7 Knowledge Management and Organizational Performance An Exploratory Zack 2009

Journal of Knowledge Management
Knowledge management and organizational performance: an exploratory analysis

Michael Zack James McKeen Satyendra Singh
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Michael Zack James McKeen Satyendra Singh, (2009),"Knowledge management and organizational performance: an exploratory
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Knowledge management and
organizational performance:
an exploratory analysis
Michael Zack, James McKeen and Satyendra Singh
Abstract
Purpose – The purpose of this paper is to report the results of an exploratory investigation of the
organizational impact of knowledge management (KM).
Design/methodology/approach – A search of the literature revealed 12 KM practices whose

performance impact was assessed via a survey of business organizations.
Findings – KM practices were found to be directly related to organizational performance which, in turn,
was directly related to financial performance. There was no direct relationship found between KM
practices and financial performance. A different set of KM practices was associated with each value
discipline (i.e. customer intimacy, product development and operational excellence). A gap exists
between the KM practices that firms believe to be important and those that were directly related to
organizational performance.
Research limitations/implications – The majority of the research constructs were formative, thus
improving the measurement of KM practices will prove vital for validating and extending these findings.
Michael Zack is based at The findings were based solely on organizations from North America and Australia and may not reflect
Northeastern University, KM practices in other geographic, economic or cultural settings.
Boston, MA. James McKeen Practical implications – This study encourages practitioners to focus their KM initiatives on specific
is based at Queen’s School intermediate performance outcomes.
of Business, Kingston, Originality/value – The paper examines the relationship between KM practices and performance
Ontario, Canada. outcomes. It was expected that a direct relationship between KM practices and organizational
Satyendra Singh is an performance would be observed. It was also expected that organizational performance would mediate
Independent Consultant, the relationship between KM practices and financial performance. These expectations were supported.
KM practices showed a direct relationship with intermediate measures of organizational performance,
based in Nepean, Ontario,
and organizational performance showed a significant and direct relationship to financial performance.
Canada.
There was no significant relationship found between KM practices and financial performance.
Keywords Knowledge management, Organizational performance, Surveys
Paper type Research paper
1. Introduction
Over the past 15 years, knowledge management (KM) has progressed from an emergent
concept to an increasingly common function in business organizations. As evidence of its
maturity as an area of academic study, an increasing number of journals devoted to KM and
intellectual capital management have been created[1]. As might be expected for a still
emerging discipline, little quantitative empirical research has been published (Foss and
Mahnke, 2003). The bulk of the published work in the KM area comprises conceptual
frameworks and theoretical models. Extant empirical research relies primarily on a small
number of descriptive exploratory qualitative case studies (e.g. Davenport and Prusak,
1998; Kalling, 2003; Massey et al., 2002; Nonaka, 1994). Although this body of work contains
valuable and insightful concepts and frameworks that have helped to define and shape the
KM discipline, it is time to begin testing and advancing this work using more precise
methods.
PAGE 392 j JOURNAL OF KNOWLEDGE MANAGEMENT j VOL. 13 NO. 6 2009, pp. 392-409, Q Emerald Group Publishing Limited, ISSN 1367-3270 DOI 10.1108/13673270910997088
Perhaps the most significant gap in the literature is the lack of large-scale empirical
evidence that KM makes a difference to organizational performance. While survey research
is beginning to appear in KM journals (e.g. Kalling, 2003; McCann and Buckner, 2004;
Tanriverdi, 2005), the bulk is descriptive (Chauvel and Dupres, 2002). Of the few survey
studies that examine relationships between KM and other factors (e.g. Moffett et al., 2003)
only a few articles (discussed below) empirically investigate the relationship between KM
and organizational performance.
The objective for the research reported here was to conduct an exploratory quantitative
study to create a broader set of evidence regarding the relationship between KM and
organizational performance. While performance itself is a useful metric, the ultimate
measure of value is the ability to support an organization’s competitive strategy. This
especially applies to KM, as knowledge has been considered an organization’s most
strategic resource (Zack, 1999). A survey was administered asking respondents to describe
their organization’s involvement in KM practices, the strategic focus of their KM initiatives,
several intermediate performance measures aligned with strategic value disciplines (Treacy
and Wiersema, 1995), financial performance measures, and several contextual factors
addressing characteristics about its competitive environment. Rather than merely describe
the state of practice in the respondents’ organizations, the study investigated the
relationships among KM practices, intermediate and financial outcomes, and the
organization’s competitive environment.
The results indicate that KM practices are positively associated with organizational
performance as generally suggested by the KM literature, both qualitative (Davenport and
Prusak, 1998; Massey et al., 2002; Nonaka, 1994) and quantitative (Choi and Lee, 2003;
Darroch and McNaughton, 2003; Lee and Choi, 2003; Schulz and Jobe, 2001; Simonin,
1997; Tanriverdi, 2005). More specifically it was found that KM practices are directly related
to various intermediate measures of strategic organizational performance (namely,
customer intimacy, product leadership, and operational excellence), and that those
intermediate measures are, in turn, associated with financial performance. Based on this
evidence, it was concluded that as long as KM practices enhance intermediate
organizational performance, positive financial performance will result (Lee and Choi,
2003). The relationship between intermediate organizational performance and financial
performance, while interesting, is an issue that extends significantly beyond the boundaries
of KM. Thus the remainder of the discussion focuses on the relationship between KM
practices and intermediate organizational performance.
2. Research model
The assumption underlying the practice of KM is that by locating and sharing useful
knowledge, organizational performance will improve (Davenport and Prusak, 1998). In
reality, one might expect KM to influence many different aspects of organizational
performance. For example, KM has been linked positively to financial performance
measures (Tanriverdi, 2005) and non-financial performance measures such as quality
(Mukherjee et al., 1998), innovation (Francisco and Guadamillas, 2002), and productivity
(Lapre and Wassenhove, 2001).
Tanriverdi (2005) found a moderately weak (r ¼ 0.15 to 0.17) relationship between a firm’s
financial performance (ROA and Tobin’s Q) and its ability to create, share, integrate, and use
knowledge. Most of the recent surveys examining the performance impacts of KM have
aggregated several different measures of impact or performance. Gold et al. (2001)
examined the contribution of ‘‘knowledge infrastructure’’ (information technology,
organization culture, and organization structure) and knowledge processing capability
(i.e. the ability to acquire, convert, apply and protect knowledge) on several dimensions of
organizational effectiveness. They found a strong and significant relationship between both
knowledge infrastructure and knowledge processing with organizational effectiveness,
measured using a broad set of non-financial outcomes (e.g. innovation, coordination,
responsiveness, ability to identify market opportunities, speed to market, and process
efficiency). They did not examine the relationship to financial performance. Mohrman et al.
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VOL. 13 NO. 6 2009 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 393
(2003) extended the notion of organizational effectiveness to include financial measures.
They surveyed ten companies and established a weak positive relationship between the
extent to which the organizations created and exploited knowledge and overall
organizational performance, including financial metrics. However, by aggregating a broad
set of financial and non-financial metrics, the strength of the relationship may have been
reduced. Most of the remaining surveys identified by the authors used a similar approach of
aggregating financial and non-financial metrics to measure performance (e.g. Choi and Lee,
2003; Darroch and McNaughton, 2003; Lee and Choi, 2003; Marqués and Simón, 2006;
Sher and Lee, 2004) (refer to Table I for a summary of articles that examine the relationship
between KM and organizational performance).
With regard to the impact of KM, financial and non-financial outcomes are distinct constructs
(Simonin, 1997). Changes to organization practices in general, and KM in particular, do not
necessarily result in changes to financial performance (Kalling, 2003). KM, rather, affects a
set of intermediate capabilities that, in turn, should affect financial performance (Lee and
Choi, 2003) This may account for the weak relationships found in the research described
above that use only financial performance measures or aggregate financial and
non-financial performance measures. In contrast, the research model framing this study
(Figure 1) proposes that KM practices will be positively associated with a set of intermediate
performance outcomes termed ‘‘organizational performance’’, and organizational
performance will be positively associated with financial performance. The primary

