The effect of knowledge transferon firm performance

An empirical study in knowledge-intensiveindustries

Daniel Palacios-MarquesDepartment of Business Organisation, Universitat Politecnica de Valencia,

Valencia, Spain

Marta Peris-OrtizDepartment of Business Administration, University of Barcelona, Barcelona,

Spain, and

Jose M. MerigoDepartment of Business Organisation, Universitat Politecnica de Valencia,

Valencia, Spain

Abstract

Purpose – This work aims to analyse the effect of a holistic business view, competency-basedmanagement, continuous learning and information technology infrastructure on knowledge transferand the subsequent effect on firm performance.

Design/methodology/approach – Structural equation models and a survey of 222 firms from theSpanish biotechnology and telecommunications industries verify the mediator role of knowledge transfer.

Findings – The implications of confirming these hypotheses for managers are that by emphasisingthe creation of a holistic business view, competency-based management, promoting continuouslearning and improving information technology infrastructure, managers will improve knowledgetransfer and positively influence the creation of superior firm performance.

Originality/value – It is shown that in knowledge-intensive industries, knowledge transfer acts as amediating variable between a holistic view of the firm, competency-based management, continuouslearning and information and communication technologies infrastructure and firm performance.

Keywords Firm performance, Knowledge transfer, Knowledge-intensive industries,Organizational performance, Spain

Paper type Research paper

1. IntroductionIn a changing environment, innovation is crucial for business competitiveness andeconomic growth (Dooley and Sullivan, 2007). Business exposure to internal andexternal knowledge promotes the level of learning necessary for generating value(St-Jean and Audet, 2012; Fosfuri and Tribo, 2008; Norman, 2004). In contexts whereknowledge is a crucial asset, companies increase their dependency on external sourcesto improve firm performance (Morgan and Berthon, 2008), developing their absorptivecapacity (Kostopoulos et al., 2011).

According to McEvily et al. (2004), the ability to innovate is a core change incompanies. Knowledge-intensive businesses in particular usually show superiorinnovation competences and develop new routines to improve products and processes.

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Management DecisionVol. 51 No. 5, 2013

pp. 973-985q Emerald Group Publishing Limited

0025-1747DOI 10.1108/MD-08-2012-0562

These businesses are able to create innovations in products and processes soconsequently obtain higher levels of firm performance. Previous research has notedthat different types of innovation rely on specific kinds of knowledge interactions. Inthis regard, innovation is the result of knowledge dissemination and application. It istherefore necessary to introduce knowledge management principles and practices if thefirm wants to create radical or incremental innovations.

The literature has studied various antecedents of knowledge transfer, but in thiswork, we study four factors that have not previously been studied together, which willprovide an understanding of how knowledge is transferred within companies. We alsouse knowledge transfer as a mediating variable between antecedent factors and firmperformance.

This work has two important aims. The first is to understand the relationshipbetween knowledge transfer and firm performance. The secondly is to determine theantecedent factors, which have four variables (i.e. information technologyinfrastructure, holistic business view, competency-based management, continuouslearning) affecting the promotion of knowledge transfer. The paper is structured asfollows: section 2 presents a literature review and formulates the theoretical model,specifying all the hypotheses. Section 3 shows all the methodological aspects of thestudy, explaining all the research design issues. Section 4 shows the results. Finally thepaper explains the significance of the results and develops future lines of research.

2. Theoretical modelSenge (1990) recognised the conception of the global system as a successful key factorin the introduction of a knowledge management model. By “global system”, Senge wasreferring to a broader view of the firm. Employees do not usually see beyond whathappens in their departments. Employees’ objectives may be individual or associatedto departments, thus impeding a more global vision of what is happening in all of thefirm’s departments. One of the reasons for this partial view is that communicationbarriers prevent employees from accessing information on what is happening in otherdepartments. In this regard, the holistic view is the key to assuming aptitudes forshaping shared visions of the future that promote commitment (Hormiga et al., 2011).Some practices in organisations can promote understanding of the organisation as aglobal system; enterprise resource planning systems, team work, inter-departmentalprojects and the introduction of incentives based on group objectives are essential forpromoting a holistic view among employees (Carlile, 2002).

