The Effects of Knowledge Management Strategy and Organization Structure on Innovation

This study examined the effects of knowledge management (KM) strategy and organization structure on product innovation. Results from a survey of 195 firms support a contingency approach to innovation. When the personalization strategy is adopted by a firm as the KM method, its structure emphasized on centralization or technocratization can enhance innovation. When the codification strategy is emphasized, technocratization is the only appropriate organization structure that a firm can use to facilitate innovation. Introduction Defining the concept of KM is difficult, since different perspectives of KM can yield different dimensions and meaning. A good KM definition is given by Swan, Scarbrough & Preston (1999), who defined it as "any process or practices of creating, acquiring, capturing, sharing and using knowledge, wherever it resides, to enhance learning and performance in organization. " To date, a growing body of research explores KM in synthesized way. For example, Ferez & Pablos (2003) analyzed the strategic potential of firm's human capital identifying two dimensions: value and uniqueness. They categorized types of knowledge into ancillary, idiosyncratic, compulsory, and core knowledge. Choi & Lee (2003) proposed KM methods from explicit- and tacit-oriented perspectives. KM methods, therefore, can be categorized into dynamic, system-oriented, human-oriented, and passive styles. A study of consultancy firms in the USA conducted by Hansen et al. (1999) identified two major types of KM strategy: codification and personalization strategy. According to Hansen et al. (1999: 107), codification strategy means that knowledge is carefully codified and stored in databases where it can be accessed and used readily by anyone in the company. Conversely, personalization strategy is where knowledge is closely used to the person who developed it and is shared mainly through direct person-to-person contacts. Successful product innovation and the ability of companies to continuously improve their innovation processes are rapidly becoming essential requirements for competitive advantage and long-term growth in both manufacturing and service industries. These continuous product innovation capabilities are closely associated with a company's knowledge management (KM) systems and processes (Chapman & Hyland, 2004). Managing knowledge effectively is not a trivial task; few companies are capable of adopting KM methods to improve innovation and not all methods are equally effective. KM methods can be categorized according to two dimensions of management focus: explicit and tacit knowledge. Many knowledge managers have faced difficulties in employing KM methods because it is unclear how they improve innovation. Managers should align these methods with their organizational context, especially organization structure. Formalization refers to the degree to which jobs within the organization are standardized. If a job is highly formalized, the job incumbent has a minimum amount of discretion over what is to be done, when it is to be done, and how he or she should do it. Centralization refers to the degree to which the formal authority to make discretionary choices is concentrated in an individual, unit, or level (usually high in the organization), thus permitting employees (usually low in the organization) minimum input into their work. A concentration of technical and scientific knowledge, termed technocratization, has been shown to be a crucial determinant of innovativeness (Collins, Hage & Hull, 1988). Professional employees may best be able to recognize the need for change (Hage & Aiken, 1970) and therefore firms that have a high percentage of influential technocrats will tend to be most innovative. The evidence is overwhelming that strategy influences structure at the top levels of business firms (Robbins, 1990). However, how the fit between KM strategy and these dimensions of organization structure affect innovation remains unexplored. …