research question is:
RQ. Is the extent to which an organization engages in particular KM practices positively
related to organizational performance, and is organizational performance, in turn,
positively related to financial performance?
Should these relationships prove to hold, this study would identify those specific KM
practices having the greatest relationship with organizational performance. The authors
were also were interested in determining if there was a direct relationship between KM
practices and financial performance, contrary to our expectations.
In identifying KM practices as antecedents to organizational performance, the authors
attempted to include factors that are similar to those identified by Gold et al. (2001),
Mohrman et al. (2003) and others (e.g. knowledge processing behaviors, management
practices, and organization culture), yet maintain clarity regarding the research question.
The objective was to address the KM-performance link directly. The research was less
interested in the detailed technological, socio-cultural, or structural mechanisms by which
KM is supported or enhanced, and focused instead on the perceived quality and extent of
KM practices and how they related to outcomes. In doing so, it was hoped to more clearly
show the existence (or lack thereof) of a relationship between KM practices and
performance outcomes.
The following sections describe the constructs of the research model and the survey items
used to operationalize them.
2.1 KM practices
KM practices are defined here as ‘‘observable organizational activities that are related to
knowledge management’’. Four key dimensions of KM practice were identified from the
literature that appear to relate to performance:
1. the ability to locate and share existing knowledge;
2. the ability to experiment and create new knowledge;
3. a culture that encourages knowledge creation and sharing; and
4. a regard for the strategic value of knowledge and learning.
The literature to support these dimensions follows.
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PAGE 394 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 13 NO. 6 2009
Table I Articles linking KM to organizational performance
Article Nature of study Study method Key finding(s)
Allard and Holsapple(2002) Non empirical N/A Taking a KM view, a knowledge chain model is
suggested to gain competitive advantage in
e-commerce
Beckett et al. (2000) Non empirical N/A Develops a framework with three KM strategies –
acquisition, retention, exploitation, to gain
competitive advantage
Berawi (2004) Non empirical N/A KM affects competitive advantage through its
effect on quality management
Bhatt (2001) Non empirical N/A In order to gain competitive advantage from KM,
organization ought to treat KM within the context
of technological and social system
Braganza et al. (1999) Non empirical N/A KM affects competitiveness through innovation
Chakravarthy et al. (2003) Non empirical N/A Identifies that there are three KM activities –
knowledge protection, knowledge leverage and
knowledge accumulation. No knowledge base
can lead to sustainable advantage unless
organizations continuously create new
knowledge. There is also a paradox associated
with the three KM activities. For instance

