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An empirical study of the effects of knowledge sharing and learning behaviors on firm performance
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Expert Systems with Applications Expert Systems with Applications 34 (2008) 2342–2349 www.elsevier.com/locate/eswa
An empirical study of the effects of knowledge sharing and learning behaviors on firm performance Chuck C.H. Law *, Eric W.T. Ngai Department of Management and Marketing, The Hong Kong Polytechnic University, Hong Kong, PR China
Abstract Knowledge sharing and learning behaviors in the workplace are believed to be very important to the success of firms. In this study, the relationships between knowledge sharing and learning behaviors, business process improvement, product and service offerings, and organizational performance are examined based on a sample of 134 firms engaged in manufacturing, and wholesale or retailing operations. Data analyses using the partial least squares statistical technique revealed that knowledge sharing and learning behaviors are positively associated with business process improvement, and product and service offerings. Business process improvement and product and service offerings are positively associated, and they in turn are positively related to organizational performance. The findings reinforce the importance of knowledge sharing and learning to companies. Executives should encourage knowledge management and organizational learning activities within their firms, and give proper considerations to the strategies and implementation of programs supporting these activities in order to enhance firm performance. Ó 2007 Elsevier Ltd. All rights reserved. Keywords: Knowledge sharing; Learning organization; Business process improvement; Product and services offerings; Organizational performance
1. Introduction An organization that fails to learn may be sub-optimal or even dysfunctional (DiBella, 1995). In contrast, a learning organization is believed to be able to generate competitive capabilities to sustain its business performance in the market (Slater & Narver, 1995). Leaders who intend to develop their firms as learning organizations need to create supportive environments that are conducive to learning, and exchanging ideas and knowledge (Garvin, 1993). In this regard, many academics and consultants consider the behaviors of learning and the sharing of knowledge among employees and internal organizational units to be the essential elements of knowledge management (Choi & Lee, 2002). Knowledge sharing among co-ordinated organizational units should contribute to the generation of
*
Corresponding author. Tel.: +852 2766 7296; fax: +852 2774 0611. E-mail address: [email protected] (C.C.H. Law).
0957-4174/$ - see front matter Ó 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.eswa.2007.03.004
organizational capabilities vital to a firm’s business performance (Kogut & Zander, 1996). That said, the following question may arise: What are the key dimensions of organizational capabilities that would be affected by knowledge sharing and learning activities which would in turn result in firm performance gains? Some of the capabilities often highlighted by the organizational learning and knowledge management literature are product innovation and product offerings. More recently, some academics have pointed to various aspects of organizational innovation. Process innovation has been recognized by many as an important result of knowledge sharing and learning, and it is believed to be a critical contributor to a firm’s competitive advantage. As there is still a dearth of empirical research into knowledge sharing (Ipe, 2003), this study is intended to fill this gap by investigating the effects of knowledge sharing and learning on an organization’s business process improvement, product and service offerings, and overall firm performance.
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The paper is organized as follows. The results of a literature review on related subjects are presented in the next section. In Section 3, the research model defining the constructs and hypothesized relationships is depicted, and this is followed by an explanation of the research methods in Section 4. Data analysis and the findings are reported in Section 5. Section 6 concludes the paper with a discussion of the implications and limitations of this study, research directions, and concluding remarks. 2. Literature review The organizational learning and knowledge management literature includes many discussions of learningrelated issues such as knowledge creation, acquisition, storage, and dissemination, and their effects on the organization. Many authors have re-iterated the importance of learning and knowledge management to modern business enterprises if they are to succeed in the market. 2.1. Knowledge sharing and organizational learning Knowledge sharing is the voluntary dissemination of acquired skills and experience to the rest of the organization (Davenport, 1997; Ipe, 2003). Some define internal knowledge sharing as the beliefs or routines for disseminating knowledge and experience across the units of an organization (Calantone, Cavusgil, & Zhao, 2002; Moorman & Miner, 1998). The acts of sharing are very important since an individual’s knowledge will not have much impact on the organization unless it is made available to other individuals (Nonaka & Takeuchi, 1995). Simply put, a lack of knowledge sharing may inhibit or hinder knowledge management (Ipe, 2003). Although knowledge exists at different levels of an organization, for instance, at the individual, team, and organization levels, sharing of knowledge at the individual level is critical to an organization. That is, an organization’s knowledge is built upon that of individuals (Lukas, Hult, & Ferrell, 1996). The organizational learning literature often espouses the assertion that the basic repository of knowledge is the individual, since learning involves the cognition function that can only be performed by the human mind (Huber, 1991; Simon, 1991). Without sharing, the outcomes of knowledge management efforts will be compromised (Calantone et al., 2002). Knowledge sharing behaviors facilitate learning among employees and enable them to resolve problems similar to situations encountered by others in the past, thus enabling quicker responses to the customers (Sher & Lee, 2004). Such behaviors may, in some circumstances, stimulate other individuals to acquire new knowledge (Ipe, 2003). 2.2. Impacts of knowledge sharing and learning It is widely believed that through the exchange of knowledge among individuals or across organization units, com-
