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Impact of Knowledge Management on Organizational Performance

Introduction

Globally, within the current economic climate, organizations are facing several obstacles and challenges due to a multiplicity of different factors including globalization. Therefore the intensification of competition is between the organizations. This situation has forced the use of new management concepts and paradigms such as knowledge management that have been recognized as an important tool for improving the efficiency and performance of organizations (Choi, 2003). The Impacts of management of knowledge on organizational performance can be considered as a managerial approach which drives managers in applying and developing organizational knowledge in view of increasing competitive advantage over time. Nonetheless, the most important issue to be addressed is how an organization can evaluate a knowledge management initiative focused on improving performance.

Analysis revealed the difficulty expressed by many authors to link knowledge administration and business performance. As Marr et al. (2003) cites another major reason which aggregates this problem is due to the difficulty in empathetic of the cause-effect relationship between knowledge management and performance improvement. Incidentally, the calculated view of knowledge performance is of immense importance thus the proper selection of performance measurement framework which would enable organizations to assess the envisioned knowledge management targets. Thereby a broad framework needs to discourse these issues, which rarely found in current literature.

Knowledge Management and Organizational Performance

It is becoming apparent that knowledge is gradually becoming the most important factor of production, next to labor, land and capital (Teece, 1998). Even though some forms of intellectual capital are transferable, knowledge management is not easily copied as it impacts on the performance of the organization. The performance of the organization is a persistent subject in the majority of the management branches, and there is an apprehension of both instructive persons and additionally rehearsing supervisors. Performance idea has usually been perceived; however considering performance in examination setting is a testing problem confronted by specialists. It can be stated as money related efficiency, operational efficiency, and productivity of an organization (Venkatraman and Ramanujam, 1986). The word performance is broadly used in all fields of management. Despite the frequency of use of performance, its precise meaning is rarely explicitly defined. Often, performance is acknowledged or equated with effectiveness and efficiency (Nely et al., 2002). Performance is raised to be in most of the references to either an action (obtaining performance) or an event or both simultaneously. In this view, Bourguignon (1995) performance refers instantaneously to the action, the result of the action and the success of the result compared to some benchmark as a result of knowledge management. Performance can be defined as a measure of the accomplishment of an organization objectives(Daft, 2012). The performance of an organization, from a conventional perspective, typically alludes to: the financial performance where the spending plans, resources, operations, items, administrations, markets and HR are serious to impact the general primary concern of an association (Dixon, 1999). The financial results of the organizational efficiency are ordinarily connected to authoritative accomplishment (Thurbin, 1994). The idea of efficiency has more extensive measurements of clarifications by accentuation on knowledge gained by a firm and efficiency results connected with it, so there is a necessary to carefully manage it (Yeo, 2003).

Knowledge Management has become critical in the contemporary business atmosphere that dictates continuous adaptation and transformation by organizations and necessitates employees to strive to improve their performance. It can help organizations to increase competitive advantage and advance organizational performance. A variety of knowledge management perceptions for instance knowledge management strategy, knowledge management enablers has been theorized and studied about performance. The Knowledge Management processes might be defined as the means by which individuals, teams, and organizational subsystems interact, create, store, share, and effectively use knowledge. An effective organizational environment and the implementation of Knowledge Management processes should increase the quality along with a quantity of both explicit and understood knowledge of individuals, teams and the whole organization (Sanchez and Palacios, 2008). Also, Knowledge management is seen as the methodology of information creation, endorsement, presentation, spread and appraisal (Bhatt, 2001 as well as arrange of philosophy, systems and specific and administrative gadgets, placed out towards making, yielding, utilizing information and data inside and around anassociation (Bounfour, 2003). Management of knowledge is known as Knowledge based management. Management of knowledge is about connecting people with people as well as people to information so as a favorable position on opponents can be picked up. Knowledge management is more a resource administration instead of engineering based field. It is not about how capable, and condition of the specialty progress may be used to increase the efficiency of learning. It is to some extent a movement about how people might be invigorated and motivate prospects to utilize their insight, comprehension, and creativity best by using state of the specialty structure and diverse resources for better results.

In general, we can say that not all the variables of the constructs of the knowledge management dimension are correlated with the variables of the directive competencies and that the organizational performance can be improved through Scale economies, scope economies and Sustainable competitive advantage. In Economy of Scale a company’s output is indicated to exhibit an economy of scale and if the average cost of production per unit decreases with increase in output. Greater cost lead to low-scale production is thus uneconomic, Possibilities for specialization increase as production increases and the potential and likelihood of more discounts from suppliers when production is in large-scale. In the economy of scope, a company’s output is said to exhibit economy of scope when the total cost of that same company producing two or more different products is lower than the sum of the costs input that would be incurred if each product had been produced separately by a different company.