aggressive attempts at leveraging knowledge
can inhibit knowledge accumulation because the
later may typically not offer financial returns in the
short run whereas the former often does
Choi and Lee (2003) Empirical Survey There are four style of KM – human oriented,
passive, system oriented and dynamic. The
dynamic style of KM leads to better corporate
performance
Chuang (2004) Empirical Survey The study builds KM capability from four KM
resources – technical, human, cultural, and
structural. The KM capability is related to
Civi (2000) Non empirical N/A Organizations must build a strategy around their
KM so that it is reflects their competitive strategy
Clarke and Turner (2004) Empirical Case study It is argued that the RBV view of KM is limited
because it emphasizes knowledge that must be
protected and unique. But some organizations in
Australia build competitive advantage by
building alliances and relationships. Thus, KM
needs a broader perspective then just RBV
Darroch and McNaughton (2003) Empirical Survey, secondary Organizations with KM orientation outperformed
organizations with market orientation
DeTienne and Jackson (2001) Non empirical N/A KM will provide performance benefits only if
organizations develop strategies for filtering
knowledge, strengthening corporate philosophy,
and facilitating effective communication
Francisco and Guadamillas (2002) Empirical Case study KM allows Irizar (a company in Spain) to
continuously innovate. Firm culture plays a
significant role at the company
Gloet and Terziovski (2004) Empirical Survey KM when implemented with human resource
management practices and IT practices lead to
higher innovation within an organization
Gold et al. (2001) Empirical Survey A capability model of KM is built and it is shown
that knowledge infrastructure capabilities and
knowledge processes capabilities impact
organizational performance
Gupta and Govindrajan (2000) Empirical Case study Organizations must mobilize new knowledge
faster and efficiently to gain advantage
(continued)
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Table I
Article Nature of study Study method Key finding(s)
Holsapple and Jones (2004) Non empirical N/A Develops an idea of KM value chain. The focus of
the paper is on primary activities of the value
chain
Holsapple and Jones (2005) Non empirical N/A The idea of KM value chain is extended with a
focus on the secondary activities of the chain
Kalling (2003) Empirical Case study The effect of KM on organizational performance
is contingent on various firm level and
organizational level contingencies. KM is divided
into three processes – knowledge development,
knowledge utilization and knowledge
capitalization. Each process has its own
contingencies factors and performance
outcomes
Lee and Yang (2000) Non empirical N/A Develops an idea of knowledge value chain
(KVC) and suggests that competitive advantage
comes from the way organization performs each
knowledge activity in the (KVC)
Lee and Choi (2003) Empirical Survey The study shows that KM enablers effect KM
processes, which in turn effect organizational

performance through intermediate impacts
Liu et al. (2004) Empirical Survey KM is positively correlated to performance
Massey et al. (2002) Empirical Case study KM should be applied within a defined context.
At Nortel, KM was applied to new product
development process which led to significant
improvements in product innovation
McAdam (2000) Empirical Survey A theoretical model is developed and tested
show that KM allows organizations to innovate
Sabeherwal and Becerra-Fernandex (2003) Empirical Survey Using Nonaka and Takeuchi’s SECI model, the
study shows that socialization and combination
effects organizational effectiveness. The study
also shows individual effectiveness affects group
effectiveness, which in turn effects organizational
effectiveness
Salazar et al. (2003) Empirical Case study KM has enabled smaller pharmaceutical and
biotechnology firms to compete and gain
Schulz and Jobe (2001) Empirical Survey The paper develops four strategies for KM –
codification, tacitness, focused and unfocused.
The results suggest that focused strategy results
in superior firm performance
Sher and Lee (2004) Empirical Survey KM affects dynamic capabilities, which in turn
effects firm’s competitive advantage
Tsai and Shih (2004) Empirical Survey The relationship between marketing KM and
business performance is mediated by marketing
capabilities.
Turner and Bettis (2002) Empirical Experiment Knowledge integration strategy outperforms
knowledge redundancy strategy
Figure 1 Research model
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According to Davenport and Prusak (1998), KM is focused on processes and mechanisms
for locating and sharing what is known by an organization or its external stakeholders. The
ability to share internal best practices is important to overall organizational performance
(Szulanski, 1996), and exploiting external knowledge is crucial in driving new product
innovation (von Hippel, 1994) and to organization performance in general (Sher and Lee,
2004). To this end, items were included to measure the extent to which the organization is
able to identify internal sources of expertise, transfer best practice throughout the
organization, and exploit external knowledge of stakeholders such as customers.
Culture is perhaps the most influential factor in promoting or inhibiting the practice of KM
(Davenport et al., 1998; Lee and Choi, 2003). Specifically, organizations that value their
employees for what they know, and reward employees for sharing that knowledge create a
climate that is more conducive to KM. Items were therefore included to measure these
aspects of organizational culture.
Organizational learning may be the most strategically valuable dynamic capability (Teece
et al., 1997). Learning is the process by which knowledge comes into being and is enhanced
over time, and is therefore intimately associated with KM. Organizational performance
requires not only exploiting what is known, but also exploring new domains of knowledge to
create opportunities for future exploitation (March, 1991). Organizations that enjoy
knowledge superiority today may find themselves at a competitive disadvantage in the
future if their competitors are more capable of learning within similar domains (Zack, 2005).
Therefore items were included to measure the extent to which the organization experimented
and learned about customers, markets, products and services.
Following Barney (1986), a strategic resource should result in strategies that produce
greater value than those of competitors. Taking the knowledge based view, the knowledge
resource should similarly be linked to value-creating strategies (Bierly and Chakrabarti,
1996; Zack, 1999). To that end, knowledge should be considered as a central strategic
resource within the strategic planning process and its creation and use explicitly mapped to
some notion of value (Clare and Detore, 2000). Taking a strategic view also requires
benchmarking knowledge resources against those of competitors (Zack, 1999). To capture
explicitly this link between KM practices and strategic value, items were included to
measure the extent to which knowledge was included in the strategic planning process,
knowledge was benchmarked against competitors, and knowledge was explicitly mapped
to value creation. We also measured the extent to which the organizational unit responsible
for KM was perceived to be creating value for the organization.
In total, 12 KM practices were identified, each having been suggested elsewhere as being
important for effective KM. These are listed in the Appendix. A five-point Likert-type scale
was used to ascertain the extent to which an organization was actively engaged in each of
these KM practices.
2.2 Organizational performance