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petitive capabilities are generated that can lead to firm success (Ipe, 2003; Kogut & Zander, 1996). By sharing their knowledge, individuals can realize synergistic results greater than those achievable by any individual alone (Cohen & Levinthal, 1990). Many authors have pointed out that sharing knowledge among employees would lead to faster responses to customer requirements at a lower cost in operations (Sher & Lee, 2004). Many have linked knowledge sharing to the learning and market orientations of firms (Hurley & Hult, 1998; Weerawarden & O’Cass, 2004). Thus, sharing knowledge is an integral part of an organization’s learning activities, leading to improvements in market sensing and innovation activities. The learning and exchange of experience and knowledge among employees and across organizational units may lead to the strategic benefits described above in addition to greater operational efficiency. Product and technical innovation is often considered a major consequence of good organizational learning and knowledge management practices (Calantone et al., 2002). This aspect of innovation often leads to new product development to meet customers’ changing needs, as discussed in the literature. The ability to align one’s product and service offerings with the needs and preferences of customers is one of the competitive capabilities a firm must possess in order to succeed in the market (Tracey, Vonderembse, & Lim, 1999). More recently, scholars have begun to recognize the organizational aspects of innovation, such as the adoption of a new system, the improvement of process, or the introduction of a new human resource management practice (Calantone et al., 2002; Subramanian & Nilakanta, 1996). Process innovation is critical to achieving operational efficiency as well as to raising service quality (Van der Aa & Elfring, 2002). Innovative practice in business process is important not only for service firms, but also for manufacturing firms, for instance, in the delivery process (Gallouj & Weinstein, 1997). On-going learning and sharing of knowledge contribute to innovative practices by either borrowing from the prior experience of other people and organizations, or by searching for entirely new approaches and practices. The process management literature has described two approaches to process innovation: firstly the evolutionary and incremental approach (termed business process improvement), and secondly, the radical, revolutionary approach (referred to as business process re-engineering) (Hammer & Champy, 1993; Stoddard & Jarvenpaa, 1995). On-going learning and knowledge sharing would facilitate a broad range of changes to the organization, as well as product and service offerings, through the implementation of adopted experience and new ideas (Calantone et al., 2002). The practices of learning new knowledge, and sharing what is known by individuals, would enhance organizational capabilities and firm performance in terms of cost reduction, responsiveness to customer needs, success of new products, and growth of market share (Baker & Sinkula, 1999; Sher & Lee, 2004). More importantly, it
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may eventually lead to the institutionalization of the knowledge within the organization (Grant, 1996; Simon, 1991). 3. The research model Knowledge sharing and learning behaviors are believed to be key contributors to process and product innovation, and have long been praised as important practices vital to improvements in firm performance (Earl, 2001). In this study, a research model was presented and empirically tested. Fig. 1 depicts a model that includes four constructs, namely, knowledge sharing and learning behaviors, business process improvement, product and service offerings, and organizational performance. 3.1. Knowledge sharing and learning behaviors The construct of knowledge sharing and learning behaviors captures the perceptual ratings of the respondents regarding the extent to which (1) knowledge sharing and (2) on-going learning are practiced by the employees of firms with the aim of improving or generating new business practices and capabilities (Cohen & Levinthal, 1990; Ipe, 2003). Such behaviors in the workplace are believed by many academics and business practitioners to be important to innovative practices in business processes, and the products and services offered to the customers (Earl, 2001; Sher & Lee, 2004). 3.2. Business process improvement Effective and efficient business processes are important to a firm’s performance. They therefore need to be reviewed and improved on an on-going basis. Such changes can be incremental and evolutionary (referred to as business process improvement), or in some circumstances radical (referred to as business process re-engineering) (Hammer & Champy, 1993; Stoddard & Jarvenpaa, 1995). This study considers both approaches to be valid, and the choice between the former and the latter depends
Knowledge Sharing and Learning (KSL)
H4 Organization Performance (OP)
H3 H5 H2
Products & Services Offerings (PSO)
Fig. 1. The hypothesized model.
H1: The extent of knowledge sharing and learning (KSL) behaviors practiced by a firm would contribute positively to the extent of its business process improvement (BPI) initiative.
3.3. Product and service offerings The product and service offerings construct is intended to measure the ability of firms to respond to changing customer needs and preferences by altering the portfolios of products and services offered. Developing new products and services to fulfill customer requirements is one of the very important effects of learning and sharing knowledge that is vital to a firm’s successful performance in the market (Earl, 2001). This represents the improvement of a firm’s understanding of customer needs on the one hand, and an enhancement of its ability to develop or source new products and services on the other (Day, 1994). Based on the above discussion, we have formulated the following hypotheses: H2: The extent of knowledge sharing and learning (KSL) behaviors practiced by a firm would contribute positively to its product and service offerings (PSO). H3: The extent of business process improvement (BPI) would contribute positively to its product and service offerings (PSO).
Business Process Improvement (BPI) H1
on the situation and objectives of the firm. The construct of the extent of business process improvement (BPI) measures the quality of the changed processes in terms of (1) prevention of defects or errors in the production or service delivery process, (2) process standards, (3) process simplification, and (4) the co-ordination of activities (Bhatt, 2000; Kogut, 1985). Business process improvement is a more systematic and complex form of organizational innovation and often involves the tacit knowledge of a firm (Gopalakrishan, Bierly, & Kessler, 1999). Business process and organization routines, capturing much firm-specific knowledge, are important to a firm’s ability to compete in the market. We posit that learning from knowledge and experience accumulated in the past, or about new ideas, would contribute to improvements in business practices and processes, which are considered an essential element of the organizational capabilities of a firm. The hypothesis can be rephrased as follows:
3.4. Organizational performance In this model, the construct of organizational performance measures the perceived firm-level performance in terms of five aspects: profitability relative to competitors, customer satisfaction with the products and services purchased, sales growth, customer retention rate, and overall organizational performance (Tracey et al., 1999). A firm’s
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competitive capabilities in business processes and product and service offerings are critical to satisfying customer needs, and to its market and financial performance (Day, 1994; Tracey et al., 1999). For instance, a firm’s processes for customer management and order fulfillment would lead to better products and services delivered responsively at a lower cost (Day, 1994). For these reasons, we add the following two hypotheses: H4: The extent of business process improvement (BPI) of a firm would contribute positively to its organizational performance (OP). H5: The product and service offerings (PSO) of a firm would contribute positively to its organizational performance (OP).