In order to increase the effectiveness of systems and resources, account must be takenof significant information on suppliers, customers and financial markets, and this in turnencourages a holistic view of the firm. This global view codifies all necessary knowledge,incorporating the requirements of all departments in the firm, so dissemination and useof that knowledge is easier and obtains better results. Employee rotation also encouragesa more global view and a more efficient codification of knowledge.

Therefore we posit:

H1. There is a positive relationship between a global business view andknowledge transfer.

Companies that create a competency-based management model introduce a culturalchange as the firm values its employees’ knowledge and attaches importance to

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learning from its own experience and to focusing on acquiring new knowledge to solveproblems and protect its intellectual assets, such as human capital, organisationalcapital or relational capital. Companies that introduce a competency-basedmanagement model administer the intellectual and intangible assets that representindividual competences (Zortea-Johnston et al., 2012). This model increases employees’commitment, since they know that by acquiring new competences they can bepromoted. Furthermore, human resource management is aligned to business strategy,increasing the firm’s ability to respond to customer requirements.

Competency-based management enables practices oriented towards developinginternal competences, so that a firm becomes aware of its employees’ competences,especially referring to the key technologies that have a positive impact on the creationof new innovations (Caceres et al., 2011). It is possible to encourage the development ofcompetences by introducing inter-departmental programs, training programs, or byencouraging new research lines based on disruptive technologies (Chen and Huang,2009; Cepeda and Vera, 2007.

The success of a competency-based management model depends on theintroduction of systems for remunerating and promoting human capital, ifemployees develop new internal competences. Some practices such as team work orbenchmarking techniques encourage the development of new competences. Therefore:

H2. There is a positive relationship between competency-based management andknowledge transfer.

A knowledge management system that embraces continuous learning and an innovativeculture, focused on developing new knowledge and competences, has a positive impacton the firm’s skill in managing R&D projects, leveraging internal and external capabilityfor knowledge acquisition, and regenerating the knowledge stock (Sommer and Haug,2011). The existence of an organisational culture and structure that favours innovationhas a positive impact on the ability to learn and continuous improvement.

An environment focused on new changes leads to improved products andorganisational processes, which in turn have a positive impact on the development oflearning processes (Bergh et al., 2011). A culture that promotes communication andinter-departmental projects permits effective knowledge dissemination, so learningability is improved. Codification of the tacit knowledge gathered by the members of anorganisation in databases or expert directories also has an effect on knowledgediffusion (Lee and Choi, 2003).

An organisation can use techniques and practices such as job rotation or enrichmentto encourage ongoing learning and the acquisition of new competences and skills.Career plans can also provide incentives for continuous learning, thereby promotingthe ability to develop an innovation culture and learning, team work and groupproblem-solving (Walter et al., 2007). We hold that knowledge transfer takes place withthe acquisition and use of knowledge-based assets. Thus, knowledge-intensiveindustries oriented to the creation of new capabilities, usually engage in a variety ofpractices such as debate (use of shared databases, introduction of Web 2.0 systems,distribution of written reports, presentation meetings, internal benchmarkingprocedures, physical and electronic forums, etc.) (Tajeddini and Mueller, 2012). Theknowledge thus gained can help to create new products or improve the firm’s productsor services. Therefore:

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H3. There is a positive relationship between continuous learning and knowledgetransfer.

Despite the impact of information and communications technologies (ICT) on society,results from investigations into the benefits of ICT investments on businessperformance have been sporadic, leading to the productivity paradox. We hold thatthere are mediating variables (organisational capabilities learning and adaptation)between these two key theoretical constructs. In this regard, authors like Ravichandranand Lertwongsatien (2005) suggest studying the impact of information technologies onfunctional and operational performance measurements. It is important to analyse theimpact of ICT on intermediate variables such as knowledge transfer, becausetraditionally study has only focused on their effect on firm performance orproductivity. In fact, the current trend is to use intermediate variables where there ismore likely to be a stronger theoretical relationship.