The potential for KM to create competitive advantage is positively linked to organizational
performance (Schulz and Jobe, 2001). Treacy and Wiersema (1995) proposed three ‘‘value
disciplines’’ or strategic performance capabilities, each offering a path towards competitive
advantage. Product leadership represents competition based primarily on product or
service innovation. Customer intimacy represents competition based on understanding,
satisfying and retaining customers. Operational excellence represents competition based
on efficient internal operations. Organizations often implement KM practices to improve one
or more of these three value disciplines (O’Dell et al., 2003). We chose to link KM practices to
these three indicators of strategic organizational performance. Items were included that
measured the extent of product and service innovation, quality, customer satisfaction and
retention, and operating efficiency, relative to other organizations in the respondent’s
industry (the Appendix). In addition to creating a performance construct for each value
discipline, the organizational performance items were combined to create a measure of
overall organizational performance.
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‘‘ Perhaps the most significant gap in the literature is the lack of
large-scale empirical evidence that KM makes a difference to
organizational performance. ’’
2.3 Financial performance

To the extent that organizations are able to excel in one or more value disciplines, they
should realize competitive advantage and positive financial performance (Treacy and
Wiersema, 1995). Two items for financial performance were included, one measuring return
on assets or equity and the other profitability, both relative to other organizations in the
respondent’s industry (the Appendix).
2.4 Contextual influences

According to the contingency theory school, an organization’s environment can be a
significant influence on performance (Lawrence and Dyer, 1983; Lawrence and Lorsch,
1967; Thompson, 1967). Environments that are overly complex, uncertain or dynamic may
hinder learning (Lawrence and Dyer, 1983). The more complex, uncertain or ambiguous the
environment, the more organizations must rely on intellectual resources and KM capabilities
(Miller and Shamsie, 1995). To control for environmental differences across industries, items
were included addressing rate of industry growth, competitive change and intensity, and
technology change and predictability. Other contextual factors were controlled for including
age of organization, size of organization, revenue relative to industry, share of market relative
to industry, organization structure, and whether the organization was private or public.
3. Research method
A survey was developed to test the research model. All measures including performance
measures were based on respondents’ perception. Although this is a limitation of this
research, such measures are often used and are acceptable in research (see (Chan et al.,
1997; Gold et al., 2001; Tallon et al., 2000)). The survey was piloted with two groups of
knowledge managers – one based in Canada and one based in the USA. These managers
assessed the survey in terms of its content, terminology, length and clarity. We then
validated the survey with a group of executives attending an executive development
program at a leading North American Business School. The final survey was launched on the
Business School’s web site. An e-newsletter was then sent to 1,500 executives who had
recently attended one of the School’s executive programs. They were notified of our research
project and invited to complete the survey. We received 105 responses. Of these, 17
non-profit firms were removed, as the financial performance indicators did not apply. The
final sample size was 88. The response rate (about 7 percent) was lower than hoped for and
likely due to a number of factors including incorrect email addresses, deletion of unsolicited
email, and/or lack of interest in the topic of KM given that the e-newsletter was untargeted.
Nevertheless, the authors believe that sample is valid. It consists of firms from Canada, USA
and Australia representing ten different industry sectors. Revenues ranged from $2M to
$10B and the age of the firms ranged from two-187 years with employees ranging from 30 to
over 300,000. Respondents were mid-level managers and senior executives.
3.1 Data analysis

