Impact of Km Practices on Firms' Performance: A Mediating Role of Business Process Capability and Organizational Learning

• Author: WASIM UL REHMAN, NABILA ASGHAR and KHALIL AHMAD

Abstract

This study tends to examine the mediating role of business process capabilities and organizational learning in order to validate the KM practices driven performance. A mediating model is proposed and confirmatory factor analysis is performed through structural equation modeling to assess the overall measurement model. The results of the study confirm that KM practices have positive and significant association on overall performance of firms and as well intermediate measures (business process capability and organizational learning) have positive and significant connection with KM practices and overall performance of firms. Further, the results of the study reveal that KM practices are partially rooted through business process capabilities and completely mediated by organizational learning.

It suggests that both intermediate measures are complementary for KM practices driven performance more specifically the organizational learning. The results of the study postulate that KM practices provide foundation to KM-driven performance, where business process capability and organization learning are two important drivers for value creation process. An organization has bundle of knowledge resources and capabilities, so it should dedicate its efforts to identify and implement more KM practices as well for the improvement of business process capabilities and organizational learning to better realized KM-oriented performance.

Keywords: Knowledge management, Business process capability, Organizational learning, Firm's performance

1. INTRODUCTION

   In a global dynamic environment, there has been a radical change in the approach of both the academicians and the business community. Demands of competitive world have forced the organizations to strive for the professionally managed end results. Many organizations are shifting towards knowledge driven systems and are utilizing the Knowledge Management (KM) processes and practices to enhance their competitiveness and effectiveness (Guillen, 2000; Rivard et al., 2006; Gold et al., 2001; Mills and Smith, 2011; Zack et al., 2009). The key issue is how to improve the organizational capabilities to make the internal performance recurrent and create sustainable competitiveness in this ever changing environment.

   This research aims towards determining the influence of KM practices on overall performance of firms and further to investigate the mediating role of business process capability and organizational learning. Further, it also attempts to evaluate that how the implementation of KM practices enhance the overall performance of firms. Therefore, this study used KM practices that have more affirmative effect on the performance outcomes (Zack et al., 2009; Nonaka, 1994; Davenport and Prusak, 1998; Choi and Lee, 2003).

   Today knowledge derives the economy. Many studies considered knowledge as a primary source of input for value creation rather than the physical or traditional capital, such as land, equipment, and raw material (Gold et al., 2001; Wu and Chen, 2014; Zack et al., 2009). Prior research suggests that achieving outstanding performance outcomes is not only dependent on the effective placement of physical assets but also on the management of knowledge resources and capabilities (Gold et al., 2001; Lee and Sukoco, 2007; Mills and Smith, 2011; Zack et al., 2009). KM has emerged as an important concept over the last fifteen years; therefore it builds upon the extension of resource based view (RBV) into knowledgebased view (KBV). Organizations are substantially investing on KMinitiatives for the purpose of effective maintenance and flow of knowledge within and outside of the organization.

   RBV suggests that organizations have bundle of knowledge resources and capabilities, which are valuable, rare and non-substitutable, used for achieving sustainable competitive advantage and superior performance standards (Barney, 1991; Karkoulian et al., 2013). Karkoulian et al. (2013) postulate that knowledge resources are unique and imitable tends to provide competitive advantage.

   KBV is an extension of RBV (Spender, 1996; Guillen, 2000; Rivard et al., 2006). It suggests that identification of knowledge resources, assets and capabilities perform important role for KM practices driven performance (Tanriverdi, 2005; Gold et al., 2001; Zack et al., 2009). It is widely recognized that knowledge is a critical strategic resource for sustainable competitive advantage (Zaied et al., 2012; Choi et al., 2008; Bollinger and Smith, 2001; Teece, 1998; Grant, 1997). It has become an important factor in addition to previously well-known factors such as land, labor and capital (Sher and Lee, 2004). In current era, if the managers are asked to underline any single resource, which is most critical for them to achieve sustainable competitive advantage, that might be "knowledge". Keeping in view, the importance of knowledge as a strategic valuable resource motivates the practitioners to pay more attention towards KM strategies.

