Knowledge Management as Dynamic Capabilities: Does It Work in Emerging Less Developed Countries? Que Thi Nguyet Nguyen Graduate College of Management Southern Cross University, Australia Email:
[email protected] Telephone: 07 5599 1950 Fax: 07 5506 9301 Dr. Philip A. Neck Graduate College of Management Southern Cross University, Australia Email:
[email protected] Telephone: 07 5599 3152 Fax: 07 5506 9202 Abstract In the turbulent environments of today, knowledge management as dynamic capabilities have become the key for achieving and sustaining a competitive advantage. However, relevant research to date is mostly conceptual in nature and mainly explored in the context of advanced, developed countries while, at the same time, little empirical evidence has been found in investigating a dynamic capapbility view of knowledge management. This study aims to fill the perceived gaps by developing and empirically testing a theoretical model of knowledge management process capabilities in Vietnam, an emerging Asian less developed economy. The key findings supported the dynamic capability view of knowledge management demonstrating that knowledge management process capabilities significantly contribute to a firm’s competitive advantage, among which knowledge application processes were found to be the most important dimension. Keywords: knowledge management processes, dynamic capabilities, competitive advantage.
Introduction In today’s dynamic markets of rapid and unpredictable changes, the dynamic capabilities defined as ‘complex, higher order organisational processes which provide adequate conditions for the modification and renewal of the firm’s stock of business assets’ (Lopez, 2005) have become the source of sustained competitive advantage. One key implication of this concept is that in the current turbulent environments, firms are not only competing on their ability to exploit but also on their ability to renew and develop their existing resources and organisational capabilities, enabling firms to react to changing market conditions, thereby achieving and sustaining a competitive advantage (Nielsen, 2006; Teece, Pisano, and Shuen, 1997; Winter, 2003). As such, knowledge management processes that change, renew and exploit the knowledge-based resources of the firm can be seen as an integrated set of dynamic capabilities (Nielsen, 2006). The central role of managing knowledge-based resources in connection with competitive advantage (CA) has been strongly emphasised in the extant literature of strategic and knowledge 1
management (KM). Despite the growing interest in these issues, however, most previous studies are conceptual in nature and mainly grounded in the context of advanced, developed countries while solid empirical evidence using the dynamic capability view (DCV) of KM has been sparse. Thus, this study, based on results of a survey conducted in Vietnam, aims to answer the main research question ‘Does KM processes as dynamic capabilities work in the context of emerging less developed countries and thereby contribute to organisational CA?’. The paper begins with the dynamic capability based approach of KM coupled with a review of conceptual and empirical studies on KM processes and their links to organisational outcomes. Drawing on the literature review and the theoretical issues discussed, two main research hypotheses are proposed, followed by an outline of the methodology employed for data collection and analysis. The last section presents and discusses the results of data analysis, the practical implications, and suggests the future research directions. The key findings supported the DCV of KM in the context of a rapidly emerging less developed economy of Vietnam, demonstrating that KM process capabilities significantly contribute to a firm’s CA. Application processes, i.e. using knowledge to solve new problems, to improve efficiency, to react to changing competitive conditions and taking advantage of new knowledge were found to have the major influence on organisational competitiveness. Literature Review This section deals respectively with a dynamic capability view of knowledge management and a review of knowledge management process capabilities. Dynamic Capability View of Knowledge Management To adequately explain the process via which certain firms reach positions of CA in dynamic markets or in situations of rapid and unpredictable changes, the resource-based view (RBV) and the knowledge-based view (KBV) of the firm have been extended to an approach based on dynamic capabilities (Eisenhardt and Martin, 2000; Lopez, 2005). Dynamic capabilities refer to the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece, Pisano, and Shuen, 1997, p.516). Supporting this argument, Eisenhardt and Martin (2000, p.1106-1107) emphasise that dynamic capabilities are organisational and strategic routines by which firms enhance existing resource configurations in the pursuit of long-term CA (RBV’s logic of leverage) and achieve new resource configurations in the pursuit of temporary advantages (logic of opportunity) when markets emerge, collide, divide, evolve and die. As such, DCV provides adequate conditions for the development and renewal of a firm’s stock of business assets, allowing them to adapt to external change and remain competitive (Lopez, 2005). By adopting the dynamic capability approach blended with a knowledge-based perspective, Nielsen (2006) argues that KM processes that change, renew and exploit the knowledge-based resources can represent knowledge related dynamic capabilities of the firm. In particular, KM processes create flows to and from the firm’s stock of knowledge, thereby not only generating new knowledge but also changing the state of knowledge-based resources in consideration. Such