The negative relationship between the principal factor of these p processes and the results needs a special mention. It is interesting to note how, as the complexity of strategic reflection processes increases, productivity declines, and therefore competitiveness also declines. The reason being the joint use of production facilities, use of marketing, use of administration and use of distribution channels. Whereas as of indirect impacts on the economy of scale and scope, knowledge management can contribute to economies of scale and scope by improving the company’s ability to develop and leverage knowledge related to products, customers, and managerial resources across companies. This company is, therefore, enabled to share its goods and designs, components, manufacturing processes, and expertise across franchises. Through this, companies lower the cost of development and manufacturing costs, accelerating new product development, and supporting fast response to cropping market opportunities, cross-selling of goods and development of new products, by inputting knowledge of customer preferences, desires and buying behaviors therefore, enabling the deployment of general marketing skills and sales forces across businesses. Cui et al. (2005) also mention that knowledge management capabilities consist interrelated processes and that Indirect impacts on sustainable competitive advantage knowledge can enable an organization to develop and exploit resources better than the competitors are, even when the resources might not be unique. They know how tends to be unique and therefore difficult to imitate. Since knowledge is rapidly becoming a critical measure of the organizational performance (Choi and Lee, 2002), it is, therefore, vital that indicators and measurement techniques are identified to allow managers to handle the firm's knowledge better. Unlike most traditional resources, knowledge can never be acquired in a ready-to-use form. To have similar knowledge in different organizations, the companies, and its directors have to engage in similar or close to similar experiences, however, obtaining knowledge through experience takes time, therefore, competitors are limited in the extent to which they can moderate as well as hasten their learning through investment.

Enabling sharing of products designs, components, manufacturing processes across different businesses will reduce development and manufacturing costs as it accelerates production of the new product and enabling quick response to new market opportunities. Knowledge Management requires the execution of numerous knowledge-related events by the organization. Although many authors have proposed many configurations of Knowledge Management activities, these can be identified in what Bounfour, (2003) calls Knowledge Management building blocks. The Knowledge Management blocks include; Knowledge Creation/Acquisition, Modification, usage, Archiving, Transfer, Translation/Repurposing, User Access to Knowledge and Disposal. Knowledge Management activities are geared toward recalling, evaluating, and establishing employees’ expertise, with the primary goal of making knowledge available to the right individual at the precise time. When executing these activities, organizations acquire capabilities that can enable them contest and perform well. Developing and obtaining skills depends on the Knowledge Management strategies in organizations.

Obaisat (2005) and Mills & Smith (2011) who emphasized the high level of perception of the creation and acquisition managers in different contexts. Furthermore, the creation and development of knowledge is an essential and intrinsic feature of KM (Dul, Ceylan, and Jaspers 2011). The creation of knowledge is necessary for the survival of any organization. Knowledge creation is an activity that occurs throughout daily activities, at work or in a social setting. Knowledge creation takes place in many dynamic forms, which could be through humanistic means (such as formal training or talking with people who share similar interests) or technical mechanisms (data mining activities). Knowledge creation is primarily a human process; technology can facilitate knowledge creation but cannot replace people. Organizations leverage on their ability to create knowledge, innovate, and generate value with new insights. This is the knowledge that leads to new and innovative products; knowledge that improves internal processes and operations or facts to improve the strategic decision-making capabilities and direction of the organization. Hislop (2013) says that the ability to create knowledge and generate a competitive advantage is now essential for any organization that wishes to remain sustainable within its marketplace. Knowledge Modification; Studies on knowledge modification indicate that it’s the most effective processes on organization performance.

Bhatt (2001) stated that modification or conversion process occurs alongside data supply chain, information, and knowledge, he argued that organizations must quickly convert data to information in which this information can be converted to organizational knowledge to maximize benefits from this process. Knowledge usage has been supported by Daud and Yusoff (2010) who contend that employees should collaborate to use knowledge for the benefits of their organization.

Knowledge Archiving; Archiving is not about backing up data. It concerns maintaining system performance and permitting record retention policies by removing obsolete records from the system. Archiving data regularly: Reduces the size of your production data sets, Improves overall system performance and enforces organizational data preservation policies. Whenever an Archiving process takes place, it copies data from a production form and its related forms to a set of consistent archive forms and then deletes the data from the production forms. All this work occurs within the same database. Therefore, one can remove older data from the archive form by performing a transfer process. Distributing data from the archive removes it from the database either by moving it to a .csv file, deleting it, or both (Hasan &Al-Hawari 2003).