Although information management capabilities only explain one part of a firm’slong-term success, some authors such as Lee and Choi (2003) state that ICT capabilitiescontribute towards creating new knowledge. Some ICT investments facilitateknowledge collection, storage and exchange. ICT eliminate communication barriersbetween departments since they facilitate the integration of fragmented knowledgeflows.

If organisations promote programs that stimulate and enable employees at all levelsto share their tacit and explicit knowledge, they need to use repositories to storeorganisational knowledge. ICT can be used as a tool for disseminating and storing thisknowledge (Nielsen and Lassen, 2012; Gururajan and Fink, 2010). Organisationsshould focus on generating organisational knowledge from their employees’ tacitknowledge, since organisational knowledge is more valuable and difficult to imitate.

H4. There is a positive relationship between ICT infrastructure and knowledgetransfer.

Successful innovation management requires a well-defined management strategy toalign innovation projects with resources and objectives, promoting essentialcapabilities. In addition to promoting the generation of innovative ideas,organisational structure and control systems ensure efficient implementation( Jimenez and Sanz, 2011; Nonaka, 1994). Innovation requires the transformation andexploitation of existing knowledge.

Landry et al. (2002) state that knowledge management is an antecedent factor ofinnovation. Innovation is the result of a process whose success rests on knowledgeinteraction and exchange, with a great diversity of actors in interdependent situations(Schilling and Kluge, 2009). In this regard, Almeida et al. (2003) point out thatinnovation diversity depends on the type of knowledge used. Fosfuri and Tribo (2008)develop a model that relates absorptive capacity and innovation. A firm that wants touse external knowledge must have a high level of absorptive capacity. When anorganisation is able to exploit external and internal knowledge, it develops newinnovations. We therefore hold that these concepts are linked and must be taken intoaccount if managers want to innovate.

Organisational learning enables the generation or adoption of novel ideas orbehaviour. Accumulation of organisational resources relies on the creation, acquisition,dissemination and sharing of knowledge. To improve its ability to learn, an

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organisation should establish a system where individual learning can be shared amongall the employees. A learning organisation is able to adjust to new situations accordingto the demands of the environment. Effective management innovation is the key tomaintaining competitive advantage in a changing environment.

Therefore:

H5. There is a positive, significant relationship between knowledge transfer andfirm performance.

3. MethodologyData was collected in field-based research between February and July 2010 in thebiotechnology and telecommunications industries in Spain. The importance ofintangible assets and high degree of innovation make these industries ideal for theempirical study. The chosen respondents for the email questionnaire were themanaging directors of these companies whose holistic view enables them to providereliable responses. The measurement instrument was pre-tested in 20 companies, tenfrom the biotechnology industry and ten from the telecommunications industry. A totalof 222 valid questionnaires remained after eliminating 19 invalid ones, representing asampling error of 5.7 at the 95 per cent confidence interval.

Biotechnology companies are very innovative and have a high growth potential.They face important challenges on a daily basis, such as obtaining financing oradapting to structures that are still excessively rigid. More than 88 per cent of thecompanies in the study are supported by mainly Spanish capital and needed onaverage e200,000 to get started. Most of the companies originated at university and toa lesser extent through independent initiatives. Sixty-nine per cent of the companies inthe study are consolidated (in operation for more than five years), 28.2 per cent are new(between three and 42 months) and the remaining 2.8 per cent are start-up companies.

According to the Spanish classification of economic activities code 64.2“Telecommunications”, our sample is made up of companies in the area of telephonyoperators and assimilated companies, mobile telecommunications, cable, audiovisualservices operators, telematic and satellite service.

As the sample is made up of two closely related industries in terms of the degree ofinnovation and intellectual capital, the results are more easily generalisable to othersectors.

