Linking Knowledge Management and Innovation : a Structural Equation Modeling Approach

Knowledge Management (KM) is gaining attention and acceptance by organizations in search for competitive advantage. KM facilitates opportunistic application of fragmented knowledge through system integration. Being a new discipline, KM has been associated with innovation, competitiveness, and business performance. General interest pertaining to KM and its link to innovation exists, however, there is little reported research that supports for such empirical links especially in Malaysian context. Furthermore, contemporary KM studies are based upon American and European models, frameworks, and instruments. There is a need for local research to address the KM practices and effects based on local settings. Using data from 149 large manufacturers, a KM enabling practices survey, which comprises of 5 key domains, is compared with four demographic firm elements. T-test, Oneway ANOVA, LSD, and multiple regression analysis are applied to identify the level of KM practices and study the significant differences in terms of demographics among these large manufacturers. It is discovered that KM practices are at medium level among large firms being surveyed. It is found that there are significant differences in KM practices among firms with high annual sales. Measurement model analysis is engaged to confirm significant relationships between variables and their respective KM factors. Subsequently, structural model analysis is applied to test theory of structural relationship between KM enabling practices and innovation activities. Finally, a KM-Innovation model is proposed based on good fit indices of structural equation modeling. Introduction Knowledge management (KM) is increasingly recognized within manufacturing firms as a critical approach that can be leveraged to attain competitive advantage and superior performance. Managers realize that KM draws on principles, practices, and technologies from a wide spectrum of disciplines. These disciplines include management information system, computer science, behavioral science, organizational learning, research, and training. During the late 1980’s, managers in several industries believed that advances in technology prepared them to manage knowledge effectively. However, they soon discovered that managing knowledge is not a simple issue of managing technology, but it also requires managing social relations and interactions in the firm. Gooijer (2000) defined knowledge management as “those actions which support collaboration and integration”. Yahya and Goh (2002) described KM as “. a process of leveraging of knowledge as the means of achieving innovation in process and products/service, effective decision making, and organizational adaptation to the market” (pg. 458). Tasmin and Woods (2007) defined KM as “a socio-technological based system that supports collaboration and integration among interlocking organizational functions to create more innovative and value-added products and services for the market” (pg. 63). Knowledge management practitioners and researchers alike support the view that KM requires the integration between the IT systems and people who run the firm as means to attain innovation.