The Effects of Knowledge Management Strategy and Organization Structure

on Innovation
Yao-Sheng, iao! International Journal of Management "#!$ %Mar "&&'() *+-,&!
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This study e2amined the effects of .nowledge management %KM( strategy and organization structure on -roduct
innovation! 3esults from a survey of $4* firms su--ort a contingency a--roach to innovation! 5hen the
-ersonalization strategy is ado-ted /y a firm as the KM method, its structure em-hasized on centralization or
technocratization can enhance innovation! 5hen the codification strategy is em-hasized, technocratization is the only
a--ro-riate organization structure that a firm can use to facilitate innovation! 6789I:1TIO; 19ST31:T<
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Headnote
This study e2amined the effects of .nowledge management %KM( strategy and organization structure on -roduct
innovation! 3esults from a survey of $4* firms su--ort a contingency a--roach to innovation! 5hen the
-ersonalization strategy is ado-ted /y a firm as the KM method, its structure em-hasized on centralization or
technocratization can enhance innovation! 5hen the codification strategy is em-hasized, technocratization is the only
a--ro-riate organization structure that a firm can use to facilitate innovation!
Introduction
>efining the conce-t of KM is difficult, since different -ers-ectives of KM can yield different dimensions and meaning! 1
good KM definition is given /y Swan, Scar/rough ? 7reston %$444(, who defined it as @any -rocess or
-ractices of creating, acAuiring, ca-turing, sharing and using .nowledge, wherever it resides, to enhance learning and
-erformance in organization!@ To date, a growing /ody of research e2-lores KM in synthesized way! =or e2am-le, =erez
? 7a/los %"&&+( analyzed the strategic -otential of firmBs human ca-ital identifying two dimensions) value and
uniAueness! They categorized ty-es of .nowledge into ancillary, idiosyncratic, com-ulsory, and core .nowledge! :hoi ?
ee %"&&+( -ro-osed KM methods from e2-licit- and tacit-oriented -ers-ectives! KM methods, therefore, can /e
categorized into dynamic, system-oriented, human-oriented, and -assive styles! 1 study of consultancy firms in the
8S1 conducted /y 0ansen et al! %$444( identified two maCor ty-es of KM strategy) codification and -ersonalization
strategy! 1ccording to 0ansen et al! %$444) $&'(, codification strategy means that .nowledge is carefully codified and
stored in data/ases where it can /e accessed and used readily /y anyone in the com-any! :onversely, -ersonalization
strategy is where .nowledge is closely used to the -erson who develo-ed it and is shared mainly through direct
-erson-to--erson contacts!
Successful -roduct innovation and the a/ility of com-anies to continuously im-rove their innovation -rocesses are
ra-idly /ecoming essential reAuirements for com-etitive advantage and long-term growth in /oth manufacturing and
service industries! These continuous -roduct innovation ca-a/ilities are closely associated with a com-anyBs .nowledge
management %KM( systems and -rocesses %:ha-man ? 0yland, "&&#(! Managing .nowledge effectively is not a trivial
tas.D few com-anies are ca-a/le of ado-ting KM methods to im-rove innovation and not all methods are eAually
effective! KM methods can /e categorized according to two dimensions of management focus) e2-licit and tacit
.nowledge! Many .nowledge managers have faced difficulties in em-loying KM methods /ecause it is unclear how they
im-rove innovation! Managers should align these methods with their organizational conte2t, es-ecially organization
structure!
=ormalization refers to the degree to which Co/s within the organization are standardized! If a Co/ is highly formalized,
the Co/ incum/ent has a minimum amount of discretion over what is to /e done, when it is to /e done, and how he or
she should do it! :entralization refers to the degree to which the formal authority to ma.e discretionary choices is
concentrated in an individual, unit, or level %usually high in the organization(, thus -ermitting em-loyees %usually low
in the organization( minimum in-ut into their wor.! 1 concentration oftechnical and scientific .nowledge, termed
technocratization, has /een shown to /e a crucial determinant ofinnovativeness %:ollins, 0age ? 0ull, $4EE(!
7rofessional em-loyees may /est /e a/le to recognize the need for change %0age ? 1i.en, $4'&( and therefore firms
that have a high -ercentage of influential technocrats will tend to /e most innovative! The evidence is overwhelming
that strategy influences structure at the to- levelsof /usiness firms %3o//ins, $44&(! 0owever, how the fit /etween KM
strategy and these dimensions of organization structure affect innovation remains une2-lored!
The aim of this -a-er is to investigate the effects of the KM strategy and organization structure %and their interactions(
on -roduct innovation! 1s such, this research contri/utes to .nowledge a/out the effects of KM strategy
and organization structure on innovation, and im-ortantly, illuminates how interaction /etween KM strategy
and organization structure affect -roduct innovation!
