The impact of knowledge management on organisational performance

The main aim of the project is to show that through creating, accumulating, organising and utilising knowledge, oraganisation can enhance organisational performance.

INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) ISSN 0976-6502 (Print) ISSN 0976-6510 (Online) Volume 7, Issue 2, February (2016), pp 191-199 http://www.iaeme.com/ijm/index.asp Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com IJM ©IAEME THE IMPACT OF KNOWLEDGE MANAGEMENT ON ORGANISATIONAL PERFORMANCE Dr M.A Shakila Banu Assistant Professor, Jamal Institute of Management, Jamal Mohamed College, Trichy 20 K Kalaivani Research Scholar, Jamal Institute of Management, Jamal Mohamed College, Trichy 20 ABSTRACT Knowledge Management is a process that transforms individual knowledge into organisational knowledge The main aim of the project is to show that through creating, accumulating, organising and utilising knowledge, oraganisation can enhance organisational performance The impact of knowledge Management practices on performance was emprically tested through structural equation modelling The sample included 52 employees from HCL The result shows that knowledge management practices measured through information technology, organisation and knowledge positively affect organisational performance Key words: Knowledge Management, Organisational Performance, Impact of Knowledge Management Cite this Article: Dr M.A Shakila Banu and K Kalaivani The Impact of Knowledge Management on Organisational Performance International Journal of Management, 7(2), 2016, pp 191-199, http://www.iaeme.com/ijm/index.asp BACKGROUND For many companies, the time of rapid technological change is also the time of incessant struggle for maintaining a competitive advantage It is obvious that knowledge is slowly becoming the most important factor of production, next to labour, land and capital KM is a process that through creating, accumulating, organising and utilising knowledge helps achieve objectives and enhance organisational performance KM also consists of strategy, cultural values and workflow In order to maximize its value a change in strategies, processes, organisational structures and technologies needs to be made The literature review shows there is a great number of critical success factors for KM This paper contributes to the knowledge management research field through understanding those factors, their interrelation and the role of information technology in achieving a better business performance Researchers often imply this positive effect of knowledge management on organisational performance However, the researches that empirically prove the existing link are very rare The aim of this paper is to present a different knowledge management maturity model and to explain and 191 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication test the hypothesis about impact of knowledge management practices on organisational performance The model was empirically tested through structural equation modelling on a sample of 52 employees from HCL INTRODUCTION For many companies, the time of rapid technological change is also the time of incessant struggle for maintaining a competitive advantage It is obvious that knowledge is slowly becoming the most important factor of production, next to labour, land and capital Even though some forms of intellectual capital are transferable, internal knowledge is not easily copied This means that the knowledge anchored in employees’ minds can get lost if they decide to leave the organisation Therefore, the key objective of management is to improve the processes of acquisition, integration and usage of knowledge, which is exactly what knowledge management (KM) is all about KM is a process that through creating, accumulating, organising and utilising knowl-edge helps achieve objectives and enhance organisational performance KM also consists of strategy, cultural values and workflow In order to maximise its value a change in strategies, processes, organisational structures and technologies needs to be made One of the key benefits of introducing KM practices in organisations is its positive impact on organisational performance The research conducted in Croatia suggests that KM positively affects organisational outcomes of company innovation, product improvement and employee improvement According to Fugate et al., results collected in a logistics operations context prove the existence of a strong positive relationship between a KM process and operational and organisational performance Still, it is not well understood how different KM strategies affect organisational performance Choi et al show that combining the tacit-internal-oriented and explicit-external-oriented KM strategies indicates a complementary relationship, which implies synergistic effects of KM strategies on performance The results of the study conducted by Zheng et al suggest that KM fully mediates the impact of organisational culture on organisational effectiveness, and partially mediates the impact of organisational structure and strategy on organisational effectiveness Finally, the results of numerous researches show that KM affects organisational performance in a positive manner, but this relationship is very difficult to prove Researchers often imply this positive effect of knowledge management on organisational performance However, the researches that empirically prove the existing link are very rare The aim of this paper is to present a different knowledge management maturity model and to explain and test the hypothesis about impact of knowledge management practices on organisational performance The literature review shows there is a great number of critical success factors for KM This paper contributes to the knowledge management research field through understanding those factors, their interrelation and the role of information technology in achieving a better business performance LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT The methodology of measuring knowledge management maturity is complex By combining a set of critical success factors with a set of measurable knowledge management factors, an intersection was made to define a new set of measurable key