CHAPTER 1 INTRODUCTION
1.4 Thesis Overview
This thesis studies the knowledge management, knowledge creation modes, organizational culture, and creation performance. It presents a review of literature, research hypotheses, research methodology including research framework, sampling plan, and results of data analysis. The remaining part of this thesis is organized as follows. In chapter 2, a review of literature is described in detail and hypotheses formulated. This helps in developing the research framework. Chapter 3 presents the research methodology. The data analysis and research findings are provided in Chapter 4. Chapter 5 concludes this thesis where discussions, managerial implications, suggestions, and future research focuses are described.
Chapter 2 Literature Review
Following the research background and motivations, this research conducted a review of literature about creation performance, organizational culture, and knowledge creation modes in this chapter. First, the creation performance was reviewed, and then went through the organization culture. Second, the foundation of creation and innovation was described. The knowledge creation modes were presented, including goal-driven and goal-free creation mode. Finally, the impact of organizational culture on creation performance was addressed.
2.1 Creation Performance
Performance evaluation becomes a critical issue while making this connection.
Hellström and Jacob (2003) proposed that there is a difficulty to directly describe the connection between knowledge creation and value it can create, 2003 OECD (1999) proposed to use structural capital and human capital to evaluate the impact of knowledge creation program on intellectual capital (IC) which includes structural asset, human asset and customer asset. IC is a mix of items such as staff competencies, ability to exploit such competencies, customer relationships, ability to exploit such competencies, customer relationships, brand equity, goodwill and patents.
A high IC score is very clearly a positive outcome of good knowledge creation practice.
James and Roffe (2000) defined evaluation is a process that professionals do all the time and in every discipline that compares the actual and real with the predicted or
promised and a process of judging that is applied to activities initiatives, people, program and results. The measurement criteria may be confusing when the basis for a judgment is not apparent, or is obscured (Hale, 1988). When neither the performance evaluator nor the client has the capability to capture sufficient information to make a balanced judgment, justification has to be provided by the evaluator for taking a different approach (James and Roffe, 2000). Besides, James and Roffe (2000) indicated goal-based training innovation is explicit training objectives which are specified during design and before delivery.
In the study of innovation evaluation, Olshavsky and Spreng (1996) indicated that when presented with an innovative concept, consumers first tend to sort the outcomes.
In other words, on the one hand, an innovation may be rejected because consumers categorize it into an existing one that shows a negative implication. On the other hand, if consumers can not classify it, they will use a judgment process based on some evaluative criteria, such as forming expectations about the innovative concept, assessing satisfaction with an old product, and comparing the new and old products.
Consequently, managers may have an opportunity to shape the judgment process by educating consumers about the appropriate evaluative criteria or by clearly communicating the product’s attributes, benefits and appropriate use.
The methods of evaluating knowledge assets have many in the literature, including intangible asset monitor (Sveiby, 1997), the balanced scorecard (Kaplan and Norton, 1992) and the Skandia value scheme (Edvinsson, 1997). The intangible asset monitor tends to regard people as the main carrier of knowledge outcomes and to see increased capabilities/competencies as a major intermediate goal in profit generation.
renewal, stability and efficiency. The balanced scorecard focuses on customer learning and growth perspectives. These approaches may share a broad classification of human, customer and structural capital. Each approach, particularly the balanced scorecard, directly links these types of metrics to financial factors. The Skandia value scheme is a model for highlighting and describing the evolution of intellectual capital within Skandia. The model visualizes value components that make up intellectual capital as sell as the method of managing them and reporting on their development.
Low (2000) developed a model for measuring critical categories for non-financial performance’, including of an index of a number of value drivers called value creation index (VCI), including innovation, quality, customer relations, management capabilities, alliances, technology, brand value, employee relations and environmental and community issues. In addition, this task of assessing results for the organization is usually in the form of return on investment (James and Roffe, 2000). Low (2000) indicated that VCI would enable manager to measure the impact of key intangible asset categories on a company’s market value.
It has been seen that creation performance is evaluated by many dimensions. This study based on literature summarizes the evaluation dimensions of creation performance: (1) product creation performance, (2) manufacturing creation performance, (3) management creation performance, (4) organization creation performance, and (5) strategy creation performance. For the product creation performance, Cooper (1985) examined the impact of the firm’s product innovation strategy on creation performance by using eight evaluation variables as: (1) ratio of new products on whole sales for the past five years, (2) proportion of successful product development in the past five years, (3) proportion of product development that either failed or quitted in the past five years, (4) proportion of product
development that reached goals in the past five years, (5) the importance of the innovation project to the sales and profits, (6) profits from new product development are more than investment, (7) the degree of success in comparison with the competitors, and (8) the success degree of the whole development project. Walker and Ruekert (1987) and Yeh (2005) adopted three variables to measure the technical performance for new product development: (1) effectiveness, including success probability and marketing growth rate in comparison with the competitors as well as the profile of market sharing, (2) efficiency, including profit and return on investment, and (3) adaptability, including success rate of marketing new products and sales proportion of new product in the past five years.