3esearch >esign
9ecause the o/Cective of the study was to assess how -roduct innovations differ among firms at different
stages of evolution or develo-ment, it was im-ortant to use an industry with the com-etitive advantage /ased on
-roduct innovations! >ata for this study were collected from high-technology %com-uter and -eri-heral eAui-ment(
industries in Taiwan! In general, the choice of these industries seems a--ro-riate, since firms can fit into the selected
/usiness strategy framewor.! =urthermore, these industries have similar mar.et structure, and they are su/Cect to
similar environmental uncertainty! The homogeneity of the nature of their o-erations environment reduces the
-ossi/ility of contamination from multi-le industry studies and increases research control variance in the e2ternal
environment %5ard ? >uray, "&&&(!
1 sam-le of #EE firms listed in @9usiness Frou-s in Taiwan@ -u/lished in "&&+ /y :hina :redit Information Service,
T>! were identified, each with revenues and assets a/ove ;TG$& million, and each having at least $&& em-loyees!
These sam-ling criteria eliminated the -ossi/ility of including very small firms that might not have formal organization
structure! 1s it is widely /elieved that to- administrators can -rovide relia/le information a/out /asic environmental
and organizational characteristics of their organization %Mintz/erg ? 5aters, $4E*(, the -residents of each firm were
contacted to as. for their -artici-ation in the study! In total, "&+ of the #EE -residents returned
Auestionnaires of which $4* %#&!& -ercent( were usa/le! 1 com-arison of-artici-ating firms with non-artici-ating ones
showed no significant differences in size, sales, and total assets!
KM Strategy) To measure codification strategy, I used four items slightly modified from :hoi ? eeBs %"&&+( e2-licit-
oriented scale! 3es-ondents were as.ed to rate on a seven--oint scale how their firms manage .nowledge, including
.nowledge codification, .nowledge acAuisition from codified forms, documentation, and .nowledge sharing through
codified forms! The coefficient al-ha for this scale was &!E4! To measure -ersonalization strategy, I used four items
slightly modified from :hoi ? eeBs %"&&+( tacit-oriented scale! 3es-ondents were as.ed to rate on a seven--oint scale
how their firms manage .nowledge, including .nowledge acAuisition from e2-erts and co-wor.ers, face-to-face hel- /y
e2-erts, informal dialogues for .nowledge sharing, and .nowledge acAuisition /y one-to-one mentoring! The
coefficient al-ha for this scale was &!E+!
Organization Structure! This study em-loyed three different measures to characterize structure! %$ ( =ormalization! To
measure -erceived formalization, we used a three-item, seven--oint i.ert scale from the wor. of efe/vre and
efe/vre %$44"(! This measure had a relia/ility coefficient of &!E"! %"( :entralization! 5e em-loyed Miller and =riesenBs
%$4E"( com-osite si2-item seven--oint i.ert measure of -erceived centralization! This measure e2hi/ited an al-ha
coefficient of &!E"! %+( Technocratization! This measure was ada-ted from the wor. of Miller ? =riesen %$4E"( using a
two-item, seven--oint i.ert scale! The al-ha coefficient was &!'"!
7roduct Innovation! To measure innovation, a three-item %i!e!, new lines of -roduct, services, and -rograms( scale
modifying from Miller ? =riesenBs %$4E"( was used! 3es-ondents were as.ed to rate on a five--oint i.ert scale that
measured the e2tent of innovation within the firms! The three-item com-osite measure had an al-ha
coefficient of &!',!
3esults
Ta/le $ shows the means, standard deviations, and correlation matri2 for all varia/les!
To test the s-ecific hy-otheses, this study used moderated hierarchical regression analysis in order to isolate the main
effects of KM structure and organization structure on innovation and to inde-endently assess howorganization
structure moderated the relationshi- /etween KM strategy and innovation %results are shown in Ta/le "(!
Model $ e2amined the direct effects KM strategy might have on the de-endent varia/le, the two KM strategies %i!e!,
codification and -ersonalization( were entered as a set to test the universal a--roach to KM strategy! This ste- was
statistically significant for innovation %H3Isu- "IJ&!"+, =J$4!'', -K&!&&$(! :odification strategy was a significant
-redictor of innovation %/J&!#4, -K&!&&$(! 7ersonalization strategy also had a -ositive effect on innovation %/J&!$',
-K&!&*(!
In model ", the set of organization structure %i!e! formalization, centralization, and technocratization( were entered in
order to control for any effects organization structure might have on innovation! This -rocedure eliminated the main
effects of organization structure -rior to e2amining -otential KM strategy-structureinteraction effects %cf! Stone and
0ollen/ec., $4E4(! This ste- had a significant incremental effect on innovation %H3Isu- "I J&!&', = changeJ,!+&,
-K&!&$(! S-ecifically, formalization had a significant main effect on innovation %/J&!"", -K&!&*(, and
technocratization was also a -ositive -redictor of innovation %/J&!++, -K&!&$(!
=inally, in model +, the interactions of each of the KM strategies and theorganization structure were entered as a set!
Entering the si2 interaction terms simultaneously controlled for -ossi/le multicollinearity among the varia/les!
Evidence of moderation e2ists when the set of interaction terms accounts for significant residual variance in the
de-endent varia/le! This ste- was statistically significant for innovation %H3Isu- "IJ&!&,, = changeJ"!'+, -K&!&*(!