elements of KM Those elements were united into three categories: Information technology (the ability of technology to capture knowledge and usage of information systems), Organisation (people, organisational climate and processes) and Knowledge (knowledge accumulation, utilisation, sharing practices and knowledge ownership identification) The understanding of these knowledge management factors, acts as a basis in determining the type of knowledge management strategies and initiatives for an organisation The review of literature used to develop the questionnaire is stated below: INFORMATION TECHNOLOGY The value that knowledge management adds lies in increasing individual, team and or-ganisational efficiency through the use of knowledge management tools (information technology) 192 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication  Capturing Knowledge: the higher the level of capturing knowledge (explicit or tacit) with information technology tools, the better the KM result;  Usage of IT Tools: the higher the quality of tools, quality of information, user satisfaction, usage and accessibility, the greater the KM effect on organisational performance ORGANISATION Organizational culture has a great contribution to knowledge management 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 organisation An organization can achieve a competitive edge by creating and using knowledge about its’ processes and by integrating its’ knowledge into business processes  People and Organisational Climate: the KM success relies heavily upon the trust, creativity, team work and collaboration among employees  Processes: the integration of the KM activities into organisational processes has a positive effect on KM results KNOWLEDGE Successful knowledge management applies a set of approaches to organisational knowledge including its accumulation, utilisation, sharing and ownership  Accumulation: the higher the effectiveness of knowledge accumulation (internal, external; through internalisation or externalisation) in an organisation, the greater the KM effect  Utilisation: the higher the effectiveness of utilising the (existing) knowledge in an organisation, the better the KM result;  Sharing: the improvement of sharing of knowledge (formal or informal) effects the KM positively;  Ownership: the better the accessibility of knowledge, the greater the KM success ELEMENTS OF ORGANISATIONAL PERFORMANCE When assessing the relationship between knowledge management and organisational performance, it is important to know that the results depend on the used research methodology Organisational performance alone could be gauged in many different ways, with financial or non-financial indicators There are several approaches to organisational performance measurement which include different stakeholders’ perspectives The Balanced Scorecard (BSC) is a performance management tool for measuring whether small-scale operational activities of a company are aligned with its large-scale objectives in terms of vision and strategy and includes four perspectives: financial, customer, internal process and innovation and learning perspective The financial perspective examines if company’s implementation and execution of its strategy contributes to bottom-line improvement Some of the commonly used financial measures are economic value added, revenue growth, costs, profit margins, cash flow, net operating income etc The customer perspective defines the value proposition that an organisation will apply to satisfy customers and generate more sales to the most desired customer groups The measures should cover both the value that is de-livered to the customer which may involve time, quality, performance and service, and the outcomes that arise as a result of this value proposition, such as customer satisfaction and market share The internal process perspective focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers The clusters for the internal process perspective are operations management (by improving asset utilisation, supply chain management), customer management (by expanding and deepening relations), innovation (by new products and services) and regulatory & social (by establishing good relations with external stakeholders) The innovation and learning perspective focuses on the intangible assets of an organisation, mainly on the internal skills and capabilities that are required to support the value-creating internal processes In addition to these four perspectives, some researchers include the supplier perspective, which is also important in assessing non-financial performance 193 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication RESEARCH PROBLEM The Problem of the study is to ascertain the advantages obtained by implementing KM and to study the effectiveness of KM implemented Further the study tries to measure any bottlenecks that may exists and suggest measures for improvement 8.1 Research Objectives  To investigate and prove the existence of a positive impact of knowledge management on organisational performance    To critically evaluate the impact of KM implementation in selected organization To identify the benefits obtained after implementation of KM To identify any specific areas of concerns and suggest solutions for the same Conceptual Research Model RESEARCH HYPOTHESIS According to literature and our experience from business practice, we believe that strong relations between organisational elements, information technology and knowledge management can be established Findings from literature and our assumptions are systemized and structured in a form of hypotheses and examined by the empirical research Therefore, we propose the following hypothesis  H1: Higher the External information more will be the knowledge management       H2: More in relay of information price more will be the knowledge management     H8: Higher the unit of organization more will be the organizational performance H3: Higher t he s r e of information more will be the kno wledge management H4: Higher t he s t o r e of information more will be the infor mat io n technology H5: Higher t he support of information mo r e will be the info r mat io n technology H6: Higher t he in no va t io n and reward mo r e will be the organizational