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ISSN 0143-7720

Volume 28 Number 3/4 2007

International Journal
of Manpower
An interdisciplinary journal on
human resources, management
& labour economics

HRM in a knowledge-based
economy
Guest Editors: Ivan Svetlik and
Eleni Stavrou-Costea

www.emeraldinsight.com

International Journal of
Manpower

ISSN 0143-7720
Volume 28
Number 3/4
2007

HRM in a knowledge-based economy

Guest Editors
Ivan Svetlik and Eleni Stavrou-Costea

Access this journal online _______________________________ 195

Editorial advisory board _________________________________ 196
INTRODUCTION
Connecting human resources management and
knowledge management
Ivan Svetlik and Eleni Stavrou-Costea _______________________________

197

Knowledge management and innovation performance

ke Lundvall and Peter Nielsen_______________________________
Bengt-A

207

Measuring organisational learning capability among

the workforce
Ricardo Chiva, Joaquin Alegre and Rafael Lapiedra____________________

224

The role of HR actors in knowledge networks

Nada Zupan and Robert Kase _____________________________________

243

Competency management in support of organisational

change
Maria Vakola, Klas Eric Soderquist and Gregory P. Prastacos ___________

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260

CONTENTS

CONTENTS
continued

The effects of joint reward system in new product

development
Tsun Jin Chang, Shang Pao Yeh and I-Jan Yeh_______________________

276

E-business through knowledge management in

Spanish telecommunications companies
Juan G. Cegarra-Navarro and Eusebio Angel Martnez-Conesa ___________

298

Knowledge sharing and firm innovation capability:

an empirical study
Hsiu-Fen Lin ___________________________________________________

315

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IJM
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196

EDITORIAL ADVISORY BOARD

Professor David J. Bartholomew
London School of Economics, UK

Professor Thomas Lange

Auckland University of Technology, New Zealand

Professor Derek Bosworth

Manchester Business School, University of
Manchester, UK

Professor Lord Richard Layard

Centre for Economic Performance, London School
of Economics, UK

Professor Martin Carnoy

School of Education, Stanford University, USA

Professor John Mangan

University of Queensland, Brisbane, Australia

Professor Peter Dawkins

Melbourne Institute for Applied Economic and
Social Research, Melbourne University, Australia

Professor Stephen L. Mangum

Ohio State University, Ohio, USA

Professor Morley Gunderson

University of Toronto, Canada
Professor Thomas J. Hyclak
Lehigh University, Bethlehem, USA
Professor Susan E. Jackson
Rutgers University, New Jersey, USA
Professor Harish C. Jain
McMaster University, Canada
Professor Geraint Johnes
Lancaster University Management School,
Lancaster University, UK
Professor Meni Koslowsky
Department of Psychology, Bar-Ilan University,
Israel

International Journal of Manpower

Vol. 28 No. 3/4, 2007
p. 196
# Emerald Group Publishing Limited
0143-7720

Professor David Sapsford

Chairman Economics Division, University of
Liverpool, UK
Professor P.J. Sloane
Department of Economics, University of Wales,
Swansea
Professor Zhong-Ming Wang
School of Management, Zhejiang University, China
Professor Klaus F. Zimmerman
Department of Economics, University of Bonn,
Germany

The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0143-7720.htm

INTRODUCTION

Connecting human resources

management and knowledge
management

Connecting HRM
and KM

197

Ivan Svetlik
University of Ljubljana, Ljubljana, Slovenia, and

Eleni Stavrou-Costea
University of Cyprus, Nicosia, Cyprus
Abstract
Purpose The article seeks to demonstrate the benefits of using an integrative approach between
human resource management (HRM) and knowledge management (KM), where one reinforces and
supports the other in enhancing organisational effectiveness and performance.
Design/methodology/approach This contribution is a collection of research articles that explore
how HRM and KM are interrelated and provide empirical support for such connection.
Findings The authors firmly believe that the articles of this issue will not only provide for
interesting and worthwhile reading material, but also set the stage for enlarging and enriching the
research base on the relationship between HRM and KM.
Research limitations/implications It is not an exhaustive analysis of the connections between
HRM and KM; however, it is a very good first step in that direction. Even though HRM and KM have
much in common, there are few studies that make such a connection explicit.
Practical implications The article provides a very useful source of information and practical
advice on how the connection between the two disciplines can enhance organisational functioning.
Originality/value This special issue fulfils a gap in the existing literature for both academics and
practitioners on the merits of using HRM and KM integratively.
Keywords Human resource management, Knowledge management
Paper type Literature review

Introduction
In this issue of the International Journal of Manpower we try to demonstrate the
interface between human resource management (HRM) and knowledge management
(KM) and the benefits of using an integrative approach between the two disciplines
having the employee at the centre. While HRM, KM, and similar disciplines, such as
management of intellectual capital and information management, address the issues of
increasing the role of knowledge in contemporary organisations and the economy from
different angles, it is felt that combining these angles into an integrative approach
could be more fruitful.
This belief has been recently put forward and empirically verified by various
authors. To illustrate, Scarbrough (2003) found that the innovation process could be
facilitated if HRM and KM are linked within organisations. Furthermore, Scholl et al.
(2004) explain that the most effective approach to the theoretical and empirical issues
of KM would be an interdisciplinary and a multi-disciplinary one. According to their

International Journal of Manpower

Vol. 28 No. 3/4, 2007
pp. 197-206
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755209

IJM
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research, the most pressing and challenging practical problem for the understanding
and advancement of KM is to give priority to human factors. In a similar fashion, Oltra
(2005) criticises academics for not taking rigorous and systematic steps toward
comprehensive theory building in linking KM and HRM. Finally, Yahya and Goh
(2002) argue that:
The focus of KM should rightly be placed on humans themselves, and the impact made by
human resource management on KM practices . . . and that KM is actually an evolved form of
human resource management . . .

To address the aforementioned arguments, we have organised an international

conference held in Ljubljana in June 2004 and titled HRM in the knowledge-based
economy. The main idea of the conference was to explore the question on how HRM
does, could and should contribute to knowledge-based organisations and the economy.
The implicit assumption was that HRM and KM should come closer together. We used
three articles from that conference, for this special issue. In addition, we recruited four
additional ones through an open call in order to provide a wider array of studies to this
link between HRM and KM.
These articles are primarily empirical, each focusing on a different aspect of HRM
and KM. Their conceptualisations, methods and findings demonstrate the importance
of an interdisciplinary approach. Therefore, before providing an overview of each
paper, we will first put forward some considerations regarding each as well as the
interfaces between the two managerial disciplines, HRM and KM.
Human resource management
Strait forward definitions of human resource management are difficult to find. A
typical handbook usually defines HRM as the management of the organisations
employees (Scarpello and Ledvinka, 1988, p. 4). Armstrong (2000) defines HRM as
strategic personnel management emphasising the acquisition, organisation and
motivation of human resources. Beardwell and Holden (2001, pp. 9-16) hold that
understanding HRM depends highly on the perspective taken: HRM could be conceived
as traditional personnel management, as a fusion of personnel management and
industrial relations, as a resource-based employment relationship or as a part of
strategic managerial function. With respect to this, HRM involves managing
employees, their interpersonal relations and relations with the organisation.
Perhaps the most crucial point about HRM is that people and their interpersonal
relations become and are treated as resources, something that could be considered both
good and bad: the negative side is that recourses are often treated as expendable; we
promote the positive side, that recourses are valuable and necessary for an
organisation to become exceptional. In line with the resource-based view (Penrose,
1959) employees with all their capacities become desirable and real resources for the
organisation if they are to a high degree: valuable and scarce, inimitable,
non-substitutable and appropriable (Boxall and Purcell, 2003, p. 75). Boxall and
Purcell continue that:
Firms have the possibility of generating human capital advantage through recruiting and
retaining outstanding people: through capturing a stock of exceptional human talent, latent
with powerful forms of tacit knowledge. Organisational process advantage, on the other
hand, may be understood as a function of historically evolved, socially complex, causally

ambiguous processes, such as team-based learning and cross-functional cooperation

processes which are very difficult to imitate . . . In a nutshell, human resource advantage . . .
can be traced to better people in organisations with better process (Boxall and Purcell, 2003,
pp. 85-86).

There are two points to remember: first, HRM does not manage people as such, but
their personal and interpersonal (inter-group, organisational) characteristics, which
could be considered resources and create organisational advantages; and second,
human resources are not only brought into the organisation by means of recruitment
and selection but also developed within the organisation by investment in their
personal capacities and deployed by nurturing of interpersonal and inter-group
relations.
Another important point for our discussion is how human resources are composed;
what is their structure and how it is changing? According to ODonnell et al. (2003),
people are evaluated through their competencies, knowledge, know-how, adaptability,
network connections and experiences. Among these components, knowledge has
become most accentuated: according to Drucker (1999), the basic economic resource is
no longer capital, natural resources or labour, but knowledge. What really
distinguishes work results from each other is the share of embedded knowledge
(Burton, 1999, p. 4). In their study of the Irish ICT sector ODonnell et al. (2003) found
that approximately two thirds of organisational value is perceived to be composed of
intellectual capital and that over half of this capital stems directly from people
working, thinking and communicating.
Knowledge management
Unlike human resource management, which is seldom explicitly defined, a bundle of
definitions of knowledge exist. However, like human resource management, definitions
of knowledge and how to manage it, are usually incomplete because they deal with a
rather slippery subject (Winter, 1987). Furthermore, no universally accepted
foundation for knowledge has yet been developed (Barabas, 1990, p. 61). Perhaps the
most profound distinction in the study of knowledge has been made between
knowledge as a subjective state in individuals minds embedded in organisations and
communities constructivist approach (Davenport and Prusak, 1998, p. 5; Lang, 2001),
and knowledge as an objective state of things objectivist approach (Spender, 1998).
This distinction coincides to some extent with that made between tacit and explicit
knowledge (Polanyi, 1966; Nonaka, 2002), soft and hard knowledge (Hildreth et al.,
1999), background and foreground knowledge (Bhatt, 2001).
The proponents of the second view would argue that knowledge management is a
conscious strategy of getting the right knowledge to the right people at the right time
and helping people share and put information into action in ways that strive to
improve organisational performance (ODell and Jackson, 1998, p. 4). Knowledge is a
commodity to be traded (Gibbons et al., 2000) and needs to be managed (Dodgson, 2000,
p. 37).
The proponents of the first view rely on the difference between information and
knowledge. According to Bhatt (2001) knowledge is different from data and
information. Data are raw facts and when organised they become information.
Knowledge is meaningful information. They claim that the most important parts of
knowledge cannot be handled as a thing for others (Scholl et al., 2004). Rooney and

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and KM

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Schneider (2005) explain that knowledge is bound to human consciousness while data,
texts and images are contained in storage media. In a similar fashion, Kakabadse et al.
(2003) argue that:
KM is not about managing knowledge but about changing entire business cultures and
strategies of organisations to ones that value learning and sharing. Although some aspects of
knowledge, such as culture, organisational structure, communication process and
information can be managed, knowledge itself, arguably, cannot . . . Hence, one can
manage or support processes of learning rather than managing knowledge.

Finally, Rooney and Schneider (2005, p. 33) are explicit that because knowledge is
sensitive to context and is fallibly enacted, it cannot be managed.
The constructivist approach accepts not only individual knowledge but also for
knowledge that exists in the social context of groups, organisations and societies
(Yahya and Goh, 2002). While knowledge is created by and rests in individual
employees, it is also created through social interaction and is embedded in the social
structure of organisational members (Narasimha, 2000). According to Davenport and
Prusak (1998) knowledge in organisations often becomes embedded not only in
documents and repositories, but also in organisational routines, processes, practices
and norms. As Malhotra (1998) states KM embodies organisational processes that
seek synergistic combination of data and information processing capacity of
information technologies, and the creative and innovative capacity of human beings.
This means that the distinction made between knowledge as a thing and knowledge as
a state of mind cannot be conceived in terms of either or.
In our view they complement each other. Objective knowledge encoded in written,
electronic and other forms has helped enormously in functioning of the existing
educational systems, which strive for the transfer of knowledge to the new generations.
A well-structured textbook keeps its value even in a modern study process. The same
stands for the production systems, which use written plans, designs, manuals etc.
However, to make encoded knowledge available to individuals and organisations and
to create additional knowledge on this basis, human touch is unavoidable. They must
read, listen and speak in order to reach a new level of comprehension. Only this way a
new piece of knowledge could become encoded.
If knowledge does not exist and cannot be observed and managed in its pure form,
the concept of knowledge embeddedness deserves special attention. According to
Blacker (2002, pp. 48-50) knowledge could be embedded in several ways: embrained in
terms of conceptual skills and cognitive abilities; embodied in terms of being action
oriented, situational and only partially explicit, linked to individuals senses and
physical abilities; encultured in terms of shared understandings achieved in the
process of socialisation and acculturation; embedded in systemic routines that include
relationships between technologies, roles, formal procedures and emergent routines;
and encoded in terms of information conveyed by signs and symbols in books,
manuals, codes of practice and electronic media.
Ingrained into the process of KM is the so-called knowledge cycle. This cycle
integrates knowledge through four main phases, which should be observed
interactively rather than by a linear approach (OECD, 2001): the first is knowledge
acquisition, which focuses primarily on searching among various sources of
information and knowledge, on their selection, and on ways to bring the existing
knowledge in the possession of individuals and organisations; the second involves

knowledge creation, which focuses on the development and increasing bulk of new
knowledge; the third is knowledge transfer, distribution, dissemination and sharing,
aiming for relevant knowledge to reach relevant individuals, groups and organisations
as soon as possible; and the fourth entails knowledge utilisation and application in
various environments, which is the ultimate goal of the economic organisations and
systems as well as individuals who work for them.

Connecting HRM
and KM

201
Where HRM and KM meet
If we compare the enumerated characteristics of HRM and KM as described above, the
following observations could be made: If HRM is about managing people effectively
and if peoples most valuable resource is knowledge, then HRM and KM come closely
interrelated. Even more, HRM and KM share common activities and goals when
creating work units, teams, cross-functional cooperation, as well as communication
flows and networks inside the organisation and across its borders.
If we compare the KM cycle with HRM processes, we will find the various activities
shared between KM and HRM. Knowledge acquisition is about recruiting outstanding
people and about helping them learn and grow as individuals and as professionals. It is
also about encouraging employees to participate in professional networks and
communities of practice that extend beyond organisational boundaries (Wenger et al.,
2002). Knowledge creation is achieved by creating a supportive environment, through
requisite HRM, for individuals, groups and teams in order to be challenged by the
organisational problems, to search for the problems solutions and to innovate. It goes
from the creation of positions and teams, to the provision of information feedback
flows, to the design of stimulating remuneration and other systems of encouragement.
It includes also investment in the training and development of human resources.
Knowledge transfer concerns various forms of learning, the creation of a knowledge
sharing climate, establishment of training units which assess and analyse training
needs, provide and evaluate training, and lead towards learning organisations (Senge,
1994). Finally, knowledge utilisation is about the deployment of human resources by
means of proper leadership, division of tasks and responsibilities, remuneration
systems, and performance appraisal.
It would be difficult to find an area where HRM and KM do not meet. Perhaps one
such area could be management of the encoded knowledge, although one could argue
that this is not a KM but an information management issue. It seems, however, that
encoding knowledge and putting it in an explicit form could go beyond sheer
information management. Furthermore, codification is usually associated with the
process of abstraction, which should provide for effective diffusion (Boisot, 2005,
pp. 178-190). Thus, managing knowledge and managing human resources, even
though not interchangeable concepts, they are certainly highly inter-related. Teece
(2000) takes this argument a step further, suggesting that KM is more multifaceted
than HRM because it involves managing intellectual property rights and the
development and transfer of individual and organisational know-how. Nevertheless,
knowledge cannot be managed in a void without people and the other way around.
Therefore, the two disciplines are not only inter-related but also highly interdependent
By this comparison we propose an integrative approach between KM and HRM, one
that will advance knowledge in both fields as well as improve organisational
effectiveness. If HRM neglects the requisite management of knowledge and does not

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adjust its concepts and practices to the multi-faceted nature of knowledge, it puts itself
on a side-track. The same stands for KM if it does not focus on the requisite
management of individuals, their interpersonal relations and their relations with their
respective organisations. To put it affirmatively:
The focus of KM should rightly be placed on humans themselves, and the impact made by
human resource management on KM practices . . . The main tasks of HRM are to monitor,
measure and intervene in construction, embodiment, dissemination and use of knowledge of
employees (Yahya and Goh, 2002).

Shih and Chiang (2005) have already attempted to provide empirical support for the
connection among HRM, KM and corporate strategies and we seek to enrich such
support with similar studies through this special issue.
About the articles
Given the aforementioned discussion and without further due, we introduce below the
various articles in this special issue (International Journal of Manpower, Vol. 28 No. 3/4,
2007) that demonstrate the merits of integrating KM and HRM.
The first article, by B.A. Lundvall and P. Nielsen, deals with the establishment of
learning organisations as a central element of knowledge management especially
among firms operating in markets where product innovation is an important
parameter of competition. The authors argue that the wide use of information extends
the potential for codifying knowledge but at the same time it makes tacit knowledge
scarcer and it contributes to the formation of a learning economy. They support their
argument with an empirical analysis demonstrating that firms that introduce several
human resource management practices assumed to characterise the learning
organisation are more innovative than the average firm. HRM contributes thus to
knowledge creation.
Following the above is an article on measuring organisational learning among
employees, by R. Chiva, J. Alegre and R. Lapiedra. In this article, the authors describe
the development and validation of a diagnostic tool which aims to capture the
organisational propensity to learn, something which as they claim is missing from
extant literature. They propose five dimensions that represent the essential factors that
determine organisational learning capability: experimentation, risk taking, interaction
with the external environment, dialogue, and participation in decisions. This tool may
be related to a dynamic training approach applied to organisations or serve as a
mechanism to facilitate learning, as the five dimensions may represent a useful target
for organisational change initiatives.
In the third article, N. Zupan and R. Kase examine the structural positions of line
managers and HR specialists (called HR actors) within relational networks for
creating and sharing knowledge; and explore the implications for designing and
implementing HR practices in knowledge-intensive firms (KIF). This is a very
interesting article as it demonstrates that line managers who are HR actors are
centrally positioned within the knowledge networks examined, while HR specialists
are not. These results imply that a decentralised approach to HRM in KIF can be
effective. Furthermore, the study shows that HRM can affect the process of knowledge
creation and sharing by implementing HR practices through centrally positioned line
managers.

In line with the aforementioned articles, but shifting gears a bit towards
organisational competitive advantage, the fifth article of this issue deals with the
development of a proactive approach to competency modelling and its application to
facilitate strategic change by supporting communication, understanding of business
goals and the incorporation of new behaviours, roles and competencies within the
organisation. M. Vakola, K.E. Soderquist and G.P. Prastacos base their study on the
central role that competencies have in integrating the different human resource
management activities into a requisite system and the real need to translate business
strategy into the people competencies necessary to implement and support that
strategy at the operational organisational levels. Through a case study, M. Vakola and
her colleagues have demonstrated that their suggested approach was successful in
anchoring the competencies in the new organisational strategy, ensuring focus on
job-related skills, and allowing for significant flexibility while keeping areas and
competencies generic.
Adding to the richness of this special issue, in the next article T.J. Chang and S.P.
Yeh explore how knowledge sharing among new product development members of
high technology Taiwanese firms is positively related to team-based joint reward
systems and organisational citizenship behaviours. They also investigate the
mediating effects of perceived procedural justice to the relationship between joint
reward systems and organisational citizenship behaviour, thus highlighting the
importance of perceived procedural justice in rewarding for organisational citizenship
behaviour and in turn exhibiting high new product development performance.
Next, J.G Cegarra-Navarro and E.A. Martinez-Conesa propose a model that
examines how knowledge management has an impact on the adoption of e-business,
particularly in SMEs. They find that in order for e-business to be successful, companies
need to provide and support the acquisition, sharing and application of knowledge.
The authors also find that companies have to be careful not to over-invest in
technologies and under-invest in mechanisms such as HRM processes to facilitate
the flow of knowledge creation.
Last but not least, H. Lin provides closure to this special issue through studying the
influence of enjoyment in helping others, knowledge self-efficacy, top management
support, organisational rewards, and the use of information and communication
technology on knowledge-sharing processes and superior firm innovation capability.
Overall, this study demonstrates that employee willingness to both donate and collect
knowledge enable the firm to improve innovation capability; and provides a guideline
on how firms can promote a knowledge-sharing culture to sustain their innovation
performance.
We firmly believe that the articles of this issue will not only provide for an
interesting and a worthwhile reading material, but will also set the stage for enlarging
and enriching the research base on the relationship between HRM and KM.
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and KM

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Bontis, N. (Eds), The Strategic Management of Intellectual Capital and Organisational
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interaction: the critical source of intangible value, Journal of Intellectual Capital, Vol. 4
No. 1, pp. 82-99.
OECD (2001), Knowledge Management in the Learning Society, OECD, Paris.
Oltra, V. (2005), Knowledge management effectiveness factors: the role of HRM, Journal of
Knowledge Management, Vol. 9 No. 4, pp. 70-86.
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Polanyi, M. (1966), The Tacit Dimension, Routledge & Kegan Paul, London.

Rooney, D. and Schneider, U. (2005), The material, mental, historical and social character of
knowledge, in Rooney, D., Hearn, G. and Ninan, A. (Eds), Handbook on the Knowledge
Economy, Edward Elgar, Cheltenham.
Scarbrough, H. (2003), Knowledge management, HRM and the innovation process,
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Publishing Company, Boston, MA.
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Doubleday, New York, NY.
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development, International Journal of Manpower, Vol. 26 No. 6, pp. 582-603.
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A Guide to Managing Knowledge, Harvard Business School Press, Boston, MA.
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The Competitive Challenge: Strategy for Industrial Innovation and Renewal, Ballinger
Publishing Company, Cambridge, MA.
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management, Journal of Knowledge Management, Vol. 6 No. 5, pp. 457-68.

Further reading
Dana, L.P., Korot, L. and Tovstiga, G. (2005), A cross-national comparison of knowledge
management practices, International Journal of Manpower, Vol. 26 No. 1, pp. 10-22.
Di Bella, A. and Nevis, E.C. (1998), How Organisations Learn: An Integrated Strategy for Building
Learning Capacity, Jossey-Bass Publishers, San Francisco, CA.
Huseman, C.R. and Goodman, P.J. (1999), Leading with Knowledge The Nature of Competition
in the 21st Century, Sage Publications, London.
Leibold, M., Probst, J.B. and Gibbert, M. (2002), Strategic Management in the Knowledge
Economy, Wiley, Chichester.
Matusik, S. (2002), Managing public and private firm knowledge within the context of flexible
firm boundaries, in Choo, W.C. and Bontis, N. (Eds), The Strategic Management of
Intellectual Capital and Organisational Knowledge, Oxford University Press, Oxford.
Nonaka, I. and Takeuchi, H. (1995), The Knowledge-Creating Company: How Japanese Companies
Create the Dynamics of Innovation, Oxford University Press, Oxford.
ODonnell, D., ORegan, P. and Coates, B. (2000), Intellectual capital: a Habermasian
introduction, Journal of Intellectual Capital, Vol. 1 Nos 2/3, pp. 187-200.
Yoo, Y. and Torrey, B. (2002), National culture and knowledge management in global learning
organisation, in Choo, W.C. and Bontis, N. (Eds), The Strategic Management of Intellectual
Capital and Organisational Knowledge, Oxford University Press, Oxford.

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About the authors

Ivan Svetlik is professor of HRM, labour market and employment policy at the University of
Ljubljana. His research is focused on human resources and knowledge management,
employment, education and training. He coordinates nationally the CRANET research project
and contributes to the publications of this network, such as HRMs Contribution to Hard Work,
Human Resource Management in Europe and Managing Human Resources in Europe. Ivan
Svetlik is the corresponding author and can be contacted at: Ivan.Svetlik@fdv.uni-lj.si
Eleni Stavrou-Costea is Assistant Professor of Management and Organisation at the
University of Cyprus. She has published chapters in books as well as articles in various academic
journals. Her research interests include flexibility at work, strategic human resource
management, intergenerational transitions, and organisational culture.