This result indicates that organization structure do in fact moderate the KM strategy-innovation relationshi-! The
interaction ofcodification strategy and centralization was negative for innovation %/J-L+*, -K&!&*(, that of codification
strategy and technocratization was -ositive %/J&!+#, -K&!&*(, that of -ersonalization strategy and centralization was
-ositive %/J&!**, -K&!&&$(, and that of -ersonalization strategy and technocratization was -ositive %/J&!##, -K&!&&$
(! 1 ty-ical -rocess for inter-reting such effects was used following 0itt, 9ierman, Shimizu, ? ochhar %"&&$( and iao
%"&&*( %see =igure $, ", + and #(
Overall, these findings indicate that the direct effect of KM strategy and organization structure on -roduct innovation
shows that when firms em-hasize KM strategy, either codification or -ersonalization strategy, -roduct innovation is
facilitated! 9esides, organization structure %i!e!, formalization and technocratization( have also im-lications for
innovation! 0owever, the findings also indicate that firms canBt im-lement KM strategy effectively without the
alignment of organization structure! 5hen the -ersonalization strategy is em-hasized /y a firm, its structure with
either centralization or technocratization can enhance innovation! 5hen the codification strategy is em-hasized,
technocratization is the only a--ro-riate organization structure that a firm can use to facilitate innovation!
>iscussion, imitations and :onclusions
The -rimary -ur-ose of this study was to e2amine the moderating effect of organization structure on the -roduct
innovation! 5e can see from the findings, some of these indicate direct effects on innovation, while others show the
e2istence of moderating effects! The im-act on innovation can /e either -ositive or negative! The
-atterns of differences varied from varia/le to varia/le!
3esults from this study suggest that managers can leverage their /est innovation /y matching this im-lementation
orientation to KM with organization conte2t! 5hen a firmBs KM strategy is codification oriented, it has to invest heavily
in information technology to search for s-ecialized .nowledge and communicate among mem/ers! 0owever, the
costs of develo-ing and using KM systems are high, es-ecially, maintaining .nowledge may /e costly %:hoi ? ee,
"&&+(! 1dvanced information technology, via com-uter, facilitates decentralization %3o//ins, $44&(! The
need of interde-endent, such as direct -erson-to--erson contact, is low! Management should -rovide /road guidelines
under which em-loyees can use their discretion, and train its em-loyees so that they can deal with wor.--rocesses
and tas.s %9hatt, "&&"(! Once em-loyees /ecome clear a/out their res-onsi/ilities and authority, they are li.ely to
ma.e -rudent use of their discretion! Thus, the cost of KM can /e reduced and, on the other hand, the
creativity of e2-erts can /e motivated! :onseAuently, decentralization can facilitate innovation in the organization!
5hen a firmBs KM strategy is -ersonalization oriented, social interaction are considered conducive to enhancing the
richness of the organizational .nowledge /ase! 3esearchers argue that these organizations characterized that
.nowledge originates from informal social networ.sD standard -rocedures may /e ignored to discover /etter
ways of o-erating %:hoi ? ee, "&&+(! In contrast, some note that the main challenge theseorganizations face is to
codify rules and -rocedures in sim-le format to that em-loyees can easily access and understand them! 3esults from
this study indicate that centralization can facilitate innovation if a firmBs KM strategy is -ersonalization oriented!
9esides, technocratization will enhance innovation whether either codification or -ersonalization strategy is
em-hasized /y a firm! This result -resents the im-ortance of the concentration of technical and scientific .nowledge!
The result of the study should /e considered in light of its limitations! =irst, it may /e too sim-listic to -resume that a
single o-timal set of KM strategy is ideal, or utilized, in all situations! 1s different grou-s of industries -ossess
.nowledge that varies in im-ortance to a firmBs com-etitiveness, the KM strategies used to manage them are li.ely to
vary %9hatt, "&&"D :hoi ? ee, "&&+(! =uture research might strive to conduct more intensive e2aminations among
industries to address an industry level of analysis as means to understanding how firms strategically manage different
.nowledge! second, this study only loo.ed at the interaction of KM strategy and organization structure! It is Auite
-ossi/le that other moderators, such as information technology and human resource management, affect this KM
strategy-innovation relationshi- as well! 1ccordingly, future contingency studies using other moderators are reAuired
to gain further insights into the KM strategy-innovation relationshi-! =inally, it is necessary to ac.nowledge the usual
limitation of cross-sectional /ased survey research, namely that such a study design does not -ermit causal
statements! Faining a clearer understanding of the relationshi-s /etween KM strategy, organization structure, and
innovation will reAuire longitudinal analysis!
The -ractical im-lication of this study lies in the finding that firms should design an a--ro-riate com/ination of
organization structure! =irms should /e cognizant of several contingencies that might guide their choice among various
a--roaches to KM strategy as well as the effects these choices have on the innovation of their firms! The value of any
a--roach to KM strategy can /e augmented or diminished /y simultaneously managing theorganization structure!
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AuthorAffiliation
Yao-Sheng iao
;ational 7ingtung Institute of :ommerce, Taiwan
:o-yright International Mournal of Management Mar "&&'