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a renewal, development and exploitation of knowledge are central in connection with creating and sustaining a CA in today’s dynamic markets. The following section provides a summary of previous studies dealing with the association between KM process capabilities and organisational outcomes. Review of Knowledge Management Process Capabilities Extending the traditional notion of organisational resource-based capability to KM function, a firm’s KM capability is defined as ‘its ability to mobilise and deploy KM-based resources in combination with other resources and capabilities’, leading to sustainable CA (Chuang, 2004, p.460). Table one (1) presents a summary of prior conceptual and empirical research on KM capabilities conducted since 2001. The columns show the names of authors and the KM enablers as the antecedents for KM processes. The research objectives, as displayed in the last column, are mainly to investigate the connection between KM enablers, KM processes and identify their impacts on organisational outcomes such as KM effectiveness, organisational effectiveness, CA, and firm performance. Using this table the study has identified perceived gaps in the relevant literature and adapted prior research to develop theoretical issues and statistical hypotheses to address the research question. Viewed from resource-based and knowledge-based perspectives, Gold, Malhotra, and Segars (2001), followed by Smith (2006) are among the first KM researchers to empirically examine KM infrastructure and process capabilities as direct determinants of organisational effectiveness. Meanwhile, the model of Lee and Choi (2003) was developed by Migdadi (2005) to measure the impact of KM enablers including structure, culture, people, and technology as antecedents of knowledge creation process to improve firm performance. Similarly, Khalifa and Liu (2003), Gimenez and Rincon (2003) identify a number of factors as the primary sources of organisational effectiveness such as KM strategy, culture, structure, leadership, IT, and KM process capabilities. It is noted that most studies on KM capabilities were grounded in the context of advanced, developed or newly industrialised countries. In a more specific area of KM and CA adopting the dynamic capability approach, apart from a limited number of conceptual papers, work to date is both empirically and theoretically underdeveloped. This paper seeks to fill the identified gaps by empiricially examining the association between KM process capabilities and CA through a largescale survey in Vietnam, an emerging Asian less developed country. The theoretical development is discussed in the following section.
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Table 1: Summary of Previous Studies on Knowledge Management Capabilities Author(s) Nielsen (2006)
Knowledge management enabler NA
- Intellectual capital: Adapted from Gold, Malhotra, and Segars • Structure (2001) • Human • Innovation Adapted from Gold, Malhotra, and Segars’s (2001) model with an additional construct of Business Strategy Adapted from Lee and Choi’s (2003) model with an additional construct of Transformational Leadership
Hsu (2006)
Smith (2006) Migdadi (2005) Chakravarthy et al. (2005)
Gimenez and Rincon (2003)
- Knowledge accumulation - Knowledge protection - Knowledge leveraging - Leadership - Technology - Culture - KM infrastructural capabilities • Leadership • Culture • KM strategy - Information technology - Social perspective: • Structure • Culture • People - Technical perspective: IT - KM strategy
Khalifa and Liu (2003)
Lee and Choi (2003)
Choi and Lee (2002) Becerra-Fernandez Sabherwal (2001)
Knowledge management process - Knowledge creation/acquisition/capture - Knowledge assembly/sharing/integration - Knowledge leverage/exploitation
and
Gold (2001) Gold, Malhotra, and Segars (2001)
- Broad and process-oriented tasks - Focused and content-oriented tasks - Broad and content-oriented tasks - Focused and process-oriented tasks - Technology - Structure - Culture
Research objective/outcome To conceptually explore the association of KM activities and dynamic capabilities to enhance a firm’s CA in dynamic markets. To examine the links between intellectual capital, KM process capability, organisational effectiveness, and CA.
