Elsevier

Expert Systems with Applications

Volume 65, 15 December 2016, Pages 136-151
Expert Systems with Applications

Can competitive advantage be achieved through knowledge management? A case study on SMEs

https://doi.org/10.1016/j.eswa.2016.08.042Get rights and content

Highlights

  • A tripartite model in context of Malaysian SMEs using PLS-SEM-ANN analysis.

  • Knowledge management and competitive advantage mediated by technological innovation.

  • KM and TI spending are directly proportional to each other.

  • KM spending, especially on knowledge dissemination, may lead to stronger CA.

Abstract

Unlike most Knowledge Management (KM) studies which focus on large enterprises, this study focuses on SMEs in Malaysia which represent 99.2% of the total business establishments, the largest percentage of establishments in the country. The tridimensional relationship between KM practices, technological innovation (TI) and competitive advantage (CA) was examined in this case study. Survey approach was conducted to gather data from managers of the manufacturing SMEs and 195 samples were usable for statistical analysis using Partial-Least-Square Structural Equation Modeling (PLS-SEM)-Artificial Neural Network (ANN). The use of the combined PLS-SEM and ANN analysis can provide a significant methodological contribution and substantial impacts to the world of expert and intelligent systems and could be the next methodological research paradigm. Findings validated that KM has a direct positive and significant relation with both TI and CA; while TI positively and significantly affects CA. Most outstandingly, the mediating role of TI that connects KM and CA has been proven to be positive and significant. This paper utilizes samples that were collected from Malaysian SMEs only; therefore the findings cannot be generalized to represent the larger firms. Nevertheless, conclusions garnered from the present research can help both practitioners of the manufacturing SMEs and scholars in implementing the correct KM strategies, so that both TI and CA can be enhanced and improved.

Introduction

In today's modern, turbulent and uncertain marketplace, companies are faced with constant challenges, such as cost reduction, changing purchasing behaviors, increased customer service, mature markets and globalization (Massa & Testa, 2009). In reference to Drucker (1995), the most vital economic resource to achieving competitive advantage is knowledge. Such collective knowledge resides in the minds of its suppliers, employees, customers (Mahr, Lievens, & Blazevic, 2014) etc., which happens to be the most important resource that guarantees a firm's stable growth, more important than the traditional factors of production (i.e. land, capital and labor) that was highlighted by Grossman (2006). Knowledge management (KM), according to Chawla and Joshi (2010), includes identifying and analyzing the required and available knowledge, as well as planning and controlling actions to further expand knowledge assets to accomplish company objectives. Many researchers, past and present, have recognized and acknowledged the importance of efficient knowledge use as a primary source for developing core competencies, improving performance (Chawla and Joshi, 2010, Sheng et al., 2013), creating value, and attaining competitive advantage (King and Zeithalm, 2003, Rahimli, 2012), which ensures an organization's success.

A firm's ability to innovative, according to Subramaniam and Youndt (2005), relies heavily on its intellectual assets and its ability to utilize knowledge, taking on the viewpoint that innovation process is the utmost knowledge-intensive business process (Theoharakis & Wong, 2002). The work done by Zheng, Zhang, Wu, and Du (2011) empirically confirmed that a positive and significant correlation exists between knowledge-based dynamic capabilities and firm innovation among 218 Chinese manufacturing firms in networked environments. Meanwhile, the paper of Koch (2011) theorized the relationship between knowledge integration and innovative performance with knowledge-relatedness serving as an important moderator for the relationship. Also, the study of Montoro-Sánchez, Ortiz-de-Urbina-Criado, and Mora-Valentín (2011) provide empirical evidence that knowledge spillovers positively impacted on its ability to innovate and collaborate among firms situated at the science and technology parks.

KM does not only promote high innovative performance, it also develops a firm's competitive advantage (CA). For a firm to be competitive, it depends on the firm's ability to consistently expand its capabilities in the products and services offered (Nielsen, 2006). It is insufficient to have assets and resources alone, according to Sandhawalia and Dalcher (2011), as a firm needs to have strong KM competency to develop and support work practices and routines in order to remain competitive. This is particularly so for firms that are competing in the fast moving dynamic markets as being competent in KM enable firms to innovate and respond faster to the shifting market conditions, and attain sustainable competitive advantage (Wheeler, 2002). In line with this, Andreeva and Kianto (2012) also empirically confirmed that information communication technology (ICT) and human resource management (HRM) practices that are used to manage knowledge have been found to significantly affect both financial performance and firm competitiveness among companies from Russia, China and Finland.

With the introduction of the knowledge economy era, it has proven that intangible assets have turn out to be a vital source of firm's competitive edge. Both knowledge and technology are considered to be an enterprise's strategic asset and a main source to create competitive advantage (Lai and Lin, 2012, Stump et al., 2002). With innovative technology comes the development of distinct products and service; and successful technology innovation relies heavily on the knowledge resources a firm possess. KM was found to improve the technological innovation (TI), which affect the new product development performance in the machine tool industry. In line with this, Ho (2011)’s study also confirms that organizational innovative ability mediates the association between self-directed learning readiness and organizational performance among the technological companies in Taiwan.