In knowledge transfer process, all the managers have selected knowledge transfer as a process being employed by the company except. The use of networks is also supported by Bergeron (2003), who postulated that in order to increase the value of the information and to enable knowledge sharing, information ought to be freely transferred within the context of the organization using various types of media and supposed that in this phase physical transfer and networks are the support mechanisms.

Knowledge Translation/Repurposing has been selected as a process being employed by the company by managers. This is was cleared by Graham et al (2006) who publicized that knowledge translation includes the coverage, quality appraisal, and modification of R&D knowledge into a comprehensible and contextually pertinent shape.

User Access to Knowledge is ranked as a moderate process. Bergeron (2003) show that successful Knowledge Management systems should provide continuous access for authorized users through the use of query support mechanisms. Knowledge Disposal this outlines that some information will be of little value in the future and thus should be destroyed or stored elsewhere through established processes and technologies so as to preserve the standard body of knowledge at a manageable level (Bergeron, 2003).

As a formal field of activity, however, Knowledge Management is still in its infancy and is not well understood by many organizations ().Early adopters of Knowledge Management such as Skandia, BP Amoco, Dow Chemical, IBM, HP, Bain & Co, and Xerox () have stated benefits from their efforts, a number appear to be struggling with the implementation of a viable Knowledge Management strategy and are thus unable to achieve benefits. Therefore this inability may be due to the intricacy of the knowledge management effort as well as to the un attainability of proven knowledge management strategies.

Recognizing this state of affairs, some authors, for example, Earl (2000) noted that there is a need for models, frameworks, or methodologies that can benefit corporate executives to appreciate the kinds of knowledge management ingenuities or investments that are probable and to identify those that make sense in their context.

To help organizations make and maximize their benefits from their Knowledge Management initiatives, management advisers are proposing various Knowledge Management strategies. However, there has been little empirical research to assess and compare the impacts of the proposed strategies on firm’s performance.

The main issue for scholars dealing with the area of Knowledge Management is attempting to examine the ways in which it affects organization performance. In order for Knowledge Management as a discipline to be accepted as of as great importance as its proponents would argue, it is necessary to be able to demonstrate a clear and causal link between effective Knowledge Management within an organization and an improvement in that organization’s performance. The indicators show that there is a positive relationship between an efficient and effective application of Knowledge Management and organizational performance such as Hasan and Al-Hawari (2003) and Claycomb, Droge and Germain (2002). Perceived benefits of Knowledge Management can range from better knowledge sharing, cost savings, faster access to knowledge, increased cost-effectiveness and shorter time-to-market to new corporate opportunities (Skyrme, 2001). Marqués and Simón, (2006) explored the connection between Knowledge Management practices and organizational performance based on an empirical study carried out on 22 Spanish firms in the biotechnology and telecommunications industries. Their study revealed how the organizations that accept knowledge management practices achieve better results than their competitors. Yang and Wang (2004) examined the extent to which the four International five-star hotels in Taiwan implement Knowledge Management practices (notable the acquiring, sharing and storing), the method in which they are implemented and the impediments they face. The study shows that Knowledge Management practices, such as programs and cultures that support knowledge sharing, storing, and acquiring, can benefit such hotels not only financially but in terms of the functioning of the organization and welfare of the staff.

It must be noted that large-scale empirical evidence that Knowledge Management makes a difference to organizational performance (Zack et al., 2009,). This has translated into problems for practitioners. For example, in a survey of 431 US and European organizations by the Ernst & Young Centre for Business Innovation, the most difficult obstacle faced in carrying out Knowledge Management practices was found to be measuring the value of knowledge assets and/or impact of knowledge management (Ruggles, 1998). Furthermore, Darroch (2005) provides empirical evidence to support the role of Knowledge Management practices within organizations based on the analysis of data that was collected from CEOs representing organizations with more than 50 employees from a cross-section of industries; the study presents knowledge management as a coordinating mechanism. This empirical evidence supports the view that an organization with a knowledge management capability will consume resources more efficiently and will thus be more innovative and perform better. In addition, according to the study, knowledge attainment positively affect knowledge dissemination and responsiveness to knowledge. Similarly, knowledge dissemination was found to have positively affected responsiveness to knowledge. Thus, an organization with reach to a better source of knowledge is likely to have better developed knowledge dissemination and responsiveness to knowledge behaviors and practices. Similarly, an organization with better-developed knowledge dissemination behaviors and practices can possible improve responsiveness to knowledge. It is clear from this study that not only do Knowledge Management practices thus improves organization performance, they also improve each other. It is also argued that Knowledge Management enables constant information flow for better business performance and accelerates the spiral of innovation. (Chang and Ahn, 2005). Consequently, it can be postulated that with successful implementation of Knowledge Management practice, organizations are capable to perform perceptively to endure their competitive advantage by developing their knowledge assets (Wiig, 1999).

