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JEIM
27,2
The effect of knowledge
management capability and
dynamic capability on
158 organizational performance
Received 6 June 2012
Revised 17 August 2012
Shu-Mei Tseng and Pei-Shan Lee
Accepted 8 September 2012 Department of Information Management, I-Shou University,
Kaohsiung, Taiwan
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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
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
Journal of Enterprise Information (KM) capabilities (Davenport et al., 1998; Leonard-Barton, 1995; Soo et al., 2002). In
Management
Vol. 27 No. 2, 2014
other words, it is important to investigate how an enterprise effectively develops its
pp. 158-179 KM capability in order to provide and share intangible assets to win market
r Emerald Group Publishing Limited
1741-0398
competition. Furthermore, the rapid development of technology and the internet not
DOI 10.1108/JEIM-05-2012-0025 only accelerates the changes of external environments, but also pressures enterprises
to recognize that they need to evolve along with the market trends and environmental Organizational
changes. Due to the fact that the basic perspectives on traditional resources lack performance
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). 159
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 Taiwans 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
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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
JEIM performance of multi-business-unit corporations and divided KM capability into
27,2 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,
160 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
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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.
H1 H2
Figure 1.
Basic research model Dynamic capability
enable knowledge to generate effects or effectively implement KM to facilitate Organizational
an enterprises smooth operation. Zahra and George (2002) further divided knowledge performance
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 163
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,
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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:
H1. The degree of KM capability will have a positive effect on dynamic capability.
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.
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 Pearsons correlation analysis and regression analyses were
conducted based on the summated scores.
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 (Cronbachs 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.
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;
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0.683;0.788
Organizational performance
Financial
performance 4 0.853;0.908;0.879;0.801 0.944 0.965
Non-financial
Table V. performance 12 0.745;0.798;0.777;0.789;0.747; 0.963
Reliability results 0.683;0.815;0.775;0.776;0.791;
for each construct 0.811;0.827
capability will have a positive effect on the degree of organizational performance. Hence,
H2 is proven valid. The b values, p-value, and adjusted R2 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.
Variable b SE Beta t-value p-value
Organizational
performance
Dynamic capability
KM capability 0.834 0.039 0.815 21.308 0.000**
Adjusted R2 0.662
Organizational performance
Dynamic capability 0.897 0.049 0.770 18.321 0.000** 171
Adjusted R2 0.592
Organizational performance
KM capability 0.817 0.057 0.685 14.255 0.000**
Adjusted R2 0.467 Table VII.
The simple-regression
Note: **po0.01 analysis
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Dynamic capability
KM capability
Knowledge transfer 0.627 0.048 0.618 12.948 0.000**
Knowledge protect 0.218 0.037 0.280 5.869 0.000**
Adjusted R2 0.668
Organizational performance
Dynamic capability
Sensing capability 0.363 0.059 0.373 6.188 0.000**
Integrating capability 0.530 0.069 0.463 7.676 0.000**
Adjusted R2 0.604
Organizational performance
KM capability
Knowledge transfer 0.459 0.071 0.388 6.464 0.000**
Knowledge protect 0.345 0.054 0.381 6.340 0.000**
Adjusted R2 0.474 Table VIII.
The multiple-regression
Note: **po0.01 analysis
JEIM 5.4 Testing the mediating effects of dynamic capabilities
27,2 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
172 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
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performance.
Organizational performance
Table IX. Variables b SE Beta t-value p-value
Multiple-regression
analysis for KM KM capability 0.203 0.086 0.170 2.374 0.018**
capability and dynamic Dynamic capability 0.735 0.084 0.631 8.796 0.000**
capability on Adjusted R2 0.600
organizational
performance Note: **po0.05
it can significantly enhance dynamic capability and organizational performance. This Organizational
study further found that the b value of knowledge transfer is more than the knowledge performance
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 173
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efficiency; while in knowledge protection, an enterprise should established an incentive
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About the authors Organizational
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
performance
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 179
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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