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Knowledge management and

innovation performance

Knowledge
management

ke Lundvall and Peter Nielsen

Bengt-A
Aalborg University, Aalborg, Denmark

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Abstract
Purpose The purpose of this paper is to show why the establishment of learning organisations
must be a central element of knowledge management especially in firms operating on markets
where product innovation is an important parameter of competition.
Design/methodology/approach The argument straddles and combines insights related to
management and organisation theory with an evolutionary economic analysis of the relationship
between innovation, learning and knowledge. It is supported by an empirical analysis of survey data
on Danish private sector firms. The survey was addressed to all firms in the private urban sector with
25 or more employees, supplemented with a stratified proportional sample of firms with 20-25
employees.
Findings The analysis shows that firms that introduce several organisational practices, assumed
to characterise the learning organisation, are more innovative than the average firm.
Research limitations/implications The empirical findings are limited to the private sector and
do not cover public sector organisations.
Practical implications The learning organisation characteristics have a positive impact on
dynamic performance and there are obviously lessons to be learned from the successful firms
operating in turbulent environments that introduce specific organisational characteristics such as job
rotation, inter-divisional teams, delegation of responsibility and reducing the number of levels in the
organisational hierarchy.
Originality/value The paper puts knowledge management into the wider concept of learning
economy and shows how a key element of knowledge management is to enhance the learning
capacity of the firm.
Keywords Knowledge management, Learning, Organizational change
Paper type Research paper

Introduction
Taken in its broadest sense, knowledge management is an ancient phenomenon. The
competences of employees and how they are combined into organisational capabilities
has always been a key to economic performance and wise managers have always been
aware of the need to utilise and develop knowledge in the interest of the organisation.
But it is only recently that knowledge management has become explicit in the
management literature. According to Prusak (2001), the first conference that focused on
knowledge management took place in 1993. Today the concept has become
commonplace all over the world. The major impact of making knowledge
management explicit is its increased attention.
Prusak (2001) writes that the concept has roots in three different management
traditions: information management, the quality movement and human capital. These
different perspectives give different emphasis to what knowledge management should
accomplish. Their definition of what is valuable knowledge is different and the idea

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about what managing knowledge means is different, making the future direction of
knowledge management difficult to predict.
There is little doubt that the information technology revolution has changed
fundamentally the role of knowledge in the economy. It has given inexpensive and
worldwide access to some types of information. It has also offered new tools both for
handling information and for advancing processes of knowledge creation and
innovation. Therefore it is not surprising that knowledge management for some
scholars and experts primarily signifies the use of advanced software, the codification
of tacit knowledge and knowledge sharing through information systems.
But as we shall argue below, the impact of the wider use of information and
communication technology is complex and contradictory (Lundvall, 1997). One of the
major impacts is that tacit knowledge becomes scarcer and therefore managing this
kind of knowledge becomes more important. Another consequence is the acceleration
in the rate of change that brings us into a learning economy where the capability to
learn becomes more important than given sets of specific capabilities (Lundvall, 2003).
At the end of the paper, we present an empirical study based upon Danish Survey
data where a strong correlation is shown between the introduction of multiple
management techniques associated with the learning organisation and the
innovative performance of firms. Danish firms that use many of these techniques
are much more prone to introduce new products than firms that use few of these
techniques, even after we control for size, sector and form of ownership. This implies
that knowledge management, especially in sectors with rapid technological change,
needs to focus more on the process of learning than on locating and allocating a given
set of knowledge assets. Without forming learning organisations, information systems
do not contribute to the dynamic performance of the firm and such systems need to be
designed in such a way that they support the formation, diffusion and use of tacit
knowledge.
So while, at first glance, the wide use of information technology points us toward a
definition of knowledge management as increasingly related to the use of information
systems and to the management of codified knowledge we argue that paradoxically it
calls for giving the formation and use of tacit knowledge more attention than before.
We conclude that one of the most important tasks of knowledge management is not to
steer in detail the processes of knowledge creation but rather to create framework
conditions that stimulate agents within and outside the organisation to engage in
interactive learning. Information technology is a helpful tool in this process but it is
seldom the solution to knowledge management problems. We propose that
knowledge management is more of a social art than a scientific discipline; knowledge
management cannot be reduced to a set of techniques. The fact that knowledge
management operates close to the human mind makes it necessary for managers to
operate with finesse and on the basis of intuition and wisdom.
On the contradictory impact of information technology
There is a normative bias in western civilization in favour of explicit and
well-structured knowledge and there are continuous efforts to automate human skills.
One historical example is the effort to transfer the knowledge of skilled workers into
machinery connected with Taylorism. Present efforts to develop general business
information systems and expert systems may be seen as symptoms of this bias. For the

knowledge manager, codifying knowledge may be seen as a way to make the

organisation less dependent on employees (Lundvall, 1997).
But the business experience of firms that should be assumed to be world
champions in managing knowledge, be it IBM, Hewlett Packard or Microsoft, is
rather mixed, with ups and downs in performance (Eliasson, 1996). As can be seen
from their history none of these organisations has been able to develop the perfect
expert system to manage the firm. They remain highly dependent on the skills,
know how and intuition of their top managers. Actually management is an area
where codifying knowledge is most difficult and this is especially true for the
management of knowledge (OECD, 2000).
So far automating human skills has proved to be quite successful in relation to tasks
taking place in a stable environment. The success of chess programs demonstrate that
in games where the rules remain constant even very complex decision making may be
programmed and automated. The most important delimitation on codification efforts is
a high rate of change in the environment. Where the rules or the problems encountered
change the benefits from codifying knowledge are limited since codification tends to
create routines that are unsustainable and inefficient in the long run (Hatchuel and
Weil, 1995). Highly automated process industries may be extremely cost-efficient as
long as technologies and markets remain stable but at some time when the products
lose their competitiveness because of more attractive substitutes they leave behind
them rust-belt problems.
The wider use of information and communication technology (ICT) enhances both
the incentives and the possibilities to codify knowledge (David and Foray, 1995). The
share of knowledge that can be transformed from being tacit to becoming explicit
information grows. The capacity to codify and to handle codified knowledge becomes
more important in the firm. In this light it seems natural that knowledge management
should be seen just as a further development of information management. It might
even be considered that the era of tacit knowledge is over.
But this is only one side of the coin (Johnson et al., 2002); the other side is that the
very growth in the amount of information made accessible to economic agents
increases the demand for skills in selecting and using information intelligently. So, as
more skills are transformed into a codified form, demand will grow for complementary
tacit knowledge. This is one reason why experience-based learning becomes
increasingly important.
But the most important reason is that the widened use of ICT speeds up change and
the acceleration makes it less meaningful and attractive to engage in the development
of codification and information systems. ICT speeds up change through different
mechanisms. First, the rate of innovation within ICT is high and its diffusion to all
sectors of the economy imposes change on these sectors. Second, ICT has become an
important tool in speeding up innovation in several sectors including drug design in
pharmaceuticals and physical design in most other sectors[1]. Third, it makes it easier
to communicate over long distances and hereby it fuels the globalisation of the world
economy.
While the potential for codification of activities may be growing, more and more
activities operate in contexts where rules and problems change more rapidly than
before. Automation and introduction of codified routines in such activities will be
costly and give dubious results. The capacity most in demand is to cope with new

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tasks and problems. This is why skills and know-how become scarcer and more
important for performance than before.
If the main impact of ICT is a speed-up of processes of change, the use of
information technology may be regarded from a different perspective where the
emphasis is upon its potential to re-enforce human interaction and interactive learning.
Here the focus is not upon its potential for substituting for tacit knowledge but rather
upon how it can support the creation, use and sharing of tacit knowledge. Electronic
mail systems connecting agents sharing common specific codes of communication and
frameworks of understanding can have this effect. Communities of practice and
epistemological communities tend to become increasingly important for the creation of
use of knowledge both locally and globally. Wide access to data and information
among employees can further the development of common perspectives and objectives
for the firm. Interactive learning in external networks may be re-enforced by the
intelligent use of ICT-technology.
A taxonomy of knowledge
One reason why it is difficult to design successful knowledge management is that
knowledge is a slippery subject (Winter, 1987). If it is difficult to agree on what
knowledge means; it is even more difficult to agree on how to manage it. There have
been different attempts to work out the most important distinctions between different
kinds of knowledge; in turn, different taxonomies have been proposed (Lam, 2000).
Knowledge may be embodied in people or built into artefacts. Much knowledge is
collective rather than individual and it may be embedded in organisations or networks
(Arrow, 1994). Standing alone it is intangible and difficult to grasp. The very meaning
of knowledge differs depending on context. A classical taxonomy makes a distinction
between the four categories: data, information, knowledge and wisdom (Ackoff, 1989).
It is assumed that data are raw facts without internal organisation. When structured
and put into context they carry some meaning and become information. It is only when
the human mind activates information that it becomes knowledge. Wisdom is assumed
to bring in a deeper understanding and ethical grounds for action.
In relation to knowledge management we do not find this taxonomy very useful.
Actually it fails to make some of the most important distinctions and by doing so it
sometimes results in a biased understanding of knowledge as basically a cognitive
category referring to the individual. This is problematic since procedural knowledge
(know-how) both individual and collective (as shared routines) is a key to economic
performance. More than a decade ago Lundvall and Johnson (1994) introduced a
different set of distinctions: know-what, know-why, know-how and know-who[2].
Know-what refers to knowledge about facts. How many people live in New York,
what are the ingredients in pancakes and when was the battle of Waterloo, are
examples of this kind of knowledge. Here, knowledge is close to what is normally
called information it can be broken down into bits.
Know-why refers to knowledge about principles and laws of motion in nature, in the
human mind and in society. This kind of knowledge has been extremely important for
technological development in certain science-based areas such as for example chemical
and electric/electronic industries. To have access to this kind of knowledge will often
make advances in technology more rapid and reduce the frequency of errors in
procedures of trial and error.

Know-how refers to skills, such as the capability to do something. It might relate to

the skills of manual workers. But actually it plays a key role in all activities in the
economic sphere. The businessman judging the market prospects for a new product or
the personnel manager selecting and training the staff have to use their know-how. It
would also be misleading to characterise know-why as science-related and know-how
as practical-related. One of the most interesting and profound analyses of the role of
know-how is actually about how the advanced scientist makes research on the basis of
personal skills (Polanyi, 1958/1978, 1966). Conversely not all know-why knowledge is
scientific. In everyday life, when interpreting what is happening, models of causality
that have very little to do with science are applied.
Know-how is typically a kind of knowledge developed and kept within the border of
the individual firm or the single research team. But as the complexity of the knowledge
base is increasing co-operation between organisations tends to develop. One of the
most important rationales for the formation of industrial networks is the need for firms
to be able to share and combine elements of know-how. Similar networks may be
formed between research teams and laboratories.
This is one reason why know-who becomes increasingly important. The general
trend towards a more composite knowledge base where a new product typically
combines many technologies and each technology is rooted in several different
scientific disciplines, together with the speed up of change, makes it crucial to have
access to many different sources of knowledge. Know-who involves information about
who knows what and who knows to do what. But it also involves the social capability
to co-operate and communicate with different kinds of people and experts.
These distinctions are closer to everyday language than the first taxonomy. We
prefer to use information as part of knowledge rather than as something distinct
from knowledge. We define information as knowledge that has been transformed into
codes so that it can be saved in a computer and sent through electronic media. In the
next section we will discuss what elements of knowledge can be transformed into
information and the consequences for knowledge management of the wider use of
information and communication technologies.
The impact of the information technology revolution on the four kinds of knowledge
Know-what is a kind of knowledge that can be brought into databases and search
machines in a rather simple way. These are still far from costless to use, however. Still
it may take many attempts to surf the net before the precise information looked for
pops up on the screen. ICT has made this kind of knowledge much more accessible all
over the world. Even so, having direct access to persons (know-who) who are experts in
a specific field may save much time and lead to more precise results. For specialised
kinds of know what such as seldom addressed medical and legal cases, the only
reliable source of information may still be a human expert and her/his personal
memory.
Know-why with roots in science may already exist in a codified form. Sometimes the
code is so complex that knowledge gives meaning only to a handful of outstanding
scientists but in principle there is open access to the information through the Internet
and other channels. In other fields know-why is experience-based and there is no
scientific causal analysis to explain why a certain factor regularly triggers specific
effects. Here information technology may play a role in speeding up analytical

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processes. The growth of codified knowledge may be dramatic in certain fields such as
pharmaceuticals and even experts will get growing difficulties to follow new
developments in their respective field of knowledge. In order to make this kind of
knowledge useful it is again crucial to have access to human expertise (know-who) that
can sort out the most promising directions to follow.
Know-how is perhaps the kind of knowledge where information technology and
codification has the most to offer but also the one where the greatest barriers have to be
overcome. Work on expert systems shows that even when tasks are reasonably
simple the operation of the expert system developed will differ from the actual
operation of the expert (Hatchuel and Weil, 1995). Firms that have over-emphasised the
use of business information systems in their decision-making process have often run
into trouble (i.e. the problems of the business systems giant IBM to develop a
successful management strategy illustrate the point) (Eliasson, 1996).
Know-who sounds somewhat pedestrian as compared to know-why and
know-how but actually it may have become the most important kind of
knowledge in the learning economy. The combination of increasing complexity and
rapid change makes it crucial to know who knows what and who knows to do what.
Information technology has a role to play since it makes informal networks more
efficient in overcoming distance in time and space.
The increased importance of know-who type of knowledge makes it necessary to
take into account the social dimension of economic processes. This kind of knowledge
is strongly intertwined with trust and what has increasingly been defined as social
capital (Woolcock, 1998). And trust is a very peculiar resource. According to Arrow
(1971) it cannot be bought on the market and if it could it would have no value
whatsoever. Therefore, in this area, the role of ICT can only be to operate as a
superstructure that must be built upon a basis of social relationships.
Summing up on the impact of ICT on knowledge creation
It follows from the analysis of the four kinds of knowledge that information technology
increases the stock of codified knowledge and that skill and competencies (tacit and
explicit) related to the use of ICT- technologies become increasingly important. But it
also follows that rapid change that is a major consequence of the wide use of ICT, gives
an even stronger weight to tacit skills. This is one reason why outstanding experts in
management, finance and science get even better paid in the learning economy. If their
skills could readily be transferred to expert systems we would expect to observe a very
different development of income distribution.
Individual knowledge remains important. Attempts to gather it and codify it into
data banks to be shared among large numbers of employees will often prove costly and
result in information overflow. Only if organisations are involved in a rather
homogenous and stable set of activities is such a strategy attractive. But since the
long-term economic success of firms increasingly reflect the capability to adapt to
change (flexibility) and the capability to impose change (innovation) tacit knowledge
remains crucial for economic success.
Collective tacit knowledge also tends to grow in importance. Especially in fields
where the rate of innovation and knowledge creation is high, there will be a growing
tendency to take over other organisations with the collective tacit knowledge that they
embed.

The learning economy as context

We see the information technology revolution as one major factor behind the formation
of the learning economy (Lundvall, 2003). The term marks a distinction from the
more generally used term the knowledge-based economy. The learning economy
concept signals that the most important change is, not the more intensive use of
knowledge in the economy, but rather that knowledge becomes obsolete more rapidly
than before. Therefore it is imperative that firms engage in organisational learning and
that workers constantly develop new competencies. The increased rate of change can
be illustrated by the fact that it is claimed that half of the skills that a computer
engineer has obtained during his education will have become obsolete one year after
the exam has been passed, while the half-life of skills for all educated wage earners is
estimated to be eight years (Ministry of Education, 1997, p. 56)[3].
A learning economy is thus one in which the ability to attain new competencies is
crucial for the success of individuals and for the performance of firms, countries and
regions. The background for the crucial importance of learning is that the combination
of globalisation, information technology and deregulation of formerly protected
markets leads to more intense competition and to more rapid transformation and
change. Both individuals and companies are increasingly confronted with problems
that can be solved only through forgetting old and obtaining new competencies. The
rapid rate of change is reinforced by the fact that intensified competition leads to a
selection of organisations and individuals that are capable of rapid learning, thus
further accelerating the rate of change.
The transition to a learning economy confronts individuals and companies with
new challenges. We see the growing emphasis on new organisation forms and
networking as a response to the challenges posed by the learning economy. In a rapidly
changing environment it is not efficient to operate a hierarchical organisation with
many vertical layers and with departments and functions operating separately within
the firm. In a rapidly changing environment it takes too long to respond when the
information obtained at the lower levels has to be transmitted to the top and back down
to the bottom of the pyramid. This is why we see a drive toward flat organisations with
strong focus on decentralisation and horizontal communication. In many instances
relational contracting and networking enhance functional flexibility since it gives
access to complementary external competence that it would take too long to build
in-house.
One important result from the empirical analysis that follows is that the new
organisation forms which tend to support competence building through learning by
doing and learning by interacting enhance the capability to pursue product or
service innovation. As we shall see in the next section innovation, learning and
knowledge creation are interrelated. Knowledge is both a crucial input and a crucial
output of innovation processes.
Innovation and knowledge creation
A problem with linking organisational forms to economic performance is that it is
difficult to develop valid and reliable indicators both for organisational forms and for
economic performance. Do specific management techniques promote learning? Do they
contribute to knowledge creation? Without some systematic analysis of these issues we
have to rely on story-telling about the success of specific changes in specific

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organisations. But it is well-known that transferring a best practice from one context
to another is highly problematic (Lundvall and Tomlinson, 2002).
One way to overcome this problem is to link innovation, learning and knowledge
creation with each other. Innovation represents by definition something new and
therefore adds to existing knowledge. Actually, many authors using the concept of
knowledge creation and knowledge production refer to technological knowledge and to
technical innovation as the output of the process (Antonelli, 1999; Nonaka and
Takeuchi, 1995). In new growth theory, the output of the R&D sector is viewed either
as a blueprint for a new production process that is more efficient than the previous one
or as a production of new semi-manufactured goods that cannot easily be copied by
competitors (Verspagen, 1992, pp. 29-30).
A striking characteristic of knowledge production resulting in innovation is that
knowledge, in terms of skills and competencies may be perceived as the most
important input. In this sense, it recalls a corn economy, in which corn and labour
produce more corn than is used up in the process. But it differs from such an economy
in one important respect. While the corn used to produce corn disappears in the
process, skills and competencies improve with use. Important characteristics of
knowledge reflect that its elements are not scarce in the traditional sense: the more
skills and competencies are used, the more they develop. This points to knowledge
production as a process of joint production, in which innovation is one kind of output
and the learning and skill enhancement that takes place in the process is another.
It is tempting to see innovation as a linear process and to assume that new scientific
results are the first step in the process, technological invention the second step, and the
market introduction of innovations as new processes or products the third step. A rich
body of empirical and historical literature shows that feedback loops are fundamental
and that the one-way road from new scientific results to the new product is the
exception rather than the rule (Rothwell, 1977; von Hippel, 1988; Lundvall, 1988). The
recent models of innovation emphasise that knowledge production/innovation is an
interactive process where the interaction of firms with customers, suppliers and
knowledge institutions is crucial for the outcome. Empirical analysis confirms that
firms seldom innovate alone (Christensen and Lundvall, 2004)[4].
One important implication is that any analysis of innovation and knowledge
production at the firm level needs to take into account the network positioning of the
firm and the degree to which the firm can draw upon competence from outside.
Learning organisations combine inter- with intra-organisational processes.
Competence as the outcome of knowledge production
The change from a linear to an interactive view of innovation and knowledge
production has also been a way to connect to each other innovation and the further
development of competence. The innovation process may be described as a process of
interactive learning in which those involved increase their competence through
engaging in the innovation process.
In economics, various approaches to competence-building and learning exist. One
important contribution is Arrows (1962) analysis of learning by doing, in which he
demonstrated that the efficiency of a production unit engaged in producing complex
systems (airplane frames) grew with the number of units already produced and argued
that this reflected experience-based learning. Later, Rosenberg (1982) introduced

learning by using to explain why efficiency in using complex systems increased over
time (the users were airline companies introducing new models). The concept of
learning by interacting points to how interaction between producers and users in
innovation enhances the competence of both (Lundvall, 1988). A more recent analysis
of learning by doing focuses on how confronting new problems in the production
process triggers searching and learning, which imply interaction between several
parties as they seek solutions (von Hippel and Tyre, 1995).
In most of the contributions in economic theory, learning is regarded as the
unintended outcome of processes with a different aim than learning and increasing
competence. Learning is seen as a side effect of processes of production, use,
marketing, or innovation. The management literature has a more instrumental
perspective and points to the importance of establishing learning organisations
(Senge, 1990). According to this literature, the way an organisation is structured will
have a major effect on the rate of learning that takes place. The appropriate
institutional structures may improve knowledge production in terms of competence
building based on daily activities.
It follows from our analysis of innovation and competence-building that a move
towards learning organisations needs to be reflected in changes both in the firms
internal organisation and in its inter-firm relationships. Within firms, the accelerating
rate of change makes multi-level hierarchies and strict borders between functions and
departments inefficient. It makes decentralisation of responsibility to lower-level
employees and formation of multi-functional teams a necessity. This is reflected in the
increasing demand for workers who are at the same time skilful, flexible, co-operative
and willing to shoulder responsibility. But in order to speed up the response to changes
in markets and technologies relationships with suppliers, customers and knowledge
institutions may need to become both more selective and more intense.
Learning organisations and innovation the Danish case
In what follows we will show first that the probability of successful product innovation
increases when the firm has organised itself in such a way that it promotes learning.
Second, we will demonstrate that organisational forms promoting learning are
multi-dimensional: they typically combine several of a number of internal and external
relationships and activities.
Methodology
The empirical analysis is based on a 2001 survey addressed to all Danish firms in the
private sector not including agriculture with 25 or more employees, supplemented
with a stratified proportional sample of firms with 20-25 employees. In turn 6991
questionnaires were sent to the selected firms. Information was collected from human
resource managers. We got 2007 usable responses and we have integrated them into a
cross-sectioned data set. The overall response rate of the survey was 29 per cent. A
closer response analysis, broken down by industry and size, shows acceptable
variations on response rates. Non-respondent information on some of the potential
dependent variables together with comparison to other surveys, do not indicate
unacceptable bias (Lundvall and Nielsen, 2005).
Obtaining a meaningful quantitative measure of innovation and innovative
behaviour on the basis of information collected in firms belonging to industries with

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216

very different conditions is not unproblematic. The phenomenon that firms refer to
may vary in relation to conditions and configurations. Our data indicate that we are
confronted with incremental qualitative change rather than radical change when firms
declare that they, in the period of 1998-2000, have introduced new products or services
on the market. Three fourths of the innovations introduced within the period
1998-2000, were already known at the national as well as on the international markets.
About 13 per cent of the firms have introduced at least one product or service
innovation new for the national market, although already existing in world markets. A
small group of firms (6 per cent) have introduced at least one innovation new both on
the national and the world market.
In the survey, we measured the incidence of an array of organisational dimensions,
which all directly or indirectly refer to both classical and contemporary theories
dealing with the relation between communication, knowledge transformation,
interaction and learning in relation to innovation in organisations. In this way the
dimensions become our operational expressions of the learning and innovating
organisation: cross occupational work groups, integration of functions, softening
demarcations, delegation of responsibility and self directed teams are empirical
indicators, referring to Moss Kanters theory of integrative organisation (Moss Kanter,
1983) and Burns and Stalkers organic organisations (Burns and Stalker, 1961).
Indirectly these dimensions also concern the leadership dimension, which is highly
relevant for knowledge creation (Dierkes et al., 2001). Quality circles and proposal
collection systems are indicators of quality management and knowledge management
(Nonaka and Takeuchi, 1995). Tailored educational system and educational planning
indicate human resources development (Bratton and Gold, 2003) and cooperation with
external actors refer to innovation as an interactive process (Lundvall, 1992). In Table I
the dimensions are classified in relation to theoretical aspects.
Here we will analyse to what degree the organisational characteristics and practises
complement each other and thus increase the chances of product and service (P/S)
innovation cumulatively. This might reflect bundles of organisational techniques
that support each other and that only when the firm has got several of the elements
working together will it harvest the full benefits in terms of innovative behaviour.
Building on such arguments, an additive index has been constructed based upon all the
14 organisational characteristics shown in Table I.
On the basis of the additive index we have classified the firms in three groups
according to how many organisational characteristics and practices they have adopted
in their organisations. We have thus divided the firms into three main groups:
(1) Low level learning organisations firms that have introduced zero to four of the
practices.
(2) Medium level learning organisations firms that have introduced five to eight
practices.
(3) High level learning organisations firms that have introduced nine to 14
practices.
This index may be assumed to reflect the degree of organisational sophistication.
Applying many characteristics and practices signals conscious-ness in terms of
knowledge management. In other words it signals a culture of change and learning in
the firms. In Table II results of this construction are shown. Table II shows how

Knowledge
management

Theoretical perspective

Organisational characteristics and practices

The organic and integrative organisation

focus on internal functional flexibility
Burns and Stalker (1961)
Moss Kanter (1983)

Cross-occupational working groups

Integration of functions
Softened demarcations
Delegation of responsibility
Self-directed teams
Quality circles/groups
Systems for collection of employee proposals

Quality management focus on engaging

employees
Nonaka and Takeuchi (1995)
Human development focus on competence
building
Bratton and Gold (2003)
Compensation system focus on incentives
Bratton and Gold (2003)
External communication focus on external
functional flexibility
Lundvall (1992)

Variables
All firms
Fewer than 50 employees
50-99 employees
100 and more employees
Manufacturing
Construction
Trade
Other services
Business services
Danish group
Foreign group
Single firm
Standard product
Customised product

217

Education activities tailored to the firm

Long-term educational planning
Wages based on qualifications and functions
Wages based on results
Closer cooperation with customers
Closer cooperation with subcontractors
Closer cooperation with universities and
technological institutes

Table I.
Theoretical perspectives
and organisational
characteristics

High (9-14) (%)

Medium (5-8) (%)

Low (0-4) (%)

28.5
18.1
35.0
45.1
36.3
14.5
24.5
19.6
41.2
30.1
40.7
22.3
29.2
29.8

44.3
45.9
42.3
43.3
42.9
42.8
48.3
45.1
40.3
44.7
43.8
44.5
45.1
44.9

27.2
36.0
22.7
11.6
20.8
42.8
27.2
35.3
18.5
25.3
15.5
33.2
25.7
25.3

2,007
1,048
437
490
725
318
563
184
213
701
388
903
725
1,192

frequent high-level learning organisations are in different categories of size, industry,

ownership and production.
By grouping all the firms according to the index of learning organisation
development we get 27 per cent in the low category, 44 per cent in the medium and 28
per cent in the high category. Table II shows that this distribution is size-dependent.
Among firms with fewer than 50 employees, only one out of five firms have developed
a learning organisation at the high level while the same is true for every second of the
larger firms. With growing firm size, the share of highly developed firms increases.
Table II also shows that the frequency of high level learning organisations varies
across industries. More than 40 per cent of the firms in business services are in the
category of highly developed learning organisations, while the same is true for 36 per
cent of the firms in manufacturing. The rest of the industries lie below the average.

