Impact Of Knowledge Management On Organizational Performance Commerce Essay

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Knowledge management is a process that transforms individual knowledge into organizational knowledge. The purpose of this paper is to evaluate the impact of knowledge management on organizational performance.

Keywords: Knowledge, Knowledge Management, Elements of Knowledge Management, Organizational Performance



Walczak (2005) defined knowledge as any data, skill, context or information that leads towards high quality decision and problem solving. Liang et al. (2007) says that knowledge refer to the information that are relevant and actionable and create a meaningful behavior. Awad and Ghaziri (2011) define knowledge as "understanding gained through experience and study." It is know how or a familiarity with how to do something that enables a person to perform a specialized task. Rasula et. Al. (2012) Every company is trying to maintain their competitive advantage by adopting the rapid technologies changes. It is clear that knowledge is becoming most necessary factor of production land, labor and capital. Knowledge can be transferred but it is not easy to copy. The knowledge which is in the minds of employees can get lost if they decide to leave the organization and organizations will lose its competitive advantage because knowledge is major resource of competitiveness (Drucker, 1993) and also a source of wealth creation (Thurow, 1996).

Knowledge management (KM) has been defined in different ways and from different perspectives. Knowledge management is a systematic process that is used for capturing and communicating the knowledge which is used by the people for solving different problems and making effective decisions (Moballeghe & Moghaddam, 2011). KM is a process of creating, accumulating, organizing and utilizing knowledge that helps in achieving objectives and increasing organizational performance (Rasula et. Al. 2012). KM in organizations refers to an integrated to process that can play an important role in expanding innovation process (Alhawari & Al-jarrah, 2012). The KM process consist of stages like creating, confirming, collecting, categorizing/saving, sharing/storage, using/refining and retiring of knowledge (O'Dell & Grayson, 1998). The main benefit of introducing KM practices in organizations is its positive impact on organizational performance. KM positively affect organizational outcomes of company innovation, product improvement and employee improvement (Rasula et. Al. 2012).

Knowledge management has following elements which are measurable. Technology, Organization culture, Organization structure and Knowledge processes.

Technology: Information technology helps in knowledge flow and reduces the barrier to communication within an organization. IT in and of itself did not increase organizational performance but could increase organizational performance when combined with other human and business assets (Micallef, 1997). Technology comprises of information technology (IT) that is helpful in creation, transfer, storage and maintenance of knowledge. IT is not always link directly to organizational performance but it is helpful in knowledge management processes which may themselves enhance organizational performance (Seleim and Khalil, 2007).

Organizational Culture: In an organizational culture encourage the interaction and collaboration between individual who facilitate knowledge flow, create knowledge and find the solution for the problems (O'Dell and Grayson, 1998). Culture motivates the people to create and share the knowledge if it is appropriate (Holsapple & Joshi, 2001). Changes in the corporate culture should be made so that the ability of the organization to learn, develop memory and share knowledge should be improved (Turbal et. Al. 2005).

Organizational Structure: Organizational structure is consisted of organizational hierarchy, rule & regulation and relationship among the people in the organization (Herath, 2007). Organizational structure should be flexible that will be helpful in knowledge sharing and collaboration across boundries in the organization because a rigid structure create hurdle in knowledge sharing. Organizatiol structure is shaped by an organization's policies, process and system of rewards and incentives and it determines the channels from which knowledge is accessed and how it flows (Leonard, 1995).

KM Process: The KM Processes of an organization a focus towards obtaining, sharing, storing and using the knowledge. There are four dimension of knowledge management process acquiring knowledge, converting it into useful form, applying or using it and protecting it (Gold et. Al. 2001). The Term acquisition refers to the ability of firm to identify, acquire and accumulate the knowledge that will play an important role in performance operation in the organization (Gold et. Al. 2001). There is a strong and positive link between knowledge acquisition and organizational performance. Knowledge creation practices are significantly related to organizational improvement and if acquired knowledge is used appropriately then there is positive link between knowledge acquisition and organizational performance (Lyles & Salk, 1996; Seleil & Khalil, 2007). Knowledge conversion refer to the activities of synthesis, refinement, integration, combination, coordination, distribution and restructuring of knowledge. Information Technology plays an important role in transferring the knowledge eg. Email, intranet and internet. It is expected that knowledge conversion process could influence performance outcome (Imadzade et. Al. 2012). Bhatt (2001) Stated that "knowledge application means making knowledge more active and relevant for the firm in creating value". For organizations to create value they need to apply knowledge to their products and services. Dorge et. Al. (2003) argues that "in the long run, firms that create new knowledge at a lower cost and more speedily than competitors, and then apply that knowledge effectively and efficiently, will be successful in creating competitive advantage". Knowledge protection is necessary for affective functioning and control within organizations. This would typically include use of copy right and patents along with information technology system that will secure the knowledge by file name, user name and password (Lee & young, 2000). Knowledge is crucial for competitive advantage, storing and protecting knowledge is expected to create value for the organization (Lee & sukoco, 2007).

The good and bad performance of company shows its competitiveness in the market (Albaum &Tse, 2001). There are several approaches for measuring organization performance which include different stakeholders perspective the balance scorecard is performance measurement tool that is used for the measuring weather small scale operational activities of company are aligned with its large scale objectives in term of vision and strategy and include four perspective: financial, customer, internal process and innovation and learning. Financial measures are revenue growth, costs, profit margins, cash flows, net operating income etc. The customer perspective define the value proposition that an organization will apply to satisfy customer and generate more sales to the most desire customer groups. Customer value may be in the form of time, quality, performance and service and cost. The internal process perspective includes all the activities and key processes required for providing the value expected by the customer. The innovation and learning perspective include the intangible assets of the organization like, internal skills and capabilities that are required to support the value creating internal processes (Rasula et. Al. 2012). Zhel Yanxie (2001) stated that market orientation, market KM and product innovation affect the organization performance in a positive and significant way. Wen-Hsien Huang (2002) mentioned that the intensity of interaction with customers, the customer-related KM capability, and customers' personal qualities affect the a new product's performance in a significantly positive manner. Wei-Bin Huang (2002) mentioned an empirical finding that KM, innovation strategies and organizational performance are linked in a positive and significant manner.

Theoretical Model

Information Technology

Organizational Culture

Organizational Structure

KM Dependent Variable

Organizational Performance

Knowledge Process

Independent Variables

H1: Technology is not (directly) related to organizational performance.

H2: Organizational culture is positively related to organizational performance.

H3: Organization structure is positively related to organizational performance.

H4: Knowledge process is positively related to organizational performance.


Data Analysis:

Discussion of Result: