Impact of Knowledge Management Practices on Selected Industries: A Structural Equation Modeling Approach

By Saini, Ritika | Management & Marketing, October 1, 2013 | Go to article overview

Impact of Knowledge Management Practices on Selected Industries: A Structural Equation Modeling Approach


Saini, Ritika, Management & Marketing


Abstract. There has been a transformation of an era of information scarcity to information surplus, so the key global pressures on management are knowledge identification, creation and dissemination. The development of knowledge management represented one of the most significant management movements in such environment. Using the literature review, this paper developed a knowledge management instrument and it tested a conceptual model linking knowledge management practices and organizational performance, using descriptive statistics and structural equation modeling technique. Primary data was collected from SMEs of three industries i.e. software, pharmaceutical and textiles in North India. The study confirmed the relationship between adoption of knowledge management practices and improved organizational performance, competitiveness and employee retention rates in the selected SMEs.

Keywords: knowledge capturing, knowledge sharing, knowledge transfer, knowledge storing, knowledge reuse, knowledge management, knowledge management practices, SMEs.

1. Knowledge management practices in SMEs

Various authors have argued that nowadays knowledge management (KM) practices provide companies with a competitive advantage as a result of their impact on the organization's ability to act in more efficient, sustainable and innovative ways. For example, Bratianu and Orzea (2010) critically analyzed the knowledge dynamics model elaborated by Ikujiro Nonaka and found that knowledge creation is a dynamic capability that enables firms to achieve a sustainable competitive advantage on the market. Their conclusions are seconded by Mitchell (2010) who views the ability to create knowledge as a critical foundation for an organization's capability to be dynamic on an ongoing basis. Besides dynamism and sustainability, KM also influences the degree of innovativeness that a company demonstrates, as Viju (2010) has showed by studying the way in which explicit and tacit knowledge become assets for an organization which seeks to create an advantage. The existence of knowledge and the development of a knowledge sharing culture with a learning environment create opportunities for innovation and creativity.

Small and medium enterprises (SMEs) are an important part of modern economies, providing employment, generating innovation, creating wealth, reducing poverty, enhancing the standard of living and contributing to the areas in which they operate. The strength of SMEs lies in motivation, internal networking, tacit knowledge in unique skills, shorter informal communication, less bureaucracy and greater proximity to market. But SMEs face resource, finance and skills scarcity and managers often do not have enough managerial expertise and organizational capabilities which imply poor strategic business planning and human resource management. Knowledge management implementation is said to be the best way to overcome these problems and improve SMEs ability in innovation and organizational performance (Liao and Wu, 2010; Sáenz, 2009; Ho, 2008).

Knowledge management practices in SMEs also overcome the problem regarding the lack of resources, peculiar management problems and high employee turnover rates. Knowledge management provides the means for SMEs to overcome poor a business environment and to change the complex business environment into a more manageable context. Knowledge management practices help to remove resource constraints, decrease cost of products and create innovative applications for mature products that make companies move ahead of their competitors.

The benefits that small or medium enterprise (SMEs) can derive from sharing knowledge have long been recognized and were well documented. Muhammad et al. (2011) in their primary study indicated that knowledge management is one of the significant factors which contribute to organizations' strive to improve their performance. The practices of knowledge management, namely knowledge generation, knowledge codification, knowledge sharing and knowledge utilization were significantly and positively correlated with one another as well as with organizational performance. …

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