However, many of the studies draw quite nuanced conclusions. For instance, Darroch (2005) found that firms with well-built knowledge management practices and behaviors that are more likely to develop incremental innovations. However, there was inadequate evidence to support the opinion that firms with well-built knowledge management practices and ways will perform better, (Darroch, 2005) and that, out of the indicators examined only responsiveness to knowledge was found to influence organizational performance directly. Furthermore, Zack, McKeen, and Singh, (2009) investigated the organizational impact of Knowledge Management regarding performance. Twelve Knowledge Management practices were identified and explored regarding their impact on organizational performance within the context of the business organization. The study revealed that Knowledge Management practices were directly related to organizational performance which was directly linked to financial performance. On the other hand, there was no direct relationship found among Knowledge Management practices and performance. Tanriverdi (2005) found only a weak correlation amongst a firm’s use of knowledge and its financial performance. Also, due to the enormous number of exogenous factors, such linkage is obscure and difficult to be empirically validated (Bharadwaj, 2000). Therefore, many studies suggest more direct indicators of Knowledge Management performance such as level of knowledge sharing (Bock and Kim, 2002), knowledge quality (Huang, Lee and Wang 1999).

Therefore, for successful application of knowledge management, the extent of knowledge management performance is necessary.

In the recent years, different research helps on how the management of intangible resources can contribute to improving business performance and create value for the organization have been produced (Marr et al., 2003). Most studies have examined the link between knowledge management and measurements of performance from diverse perspectives. Two most common perspectives are the basic strategic view and the process view. Scholars like Firestone (2001) and Robinson et al. (2001) have fixated their effort on the impacts of knowledge management on business performance can be assessed and measured by the using comprehensive benefit estimation. Some researchers have analyzed casual relations amid knowledge management inventiveness implementation and business performance improvement (Armistead 1999) As Chong et al. (2000) asserts all the examined contributions, concerning the link between knowledge management and performance, highlight that the most significant factor for motivating knowledge management initiatives is the company strategy. Thus, the significance of strategy and measurement of results gained from knowledge management initiative are expressly discussed by research mentioned above. In correspondence to this strategically based view of the knowledge the importance of handling knowledge as a strategy that ultimately reflects in the organizational strategy. The establishment of the strategic positioning and direction of an organization and the implementation of that strategy are almost certainly the factors which have a maximum impact on its success. Bailey & Clarke (2001) suggested managers can appreciate the currency of knowledge management by linking the knowledge to be managed organizationally to four distinct areas of managerial focus prevailing and potential strategy, and prevailing and potential performance.

According to Milton et al. (1999), the aspect of management of offer knowledge strategies that enables the acquisition of the required knowledge to the right persons at the right time and in the right format. The work was done by the authors like Dawson (2000), Bhatt (2002) certainly make the strategic viewpoint of knowledge management more renowned over the others. Other writers like Beveren (2002) define knowledge management as a run-through that identifies valuable information and transforms it into necessary knowledge critical to decision making. This contemplates knowledge management as an associate tool for decision making and performance. However it is valuable at this point to reference some influential work done by writers Poynder (1998) and Wiig (1996), which in a way have mainly shaped by new ideologies of knowledge management. Wiig (1996) in his study perceives knowledge management should be considered from different perspectives with different angles and purposes in an organizations. Therefore the definitions provided by most writers will be under one or more standpoints provided by Wiig. For Gregory (1996), knowledge management contains activities focused on the organization attainment of knowledge from its own experience and the experience of others to fulfil the task of the organization, which in turn underline the business perspective of knowledge management. Despite the fact that highlighting the management perspective, Beveren (2002) discusses that the focus for knowledge management should be human driven rational and a capital strategy for human resource management that supports creativity and innovation among employees.

One of the main benefits of introducing knowledge management practices in organizations is its influence on organizational performance. The research conducted in Croatia suggests that knowledge management affects the organizational outcomes of a company in its innovation, product improvement, and employee improvement. Fugate (2003) in his study the results prove the existence of a definite positive relationship concerning knowledge management process and working and organizational performance. Still, it is not well understood how different knowledge strategies affect organizational performance. Another study showed that merging the tacit-internal-oriented and explicit-external-oriented knowledge management strategies shows a balancing relationship, which suggests that synergistic effects of knowledge management strategies on performance.