While extensive literature can be found to promote the existence of KM, there is a worrying shortage of empirical evidence to demonstrate the actual linkage between the three concepts of KM, TI and CA. Furthermore, empirical evidence (e.g. Calantone et al., 2002, Darroch, 2005) on whether TI plays an important mediating factor between KM practices and CA are found to be insufficient. Generally, the tripartite relationships between the three constructs have hardly been tested using the Partial Least Square Structural Equation Modelling- Artificial Network (PLS-SEM-ANN) analysis. The application of a combined analysis is significant in nature as it provides methodological contribution and a notable impact to the world of expert and intelligent systems. Additionally, there is a dearth of empirical research being conducted on the Small Medium Enterprises (SMEs), in particularly from the perspective of a developing country – Malaysia. KM, according to McAdam and Reid (2001), was created and developed in large enterprises, which is to be applied later on in SMEs. In other words, most of the KM studies have been concentrated on the large enterprises, neglecting the SMEs (Durst & Edvardsson, 2012). SMEs have often been described as the backbone of a country's economy (Organisation for Economic Co-operation and Development, 2012) as they provide employment for 60–70 percent of its working population, according to an Organisation for Economic Co-operation and Development (2006) report. In Malaysia, SMEs play a fundamental role in the nation's economic development (Saleh & Ndubisi, 2006). At 99.2 percent, SMEs hold the largest percentage of establishments in Malaysia (Chong, Ooi, Lin, & Tang, 2009). According to SMIDEC (2008), 32 percent to GDP, 19 percent to the total exports of the country, and 56.4 percent to the total workforce are contributed by the SMEs. As the existence of SMEs has been proven significant and important to many countries and Malaysia, the lack of study on the SMEs can be assessed as unsatisfactory.

In order to bridge this gap, this research purports to offer new insights on how SMEs nurture and cultivate their knowledge to achieve a higher level of TI and gain a CA like no other. It is worth noting that this paper does not only emphasize the relationship between KM on both TI and CA, it also studies the importance of passing through technological innovation to attain competitive advantage. The purpose for this fine distinction is that most of the past literature primarily stresses on the direct relationship between KM with innovation performance (Koch, 2011, Sheng et al., 2013, Xu et al., 2010) or competitive advantage (Massa and Testa, 2009, Rahimli, 2012). Meanwhile, only a few empirical evidences were found to discuss the mediating role of TI between KM and CA (Ho, 2011, Lai and Lin, 2012).

This research is henceforth proved to be significant as it can present itself as a best practice document for the SMEs that are interested in adopting KM to improve both TI and CA. It is essential for the SMEs managers to comprehend the specific nature and sources of firm's TI and CA due to the unique nature of the SMEs. They do not manage knowledge in a way that large firms do, and that they have a different organizational culture as well as a less complex organizational structure (Montequin, Fernandez, Cabal, & Gutierrez, 2006) that is generally less bureaucratic in their decision making (Wee & Chua, 2013).The paper also adds to the KM literature bank by supplying a framework that helps in the understanding of the relationship between KM initiatives, TI and CA, and whether TI serves as a significant mediating factor. A main outcome of this research is to provide a structured approach to develop the right KM practices within the SMEs themselves.

The outline of the manuscript is as such. The paper will first present a brief theoretical background on the three concepts of KM, TI and CA. The research methodology consisting of the population under study, sampling procedures, data collection methods, and the operationalization of constructs will be described next. Using the analysis of Structural Equation Modelling (SEM), the empirical results will be generated and discussed. Finally, the paper concludes with limitations and recommendations followed by the implications gathered from this study.

Section snippets

Knowledge management

Knowledge management evolves as a body of knowledge following the dawning of knowledge economy era (Moustaghfir & Schiuma, 2013). It is believed that the knowledge informs and transforms the business arena by means of continuous improvement, or radical innovation, both of which promote change for the better as a result of assimilating new and relevant knowledge inside an organization (McDermott & O’ Connor, 2002). Knowledge application then becomes evident in the new or improved product,

Methodology

As the subjects of this study involve the SMEs of Malaysia, the samples of such firms will be chosen from SME Corp. The manufacturing firms will be identified from this directory as the directory is believed to be representative of the population. According to SME Corp. Malaysia, SME in terms of manufacturing sector is described as having a sales turnover of not more than RM50 million or having full-time employees of not more than 200 workers. The survey method was used, whereby survey was

Statistical analysis

Basically there are three main approaches used in quantitative research studies which encompass the covariance-based SEM (CBSEM), variance-based SEM or Partial Least Squares (PLS) and Artificial Neural Network (ANN). Each of these approaches requires dedicated statistical software packages. For example, SPSS AMOS, EQS, LISREL and MPlus are designed for CBSEM analysis. On the other hand, SmartPLS, Visual PLS, PLS-Graph, WarpPLS or “r” module are tailored for PLS analysis. Lastly, SPSS Clementine

Discussion

Generally, there are two perspectives of statistical analysis. We first examined the tripartite relationships between KM, TI and CA by considering the KM as a 3 dimensional reflective second order construct using SmartPLS. More specifically, this is followed by a more in depth examination on the effects of each KM construct on TI and CA using ANN analysis. As mentioned earlier, ANN was chosen owing to the deficiency in theoretical foundation and existence of non-linear relationships.

From the

Acknowledgment

This research is supported by the Chartered Institute of Management Accountants (CIMA) Centre of Excellence (COE) Southeast Asia Research Grant (CO: 1754848) and has also obtained a Honorable Mention award from Technology, Innovation, and Industrial Management (TIIM) conference (2014) in Seoul, South Korea.

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