4. Research method 4.1. Data source Perceptual data are collected through a postal survey of multinational and Hong Kong-listed manufacturing, and wholesale and retailing firms. The survey targeted senior managers responsible for such areas as information systems, e-commerce, logistics, and operations management. We arrived at the decision to solicit inputs from senior informants since they are believed to be more suitable to provide reliable multi-dimensional information on a firm, whereas a junior member of staff may be restricted to a narrower focus. The covering letter addressed to the chief executive officers or managing directors explained the objectives of the study and the rules of confidentiality and anonymity the researchers must abide by. They were requested to forward the questionnaires to IT executives, or other qualified persons in the management team, in order to maintain the quality of responses. Manufacturing and wholesale and retailing firms were targeted by the survey, since the primary objective was to investigate the effects of knowledge sharing and learning behaviors on process improvement and on the capability of firms to offer products and services to meet customers’ changing needs and preferences. 4.2. Measurement development and pilot test The constructs and items used to operationalize the research were developed following the generally accepted guidelines of reliability and validity (Churchill, 1979; Nunnally, 1978) for multiple-item measures. A literature review was conducted for the concepts and definitions of the constructs, on the basis of which items of the constructs were developed. Measures tested in prior studies were adopted with changes in wording to suit the research context. The knowledge sharing and learning construct was defined in this study to include two items. Item 1 measures
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the extent that knowledge sharing is performed as perceived by the respondent. Item 2 is aimed at capturing the perceptual rating from the respondent about the extent to which on-going learning is practiced in the company. The business process improvement construct contains four items. The first three items measure the extent of process improvement in terms of (1) defect and error prevention, (2) process standards, and (3) process simplification. These items were adapted from Bhatt (2000). Item 4 was added to assess whether processes were improved or established to facilitate co-ordination for the firms. The items for the construct of product and service offerings were adapted from Tracey et al. (1999) with adjustments to the wording. The original items were used only for physical products. Therefore, they were revised to cover both products and services. The measures for organizational performance were adapted from Tracey et al. (1999). They include five items to capture the perceptions of the respondents on the performance of their firms in the following fields: (1) customer satisfaction with products or services purchased, (2) customer retention rate, (3) sales growth rate, (4) profitability relative to competitors, and (5) the overall competitive position of a firm. The original item regarding customer satisfaction in Tracey et al. (1999) was intended to measure customer satisfaction with regard to only physical products, and therefore we have to adjust its wording to capture customer satisfaction with regard to both physical products and services purchased. The question items for the abovementioned constructs are listed in Appendix A along with means and standard deviations. In order to ensure its face and content validity, the initial questionnaire was subject to a review or pre-test by six senior managers and two professors, followed by a pilot test with the participation of 60 evening MBA students who were full-time practitioners in their fields. Their comments and suggestions were used to improve the questionnaire to produce the final version.
4.3. Validity guidelines and analysis procedures Cronbach’s Alpha coefficient was calculated in both the pilot test and the full survey for each of the four constructs to ascertain the internal consistency of the items in the constructs (Kerlinger, 1973). In the full survey, an exploratory factor analysis (EFA) was conducted for all the items under the four hypothesized constructs to determine the convergent and divergent validity of the constructs. The sample was then analyzed with the partial least squares (PLS) technique that uses a component-based approach to estimation. We decided to use PLS since many of the question items were developed as formative rather than reflective indicators (Chin, 1998). The statistics of composite reliabilities were examined and the average variances extracted (AVEs) and correlations among constructs were compared to ascertain the convergent and discriminant validity of the constructs (Fornell & Larcker, 1981).
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The t-statistics generated by PLS were compared to the critical values of the t-distribution to test the significance of the paths between constructs in the structural model.
structs, therefore demonstrating the discriminant validity across the constructs. This means that the measurement model is acceptable in terms of convergent and discriminant validity.
5. Results The survey resulted in a sample of 134 usable responses from firms engaged in manufacturing and logistics-related business operations, including 45 (33.6%) firms in manufacturing, and 89 (66.4%) in wholesale or retailing. The analysis of the measurement and structural models based on this sample is presented below. 5.1. Measurement model The analysis of the measurement model is shown in Tables 1 and 2. The loadings, generated by EFA, of the formative indicators on their respective conceptualized latent constructs and Cronbach’s Alpha coefficients are shown in Table 1. The EFA confirmed that the items loaded more strongly on their own latent construct than on others. Cronbach’s Alpha coefficients for the items under individual latent constructs were much larger than the threshold value of 0.7 (Kerlinger, 1973), indicating acceptable internal consistency. The AVEs were well above the threshold value of 0.5, and the composite reliabilities exceeded 0.8, as recommended by Fornell and Larcker (1981). These measures sufficiently showed the convergent validity of the measurement model. Moreover, according to Fornell and Larcker (1981), the AVE of any construct should be greater than the squared correlations between that construct and any other related construct. (Alternatively, the square root of the AVE of any construct should be greater than the correlations between that construct and any other related construct.) The square roots of AVEs reported in Table 2 were greater than the correlations among the con-
5.2. Structural model The analysis of the structural model is reported in Fig. 2 and Table 3. Fig. 2 shows a graphical depiction of the structural model with path coefficients and computed t-values displayed for each path. Table 3 reports the outer model loadings, including loadings for the full sample, sub-samples, standard t-statistic error, and t-statistic. The analysis presented in Fig. 2 shows that all paths in the structural model were statistically significant. As hypothesized, KSL is significantly associated with BPI (path coefficient = 0.506, t = 8.2706) and PSO (path coefficient = 0.2140, t = 2.4467). BPI is significantly associated with PSO (path coefficient = 0.3940, t = 4.7228) and OP (path coefficient = 0.2900, t = 2.7185). Similarly, PSO is significantly associated with OP (path coefficient = 0.3690, t = 4.0632). Therefore, H1, H2, H3, H4, and H5 are supported. The squared multiple correlation coefficients (R2) were 0.2556 (for BPI), 0.2862 (for PSO), and 0.3277 (for OP), indicating that the model is sound in explaining the variations of the endogenous constructs.
6. Discussion, implications, and concluding remarks In summary, this study has empirically supported the hypotheses that knowledge sharing and learning behaviors would lead to better performance in business process improvement and product and service offerings of a firm. It has also demonstrated that improvements in these two intermediate capabilities constructs in turn contributed to
Table 1 Results of exploratory factor analysis and internal reliability testing Latent construct
Item
Internal reliability Cronbach’s a
CITC
Factor loading
Knowledge sharing and learning (KSL)
KSL1 KSL2
0.8035
0.6722 0.6722
0.697 0.810
Business process improvement (BPI)
BPI1 BPI2 BPI3 BPI4
0.8280
0.6249 0.6617 0.6600 0.6819
0.617 0.674 0.713 0.717
Products/services offerings (PSO)
PSO1 PSO2
0.8325
0.7135 0.7135
0.596 0.953
Organizational performance (OP)
OP1 OP2 OP3 OP4 OP5
0.8618
0.6729 0.6706 0.6981 0.6042 0.7947
0.610 0.661 0.705 0.660 0.873
CITC = Corrected item-total correlation.
