increase organizational performance, and particularly integrating capability. For example, regarding sensing capability, an enterprise should frequently survey market trends and new technologies to seize new opportunities and dedicate resources toward the functions of new and existing products/service to reassure that their products/service can fulfill customer requirements. For integrating capability, an enterprise should clearly understand who possesses techniques and knowledge relevant to their work and incorporate individual knowledge into the unit’s new operational capabilities, as well as orchestrate and deploy tasks, resources, and activities. Based on the results of the path analysis, it was found that KM capability possesses direct influence to enhance organizational performance; moreover, dynamic capability is also indirectly interrelated in terms of enhancing organizational performance. This shows that when a firm possesses better KM capability, it is enabled to rapidly generate new production processes which lead to new products and services in order to cope with changes in the external environment, as well as enhance the firm’s market value and organizational performance. In other words, valuable, rare resources, and capabilities do not assure a firm’s ability to develop a competitive advantage or create value; rather, firms should be able to manage them effectively. This means that a firm can create value by recombining existing resources and capabilities (Landroguez et al. , 2011). Thus, a firm should rely on its KM capability to enhance dynamic capability so that it can eventually enhance its overall performance. On the contrary, if a firm lacks KM and dynamic capabilities, it will be difficult to acquire and maintain stable, high profits.

Organizational

performance

173

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7. Conclusions Despite the widespread belief that KM capability enhances organizational performance and dynamic capability increases organizational performance, researchers have attempted very little theoretical work on the development of nomological relationships among KM capability, dynamic capability, and organizational performance (Cui and Jiao, 2011; Liyun et al., 2008; Weerawardena et al., 2007). In other words, systematic empirical investigations of these relationships are scarce. As such, this study investigated the relationships among KM capability, dynamic capability, and organizational performance. The results indicate that dynamic capability is an important intermediate organizational mechanism through which the benefits of KM capability are converted into performance effects at the corporate level. That is, KM capability enhances the dynamic capability of organizations. While dynamic capability, in turn, increases organizational performance and provides competitive advantages. Grant (1996b) indicated that if firms want to enhance organizational performance, it is not knowledge itself that is important, but rather the firms’ capacity to apply this knowledge effectively in order to create new knowledge. That is to say that knowledge, along with the ability to create and utilize it, is the primary source for firms to establish and enhance sustainable competitive advantage (Nonaka and Takeuchi, 1995). On the other hand, Evers (2011) assumed that an enterprise is required to establish unique and dynamic competencies which are generated through unique knowledge-intensive assets. Zheng et al. (2011) further explained that a firm can continually renew their knowledge base through its dynamic capabilities so that it is possible to respond to changing environments. As mentioned above, in order to enhance organizational performance, enterprises would benefit from implementing KM capability and dynamic capability simultaneously. This research applied a purposive sampling method and obtained a slightly inadequate number of respondents. Therefore, it is suggested that future research should apply a random sampling method to collect more responses and increase the generalizability. On the other hand, a regression analysis method was applied to simplify the research framework and to investigate the relationship among KM capability, dynamic capability, and organizational performance. Hence, it might be more difficult to explain the overall model of this research. It is suggested that future researchers should apply the structural equation model to further verify the model in order to simplify the elaboration of the research structure.

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About the authors Dr Shu-Mei Tseng is an Associate Professor in the Department of Information Management at the I-Shou University, Taiwan, R.O.C. Her works have been published in International Journal of Information Management, Journal of Knowledge Management, Expert Systems with Applications, Industrial Management and Data Systems, and Management Research News. Her current research interests include knowledge management, customer relationship management, information technology management, and service quality management. Dr Shu-Mei Tseng is corresponding author and can be contacted at: y97576@isu.edu.tw Pei-Shan Lee is a Graduate Student at the Department of Information Management, I-Shou University in Taiwan.

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