All the measurement scales for operationalising the five constructs of the theoreticalmodel have been validated previously. The scale from Palacios and Garrigos (2005)measures continuous learning, holistic business view and competency-basedmanagement; the scale from Byrd and Turner (2000) measures ICT infrastructure;the scale from Yi (2009) measures knowledge transfer; and the scale from Nakata et al.(2008) measures firm performance.

Below are the items used to measure each construct:

(1) Holistic view:. Knowledge management strategy and policy affect the entire firm and the

way it is conceived and managed.. It is impossible to make policies and strategies without taking the whole

organisation into account, including suppliers and customers.

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. Effective introduction of a strategy requires control to be achieved throughthe values and vision shared by all the members in the firm.

. It is not possible to manage the firm without identifying the processes andinterrelations of the organisation.

. - There is a defined system for distributing information to staff, customersand suppliers according to detected needs.

. The firm has systems for integral capture and processing of information onprocesses (like enterprise resources planning; ERP).

. The firm develops projects that cross over departments.

. There are incentives for complying with the firm’s global objectives.

(2) Competence management:. Employees’ skills and competences are valued to develop their professional

careers.. Colleagues help to improve each employee’s competences and skills.. Managers and supervisors have the task of supporting the development of

new competences in their subordinates.. The firm has a competence management system that permits each employee

to receive a salary in keeping with the competences developed.. The firm has systems for measuring employees’ competences.. Employee remuneration and promotion systems influence the development

of competences, ideas and knowledge.. The firm uses benchmarking techniques to improve employees’

competences.

(3) Continuous learning:. The firm promotes reflection, criticism and change to ensure continuous

improvement.. New ideas are highly valued, regardless of which employee they come from.. Everyone in the firm, not just the managers, is expected to solve problems

and offer suggestions.. Employees see their work in the firm as a learning process that never ends.. The firm has a career plan that motivates its employees to continuous

learning.. Employees receive general training that they subsequently apply to their

usual duties.. A system of ongoing improvement enables improvement in processes that

have achieved the established quality standards.

(4) IT technical infrastructure:. Our firm has the latest in available information technology (IT) systems and

connections (e.g. ADSL, VDSL, ATM, SDV).. Our firm has formally dealt with the issue of data security with various

protocols (e.g. Kerberos, V.5, MIME, PGP, S-HTTP).

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. All offices and branches are connected to a central office.

. Our firm uses open system web mechanisms to stimulate connectivity.

. In our firm there are no communication bottlenecks.

. Our firm uses a virtual network or VLAN to connect to end users.

. Reusable software modules are widely used in new system development.

. Object-oriented tools are used to create end-user applications in collaborationwith end users.

. The IT staff use object-oriented technologies to minimise development timefor applications.

. The systems our organisation has inherited do not limit the development ofnew applications.

. Functions programmed for other applications are rarely used to develop newapplications.

. Remote offices have to carry out additional steps or procedures to accesshead office.

. The end-user operating system is common to the entire organisation(e.g. UNIX, LINUX, OS/2).

. Software applications are easily transportable and can be used on multipleplatforms.

. Our firm offers a wide variety of information formats for end users(multimedia).

. Our users’ interfaces provide transparent access to all platforms andapplications.

. Our firm provides multiple interfaces or entry points (e.g. web access) forexternal users.

. Connection with head office is immediate from any terminal in the firm.

. Our corporate database can communicate through various protocols(e.g. SQL, ODBC).

. Employees who work off-site have rapid access to the same data used ontheir office PC.

. There are difficulties adapting to some providers’ database standards andprotocols.

. Data captured anywhere in our firm is immediately available in thedatabase.

(5) Knowledge transfer:. Present documents and reports regularly.. Publish articles in firm magazines, specialised journals or noticeboards.. Share documentation from personal files related to current work.. Contribute ideas and thoughts to the firm through online databases.