To examine the KM capabilities linked to the business strategy for organisational effectiveness. To find the relationships among KM components (enablers, knowledge creation process, organisational creativity, and organisational performance). - To propose the relationships between knowledge characteristics, KM processes and CA.
- Knowledge creation - Knowledge organisation - Knowledge sharing - Knowledge application - KM process capabilities
To predict what aspects/components of KM would be successful in diverse cultural contexts.
- Knowledge creation: • Socialisation • Externalisation • Combination • Internalisation - Knowledge creation
To find the relationships among KM components (enablers, knowledge creation process, organisational creativity, and organisational performance).
- Knowledge creation - Knowledge acquisition - Knowledge conversion - Knowledge application - Knowledge protection
To identify the effect of IT, KM infrastructure & process capabilities on KM effectiveness.
To depict the link between KM strategy and knowledge creation process. To match different type-oriented tasks with knowledge creation sub-processes and to examine their effect on KM satisfaction. To examine knowledge infrastructure and knowledge process as essential organisational capabilities or preconditions for effective KM and their effect on organisational effectiveness.
Source: Developed for this research 4
Theoretical Development This section discusses the KM processes as dynamic capabilities and their impact on a firm’s CA, leading to two main proposed research hypotheses. Knowledge Management Process Capabilities The most widely accepted definition of KM refers to it as the organisational process capabilities that develop and exploit knowledge to achieve or enhance organisational objectives such as longterm performance, added-value or CA. KM processes are essential to ‘enable the organisation to capture, reconcile, and transfer knowledge in an efficient manner’, thereby providing ‘a useful theoretical foundation for defining important aspects of organisational capability’ (Gold, Malhotra, and Segars, 2001, p.187). Many key elements of this concept have been identified in the literature, however, adapted from Gold, Malhotra, and Segars (2001) and Smith (2006) this study hypothesises that Hypothesis 1: KM process capabilities are a higher-order construct composed of four components, namely knowledge acquisition, conversion, application, and protection processes. Knowledge acquisition Acquisition-oriented KM processes are those oriented toward obtaining knowledge which can be described by many other terms such as acquire, seek, generate, create, capture, and collaborate, all with a common theme – the accumulation of knowledge (Gold, Malhotra, and Segars, 2001, p.190). According to Chakravarthy et al. (2005, p.307) ‘knowledge is accumulated when units within the firm or the organisation as a whole gains new understanding’. Knowledge creation and acquisition are both important sources of new knowledge for a firm of which the former is concerned with the development of new organisational knowledge in the firm, including improved use or new application of existing knowledge, while the latter represents a flow of knowledge from external stocks of knowledge into the firm (Nielsen, 2006). The ability to acquire knowledge is, however, partly based on an organisation’s absorptive capacity (Gold, Malhotra, and Segars, 2001) and the full value creating potential of new knowledge can only be realised through other key KM processes manipulating the created/acquired knowledge. For example, knowledge articulation and capture are necessary for knowledge to be transferred (Boisot, 1998), made availabe to other parts of the organisation (Zollo and Winter, 2002) or included in the firm’s stock of knowledge (Szulanski, 2003). Meanwhile, knowledge assembly and integration deal with assembling and integrating a firm’s knowledge-based resources in the pursuit of organisational capabilities to create and deliver products and services to its customers (Nielsen, 2006). Knowledge conversion Conversion-oriented KM processes are those oriented toward making existing knowledge useful (Gold, Malhotra, and Segars, 2001, p. 191) which can be enabled by several processes such as organise (Davenport and Klahr, 1998; Gimenez and Rincon, 2003; O'Dell and Grayson, 1998), represent (Marshall, Prusak, and Shpilberg, 1996), integrate (Grant, 1996; Nielsen, 2006), combine, structure, coordinate (Miller and Friesen, 1984; Moore, 1996; Sanchez and Mahoney,