performance H7: Higher the motivation for formal an informal education more will be the organizational performance H9: Higher the knowledge management more will be the information technology H10: Higher the information technology more will be the organizational performance H11: Higher the knowledge management more will be the organizational performance 194 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication 10 RESEARCH METHODOLGY 10.1 Research Design A research design is considered as the framework or plan for the study that guides as well as helps the data collection and analysis of data The research design may exploratory, descriptive and experimental for the view of the consumer were collected so as to some strategies A descriptive study is to obtain a complete and accurate description of the situation Descriptive research for the study was based on clear cut objectives and formal questionnaire 10.2 Nature of Data The sources of primary and secondary data were used for the collection of information for the study Primary data was collected through questionnaire and secondary data from Articles have been sourced from magazines and journals dealing with current issues in KM Internet resources, research publications & text books related to KM have been a major secondary source for the extraction of the expert’s opinion 10.3 Research Instrument The questionnaire was based on previous findings reported in literature that is reviewed in section It included 23 questions on knowledge management and 16 questions on organisational performance Questions about knowledge management are divided into parts knowledge, information technology and organisation 10.4 Variables Measured The methodology of measuring knowledge management maturity is complex By combining a set of critical success factors with a set of measurable knowledge management factors, an intersection was made to define a new set of measurable key elements of KM Those elements were united into three categories: Information technology (the ability of technology to capture knowledge and usage of information systems), Organisation (people, organisational climate and processes) Knowledge (knowledge accumulation, utilisation, sharing practices and knowledge ownership identification) Organisational Performance When assessing the relationship between knowledge management and organisational performance, it is important to know that the results depend on the used research Organisational performance alone could be gauged in many different ways, with financial or non-financial indicators 10.5 Population and Sample Size The total populations of the study in the selected organisation are the 200 A Sample of 52 employees was drawn Simple random sampling was adopted Besides, the study had employed Partial Least Square – Path Modelling (PLS-PM) 10.6 Limitations It is possible that this research may not have captured all those factors even though an extensive literature review was conducted and experts in the area were consulted for inputs This study is limited to the users of ERP in selected organisation Some of the benefits of KM implementation cannot be directly measured and are visible only in the long run 10.7 Model Construction Four constructs were formed in the research: First, information technology (IT), which determines the usage, qualit y and benefits of IT tools for knowledge management Second, organisation (OR) that represents a human perspective of organisation and processes Third, knowledge (KN) that covers accumulation, utilisation, sharing practices, and knowledge 195 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication ownership identification Fourth, organisational performance (OP) is defined as a construct composed of financial and non-financial indicators 11 DATA ANALYSIS AND RESULTS Table 1: Reliability Construct Composite Reliability Cronbach Alpha KM 0.502973 0.635442 EXTERNAL 0.504874 0.728045 RELAY 0.706128 0.548610 SHARE 0.670020 0.480000 IT 0.702606 0.556955 SUPPORT 0.731523 0.513587 STORE 0.706686 0.535586 ORG 0.507070 0.544614 INNOVATE 0.502973 0.548610 MOTIVE 0.504874 0.648530 UNIT 0.504718 0.490500 From the above table it is found that the collected sample have achieved reliability and cronbach Alpha at 5% significant level and more respectively Table 3: Construct Level correlation of Research Model Km external Relay Shar e It supp Inno Store Org motive ort vate Km 1.000 External 0.113 1.000 Relay 0.323 0.165 1.000 Share 0.303 0.175 0.240 1.000 It 0.928 0.076 0.100 0.022 1.000 Support 0.365 0.172 0.067 0.235 0.468 1.000 Store 0.496 0.047 0.284 0.602 0.335 0.041 1.000 Org 0.792 0.063 0.017 0.158 0.915 0.299 0.005 1.000 Innovate 0.675 0.184 0.034 0.126 0.809 0.467 0.224 0.736 1.00 Motive 0.527 0.144 0.140 0.258 0.627 0.380 0.029 0.626 0.44 1.000 Unit 0.277 0.183 0.078 0.029 0.279 0.236 0.268 0.501 0.11 0.045 Unit 1.000 From the above table, it is very clear that the selected company had shown the highly positive correlation between the Knowledge Management with Information technology, Organitational Unit, Innovation and Motives and share of information with store of information It shows moderate positive correlation between Knowledge Management with relay, share, and support, store of Information and Information technology with support of Information It also shows low positive correlation between 196 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication external of information with relay, knowledge management, share, Information technology, support, store of information, organitational unit, innovation, motivation and organitational unit with knowledge management, motivation Structural Model - Bootstrap Entire Sample estimate Mean of Subsamples Standard error T-Statistic external->km 0.1250 0.1568 0.0969 1.2906 Relay->km 0.2930 0.3142 0.1052 2.7859 Share->km 0.2110 0.2008 0.1141 1.8491 support->it 0.1150 0.1220 0.0494 2.3280 Store->it -0.1330 -0.1358 0.0477 -2.7858 km->it 0.9520 0.9482 0.0468 20.3216 km->Org -0.0010 -0.0010 0.0000 0.0000 it->Org 0.0010 0.0011 0.0003 3.4768 innovate->Org 0.6430 0.6533 0.0629 10.2223 motive->Org 0.3660 0.3663 0.0380 9.6417 Unit->Org 0.5930 0.6027 0.0530 11.1988 12 HYPOTHESIS RESULTS Since the path linking external information to Knowledge Management was found to be