   The extant of literature shows that organizations are substantially investing on KM initiatives in order to acquire and exploit this strategic resource in a better way (Sarvary, 1999). Capturing most valuable knowledge and distributing it effectively throughout the organization is a critical issue for many organizations. Therefore, KM has become the main priority for all the organizations due to its linkage with different performance measures (Bhojaraju, 2005). Therefore, from the above discussion it may be concluded that the vital resource of today's organization is the collective knowledge that resides in the minds of people (Davenport and Prusak, 1998).

   Considering KM as an area of academic research, a number of journals have published the different theoretical models for KM maturity. Several empirical studies are available in the literature that have primarily focused on the relationship of KM with organizational performance (Zack et al., 2009; Nonaka, 1994; Davenport and Prusak, 1998; Choi and Lee, 2003; Marques and Simon 2006). Although this part of study provides some valuable insights using some intermediate measures (business process capability and organizational learning) that help to confirm the flow of relation of KM with organizational performance. As discussed above, there are massive empirical studies attempted to examine the relationship of KM practices with performance outcomes (Zack et al., 2009; Marques and Simon 2006).

   Possibly, the most significant gap is lack of studies to determine the relationship of KM practices with performance through intermediate measures. Few survey studies have been conducted to examine the KMdriven performance with other factors (Wu and Chen 2014; Moffett et al., 2003; McCann and Buckner, 2004). Therefore, this exploratory quantitative study is conducted to investigate the nature of relationship between KM and performance with the help of intermediate measures to set the evidence. The main objective of this study is to frame organization's competitive strategies with the help of KM and intermediate measures.

   Keeping it in view, the survey has been administered to know respondent's opinion about firms involvement in KM practices because KM is one of the valuable strategic resource for organizations success (Zack, 1999) and as well helps to frame the new business process to achieve better performance outcomes (EasterbySmith and Lyles, 2003; Wu and Hu, 2012; Wu and Chen, 2014).

   Studies have also developed a competence-based view (CBV) regarding the importance of the KM practices of the firms. Marques and Simon (2006) agree that by adopting KM practices a firm could obtain better results as compare to its competitors. Further, KM enables to launch new business processes to obtain better performance outcomes (Easterby-Smith and Lyles, 2003; Wu and Hu, 2012). Business processes work as mediator role for KM-enabled performance in value creation process. Kaplan and Norton (2001) attempted to examine the relationship of internal processes with performance through BSC balanced scorecard. Similarly, organizational learning is also an important mediator for KM-driven performance which continuously helps to identify, create, and utilize the knowledge in an effective way (Chiva and Alegre, 2005; King, 2009; Zhao et al., 2013; Wu and Chen, 2014).

   Spender (2008) describes that organizational learning is all about management of newly created knowledge. This confirms that both business processes and organizational learning are important mediators for KM practices driven performance (Easterby-Smith and Lyles, 2003; Wu and Hu, 2012; Wu and Chen, 2015).

   The results of study reveal positive connection between KM practices and overall firms' performance as suggested in prior KM literature (Nonaka, 1994; Davenport and Prusak, 1998; Choi and Lee, 2003; Simonin, 1997; Tanriverdi, 2005; Marques and Simmon, 2006; Darroch and McNaughton, 2002) and among others. More specifically, it is found that KM practices are directly related to intermediate measures (namely business process capability and organizational learning) and in turn these intermediate measures create positive and significant link with overall firms' performance. Moreover, the results of study also confirm that business process capabilities partially mediates the relationship between KM practices and overall performance and whereas, organizational learning completely mediate the relationship of KM practices and overall performance.

   So, results indicate that this type of partially mediating role of business process capabilities are in line with generally suggested by previous KM-based literature (Easterby-Smith and Lyles, 2003; Wu and Hu, 2012; Wu and Chen 2014) and for organizational learning completely mediate the relationship of KM-driven performance are also consistent with earlier studies (for details see Zhao et al., 2013; Chiva and Alegre, 2005; King, 2009). It may be concluded that...