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1996), or distribute knowledge (Davenport and Klahr, 1998; Davenport, Jarvenpaa, and Beers, 1996; Zander and Kogut, 1995). According to Lee & Suh (2003), knowledge is not easily shared and collected but needs to be converted for use in the business environment. First, without common representation standards, no consistent dialogue of knowledge would exist, therefore making it hard to effectively manage (Davenport and Klahr, 1998; Gimenez and Rincon, 2003; O'Dell and Grayson, 1998). Secondly, knowledge needs to be integrated and combined if strong organisational capabilities are to emerge (Zahra, Nielsen, and Bogner, 1999). In particular, integration focuses on making the assembled knowledge resources function together in order to create an organisational capability that can form the basis for new products or services (Teece, Pisano, and Shuen, 1997; Winter, 2003), serving as a platform for expansion into new competitive arenas (Prahalad and Hamel, 1990). Finally, knowledge should be distributed to the organisational unit where it is needed (Nielsen, 2006). Knowledge application Application-oriented KM processes are those oriented toward the actual use of the knowledge (Gold, Malhotra, and Segars, 2001, p.191), making knowledge ‘more active and relevant for the firm in creating value’ (Bhatt, 2001, p.72-73). Process characteristics that have been associated with the application of knowledge in the literature include storage, retrieval, application, contribution, and sharing (Almeida, 1996; Appleyard, 1996). According to Nielsen (2006), application processes are related to knowledge leverage and exploitation, among which knowledge leverage entails the search for new ways to exploit the integrated knowledge-based resources of the firm in as many ways and in as many competitive arenas as possible (Hamel and Prahalad, 1994; Wang and Ahmed, 2004). Meanwhile, the performance of a firm is dependent on the ability to exploit its integrated knowledge resources in order to create and deliver products and services to the firm’s customers utilising its organisational capabilities (Nielsen, 2006). The knowledge-based theory of the firm also posits that the major source of competitiveness rests in the ability to apply knowledge and not in the ability to create new knowledge per se (Grant, 1996). Effective application of knowledge has helped companies improve their efficiency and reduce costs (Davenport and Klahr, 1998). Knowledge protection Security-oriented KM processes are those oriented toward the protection of knowledge within an organisation from illegal or inappropriate use or theft (Gold, Malhotra, and Segars, 2001, p.192). Specifically, according to Appleyard (1996), protection encompasses activities that seek to maintain the proprietary nature of a firm’s knowledge stocks which include seeking legal protection (via patents, trademarks and copyrights), designing policies to limit turnover, and educating employees about the types of knowledge they should not share with their peers in other organisations. Firms can also develop technology that restricts or tracks access to vital knowledge (Gold, Malhotra, and Segars, 2001) as well as take a variety of actions to shape characteristics of their knowledge base which increase ‘stickiness’ and imitation barriers, including tacitness, complexity, and specificity (Dierickx and Cool, 1989; Doz, Santos, and Williamson, 2001; McEvily and Chakravarthy, 2002; Reed and Defillippi, 1990).