The final sample of 88 was checked to see if the data for KM practices, organizational
performance and final performance indicators were missing. Less than 5 percent of the
cases had data missing for one or two of their indicators. In addition, the missing data
appeared random. Thus, those cases were retained with mean value substitution. SPSS was
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used to check the normality of the data and to calculate reliability, correlation and other
descriptive statistics.
The partial least squares (PLS)[2] approach was used to test our model as it has several
advantages. PLS has the ability to handle research models with formative constructs,
relatively small sample sizes and does not require multivariate normality distributions for the
underlying data. With PLS, the psychometric properties of the scales used to measure
constructs are tested and the strengths and direction of the pre-specified relationships are
analyzed simultaneously (for an overview of PLS see (Barclay et al., 1995; Chin, 1998a;
Fornell and Bookstein, 1982)) using a combination of principal components analysis, path
analysis, and regression (Wold, 1985). PLS is also ideally suited to the early stages of theory
development and testing (Barclay et al., 1995; Chin, 1998b), as is the case with this
research.
To supplement the structural model, cluster analysis was used to investigate the possible
existence of dominant patterns of KM practices across the sample. The authors were
interested to learn if the strength of the relationship between KM practices and
organizational performance was due to key KM practices or to some patterned clustering
of the set of all 12 KM practices. To examine this possibility, the responses to the 12 KM
practices items for each respondent were treated as a vector, and those vectors entered into
a clustering algorithm. The two-step clustering method (SPSS 14.0 for Windows) was used,
which automatically generates clusters based on the degree of closeness among the cases
using Schwartz’s Bayesian Information Criterion (Schwartz, 1978). This analysis generated
two clusters, one representing high-KM capability organizations and the other low-KM
capability organizations, enabling us to compare organizational performance based on the
pattern of KM practices.
4. Discussion of results
4.1 KM practices
Table II shows the basic statistics of the responses regarding KM practices (listed in
decreasing order of mean response), organizational performance and financial
performance. Table II also reports the reliability of the items used to measure KM
practices. Reliabilities were not measured for the formative measures organizational
performance and financial performance. Reliability for the KM practices was 0.88, well
above the accepted level for exploratory research (i.e. 0.70).
Overall responses were strong regarding the extent to which respondent organizations
made knowledge a part of strategic planning, valued employees for what they know, and
identified internal sources of expertise; thus on average, the respondent firms tended to find
value in employee knowledge. They tended to experiment and learn about customers,
products/services and internal operations and technology by encouraging and rewarding
knowledge sharing. They also tended to look outside their organizations as well, both for
benchmarking their knowledge against competitors, and to exploit external knowledge such
as that held by customers. Firms were less actively engaged in KM practices to transfer best
practices internally and develop strategies for mapping knowledge to value creation.
Overall, the unit responsible for providing KM was rated only slightly better than ‘‘fair’’. For all
KM practices, however, there was sufficient variance to provide interesting findings
regarding the relationship between practice and performance. The average KM practice
‘‘ Not only did KM practices have a direct relationship with

intermediate measures of organizational performance, but
organizational performance also exhibited a significant and
direct relationship to financial performance. ’’
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Table II Means and standard deviations of key measures
Item Mean SD a
KM practicesa 0.88
KP1: Knowledge is made a part of strategic
planning 1.67 0.88
KP5: Employees are valued for what they know 1.71 0.71
KP4: Identifies internal sources of expertise 1.81 0.97
KP6: Experiments/learns regarding customers
and markets 1.84 0.92
KP7: Experiments/learns regarding products and
services 1.84 0.74
KP8: Experiments/learns regarding operations
and technology 1.92 0.86
KP9: Encourages and rewards knowledge
sharing 2.35 1.07
KP11: Exploits external knowledge 2.43 1.04
KP2: Benchmarks knowledge versus
competitors 2.57 0.99
KP12: KM group provides value 2.80 1.23
KP10: Best practices are transferred within the
organization 2.83 1.21
KP3: Knowledge strategy maps knowledge to

value creation 2.90 1.13
Organizational performance (OP)b c
Product leadership
Innovation 3.11 1.02
Quality 4.13 0.72
c
Customer intimacy
Customer satisfaction 3.83 0.80
Customer retention 3.88 0.89
Operational excellence N/A
Operating Costs d 3.06 1.03
Financial performance (FP)e c
ROA/ROE 3.64 0.92

Profitability 3.75 0.89
Notes: a 1 = high compliance; 5=low compliance; listed in order of decreasing compliance;

b
Organizational performance was formed by combining three constructs – product leadership,
customer intimacy and operational excellence. Product leadership was formed by combining
innovation and quality. Customer intimacy was formed by combining customer satisfaction and
customer retention. Operational excellence was measured by operating costs; c These constructs
are formative (as opposed to reflective) therefore alphas were not calculated; d Reverse coded;
e
Financial performance was formed by combining two constructs – ROA/ROE and profitability
score ranged from 1.67 to 2.90 out of a total score of 5 (where 1 indicated high and 5
indicated low) indicating that respondents perceived that their firm’s engagement in KM
practices was ‘‘good’’ on average.
4.2. Structural research model