Convergent validity
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Table 2 Inter-construct correlations: Consistency and reliability tests Constructs (# items)
Composite reliability
AVE
KSL
BPI
PSO
OP
Knowledge sharing and learning (KSL) (2) Business process improvement (BPI) (4) Products and services offerings (PSO) (2) Organizational performance (OP) (5)
0.911 0.880 0.899 0.891
0.836 0.648 0.818 0.624
0.914 0.506 0.413 0.430
0.805 0.502 0.475
0.904 0.515
0.790
Note: The shaded numbers in the diagonal row are square roots of the average variances extracted (AVE). For adequate discriminant validity, diagonal elements should be greater than corresponding off-diagonal elements.
the performance of the organization as measured by the perceptual indicators for financial and market performance. The hypothesized relationship that business process improvement would have positive impacts on product and service offerings was also confirmed.
Business Process Improvement (BPI) (R2= 0.2556) 0.5060* (t = 8.2706)
0.2900* (t = 2.7185) Organization Performance (OP)
0.3940* (t = 4.7228)
Knowledge Sharing and Learning (KSL)
(R2= 0.3277) 0.3690* (t = 4.0632)
0.2140* (t = 2.4467)
Products & Services Offerings (PSO) (R2= 0.2862)
* Significant at the 0.05 level
Fig. 2. Results of data analysis.
6.1. Academic implications Knowledge sharing and learning practices in firms are said by many authors to contribute to organizational performance. This study proposed a model that helps to conceptualize the linkages between such practices and firm performance through two important intermediate constructs, and gathered empirical evidence to support such hypothesized relationships. The knowledge management literature has often suggested that such learning is related to product innovation. More recently, some studies pointed out the effects of knowledge management and learning on process innovation. This study has not only shown that knowledge sharing and learning practices contribute to improvements in product and service offerings, but has also substantiated their innovative effects on process improvement. Equally important is the confirmation of the positive impacts of process improvement on the product and service offerings of a firm. Therefore, the proposed model might be used as an alternative theoretical model for evaluating organizational performance in future studies.
Table 3 Outer model loadings Mean of sub-samples
Standard T-statistic error
T-Statistic
Knowledge sharing and learning (KSL) KSL1 0.9129 KSL2 0.9159
Entire sample estimate
0.8962 0.9127
0.0657 0.0552
13.8982 16.5775
Business process improvement (BPI) BPI1 0.8747 BPI2 0.7786 BPI3 0.7693 BPI4 0.7938
0.8613 0.7661 0.7567 0.7845
0.0654 0.0771 0.0714 0.0732
13.3684 10.1013 10.7744 10.8419
Products/services offerings (PSO) PSO1 0.9885 PSO2 0.8113
0.9804 0.8037
0.0206 0.0859
48.0486 9.4400
Organization performance (OP) OP1 0.8780 OP2 0.8219 OP3 0.8189 OP4 0.6073 OP5 0.7952
0.8256 0.8180 0.7676 0.5639 0.7344
0.0802 0.0781 0.0825 0.1342 0.1140
10.9467 10.5250 9.9294 4.5263 6.9775
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6.2. Managerial implications
Appendix A. Individual items for construct measurement
Following the confirmation of the importance of knowledge sharing and learning, firms should ponder how knowledge management can be implemented successfully. This would include strategies and programs for implementing knowledge management, and encouraging learning and knowledge sharing among employees. Together, a firm’s efforts in these two areas would help to tap the knowledge and experience of the individuals and transplant them into organizational knowledge for the benefits of the firm as a whole. Firms need to step back and carefully think about the capabilities critical to sustaining their competitive advantages in their core businesses, and align their knowledge management and organizational learning strategies with the desired outcomes.
Label Item
6.3. Limitations and opportunities Although this study has been operationalized meticulously according to the generally accepted research guidelines (Churchill, 1979; Nunnally, 1978) to maintain its validity and reliability, it may not be totally free from limitations. First, the perceptual inputs collected from the respondents are likely to have been subject to common method bias, since the picture of the multiple dimensions of practices and performance of a firm was dependent on the responses of one respondent. Second, though the model was empirically supported and enabled the explanation of a large percentage of the variability of the endogenous constructs, it was rather simple and incorporated only four constructs. This is not necessarily a serious limitation. However, we would like to point out the opportunities to expand the model to incorporate other antecedent and consequent constructs to form a more comprehensive nomological network. This study was designed and tested successfully in a cross-sectional sample of inputs from firms engaged in the production and distribution of physical goods and of services. With adequate adjustments to the constructs and indicators, similar research models can be developed for other business settings such as service industries. As a suggestion for further improvement, we need to note the importance of the sustainability of the capabilities and organizational benefits generated in knowledge management activities. A longitudinal sample collected over multiple points of time would help to support this research objective. Nevertheless, this study has produced empirical evidence to substantiate the hypothesized associations of the construct of knowledge sharing and learning with the intermediate constructs of business process improvement, and product and service offerings. It has also confirmed the indirect effects of knowledge sharing and learning on firm performance through the mediation of the intermediate constructs.