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. Keep other employees up to date with important firm information throughonline discussion forums.

. Express ideas and thoughts at firm meetings.

. Participate fully in brainstorming sessions.

. Propose suggestions for solving problems at team meetings.

. Respond to questions from others at team meetings.

. Ask questions that can provoke debate and analysis at team meetings.

. Share success stories that can benefit the firm at organisation meetings.

. Share work-related failures to help other avoid making the same mistakes atfirm meetings.

. Make presentations at firm meetings.

. Support less experienced employees during personal work time.

. Participate in long-term training actions for the youngest employees.

. Spend time in personal conversations (for example, talks in the corridor,during the lunch break, by phone) with others, to help them solve workproblems.

. Keep other employees up to date with important firm information throughpersonal conversation.

. Share the passion and emotion of some specific issues with others throughpersonal conversation.

. Share experiences that can help others avoid risks and problems throughpersonal conversation.

. Have online chats with other employees to help them with their work-relatedproblems.

. Spend time on e-mail communication with other employees to help themwith their work-related problems.

. “Community” meetings to create innovative solutions to work problems.

. “Community” meetings to share own experience and practice on specificissues of common interest.

. “Community” meetings to share success, poor results and specific issues ofcommon interest.

. “Community” meetings to promote excellence at work.

. Personal support for the development of new “communities”.

. Send related information to “community” members through the electronicmail list.

. Share ideas and thoughts on specific issues with members of the“community” using online systems.

(6) Organisational performance:. Product or service quality.. New product or service success.

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. Customer retention rate.

. Sales level.

. Return on capital.

. Gross margin of utility.

. Return on investment.

4. ResultsThe first aspect is to confirm whether the measurement scales meet all the sociometricproperties required in social sciences. Table I shows measurements of absolute fit,incremental fit and parsimonious fit for the measurement models. The results arestatistically significant.

The constructs display satisfactory levels of reliability with, composite reliabilityranging from 0.85 to 0.99 (holistic business view ¼ 0:89, competency-basedmanagement ¼ 0:87, continuous learning ¼ 0:84, ICT infrastructure ¼ 0:82, knowledgetransfer ¼ 0:88, firm performance ¼ 0:94), following Fornell and Larcker’s (1981) formula.

Convergent validity is confirmed for all the multi-item constructs as each loading (l)is significantly related to its underlying factor (t-values greater than 4).

Fit indices for the global model are: df ¼ 27, x 2 ¼ 39:145, p ¼ 0:061,BBNFI ¼ 0:946, RCFI ¼ 0:992, GFI ¼ 0:877, RMR ¼ 0:022 and NC ¼ 1:45. Theresults show that these indices are statistically significant. As regards verification ofthe causal relationships, Table II shows the coefficients for the structural equations.Associated to this coefficient is the t-value that represents the significance of thecoefficient. The fact that t-values exceed 1.96 for all the hypotheses indicates that therelationships are significant.

5. Discussion of the results and conclusionsWe have demonstrated that in knowledge-intensive industries, knowledge transferacts as a mediating variable between a holistic view of the firm, competency-based

Scale df x 2 p BB NNFI RCFI GFI RMR NC

Holistic business view 9 10.77 0.29 0.95 0.99 0.94 0.03 1.21Competency based management 14 26.02 0.02 0.92 0.97 0.91 0.04 1.86Continuous learning 2 2.73 0.25 0.98 0.99 0.97 0.02 1.37ICT infrastructure 2 1.79 0.40 0.94 1 0.98 0.04 0.89Knowledge transfer 5 2.12 0.83 0.98 1 0.98 0.02 0.46Firm performance 2 1.98 0.37 0.95 1 0.95 0.04 0.99

Table I.Fit indices for the initial

factorial models

Hypotheses Coefficient Results

H1 0:853 t ¼ 4:524 . 1:96 ConfirmedH2 0:732 t ¼ 5:284 . 1:96 ConfirmedH3 0:821 t ¼ 4:582 . 1:96 ConfirmedH4 0:611 t ¼ 7:962 . 1:96 ConfirmedH5 0:849 t ¼ 8:632 . 1:96 Confirmed