Cooper and Kleinschmidt (1987) employed two dimensions to measure product creation performance: (1) financial performance, including degree of achievement of new product profit goal and sale goal, degree of satisfaction on profits, duration of investment return, and profit rate and marketing power, and (2) impact on marketing, including variation of both domestic and foreign marketing share, variation of ratio of new product sales on whole sales, and the difference between net sales and expected sales. Barczak (1995) adopted four variables to evaluate product creation performance: (1) difference between net sales and expected sales, (2) difference between actual marketing share and expected marketing share, (3) profit rate of new product, and (4) degree of satisfaction on the whole new product development. To measure the degree of success achieved by the new product or service, Atuaheme-Gima (1996) proposed some variables: (1) market share, (2) sales, growth and profit objectives, (3) the degree to which the new product/service provided opportunities for cost efficiency, gave proprietary advantage to the firm, enhanced
profitability of other products/service to the firm. Focusing on the marketing success, Souder and Song (1998) proposed six variables to evaluate creation performance: (1) market share, (2) duration of return, (3) profits, (4) customer satisfaction, (5) contribution to be a technology leader, and (6) contribution to be a domain leader.
More recently, Lin (2001) indicated that there are six major variables that can be used to measure product innovation: (1) quality improvement of product, (2) creation of features, (3) efficiency of product commercialization, (4) market share, (5) profit rate of product, and (6) competition improvement of new product. Wu (2000) suggested that creation should have a significant impact on the whole enterprise and therefore should consider four dimensions: (1) creation for manufacturing processes, (2) creation for new products, (3) creation for organization, and (4) creation for strategy.
Detail for the evaluation of product creation performance is listed in Table 2-1.
Manufacturing creation performance focuses mainly on monitoring the actual processes of a program, service, and product. Wheelwright (1978) proposed four criteria to evaluate process creation performance: (1) efficiency, including cost efficiency and capital efficiency, (2) flexibility, including product flexibility and output flexibility, (3) quality, including product quality, service quality, delivery speed, and repair quality, and (4) reliability, including the promised delivery due date, price, and product commitment. Schroeder et al. (1989) classified two categories to evaluate manufacturing performance: (1) business outcome, including profit, return on asset, growth, and market share (2) manufacturing outcome, including the rate of cost of sales to sales, unit manufacturing cost, consistent quality, service level, inventory turnover, unit employee sales and flexibility. Leong et al. (1990) also proposed five dimensions to evaluate manufacturing creation performance: (1) cost, including unit product cost, unit labor cost, unit material cost, total manufacturing
cost, inventory turnover, equipment usage rate, direct labor cost, indirect labor cost, (2) quality, including defect rate, product failure rate, design change frequency, supplies’ quality, (3) delivery due date, including delivery on time, inventory condition, delay delivery time (4) flexibility, including ability to response outcome change, ability to product specification change, ability to adjustment manufacturing technology in the change of commodity combination, ability to cope with machine stop, ability to adjustment of material delivery uncertainty, and (5) innovation, including the ability to new product introduction, and R&D expenditure.
Vonderembse (1999) suggested five indexes for manufacturing process evaluation: (1) the proportion to commodity-reproducing cost, (2) unit manufacturing cost, (3) quality cost, (4) the proportion of manufacturing inventory, (5) the proportion of delivery commodity on time away from firms. Detail for the evaluation of manufacturing creation performance is listed in Table 2-2.
For the management innovation, the evaluation may contain its effect on managerial process, plan, flexibility, integration, communication and coordination, and employee cohesiveness (Walker and Ruekert, 1987). The effect of innovation of organization is a kind of creation performance for the whole organization. Venkatraman (1986) proposed three indexes to evaluate creation performance on organization: (1) financial performance: business’s economic goal and traditional evaluation method, containing the profit rate and earnings per share, (2) business performance: financial performance and operating performance which is non-financial performance, including market share, the new product introduction, product quality, and marketing efficiency, etc. (3) organizational efficiency: the most general definition of organizational performance, except for two former indexes, adding the solution to
Wu (2000) indicated that innovation of organization contain the ability and experience of doing with international sales, repair or service, establishing and improving international brand, and planning and managing international distribution.