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When knowledge is applied to existing ends, the size and durability of a firm’s CA will be defined by how well protected its knowledge is (Chakravarthy et al., 2005). It is because knowledge as an asset is the source of a CA only when it is rare and inimitable (Barney, 1991). Therefore, protection processes are very important for an organisation at this point. Adopting the knowledge related dynamic capability approach, the four key dimensions of KM process capabilities discussed above, covering from knowledge acquisition to knowledge protection, explicitly create flows to and from of the stock of knowledge in the firm as well as changing the state of knowledge-based resources in question. Apart from creation/acquisition processes, integration and application can also be sources of new knowledge through the accumulation of experience emerging from these activities. The created/acquired knowledge need to be capture, assembled, transferred, intergrated and/or recombined before use to develop new and strong organisational capabilties which are central in creating and sustaining a firm’s CA in today’s dynamic market place. This relationship is, therefore, illustrated by Hypothesis 2: KM process capabilities have a positive impact on a firm’s CA. Methodology This section deals with developing measures of theoretical constructs and outlining techniques applied for data collection and data analysis in the study. Measurement of Variables All measurement items of variables are based on existing instrument derived from the relevant literature using a seven point Likert scale ranging from (1) ‘strongly disagree’ to (7) ‘strongly agree’. Four constructs, including knowledge acquisition, knowledge conversion, knowledge application, and knowledge protection processes are adapted from Smith’s (2006) study while the measure of CA is originally based on the work of Chuang (2004). For the purpose of this study, the operational definitions of these variables are provided in Table two (2). Table 2: Operational Definitions of Variables Variables Acquisition processes (ACP) Conversion processes (CP) Application processes (APP) Protection processes (PP) Competitive Advantage (CA)
Operational Definitions The ability to seek and obtain entirely new knowledge or create new knowledge out of existing knowledge through collaboration (Inkpen, 1996) The ability to make existing knowledge useful (Gold, Malhotra, and Segars, 2001). How knowledge is actually used and applied (Gold, Malhotra, and Segars, 2001). The ability to secure knowledge from inappropriate or illegal use or theft (Gold, Malhotra, and Segars, 2001). The objective of organisational strategies (Porter, 1985) which is measured in many dimensions such as innovativeness, market position, mass customisation, and difficulty in duplication (Byrd and Turner, 2001)
Source: Developed for this research
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Data Collection Procedure A pilot survey was conducted at a national exhibition of construction firms in Vietnam to preliminarily examine the validity and reliability of the instrument. Questionnaires were directly distributed to 600 senior managers on site and 148 responses were returned with complete data. Based on the pre-testing data, an exploratory factor analysis was performed and coefficient alpha was calcualted. All construct measures were found to have acceptable validity (item-total correlations > 0.5; loadings onto one component and above 0.5; variance extracted > 50%) and reliability with Cronbach’s alpha greater than 0.7 (Hair et al., 2006). The final instrument (as displayed in Table three (3)) was then distributed by mails to 1000 senior managers randomly selected in two largest cities of Vietnam, Hanoi and Hochiminh, from the 2000 Business Directory issued by Vietnamese Chamber of Commerce and Industry, followed up by two reminders to increase the response rate. Data Analysis Techniques The data collected from the main survey was first assessed for missing values, sample characteristics and normality identification. A two-step approach to structural equation modeling (SEM) using AMOS version 6.0 was then applied. Step one was to conduct a confirmatory factor analysis to assess the proposed measurement model fit and construct validity while step two aimed to develop and estimate the structural model for testing the significance of theoretical relationships (Anderson and Gerbing, 1988; Hair et al., 2006). Results and Discussion This section covers the descriptive statistical analyses of the sample followed by an assessment of the overall measurement model and structural model to test the identified research hypotheses. Sample Characteristics After applying pairwise deletion method of missing cases, the final sample included 362 usable responses, producing an acceptable response rate of 36.2% and satisfying the minimum ratio of 5:1 between the number of cases and parameters in the study (Hair et al., 2006; Kline, 1998). The respondents’ characteristics were classified in five categories of gender, age, level of education, job function/position and years in their current company. A majority of the respondents were male (approximately 70%), aged under 50 years old (90%) who obtained at least a bachelor’s degree (80%) and had been working at their current company from 3 to 10 years (nearly 60%) as senior management and in the field of business, sales, and marketing (above 50%). In addition, the respondents’ company profile was analysed on their size, type of business, and basic categories of industry. Most surveyed organisations were small and medium in size employing less than 300 employees (above 80%) and operated in the service industry (nearly 70%). While the majority of the state-owned enterprises were of larger size and operated in manufacturing sector, the service industry employed more smaller-sized private limited and jointstock companies.