Table II.
Learning organisation
development (percent
horizontal)

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Another interesting result is that firms owned by foreign groups have high share in the
category of most developed. Firms owned by Danish groups are closer to the general
average and single stand alone, often family firms are below the average. The
presence of foreign owned firms seems to constitute a progressive element in the
Danish economy while the often cherished family owned stand-alone firms seem to be
lagging behind both in terms of technological and organisational sophistication.

218
Organisational practices and product innovation
How does the frequency of use of organisational dimensions affect knowledge
production and learning in the firms, as indicated by product and service (P/S)
innovations? In Table III the different categories, representing increasing levels of
learning organisations are tested in a logistic model with P/S innovation as dependant
variable, and with control for firm size, industry, as well as form of ownership.
We find a five times higher chance of P/S innovation in the high level category, and
even in the medium category the chance is twice as high as in the low category, which
is used as a baseline. Among the other factors included in the model, manufacturing
and business services remain significant with 2.3 higher chance of P/S innovation and
construction is negatively significant with a chance of 0.7. The effect of large size
(100 ) is positive but moderate. Danish group ownership and single firms have a
chance below the benchmark category, i.e. foreign-owned firms. In sum, the model has
shown important and significant effects of the development of what we call learning
organisation on P/S innovation.
This illustrates that learning organisations that combine functional flexibility
with investment in human resources, incentive systems and networking are much
more prone to innovate irrespective of sector and size. It also illustrates that there is no
clear distinction between innovation management and knowledge management.
The organisational characteristics that promote adaptive learning also promote
innovation. To install them is an important task both for knowledge managers and
innovation managers.
It does not follow from the analysis that the adoption of any single set of
characteristics used to classify the learning organisation will enhance the capacity of
the firm to innovate, learn and create new knowledge. The context matters and we find
that in certain sectors where change is slow, such as construction and transport firms
may survive and prosper with little effort to engage in innovation and learning.
However, the study indicates a general direction in which knowledge management
Variables

Table III.
Logistic regression of
learning organisation
level categories

High level
Medium level
Manufacturing
Construction
Business services
100 and more
Danish group
Single firm

Effect

Lower

Higher

Estimate

Chi-sq.

P-value

5.18
2.20
2.35
0.69
2.27
1.61
0.76
0.58

3.90
1.71
1.62
0.45
1.46
1.26
0.58
0.44

6.90
2.83
3.40
1.08
3.54
2.07
1.00
0.76

0.82
0.39
0.54
2 0.68
0.51
0.30
2 0.14
2 0.28

127.30
37.11
38.69
28.35
15.40
14.23
3.93
15.85

, 0.0001
, 0.0001
, 0.0001
, 0.0001
, 0.0001
0.0002
0.0475
, 0.0001

may enhance the dynamic performance of firms in sectors where there is rapid change
in technologies and customer needs.
It is interesting to note that organisational forms that are often thought of as
stimulating learning as adaptation also seem to be supportive of knowledge creation
and innovation. As argued above innovation, competence building and adaptation are
intertwined, and promoting one is a way of promoting the other. The distinction
between HRM, knowledge management and management of innovation as different
analytical fields and as the responsibility of distinct professions may therefore be
worth to reconsider.
Conclusions
In the first three sections we discussed knowledge management in the light of the
contradictory impact of information technology on the relationships between tacit and
codified knowledge. We argued that paradoxically the wide use of information makes
tacit knowledge more crucial for the performance of the firm. In the third section we
went a step further and argued that the information technology revolution has given
rise to a new type of economic dynamic at the macro-level and we referred to this as a
learning economy. In the learning economy the dynamic performance will reflect the
capability to build new competences and to respond to change. In the fifth section we
tested this hypothesis on the basis of Danish data and showed that learning
organisation characteristics have a positive impact on dynamic performance.
One implication of our analysis is that any attempt to reduce knowledge
management to the use of advanced information systems would be misdirected and
harmful. But we also think that the very idea of managing knowledge may be
misleading. In his seminal paper on knowledge and competence Winter (1987) makes
an attempt to specify in what sense and to what degree knowledge is an asset and we
believe that he tries to do so because most management scholars would prefer
knowledge to be thought of as one among other kinds of assets. The efforts to bring
annual reports on company knowledge in line with the accountancy and reporting
systems of other assets may also be seen in this light.
A focus on knowledge as a set of assets may be too static in the rapidly changing
world we have indicated by the concept the learning economy. Here the key to
long-term competitiveness is the learning (and forgetting) capability of the firm rather
than what is already known. Therefore a key element of knowledge management is to
enhance the learning capacity of the firm. One way to do so is by building a learning
organisation. This is more related to designing organisational procedures and routines
than it is to managing assets.
Software programs and specific techniques such as the use of the balanced
score-card (Kaplan and Norton, 1992) may be useful ways to organise an increasingly
complex knowledge-base in firms. However, they are not efficient substitutes for
managers with experience-based skills in handling human relationships. To leave it to
inexperienced managers to implement and use, such tools may be not only inefficient
but actually damaging for the learning capability of the firm. For instance, one
outcome of using the balanced scorecard technique might be a characterisation of
people within the organisation once and for all, based upon who they are and what they
can do at a specific moment in time. This might lead to a freezing of the competence

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profile of individuals, which is not at all useful either for the individual or for the
learning capability of the organisation.
Therefore it might be a good idea to think carefully about what should be meant by
managing in the context of knowledge management. If management refers to an
ambition to give managers complete control of what employees learn, knowledge
management would damage the dynamic performance of the organisation. Little
space would be left for individual and collective creativity and for the use of intuition.
The alternative is to establish framework conditions organisational and cultural
promoting efficient use, creation and diffusion of knowledge and then to leave the
process to evolve as best as it can. Actually, we have argued that this second model is
much closer to representing best-practice for organisations exposed to strong
competition and operating on the basis of on-going innovation.
As illustrated by the data presented above and by many other empirical studies of
learning organisations or high-performance workplaces lessons may be learnt from
successful firms operating in turbulent environments that introduce specific
organisational characteristics such as job rotation, inter-divisional teams, delegation
of responsibility and reduction in the number of levels in the organisational hierarchy.
The idea behind such changes is to enhance the learning in the firm and to make the
firm more responsive to changes in its environment. As long as they work well they
may also reduce the need for daily management, including knowledge management.
Specialist knowledge managers may play a role in initiating processes of
organisational change in the right direction together with managers in charge of
human resources, R&D and innovation. But each single person with a management
responsibility from the foreman at the factory floor to the top manager can contribute
to, or block, the kind of organisational change that is required. Our data and case
studies indicate that it is not always employees who block and top management who
promote change. Often the necessary changes take place in connection with a change in
top management (Gjerding, 1996; Lund and Gjerding, 1996).
But, again, the use of such techniques, while helpful, cannot substitute for skilful
knowledge management where the focus is on people and on relationships between
people. Even in a science-based economy with wide use of information technology the
social dimension remains crucial for learning. To make sure that people get recognition
both for what they do and learn and for what they are and want to be is crucial.
Employees need to know who to contact and collaborate with in specific situations and
they need to have the confidence and incentive to do so when necessary. To establish a
learning culture is a difficult management art that needs to be based on personal
experience and wisdom.
Notes
1. New applications of information technology change the character of knowledge-creation at
certain stages of the innovation process. Developing and testing drugs, and the design of
aircrafts with the help of computers and the use of computer aided design in many other
areas illustrate a successful transfer of problem-solving from human skills to computers.
One consequence is a dramatic speed-up formerly time-consuming trial and error processes
and of testing new combinations (Foray and Lundvall, 1996, pp. 14-15).
2. At least two of these categories have roots back to Aristoteles three intellectual virtues.
Know-why is similar to Episteme and know-how to his concept of Techne. But the

correspondence is not perfect since we will follow Polanyi and argue that scientific activities
always involve a combination of know-how and know-why. Aristoteles third category
Phronesis relates to the ethical dimension and to current debates on the importance of trust
and social capital in the context of learning. Flyvbjerg (1991) includes an interesting
discussion of the relevance of Aristoteles for modern social science.
3. The outlines of the learning economy perspective were first sketched in Lundvall (1992) and
further developed in Lundvall and Johnson (1994). The analysis has much in common with
ideas developed in Drucker (1993) but was developed without direct inspiration from this
source.
4. This is also the background for developing a systemic approach to knowledge production.
Innovation systems are constituted by actors involved in innovation and by relationships
between actors. The actors include firms, technological institutes, universities, training
systems and venture capital. Together they constitute the context for knowledge production
and innovation. The specific constellations differ across sectors, regions and nations.
Innovation systems are typically specialised in terms of their knowledge base, and the
specific mode of innovation will reflect institutional differences (Freeman, 1987; Lundvall,
1992; Nelson, 1993; Edquist, 1997; Lundvall, 2002).

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About the authors
ke Lundvall is professor in economics at Department of Business Studies, Aalborg
Bengt-A
University. His research is organised around innovation systems and learning economies.
Lundvall worked as Deputy director at DSTI-OECD 1992-95. He has coordinated major empirical
projects on the Danish economy and initiated the worldwide network on innovation research,
Globelics. Lundvall has been engaged as expert on innovation policy by several national
governments in Europe and given advice to UNCTAD, the World Bank and the EU-commission.
Peter Nielsen is an associate professor at Department of Economics, Politics and Public
Administration, Aalborg University and a study leader of Master of Labour Market Relations
rhus
and Human Resources Management at Aalborg University. He was educated atA
University: MA Political Science. He has long experience in empirical research. He has been a
member of the DISKO research group since the start and project manager on the National Centre
for Labour Market Research (CARMA) at Aalborg University. He is the corresponding author
and can be contacted at: peter@socsci.aau.dk

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IJM
28,3/4

Measuring organisational
learning capability among the
workforce

224

Ricardo Chiva
Universitat Jaume I, Castellon, Spain

Joaquin Alegre
Universitat de Vale`ncia, Vale`ncia, Spain, and

Rafael Lapiedra
Universitat Jaume I, Castellon, Spain
Abstract
Purpose The present study sets out to propose and validate a measurement scale that aims to
capture the organisational capability to learn, based on a comprehensive analysis of the facilitating
factors for learning. The organisational learning capability scale consists of 14 items grouped into five
dimensions: experimentation, risk taking, interaction with the external environment, dialogue, and
participative decision making.
Design/methodology/approach Data were collected from eight Spanish ceramic tile
manufacturers. The survey was addressed to shop floor workers. A total of 157 valid
questionnaires were obtained, representing a response rate of 61 per cent. Using confirmatory
factor analysis, the construct measurement model was tested and the scale was validated.
Findings The results of the study indicate that the operational measure developed here satisfies the
criteria for unidimensionality, reliability, and validity.
Research limitations/implications Because of the sample features, final results should be
considered with caution. Further research is needed to validate the organisational learning capability
scale in other contexts and addressed to other kinds of respondents. However, this study contributes to
organisational learning research by providing a valid and reliable operational measure that is expected
to help researchers in future theory testing.
Practical implications The proposed measurement scale for organisational learning capability
could be implemented as an audit tool. Thus, managers could unveil which organisational learning
issues are strong and which are weak. This would provide guidance for improvement.
Originality/value This paper provides a new measurement instrument for organisational learning
capability.
Keywords Learning organizations, Measurement
Paper type Research paper

International Journal of Manpower

Vol. 28 No. 3/4, 2007
pp. 224-242
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755227

Introduction
The concept of organisational learning has been dealt with extensively in the
literature, and generates many academic publications both in specialised journals
and those of a more general scope. Organisational learning, generally defined as
the process by which organisations learn, has been considered by academics and
The authors would like to thank the Bancaja-UJI and Generalitat Valenciana Programmes (Ref.
P1-1A2002-18, P1 1A2004-05, GV05/082, GV06/082) for their financial support for this research.

practitioners as essential for organisations mainly due to the fast changing

environment. Consequently, organisational learning capability, considered as the
organisational and managerial characteristics that facilitate the organisational
learning process or allow an organisation to learn, plays an essential role in this
process.
However, despite the importance of the subject, widespread controversy, confusion
and theoretical disarray are still in evidence as a consequence of the natural
evolutionary process of such a complex dynamic concept. A range of studies on
organisational learning (Easterby-Smith et al., 2000; Lyles and Easterby-Smith, 2003)
points out these deficiencies and prioritises future research lines, amongst which the
development of a valid reliable measurement instrument for organisational learning is
given prominence. Lyles and Easterby-Smith (2003, p. 650) affirm that the choice of an
appropriate measure of organisational learning remains a debated topic. Several of the
authors in their handbook lament the lack of agreement on appropriate measures for
organisational learning.
As Bapuji et al. (2005, p. 538) state, some measures (Bontis et al., 2002; Tippins and
Sohi, 2003) are aimed to capture organisational learning that occurs as a psychosocial
process at various levels (Crossan et al., 1999; Huber, 1991). These scales are organised
according to each one of the phases of the organisational learning process, in an
attempt to determine the existence of these phases within the organisation. Other
measures (Goh and Richards, 1997; Hult and Ferrell, 1997, Jerez-Gomez et al., 2005)
have to do with the organisational propensity to learn or determine the organisational
learning capability (OLC). These questionnaires are organised according to the main
facilitators of organisational learning. They are aimed to determine whether the
organisation possesses the characteristics or dimensions (e.g. teamwork,
experimentation etc.) that facilitate organisational learning. These scales are
developed on the basis of a single perspective or literature, mainly the learning
organisation literature (Senge, 1990). However, the study of the facilitating factors for
learning has not only been advocated and underlined by this literature, but also by the
different perspectives put forward in the organisational learning literature (Brown and
Duguid, 1991; Weick and Westley, 1996; Fiol and Lyles, 1985; Hedberg, 1981).
Therefore, the development of a new measurement instrument aimed to capture the
organisational capability to learn, and that takes into account all the theoretical
perspectives and literatures involved in the facilitating factors for organisational
learning may justify a re-examination of how the organisational learning construct is
measured.
The aim of this paper is to propose a measurement scale of organisational
learning capability, based on a comprehensive analysis of the facilitating factors
for organisational learning, and to describe its development and validation.
Next we provide a literature-guided framework, which includes an analysis of the
concept of OLC and a discussion of the instruments for measurement. Then, we explain
the methodology followed for the development of the measurement instrument and
detail the identification of the indicators (items), the design of the measurement scale
and finally the data-gathering process in eight organisations in the ceramic tile
industry. We then discuss the results, in this case the sociometric properties of the
measurement scale, and conclude by outlining the implications of the measurement
instrument for organisational learning capability and proposals for future research.

Organisational
learning
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Theoretical background
Organisational learning capability
The concept of organisational learning capability (OLC) (Dibella et al., 1996; Goh and
Richards, 1997; Hult and Ferrell, 1997; Jerez-Gomez et al., 2005) seems to stress the
importance of the facilitating factors for organisational learning or the organisational
propensity to learn. Goh and Richards (1997, p. 577) define it as the organisational and
managerial characteristics or factors that facilitate the organisational learning process
or allow an organisation to learn.
The importance of the factors that facilitate organisational learning has
traditionally been outlined by the learning organisation literature, which develops
prescriptive models to become a learning organisation. This implies the facilitating
factors for organisational learning. Consequently, measures of organisational learning
capability have traditionally looked to this literature to determine their dimensions or
facilitating factors (Goh and Richards, 1997; Hult and Ferrell, 1997). Dimensions
outlined by the OLC scales depend on the specific part of the literature underlined by
researchers. For instance, as Hult and Ferrell (1997) focused on Senges fifth discipline
their dimensions were team orientation, systems orientation, learning orientation and
memory orientation.
Nevertheless, organisational learning literature has also suggested factors that
facilitate the existence of learning. In his review of the facilitating factors for learning,
Chiva (2004) took into account authors from both the organisational learning and the
learning organisation literatures. Following the same comprehensive approach, we
analysed both literatures. Through a synthesis analysis, organisational learning
facilitating factors were grouped so that a simplified essential set of dimensions for
organisational learning was obtained (Spector, 1992; Gatignon et al., 2002). Five
underlying dimensions were arrived at: experimentation, risk taking, interaction with
the external environment, dialogue and participative decision making. These
dimensions were considered as the most underlined facilitating factors in the literature.
In experimentation, we have included factors such as support for new ideas,
continuous training or workers that want to learn and improve. In dialogue, we
considered communication, diversity, teamwork, or collaboration. In participative
decision making, we incorporated delegation, flexible organisational structure, or
knowledge of the organisation. Several factors were considered to be implicit in all the
five underlying dimensions: commitment to learning, involved leadership or learning
as an essential element in the strategy. The five underlying dimensions sum up the
facilitating factors for organisational learning proposed by Chiva (2004).
Figure 1 shows the conceptual model of organisational learning capability. The
figure includes the dimensions of the model and definitions of each one of them.
The five conceptual dimensions of organisational learning capability (Figure 1) are
described below, together with an explanation of their links with other conceptual
categories and with organisational learning capability itself.
Experimentation. Experimentation is defined as the degree to which new ideas and
suggestions are attended to and dealt with sympathetically. Experimentation is the
most heavily supported dimension in the literature of OL (Hedberg, 1981; Nevis et al.,
1995; Tannenbaum, 1997; Weick and Westley, 1996; Goh and Richards, 1997; Pedler
et al., 1997). Nevis et al. (1995) consider that experimentation involves trying out new
ideas, being curious about how things work, or carrying out changes in work

Organisational
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227

Figure 1.
The conceptual model of
organisational learning
capability (OLC)

processes. It includes the search for innovative solutions to problems, based on the
possible use of distinct methods and procedures. Weick and Westley (1996) explain the
importance to organisational learning of small rather than big changes or experiments.
Risk taking. Risk taking is understood as the tolerance of ambiguity, uncertainty,
and errors. Hedberg (1981) proposes a range of activities to facilitate organisational
learning, amongst which is stressed the design of environments that assume risk
taking and accept mistakes. Accepting or taking risks involves the possibility of
mistakes and failures occurring.
Sitkin (1996, p. 541) goes as far as to state that failure is an essential requirement for
effective organisational learning, and to this end, examines the advantages and
disadvantages of success and errors. If the organisation aims to promote short-term
stability and performance, then success is recommended, since it tends to encourage
maintenance of the status quo. According to Sitkin (1996, p. 547), the benefits brought
about by error are risk tolerance, prompting of attention to problems and the search for
solutions, ease of problem recognition and interpretation, and variety in organisational
responses. Since the appearance of this work, many authors have underlined the
importance of risk taking and accepting mistakes in order for organisations to learn
(Popper and Lipshitz, 2000).
Interaction with the external environment. We define this dimension as the scope of
relationships with the external environment. The external environment of an
organisation is defined as factors that are beyond the organisations direct control of
influence among others. It consists of industrial agents such as competitors, and the
economic, social, monetary and political/legal systems.
Environmental characteristics play an important role in learning, and their
influence on organisational learning has been studied by a number of researchers
(Bapuji and Crossan, 2004, p. 407). Relations and connections with the environment are
very important, since the organisation attempts to evolve simultaneously with its

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changing environment. Hedberg (1981) considers the environment as the prime mover
behind organisational learning. More turbulent environments generate organisations
with greater needs and desires to learn (Popper and Lipshitz, 2000). According to Nevis
et al. (1995), in recent years researchers have stressed the importance of observing,
opening up to and interacting with the environment (e.g. Goh and Richards, 1997).
Dialogue. In particular, authors from the social perspective (Brown and Duguid,
1991; Weick and Westley, 1996) highlight the importance of dialogue and
communication for organisational learning. Dialogue is defined as a sustained
collective inquiry into the processes, assumptions, and certainties that make up
everyday experience (Isaacs, 1993, p. 25). Schein (1993, p. 47) considers dialogue as a
basic process for building common understanding, in that it allows one to see the
hidden meanings of words, first by revealing these hidden meanings in our own
communication.
The vision of organisational learning as a social construction implies the
development of a common understanding, starting from a social base and relationships
between individuals (Brown and Duguid, 1991, p. 47). Nevis et al. (1995) argue that
learning is a function of the spontaneous daily interactions between individuals. The
chance to meet people from other areas and groups increases learning. Similarly, Goh
and Richards (1997) advocate teamwork and problem solving in groups, with
particular emphasis on multi-functional teams. By working in a team, knowledge can
be shared and developed amongst its members (Senge, 1990).
Easterby-Smith et al. (2000, p. 792) hold that the recent literature is moving away
from a vision of an integrating dialogue in which consensus is sought, towards one that
seeks pluralism and even conflict. Oswick et al. (2000) claim that authentic dialogue
fosters organisational learning because it creates, rather than suppresses, plural
perceptions. Individuals or groups with different visions who meet to solve a problem
or work together create a dialogic community.
Participative decision making. Participative decision making refers to the level of
influence employees have in the decision-making process (Cotton et al., 1988).
Organisations implement participative decision making to benefit from the
motivational effects of increased employee involvement, job satisfaction and
organisational commitment (Scott-Ladd and Chan, 2004).
Scott-Ladd and Chan (2004) provide evidence to suggest that participative decision
making gives better access to information and improves the quality and ownership of
decision outcomes. Parnell and Crandall (2000) also maintain that divulging
information is a requirement for participative decision making. Subordinates are
assumed to be informed in order to participate efficiently. Bapuji and Crossan (2004),
Nevis et al. (1995), Goh and Richards (1997), Pedler et al. (1997) or Scott-Ladd and Chan
(2004) consider participative decision making as one of the aspects that can facilitate
learning.
Measurement of organisational learning
Studying organisational phenomena usually involves some type or form of
measurement. Organisational learning is no exception. There seems to be a serious
need for the development of a valid and reliable measurement instrument for
organisational learning (Easterby-Smith et al., 2000).