Strategic innovation included new product/service position, new usages and redistribution of value activities (Wu, 2000). Detail for this is listed in Table 2-3.
It has been seen that there are five dimensions (product creation performance, manufacturing creation performance, management creation performance, organization creation performance, and strategy creation performance) that play in the evaluation of creation performance. However, this study adopts three dimensions, product creation performance, manufacturing creation performance, and management creation performance, to measure creation performance. The reason is that the last two dimensions, organization creation performance, and strategy creation performance, are less studies and difficult to measure). In consequence, it is not appropriate to be adopted by this research. Therefore, three evaluation indexes for creation performance evaluation include product creation performance, manufacturing creation performance, and management creation performance (Yeh, 2005).
Source: This study
Table 2-1: Evaluation of Product Creation Performance
Author Evaluation Indicator
Cooper (1985)
- ratio of new products on whole sales in the past five years
- proportion of successful product development in the past five years - proportion of product development that either failed or quitted in the past
five years
- proportion of product development that reached goals in the past five years
-the importance of the innovation project to the sales and profits - profits from new product development are more than investment - the degree of success in comparison with the competitors - the success degree of the whole development project Ruekert (1987)
and Yeh (2005)
- effectiveness, including success probability and marketing growth rate in comparison with the competitors as well as the profile of market sharing - efficiency, including profit and return on investment
- adaptability, including success rate of marketing new products and sales proportion of new product in the past five years
Cooper and Kleinschmidt
(1987)
- financial performance, including degree of achievement of new product profit goal and sale goal, degree of satisfaction on profits, duration of investment return, and profit rate and marketing power,
- impact on marketing, including variation of both domestic and foreign marketing share, variation of ratio of new product sales on whole sales, and the difference between net sales and expected sales
Barczak (1995)
- difference between net sales and expected sales
- difference between actual marketing share and expected marketing share - profit rate of new product
- degree of satisfaction on the whole new product development
Atuaheme-Gima (1996)
- market share
- sales, growth and profit objectives
- the degree to which the new product/service provided opportunities for cost efficiency, gave proprietary advantage to the firm, enhanced sales of other product/services, opened up new markets, and improved sales and profitability of other products/service to the firm
Souder and Song (1998)
- market share - duration of return - profits
- customer satisfaction
- contribution to be a technology leader - contribution to be a domain leader Wu (2000)
- creation for manufacturing processes - creation for new products
- creation for organization - creation for strategy
Lin (2001)
- quality improvement of product - creation of features
- efficiency of product commercialization - market share
- profit rate of product
- competition improvement of new product
Table 2-2: Evaluation of Manufacturing Creation Performance
Author Evaluation Indicator
Wheelwright (1978)
- efficiency, including cost efficiency and capital efficiency - flexibility, including product flexibility and output flexibility
- quality, including product quality, service quality, delivery speed, and repair quality
- reliability, including the promised delivery due date, price, and product commitment
Schroeder et al.
(1989)
- business outcome, including profit, return on asset, growth, and market share
- manufacturing outcome, including the rate of cost of sales to sales, unit manufacturing cost, consistent quality, service level, inventory turnover, unit employee sales and flexibility
Leong et al.
(1990)
- cost, including unit product cost, unit labor cost, unit material cost, total manufacturing cost, inventory turnover, equipment usage rate, direct labor cost, indirect labor cost,
- quality, including defect rate, product failure rate, design change frequency, supplies’ quality
- delivery due date, including delivery on time, inventory condition, delay delivery time
- flexibility, including ability to response outcome change, ability to product specification change, ability to adjustment manufacturing technology in the change of commodity combination, ability to cope with machine stop, ability to adjustment of material delivery uncertainty
- innovation, including the ability to new product introduction, and R&D expenditure
Vonderembse (1999)
- the proportion to commodity-reproducing cost - unit manufacturing cost
- quality cost
- the proportion of manufacturing inventory
- the proportion of delivery commodity on time away from firms
Source: This study
Table 2-3: Evaluation of Management, Organizational, and Strategic Creation Performance
Dimensions Author Evaluation Indicator
Management Creation Performance
Venkatraman (1986)
- financial performance: business’s economic goal and traditional evaluation method, containing the profit rate and earnings per share
- business performance: financial performance and operating performance which is non-financial performance, including market share, the new product introduction, product quality, and marketing efficiency, etc.