Figure 2 illustrates the primary structural model. The overall extent to which the respondent
organizations engaged in the set of KM practices was significantly ( p , 0.01) and positively
related to overall organizational performance. Organizational performance, in turn, was
significantly ( p , 0.01) and positively related to financial performance. There was no
significant direct relationship between KM practices and financial performance. The data
provided strong support for the overall research model. The non-significant relationship
between KM practices and financial performance suggests that organizational performance
fully mediates the overall relationship; that is, KM practices enable organizational
performance which enables financial performance much as the literature would predict.
To control for any possible effects due to the contextual factors described earlier, each of the
contextual factors was entered individually into the primary research model. Two contextual
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Figure 2 Research model results
factors were found to be significantly related to organizational performance (namely, market

share and revenue – both measured relative to the industry) but none of the contextual
factors had significant interaction terms, indicating that they did not moderate the
relationship between KM practices and organizational performance. The fact that the
primary research model held across a wide variety of organizational contexts is encouraging
and suggests its robustness.
4.3 Value disciplines

To understand the linkage between KM practices and organizational performance in greater
detail, three sub-models were tested – one for each of the strategic value disciplines
(Figure 3). In each case, the outcome paralleled that of the overall model – that is, KM
practices related significantly and positively to each of the value disciplines and each value
discipline related significantly and positively to financial performance. The fact that the
overall model linking KM practices to organizational performance to financial performance
held over all value disciplines provides further evidence of its robustness.
Overall organizational performance was significantly related to 11 of the 12 KM practices –
the exception being KP6 (experimenting/learning about customers) – which was
significantly correlated with only one of the three components of organizational
performance, namely customer intimacy.
Examining each component of organizational performance for its relationship to KM
practices, operational excellence was associated with a highly focused set of KM practices
(i.e. KP4, KP5 and KP9). High operations excellence firms predominantly focused their KM
Figure 3 Main model effects by value discipline
j j
practices internally by identifying sources of valuable employee knowledge and
encouraging and rewarding the sharing of this knowledge. High performing firms in terms
of product leadership engaged in a broader set of KM practices (i.e. KP1, KP2, KP3, KP4,
KP5, KP7, KP10 and KP12). In addition to the focus on internal knowledge associated with
operations excellence, product leadership firms made knowledge a part of strategic
planning, explicitly mapped knowledge to value creation, benchmarked their knowledge
against competitors, shared best practices, and experimented with products and services,.
Finally, firms achieving high customer intimacy engaged in the widest range of KM
practices. Not only did they leverage and reward the sharing of internal expertise as did
operations-excellence firms and manage their knowledge strategically and share best
practices as did product leadership firms, but they additionally exploited external
knowledge, engaged in a broad program of experimentation to learn about products,
markets, operations, and technologies, and believed that their KM group added significant
value.
Thus the set of KM practices formed a nesting with operations excellence firms at the core
taking a more narrow internal focus on KM, product leadership firms building on those same
capabilities but taking a broader strategic view, and customer-intimate firms employing the
widest range of KM practices.
4.4 KM focus
The research also explored the organizational focus of firms’ KM activities. Respondents
were asked explicitly to rate the extent to which their KM activities were focused on each of
the three value disciplines – customer intimacy, product leadership and operational
excellence. In addition, they were asked to rate the importance of each of the KM practices
in achieving success given their KM focus. The italicised cells in Table III identify KM
practices that respondents rated as important for each value discipline. Table III allows us to
contrast KM practices that were significantly related to achieving value disciplines versus
KM practices that were considered important for achieving value disciplines. In terms of
customer intimacy and product leadership, the sets of KM practices that respondents rated
as important constitute a reduced subset of those that were shown to be strongly related to
success. Respondents were unable to agree which KM practices were important in terms of
operational excellence. The authors are left to conclude that there appears to be a significant
gap between what respondents think is important and what is actually important. The finding
is consistent with that of O’Dell and Grayson (2003), who suggest that it is often very tricky to
identify KM best practices within an organization.
Table III Pairwise correlation between KM practices and organizational performance

Components of organization performance
KM practice Organizational performance Customer intimacy Product leadership Operational excellence
KP1 20.300** 20.283** 20.244* NS

KP2 20.284** 20.279** 20.218* NS
KP3 20.316** 20.306** 2 0.212* NS
KP4 20.429** 20.368** 20.262* 20.265*
KP5 20.353** NS 20.290** 20.258*
KP6 NS 2 0.267* NS NS
KP7 20.288** 2 0. 303** 2 0.252* NS
KP8 20.231* 20.225* NS NS
KP9 20.393** 20.380** NS 20.231*
KP10 20.405** 20.372** 20.301** NS
KP11 20.298** 2 0.292** NS NS
KP12 20.261* 20.215* 20.214* NS
Notes: * p , 0.10; ** p , 0.05; *** p , 0.01; italicised cells represent KM practices rated as important by respondents whose firms had
focused their KM initiatives on specific value disciplines
j j
4.5 KM cluster analysis
Using the two-step cluster method (SPSS), two clusters emerged which, on examination,
clearly revealed a ‘‘high capability’’ cluster and a ‘‘low capability’’ cluster. Of the 88 cases,
41 were assigned to the ‘‘high’’ cluster and 47 in the ‘‘low’’ cluster. The mean value for every
KM practice item for the high cluster was significantly greater than for the low cluster
(Table IV).
Cluster assignment was validated using the K-means cluster method (SPSS 14.0 for
Windows), which lets the analyst determine the number of clusters to be generated.
Selecting two clusters, the assignment of cases between clusters showed a 91 percent
agreement. We computed the mean value of intermediate performance for each cluster to
determine if the difference in their mean performance was statistically significant (see
Table V).
The mean overall organizational performance was 3.87 for the high cluster versus 3.32 for
the low cluster, significant at the 0.000 level. Looking at the three value disciplines
Table IV Between-cluster difference in mean value of KM practices