Organisational learning empirical research (Bapuji and Crossan, 2004) has not only
used scale measurements and survey-based methods. Much of this empirical research
uses qualitative methods (Finger and Burgin Brand, 1999), but also quantitative
methods other than surveys, such as learning and experience curve analysis (Epple
et al., 1991). However, the problem of learning and experience curves when applied to
measuring organisational learning is that they focus on outputs, not on the learning
processes, sources or capabilities.
These objective measures contrast with judgemental/opinion measures.
Unfortunately, organisational learning does not usually directly generate hard
numbers with which to make comparisons (Luthans et al., 1995). The learning effects
are most often difficult to measure quantitatively. Questionnaire surveys of and
interviews with the participants, and/or those external to the organisation such as
suppliers or customers, are the most likely sources of information with which to judge
organisational learning (Luthans et al., 1995, p. 37).
Table I summarises some of the characteristics of the OL scales.
Two main perspectives appear to emerge in the development of an organisational
learning scale. These perspectives are determined by their aims, which as they are
different, their dimensions also differ. The first perspective attempts to determine
whether a certain process of organisational learning is being accomplished. When this
perspective is adopted, instruments to measure organisational learning are organised
according to each of the phases of the organisational learning process in an attempt to
determine the existence of these phases within the organisation. Each of these phases is
therefore taken as the dimensions of the scale. These scales are based on models such
as that of Huber (1991) or Crossan et al. (1999). The studies of Bontis et al. (2002) or
Tippins and Sohi (2003) are notable examples of this perspective of OL measurement.
The second perspective aims to determine the organisational propensity or
capability to learn. When this perspective is adopted, instruments are organised
according to the main facilitators of organisational learning. The main facilitators of
organisational learning are therefore taken as the dimensions. These measurement
scales are mainly based on the learning organisation literature. Pedler et al. (1997), Goh
and Richards (1997) and Jerez-Gomez et al. (2005) are outstanding examples of this
measurement perspective.
Items from both scales are statements about individual or social behaviours and
organisational characteristics; however the two types of scale seem to measure
different concepts and therefore their theoretical dimensions are different. The first
measures whether the organisational learning process is fluid or is being completed,
and the second, whether the organisation has the capability to learn. Furthermore,
conclusions obtained from the two kinds of scale differ. As an example, Bontis et al.
(2002) suggest that companies were over-investing in individual learning and
under-investing in mechanisms to facilitate the flow of learning between levels
(individual-group-organisational). In contrast, Goh and Richards (1997) determined
that some companies scored high or low in certain characteristics such as clarity of
purpose or teamwork.
The measurement scale we propose follows the second perspective as it aims to
weight the organisational capability to learn. However, its five dimensions, the main
facilitating factors of organisational learning, are retrieved from a comprehensive
analysis of both perspectives.

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Table I.
Summary of OL scales

Tippins and Sohi (2003)

Templeton et al. (2002)

Bontis et al. (2002)

Jerez-Gomez et al. (2005)

Watkins and Marsick (2003)

Hult et al. (2000)

Hurley and Hult (1998)

Hult (1998)

Pedler et al. (1997)

Tannenbaum (1997)

Hult and Ferrell (1997)

Organisational learning survey scale (21 items): administered to

632 people from four organisations
The organisational learning capacity scale (OLC) (23 items):
administered to 179 SBUs 167 SBUs. Emphasis on purchasing
Learning company questionnaire (55 items): destined for audits
Learning environment survey (69 items): administered to 500
people in seven organisations
The organisational learning capacity scale (OLC) (17 items):
administered to 179 SBUs 167 SBUs. Emphasis on sourcing
process
Learning and development (four items): administered to 9,648
employees from 56 organisations
The organisational learning capacity scale (OLC) (17 items):
administered to 355 SBUs 200 SBUs. Emphasis on purchasing
Dimensions of the learning organisation questionnaire (DLOQ)
(43 items): administered to 191 managers and human resource
developers from different organisations
Organisational learning scale (16 items): administered to 111
Spanish firms from the chemical industry
Strategic learning assessment map (SLAM) (23 items):
administered to 480 individuals from 32 organisations
Measure for the OL construct (31 items): administered to 119 firms.
Emphasis on IT
OL: administered to 271 firms (29 items): Emphasis on IT and
customers
Process

Process

Process

Slater and Narver (1995); Huber

(1991)

Huber (1991)

Crossan et al. (1999): 4I framework

The learning organisation

The learning organisation

Capability
Capability

The learning organisation

Capability

Individual learning

The learning organisation

Capability
Capability

The learning organisation

Individual learning

The learning organisation

The learning organisation

Conceptual background

Capability
Capability

Capability

Capability

Aim

230

Goh and Richards (1997)

OL measurement instrument

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Methodology
Broad agreement exists in the literature on the steps to be followed in the creation of a
measurement scale (Churchill, 1979; Spector, 1992):
(1) theoretical representation of the concept in such a way as to reflect its defining
features;
(2) specification of the concept, by breaking it down into the various dimensions or
relevant aspects it covers;
(3) choice of indicators; and
(4) synthesis of the indicators through the elaboration of a weighted index for each
of the conceptual dimensions.
Development of the OLC measurement scale
From the concept of organisational learning capability adopted in our theoretical
review, we proceed to the development of a measurement instrument comprising a set
of scales that represent theoretical dimensions or latent variables through their items.
We understand organisational learning capability (OLC) to consist of the
organisational and managerial characteristics that foster the organisational
propensity to learn or facilitate the organisational learning process. Five dimensions
are proposed to represent the essential factors that determine organisational learning
capability: experimentation, risk taking, interaction with the external environment,
dialogue and participative decision making. Spector (1992) argues that the content of
existing scales may help in the development of a new scale. Accordingly, we selected a
brief number of items belonging to other scales that could synthesise the content of
each OLC dimension (Figure 1). For example, for experimentation, we reviewed the
measurement scales in the literature that exist for this concept and we found that two
items from the Isaksen et al. (1999) creative climate measurement scale could
adequately represent the experimentation dimension we propose in the theory section.
Table II shows the literature source of each item of our proposed OLC measurement
scale.
The OLC measurement instrument was applied using a seven-point Likert scale,
where 1 represented total disagreement and 7, total agreement. A pre-test was
administered to four technicians from ALICER (Centre for Innovation and Technology
in Ceramic Industrial Design), to assure that the translation into Spanish was fully
understandable.
Data gathering
We tested our OLC measurement scale in eight companies from the Spanish ceramic
tile sector. Most of the firms from this sector are considered to be SMEs, as they do not
exceed an average of 250 workers. Ceramic tile production is a globalised industry
whose features belong to the scale-intensive and to the science-based trajectories of
Pavitts taxonomy (Alegre et al., 2004). In 2003, the Spanish ceramic tile industry was
the worlds biggest exporter and its production represented almost half of EU
production (Chamber of Commerce of Valencia, 2004)
The fieldwork was carried out from January to April 2004. With the help of ALICER
technicians, we selected eight ceramic tile manufacturers that are representative of the
two main design strategies in the ceramic tile industry (Chiva, 2004): firms 1 to 4 are
design followers while firms 5 to 8 are design innovators. Design is an important

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Dimension

Item

Literature source

Experimentation

V1. People here receive support and

encouragement when presenting new ideas
V2. Initiative often receives a favourable
response here, so people feel encouraged to
generate new ideas
V3. People are encouraged to take risks in
this organisation
V4. People here often venture into unknown
territory
V5. It is part of the work of all staff to
collect, bring back, and report information
about what is going on outside the company
V6. There are systems and procedures for
receiving, collating and sharing information
from outside the company
V7. People are encouraged to interact with
the environment: competitors, customers,
technological institutes, universities,
suppliers etc.
V8. Employees are encouraged to
communicate
V9. There is a free and open communication
within my work group
V10. Managers facilitate communication
V11. Cross-functional teamwork is a
common practice here
V12. Managers in this organisation
frequently involve employees in important
decisions
V13. Policies are significantly influenced by
the view of employees
V14. People feel involved in main company
decisions

Isaksen et al. (1999)

Risk taking

Interaction with the

external environment

Dialogue

Participative decision
making
Table II.
Items composing the OLC
scale

Isaksen et al. (1999)

Amabile et al. (1996)
Isaksen et al. (1999)
Pedler et al. (1997)
Pedler et al. (1997)
Pedler et al. (1997)

Templeton et al. (2002)

Amabile et al. (1996)
Pedler et al. (1997)
Hult and Ferrell (1997)
Goh and Richards (1997)
Pedler et al. (1997)
Pedler et al. (1997)

competitive issue in the ceramic tile industry and is narrowly related to organisational
learning. The questionnaire was addressed to the shopfloor operations workers in each
firm. We excluded managers and office employees in order to obtain a homogeneous
set of respondents expressing their perception about OLC in their organisation. It was
agreed with the participating firms that the questionnaire would be answered during
working time. Participating firms received a feedback report on the survey.
We received a total of 157 valid completed questionnaires. The survey response rate
was 61 per cent (see Table III). Both the number of responses and the response rate can
be considered satisfactory (Spector, 1992). The response rate at a firm level can also be
considered adequate: the maximum response rate is for firm 5 (100 per cent) and the
minimum is for firm 7 (42 per cent). Workers were under no obligation to answer the
questionnaire. The variation in non-response could be due to a number of reasons such
as lack of time because of work pressure or the support given by management to the
survey.

FIRM
FIRM
FIRM
FIRM
FIRM
FIRM
FIRM
FIRM
Total

1
2
3
4
5
6
7
8

Total number of shop

floor workers

Total number of
respondents

Response rate
(%)

50
40
20
20
25
30
35
35
255

35
19
14
11
25
20
15
18
157

70
47
70
55
100
66
42
51
61

Results: sociometric properties of the measurement scale

The sociometric properties of the measurement scale were evaluated by following
accepted practice in the literature (Anderson and Gerbing, 1988). Specifically, this
evaluation included the scales dimensionality, reliability, content validity, convergent
validity, and discriminant validity (Tippins and Sohi, 2003). By verifying the
dimensionality of the scale, the researcher ensures that the factorial structure used to
conceive the latent variable is correct. Reliability is an indication of the degree to which
a measure is free from random error, and therefore yields consistent results. Finally,
verification of validity guarantees that the scale satisfactorily measures what it sets
out to measure.
Dimensionality
Structural equations modelling can be employed to evaluate the dimensionality of
measurement scales through confirmatory factor analysis. Such analysis allows the
researcher, based on theory, to establish a priori the number of latent variables and the
relations between them and the observable variables (Hair et al., 1998).
The organisational learning capability (OLC) concept is understood as a second
order factor made up of five dimensions (Figure 2): experimentation (exp), risk taking
(risk), interaction with the external environment (env), dialogue (dialog), and
participative decision making (particip).
Figure 2 shows the parameters of the OLC measurement model obtained with the
statistical programme EQS 5.7 using maximum likelihood estimators. All the
estimated parameters are statistically significant; the factor loadings are high, falling
above the minimum recommended values (Hair et al., 1998; Tippins and Sohi, 2003).
The proposed dimensionality of OLC is supported by the correct fit of the second order
factor model. The fit, in absolute terms, is satisfactory as shown by its indicators: the
chi-squared statistic is not significant at the 0.05 level, which means that the null
hypothesis of perfect fit cannot be rejected; the root mean squared residual (RMR) is
close to 0, while the goodness of fit index (GFI) falls above the recommended minimum
of 0.9. The fit in incremental terms is also good: the comparative fit index (CFI) is close
to 1; the Bentler-Bonett normed fit index (BBNFI) exceeds the recommended acceptance
threshold of 0.9. Finally, the Normed chi squared (NC) falls between 1 and 2, which
indicates an excellent parsimonious fit.

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Table III.
Response rates

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Figure 2.
OLC measurement model

Reliability
Reliability is the ratio of the true scores variance to the observed variables variance. In
order to perform a thorough reliability assessment, we use both the Cronbachs alpha
coefficient and the composite reliability to assess each dimensions reliability (Table IV).
The composite reliability values and the Cronbachs alpha coefficients are satisfactory, all
above 0.7 or close to this threshold (Hair et al., 1998; Nunnally, 1978). Our analysis
therefore confirms the reliability of the measurement scales for each dimension of the OLC
concept.

Validity
Content validity. A measurement scale is considered to have content validity if its items
are representative of the construct they are proposed to measure, and they are easy to
respond to (Bearden et al., 1999, p. 4). Accordingly, the generation of the dimensions and
the items that make up the OLC measurement scale is grounded in previous theoretical
arguments, scales and empirical research. Moreover, by means of a pre-test addressed to
four industry experts (ALICER technicians) we made sure that the items were clear and
understandable.

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235

Discriminant and convergent validity

The convergent validity of a concept implies that the measure being used has a high
correlation with other measures that evaluate the same concept (Churchill, 1979, p. 70).
Confirmatory factor analysis was used to establish convergent validity by confirming
that all scale items loaded significantly on their hypothesised construct factors
(Anderson and Gerbing, 1988).
Discriminant validity verifies that one constructs dimensions are different from each
other (Gatignon et al., 2002). In this way, we are able to confirm that the scale measures the
concept under evaluation, and not other closely connected concepts. The discriminant
validity of the OLC dimensions was ascertained by comparing measurement models
where the correlation between the constructs was estimated with a model in which the
correlation was constrained to 1 (thereby assuming a single-factor structure) (Table IV).
The discriminant validity was examined for each pair of constructs at a time (Table V).
Results showed that the model where the correlation is not equal to 1 improved the fit for
all pairs of constructs, confirming that the two constructs are distinct from each other
(Gatignon et al., 2002).
Survey results
The OLC measurement scale could be used as a diagnostic tool by practitioners and
researchers. The set of responses for a particular organisation would allow us to
determine its OLC. As the OLC measurement instrument is formed of five dimensions,
global results should be obtained through the average score of each dimension.
Consequently, it could be possible to find out strengths and weaknesses in each of the
OLC dimensions. We present the results of the eight firms in Table VI. Firms 5 and 8
have persistently higher scores for the five dimensions revealing a higher degree of
OLC. In contrast, firms 2 and 3 show a consistently lower degree of OLC.

EXP
RISK
ENV
DIALOG
PARTICIP

Mean

Standard
deviation

Composite
reliability

EXP

RISK

ENV

3.69
3.27
3.20
3.87
2.69

1.54
1.31
1.57
1.30
1.40

0.78
0.65
0.76
0.80
0.78

(0.89)
0.488 *
0.561 *
0.505 *
0.533 *

(0.74)
0.480 *
0.344 *
0.481 *

(0.84)
0.470 *
0.593 *

DIALOG

(0.86)
0.541 *

PARTICIP

(0.85)

Notes: All correlation coefficients are statistically significant ( *p , 0.01); Cronbachs alphas are
shown on the diagonal; the correlation coefficients were calculated using the means of the items from
each dimension

Table IV.
Means, standard
deviations, composite
reliabilities, Cronbachs
alphas, and correlations
between the dimensions
of the OLC second order
factor model

Table V.
Pairwise confirmatory
analyses

PARTICIP

DIALOG

ENV

0.60
1
0.64
1
0.60
1
0.62
1

1
2
4
5
8
9
4
5

0.73
11.18
0.82
10.71
13.44
21.24
4.83
13.32
8.49

7.80

9.89

10.45

0.39
0.00
0.93
0.05
0.10
0.01
0.30
0.02

0.60
1
0.41
1
0.60
1

4
5
8
9
4
5

10.22
15.82
6.18
15.54
3.63
7.11
3.48

9.36

5.60

Risk taking
d.f.
x2
Dx2

0.04
0.00
0.63
0.07
0.46
0.21

0.56
1
0.68
1

13
14
8
9

16.30
22.91
9.44
14.59

5.12

6.61

0.23
0.06
0.30
0.10

Interaction with external

environment
f
d.f.
x2
Dx2
p

0.63
1

13
14

d.f.

13.39
25.99

12.60

Dialogue
x2
Dx2

236

RISK

Experimentation
d.f.
x2
Dx2

0.42
0.02

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Experimentation

Total
Risk taking

Total
Interaction with the external environment

Total
Dialogue

Total
Participative decision making

Total
Organisational learning capability

Firm

Mean

SD

ANOVA significance

1
2
3
4
5
6
7
8

3.54
3.00
2.86
3.05
4.88
3.63
3.73
4.14
3.69
3.33
2.37
2.61
2.73
4.18
3.78
2.93
3.39
3.26
2.56
2.00
2.19
2.88
4.56
3.18
3.73
4.35
3.20
3.56
3.45
3.80
4.16
4.05
3.59
3.62
5.03
3.87
2.37
2.25
1.98
2.55
3.19
2.82
2.58
3.72
2.69
3.06
2.66
2.76
3.18
4.11
3.37
3.34
4.24
3.36

1.15
1.08
0.97
1.12
1.08
1.09
1.03
1.03
1.54
0.94
1.10
1.16
1.04
0.79
1.14
0.84
1.01
1.47
1.16
1.00
1.02
1.06
1.05
1.09
1.04
0.92
1.49
1.17
1.00
1.09
1.07
1.14
1.05
0.99
1.01
1.48
1.06
1.01
0.82
1.05
1.11
1.13
1.07
1.10
1.64
1.07
0.96
0.67
1.05
0.93
1.04
0.89
0.84
1.32

0.000

1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8

Total
Note: Calculations based on the means of each construct

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237

0.001

0.000

0.022

0.005

0.000

Table VI.
Descriptive statistics and
ANOVA

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238

Additionally, we conducted an analysis of variance (ANOVA) to test whether

pertaining to a particular organisation systematically implied a specific OLC. The
results of the ANOVA demonstrated significant differences between the means of the
different organisations, and also showed that there is less variance between responses
within firms than among firms (Table VI).
Conclusion
The research carried out in this study describes the development and validation of an
instrument to measure organisational learning capability. The OLC measurement
instrument, which aims to capture the organisational propensity to learn, is based on a
comprehensive analysis of the facilitating factors for organisational learning. The
facilitators were obtained from the learning organisation and organisational learning
literature in an attempt to develop a comprehensive instrument. From this thorough
bibliographical review, we posit five dimensions of organisational learning capability:
experimentation, risk taking, interaction with the external environment, dialogue and
participative decision-making. These dimensions represent an important contribution
to the literature on OL, as they are based on an exhaustive literature review, and they
have also been statistically validated by the research presented here.
This paper also presents a review and categorisation of OL measurement instruments
(Table I), which allows us to outline our contribution to the OL literature more clearly.
Although other measurement scales that try to capture the organisational propensity to
learn have been developed, none of them seems to have determined the conceptual
dimensions through a comprehensive theoretical review. Most theoretical frameworks for
these measures were based on a single perspective or literature, mainly the learning
organisation literature.
The OLC measurement scale may prove most useful to practitioners. Metrics must
provide key business drivers for decision makers to examine the outcomes of various
measured processes and strategies and track the results to guide the company. The
OLC measurement scale may be used as a diagnostic tool, a device for a
survey-feedback procedure towards organisational development.
Our empirical findings have also shown that there is less variance between
responses within firms than among them, which gives some evidence of the OLC
reliability as a measure to attribute characteristics to the organisation. The diagnostic
tool might be related to a dynamic trait theory approach applied to organisations, as
some dimensions or traits determine the organisational behaviour concerning learning.
However, the OLC measurement scale might itself be a mechanism for facilitating such
learning, as OLC dimensions are accessible to change through learning and could
represent a useful target for organisational change initiatives.
Although the OLC measurement scale is designed to be answered by individuals
within organisations, its results will lead to conclusions at organisational level. The use
of individual questionnaire responses to impute attributes to the organisations,
previously discussed by Bontis et al. (2002), might be considered as a shortcoming,
considering the difficulties of obtaining objective assessments of the five dimensions.
However, this opinion-based instrument is considered adequate as we are evaluating
environmental conditions, which can only be properly assessed by people working
within that context. Furthermore, prior studies have demonstrated the high
correlations of perceived measures with objective measures (Gatignon et al., 2002).

We administered the questionnaire only to shopfloor workers in the context of Spanish

ceramic tile manufacturers, as an employee based survey, in order to obtain a
homogeneous set of respondents. This may constitute a limitation as we do not take into
account other employees or other stakeholders. While the questionnaires were completed
by the internal staff from a single industry, to control for potential industry effects across
organisations, the instrument was designed regardless of the respondent features, the
industrial sector or the country. Further research is needed to test the OLC measurement
scale in other contexts.
At the employee level, more research is required to analyse the relationships between
OLC and issues concerning employees, such as job satisfaction, emotional intelligence or
organisational commitment. At the firm level, future research could also investigate the
link between OLC and performance. While linking learning to performance appears to be
very important (Lyles and Easterby-Smith, 2003), the operationalisation of the
co-alignment between a firms business strategy and its OLC is also vital (Vera and
Crossan, 2003).
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About the authors
Ricardo Chiva is an Associate Professor in the Business Administration and Marketing
Department of the Universitat Jaume I, Castellon, Spain, where he teaches subjects related to
human resources management. His Doctoral dissertation deals with organisational learning and
innovation management in the Spanish ceramic tile industry. His primary areas of research cover
organisational learning, innovation and design management, complexity theory and human

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resources management. Ricardo Chiva is the corresponding author and can be contacted at:
rchiva@emp.uji.es
Joaqun Alegre is an Assistant Professor in the Department of Management Juan Jose Renau
Piqueras of the University of Valencia, Spain. He has been a visiting researcher at INSEAD,
Fontainebleau, France. He received his PhD in Management from the Universitat Jaume I. His
research interest focuses on knowledge management and technological innovation from a
strategic perspective. Dr Alegre has participated on several research projects dealing with
biotechnology firms and with ceramic tile producers.
Rafael Lapiedra is an Associate Professor in the Business Administration and Marketing
Department of the Universitat Jaume I, Castellon, Spain. He holds a PhD in Business
Administration; his doctoral thesis focused on strategic alliances and information systems. He
has worked as a visiting professor at the Universidad Tecnologica Metropolitana of Santiago in
Chile and at the London School of Economics and Political Science. His primary areas of research
cover strategic alliances, knowledge management and inter-organisational information systems.

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The role of HR actors in

knowledge networks

Human resource
actors

Nada Zupan and Robert Kase

Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia

243

Abstract
Purpose The paper aims to examine structural positions of individuals, especially HR actors
(line managers and HR specialists) within relational networks for creating and sharing knowledge and
to explore implications for designing and implementing HR practices in knowledge-intensive
firms (KIF).
Design/methodology/approach This article used exploratory research design conducting a
single case study of a KIF. Social network analysis (SNA) network centrality measures and
visualization tools was used to examine the structural position of individuals.
Findings Line managers who are HR actors are centrally positioned within examined knowledge
networks, while the HR specialist is not, which implies that the decentralized approach to HRM in KIF
can be effective. Results also show that the more operational (instrumental) the information or
knowledge flow is, the denser the knowledge networks.
Research limitations/implications This study provides support for devolution of HRM to the
line in KIF. It suggests that HRM could affect the process of knowledge creation and sharing by
implementing HR practices through centrally positioned line managers. A limitation of the research is
a single case study and observed intensity rather than quality of relations.
Practical implications SNA appears to be an effective tool for mapping relationships in an
organization. Centrally positioned HR actors (especially line managers involved in HRM) in knowledge
networks are advantageous for HRM effectiveness only if obstacles to their effectiveness are properly
managed. HR specialists should relate strongly to these actors to enable successful design and
implementation of HR practices.
Originality/value The paper applies SNA to the HRM field, thus expanding the traditional view of
HRM into examining the position of HR actors in relational networks and exploring their role in
effectively executing HR practices.
Keywords Human resource management, Social networks
Paper type Research paper

Introduction
In a knowledge-based economy, high performing organisations acknowledge people as
their most important source of competitive advantage. The resource-based view of the
firm (Barney, 1991) has evolved into knowledge-based theory (Grant, 1996; Nonaka and
Takeuchi, 1995) and nowadays firms are viewed as knowledge-creating entities, while
their capabilities to create, transfer and utilise knowledge have become the most
important source of a sustainable competitive advantage (Kogut and Zander, 1996). In
order to improve our understanding of the HRM-performance link, the strategic human
resource management field brings to the centre of attention the possible effects of HR
practices on learning, innovation and intellectual capital (Wright et al., 2001; Boxall
and Purcell, 2000).
Consistent with this evolution, the notion of social capital has become an interesting
concept for the HRM field because it builds particular capabilities for creating and
sharing knowledge and thus facilitates the creation of intellectual capital (Nahapiet and

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Ghoshal, 1998). Further, with the social networks through which individuals build their
social capital attention has shifted from observing the individual and their particular
attributes within an organisation to observing actors embedded within a network of
relationships with other actors (Brass, 1995). This approach becomes very useful for
analysing the effectiveness of the observed devolution of HRM function to line
managers (e.g. Cunningham and Hyman, 1999; Brewster and Larsen, 2000) and the
increasing role of line managers in the implementation of HR practices thereby
influencing a firms performance. However, both line managers and HR specialists
have often failed to fulfil their roles in decentralised HRM systems (Hope-Hailey et al.,
2005). An interesting question then emerges of whether the effectiveness of HR actors
might also be related to the structural position they hold in a firms social network.
Therefore, it is the purpose of our paper to examine the structural positions of
individuals (especially HR actors) within relational networks for creating and sharing
knowledge (i.e. knowledge networks) and to explore implications for their role in
designing and implementing effective HR practices.
The remainder of the paper is organised in four main sections. In the first one we
discuss knowledge as a source of competitive advantage, establishing the link between
social capital and social networks and finally explaining the role of HRM and HR
actors with regard to social networks. In the second section the present studys
research design and methodology are presented in more detail because social network
analysis is still relatively new in the HRM field. In the third section we present the
results while the last section is devoted to a discussion of our findings, their research
and practical implications, and further research possibilities.