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Table3: Final Construct Measurement Scales Construct
Acquisition Process (ACP)
Conversion Process (CP)
Application Process (APP)
Protection Process (PP)
Competitive Advantage (CA)
Measurement Scale My organisation … ACP1: Has processes for acquiring knowledge about our customers ACP2: Has processes for generating new knowledge from existing knowledge ACP3: Has processes for acquiring knowledge about our suppliers ACP4: Has processes for distributing knowledge throughout the organisation ACP5: Has processes for acquiring knowledge about new products/services within our industry ACP6: Has processes for exchanging knowledge between individuals My organisation … CP1: Has processes for filtering knowledge CP2: Has processes for transferring organisational knowledge to individuals CP3: Has processes for absorbing knowledge from individuals into the organisation CP4: Has processes for integrating different sources and types of knowledge CP5: Has processes for organising (store/file) knowledge CP6: Has processes for replacing outdated knowledge My organisation … APP1: Has processes for using knowledge in development of new products/services APP2: Has processes for using knowledge to solve new problems APP3: Matches sources of knowledge to problems and challenges APP4: Uses knowledge to improve efficiency APP5: Uses knowledge to adjust strategic direction APP6: Is able to locate and apply knowledge to changing competitive conditions APP7: Takes advantage of new knowledge My organisation … PP1: Has processes to protect knowledge from inappropriate use inside the organisation PP2: Has processes to protect knowledge from inappropriate use outside the organisation PP3: Has processes to protect knowledge from theft from within the organisation PP4: Has processes to protect knowledge from theft from outside the organisation PP5: Has extensive polices and procedures for protecting trade secrets PP6: Values and protects knowledge embedded in individuals PP7: Clearly communicates (create awareness of) the importance of protecting knowledge CA1: My organisation often uses knowledge-based innovation CA2: My organisation’s market position can strong barriers to entry for other firms CA3: My organisation uses knowledge management to widen the array (line/range) of products without increasing costs CA4: The knowledge management capability in my organisation would be difficult and expensive for rivals to duplicate
Source: Developed for this research
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Measurement Model Development All values of skew and kurtosis of five interval variables in the study were found not to exceed the absolute values of 2 for skewness and 7 for kurtosis indices and, therefore, the data set was considered to have moderately normal distribution and the maximum likelihood estimation was used (Hair et al., 2006; Kline, 1998). The initial fit of the overall measurement model was not particularly good (χ2/df=3.51; p=0.001; CFI=0.83; GFI=0.79; RMSEA=0.083). Standardised loading estimates (below |0.5|), standardised residuals (above |4.0|), and modification indices (greater than 4) were employed to suggest item deletion while content validity of constructs were still satisfied (Anderson and Gerbing, 1988; Hair et al., 2006). The fit of the respecified measurement model improved considerably to χ2/df=2.46, p=0.001 (a significant p-value can be expected with large sample size), CFI=0.93; GFI=0.90; and RMSEA=0.064. Table 4 shows that all standardised regression weights were substantial and significant (λ>0.50 at p=0.001) and the composite reliability for all individual constructs was acceptable (Pc>0.70). In addition, the inter-construct correlation coefficients were found to be significantly different from unity at the 0.001 level. The measurement model did not contain any cross-loadings either among the measured variables or among the error terms. These results supported the unidimensionality, convergent and discriminant validity of all constructs in the final measurement model (Hair et al., 2006).