Mean (sd)
Knowledge sharing and learning (KSL) KSL1 Knowledge sharing and learning to 3.38 (0.874) enhance employee capabilities . . . KSL2 On-going learning leads to improved 3.43 (0.913) work practices and processes . . . Business process improvement (BPI) BPI1 Work processes to prevent defects and errors . . . BPI2 Process standards raised periodically ... BPI3 New work processes are easier to work with than earlier ones . . . BPI4 Work processes to facilitate coordination of activities . . . Product/service offerings (PSO) PSO1 . . . respond well to changing customer preferences . . . PSO2 . . . alter product and/or service offerings to meet client needs. Organizational performance (OP) OP1 Customers perceive that they receive their money’s worth for purchasing your products and/or services OP2 Your customer retention rate is as high as or higher than that of your competitors OP3 Your sales growth rate is as high as or higher than that of your competitors OP4 Profitability of your company is good relative to the overall performance of your business sector OP5 Your overall competitive position is strong in your business sector
3.37 (0.690) 3.36 (0.853) 3.51 (0.753) 3.53 (0.792)
3.45 (0.837) 3.67 (0.865)
3.75 (0.782)
3.67 (0.874)
3.31 (1.119)
3.06 (0.956)
3.51 (0.932)
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Expert Systems with Applications Expert Systems with Applications 34 (2008) 2342–2349 www.elsevier.com/locate/eswa
An empirical study of the effects of knowledge sharing and learning behaviors on firm performance Chuck C.H. Law *, Eric W.T. Ngai Department of Management and Marketing, The Hong Kong Polytechnic University, Hong Kong, PR China
Abstract Knowledge sharing and learning behaviors in the workplace are believed to be very important to the success of firms. In this study, the relationships between knowledge sharing and learning behaviors, business process improvement, product and service offerings, and organizational performance are examined based on a sample of 134 firms engaged in manufacturing, and wholesale or retailing operations. Data analyses using the partial least squares statistical technique revealed that knowledge sharing and learning behaviors are positively associated with business process improvement, and product and service offerings. Business process improvement and product and service offerings are positively associated, and they in turn are positively related to organizational performance. The findings reinforce the importance of knowledge sharing and learning to companies. Executives should encourage knowledge management and organizational learning activities within their firms, and give proper considerations to the strategies and implementation of programs supporting these activities in order to enhance firm performance. Ó 2007 Elsevier Ltd. All rights reserved. Keywords: Knowledge sharing; Learning organization; Business process improvement; Product and services offerings; Organizational performance
1. Introduction An organization that fails to learn may be sub-optimal or even dysfunctional (DiBella, 1995). In contrast, a learning organization is believed to be able to generate competitive capabilities to sustain its business performance in the market (Slater & Narver, 1995). Leaders who intend to develop their firms as learning organizations need to create supportive environments that are conducive to learning, and exchanging ideas and knowledge (Garvin, 1993). In this regard, many academics and consultants consider the behaviors of learning and the sharing of knowledge among employees and internal organizational units to be the essential elements of knowledge management (Choi & Lee, 2002). Knowledge sharing among co-ordinated organizational units should contribute to the generation of
*
Corresponding author. Tel.: +852 2766 7296; fax: +852 2774 0611. E-mail address: [email protected] (C.C.H. Law).
0957-4174/$ - see front matter Ó 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.eswa.2007.03.004
organizational capabilities vital to a firm’s business performance (Kogut & Zander, 1996). That said, the following question may arise: What are the key dimensions of organizational capabilities that would be affected by knowledge sharing and learning activities which would in turn result in firm performance gains? Some of the capabilities often highlighted by the organizational learning and knowledge management literature are product innovation and product offerings. More recently, some academics have pointed to various aspects of organizational innovation. Process innovation has been recognized by many as an important result of knowledge sharing and learning, and it is believed to be a critical contributor to a firm’s competitive advantage. As there is still a dearth of empirical research into knowledge sharing (Ipe, 2003), this study is intended to fill this gap by investigating the effects of knowledge sharing and learning on an organization’s business process improvement, product and service offerings, and overall firm performance.
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The paper is organized as follows. The results of a literature review on related subjects are presented in the next section. In Section 3, the research model defining the constructs and hypothesized relationships is depicted, and this is followed by an explanation of the research methods in Section 4. Data analysis and the findings are reported in Section 5. Section 6 concludes the paper with a discussion of the implications and limitations of this study, research directions, and concluding remarks. 2. Literature review The organizational learning and knowledge management literature includes many discussions of learningrelated issues such as knowledge creation, acquisition, storage, and dissemination, and their effects on the organization. Many authors have re-iterated the importance of learning and knowledge management to modern business enterprises if they are to succeed in the market. 2.1. Knowledge sharing and organizational learning Knowledge sharing is the voluntary dissemination of acquired skills and experience to the rest of the organization (Davenport, 1997; Ipe, 2003). Some define internal knowledge sharing as the beliefs or routines for disseminating knowledge and experience across the units of an organization (Calantone, Cavusgil, & Zhao, 2002; Moorman & Miner, 1998). The acts of sharing are very important since an individual’s knowledge will not have much impact on the organization unless it is made available to other individuals (Nonaka & Takeuchi, 1995). Simply put, a lack of knowledge sharing may inhibit or hinder knowledge management (Ipe, 2003). Although knowledge exists at different levels of an organization, for instance, at the individual, team, and organization levels, sharing of knowledge at the individual level is critical to an organization. That is, an organization’s knowledge is built upon that of individuals (Lukas, Hult, & Ferrell, 1996). The organizational learning literature often espouses the assertion that the basic repository of knowledge is the individual, since learning involves the cognition function that can only be performed by the human mind (Huber, 1991; Simon, 1991). Without sharing, the outcomes of knowledge management efforts will be compromised (Calantone et al., 2002). Knowledge sharing behaviors facilitate learning among employees and enable them to resolve problems similar to situations encountered by others in the past, thus enabling quicker responses to the customers (Sher & Lee, 2004). Such behaviors may, in some circumstances, stimulate other individuals to acquire new knowledge (Ipe, 2003). 2.2. Impacts of knowledge sharing and learning It is widely believed that through the exchange of knowledge among individuals or across organization units, com-