Knowledge as a source of competitive advantage

Knowledge can provide a sustainable competitive advantage because it generates
increasing returns and continuing advantages. Unlike material resources, knowledge
increases with its use more than it decreases, on both the senders and receivers side of
sharing it breeds new ideas and creates new knowledge. Within this line of thought,
Davenport and Prusak (2000, p. 5) define knowledge as a fluid mix of framed
experience, values, contextual information, and expert insight that provides a
framework for evaluating and incorporating new experiences and information. It
originates from and is applied in the minds of knowers. In organizations, it often
becomes embedded not only in documents and repositories but also in organisational
routines, processes, practices and norms. This definition is useful for our purpose
because it encompasses both aspects of knowledge: as a stock and flow. By knowledge
stock we mostly refer to the explicit knowledge encoded in documents, databases or
other permanent media (Meso and Smith, 2000, p. 232) that can be viewed as a resource
that a company has at its disposal and which can be managed. For building a
competitive advantage, another type of knowledge becomes important: tacit (implicit)
knowledge which is intangible and entails information that is difficult to express,
formalise and thus also to share (Polanyi, 1966). As Haldin-Herrgard (2000, p. 358)
put it:
Tacit knowledge is internalized in the individuals body and soul.

Hence, it is tacit knowledge that contributes most significantly to building a

competitive advantage because it is difficult to transfer and is the key source of
innovation in products, services and processes.
The importance of tacit knowledge is also emphasised by Fahey and Prusak (1998)
who argued that knowledge cannot only be treated as stock since it mostly exists in the
minds of employees and is reflected in their day-to-day practices. As such, it can only
be viewed as being in a constant state of flux (i.e. flow). Although the knowledge stock
may be important it is in fact the result of past creativity. Therefore, it is crucial that
firms observe the flow of knowledge, how knowledge is transferred and shared among
the firm members. Especially in knowledge-intensive firms (KIFs) for which
knowledge is the most important input (Starbuck, 1992) this process-based approach
to knowledge creation, accumulation, dissemination, and mobilisation is becoming a
must (Swart and Kinnie, 2003). Continuous enactment of tacit knowledge in novel
circumstances as the basis of a KIFs operation can only be achieved when team
members meet to share their knowledge of a given area (Krogh et al., 2000, p. 7).
Because knowledge becomes an asset to the organisation only when it is accessible and
its value increases with the level of accessibility (Davenport and Prusak, 2000, p. 18),
the relationships among organisation members become the key enablers of knowledge
creation.
Knowledge and social networks
Following the above discussion we can infer that to build knowledge as a competitive
advantage we thus need an interaction among organisational members and also
between members and the environment. In this way organisations bring tacit
knowledge into the process of generating ideas and solving problems creatively. It is
hence important that organisations establish appropriate formal networks of
relationships and support the informal ones in order to enable knowledge creation
and sharing. Based on his research into high-tech industries, Bahrami (1996, pp. 64-65)
claimed that informal networks are pivotal because the productivity of
knowledge-based entities depends on employees capabilities, commitments,
motivations and relationships. Due to the process dynamics these cannot be
programmed around pre-determined roles and positions in a machine-like hierarchy
because continuous change typically renders institutional roles and positions
somewhat obsolete.
Particularly in KIFs, creating an informational environment that helps employees
solve increasingly complex and often ambiguous problems considerably contributes to
performance (cf. Zack and McKenney, 1995). Frequently, such efforts entail initiatives
focusing on the capture and sharing of codified knowledge and reusable work products
(Zack, 1999). However, such initiatives often undervalue the tacit knowledge held by
employees and the network of relationships that dynamically help to solve problems
and create new knowledge. Therefore, improving efficiency and effectiveness in
knowledge-intensive work demands more than sophisticated technologies it requires
attending to the often idiosyncratic ways in which people seek out knowledge, learn
from and solve problems with other people in organisations (Cross et al., 2001b).
It is thus more appropriate if we adopt a social network approach to organisations
and describe each company as a set of individuals and a set of relations among them.
Individuals can be seen as nodes or actors, whereas relations can be seen as the ties of a

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social or relational network (Wasserman and Faust, 1998). The likelihood of

relationships between individuals in a network depends on physical and social
distance, and on the opportunity to interact. Building richer, deeper and broader
relationships can add social capital to the organisation and the people in it (Nahapiet
and Ghoshal, 1998). Social capital can be defined as (Adler and Kwon, 2002):
The goodwill available to individuals and groups. Its source lies in the structure and content
of the actors social relations. Its effects flow from the information, influence and solidarity it
makes available to the actor.

Consistently, Cross et al. (2002) claim that people rely very heavily on their network of
relationships to find information and solve problems. Thus, one of the most consistent
findings in the social science literature is that who you know often has a great deal to
do with what you come to know (Blair-Loy, 2001).
The role of HRM in developing social networks
As indicated in the previous section, the ultimate success of knowledge creation,
sharing and utilisations depends on how organisational members relate to each other
through the different steps of the process (Krogh et al., 2000, p. 5). Hence, companies
should make relationships among their members a priority in setting up and
implementing activities that provide relational support. In line with this thought, we
need to consider an alternative approach to the traditional view of HRM.
Taking Boxalls (1996) notion of HR advantage as a cue, we may argue that both
appropriate human capital and organisational processes are needed to create a human
resource advantage. As we have already pointed out, social capital has an important
effect on building human capital and we thus need a shift in HRM towards
relationships among individuals, also through their roles and positions within social
networks. Lengnick-Hall and Lengnick-Hall (2003) warn that conventional HR
practices concentrate on individual-to-individual relationships within a firm and on
overcoming barriers to effective interactions across workgroups. The emphasis on
traditional HRM is on four forms of relationships: formal, problematic, introductory
and internal. In KIFs this is insufficient because it is the relationships among actors in
knowledge networks that really contribute to creating a knowledge-based competitive
advantage. Further, while organisations invest in architectural designs that promote
interaction, and design policies and procedures that stimulate discussions and
communication, it is important to keep in mind that social networks involving trust,
social links and personal commitment cannot be engineered or mandated; they can
only be encouraged by nudges in the right direction. In the workplace, HRM cannot
force people to interact and establish relationships but HRM can create the conditions
where those interactions are more likely to emerge (Cohen and Prusak, 2001; Cross and
Parker, 2004). HRM can contribute to developing an environment conducive to building
and nurturing relationships among organisation members.
Further, HRM can facilitate the creation of organisational capabilities such as the
ability to locate and share knowledge rapidly and respond to market changes. For
instance, Collins and Clark (2003) found that a set of specific network-building HR
practices was significantly related to the valuable firm resource of top management
team social networks. They also found that the set of network-building HR practices
led to a better firm performance (measured as both sales growth and stock

performance) through the practices effect on the external and internal social networks
of top management teams. Their results suggest that future strategic human resource
management research should continue to examine employee-based and other firm
capabilities that may act as mediating links between HR practices and firm
performance.
HRM actors in relational networks
According to the structuralistic perspective of HRM, the positions of various HR actors
(HR manager or specialist, line manager and top manager) within relational networks
become important for HRM effectiveness. This notion is consistent with the ongoing
discussion about the roles of HR actors in strategically-oriented HRM, especially with
the devolution of the responsibility for the implementation of HR practices to line
managers (Thornhill and Saunders, 1998; Brewster and Larsen, 2000). While top
managers with the support of HR managers (and/or HR specialists) design suitable HR
strategy and practices, line managers are increasingly involved in the execution of HR
strategies and practices (Larsen and Brewster, 2003). According to Brewster and
Larsen (2000) the reasons for the devolution to the line lie in reducing HR department
costs, in providing a more comprehensive approach to HRM, in placing the
responsibility for human resources with those who supervise them directly, in
speeding up decision-making, and as an alternative to outsourcing the HRM function.
Research evidence shows that in decentralised organisations it makes more sense to
assign knowledge-enabling functions (including enhancing social networks) to (line)
managers (Davenport and Prusak, 2000, p. 121) because they are better positioned to
execute them. Modern organisational designs, informal social structures (e.g.
communities of practice) and the increasing role of information and knowledge
flows in organisations put line managers in an advantageous position for
implementing HR practices. They are well integrated in work processes and, as
knowledge sharing facilitators (MacNeil, 2003), they are centrally positioned in
relational networks supporting knowledge and information flows. Although centrality
involves social liabilities such as an overload of advice activities and time allocation
restrictions (Brass and Labianca, 1999), provided that line managers are appropriately
supported by HR managers (Whittaker and Marchington, 2003) they can achieve
greater efficiency and effectiveness in executing HR practices due to their position in
the relational networks. At the same time, HR managers are usually excluded from
operational work processes and, more importantly, are usually neither centrally
positioned in knowledge networks nor members of communities of practice.
If we follow Krogh et al.s (2000) five steps of enabling knowledge creation, it
becomes clear that the roles of the three main groups of HR actors (top management,
line management and HR managers or HR specialists) are different in each step. For
example, instilling a knowledge vision in the first step of knowledge creation is
certainly the prime responsibility of top management. They should also serve as role
models and architects of networks and builders of trust in the next step. However, the
remaining three steps that include managing conversations, mobilising knowledge
activists and creating the right context should be the responsibility of both top and line
managers. These relational roles for managers at all levels of an organisation have
already been included in many leadership models which emphasise the leaders role in
providing support and encouragement to subordinates, socialising with people to build

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relationships, providing coaching and mentoring (Yukl, 2002). Basically, every

manager who takes on leadership responsibilities would automatically need to exhibit
relationship-oriented behaviours in order to function effectively. More specifically,
with regard to enabling knowledge creation the important task of line managers is to
facilitate knowledge sharing. This can be achieved by communicating a positive
learning climate, encouraging knowledge sharing among individuals and serving as a
link to collective knowledge sharing (MacNeil, 2003).
HR specialists should, in Ulrichs (1997) terminology, provide the following four
roles:
(1) business partner recognising and promoting what is important for building a
competitive advantage through knowledge;
(2) organisational expert designing systems and tools to analyse and enhance
social networks;
(3) employee champion helping employees to build and sustain effective
relationships and social networks; and
(4) change agent inducing and supporting the change process stemming from
new ideas generated through social relationships.
When we look at traditional HR practices, they should also be relationship-oriented in a
way that enables knowledge creation, such as job design that includes teamwork and
co-operation, socialisation and mentorship, employee training and development
activities, designing open communication channels, promoting learning and a
knowledge-sharing culture (cf. Brass, 1995).
Research design and methodology
In order to achieve the aims of the paper our study was designed to provide
information about the structural position of individuals in relational networks for
creating and sharing knowledge and about the current state of the HRM function
including HR strategy, HR practices and the role of various HR actors for an
organisation. Due to the introductory stage of research on this topic in the HRM field,
an exploratory research design combining qualitative and quantitative approaches
was adopted.
We decided to conduct a single case study of a medium-sized European KIF.
Relying on its know-how, extensive experience and innovations the firm we selected
has provided customers with comprehensive telecommunication solutions. These have
included implementation of the latest communication technologies, telecommunication
networks and technical solutions accompanied by high-quality services like
consultancy, planning, engineering, and training, along with the maintenance and
quality assurance of telecommunication networks. The rationale for selecting this
company is as follows:
.
its success chiefly depends on knowledge creation and sharing;
.
it performs various HR practices and is extensively involved in knowledge
management activities; and
.
the size of the firm is small enough for conducting a complete social network
analysis.

The firm consists of two distinctive parts: operations and support. In the study, we
focused on the value enhancing operations part which is based on standing
process-oriented workgroups bringing together individual members from
development, marketing and technical implementation working areas.
In this study we are interested in finding out what are the positions (in terms of
centrality and brokerage) of the various formal designers and implementers of HR
practices in relational networks that facilitate the creation, accumulation,
dissemination and mobilisation of knowledge. We propose that centrally positioned
actors in these networks would have an opportunity to exercise HR practices better if
they were appropriately supported by HR specialists and HR systems.
Operationally, we refer to relational networks facilitating the creation,
accumulation, dissemination and mobilisation of knowledge as knowledge networks.
In order to specify these networks we have to define their basic elements the
relationship between two individuals within the network. We turn to the literature
studying the dimensions of advice networks (e.g. Cross et al., 2001a) to identify three
basic relationships that affect knowledge creation and sharing in an organisation. The
first relationship we examine is work-related problem solving: it focuses on the sharing
of solutions, advice or references among individuals when they encounter a
problematic work-related situation. The item used for gathering sociometric data for
building the work-related problem solving network is thus:
To which of your colleagues do you usually turn for information, advice or references when
you encounter a problematic work-related situation?

The second relation called work-related idea generation focuses on relationships that
stimulate the generation of new ideas. The following sociometric item is used for
gathering data:
In discussion with which of your colleagues are you usually helped by a new idea that is
useful to your work?

Finally, the third relation confirmation, validation and support of the idea deals with
relationships in which a new idea is confirmed, validated and supported for
implementation. The data for the network based on this relationship is gathered as
follows:
With which of your colleagues do you usually get the confirmation or validation of your ideas
and support for their implementation?

The data were gathered in spring 2004 by means of a computer-assisted survey, a

review of the firms internal documentation, and the semi-structured interviewing of
managers and the HR manager (specialist). The interviews were used to depict the
current state of the HRM function, HR practices and the firms context within which the
knowledge networks exist. The survey was applied to gather data for the social
network analysis of the knowledge networks within the firm. For consistency and
clarity reasons the complete network data gathering focused on the value-enhancing
operations part of the firm.
Two types of data were essential to perform the analysis: network (sociometric) and
grouping (individual) data. Network data were produced with the computer-assisted
survey, while the grouping data (i.e. the organisational unit with a formally assigned
HRM role) were obtained from the firms HR database. The questionnaire included

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items listed earlier in this section. We adopted a list approach for gathering network
data that means that the respondents had to report their relationship with the actors
listed in the questionnaire. Thus, the boundaries of the three networks (in our case the
operations part of the firm, consisting of 58 actors) were defined in advance by the
researcher.
Respondents were asked to identify relationships with their colleagues by
estimating the frequency for each type of relation separately. More specifically, they
were asked to estimate how often a given type of relation occurred with a specific
colleague. Choices were numerically coded (in parentheses) and limited to: it did not
happen (without a numerical value); it seldom happened (1); it happened often (2); and it
happened very frequently (3). All three relational networks were defined as directed
networks with valued ties based on a three-point scale. Thus, not only the existence but
also the direction in which the relation was pointed and its strength were identified.
Differently, grouping data were determined on the basis of the firms organisational
structure and classified every individual into one of organisational units (e.g.
marketing, development, operations, and technical support). Further, we marked eight
employees who had a formal responsibility for human resources, top and line
managers and HR manager (specialist). Both types of data so gathered were used to
construct three directed relational networks with 58 individual actors (network nodes).
The descriptive social network analysis (SNA), which is used for analysing social
relationships in a systematic way, was done using the Pajek (Batagelj and Mrvar, 1998)
and UCINET (Borgatti et al., 2002) software packages. In analysing all three knowledge
networks these tools enabled us to transform them, determine their density, and
visualise and measure the structural position of the individuals (especially HR actors)
within these networks.
The position of actors in knowledge networks was studied with selected network
visualisation techniques (using the Kamada-Kawai energy drawing algorithm in the
Pajek software package) and the calculation of descriptive centrality measures. The
outgoing degree and betweenness centrality measures (for more, see Freeman, 1979;
Wasserman and Faust, 1998; De Nooy et al., 2005) were chosen to analyse the position
of the individuals in the examined networks. To illustrate, the outgoing degree
centrality of a node is the number of all outgoing ties to other nodes. In our case, an
actor who has a high (valued) outgoing degree centrality would disseminate (either as a
source or as a broker) specific solutions to the problem, information, support or ideas to
a greater number of his colleagues at a greater frequency. In addition, the betweenness
of a node measures the proportion of all shortest paths between two nodes in the
network that pass through the observed node. In our case, an actor with a high
betweenness centrality can control a greater proportion of the flow of solutions to the
problem, information and support or ideas in the network.
Results
According to our semi-structured interviews and a review of the internal
documentation, the examined firm perceives human resources as an important
source of a competitive advantage. It operates in a highly competitive high-tech
industry and its HR strategy is closely related to its market-oriented business strategy
emphasising knowledge, teamwork and innovation as key success factors. The firm
tries to achieve its aims through the selective employment of highly competent

employees, continuous employee development (extensive training and mentorship

programmes), job design with cross-functional teams as its main feature and
rewarding appropriate performance. HR practices are both vertically and horizontally
integrated thus enabling the companys relatively highly educated and young
employees to achieve superior work performance. Nevertheless, according to the latest
survey of internal attitudes the implementation of some practices like socialisation and
mentorship, compensation, knowledge transfer and communication has to be further
improved, especially because the firm has undergone rapid growth and its current size
of over one hundred employees requires some formalisation of procedures. The firm
has a decentralised HRM function where managers roles in implementing HR practices
are emphasised, and the HR managers role is focused on providing professional and
administrative support to both managers and employees.
If we now turn our attention to analysing social networks, we first present the
visualisation of examined networks and the structural position of the individuals
within them (see Figures 1, 2 and 3). All of the visualisations are static snapshots taken
simultaneously. Each of the 58 network nodes is labelled with an identification
number, which is the same in all three knowledge networks. Therefore, the positions of
the actors in the network for the three relations are comparable. Actors labelled v8, v48,
v53, v32, v47, v41, v18 (managers) and v23 (the HR specialist) are all formal HR actors
and are responsible for the execution of HR practices. In the visualisations they are
coloured white so as to be differentiated from other actors, who are coloured grey. The
value of ties (i.e. the strength of the relationship) can also be observed by their
thickness and colour (greyscale: light, dark), where higher values are represented by a
thicker and darker line. Arrows illustrate information and (tacit) knowledge flows. The

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Figure 1.
Work-related problem
solving network

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252

Figure 2.
Work-related idea
generation network

Figure 3.
Confirmation, validation
and support of an idea
network

actor centrality can be clearly observed in these visualisations. Namely, the more
central the actor the more centrally positioned they are in the figure.
As can be observed from these visualisations the density of ties is not the same in
the examined knowledge networks. Network density is defined as the proportion of the
actual number of ties between all actors in a network relative to all possible ties
between all actors in the network (Wasserman and Faust, 1998). For the networks
presented above the network density measure has the following values: work-related
problem solving network (0.14), work-related idea generation network (0.11) and
confirmation, validation and support of an idea network (0.09). Based on these values,
we could speculate that the more operational (instrumental) the information or
knowledge flow the denser the knowledge networks.
Further, according to the visualisations we can generally establish that the
examined networks are quite centralised and cohesive. However, a distinctive
subgraph consisting of actors v7, v4, v24, v26, v54 can be identified in all knowledge
networks. Also, in the confirmation, validation and support of idea networks the three
actors (v27, v29, v40) are isolated (i.e. disconnected from the network). Otherwise, a
core-periphery model could be applied for the observed networks in our case. This
means that a group of actors is centrally positioned in the core of the examined
knowledge networks in the firm and it thus processes and brokers most of the
information and knowledge flows from and to actors on the margin of these networks.
A similar observation could be made for HR actors. The four line managers involved in
implementing HR practices (v8, v32, v53, v41) seem to be highly centrally positioned in
the examined networks, while the HR specialist (v23) can be found on the periphery of
all three knowledge networks. The other three managers who hold top management
positions and are formally responsible for HRM (v48, v47, v18) are also not centrally
positioned and mostly have stronger links among themselves than with other actors in
the networks. The exception is actor v48 (a founder of the firm) who is more centrally
positioned in the two networks related to idea generation and validation.
These observations are supported by calculating the centrality measures presented
in Tables I and II. In Table I each column lists ten actors with the highest valued
outgoing degree centrality and reports on the mean and standard deviation of the
valued outgoing degree centrality for all 58 actors and network centralisation
according to this centrality measure for one of three knowledge networks. Table II does
the same for the betweenness centrality measure. The identification numbers of HR
actors are in bold in both tables.
In both Tables actor v8, who is also an HR actor, can be identified as the most
centrally positioned actor in the company on both centrality measures within all
predefined knowledge networks. Other actors centrality ranks are not so
straightforward and vary according to the centrality measure and examined
knowledge network. Nevertheless, we can confirm our observation from the previous
section based on the network visualisation and establish that HR actors v8, v32, v53
and v41 are centrally positioned in the examined knowledge networks. In addition, it
can be seen that among the top ten most centrally positioned actors in the knowledge
networks there are more HR actors when applying the valued outgoing degree
centrality measure than when applying the betweenness measures. This could imply
that in the examined networks these HR actors show a greater capacity to build
individual social capital through their direct contacts rather than through bridging (i.e.

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Table I.
Centrality according to
the valued outgoing
degree

1
2
3
4
5
6
7
8
9
10
Mean
Std.
Net. cent. (%)

Work-related
problem-solving
network
Actor
Out-degree
v8
v53
v32
v41
v21
v19
v42
v20
v52
v58

71.0
54.0
48.0
45.0
42.0
38.0
36.0
34.0
31.0
31.0
19.3
3.8
92.3

Network
Work-related
idea-generation
network
Actor
Out-degree
v8
v21
v5
v53
v32
v4
v48
v19
v41
v33

Confirmation,
validation and support
of an idea network
Actor
Out-degree

61.0
45.0
44.0
44.0
35.0
29.0
28.0
27.0
27.0
26.0
15.3
12.2
81.5

v8
v53
v21
v41
v32
v48
v5
v4
v19
v33

60.0
49.0
36.0
35.0
32.0
29.0
27.0
26.0
24.0
23.0
13.1
12.0
83.6

Source: Questionnaire

Network

Rank

Table II.
Centrality according to
betweenness

1
2
3
4
5
6
7
8
9
10
Mean
Std.
Net. cent. (%)

Work-related
problem-solving network
Actor Betw. % Betw.
v8
v16
v41
v13
v39
v58
v22
v32
v52
v57

674.5
302.3
289.0
286.1
237.8
225.5
151.6
145.0
96.7
76.3
57.0
111.5

21.1
9.5
9.1
9.0
7.4
7.1
4.7
4.5
3.0
2.4
1.8
3.5
19.7

Work-related
idea-generation network
Actor Betw. % Betw.
v8
v32
v4
v17
v12
v58
v2
v49
v41
v51

962.9
428.8
236.6
231.8
203.8
128.9
115.1
106.5
103.1
77.5
59.9
140.9

30.2
13.4
7.4
7.3
6.4
4.0
3.6
3.3
3.2
2.4
1.9
4.4
28.8

Confirmation, validation
and support of an idea
network
Actor Betw. % Betw.
v8
v4
v58
v20
v39
v41
v38
v17
v2
v12

1086.2
253.1
229.4
223.4
197.2
194.4
187.0
157.8
139.9
122.8
63.3
151.0

34.0
7.9
7.2
7.0
6.2
6.1
5.9
4.9
4.4
3.8
2.0
4.7
32.6

Source: Questionnaire

providing an interaction between their contacts). Nevertheless, we have to note that in

all the examined networks the line managers as HR actors listed among the ten actors
with the highest betweenness centrality (i.e. v8, v41 and v32) account for the majority
of bridging in the network.

