The intersection of the resource-based view and the knowledge-based view of the firm lays the theoretical grounding for this study.
2.1. Resource-based view and knowledge-based view
The resource-based view posits that firm competitiveness comes from unique bundles of tangible and intangible assets that are valuable, rare, imperfectly imitable, and sustainable (Barney, 1991). The resources a firm possesses include management skills, organizational processes and routines, and the information and knowledge it controls (Barney, 1991). Firm resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge, and others, as controlled by a firm (Daft, 1995). Organizational structure, culture, and strategy are three key organizational assets that have been studied extensively in their association with organizational effectiveness. However, how they pass their influence onto organizational effectiveness is an understudied question.
The knowledge-based view of the firm is at the center of the resource-based view (Conner and Prahalad, 1996). The knowledge-based view of the firm holds that the firm's capability to create and utilize knowledge is the most important source of a firm's sustainable competitive advantage (Grant, 1996, Kogut and Zander, 1992, Nonaka, 1991 and Prahalad and Hamel, 1990). Nonaka (1991) observes that, in the current economy, where “the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge” (p. 96).
2.2. Knowledge management and organizational effectiveness
Knowledge management encompasses the managerial efforts in facilitating activities of acquiring, creating, storing, sharing, diffusing, developing, and deploying knowledge by individuals and groups (Demerest, 1997, Rowley, 2001 and Soliman and Spooner, 2000). Many frameworks for knowledge management processes have been identified. This study examines three processes that have received the most consensus: knowledge generation, sharing, and utilization (Davenport and Prusak, 1998). Knowledge generation refers to the process in which knowledge is acquired by an organization from outside sources and those created from within (Davenport and Prusak, 1998). Knowledge sharing, also called knowledge transfer or knowledge diffusion, refers to the process by which knowledge is transferred from one person to another, from individuals to groups, or from one group to another group (Davenport and Prusak, 1998). Knowledge utilization, also called knowledge application or knowledge implementation, refers to the process that is oriented toward the actual use of knowledge (Gold et al., 2001).
Organizational effectiveness is “the degree to which an organization realizes its goals” (Daft, 1995, p. 98). In this study, measures assessing organizational effectiveness were adopted from Lee and Choi (2003) which encompass organizational members' perceptions of the degree of the overall success, market share, profitability, growth rate, and innovativeness of the organization in comparison with key competitors.
How well knowledge is managed contributes to organizational effectiveness. “It is what the organization comes to know that explains its performance” (Argote and Ingram, 2000). Some empirical studies confirm a significant linkage between knowledge management and organizational effectiveness. For example, knowledge creation and sharing have been found to contribute to improved performance and innovation (Darr et al., 1995, Epple et al., 1996 and McEvily and Chakravarthy, 2002). Knowledge integration could lead to product development effectiveness, reduced defect density, lowered warranty defects, and increased software development efficiency (Tiwana, 2004). Based on these and other studies, it is hypothesized that knowledge management positively contributes to organizational effectiveness.
H1. Knowledge management (including knowledge generation, knowledge sharing, and knowledge utilization) relates positively to organizational effectiveness.
2.3. Mediating role of knowledge management
Knowledge management serves not only as an antecedent to organizational effectiveness, but also a medium between organizational factors and effectiveness. Knowledge resources are an outcome of organizational culture, structure, and strategy, because knowledge is created, made sense of, and utilized in accordance with a set of cultural values and norms, embedded in structural relationships, and reflected in strategic priorities. For example, knowledge sharing practices are affected by cultural expectations such as what knowledge should be shared with the organization and what should be hoarded by individuals, by structural relationships such as how quickly the knowledge flows through formal reporting relationships, and by strategic priorities such as what knowledge is to be paid attention to and what to be ignored. In turn, organizational knowledge reflective of cultural, structural, and strategic characteristics of the organization is utilized to help produce new products and services, improve efficiency, and enhance effectiveness (Nonaka et al., 2000). Grant (1996) suggests that the challenge of the knowledge-based view of the organization is effective coordination among organizational members as their knowledge is specialized and needs to be integrated. The division of tasks between individuals and departments and the specification of the interface between them lies within the domain of organizational design (Grant, 1996). Organizational culture, structure, and strategy constitute critical dimensions of organizational design. Their influence on organizational effectiveness may be channeled through their interface with knowledge management.
The study findings shed light on several unresolved issues in the literature as stated in the Rationale section. First, besides providing empirical evidence to the connection between knowledge management and organizational effectiveness, this study suggests that knowledge management could be an intervening mechanism between organizational context and organizational effectiveness. The results support the knowledge-based view of the firm in that knowledge management is not only an independent managerial practice, but also a central mechanism that leverages organizational cultural, structural, and strategic influence on organizational effectiveness. It also corresponds with Penrose's (1959) opinion that the usefulness of organizational resources varies with changes in organizational knowledge. Knowledge management serves as a key leverage point in organizations.
Second, organizational strategy exerts a significant impact on organizational effectiveness above and beyond that of organizational context, although its effect is reduced when organizational culture and structure are taken into consideration. It also has a significant impact on knowledge management. These findings warrant further exploration of strategy's relationship with knowledge management.
Third, this study provides some insights in integrating the resource-based view and knowledge-based view. It reveals that the resources in an organization may be hierarchical. Knowledge may be one step closer to organizational effectiveness in the paths leading from organizational resources to organizational effectiveness. Further exploration is needed to examine this proposition.
Finally, knowledge management was found to fully mediate organizational culture's influence on organizational effectiveness. This finding suggests that how well knowledge is managed is largely associated with how well cultural values are translated into value to the organization. Further, culture has a greater contribution to knowledge management than other factors examined. This may be due to the fact that culture determines the basic beliefs, values, and norms regarding the why and how of knowledge generation, sharing, and utilization in an organization. This finding strengthens the call for attention to creating an organizational culture that is conducive to learning and knowledge management (Davenport and Prusak, 1998, De Long and Fahey, 2000 and Watkins and Marsick, 1996). Many existing studies have focused on the direct relationship between organizational culture and organizational effectiveness. In the current study, however, it has been shown that organizational culture's influence on organizational effectiveness is negligible when a mediator (in this case, knowledge management) is considered. The results of this study shed light on the inadequacy of examining just the direct linkage between organizational culture and organizational effectiveness. It seems that a logical next step in research on culture and effectiveness could proceed to a deeper level by examining the specific mechanism(s) through which organizational culture influences organizational performance.
Although this study presents substantial answers to some unresolved issues in literature, the results should be interpreted in light of its limitations. A major limitation is that the respondents were mostly the only informant from their organizations. Only 36 companies of the 301 companies had multiple respondents (12%). The single informants may not represent the reality of their organizations as well as multiple informants because single informants may over-report or underreport certain phenomena (Gold et al., 2001).