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petitive capabilities are generated that can lead to firm success (Ipe, 2003; Kogut & Zander, 1996). By sharing their knowledge, individuals can realize synergistic results greater than those achievable by any individual alone (Cohen & Levinthal, 1990). Many authors have pointed out that sharing knowledge among employees would lead to faster responses to customer requirements at a lower cost in operations (Sher & Lee, 2004). Many have linked knowledge sharing to the learning and market orientations of firms (Hurley & Hult, 1998; Weerawarden & O’Cass, 2004). Thus, sharing knowledge is an integral part of an organization’s learning activities, leading to improvements in market sensing and innovation activities. The learning and exchange of experience and knowledge among employees and across organizational units may lead to the strategic benefits described above in addition to greater operational efficiency. Product and technical innovation is often considered a major consequence of good organizational learning and knowledge management practices (Calantone et al., 2002). This aspect of innovation often leads to new product development to meet customers’ changing needs, as discussed in the literature. The ability to align one’s product and service offerings with the needs and preferences of customers is one of the competitive capabilities a firm must possess in order to succeed in the market (Tracey, Vonderembse, & Lim, 1999). More recently, scholars have begun to recognize the organizational aspects of innovation, such as the adoption of a new system, the improvement of process, or the introduction of a new human resource management practice (Calantone et al., 2002; Subramanian & Nilakanta, 1996). Process innovation is critical to achieving operational efficiency as well as to raising service quality (Van der Aa & Elfring, 2002). Innovative practice in business process is important not only for service firms, but also for manufacturing firms, for instance, in the delivery process (Gallouj & Weinstein, 1997). On-going learning and sharing of knowledge contribute to innovative practices by either borrowing from the prior experience of other people and organizations, or by searching for entirely new approaches and practices. The process management literature has described two approaches to process innovation: firstly the evolutionary and incremental approach (termed business process improvement), and secondly, the radical, revolutionary approach (referred to as business process re-engineering) (Hammer & Champy, 1993; Stoddard & Jarvenpaa, 1995). On-going learning and knowledge sharing would facilitate a broad range of changes to the organization, as well as product and service offerings, through the implementation of adopted experience and new ideas (Calantone et al., 2002). The practices of learning new knowledge, and sharing what is known by individuals, would enhance organizational capabilities and firm performance in terms of cost reduction, responsiveness to customer needs, success of new products, and growth of market share (Baker & Sinkula, 1999; Sher & Lee, 2004). More importantly, it
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may eventually lead to the institutionalization of the knowledge within the organization (Grant, 1996; Simon, 1991). 3. The research model Knowledge sharing and learning behaviors are believed to be key contributors to process and product innovation, and have long been praised as important practices vital to improvements in firm performance (Earl, 2001). In this study, a research model was presented and empirically tested. Fig. 1 depicts a model that includes four constructs, namely, knowledge sharing and learning behaviors, business process improvement, product and service offerings, and organizational performance. 3.1. Knowledge sharing and learning behaviors The construct of knowledge sharing and learning behaviors captures the perceptual ratings of the respondents regarding the extent to which (1) knowledge sharing and (2) on-going learning are practiced by the employees of firms with the aim of improving or generating new business practices and capabilities (Cohen & Levinthal, 1990; Ipe, 2003). Such behaviors in the workplace are believed by many academics and business practitioners to be important to innovative practices in business processes, and the products and services offered to the customers (Earl, 2001; Sher & Lee, 2004). 3.2. Business process improvement Effective and efficient business processes are important to a firm’s performance. They therefore need to be reviewed and improved on an on-going basis. Such changes can be incremental and evolutionary (referred to as business process improvement), or in some circumstances radical (referred to as business process re-engineering) (Hammer & Champy, 1993; Stoddard & Jarvenpaa, 1995). This study considers both approaches to be valid, and the choice between the former and the latter depends
Knowledge Sharing and Learning (KSL)
H4 Organization Performance (OP)
H3 H5 H2
Products & Services Offerings (PSO)
Fig. 1. The hypothesized model.
H1: The extent of knowledge sharing and learning (KSL) behaviors practiced by a firm would contribute positively to the extent of its business process improvement (BPI) initiative.
3.3. Product and service offerings The product and service offerings construct is intended to measure the ability of firms to respond to changing customer needs and preferences by altering the portfolios of products and services offered. Developing new products and services to fulfill customer requirements is one of the very important effects of learning and sharing knowledge that is vital to a firm’s successful performance in the market (Earl, 2001). This represents the improvement of a firm’s understanding of customer needs on the one hand, and an enhancement of its ability to develop or source new products and services on the other (Day, 1994). Based on the above discussion, we have formulated the following hypotheses: H2: The extent of knowledge sharing and learning (KSL) behaviors practiced by a firm would contribute positively to its product and service offerings (PSO). H3: The extent of business process improvement (BPI) would contribute positively to its product and service offerings (PSO).
Business Process Improvement (BPI) H1
on the situation and objectives of the firm. The construct of the extent of business process improvement (BPI) measures the quality of the changed processes in terms of (1) prevention of defects or errors in the production or service delivery process, (2) process standards, (3) process simplification, and (4) the co-ordination of activities (Bhatt, 2000; Kogut, 1985). Business process improvement is a more systematic and complex form of organizational innovation and often involves the tacit knowledge of a firm (Gopalakrishan, Bierly, & Kessler, 1999). Business process and organization routines, capturing much firm-specific knowledge, are important to a firm’s ability to compete in the market. We posit that learning from knowledge and experience accumulated in the past, or about new ideas, would contribute to improvements in business practices and processes, which are considered an essential element of the organizational capabilities of a firm. The hypothesis can be rephrased as follows:
3.4. Organizational performance In this model, the construct of organizational performance measures the perceived firm-level performance in terms of five aspects: profitability relative to competitors, customer satisfaction with the products and services purchased, sales growth, customer retention rate, and overall organizational performance (Tracey et al., 1999). A firm’s
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competitive capabilities in business processes and product and service offerings are critical to satisfying customer needs, and to its market and financial performance (Day, 1994; Tracey et al., 1999). For instance, a firm’s processes for customer management and order fulfillment would lead to better products and services delivered responsively at a lower cost (Day, 1994). For these reasons, we add the following two hypotheses: H4: The extent of business process improvement (BPI) of a firm would contribute positively to its organizational performance (OP). H5: The product and service offerings (PSO) of a firm would contribute positively to its organizational performance (OP).