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Table 4: Standardised Regression Weights (λ), t-Values, Composite Reliability (Pc) of Constructs Items
ACP1 ACP2 ACP3 ACP5 CP1 CP2 CP3 CP4 APP1 APP3 APP5 APP7 PP1 PP2 PP3 PP7 CA1 CA2 CA3 CA4
Acquision Process (Pc=0.80)
Conversion Process (Pc=0.80)
Protection Process (Pc=0.85)
Competitive Advantage (Pc=0.78)
t-value (p=0.001)
0.72 0.64 0.74 0.64
13.26 13.74 11.87 10.16 11.25 11.23 10.81 9.57 7.20 7.09 7.45 7.45 10.55 9.72 9.94 10.27 6.51 6.34 6.54 6.33
0.76 0.80 0.68 0.58 0.76 076 0.71 0.61 0.66 0.63 0.74 0.74 0.83 0.70 0.73 0.78
Second-order Factor Loadings
ACP CP APP PP
Application Process (Pc=0.78)
Acquisition Process Conversion Process Application Process Protection Process
Knowledge Management Process Capabilities - KMPC
0.72 0.82 0.90 0.88
9.63 9.22 6.75 8.74
Source: Developed for this study Composite Reliability is defined by Fornell aound Larcker (1981) as: Pc = (Σλi)2/((Σλi)2 + Σ(1-λi2)) where λi is factor loading of indicator number i.
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Structural Equation Modeling (SEM) Estimate The results of SEM analyses are displayed in Figure one (1) proving that the model satisfied an acceptable level of model fit (χ2/df=2.46; CFI=0.93; GFI=0.90; RMSEA=0.064) and, thus, was used to test the related hypotheses through the standardised regression weights (λ), t-values, and squared multiple correlations (R2). Figure 1: Parameter Estimates for Structural Model PP1
PP2
PP3
Protection
PP7
R2 =0.77
APP1
APP3
APP5
Application
APP7
CP1
CP2
R2 =0.82
0.88
CP3
Conversion
0.90
0.82
KM Process Capabilities
CP4
R2 =0.67
ACP1
ACP2
ACP3
Acquisition
ACP5
R2 =0.52
0.72
H1
H2 (0.92; 8.24)
Competitive Advantage
CA1
CA2
CA3
R2 =0.85
CA4
CMIN=405.81; df=165; CFI=0.93; GFI=0.90; RMSEA=0.064 R2 = Squared Multiple Correlations; H (λ=Standardised Regression Weights; t-value); All p-values = 0.001; Measurement errors, residual terms, and item loadings are omitted for clarity.
Source: Developed for this research An examination of the second-order factor loadings (as shown in Figure 1 and Table 4) reveals that KM process capabilities construct is composed of four dimensions: knowledge acquisition, knowledge conversion, knowledge application, and knowledge protection processes, thus, hypothesis one (H1) is supported. Among these components, application processes emerge as the most important (λ=0.90; R2=0.82) followed by protection (λ=0.88; R2=0.77) and conversion (λ=0.82; R2=0.67) while acquisition processes are of the moderate influence (λ=0.72; R2=0.52). These results accord with the current literature stating that knowledge acquisition has become a competitive necessity in many industries as no company can be expected to develop all the necessary knowledge inside the firm (Leonard-Barton, 1995). Moreover, knowledge acquisition in isolation is not sufficient condition delivering value from new knowledge and it needs to be supplemented by other key knowledge management processes manipulating the acquired knowledge such as knowledge articulation, capture, knowledge assembly and integration 12
(Nielsen, 2006). In particular, knowledge articulation and capture are necessary if new knowledge is going to be transferred (Boisot, 1998), made available to other parts of the organisation (Zollo and Winter, 2002) or included in the firm’s stock of knowledge (Szulanski, 2003). Meanwhile, knowledge assembly and integration are key processes in connection with the development or renewal of organisational capabilities that can serve as a plaform for expansion into new competitive arenas (Prahalad and Hamel, 1990). All of these KM activities enable to make the created/acquired knowledge useful, proving the critical role of conversion processes. In addition, the empirical findings of this study also support the knowledge-based theory of the firm, positing that the major source of competitiveness rests in the ability to exploit a firm’s integrated knowledge and not in its ability to create new knowledge per se (Grant, 1996). When knowledge is applied to existing ends, the size and durability of a firm’s CA will be determined by how well protected its knowledge is (Chakravarthy et al., 2005). This argument explains the relative importance of protection processes as shown in the study. An examination of the correlations among the four sub-processes of KM process capabilities (displayed in Figure 2) confirms their inter-relationships that is consistent with the findings in previous studies (e.g. Gold et al. 2001; Smith 2006). The output of one process can be the input of other processes and, therefore, they support each other. For example, new knowledge obtained from acquisition processes need to be made useful through conversion processes before being exploited. To secure this new knowledge from inappropriate or illegal use or theft, protection processes should be applied. Figure 2: Measurement Model of KM Process Capabilities PP1