The results of the study by Choi et al. (1998) suggest that knowledge management fully mediates the impact of the culture of an organization on its effectiveness and partially mediates the influence of organizational structure and strategy on the organizational effectiveness. Finally, the results of numerous researchers indicated that knowledge management affects organizational performance in a positive manner, but this relationship is very tough to prove. Scholars, however, indicate the present positive effect of knowledge management on organizational performance. However, researchers who have empirically proven the existing link are very rare. The research present a different knowledge management maturity model that explains the test the hypothesis on the impact of knowledge management practices on organizational performance.

The underlying assumption of the practice concerning knowledge management is that by identifying and sharing useful knowledge, organizational performance will improve. Knowledge management has had a positive association to non-financial performance measures including quality, innovation, and productivity. In reality, one might expect knowledge management to have an effect and be able to influence the different aspects of organizational performance concurrently. Most recent surveys examining the performance impacts of knowledge management have aggregated several different measures of impact or performance. Another study examined the influence of knowledge infrastructure and knowledge processing on various scopes of organizational effectiveness. The study reported a strong and significant relationship between knowledge infrastructure and the knowledge processing with respect to organizational effectiveness, measured using a broad set of non-financial outcomes. They did not examine the relationship to financial performance. A study by Mohman (1999) elaborated the notion of organizational effectiveness to cover its financial measures. The study surveyed several companies and identified a positive relationship even though its weak, between the extent to which the organizations created and exploited knowledge and overall performance were its financial metrics. Nonetheless, by accumulating a broad set of financial and non-financial metrics, the asset of the relationship was reduced. Most of the remaining surveys were identified using a more or less approach for aggregating the financial and non-financial metrics to measure performance.

With regard to the impact of knowledge management, it’s financial as well as non-financial outcomes and how it distinctively constructs (Gregory, 1996). Generally there should be changes to organization practices, and knowledge management in particular, do not necessarily result in changes to financial performance knowledge management, affects a set of intermediate capabilities that, in turn, should affect performance (Poynder,1998). Knowledge management practices will be positively associated with a set of intermediate outcomes.

Conclusion

Notwithstanding the increasing number of studies relating to knowledge management in developed countries, a number of studies have investigated the issue within the background of developing countries. Most of the available studies relating to knowledge management have considered organizational knowledge as a significant asset for gaining reasonable advantage and as a striking contributor to the achievement and survival of any organization within a highly competitive business environment. Accordingly the problem of this research is first derived from the scarcity of developing countries studies relating to knowledge management in general and its potential impact on the organizational performance. The knowledge management processes and organization performance. The above literature provides analysis of the knowledge management processes and revealed a state of disagreement among the researchers not only concerning the processes involved within the knowledge management concept but also the impact of these processes on organization performance. This identified knowledge management processes namely knowledge creation and acquisition, knowledge modification, knowledge usage, archiving, e transfer, translation/repurposing, user access knowledge, and knowledge disposal that are seen as comprehensive processes representing the valuable aspects of organizational knowledge.

These processes have also been adopted by Bergeron (2003). However, comparing with other knowledge management processes that were identified by other scholars and researchers, this study concludes that Bergeron's classification is the most comprehensive knowledge management processes and attempts to measure their impact on organization performance which may clue to an in-depth authentication of the indicated processes as well as giving guidelines for effective use of these processes to improve organization performance. An in depth reading of available knowledge management and performance literature was practically impossible because of the current possibility in the field especially because of the limited time of the study. However, reviewed findings on some major frameworks from both knowledge management and performance measurement, based on the issue of managing knowledge into increased performance.

The process of knowledge and knowledge management was illustrated and the evolution of performance measurement was illustrated. More so, knowledge management can however be considered as an administrative approach which pushes managers in applying and developing organizational knowledge is seen as an aspect for increasing competitive advantage with time. Nevertheless most significant issue to be addressed is how an organization can evaluate a knowledge management initiative engrossed to improve business performance. Literature analysis revealed the difficulty expressed by several authors who try to connect the relation of knowledge management and business performance. The imperceptible and the immense nature of the knowledge have caused this trouble to a great extent. As Marr et al (2003) cites another reason which aggregate this issue is because of the troubles in understanding the cause-effect relationship amid knowledge management and performance improvement.

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