Discussion, implications and conclusions

The purpose of our research was to explore the structural positions (in terms of
centrality and brokerage) of the various formal designers and implementers of HR
practices in relational networks in a KIF. The results suggest that in a KIF with a
decentralised HRM function, line managers are centrally positioned within the
examined knowledge networks and therefore have the opportunity to execute HR
practices effectively. Namely, through their structural position in the network line
managers create stronger individual social capital and their relations with other
organisational members enable the better implementation of HR practices.
Nevertheless, line managers centrality in knowledge networks may also present an
obstacle because, given their intensive role in operational activities, they may lack the
capacity (especially the time) to implement HR practices. A discussion with the firms
top management when presenting the results confirmed that the heavy workload and
depicted roles of line managers in the knowledge networks do indeed hinder the
effective execution of HR practices. The same problem was observed by Cunningham
and Hyman (1999) and Renwick (2000) in their own research where line managers were
unable to allocate sufficient time for HR issues due to operational pressures.
Overall, the positions of HR actors in the three different types of knowledge
networks were relatively similar. The possible exception is the central position of the
firms founder in the idea validation network which may suggest that top managers
with strong professional authority are important sponsors for organisational members
when they want to pursue new ideas. Therefore, opening formal channels of
communication about new ideas to top management could prove to be beneficial for
innovativeness, especially in larger organisations where informal access to top
management is more difficult.
In our study, we examined work-related problem solving and idea generation so it
was expected that top managers and especially the HR manager would not be centrally
positioned in these networks. However, strong relationships between the HR manager
and line managers would be essential because, as discovered in previous research, line
managers need support in executing HR practices (Brewster and Larsen, 2000; Harris
et al., 2002; Whittaker and Marchington, 2003). In our case, the HR manager had only
been employed for six months at the time of our research and it is therefore
understandable that her position in the social networks was not very strong. However,
evidence from other research suggests that HR managers/specialists are often unable
to provide line managers with the support they need (Gennard and Kelly, 1997; Hall
and Torrington, 1998). Examining the position of HR managers/specialists in social
networks, especially their relations with line managers, could be useful in order to
design proper HR support solutions for line managers.
Based on our findings it can also be concluded that in the observed knowledge
networks, a higher density of relationships in problem solving exists compared to the
idea generating and validation networks. Because the last two networks are actually
more relevant for knowledge creation and innovation and thus could contribute more
to building a sustainable competitive advantage, this would imply that firms should
target HR practices at shaping those knowledge networks.
An important theoretical implication of our study for future research is the
importance of not only formal but also de facto relational networks, which include
informal relations and may expose the real centres of HR practices and influence as

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well as possible obstacles to effective HR implementation due to the time consuming

roles in relational networks. This information would then be very important in order to
design HR strategy and practices in such a way that would allow for their effective
implementation. It also implies that social network analysis should be used more
extensively in the strategic HRM field when trying to shed light on the HRM-firm
performance link.
From an HR practitioners viewpoint, our research confirms that social network
analysis is a useful tool for mapping relationships in knowledge networks.
Exploring the structural positions of HR actors provides useful information for
defining an HR actors roles. For the firm in our study, the results clearly show
that one individual actor (actor v8) has the most central position in all of the
observed knowledge networks and the intensity of their relationships with others
may present an obstacle to their effectiveness. Therefore, based on our study
results the company implemented a new work organisation so that he was freed of
certain operational duties and could focus more on relationships within networks.
Also, in acknowledging the importance of centrally positioned HR actors for HRM
effectiveness while maintaining their operational efficiency, a new training
programme was introduced to improve the line managers competencies for
executing HR practices.
In our study we applied social network analysis to the HRM field, thus
expanding the traditional view of HRM so as to examine the position of HR actors
in relational networks and to explore the HRM role in shaping these relations. By
using this methodology we were able to explore HR actors structural position in
de facto knowledge networks and draw some implications for improving the
effectiveness of HR implementation. The limitations of our research findings are
mostly associated with it being a single case study of a knowledge-intensive firm
and thus generalisations are impossible. Also, SNA was performed using
frequency measures that provide limited information on the quality of the
relationships. As we focused on individual HR actors structural positions within
networks, we adopted an egocentric rather than a truly relational approach to
SNA. Although the unit of analysis was not a relationship but an individual
embedded within a network, we believe this approach was more appropriate for
our research purposes.
Although in its early stages, this exploratory research suggests several interesting
propositions to be tested in the future, such as how does the network centrality of HR
actors affect the execution of HR practices, which roles should HR actors take with
regard to knowledge creation, transfer and utilisation and, finally, how can a firm
shape relational networks and affect knowledge creation and transfer through HR
practices. The research topic of relational networks and HRM introduced in this study
remains challenging and calls for further, more rigorous and larger-scale research.
Apart from verifying the observations in this case study it will have to determine
which relational networks are crucial for a companys performance and which HR
practices shape them most effectively.
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Corresponding authors
Nada Zupan can be contacted at: nada.zupan@ef.uni-lj.si

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Competency management in
support of organisational change
Maria Vakola, Klas Eric Soderquist and Gregory P. Prastacos

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Athens University of Economics and Business, Athens, Greece

Abstract
Purpose Competitive advantage depends largely on the ability to activate and use organisational
resources. As a result, the focus in the strategic management, organisational behaviour and human
resource management literature has turned to the internal capabilities of organisations including a
particular focus on employees competencies. This paper seeks to analyse and discuss a
forward-looking, dynamic and proactive approach to competency modelling explicitly aligned with
strategic business needs and oriented to long-term future success.
Design/methodology/approach This paper is based on a longitudinal research project
sponsored by a leading Greek bank, currently undergoing fundamental corporate restructuring.
This paper describes how the competency model was developed and how it facilitated strategy
implementation and change by supporting communication, employee understanding of business
goals, and the incorporation of new behaviours, roles and competencies in operations.
Findings A forward-looking and proactive approach to competency modelling is presented and
discussed in the context of a large-scale organisational change. The organisational core competencies
required for a business to compete successfully in the banking sector are defined and discussed. The
right mix of skills and behaviours that the individuals would need to possess in order to produce and
support those core competencies is also analysed and discussed.
Originality/value Traditional approach to competency management, which is analogous to job
analysis, focuses on competencies of successful individuals, rather than on competencies that are
needed to support an organisation to meet its short- or long-term objectives. It is important to realise
that there is a need to shift toward a forward-looking and proactive approach to competency modelling
and present a competency methodology that supports this need.
Keywords Competences, Change management, Banking
Paper type Research paper

International Journal of Manpower

Vol. 28 No. 3/4, 2007
pp. 260-275
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755245

Introduction
The competency approach to human resource management is based on identifying,
defining and measuring individual differences in terms of specific work-related
constructs, especially the abilities that are critical to successful job performance. The
concept of competency lies at the heart of human resource management, providing a
basis for integrating key HR activities such as selection and assessment, performance
management, training, development and reward management, thus developing a
coherent approach to the management of people in organisations (Lucia and Lepsinger,
1999).
The use of competencies in human resource management is not something new,
although the approach is still characterised by a certain confusion related to what
competencies are and how they should be measured (Shippmann et al., 2000).
Difficulties with the operation and implementation of competency management
systems are mostly related to the complex and lengthy process required for identifying
the appropriate competencies for an organisation and for building the appropriate
competency model Athey and Orth (1999). Another issue of concern is that the

competencies defined most often end up as being backward-looking rather than

future-oriented with respect to strategy and organisational change (Torrington et al.,
2002). Competency models tend to focus on what managers currently do rather than
what is needed to perform effectively in the future (Antonacopoulou and Fitzgerald,
1996), something that jeopardises the potential of competencies to act as levers for
implementing change (Martone, 2003).
The need for a forward-looking and proactive approach to competency modelling,
i.e. to the process of identifying and describing job competencies in narrative form for
an identifiable group of jobs (Rothwell and Lindholm, 1999), is driven by the increasing
pace in strategy development and implementation (Athey and Orth, 1999). In this
context, competencies can be used for translating strategy into job-related and
individual skills and behaviours that people can understand and therefore implement
in support for change. The challenge here is not only to be able to define the
organisational core competencies required for a business to compete successfully, but
also define the right mix of skills and behaviours that the individuals would need to
possess in order to produce and support those core competencies.
We present and analyse a novel approach to competency modelling that allows us to
explicitly align competencies to goals and strategy, thus actively supporting those
changes necessary for implementing change and achieving competitive advantage.
Based on a case study from the banking sector, we illustrate the rollout of such future
oriented competency framework and discuss how it was used in order to facilitate
strategy implementation and support required change.
The need for a new perspective on competency modelling
Boyatzis (1982) suggested that a job competency is an underlying characteristic of an
employee (i.e. motive, trait, skill, aspects of ones self-image, social role, or a body of
knowledge), which results in effective and/or superior performance in a job. More
recently, Sparrow (1997), in his review of the use of organisational competencies in
personnel selection and assessment, defined competencies as peoples behavioural
repertoires, i.e. their sets of behavioural patterns, which are related to work
performance and distinguish excellent from average performers. Further, according to
Athey and Orth (1999) a job-related competency is a set of observable performance
dimensions, including individual knowledge, skills, attitudes, and behaviours, as well
as collective team, process, and organisational capabilities that are linked to high
performance, and that provide the organisation with sustainable competitive
advantage.
Thus, we retain from the above that an individual job-related competency is the
underlying set of behavioural patterns of an employee related to effective and/or
superior work performance, acting both at an individual and collective level
(effective/superior performance both in solitary and inter-personal work), and that
provide the organisation in which they are implemented and applied with sustainable
competitive advantage.
Employees competencies and the integration of HR policies and practices with
business strategies play a central role for sustained competitive advantage (Hendry
and Pettigrew, 1986; Barney, 1991; Lado and Wilson, 1994; Kamoche, 1996). The
culture of the lifetime employment no longer exists. Rather, we are witnessing a shift
from people as workforce to people as competitive force (Prastacos et al., 2002, p. 67)

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that identify strategic thinking, innovation, creativity, and business sense as critical
requirements for succeeding in almost any kind of job, thus driving the need for
defining and developing new competencies (Ulrich, 1997). In this context, it is
particularly important to grasp the dynamic nature of individual job-related
competencies and recognising the need for connecting competencies with changing
business needs (Athey and Orth, 1999).
In spite of the abundant concepts, frameworks and management publishing dealing
with strategy, recent research shows that one of the most difficult managerial and
leadership issues remains the translation of business strategy into the individual
competencies needed for implementing and supporting that strategy at the operational
level in organisations (Kaplan and Norton, 2005). Most often, employees must be
provided with quite prescriptive job descriptions in order to be able to behave in a
manner aligned with strategic objectives (Sparrow, 1997). As a result of this
prescriptive approach the competencies identified in many competency management
projects are oriented toward the skills needed to continue doing what the organisation
already does. In that sense, few competency models differ from the traditional
approach of selecting and retaining employees who can perform a set of well-defined
tasks, usually focusing on technical knowledge and skills (Sappey and Sappey, 1999).
In times of frequent change, or in project-oriented environments, however, such a view
of competencies seriously limits the organisations potential for dynamically adapting
to an evolving strategy.
From a methodology point-of-view, the most common approach to competency
modelling involves images of what job holders do based on static job descriptions and
identification of behaviours that distinguish outstanding from adequate performers
(Cockerill et al., 1995). Then, the attributes, e.g. high performance competencies, which
distinguish outstanding from average job performance, are identified and measured.
Finally, statistical analysis of the frequency of these competencies leads to a model of
competencies demonstrated by outstanding performers. This approach to competency
management, which is analogous to job analysis, focuses on competencies of successful
individuals rather than on competencies that are needed to support an organisation to
meet its short- or long-term objectives (Ledford, 1995). Moreover, the laborious
procedures required in order to dig out, analyse, validate and then elaborate on job
descriptions and other descriptive data related to the tasks and activities that compose
jobs are time consuming and costly, especially in larger organisations (Athey and Orth,
1999).
In view of the above, there are a number of issues that need to be addressed in order
to advance the approach to competency management if the objective is to find support
in competencies for implementing strategy-driven change initiatives. First, there is a
need to shift toward a forward-looking and proactive approach to competency
modelling. If competency modelling focuses on the analysis of gaps between current
high and average performance, it ignores the skills required for long-term future
success. As a result, the organisation compensates and rewards behaviours that
already from the outset may be obsolete and constitute obstacles to strategy
implementation (Antonacopoulou and Fitzgerald, 1996). As business needs are
changing, business leaders are recognising the value of employees who are not only
highly skilled but, more importantly, can adapt to changes, learn quickly, commit
themselves to continuous professional and personal development and communicate

effectively (Rodriguez et al., 2002). Second, the laborious and time-consuming

procedures of traditional approaches to competency modelling will be of little use for
organisations with rapidly changing structures, processes and performance
requirements.
Finally, for companies that operate in continuously changing business
environments there is a critical need to implement new business strategies quickly
and effectively (Hitt et al., 1998; Hamel, 1994). Competencies, if generated from
strategy, can be used as powerful communication tools in order to translate business
strategy and changes in structure and processes into behavioural terms that people can
understand and therefore, implement. Competency management and integration of
competencies into HR functions provide HR management with a toolkit for capturing
and communicating strategic vision and objectives in clear behavioural terms that can
be easily understood and applied (Athey and Orth, 1999).
The case study company and its corporate restructuring program
The bank has a network of more than 370 branches, located mainly in South Europe as
well as in Central and Western Europe, and it employs 6,800 people. Apart from retail
and corporate banking the bank has developed, right from its founding more than 100
years ago, a range of other activities such as asset management, leasing, insurance,
factoring etc. The bank operates in a market characterised by major changes, such as
an impressive increase in mergers, acquisitions and strategic alliances, a significant
privatisation of public banks, with corresponding growth of private ones, and the entry
of new financial services organisations, characterised by flexibility, and targeting
specific market segments with customised products and services.
However, despite a brand name that is associated with high competence, reliability
and tradition, the banks processes and culture have been suffering from inefficiencies,
lack of customer focus, job for life attitude, resistance to change, inertia and
bureaucracy. Needing to better exploit its strengths and break new ground in product
innovation and customer service, the bank has launched a corporate-wide
restructuring program called Pegasus, aiming at major improvements at the
strategic and operational levels. The strategic objective of the restructuring program
consisted of meeting its customers and employees expectations through a new
corporate identity, improved operations, service orientation, and better HRM systems.
The program aimed primarily to change the banks culture and corporate identity by
adopting a more customer centric organisation. To achieve this, the bank reengineered
its customer relationship management programmes, developed a clearer profiling
towards well defined market segments, streamlined its organisational structure, and
invested in technology in order to improve processes efficiency and productivity.
How the competency model was developed
Within the context described above, the top management of the bank decided to
redefine their HR methods and systems starting from a focus on individual job-related
competencies for the banks retail network. The competency model should focus not
only on behaviours, knowledge and skills necessary, but should also facilitate
communication about strategy and articulate how people could expect to be selected,
trained, evaluated, and rewarded after implementation of the new strategy. Moreover,

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competencies related to the ability to change, learn and take initiatives should
explicitly be integrated.
At this point the research team was called in to accompany the competency project
using multiple sources of evidence such as annual reports, internal documentation,
interviews, archival records and personal observation. Following extensive
discussions with the bank representatives, an in-depth literature review of
competency management in general and of competency models in particular, and a
careful scoping of the project, a number of methodological principles for the
development of the competency model were defined.
First, the competency framework should take into consideration not only job
descriptions, but also best practices and recent trends in the industry (banking), as well
as the organisations own strategy (Martone, 2003), so as to guarantee a direct and
dynamic link between strategy and competencies and the relevance and survival of
the framework throughout and beyond the implementation of the change program.
Second, the competency framework should consist of a set of generic competency
areas, with each competency area to be composed of a limited number of competencies
that would be relevant, to different degrees, for every concerned job position (Lucia and
Lepsinger, 1999). The competency areas would guarantee some continuity and account
for the path-dependency in the relation between strategy, organisation and
competencies, while the detailed competencies would allow for more rapid
adaptation and flexibility in the model.
Third, for every position in the branch network, the set of required competencies
would then develop into a competency profile (Boyatzis, 1982), indicating the detailed
job-related competency characteristics, specific for that position in the network.
Fourth, in formulating the individual, job-related competency profile, functional as
well as behavioural characteristics of the job should be taken into account, referring to
both knowledge- and skill-based competencies, as well as behavioural ones that should
characterise the job-holder (Woodall and Winstanley, 1998).
As a result, the above actions led to the development of the competency framework
which unfolded through three distinctive but parallel processes of identifying and
elaborating competencies based on:
(1) Banking core capabilities.
(2) Banking industry trends.
(3) The banks own competitive strategy.
In terms of banking core capabilities Leichfuss and Mattern (1996) present a
comprehensive study identifying five capabilities that differentiate the best banks
from average or low performers in the sector: a strong corporate leadership; a highly
professional marketing approach; a differentiated and efficient distribution system;
lean, efficient, automated processes; and, finally, a credit policy that covers risk and
ensures adequate decision criteria and rating capability. As a starting point for the
process of defining competency areas for the model, the research team held two focus
groups consisting of human resources experts and banking experts in order to generate
individual job-related competencies from these five core competencies of leading
banks.
In terms of banking industry trends, we reviewed relevant annual reports, research
papers, industry and consulting reports[1], as well as selected press and journal articles

in order to identify important current and future trends in the international and local
banking sector. Supplementary to this documentary analysis, interviews were
conducted with sector experts and bank executives, and new focus groups were held
with the same participants as in the first phase.
Finally, in order to develop more specific competencies for the particular case study
bank, we conducted an in-depth analysis of the banks strategy, particularly in view of
the corporate restructuring program. This analysis relied on extensive interviews with
the president and CEO, the vice presidents of the bank, the directors of retail and
corporate operations, and other top managers, as well as an analysis of the banks
internal documents.
Having generated an important number of competencies from these three
independent but parallel phases of analysis, the research team synthesised and
grouped these competencies as illustrated in Figure 1. There was a certain overlap that
had to be eliminated, and before formulating the final propositional competency
framework a final workshop was held with the banks HRM team.
Using the methodology of Tett et al. (2000), this prepositional framework was
further examined and refined by a panel of experts on human resource management
and banking. We asked the panel to review, specify if necessary further synthesise the
initially selected competencies, and finally validate the formulated competencies from
an implementation perspective. Leaning heavily on the input from the panel we
elaborated a competency model with five major distinctive competency areas (Table I).
The explicit requirement that the competency framework should be used transversally
for all jobholders in the banks branches was also integrated in the final elaboration of
the framework.
Each competency area contained between three and four competencies adding up to
a total of 17 competencies in the five areas that, in turn, were specified in a total of 65

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Figure 1.
The process of grouping
synthesising the
competencies generated

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Competency area

Definition

Interpersonal excellence

General definition: develops/maintains networks

both within the organisation and with clients;
focuses on providing excellent customer service;
demonstrates communication co-operation abilities
Some examples: identifies/makes use of events for
developing external networks; maintains regular
two-way communication; maintains a problem
solving attitude
General definition: demonstrates competencies of
planning, organising, co-ordinating monitoring of
bank resources, processes operations
Some examples: pays attention to details; accurately
estimates resources to achieve plans; avoids negative
impact of own actions on others; accurately
prioritises key tasks; regularly reviews progress of
tasks
General definition: ability/willingness to make
decisions, based on profound knowledge of business
environment, strategic needs, banks processes,
products services
Some examples: stays up to date on products service
information; has extensive knowledge of product or
service features internally and externally; identifies
new opportunities for business
General definition: demonstrates competencies in
organising promoting sales based on market
awareness, customer relationship management
Some examples: relates benefits product features to
the customer; sales objections, is skilled in closing
sales; exceeds customers expectations; has a history
of repeat business
General definition: demonstrates competencies of
planning, guiding developing human resources
Some examples: uses knowledge of individuals
strengths, interests, development needs to delegate
tasks; provides accurate regular feedback; identifies
where support is needed, provides it

266
Project operations management

Business sense decision making

Sales management

People management

Table I.
Final competency areas

profiles, defining what is understood by each competency, both from a responsibility

and a behavioural perspective.
After the elaboration of the full competency model it was of utmost importance to
validate it with data coming from jobholders. Thus, the research team conducted 60
interviews with branch employees representing all jobs covered by the competency
model. The analysis of these interviews confirmed the above full model (five areas, 17
competencies and 65 profiles), and, most importantly, provided important data in order
to fine-tune the behavioural repertoires for each competency. This data allowed the
match of each task with functional and behavioural competencies that ensure effective
performance in each job at all levels. Two examples are illustrated in Table II.

Competency area: interpersonal excellence

Competency 1: Interpersonal
communication
Competency profile for branch manager
Functional

Behavioural

Competency area: sales management

Competency 3: sales negotiating
competencies
Competency profile for account officer

Use of knowledge experience in order

to attract new customers, maintain
existing ones
Use all the available customer
information, fully understands
customers profile needs
Answers all the questions to the best of
his/her knowledge, facilitates an
informed decision making
Takes care of all the issues involved in
the selling process
Creates a climate of trust; can cope with the Creates a climate of trust; shows
unexpected; deals with conflicts; appreciates patience, effectively deals with difficult
customers; continuously updates
diversity
his/her knowledge in order to negotiate
effectively
Development of public relations;
Responsibility of banks promotion in the
local market
Develops collaboration with colleagues,
subordinates, ensures timely accurate
information knowledge sharing
Uses appropriate communication channels

At this stage, the final validated model was successively introduced in order to define,
communicate and implement new jobs in the pilot branches where the change
programme was successively rolled out. This allowed us to focus our study on how the
competency system could support strategy implementation and change.
The use of competencies for translating strategy into action and for
supporting organisational change
The competency management project was time-paced with the rollout of the
corporate-wide restructuring project. This gave us a unique opportunity to observe and
analyse, through participant observation and interviews with executives and branch
employees, how the competency framework actively could translate the strategy
behind the transformation into actions at the level of individual job holders, and how it
supported change. We identified six particular areas where this happened, as detailed
below.
Communication of strategic changes
The reality of the transformation program was that strategic initiatives were deployed
in a top-down manner. In this process of implementing the new strategy, the central HR
department used competencies in order to communicate strategic changes and their
implications for operations. More specifically, in their effort of translating the emphasis
on customer service, the development of new distribution channels, and the new
values, behaviours and roles attached to these changes, the HR managers expressed
these desired objectives in the language of both functional and behavioural
competency profiles. This process was facilitated through workshops including all
levels of employees where specific methods such as role-play and team-building

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Table II.
Examples of competency
areas, competencies
competency profiles for
two jobs

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exercises were employed in order to explain how competencies will help the
organisation meet its goals.
Improvement of employees understanding of how to reach goals
One of the major causes of failure of large-scale organisational change efforts is poor
communication (Kotter, 1996). As a result, employees often have difficulties in making
sense of the necessity for change, in comprehending how their own operational reality
will be affected, and, above all, in understanding their own critical role as contributors
to the desired change. Competencies proved to be a powerful tool that enabled HR
managers and change agents to communicate change objectives and the management
expectations regarding new ways of working, leading to a significantly improved
employee understanding of the desirable actions and behaviours for reaching the goals
set, compared to previous experiences with other major changes in the bank. A large
majority of the interviewed branch employees pointed out that competencies clarify
where the bank wants to go and how it should operate in order to successfully reach
these strategic destinations.
An account officer with long experience from the branch network said:
Competencies will help people understand the banks vision. Many times in the past we
heard about changes in what the bank will do in the future but until now, it was never
very clear how such changes would affect us or what we would need to do in order to
follow these plans.