4. Research method 4.1. Data source Perceptual data are collected through a postal survey of multinational and Hong Kong-listed manufacturing, and wholesale and retailing firms. The survey targeted senior managers responsible for such areas as information systems, e-commerce, logistics, and operations management. We arrived at the decision to solicit inputs from senior informants since they are believed to be more suitable to provide reliable multi-dimensional information on a firm, whereas a junior member of staff may be restricted to a narrower focus. The covering letter addressed to the chief executive officers or managing directors explained the objectives of the study and the rules of confidentiality and anonymity the researchers must abide by. They were requested to forward the questionnaires to IT executives, or other qualified persons in the management team, in order to maintain the quality of responses. Manufacturing and wholesale and retailing firms were targeted by the survey, since the primary objective was to investigate the effects of knowledge sharing and learning behaviors on process improvement and on the capability of firms to offer products and services to meet customers’ changing needs and preferences. 4.2. Measurement development and pilot test The constructs and items used to operationalize the research were developed following the generally accepted guidelines of reliability and validity (Churchill, 1979; Nunnally, 1978) for multiple-item measures. A literature review was conducted for the concepts and definitions of the constructs, on the basis of which items of the constructs were developed. Measures tested in prior studies were adopted with changes in wording to suit the research context. The knowledge sharing and learning construct was defined in this study to include two items. Item 1 measures
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the extent that knowledge sharing is performed as perceived by the respondent. Item 2 is aimed at capturing the perceptual rating from the respondent about the extent to which on-going learning is practiced in the company. The business process improvement construct contains four items. The first three items measure the extent of process improvement in terms of (1) defect and error prevention, (2) process standards, and (3) process simplification. These items were adapted from Bhatt (2000). Item 4 was added to assess whether processes were improved or established to facilitate co-ordination for the firms. The items for the construct of product and service offerings were adapted from Tracey et al. (1999) with adjustments to the wording. The original items were used only for physical products. Therefore, they were revised to cover both products and services. The measures for organizational performance were adapted from Tracey et al. (1999). They include five items to capture the perceptions of the respondents on the performance of their firms in the following fields: (1) customer satisfaction with products or services purchased, (2) customer retention rate, (3) sales growth rate, (4) profitability relative to competitors, and (5) the overall competitive position of a firm. The original item regarding customer satisfaction in Tracey et al. (1999) was intended to measure customer satisfaction with regard to only physical products, and therefore we have to adjust its wording to capture customer satisfaction with regard to both physical products and services purchased. The question items for the abovementioned constructs are listed in Appendix A along with means and standard deviations. In order to ensure its face and content validity, the initial questionnaire was subject to a review or pre-test by six senior managers and two professors, followed by a pilot test with the participation of 60 evening MBA students who were full-time practitioners in their fields. Their comments and suggestions were used to improve the questionnaire to produce the final version.
4.3. Validity guidelines and analysis procedures Cronbach’s Alpha coefficient was calculated in both the pilot test and the full survey for each of the four constructs to ascertain the internal consistency of the items in the constructs (Kerlinger, 1973). In the full survey, an exploratory factor analysis (EFA) was conducted for all the items under the four hypothesized constructs to determine the convergent and divergent validity of the constructs. The sample was then analyzed with the partial least squares (PLS) technique that uses a component-based approach to estimation. We decided to use PLS since many of the question items were developed as formative rather than reflective indicators (Chin, 1998). The statistics of composite reliabilities were examined and the average variances extracted (AVEs) and correlations among constructs were compared to ascertain the convergent and discriminant validity of the constructs (Fornell & Larcker, 1981).
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The t-statistics generated by PLS were compared to the critical values of the t-distribution to test the significance of the paths between constructs in the structural model.
structs, therefore demonstrating the discriminant validity across the constructs. This means that the measurement model is acceptable in terms of convergent and discriminant validity.
5. Results The survey resulted in a sample of 134 usable responses from firms engaged in manufacturing and logistics-related business operations, including 45 (33.6%) firms in manufacturing, and 89 (66.4%) in wholesale or retailing. The analysis of the measurement and structural models based on this sample is presented below. 5.1. Measurement model The analysis of the measurement model is shown in Tables 1 and 2. The loadings, generated by EFA, of the formative indicators on their respective conceptualized latent constructs and Cronbach’s Alpha coefficients are shown in Table 1. The EFA confirmed that the items loaded more strongly on their own latent construct than on others. Cronbach’s Alpha coefficients for the items under individual latent constructs were much larger than the threshold value of 0.7 (Kerlinger, 1973), indicating acceptable internal consistency. The AVEs were well above the threshold value of 0.5, and the composite reliabilities exceeded 0.8, as recommended by Fornell and Larcker (1981). These measures sufficiently showed the convergent validity of the measurement model. Moreover, according to Fornell and Larcker (1981), the AVE of any construct should be greater than the squared correlations between that construct and any other related construct. (Alternatively, the square root of the AVE of any construct should be greater than the correlations between that construct and any other related construct.) The square roots of AVEs reported in Table 2 were greater than the correlations among the con-
5.2. Structural model The analysis of the structural model is reported in Fig. 2 and Table 3. Fig. 2 shows a graphical depiction of the structural model with path coefficients and computed t-values displayed for each path. Table 3 reports the outer model loadings, including loadings for the full sample, sub-samples, standard t-statistic error, and t-statistic. The analysis presented in Fig. 2 shows that all paths in the structural model were statistically significant. As hypothesized, KSL is significantly associated with BPI (path coefficient = 0.506, t = 8.2706) and PSO (path coefficient = 0.2140, t = 2.4467). BPI is significantly associated with PSO (path coefficient = 0.3940, t = 4.7228) and OP (path coefficient = 0.2900, t = 2.7185). Similarly, PSO is significantly associated with OP (path coefficient = 0.3690, t = 4.0632). Therefore, H1, H2, H3, H4, and H5 are supported. The squared multiple correlation coefficients (R2) were 0.2556 (for BPI), 0.2862 (for PSO), and 0.3277 (for OP), indicating that the model is sound in explaining the variations of the endogenous constructs.
6. Discussion, implications, and concluding remarks In summary, this study has empirically supported the hypotheses that knowledge sharing and learning behaviors would lead to better performance in business process improvement and product and service offerings of a firm. It has also demonstrated that improvements in these two intermediate capabilities constructs in turn contributed to
Table 1 Results of exploratory factor analysis and internal reliability testing Latent construct
Item
Internal reliability Cronbach’s a
CITC
Factor loading
Knowledge sharing and learning (KSL)
KSL1 KSL2
0.8035
0.6722 0.6722
0.697 0.810
Business process improvement (BPI)
BPI1 BPI2 BPI3 BPI4
0.8280
0.6249 0.6617 0.6600 0.6819
0.617 0.674 0.713 0.717
Products/services offerings (PSO)
PSO1 PSO2
0.8325
0.7135 0.7135
0.596 0.953
Organizational performance (OP)
OP1 OP2 OP3 OP4 OP5
0.8618
0.6729 0.6706 0.6981 0.6042 0.7947
0.610 0.661 0.705 0.660 0.873
CITC = Corrected item-total correlation.
