The chapter presents an overview of the research. It includes background, purpose, questions and hypotheses, significance, delimitations, and limitations.
Background of Study
For the last century, the world has swiftly moves from its industrial economic base, which mostly depends on tangible assets, toward a knowledge base which is tied to the capability of developing and managing knowledge resources. The knowledge economy is built on continuous dynamic value creation, and profits are increasingly coming from knowledge creation, integration, and system-solutions instead of from tangible assets. This change is uprising globally due to the increase of travellers, expenditures, immigration, and communication technologies, making the world more connected and interdependent. Globalisation has facilitated the exchange of goods, services, labour, information, and most importantly, the share of unique ideas and knowledge. Beside all the mutual gains brought by globalisation, competitiveness is accordingly increasing. Short product’s life cycles and a rapid change rate in customers’ needs and preferences are considered typical features as well as challenges of the current industrial paradigm.
In such a competitive era, the top way to acquire sustained competitive advantages is continuous innovations, depending on different organisational, technological, and marketing abilities to effectively deliver a lasting flow of innovative products and services to customers (Teece, Pisano, & Shuen, 1997). The importance of innovation has been underscored by preliminary research stating that it can increase market share, production efficiency, productivity, and revenue (Shefer & Frenkel, 2005; Van Auken, Madrid, & Gracia, 2008). Tidd, Bessant, and Pavitt (1997) also marked that organizations which use innovation to differentiate their products are on average twice as profitable as other organisations.
In this sense, a huge amount of research has been dedicated to dissecting innovation’s components. Different theories, namely, ‘Knowledge-based view’ or ‘Intellectual capital-based view’ (Reed, Lubatkin, & Srinivasan, 2006), have been developed in management literature.
They declare that firms’ innovative capabilities rely largely on knowledge and intellectual assets that firms own and on their ability to utilize those assets (Subramaniam & Youndt, 2005).
In accordance with the above notion, knowledge is of overriding importance to companies that achieve their competitive advantages through knowledge and innovation. Those companies, notably in high-tech industries, must develop management practices, organisational structures, and employees’ skills and capabilities to remain competitive. Take an example of Dell – a company famous for manufacturing and process innovation, is now shifting towards creating and providing knowledge-intensive solutions for businesses and individuals. This movement manifests the fundamental characteristics of what is needed to succeed in the rapidly changing industry. Controlling intellectual assets helps to increase firms’ possibilities of entering new markets, creating better products, and earning first movement advantages, especially in high-technology stock (Hayton, 2005). As Drucker (1993) states that “knowledge is the only meaningful resource today […] And knowledge in this new sense means knowledge as a utility, knowledge as the means to obtain social and economic results” (p. 42, 44-45).
The importance of knowledge has been recognized for a long time. Knowledge is the only source of superior power and the most crucial driver of force and wealth (Toffler, 1990). In business context, knowledge is the fundamental basis of competition (Zack, 1999). However, the sole act of owning knowledge itself does not warrant strategic advantages; companies must explicitly manage their intellectual resources (Zack, 1999). That leads to the need of Knowledge Management (KM). KM has been developing into big business and growing explosively.
Corporates spend millions of dollars on KM projects and tools such as software, platform, search engines, and etc. KM conferences are held all around the world, there are journals dedicated to KM, and academic discussion about KM has always been on the table.
With the increase of organisations’ attention to KM and Innovation, this research intends to investigate how these two elements affect each other and business performance. Consequently, suggestions for practitioners and researchers in the field can be obtained more comprehensively.
Purpose of the Study
In a fast-changing market, innovation is indispensable for companies to adapt and survive.
Therefore, developing a KM strategy that will effectively facilitate firms’ innovation is crucial.
Thus, many researchers have devoted to achieving a better understanding about the relationships among those variables.
With the above assumptions, the purposes of this research are:
1. To analyze and examine how KM strategies affect Innovation.
2. To analyze and examine how Innovation affects Business Performance
3. To examine and analyze whether Innovation transfers the effects of KM strategies to Business Performance.
Questions of the Study
The research questions are as follows:
1. Do different KM strategies (human-oriented and system-oriented) have effects on Innovation?
2. Does Innovation have effects on Business performance?
3. Does Innovation transfer the effects of KM strategies to Business performance?
Significance of the Study
Research in the Knowledge field is important because knowledge is the only key to coping with and surviving the rapid changing environment. As Don Tapscott articulated in his book – The Digital Economy (Tapscott, 1996):
Today we are witnessing the early, turbulent days of a revolution as significant as any other in human history. […] The computer is expanding from a tool for information management to a tool for communication ... enabling a new economy based on the networking of human intelligence […] For individuals, organizations, and societies that fall behind, punishment is swift ... This is an age of networking not only of technology but of humans, organizations, and societies (p. 01).