Item Cluster number Mean Diff. In means Std dev. Std error mean Sig. (two-tailed)
KP1 1 1.24 20.799 0.435 0.068 0.000a

2 2.04 0.999 0.146
KP2 1 2.00 21.064 0.671 0.105 0.000a
2 3.06 0.965 0.141
KP3 1 2.17 21.366 0.942 0.147 0.000b
2 3.53 0.856 0.125
KP4 1 1.24 21.054 0.489 0.076 0.000a
2 2.30 1.020 0.149
KP5 1 1.44 2.512 0.502 0.078 0.001b
2 1.95 0.780 0.114
KP6 1 1.37 2.889 0.581 0.091 0.000a
2 2.26 0.966 0.141
KP7 1 1.44 2.753 0.546 0.085 0.000b
2 2.19 0.713 0.104
KP8 1 1.56 2.673 0.550 0.086 0.000a
2 2.23 0.960 0.140
KP9 1 1.66 21.299 0.728 0.114 0.000a
2 2.96 0.955 0.139
KP10 1 2.10 21.371 0.995 0.155 0.000b
2 3.47 0.997 0.145
KP11 1 1.78 21.220 0.690 0.108 0.000b
2 3.00 0.956 0.139
KP12 1 2.14 21.246 1.031 0.161 0.000b
2 3.38 1.095 0.160
Notes: a Levene’s test for equality of variances rejected at ,0.05; unequal variances assumed;
b
Levene’s test for equality of variances accepted at ,0.05; equal variances assumed
Table V Between-cluster difference in mean value of organizational performance

Item Cluster number Mean Diff. In means Std dev. Std error mean Sig. (two-tailed)a
Organizational performance 1 3.871 0.547 0.487 0.076 0.000

2 3.324 0.518 0.076
Customer intimacy 1 4.281 0.802 0.662 0.103 0.000
2 3.479 0.667 0.097
Product leadership 1 3.848 0.421 0.685 0.107 0.006
2 3.427 0.723 0.106
Operational excellence 1 3.098 0.289 1.158 0.181 0.192
2 2.809 0.900 0.131
Note: a Levene’s test for equality of variances accepted at ,0.05 for all constructs; equal variances assumed
j j
individually, the mean for customer intimacy was 4.28 for the high cluster versus 3.48 for the
low cluster, significant at the 0.000 level. The mean for product leadership was 3.85 for the
high cluster versus 3.43 for the low cluster, significant at the 0.006 level. The difference in
value for operations excellence was 3.10 versus 2.81, but significant only at the 0.192 level.
Results for the K-means clusters were similar.
Perhaps the most interesting aspect of the cluster analysis is the fact that the data clustered
around the ‘‘level of performance’’ of the KM practices rather than the KM practices
themselves. That is, firms clustered based on performance level (high and low) across all
KM practices, rather than clustering into subsets of particular practices regardless of (or in
addition to) level of performance. Thus, the cluster analysis suggests that how well an
organization executes KM practices may be as important as which subset of KM practices it
focuses on. For practicing knowledge managers, the key point is that to be simply engaged
in various KM practices is not expected to have a significant impact on organizational
performance. Value from the investment in knowledge management will be realized when
the organization achieves high capability in the performance of those KM practices, and the
greatest level of organizational performance is expected from those firms who significantly
engage in all of the KM practices (Chakravarthy et al., 2003).
5. Summary
The purpose in conducting this research was to study the perceived quality and extent of KM
practices in order to more clearly examine the relationship between KM practices and
performance outcomes. The authors expected to find a direct relationship between KM
practices and organizational performance, and for organizational performance to mediate
the relationship between KM practices and financial performance. Each of these
expectations was supported. Not only did KM practices have a direct relationship with
intermediate measures of organizational performance but organizational performance also
exhibited a significant and direct relationship to financial performance. There was no
significant relationship found between KM practices and financial performance. These
findings held for overall performance and for each of the three components of performance
based on the three value disciplines (namely, customer intimacy, product leadership, and
operations excellence) (Treacy and Wiersema, 1995).
These findings are important for both practitioners and academics. Practitioners can use our
results to identify and implement KM practices with a reasonable expectation based on
empirical evidence that these initiatives will be in alignment with their organizational strategy.
This study also encourages practitioners to focus their KM initiatives on specific intermediate
performance outcomes. Practitioners should also be cognizant of the range and variety of
KM practices and the extent to which so many of these are significantly related to
performance. Adopting an overly focused or limited set of KM practices might not result in
the desired outcome. Finally, the existence of a significant gap between what we believe is
important and what has been demonstrated to be important calls for attention.
Academics should be equally encouraged by these results for no greater reason than the
demonstrated impact of KM practices on organizational performance. The study did have
some limitations. While our research model was developed from literature investigating both
Western and Asian firms, our findings were based solely on organizations from North
America and Australian. Culture, financial reporting, and KM processes in general may vary
beyond this limited geographic sample, and future work should investigate the influence of
geography and culture on our findings. This aside, our study was exploratory and, as such,
there remains much work to be done. Given that the majority of our constructs were
‘‘ There was no significant relationship found between KM