Table II.Coefficients of the

structural equationmodels

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management, continuous learning and ICT infrastructure and firm performance.Organisations with the ability to absorb knowledge from internal and externalsources develop continuous learning competences. In knowledge-intensivecompanies, innovations are the result of knowledge management principles andpractices that provide assets in the form of new patents, ideas or utility models. Ifthe organisation is able to protect its innovations, it can obtain sustainablecompetitive advantages.

The theoretical model suggests that the holistic view of the firm has the greatestimpact on knowledge transfer (0.85), while ICT infrastructure has least impact (0.61). Aholistic view enables the design of systems that transfer the tacit and explicitknowledge that each department requires. Little importance is attached to the holisticview of the firm normally, but we have shown that this variable has the greatestimpact on knowledge transfer. The effective transfer of knowledge demands anunderstanding of the information each post requires. In companies where employeeshave worked in different posts and are familiar with the information required for thoseposts, knowledge transfer processes are more efficient.

A holistic view of the firm based on principles and practices provides theappropriate context for knowledge transfer. The role of organisational culture andalignment of staff through a shared, systemic vision that considers customers andsuppliers facilitates the design of the firm based on processes and the introduction ofpractices that transcend departmental and hierarchical divisions.

The competitive advantages derived from knowledge depend in part on the natureof the resource that makes it strategic and also on appropriate management.Knowledge transfer itself is not capable of improving firm results, but influences thecreation and renewal of capabilities and competences, in particular those that aredistinctive or core and they subsequently improve performance levels.

All the hypotheses are fulfilled. The coefficient in equation H4 is lower than in thefirst three hypotheses as ICT are a vehicle for knowledge transfer by knowledgeintranets, Web 2.0 technologies, and so on, but they are still just another knowledgemanagement practice. However, the other antecedent variables (holistic view,competency-based management, promotion of continuous learning) are principles thataid knowledge management and can lead to a set of techniques that aid knowledgetransfer.

At a pragmatic level, it can be said that intangible results are influenced by totalknowledge management. Tangible results are influenced by knowledge stocks and bymanagement measurement systems. Managers who want to improve firm performanceshould promote practices or techniques such as employee rotation, interdepartmentalprojects or the creation of multidisciplinary teams. In order to develop a holisticbusiness view or continuous learning which, as this paper shows, have a positiveimpact on firm performance, account must be taken of knowledge transfer as amediator variable. If the tasks carried out in a firm are not very specialised thenemployee rotation is easier. However, in highly innovative companies it is simpler todevelop multidisciplinary projects over several departments to the extent that manydepartments are involved in creating and developing a new technology.

The combination of knowledge transfer, the holistic view, competency-basedmanagement and continuous learning is the key to disseminating knowledge inorganisations. Managers can improve knowledge transfer by promoting the

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development of new competences among their employees, through career plans basedon employee competences, and a system of competency-based management. We havealso shown that effective knowledge transfer improves firm performance.

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Further reading

Nissan, E., Martın, M.A.G. and Picazo, M.T.M. (2011), “Relationship between organizations,institutions, entrepreneurship and economic growth process”, InternationalEntrepreneurship and Management Journal, Vol. 7 No. 3, pp. 311-324.

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Ranft, A. and Lord, M.D. (2002), “Acquiring new technologies and capabilities: a grounded modelof acquisition implementation”, Organization Science, Vol. 13 No. 4, pp. 420-441.

Smith, M., Busi, M., Ball, P. and Van Der Meer, R. (2008), “Factors influencing an organization’sability to manage innovation: a structured literature review and conceptual mode”,International Journal of Innovation Management, Vol. 12 No. 4, pp. 655-676.

Corresponding authorDaniel Palacios-Marques can be contacted at: dapamar@doe.upv.es

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