- organizational efficiency: the most general definition of organizational performance, except for two former indexes, adding the solution to conflict in the process of achieving goals and the satisfaction with stakeholders’ goals
Organizational Creation
Performance Wu (2000)
- the ability and experience of doing with international sales, repair or service
- establishing and improving international brand - planning and managing international distribution Strategic
Creation Performance
Wu (2000)
- new product/service position
- new usages and redistribution of value activities
Source: This study
2.2 Organizational Culture
It is believed that cultures can highly affect what people do, and therefore organizational culture seems to be a critical factor in the success of any organization (Syrett and Lammiman, 1997; Tushman and O'Reilly, 1997). This implies that organizational culture can lead to successful organizations. Generally, culture is regarded as a common value in things or a familiar behavior that society members inherit (Wallance, 1970; Geertz, 1973; Smircich, 1983). By learning and socialization in which multi elements interact, a culture can be formed. Van Maanen and Schein (1979) defined the organizational culture as “a common value, belief, and perspective model that organization can share; its consequence becomes social regulations that may explicitly shape or control members’ behavior.” An organization can develop its own culture that contains assumptions, understanding for things, and implied rules that dominate the members’ behavior.
By three different levels, Schein (1984) indicated that an organizational culture includes artifacts, values, and assumptions. Artifacts are substantial and are material elements of a cultural system, including system, technique, ritual, symbols, etc. Value is favorites that guide behavior and explain the background driven from company’s strategy, goals, and philosophy. Assumptions are invisible, the deepest belief, thought and feeling, taken for granted, and functions as the core culture elements. From a review of literature in organizational behavior, sociology, and anthropology, Deshpandé and Webster (1989) defined organizational culture as “the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms of behavior in the organization”. The most commonly known definition is “the way we do things around here” (Lundy and
Cowling, 1996). In other words, it is the commonly acceptable way in which things are done or problems should be understood in the organization. The components of routine behavior, norms, values, philosophy, rules of the game and feelings all form part of organizational culture (Hofstede et al., 1990; Smit and Cronje, 1992;
Hellriegel et al., 1998). Sackmann (1992) mentioned that culture might be the
“ideologies, a coherent set of beliefs or basic assumptions, a set of shared core values, important understandings, the collective will, and collective programming of the human mind.” Therefore, this study adopts the definition by Schein (1984) and DiBella (1996) that organizational culture is defined as the deeply values and beliefs shared by personnel in an organization. It can be observed first from the phenomena of an organization, second from the value driven by the organizational strategy, and third from the deepest belief, thought, and feeling. Regulations from these continuously dominate members’ behavior and attitude.
Regarding the characteristics of culture, Quinn (1988) proposed four culture characteristics, including market, adhocracy, hierarchy, and clan. The market culture underlines competitiveness and goal achievement (Cameron and Freeman, 1991).
Transactions are governed by market mechanisms (Ouchi, 1980). The key measure of organizational effectiveness is productivity achieved through the market mechanisms.
The adhocracy culture emphasizes values of entrepreneurship, creativity, and adaptability. Flexibility and tolerance are important beliefs and effectiveness is defined in terms of finding new markets and new directions for growth. The hierarchy culture emphasizes order, rules and regulations. The clan culture aims mainly at cohesiveness, participation, and teamwork. The commitment of organizational members is ensured through participation, and organizational cohesiveness and personal satisfaction are rated more highly than financial and market share objectives.
Quinn (1988) uses two dimensions to describe these characteristics. One is to describe the continuum from organic to mechanistic processes, that is, whether the organizational emphasis is more on flexibility, spontaneity, and individuality or on control, stability, and order. The other is to describe the relative organizational emphasis on internal maintenance (i.e. smooth activities, integration) or on external positioning (i.e. competition, environmental differentiation). By using Quinn(1988)’s organizational culture characteristics, Deshpandé et al. (1993) studied how these variables are coupled with culture, customer orientation, and innovations influence on Japanese firms’ performance. The organizational culture characteristics in this study are according to those by Quinn (1988), Cameron and Freeman (1991) , and Deshpandé (1999).By that, four characteristics, market culture, adhocracy culture, hierarchy culture and clan culture, are selected, showed in Table 2-4.
Source: Quinn (1988), Cameron and Freeman (1991), and Deshpandé (1999)
Table 2-4: Four Organizational Culture Characteristics
Market Adhocracy Hierarchy Clan
Dominant
Although there are four different characteristics of culture, it is noted that they are
Although there are four different characteristics of culture, it is noted that they are