significant at 0.05 level (beta=0.125, t=1.291), external information has significant effect on Knowledge Management (km) This provided support for H1 Also, this finding did support literature review Since the path linking relay to Knowledge Management was found to be significant at 0.05 level (beta=0.293, t=2.786), relay on information has significant effect on Knowledge Management (km) This provided support for H2 Also, this finding did support literature review Since the path linking share to Knowledge Management was found to be significant at 0.05 level (beta=0.211, t=1.849), indicating share has significant effect on Knowledge Management (km) This provided support for H3 Also, this finding did support literature review Since the path linking support to IT was found to be significant at 0.05 level (beta=0.115, t=2.328), support of information has significant effect on Information Technology (IT) This provided support for H4 Also, this finding did support literature review 197 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication Figure 2: PLS-Path Analysis of Research Model Since the path linking store to IT was found to be significant at 0.05 level (beta=-0.133, t=-2.786), indicating store of information has no significant effect on Information Technology) This provided support for H5 Also, this finding did support literature review Since the path linking Innovation to organitional performance was found to be significant at 0.05 level (beta=0.643, t=2.223), indicating Organitional Performance (org) has significant effect on Innovation This provided support for H6 Also, this finding did support literature review Since the path linking Motive to education to Organizational Performance was found to be significant at 0.05 level (beta=0.366, t=3.326), indicating Organizational Performance has significant effect on Motive to education This provided support for H7 Also, this finding did support literature review Since the path linking Organizational unit to Organizational performance was found to be significant at 0.05 level (beta=0.593, t=0.561), indicating Organizational unit has significant effect on Organizational performance This provided support for H8 Also, this finding did support literature review Since the path linking Knowledge Management to Information Technology was found to be significant at 0.05 level (beta=0.952, t=0.472), Knowledge Management (km) has significant effect on Information Technology (IT) This provided support for H9 Also, this finding did support literature review Since the path linking Information Technology to organitional performance was found to be significant at 0.05 level (beta=0.001, t=3.477), indicating Information Technology has significant effect on organitional performance This provided support for H10 Also, this finding did support literature review Since the path linking Knowledge Management to organitional performance was found to be significant at 0.05 level (beta=-0.001, t=3.493), indicating Knowledge Management has significant effect on organitional performance This provided support for H11 Also, this finding did support literature review 13 FINDINGS A direct result of this research is also a newly defined knowledge management maturity model that consists of three empirically tested constructs The new conceptual model consists of information technology, organisational elements and knowledge.Second, this empirical research proved that KM heavily relies on technology However, business practice shows that many organisations have experienced difficulties in effectively using KM technologies In order to have a positive impact on elements of knowledge, information technology needs to be introduced through a set of organisational changes In practice it means that introducing information technology is successful and 198 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 6510(Online), Volume 7, Issue 2, February (2016), pp 191-199 © IAEME Publication has a positive impact on knowledge management practices only if it is backed up by changes in people, organisational climate and organisational processes Organisational change helps an organisation to optimise processes and define process oriented struc- ture; in that case KM can be adopted correctly within the organisation Effective KM cannot be implemented without a significant behavioural and cultural change There should be a strong culture, trust and transparency in all areas of the organisation Besides, the cultural elements, which distinguish organisations from each other, are found to be related to KM efficiency It was also discovered that knowledge management practices have a positive impact on organisational performance 14 CONCLUSION We conclude that this paper presents three main components important lights some of the issues raised by IT implementation to improve KM The codification of knowledge in information systems, databases and knowledge repositories does not guarantee efficient KM, but has a potential to influence it in a positive way It is important to notice that IT does not have a direct influence on knowledge, but an indirect one through organisational elements as an enabler of a better collaboration among people in the organisation, motivation of people in the organisation and the process view of the organisation REFERENCES [1] [2] [3] [4] [5] [6] [7] Anantatmula, V & Kanungo, S (2006) Structuring the underlying 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knowledge management performance using a competi- tive perspective: An empirical study Expert Systems with Applications, (36), 8449–8459 199 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance"- (ICAM 2016) ... results of the study conducted by Zheng et al suggest that KM fully mediates the impact of organisational culture on organisational effectiveness, and partially mediates the impact of organisational. .. prove the existence of a positive impact of knowledge management on organisational performance    To critically evaluate the impact of KM implementation in selected organization To identify the. .. or-ganisational efficiency through the use of knowledge management tools (information technology) 192 Dr M.A Shakila Banu and K Kalaivani "The Impact of Knowledge Management on Organisational Performance" -