Convergent validity
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Table 2 Inter-construct correlations: Consistency and reliability tests Constructs (# items)
Composite reliability
AVE
KSL
BPI
PSO
OP
Knowledge sharing and learning (KSL) (2) Business process improvement (BPI) (4) Products and services offerings (PSO) (2) Organizational performance (OP) (5)
0.911 0.880 0.899 0.891
0.836 0.648 0.818 0.624
0.914 0.506 0.413 0.430
0.805 0.502 0.475
0.904 0.515
0.790
Note: The shaded numbers in the diagonal row are square roots of the average variances extracted (AVE). For adequate discriminant validity, diagonal elements should be greater than corresponding off-diagonal elements.
the performance of the organization as measured by the perceptual indicators for financial and market performance. The hypothesized relationship that business process improvement would have positive impacts on product and service offerings was also confirmed.
Business Process Improvement (BPI) (R2= 0.2556) 0.5060* (t = 8.2706)
0.2900* (t = 2.7185) Organization Performance (OP)
0.3940* (t = 4.7228)
Knowledge Sharing and Learning (KSL)
(R2= 0.3277) 0.3690* (t = 4.0632)
0.2140* (t = 2.4467)
Products & Services Offerings (PSO) (R2= 0.2862)
* Significant at the 0.05 level
Fig. 2. Results of data analysis.
6.1. Academic implications Knowledge sharing and learning practices in firms are said by many authors to contribute to organizational performance. This study proposed a model that helps to conceptualize the linkages between such practices and firm performance through two important intermediate constructs, and gathered empirical evidence to support such hypothesized relationships. The knowledge management literature has often suggested that such learning is related to product innovation. More recently, some studies pointed out the effects of knowledge management and learning on process innovation. This study has not only shown that knowledge sharing and learning practices contribute to improvements in product and service offerings, but has also substantiated their innovative effects on process improvement. Equally important is the confirmation of the positive impacts of process improvement on the product and service offerings of a firm. Therefore, the proposed model might be used as an alternative theoretical model for evaluating organizational performance in future studies.
Table 3 Outer model loadings Mean of sub-samples
Standard T-statistic error
T-Statistic
Knowledge sharing and learning (KSL) KSL1 0.9129 KSL2 0.9159
Entire sample estimate
0.8962 0.9127
0.0657 0.0552
13.8982 16.5775
Business process improvement (BPI) BPI1 0.8747 BPI2 0.7786 BPI3 0.7693 BPI4 0.7938
0.8613 0.7661 0.7567 0.7845
0.0654 0.0771 0.0714 0.0732
13.3684 10.1013 10.7744 10.8419
Products/services offerings (PSO) PSO1 0.9885 PSO2 0.8113
0.9804 0.8037
0.0206 0.0859
48.0486 9.4400
Organization performance (OP) OP1 0.8780 OP2 0.8219 OP3 0.8189 OP4 0.6073 OP5 0.7952
0.8256 0.8180 0.7676 0.5639 0.7344
0.0802 0.0781 0.0825 0.1342 0.1140
10.9467 10.5250 9.9294 4.5263 6.9775
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6.2. Managerial implications
Appendix A. Individual items for construct measurement
Following the confirmation of the importance of knowledge sharing and learning, firms should ponder how knowledge management can be implemented successfully. This would include strategies and programs for implementing knowledge management, and encouraging learning and knowledge sharing among employees. Together, a firm’s efforts in these two areas would help to tap the knowledge and experience of the individuals and transplant them into organizational knowledge for the benefits of the firm as a whole. Firms need to step back and carefully think about the capabilities critical to sustaining their competitive advantages in their core businesses, and align their knowledge management and organizational learning strategies with the desired outcomes.
Label Item
6.3. Limitations and opportunities Although this study has been operationalized meticulously according to the generally accepted research guidelines (Churchill, 1979; Nunnally, 1978) to maintain its validity and reliability, it may not be totally free from limitations. First, the perceptual inputs collected from the respondents are likely to have been subject to common method bias, since the picture of the multiple dimensions of practices and performance of a firm was dependent on the responses of one respondent. Second, though the model was empirically supported and enabled the explanation of a large percentage of the variability of the endogenous constructs, it was rather simple and incorporated only four constructs. This is not necessarily a serious limitation. However, we would like to point out the opportunities to expand the model to incorporate other antecedent and consequent constructs to form a more comprehensive nomological network. This study was designed and tested successfully in a cross-sectional sample of inputs from firms engaged in the production and distribution of physical goods and of services. With adequate adjustments to the constructs and indicators, similar research models can be developed for other business settings such as service industries. As a suggestion for further improvement, we need to note the importance of the sustainability of the capabilities and organizational benefits generated in knowledge management activities. A longitudinal sample collected over multiple points of time would help to support this research objective. Nevertheless, this study has produced empirical evidence to substantiate the hypothesized associations of the construct of knowledge sharing and learning with the intermediate constructs of business process improvement, and product and service offerings. It has also confirmed the indirect effects of knowledge sharing and learning on firm performance through the mediation of the intermediate constructs.
Mean (sd)
Knowledge sharing and learning (KSL) KSL1 Knowledge sharing and learning to 3.38 (0.874) enhance employee capabilities . . . KSL2 On-going learning leads to improved 3.43 (0.913) work practices and processes . . . Business process improvement (BPI) BPI1 Work processes to prevent defects and errors . . . BPI2 Process standards raised periodically ... BPI3 New work processes are easier to work with than earlier ones . . . BPI4 Work processes to facilitate coordination of activities . . . Product/service offerings (PSO) PSO1 . . . respond well to changing customer preferences . . . PSO2 . . . alter product and/or service offerings to meet client needs. Organizational performance (OP) OP1 Customers perceive that they receive their money’s worth for purchasing your products and/or services OP2 Your customer retention rate is as high as or higher than that of your competitors OP3 Your sales growth rate is as high as or higher than that of your competitors OP4 Profitability of your company is good relative to the overall performance of your business sector OP5 Your overall competitive position is strong in your business sector
3.37 (0.690) 3.36 (0.853) 3.51 (0.753) 3.53 (0.792)
3.45 (0.837) 3.67 (0.865)
3.75 (0.782)
3.67 (0.874)
3.31 (1.119)
3.06 (0.956)
3.51 (0.932)
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