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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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Shu-Mei Tseng Pei-Shan Lee , (2014),"The effect of knowledge management capability and dynamic
capability on organizational performance", Journal of Enterprise Information Management, Vol. 27 Iss 2 pp.
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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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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.

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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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 firms
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 firms 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
upgrading is how a firm is engaged in building new capabilities through learning from Organizational
organizations, creating new skills, or revitalizing existing skills in new circumstances. performance
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 161
the ability to assimilate individual knowledge with the units 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 firms 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
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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).

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
JEIM measured based on financial performance, business performance, and organization
27,2 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
162 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,
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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.

3. Conceptual model and hypotheses


This research investigates the relationship among KM capability, dynamic capability,
and organizational performance to understand how to apply an enterprises 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
Knowledge
H3 Organizational
management
performance
capability

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.

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).
JEIM Teece et al. (1997) and Eisenhardt and Martin (2000) also pointed out that enterprises
27,2 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
164 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
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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.
If an enterprise is able to acquire the right knowledge and integrate both external and Organizational
internal knowledge, it is possible to enhance organizational performance (Scherer, 2000). performance
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 165
study proposes the following hypothesis:

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


performance.
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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.

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
JEIM Variable Type % Variable Type %
27,2
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
166 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 3.0 High-level manager 14.2
Undergraduate 58.2 Years of work o1 year 7.8
Graduate 34.1 experience 1-3 years 9.5
Post-graduate and
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Type of above 4.7 4-6 years 15.1


occupation Service industry 62.9 7-9 years 11.6
Manufacturing
companies 16.4 10-12 years 9.9
Table I. High tech industry 14.2 13-15 years 9.5
Demographic Others 6.5 X16 years 36.6
characteristics of
the responding firms Note: n 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 (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.

5. Analysis and results


5.1 Pearsons 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
Factors Measurements Sources of previous research
Organizational
performance
Knowledge We are already equipped with adequate Gold et al. (2001), Chih et al. (2008),
transfer professional knowledge Fan et al. (2009), Tanriverdi (2005),
We able to proactively obtain Aujirapongpan et al. (2010)
new knowledge
We are adept in utilizing information
technology to search and obtain the
167
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
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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
Knowledge Our company is already equipped with the ability
protect 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 Table II.
We are already equipped with the concept of Measurements of
knowledge protection KM capability
JEIM Factors Measurements Sources of previous research
27,2
Sensing We frequently scan the environmental Luo (2000), Zahra and George (2002), Sher
capability changes to identify new business and Lee (2004), Wang and Ahmed (2007),
opportunities Pavlou and El Sawy (2011)
We periodically review on how
environmental changes influence on
168 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
Integrating We periodically absorb new information
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capability 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
Table III. same industry, we possess better
Measurements of communication skills and coordinating
dynamic capability capability

significant level (**po0.01). 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
Sources of previous
Organizational
Factors Measurements research performance
Financial Our sales amount is very high Lee and Choi (2003), Maltz
performance Our profit rate is very high et al. (2003), Tippins and
Our revenue is very high Sohi (2003), Im and
Our return on investment is very high Workman (2004), Shang and
Non-financial Our company is able to grasp the right timing Marlow (2005), Bolat and
169
performance for launching new products or services Yilmaz (2009)
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
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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 staffs leadership
Our company puts high value on our staffs
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 Table IV.
of new market Measurements of
Our company vigorously invest on the development organizational
of new technology 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 (**po0.01). 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
performance are shown in Table VII. The b values, p-value and adjusted R2 for KM
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 R2 for dynamic capability on
organizational performance are 0.897, 0.000 (**po0.01), and 0.592, respectively. This result
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
JEIM Convergent validity
27,2 Constructs Items (item to total correlations) Reliability (Cronbachs 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;
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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

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
Sensing capability Integrating capability Dynamic capability
Organizational performance
Correlation coefficient 0.708** 0.733** 0.770**
p value 0.000 0.000 0.000
Table VI.
The correlation analysis Note: **po0.01

capability will have a positive effect on the degree of organizational performance. Hence,
H2 is proven valid. The b values, p-value, and adjusted 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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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 R2 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^ 0:148 0:203X1 0:735X2 e, (where y^ is
organizational performance, x1 is KM capability, x2 is dynamic capability). All
variables showed a positive significant relation. The adjusted R2 is 0.600 and the
explained variation for all variables is higher. Therefore, it means that KM capability
and dynamic capability will have significant effects on organizational performance.

Variable b SE Beta t-value p-value

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.

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 0.628. The total value of KM capability on organizational performance
is 0.685 0.815  0.770 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 Pearsons 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,

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
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
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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 Pearsons 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 units 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 firms market value and organizational
performance. In other words, valuable, rare resources, and capabilities do not assure
a firms 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.
JEIM 7. Conclusions
27,2 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
174 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.
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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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Further reading
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Development Review, Vol. 2 No. 4, pp. 337-359.
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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