PP2
PP3
PP7
APP1
Protection
APP3
APP5
APP7
CP1
Application
0.78
CP2
CP3
CP4
ACP1
Conversion
ACP2
ACP3
ACP5
Acquisition
0.66
0.74
0.64
0.71
0.61
CMIN=232.367; df=98; CFI=0.95; GFI=0.93; RMSEA=0.062 Source: Developed for this research The causal relationship among variables is presented in hypothesis two (H2). As reported in Figure 1, the standardised regression weight and t-value for the path of KM process capabilities to CA (λ=0.92; t=8.24) indicate the significance of this relationship, supporting hypotheses 2. These results confirm the dynamic capability view of KM representing that KM process
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capabilities strongly contribute to organisational CA. In addition, the structural model demonstrates good explanatory power for CA with 85% of the variance (R2=0.85) explained by KM process capabilities. Implications and Conclusions This study is based on a DCV of KM to empirically examine the contribution of KM process capabilities to a firm’s CA in the dynamic market of today. In addition, the study also aims to explore whether a model that was grounded in the context of advanced, developed countries could be applied in Vietnam, an emerging Asian less developed economy. A survey of 362 senior executives randomly selected in two largest cities of Vietnam, Hanoi and Hochiminh, from the 2000 Vietnamese Business Directory provided strong support for the theoretical model. Specifically, the results of SEM analyses confirmed that KM process capabilities, composed of four components, namely acquisition, conversion, application, and protection processes, are considered as dynamic capabilities that significantly contribute to a firm’s CA. While these four key sub-processes were found to be inter-related and support each other, application and protection processes were of the most influence to organisational competitiveness. The findings also confirmed that the dynamic capability based approach of KM is workable in Vietnam, an emerging less developed economy. The instrument which was adapted from studies grounded in developed countries satisfied the validity and reliability of the measures in Vietnam though some items were deleted to improve the level of model fit. In terms of practical implications, this paper attempts to provide Vietnamese business executives with a better understanding of KM processes and their relative importance to leverage, exploit, and sustain the firm competitiveness more effectively. In the current environment of Vietnam, particular aspects of each process need to be emphasised, i.e. (1) acquistion process: generating new knowledge from existing knowledge and acquiring knowledge about customers, suppliers, and new products/services within the industry; (2) conversion process: filtering knowledge, transferring organisational knowledge to individuals, absorbing knowledge from individuals into organisation, and integrating different sources and types of knowledge; (3) application process: using knowledge to solve new problems, improve efficiency, adapt to changing competitive conditions, and taking advantage of new knowledge; (4) protection process: preventing knowledge from inappropirate use or theft by using a variety of policies, rules, procedures, incentives and technologies, and clearly communicating the importance of protecting knowledge in the organisation. In addition, practising managers should understand that these process capabilities are correlated and complementary and therefore, should not considered in isolation but rather integrated and combined together. However, they need to be aware of the more critical role of application processes and thus, put more efforts in leverage and exploitation of the integrated knowledgebased resources to create and deliver products and services to their customers utilising organisational capabilities. The study’s limitations suggest that fit statistics under respecification of the CFA model on shortened scale require cross-validation studies to retest the model and examine its generalisability. It is also necessary to further investigate what extent Vietnamese firms have KM
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