practices and financial performance. ’’
j j
formative, efforts to improve the measurement of KM practices (and possibly the
identification of additional practices) will prove vital for the validation and extension of our
findings. Research designs which target respondents and industry sectors may yield
greater insight and understanding as well. Finally, we need to understand how organizations
are to develop a ‘‘KM mindset’’ to enable KM practices to get traction within organizations.
Without this mindset, many KM initiatives may fail.
Notes
1. For example, Journal of Knowledge Management, International Journal of Intellectual Capital and
Learning, Journal of Knowledge Management Practice, Electronic Journal of Knowledge
Management, Knowledge Management Research & Practice, Journal of Intellectual Capital,
International Journal of Knowledge Management, Knowledge Management, Knowledge
Management Review, and Knowledge and Process Management.
2. As implemented in PLSSmart v.2.0.
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Appendix. Measurement of research constructs

KM practices
The extent of engagement in each of the following 12 KM practice was assessed based on a
five-point Likert-type scale (excellent, good, fair, poor, and not at all).
KP1 We explicitly recognize knowledge as a key element in our strategic planning
exercises.
KP2 We benchmark our strategic knowledge against that of our competitors.
KP3 We have developed a knowledge strategy that maps knowledge to value creation.
KP4 We are able to identify sources of expertise within our organization.
KP5 Our employees are valued for what they know.
KP6 We look for opportunities to experiment and learn more about customers.
KP7 We look for opportunities to experiment and learn more about products and
services.
KP8 We look for opportunities to experiment and learn more about technologies and
internal operations.
KP9 Our organization encourages and rewards the sharing of knowledge.
KP10 We have effective internal procedures for transferring best practices throughout the
organization.
KP11 We exploit external sources of knowledge effectively including customer
knowledge.
KP12 Our knowledge management group is a recognized source of value creation within
the organization.
Other constructs
Respondents were asked to rank their organization’s performance in terms of profitability,
ROA/ROE, quality of service/product, operation costs, innovation and rate of new product
development, customer satisfaction and customer retention relative to the other
organizations in the industry on a five-point Likert-type scale (one of the lowest, below
average, average, above average, one of the highest). Operating costs were reverse coded.
These assessments were then used to form the following constructs:
j j
1. Financial performance – formed by combining ROA/ROE and profitability.
2. Organizational performance (overall) – formed by combining innovation, rate of new
product development, customer satisfaction, customer retention and operating costs.
3. Organizational performance by value discipline:
4. B: within N: Product leadership – formed by combining innovation and rate of new
product development.
5. Customer intimacy – formed by combining customer satisfaction and customer retention.
6. Operational excellence – operating costs.
Corresponding author
Michael Zack can be contacted at: m.zack@neu.edu
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Journal of Knowledge Management

Knowledge management and organizational performance: an exploratory analysis

*Related content and download information correct at time of download.

Design/methodology/approach – A search of the literature revealed 12 KM practices whose

performance will be positively associated with financial performance. The primary

Article Nature of study Study method Key finding(s)

with the three KM activities. For instance

Article Nature of study Study method Key finding(s)

processes, which in turn effect organizational

Figure 1 Research model

2.2 Organizational performance

2.3 Financial performance

2.4 Contextual influences

3.1 Data analysis

‘‘ Not only did KM practices have a direct relationship with

KP3: Knowledge strategy maps knowledge to

ROA/ROE 3.64 0.92

Notes: a 1 = high compliance; 5=low compliance; listed in order of decreasing compliance;

4.2. Structural research model

factors were found to be significantly related to organizational performance (namely, market

4.3 Value disciplines

Figure 3 Main model effects by value discipline

Table III Pairwise correlation between KM practices and organizational performance

KP1 20.300** 20.283** 20.244* NS

Table IV Between-cluster difference in mean value of KM practices

KP1 1 1.24 20.799 0.435 0.068 0.000a

Table V Between-cluster difference in mean value of organizational performance

Organizational performance 1 3.871 0.547 0.487 0.076 0.000

‘‘ There was no significant relationship found between KM

2. As implemented in PLSSmart v.2.0.

McAdam, R. (2000), ‘‘Knowledge management as a catalyst for innovation within organizations:

Tanriverdi, H. (2005), ‘‘Information technology relatedness, knowledge management capability, and

Appendix. Measurement of research constructs

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

management and performance. Journal of Business Research 68, 1426-1428. [CrossRef]

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KP1 20.300 20.283 20.244* NS