This trend of constant change requires businesses to transform themselves in order to adapt and thrive in the new demanding era. Transformation happens in the way jobs are designed, in the way people contribute to their companies, and in the way companies recognize and manage their vital assets – their knowledge resource. The role of knowledge resource has become widely recognized as successful organizations are those that constantly innovate, depending on technologies, and their employees’ knowledge and skills, rather than physical assets such as properties, buildings, or machinery (Guthrie, Petty, & Ricceri, 2007). Some of the companies that are famous for gaining huge success thanks to their nonstop innovation nowadays are Apple, Google Inc., Samsung, etc.
Also, it is broadly recognized that the management of knowledge generates value; but not so obvious is the link between the management practice and organizational performance. Thus, literature has expressed the need to study KM in more depth. Mouritsen (2004) stated that companies struggle to specify how decisions can develop knowledge and translate it into desirable effects. That’s why KM strategies are demanded to be integrated.
Nevertheless, building such a strategy is a challenging mission, considering KM system’s failure rates are over 80% for various causes (Storey & Barnett, 2000). Many managers are still unaware of what factors can enhance KM programs’ success (Moffett, McAdam, & Parkinson, 2003), and impacts of KM strategies on innovation and organisational performance have been seldom studied (Choi, Poon, & Davis, 2008), hence, there exists a research gap on which conditions help KM practices enhance business performance.
Thus, the paper attempts to enrich KM literature in general by presenting hypotheses and testing a theoretical model links these streams to address the need for effective KM, and to examine how KM strategies lead to better organizational performance through increasing innovation. Both researchers and practitioners recognize that knowledge management requires the integration of IT systems and people who involve in the systems. Accordingly, the paper will examine links between two KM strategies (system-oriented and human-oriented) and innovation and business performance. Research in KM can take several different approaches. For example, basing on an established theory, or assessing organizational outcome levels (performance). They can also focus on strategic intent and firms’ choices regarding the development of management practices. This research addresses some of these avenues.
For practitioners, the study’s findings may help aid the prediction about which KM interventions are likely to boost efficiency and profitability, thus, develop KM strategies that are effective on driving organizational performance to success. For example, organizations that put stress on tacit knowledge may rely on human-oriented rather than system-oriented KM strategy.
Tacit knowledge has a personal quality that makes it formalization and communication difficult (Nonaka, 1994), thus, requiring interpersonal interaction and collaboration. Therefore, interventions that attempt to build better systems may generate little effectiveness, and are a waste of resources. In contrast, tasks that place heavy demands on the efficiency of system such as analysing or accounting will require organizations’ effort on building a strong system.
Delimitations and Limitations Delimitations
Delimitations of the study are its extent which is intentional to make the research feasible.
With that intention, the study is delimited to information technology industry. The study will only examine the relationships among variables which are KM strategies, Innovation and Business performance. Data was collected only by online questionnaire.
Limitations
Despite much of the researcher’s efforts, the study has some limitations that can be attended to by future research which are: research is conducted only among employees working for IT companies, and hence, research results cannot be generalized for other contexts; research data covers only a certain period of time the sample size is relatively small (N = 219), which may constrain the generalizability of the results; and only one KM strategies measurement, one Innovation measurement and only one business performance measurement were employed. Also, the measurement scales for these variables can be enhanced by including more indicators to better explain their variance. As the research’s extent mainly concerns maximizing its feasibility, this work can accept these limitations. Some strong points of the study that lend more credibility to the findings are the significance of all hypothesized relationships, thus, support the theoretical model, the use of SEM, the validation for the measurement scales’ quality achieved with various tests, and the details on direct, indirect, and mediating effects.
Definition of Terms Knowledge Management Strategies
Modern KM is an emerging discipline and still in an immature state – with many concepts and ideas still evolving. The lack of clear definition can be quite confusing for observers, practitioners, and academics. In order to better comprehend the notion of KM many researchers have approached it from different perspectives such as conceptual perspective, process perspective, implementation perspective, management perspective, etc. With different perspectives come different definitions. In this research, KM strategies will be defined as the overall approach an organization intends to take to align its knowledge resources and capabilities to the intellectual requirements of its strategy (Zack, 1999).
Innovation
Innovation will be defined as a structure or administrative system, a policy, a plan or program, a production process, a product or service that is new to the company, which has been acquired or generated internally (Daft, 1982; Damanpour & Evan, 1984).
Business Performance
The term ‘business performance’ has been commonly used by both academics and practitioners in all business-related areas, especially in strategic management area. In general, performance can be understood as an evaluation, quantitative or qualitative, of those that are produced as a result of an intended and planned activity (Yildiz, 2010). BP in this research will refer to economic aspects of organizational performance. Hence, BP was measured by outcome-based financial indicators. Measuring BP helps to ascertain whether organizations meet the needs of their clients, discover what they know and do not know about their activities to have a general vision of how successful they are. It also helps to make sure that organizations’ decisions are not given out of emotions or assumptions but based on real data, and to determine areas that can be better developed.