Through the competencies framework, with well defined and expressed competencies
anchored in strategy, jobholders felt they gained a better understanding of what was
expected, what was rewarded, what was desirable and what behaviours and abilities
would be needed in the short-, mid- and more long-run.
Improvement of feedback from branches to headquarters
Competencies contributed to improving the feedback from the branches to the
headquarters of the bank. A series of assessment centres building on the competency
framework were run with the objective of preparing employees for new duties related
to the corporate transformation program. Through these assessment centres and
through the interviews conducted by the research team in parallel, senior management
became aware of gaps in competencies that could transform into serious obstacles in
the process of changing the organisation to implement the new strategy. Hence, the
matching of the competency framework to the reality of existing competency profiles
directly assessed triggered a need for immediate action in order to ensure training and
development aligned with the change objectives and the new strategic orientation.
Results from assessment centres showed that in general branch employees needed
significant development of behavioural competencies related to interpersonal
collaboration and adaptability, in other words defined competencies such as
communication, flexibility, dealing with the unexpected, driving initiatives, and
handling of conflicts. A senior branch officer expressed the following opinion:
This bank employs people with profound knowledge of the banking system and very capable
of using the banks processes in an effective way. The problem is that some of us dont know
how to communicate with the customer and are not very good at finding out their real needs.

The competencies related to interpersonal excellence are essential for the

customer-focused orientation that the bank aims at developing. Through the
implementation of the competency model, management got feedback early enough in
the change process, allowing for corrective action towards the reinforcement and
development of these competencies.

Competency
management

Integration of new behaviours in operations

At the level of day-to-day activities, the success of any transformation program
depends on the extent to which new behaviours and practices are incorporated into
employees daily routines, i.e. integrated in operational routines. One means for
achieving this is training of employees combined with employee assessment focused
on the achievement of those new behaviours and practices.
After the identification of gaps in competencies discussed above, the HR department
launched training sessions focusing not only on technical skills, as they used to do in
the past, but also on competencies such as communication, teamwork and sales
management and procedures. The identified competencies gap guided the development
of new training seminars devoted to change management, team building and
communication. These training sessions supported the change process not only in
terms of acquisition of new knowledge and skills directly applicable in daily activities,
but also in terms of allowing for the exchange of opinions and ideas to take place. This
has opened up a new dimension in my job, said a branch sales officer. I have been
able to share both new ideas and some worries with colleagues doing the same job in
other branches she continued. The competency framework was used in a number of
training-related activities including training needs analysis, training content update,
selection and preparation of trainers, definition of pedagogical approaches, training
evaluation and link of training results with other HR processes, in particular
performance appraisal and evaluations.
Also, it was decided to incorporate competencies into all HRM processes, starting
from training processes and then linking assessment, hiring and ultimately career
development to the competency system. The initial experiences from
competency-based training and assessment turned out positively. A branch
employee in the pilot group expressed her experience in the following way:

269

To me, the competency framework provides a fixed point that is essential in order to develop
new routines and practices required in our new roles.

The notion of fixed points was perceived as key to successful incorporation of

competencies into daily routines. Many interviewees said that they found in the
competency model a reference framework that could serve as a focal point and
rulebook for initiatives and decision making in the frontline of customer interaction
and day-to-day decision making.
Although this re-engineering phase where all the tools and processes were
re-designed was considered as a success, it will take time to root out the inefficiencies
that were identified in the HR processes before training processes stop suffering from
inefficiencies. As the personnel director noted:
There is a long way to go before fully integrating competencies into all the HRM processes.
We have just started to realise how powerful competencies can be, especially in times of
change.

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Enhancement of employee participation in change implementation

The revamping of the training schemes, driven by the competency management
system being adopted, led to an enhancement of the participation and involvement of
branch officers in the change implementation. The central HR department identified
and formed a pool of high performing and high potential branch managers to receive
particular briefings and then take on the role of coaches in the training of their
colleagues. One bank manager commented:
Having participated in training sessions about competency-based performance management
systems, I feel more confident to explain what is expected from now on to my people. I feel
also more confident to convince people to follow this change.

The outcome of this outsourcing of training was that branch employees achieved a
better and quicker understanding of why and how their roles needed to change
compared to earlier change programs. In this way, the competency management
project helped HR management to come to terms with dissatisfaction and complaints
among newly recruited personnel, personnel that had higher formal qualifications
compared to the already existing staff (e.g. in terms of postgraduate studies in business
or economics and more specific competencies in sales management and customer care).
However, inefficiencies in the existing HRM systems, such as unclear roles and
responsibilities, unclear goal setting, poor performance management and lack of career
planning had led to a turnover rate as high as 30 per cent among these employees. By
involving them in the change planning process from day one, a completely different
climate conductive to commitment could be created: the bank believed in their potential
of acting as change agents raising not only productivity and employee qualifications,
but also their active participation in the reshaping of the banks branch office profile.
Potentially and in the longer term, competency-based performance management and
career planning can further contribute to retain the most qualified employees.
Institutionalising changes
The competencies that were identified and specified in the competency model defined
new standards for performance of all employees in the branches. Therefore, the model
urgently needed to be integrated in the performance management system so as to
ensure that the competencies would not remain just an ideal but be truly assessed in
practice. Through an explicit goal setting procedure, a clarification of expectations, and
a transparent evaluation procedure of employee competencies, a strong and
comparatively rapid institutionalisation of the desired changes was achieved in the
bank. The new performance management system was perceived as a significant
improvement compared to the appraisal frameworks and procedures previously in
place. One interviewee commented:
The previous system was considered as a typical procedure without any real impact on us.
Therefore, we didnt pay much attention to numbers coming in every year. In any case, the
average performance score was 8.5 out of 10 which means that we didnt really have to try
harder since we were all considered outstanding.

By explicitly identifying competency gaps, the new system provides direct input for
defining individualised training initiatives and the system also enables HR and line
managers to provide feedback to the employees on how successful they are in meeting
the new requirements. A branch office director stated:

Initial results from performance appraisals showed poor customer orientation and poor
people management skills. It was about time to realise that being a good banker is not
enough. We need to change also in those softer issues in order to stay in business.

The adoption of a competency-based performance management system, although it

was still in its early stages of development and implementation at the time of our
study, has built the foundation of a more positive climate and expectations for the
future, and, as an HR officer commented, has provided a strong motor in order to
keep up the momentum in the transition phase.
A road-map for implementation and support in strategy implementation
and change
Competency management has been around for a number of years. Experiences from
extensive use of it in a variety of business environments show that it can provide
substantial benefits in terms of aligning HR policies with strategy and rejuvenating
HRM processes such as selection, training, assessment and development. However,
competency management needs to be used widely: a tendency of focusing on what the
organisation already does might lead companies to get stuck with outdated processes
and visions of what is strategically important. An inclination towards looking at
successful individuals when defining competencies, without an in-depth analysis of
which competencies are really valuable for implementing strategy, might lead to poor
focus and an over-emphasis on generic behaviours compared to job-related skills.
Finally, a tendency of developing too detailed competency frameworks with a long
lead-time between competency definition and actual implementation might result in
inflexible competency frameworks that end-up in closets instead of being used actively
to integrate strategy, change and operations.
The competency framework developed within this study was designed to cope with
those shortcomings and it proved particularly successful in our case study through the
following: First, it anchored the competencies in the new strategy of the bank as well as
in core competencies and industry trends, thus integrating a dynamic and
forward-looking approach in the competency modelling. Second, it helped validate
the emerging model with management and job-holders, as well as with HR and
Banking experts, thus ensuring focus on job-related skills integrating strategy and
operations. Third, it enabled areas and competencies to remain generic while at the
same time allowing for significant variation to take place at the level of the competency
profiles. This substantially improved the flexibility of the model.
Besides providing a roadmap and design imperatives for developing a competency
framework, our study also identified a number of impacts on strategy implementation
and change given the competency approach. As we were able to study how the
stepwise implementation of the competency model in the banks branch network
unfolded, we could observe how it played a central role for supporting strategy
implementation and reinforcing the roll-out of the change program of which the
competency project itself was part. These potentially positive impacts require a set of
managerial levers in order to be optimally exploited. In Table III we indicate a number
of such levers observed in our study, providing a roadmap for tapping into this
potential.
The key to use the levers indicated successfully is the development of a
management agenda that focuses on the integration between strategic management,

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Potential positive impacts for

supporting strategic change
Communication of strategic
changes

272
Improvement of employees
understanding of how to reach
goals

Improvement of feedback from

branches to headquarters

Incorporation of new behaviours

Enhancement of employee
participation in change
implementation

Table III.
Potential positive impacts
from competency
management on the
implementation of
strategic change

Institutionalising changes

Levers/actions for tapping into this potential

Translate specific defined objectives into competencies,
functional behavioural competency profiles
Use specific efforts, such as role-play, in order to
illustrate how competencies will make the organisation
operate in order to meet its goals
Accompany the competency framework with clear
guidelines methodologies for linking competencies to
goals, for clarifying what is desirable, for conducting
competency-based evaluation
Follow up frequently on employees understanding of
what is expected
Clarify what behaviours/abilities will be needed in the
short-, mid-more long-term future
Use the competency framework as a basis for
conducting assessment centres interviews already at
the definition stage of change efforts
Search for gaps in competencies that could transform
into serious obstacles to change processes
Take actions to initiate a bridging of these gaps before
rolling out the change effort
Develop training programs to follow up on the
reinforcement of competencies identified as missing in
the gap analysis. As change unfolds, training needs
will change
Facilitate the exchange of opinions ideas through
training. This will support the change process not only
in terms of acquisition of new knowledge skills directly
applicable in operations, but also in terms of changing
behaviours roles
Give to a pool of high performing high potential
managers the role of coaches in the development of the
competencies of their colleagues
Tap into this resource of change agents in order to
reinforce the communication about the need for change
about the true meaning of competencies required in
new roles
The shift to a competency-based performance
management system allows HR management to start
institutionalising change through better goal setting,
clarification of expectations, reward of behaviours that
support new strategic objectives

change management and human resource management. Optimised competency-based

management consists of moving in a continuous loop of strategy formulation
competency model adaptation change implementation application of competencies
for optimised business results strategy reformulation, and so on. A competency
model should never be seen as developed once and forever. If HR managers fail to
adapt continuously and reengineer periodically their organisations competency

framework, it will at best become outdated and fall into oblivion, and at worst drag the
organisation into stagnation and loss of competitive momentum.
Despite its contributions discussed above, this study has several limitations related
to the timing of the data collection and the project itself. Although, the change project
has just finished, some key performance results have not yet been possible to measure.
We were involved in the change project from its planning phase and as a result,
observations and interviews took place during all project phases. However, the overall
evaluation of the project is still going on and more findings are expected to come out
from this process. Further study of the tangible effects of the new strategy and
organisation is carried out on a continuous basis and will allow us to close the loop
between strategy formulation, competency modelling, application of competencies and
business results.
A natural suite to our research would be to try to model and then quantify, through
survey-based research, the exploratory links between job-related competencies,
strategy implementation and change that have been developed here. A striking gap
exists in the literature on organisational capabilities concerning the contribution of
human resource management and job performance to core capabilities that would be
important to bridge in order to pursue the quest for optimised competency
management in practice.
Note
1. EIU and Andersen Consulting, Deloitte Research, Ernst & Young, Group of Ten, Meridien
Research.
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framework for managing change in the new competitive landscape, European
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competency models to promote integrated human resource practices, Human Resource
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Ernst & Young (2000), Small Business Banking, Ernst & Young, London.
Group of Ten (2001), Report on consolidation in the financial sector, available at: www.imf.org.
About the authors
Maria Vakola is an organisational psychologist and she is currently working as an assistant
professor at the Athens University of Economics and Business. She received her PhD in
organisational behaviour/change management from the University of Salford, UK. Her research

interests concentrates on change management, individual and organisational readiness to

change. Maria Vakola is the corresponding author and can be contacted at: mvakola@aueb.gr
Klas Eric Soderquist is an Assistant Professor and head of the Management Science
Laboratorys Innovation and Knowledge Management Unit at the Department of Management
Science and Technology at Athens University of Economics and Business (AUEB). He holds a
DBA from Brunel University, UK. His research concentrates on R&D, innovation management,
and knowledge management.
Gregory P. Prastacos has more than 20 years of research and consulting experience in
strategy and operations, decision-making, and business transformation. Prior to joining the
Athens University of Economics and Business he was on the faculty of the Wharton School. He
has been a senior partner and Chairman of Deloitte & Touche Conslulting (Greece), and has
received the INFORMS first prize on the practice of Management Science (Edelman Award). He
has published seven books and numerous articles in journals.

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The effects of joint reward

system in new product
development

276

Tsun Jin Chang

Department of Marketing Management, Shih Chien University,
Kaohsiung, Taiwan

Shang Pao Yeh

Department of International Business Administration, Leader University,
Tainan, Taiwan, and

I-Jan Yeh
Department of Public Policy and Management, Shih Hsin University,
Taipei, Taiwan
Abstract
Purpose This study purports to examine the effects of a joint reward system (JRS) under a new
product development (NPD) setting by identifying four neglected aspects of JRS that contains a
procedural view (participation of reward decision and reward contingent on NPD phases) and a
monetary view (risk-free to participate and over-reward incentive) in a conceptual model, and then to
empirically test their effects on knowledge sharing and NPD performance.
Design/methodology/approach Using regression analysis, the proposed model was tested on
233 valid respondents (112 in R&D, 50 in marketing, and 71 in manufacturing), including 92 from
electronics firms, 87 from semiconductor firms, 29 from biotechnology firms, and 25 from
pharmaceutical firms in Taiwan.
Findings The results indicated that risk-free to NPD project members is the most salient aspect of
JRS on knowledge sharing and NPD performance. Joint determination of reward allocation was found
to be a favorable JRS for only marketing and NPD performance. Rewards contingent on NPD phases
have shown conflicting results between R&D and marketing. No relationship was found for
over-reward incentive on knowledge sharing and NPD performance. Despite the mixed effects of JRS,
knowledge sharing is a strong predictor of NPD performance.
Originality/value This study extends understanding of the complexities of rewards on knowledge
sharing and NPD success by decomposing and testing four unique aspects of JRS, which sheds a new
light on NPD researches.
Keywords Performance related pay, Knowledge sharing, Product development
Paper type Research paper

International Journal of Manpower

Vol. 28 No. 3/4, 2007
pp. 276-297
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755254

Introduction
Over the past years, organizations are scrambling for sustaining efforts to stimulate,
facilitate, and utilize their organization-wide knowledge to gain competitive
advantages. This trend has especially extended to the new product development
(NPD) process and cross-functional NPD teams. To accommodate such trend, a strong
role in establishing the foundation of knowledge creation in NPD process is required
(Song et al., 2000). While studies (e.g. Nonaka, 1994; Shih et al., 2006) have suggested
that knowledge sharing among individuals strengthens knowledge creation and recent

empirical evidence also indicates that knowledge sharing among NPD members can
facilitates NPD performance (Chang et al., 2006), identifying effective mechanisms for
stimulating knowledge sharing among NPD members across different functional areas
has largely remained an untapped source of competitive edge. Organizational rewards
can be viewed as one of the mechanisms (Milne, 2001). Although organizational
behavior school generally recognizes that organizational reward programs are
designed to attract ideal candidates, to retain employees at work, and to motivate
employees for higher performance in general (e.g. Ivancevich and Matteson, 2002, p.
197), the complexities of rewards have been elevated as the formation of works are
going toward collective efforts in which team-based rewards become salient (e.g. Bartol
and Srivastava, 2002; Johnson et al., 2006).
The dynamisms of work have been shifting from structural driven to task driven
(Milne, 2001, p. 326) under team-based and/or cross-functional management. The
importance of team-based rewards are attributed not only to the critical role in
determining cross-functional integration among employees and units (Coombs and
Gomez-Mejia, 1991; Sarin and Mahajan, 2001) and thus driving group and team
performance (Griffin and Hauser, 1996), but also to the significant effects on knowledge
sharing (Bartol and Srivastava, 2002; Milne, 2001; Shih et al., 2006) and knowledge
exchange (Cabrera et al., 2006). Under such circumstance, the conventional reward
mechanisms based on individuals or individuals within unit may not be as effective as
in NPD context where cross-functional team efforts are involved and valued (Barclay,
1991). Hence, a reward system that values collective efforts across functions and
cooperative behaviors, like joint reward system (JRS), in NPD may be a more effective
mechanism (Crittenden, 1992).
Prior studies have highlighted the contributions of JRS in NPD setting in many
aspects (i.e. Cho and Hahn, 2004; Chimhanzi, 2004; Griffin and Hauser, 1996; Gupta
et al., 1986; Sarin and Mahajan, 2001; Xie et al., 2003). Given the critical role that
organizational reward program plays in facilitating knowledge sharing among
individuals (Bartol and Srivastava, 2002), the effects of JRS on knowledge sharing
among cross-functional NPD members and NPD performance has yet to be tested.
However, studies incorporating JRS (e.g. Xie et al., 2003; Chimhanzi, 2004) primarily
focus on the degree to which project members are joint evaluated and are equally
rewarded for joint involvement rather than individual performance, which may not
reflect general phenomenon of reward practices in NPD where functional project
members are not necessarily rewarded equally in practices (Feldman, 1996). Unlike
machines, an individuals tendency in conducting knowledge sharing is affected not
only by managerially controlled variables (e.g. reward and incentive programs), but
also by the psychological state (e.g. motivation) of the individual to determine whether
to share or to hoard knowledge. Whereas Lawler (1977) had suggested that
organizational rewards may affect the attitudes and behavior of employees, the
perceived fairness of the rewards may alter the employees attitudes and behavior
toward contributing their efforts to the organizations (Allen et al., 2003; Milne, 2001).
To further understand the effects of JRS under NPD setting, this study identifies four
aspects of JRS that contains reward procedure view (participation of reward decision
and reward contingent on NPD phases) and monetary view (risk-free to participate and
over-reward incentive) in the conceptual model and then empirically tests their effects
on knowledge sharing and NPD performance.

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Conceptual model and research hypotheses

In light of the above discussion, we proposed and tested a conceptual model (depicted in
Figure 1) linking four unique features of JRS as measured by joint determination of reward
allocation, reward contingent on NPD phases, risk-free to participants, and over-reward
incentives to knowledge sharing and NPD performance. We conceptualize that JRS affects
knowledge sharing among NPD functional project members and, as a result, affects NPD
performance. In order to acknowledge the assertion that behavior intention is an example
of mediator concept (Baron and Kenny, 1986, p. 1180), we also conceptualized that
knowledge sharing mediates the relationships between JRS and NPD performance.
Joint reward system (JRS) and knowledge sharing
Joint reward system is a mechanism designed to reward joint efforts across functions,
specifically R&D and marketing that are jointly responsible for the success and failure of a
new product, in the NPD process (Gupta et al., 1986). Prior studies illuminating the
contributions of JRS suggest that, for example, it integrates cross-functional efforts (Griffin
and Hauser, 1996; Sarin and Mahajan, 2001), reduces goal incongruity (Xie et al., 2003) and
conflicting behavior (Gupta et al., 1986) among functional members, facilitates
interpersonal communication, alleviates conflict levels between marketing and HR
(Chimhanzi, 2004), and bridges gaps among sociocultural differences (Cho and Hahn, 2004)
in NPD.
The conventional practices in measuring JRS are primarily based on the level of
collaboration across functions, like R&D and marketing, which assumes all departments
are evaluated and are rewarded accordingly in successful commercialization of new
product. In practice, however, this may not be a general case in NPD practice (Griffin and
Hauser, 1992). Evidence suggests that reward systems based on functional expertise
driven, rather than on the integrated efforts of functional collaboration driven, are
common practices among firms (Feldman, 1996). Questions then arise as to:
(1) Do the NPD members participation in reward allocation affect NPD success?
(2) How (process-based or outcome-based reward) and when (initiation or
implementation phase under NPD) to reward for NPD success?

Figure 1.
Conceptual model

(3) Will the associated risk of reward affect NPD success?

(4) Is higher reward able to motivate project teams for NPD success?
To tackle the above questions, we incorporate four features in reward that are posited
to influence NPD:
(1) Joint determination of reward allocation.
(2) Rewards contingent on NPD phases.
(3) Risk-free to participants.
(4) Over-reward incentives.
The first two variables are extended from the arguments made by Pascarella (1997)
and Sarin and Mahajan (2001) regarding how to reward NPD team, whereas the later
two variables are focused on the monetary reward practices in NPD.
Joint determination of the reward allocation. Joint determination of the reward
allocation is the extent to which functional members in a NPD team jointly determine
the allocation of rewards from successful launch of a new product. While previous
studies have shown that firms employ JRS as an integrative mechanism to gain NPD
design-to-market performance (Griffin and Hauser, 1996; Sarin and Mahajan, 2001),
researches done by Coombs and Gomez-Mejia (1991) have noted that perhaps the single
most important factor contributing to the cross-functional integration is how rewards
are allocated across these different functions.
Although members in R&D function are recognized for their critical role to the
success of high-tech companies, they may not be rewarded properly and thus specially
designed reward program is demanded to ease the rapid turnover in many US
companies. In light of this, JRS is purported to achieve collaborative efforts rather than
individual performance (as discussed earlier). This leads to the fact that some
functional members may perceive such practice as inequitable reward and, as such,
harmful effect on the overall NPD success may surface (Coombs and Gomez-Mejia,
1991; Griffin and Hauser, 1992, 1996). It is therefore impracticable to reward
cross-functional members equally. However, the equity can be achieved if project
members can gain voices in the JRS decision by participating jointly to determine the
allocation of rewards. Organizational behavior theory has asserted the contributions of
employee participation (e.g. Newstrom and Davis, 2002, pp. 187-201). In addition,
recent evidences have indicated that participation in the decision-making leads to
positive attitudes such as commitment and job satisfaction (Allen et al., 2003), to
encourage greater level of efforts in collecting information for the sales force (Judson
et al., 2006), and to enhance procedural interaction for information exchange in NPD.
While rewards based on team performance are likely to enhance knowledge sharing
within teams (Bartol and Srivastava, 2002) and facilitate idea capture schemes for
innovation, NPD project members commitment and job satisfaction gained by
participating in the reward process leads to voluntary or prosocial behavior, i.e.
providing information to coworkers (LePine et al., 2002), a form of sharing knowledge,
and generates positive job attitudes like integration and involvement. We thus
proposed H1:

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H1. The greater the level of JRS as measured by joint determination of the reward
allocation, the greater the degree of knowledge sharing among R&D,
marketing, and manufacturing of NPD project members.
Reward contingent on NPD phases. Sarin and Mahajan (2001) have proposed two
reward approaches process-based rewards and outcome-based rewards.
Process-based reward is the degree to which team rewards are tied to procedures,
behaviors, or other means of achieving desired outcomes, e.g. completion of certain
phases in the development process (Deschamps and Nayak, 1995). Outcome-based
reward is the degree to which team rewards are tied to match the bottom-line of the end
results. Sarin and Mahajan (2001) suggested that for long and complex projects,
outcome-based rewards have a positive effect, as opposed to the negative effect of
process-based rewards, on performance. Moreover, Johne (1984) suggests that the NPD
process may be simplified into two main phases: initiation and implementation. The
distinction between the two phases is that the initiation phase emphasizes the
conceptualization of the product, whereas the implementation phase centers on
fulfilling that concept (Nakata and Sivakumar, 1996).
Process-based reward at initiation phase. Although technological breakthroughs
are stimulated by circumstances that encourage risk taking even when rewards are
failed to deliver such promise (Sasaki, 1991), the outcome of risk taking may be
contingent upon the phases of the NPD process (Johne, 1984; Nakata and Sivakumar,
1996). At the initiation phase, risk taking and intensive knowledge sharing are
necessary for generating product ideas before entering the implementation phase
where higher costs are incurred. Therefore, considerable concerns for rewarding
workers in the initiation phase are placed on sharing diverse knowledge and
maximizing the number and range of product development approaches, so that strong
and viable ideas can be generated. However, time consumption between the decisions
made at the initiation phase and the market outcomes (Hauser et al., 1996) may elevate
NPD members risk exposure. If any NPD project team is to move organizations
forward by taking risk, the result-driven mechanism may not be perceived as a fair
approach (Pascarella, 1997), because their willingness of knowledge sharing may be
discouraged by the unknown outcome such as losing individual value or raising
possible costs (ODell and Grayson, 1998). Consequently, the initiation phase is often
characterized by loose structure to encourage the free flow of thoughts and actions
(Johne, 1984) activities that are less result driven, namely, the interchange of
valuable personal expertise and the incentives for encouraging risk taking to take
place. We identify, based on the forgoing discussion, that a process-based reward
system is an appropriate mechanism for rewarding NPD teams at the initiation phase,
hereby stating H2a as follows:
H2a. The greater the level of JRS as measured by process-based rewards at
initiation phase of NPD process, the greater the degree of knowledge sharing
among R&D, marketing, and manufacturing of NPD project members.
Outcome-based reward at implementation phase. Rewards designated for collaboration
and cohesion are effective means at the implementation phase where pursuing desired
market performance becomes the desired end by encouraging knowledge interchanges
during the close scrutiny of decisions and execution of only those that minimally affect
schedules and budgets (Nakata and Sivakumar, 1996). The use of outcome control and

social control may unify joint efforts to effectively and quickly achieve the desired
goals because individuals would expect that their knowledge sharing behaviors helps
others to improve their performance on one hand, and a sense of cooperation and
reciprocity is developed particularly when knowledge is shared on the other hand
(Bartol and Srivastava, 2002). In addition, social control also directs teams toward
common goals, e.g. market performance, by the internalization of values and mutual
commitment (Jaworski, 1988). As a consequence, outcome-based rewards are more
effective in aligning the project team with goals that are set at the initiation phase. We
thus expect that outcome-based reward systems may stimulate knowledge sharing at
the implementation phase. We hypothesize that:
H2b. The greater the level of JRS as measured by outcome-based rewards at
implementation phase of NPD process, the greater the degree of knowledge
sharing among R&D, marketing, and manufacturing of NPD project
members.
Risk-free to participants. Managements attitudes, such as encouraging risk-taking
and/or entrepreneurial character, and tolerating for failures in the NPD process, were
found to have positive effects on NPD success (Gupta et al., 1986; Song and Parry, 1993;
Coombs and Gomez-Mejia, 1991; Pascarella, 1997; Bartol and Srivastava, 2002) in
general and on higher level of cross-functional integration and innovation performance
(Song and Parry, 1993) in particular.
While risk-taking or being adventurous are positive drives for NPD success, NPD
project members are also capable of weighting risks between those of their
organization and those of their own (Sarin and Mahajan, 2001). Although they may be
willing to share risk with their organizations, they are, however, more eager to
minimize their risk exposure or to secure a risk-free position (Sasaki, 1991; Sarin and
Mahajan, 2001). Innovation is intrinsically an adventure in which considerable time lag
between the efforts made by the NPD teams and the market outcomes. If NPD teams
are put into positions to move organizations forward by taking risk, its unfair to
reward them solely on the basis of results (Pascarella, 1997). Robbins and Finley (1995)
had noted that NPD teams would not invest their best efforts to carry out business
objectives if they are placed at risk. The agency theory (Bloom and Milkovich, 1998)
also suggests that an optimal compensation system is contingent on the need to
balance an agents (NPD teams) effort and risk aversion. As a result, we argue that a
JRS that facilitates team integration and knowledge sharing should be characterized by
minimal risks or risk-free to the NPD project members.
H3. The greater the level of JRS as measured by risk-free to participants, the
greater the degree of knowledge sharing among R&D, marketing, and
manufacturing of NPD project members.
Over-reward incentives. Equity theory suggests that individuals are more likely to
attain higher performance and team members are more cooperative when they are
over-rewarded, whereas under-rewarded team members behave less cooperatively and
more selfishly (Harder, 1992).
An over-reward incentive program may facilitate cross-functional integration and
knowledge sharing in NPD teams due to their reciprocal interdependencies while
achieving common goals. Keidel (1985) has characterized basketball as exhibiting

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reciprocal interdependence because it requires more teamwork than do other team

sports. When the equity for players who perceived themselves as been under-rewarded
are restored, they are more likely to exhibit positive behavior linked to their future
rewards and vice versa. Under NPD process, where reciprocal interdependence is
needed, over-reward approach may be a mechanism that suppresses selfish behavior
and encourage cooperative behavior. Thus, a JRS characterized by over-reward is a
positive force that facilitates NPD project members knowledge sharing. We propose
the following hypothesis accordingly:
H4. The greater the level of JRS as measured by over-reward incentives, the
greater the degree of knowledge sharing among R&D, marketing, and
manufacturing of NPD project members . . .
Knowledge sharing and NPD performance
The introduction of knowledge creation into NPD generates innovative values for new
products (i.e. time to market, innovative features, and creative functions) and gains
competitive advantage for the organization (Nonaka, 1994).
Unfortunately, the knowledge creation process is ineffective without knowledge
sharing via the socialization in the knowledge creation process whereby tacit
knowledge can be transformed into explicit knowledge that is valuable to
organizations. The repeated interaction and discussions with one another in the
knowledge sharing activities could enhance market feedback in the NPD through
information flow and synergistic coordination (Nonaka, 1994; Nonaka and Takeuchi,
1995). Evidence also suggests that project teams complete their projects faster when
they can access to units that possessed related knowledge (Hansen, 2002), and
therefore, a NPD that is typically organized by members across functional units may
achieve desired goal more effectively.
In addition to the discussions in previous sections indicating that knowledge
sharing among workers across various functions in NPD may secure successful
outcomes, substantial evidences from literature and field studies in both new product
development and knowledge management have lend strong support for a significant
and positive association between knowledge sharing and innovation performance
(Griffin and Hauser, 1992, 1996; Nonaka, 1994; Song et al., 2000), and more specifically,
NPD performance (Chang et al., 2006). Therefore, we advance the following hypothesis:
H5. The greater the degree of knowledge sharing among NPD project members,
the greater the level of NPD performance among R&D, marketing, and
manufacturing of NPD project members.
JRS and NPD performance
Prior researches have provided sufficient evidence to the effect that JRS affects NPD
performance significantly and directly (Song and Parry, 1993; Griffin and Hauser,
1996). JRS was found to contribute to information exchange, as well as cross-functional
harmony relationship and involvement, and reduce goal incongruity under NPD
context (Xie et al., 2003). While conventional wisdom is inclined to assert that
innovation creates added-value and therefore enhance market compatibilities for
products, we tend to believe that JRS will strengthen NPD performance:

H6. The greater the level of JRS as measured by joint determination of reward
allocation, rewards contingent on NPD phases, risk-free to participants, and
over-reward incentives, the greater the level of NPD performance.
Research design and data collection
Sample and procedure
We collected data from NPD members who were working in high-tech industries
covering the electronics semiconductor, biotechnology, and pharmaceutical industries
in southern Taiwan. The survey design follows the procedure employed by Song et al.
(2000).
Sample firms were contacted through telephone calls to confirm a contact person in
each firm, followed by surveys questionnaires that were distributed to employees
whose functional expertise was in R&D, marketing, and manufacturing and had been
actively engaging in the NPD process during the past three years. A cover letter that
explained the purpose and scope of the study with the assurance of confidentiality was
attached with each questionnaire.
Four hundred questionnaires were distributed and 233 valid questionnaires (112 in
R&D personnel, 50 in marketing, and 71 in manufacturing) were collected, generating a
response rate of 58.25 per cent. Of the 233 valid questionnaires, 92 were from
electronics firms, 87 were from semiconductor firms, 29 were from biotechnology firms,
and 25 were from pharmaceutical firms.

Joint reward
system

283

Questionnaire and measures

Appendix 1 illustrates the survey items and their associated construct reliabilities. All
measures were obtained from a self-report questionnaire. Unless otherwise specified,
a response scale that was anchored by 1, strongly disagree, and 7, strongly agree.
Because of the exploratory nature of this study and the importance of the individual in
knowledge management (Nonaka, 1994; Nonaka and Takeuchi, 1995; ODell and
Grayson, 1998), we focus on the individual as the unit of analysis. The mean, standard
deviation and correlations for each variable are shown in Table I.

1
1. Joint determination of reward allocation
2. Process-based reward at initiation phase
3. Outcome-based reward at implementation
phase
4. Risk-free to participants
5. Over-reward incentives
6. Knowledge sharing
7. NPD performance
Mean
Standard deviation
Number of items
Notes: *p , 0.05;

p , 0.01; n 233

**

1.00
0.76 *

1.00

0.61 * *
0.63 * *
0.71 * *
0.55 * *
0.66 * *
4.17
1.37
4

0.62 * *
0.58 * *
0.65 * *
0.51 * *
0.56 * *
3.82
1.48
3

1.00
0.49 * *
0.60 * *
0.47 * *
0.46 * *
4.40
1.41
2

1.00
0.66 * *
0.68 * *
0.71 * *
4.90
1.12
3

1.00
0.52 * *
0.61 * *
4.65
1.05
3

1.00
0.69 * *
4.97
0.99
7

1.00
4.68
1.12
4

Table I.
Correlations and
descriptive statistics

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284

Measurement development for JRS and knowledge sharing

Because of the lack of valid instruments, self-administered items were undertaken (see
appendix A) for JRS and knowledge sharing. The items were carefully examined and
justified to determine the theoretical definition that corresponds to the
operationalization in NPD practices by six academic professors and two industry
experts in NPD. The revised items were then reviewed and revised by ten NPD project
members across various industries where sample firms located and were followed by
the verification and confirmation that were made by the six academic and industry
professionals for final approval.
Joint determination of reward allocation was measure by using a four-item scale
that assesses the degree to which the allocation of rewards is determined jointly by all
the NPD project members as suggested for various elements of JRS (e.g. Coombs and
Gomez-Mejia, 1991). The five-item scale of rewards contingent on NPD phase assesses
the degree to which process-based rewards and outcome-based rewards were
employed at the initiation and the implementation phase of NPD respectively. The
items were revised based on Sarin and Mahajans (2001) work. The three-item scale of
risk-free to participants assessing senior managements attitude in encouraging
risk-taking, supporting entrepreneurial spirits, and tolerating of initial failures, was
modified based on the works of Gupta et al. (1986) and Song and Parry (1993). Based on
the arguments of Song and Parry (1993), the three-item over-reward incentives scale
assesses the degree to which the firms provide proven incentives for innovation
regardless of the uncertainty of their outcomes.
Knowledge sharing was measured by using a seven-item scale of intent-mechanism
matrix that was designed to heed the arguments made by Nonaka (1994) and Bartol
and Srivastava (2002). The two by four matrix that contains two knowledge types
(explicit and tacit knowledge) and four mechanisms (sharing to contribute to
organizational database, sharing through formal interactions within or across teams or
units, informal interactions among individuals, and sharing within communities of
practice, which are voluntary forums of employees around a topic of interest) for
sharing knowledge (Bartol and Srivastava, 2002) were constructed. One cell may not be
practical as tacit knowledge is difficult to input into a database.
NPD performance. A four-item scale that measured respondents perceptions of
innovation performance was based on Song et al. (2000). Similar items were
significantly correlated with objective financial performance (Joshi and Sharma, 2004).
Factor analysis
To assess discriminant validity and dimensionality of the JRS construct (i.e. 15 items
measuring five dimensions of JRS), a principal-components factor analysis with
five-factor varimax rotation was performed. The results of factor analysis were shown,
as in Appendix 2, with proving reliabilities (a . 0.89, see Appendix 1). As depicted in
Appendix 2, all 15 items were loaded onto the factors as expected for measurement.
These five factors accounted for more than 80 per cent of the total variance, indicating
the discrininant validity and dimensionality of JRS construct.
The same approach was applied to the measurement items of knowledge sharing,
and NPD performance. Results of factor analysis were shown in Appendix 3. As
expected, all items were loaded onto the factors as designed with 76 percent of the total
variance explained with proving reliabilities (a . 0.90, see Appendix 1).

Test of common method/source bias

Because we collected the data from the same respondent using the same format of
questionnaire in measuring both dependent and independent variables, the
contamination of data caused by common method/source variance may be of
concern. We used Harmans single-factor test on the items as suggested by Podsakoff
and Organ (1986). Common method/source variance may not be a serious concern as
generally expected, yet results from the single-factor analysis indicated that more than
one factor emerged with the first factor accounted for 37 percent of total variance,
which suggests that common method/source variance is not an issue in this study.
Test of mediation
Not proposed in the hypotheses, our conceptual model nevertheless suggests that
knowledge sharing mediates the relationships between JRS and NPD performance.
Given that prior studies have shown the direct effects between JRS and knowledge
sharing (Song and Parry, 1993; Griffin and Hauser, 1996) and between knowledge
sharing and NPD performance (Chang et al., 2006), we thus tested the mediation effect
of knowledge sharing to ensure the appropriation of the proposed model before the
hypotheses were tested. Following the mediating test steps by using regression as
Baron and Kenny (1986) have suggested, the regression results were shown in Table II.
Model 1 shows significant and positive effects of JRS on NPD performance for total
sample and for all three functional areas. Model 2 indicates significant and positive
effects of knowledge sharing on NPD performance for total sample and for all three
functional areas. Model 3 illustrates that while knowledge sharing was controlled, the
positive effects of JRS has declined for the total sample (from b 0:7291, p , 0:001 to
b 0:4652, p , 0:001), as well as R&D (from b 0:8295, p , 0:001 to b 0:5832,
p , 0:001), marketing (from b 0:7238, p , 0:05 to b 0:3028, p , 0.05), and
manufacturing (from b 0:5824, p , 0.001 to b 0:3462, p , 0.001). The results
suggest that partial mediation effects were found for knowledge sharing in the model.
Furthermore, the regression results in Table II have also shown strong and
significant relationships between JRS and knowledge sharing, JRS and NPD
performance, and knowledge sharing and NPD performance across NPD project
members from R&D, marketing, and manufacturing functions.
Analysis and results
The effects of JRS on knowledge sharing (H1-H4)
To test hypotheses H1 through H4, multiple regression was used in which all features
of JRS were entered into one equation. As shown in Table III, mixed results emerged
from regression analysis. Joint determination of reward allocation was found to have
no significant relationship with knowledge sharing for the total sample, but significant
and positive effect was found in marketing function (b 0:4190, p , 0.001),
suggesting that project members from marketing prefer to participate in joint
determination of reward allocation than members form R&D and manufacturing.
Hence, H1 was partially supported. No significant relationship was found for
process-based reward at initiation phase in predicting knowledge sharing for the total
sample. Rather, we found significant and positive effect in R&D function (b 0:1859,
p , 0.01) and significant but unexpected negative effect in marketing function
(b 20:2396, p , 0.05), indicating that project members from R&D, contrary to their

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285

Table II.
Regression results of
mediation effects of
knowledge sharing
Total

0.8784 * * *

**

p , 0.01;

***

F2; 109 88:77

, 0.0001
0.6196
0.6126

MKT

0.7238 *

F2; 47 40:94
, 0.0001
0.6353
0.6198

0.3028 *
0.6066 * * *

F1; 48 70:52
, 0.0001
0.5950
0.5866

0.8372 * * *

F1; 48 45:75
, 0.0001
0.4880
0.4773

p , 0.001

0.5832 * * *
0.4380 * * *

F1; 110 94:26

, 0.0001
0.4615
0.4566

Notes: Values for independent variables are beta coefficients; *p , 0.05;

Dependent variable: NPD performance

Model 3
JRS (H6)
0.4652 * * *
Knowledge sharing (H5)
0.4507 * * *
Model fit
F-statistics
F2; 230 165:53
Significance
, 0.0001
R2
0.5901
Adjusted R 2
0.5865

0.8295 * * *
F1; 110 135:89
, 0.0001
0.5526
0.5486

R&D

MFG

0.5824 * * *

F2; 68 40:89
, 0.0001
0.5460
0.5326

0.3462 * * *
0.4249 * * *

F1; 69 56:41
, 0.0001
0.4498
0.4418

0.6413 * * *

F1; 69 49:38
, 0.0001
0.4171
0.4087

286

Dependent variable: NPD performance

Model 2
Knowledge sharing
0.7771 * * *
Model fit
F-statistics
F1; 231 205:63
Significance
, 0.0001
R2
0.4709
2
Adjusted R
0.4687

Dependent variable: NPD performance

Model 1
JRS
0.7291 * * *
Model fit
F-statistics
F1; 231 228:03
Significance
, 0.0001
R2
0.4968
Adjusted R 2
0.4946

Independent variables

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Model fit
F-statistics
Significance
R2
Adjusted R 2

Independent variables
Joint determination
of reward allocation
Process-based
reward in initiation
phase
Outcome-based
reward in
implementation
phase
Risk-free to
participants
Over-reward
incentives
Knowledge sharing
0.3754 * * *

0.4624 * * *

F(5,227) 44.15
,0.0001
0.4930
0.4819
**

2 0.0471

0.5039 * * *

0.1362

2 0.2396 *

0.4190 * * *

***

p , 0.001

F(5,44) 24.33
, 0.0001
0.7171
0.6850

p , 0.01;

F(5,106) 20.61
,0.0001
0.4929
0.4690

0.0496

0.0521

0.0810

20.0255

0.1859 * *

20.0623

Knowledge sharing
R&D
MKT

0.0299

0.0980

Total

Notes: Values for independent variables are beta coefficients; *p , 0.05;

H6

H4

H3

H2b

H2a

H1

Dependent variables

F(5,65) 10.94
,0.0001
0.4569
0.4151

20.1306

0.5040 * * *

0.1829

0.0027

0.0623

MFG

F(6,226) 64.64
, 0.0001
0.6318
0.6221

0.1057
0.3626 * * *

0.2881 * * *

2 0.0377

0.0010

0.2086 * * *

NPD performance
Total (H6)

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Table III.
Regression results of JRS,
knowledge sharing, and
NPD performance

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288

counterparts from marketing function, favor process-based reward at initiation phase

to stimulate knowledge sharing. This result lent a partial support for H2a.
Risk-free to participants has exhibited strong and positive predictability more than
any other features of JRS. Risk-free to participants was significantly and positively
associated with knowledge sharing not only in total sample (b 0:4624, p , 0.001),
but also across R&D (b 0:3754, p , 0.001), marketing (b 0:5039, p , 0.001), and
manufacturing (b 0:5040, p , 0.001). H3 was supported as a result, showing that
NPD project members, regardless of their functional background, favor the utilization
of risk-free to participants of JRS in driving knowledge sharing.
Outcome-based reward at implementation phase and over-reward incentives did not
yield significant results in predicting knowledge sharing neither in the total sample nor
in the three functional areas. H2b and H4 were not supported as a consequence.
The effects of knowledge sharing and JRS on NPD performance (H5 and H6)
Because the interdependence among variables in our conceptual model in which
knowledge sharing appears to be both the dependent variable of JRS and the
independent variable in predicting NPD performance, we controlled JRS while testing
H5 and controlled knowledge sharing while testing H6.
As expected, when JRS was properly controlled, the regression results in Table II
(model 3) yielded significant and positive relationship between knowledge sharing and
NPD performance among project members in total sample (b 0:4507, p , 0.001) and
across R&D (b 0:4380, p , 0.001), marketing (b 0:6066, p , 0.001), and
manufacturing (b 0:4249, p , 0.001). H5 was supported accordingly.
Also as our prediction, the overall JRS was positively and significantly related to
NPD performance in total sample and across all three functional areas (b 0:4652,
p , 0.001 for total sample, b 0:5832, p , 0.001 for R&D, b 0:3028, p , 0.05 for
marketing, and b 0:3462, p , 0.001 for manufacturing), when knowledge sharing
was properly controlled (see model 3 in Table II). As shown in Table III, the significant
effects were mainly contributed by joint determination of reward allocation
(b 0:2086, p , 0.001) and risk-free to participants (b 0:2881, p , 0.001). H6
was therefore partially supported.
Discussions and suggestions
This study is purported to develop and examine the effects of five features of joint
reward system joint determination of reward allocation, process-based reward at
initiation phase, result-based reward at implementation phase, risk-free to participants,
and over-reward incentives as the antecedents of knowledge sharing that leads to
NPD performance among NPD project members across R&D, marketing, and
manufacturing functions. The overall regression results produce significant and
positive effects for the relationships between JRS and knowledge sharing, JRS and NPD
performance, as well as knowledge sharing and NPD performance. Yet mixed results
emerged when we broke down the JRS into five features and divided the sample into
NPD project members functional specialties.
JRS as measured by risk-free to participants yielded consistent significant and
positive results in predicting not only knowledge sharing among NPD project members
across R&D, marketing, and manufacturing, but also NPD performance. Such findings
are highly consistent with recent researches on how reward structure influencing the

performance of cross-functional NPD teams (Sarin and Mahajan, 2001) and on the
importance of offering reward to invite knowledge sharing without concerning the
immediate success or failure to achieve NPD success (Joshi and Sharma, 2004). While
NPD members attitudes toward risk are a critical issue in NPD (Song and Parry, 1993),
the results also support the assertion that NPD project members tend to be
risk-aversion (Sasaki, 1991; Sarin and Mahajan, 2001). Therefore, designing JRS to
minimize project members risk in NPD is likely to stimulate project members efforts
for NPD performance (Robbins and Finley, 1995).
In addition, the sample firms were resided in Taiwan where uncertainty avoidance
is relatively higher than the Westerns (Hofstede, 1980) and employees are predisposed
to a common practice of knowledge hoarding (Hsu, 2006). Higher level of uncertainly
avoidance may lead NPD project members to show higher level of risk aversion. NPD
project members hording knowledge may be a common practice for protecting
themselves in the competitive hi-tech environment. Under such social and cultural
exigencies, NPD project members are likely to weight their costs and benefits for
contributing their knowledge unless the risk and costs can be minimized and/or
waived. Our findings indeed suggest that high-tech firms tend to use the risk-free
approach in rewarding NPD project teams plainly because its risk-free and non-cost
driven nature. Furthermore, unique aspects of organizational cultures for sharing tacit
knowledge in Taiwan may also affect the NPD performance through:
.
their integrated relationship with organizations;
.
their openness to the external environment; and
.
their special approaches to knowledge sharing (Yiu and Lin, 2002).
Although we had found positive and significant effect of joint determination of reward
allocation only in NPD project members from marketing, rather than from R&D and
manufacturing, we also found significant and positive relationship with NPD
performance. This finding may reflect a traditional managerial practice, namely, R&D
is rewarded for innovation, whereas marketing is rewarded for creating and
maintaining markets and satisfied customers. The high-tech firms in Taiwan are
renowned for their competitive edges in OEM and ODM instead of product and brand
promotions. Such industrial competitive advantages foster a culture that values R&D
more than marketing and manufacturing. As such, NPD project members from
marketing show higher appreciation than their counterparts from R&D in the
participation of reward allocation. However, as discussed in previous sections, for a
NPD program to be successful, collective efforts appeared to be a prerequisite. Thus, it
is important for the HR practitioners in hi-tech industries to become actively involved
in NPD and to promote interpersonal communication across NPD functional members
regarding contents and operationalizations of JRS in order to reduce conflicts among
them (Chimhanzi, 2004).
Reward contingent on NPD phase yielded some surprising and interesting results.
The results indicated as expected that process-based reward at initiation phase
significantly and positively associated with knowledge sharing in R&D, but a
surprising negative and significant result emerged in marketing, whereas
outcome-based reward at implementation phase has no any significant effect. A
plausible explanation may be that the R&D personnel constantly encounter
uncertainties in the process of generating new ideas and developing new

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technologies, a time consuming practice during the design-to-market (Hauser et al.,

1996). A key player at initiation phase notwithstanding, R&D personnel are likely to
sense stronger feelings of uncertainties than marketing or manufacturing because they
possess more knowledge in the technical feasibilities of the project. As a result, a
process-based reward is more favorable for R&D because it offers risk aversion.
Marketing personnel, on the other hand, may be more willing to be rewarded for the
products market performance. It is quite practical to expect that marketing is the sole
prize claimer for a products market success. After all, a successful market performance
will ultimately be translated into the bottom line, i.e. financial statements, or vice versa,
which give immediate pressure to the marketing function. Therefore, rewards that tie
to procedures, behaviors, and other means of achieving desired outcomes (i.e.
process-based reward) may be counterproductive for marketing.
To our surprise, no significance relationships were found for outcome-based
reward at implementation phase of JRS in predicting knowledge sharing and NPD
performance. One plausible explanation is that a foreseeable reward is viewed as
more secured at implementation phase because its outcome is more certain. The
opposite and inconsistent patterns among R&D, marketing, and manufacturing
functions regarding process-based and outcome-based reward signal potential
conflicts, because each function seem to have varied focal points in the reward
programs. The inconsistencies of their focus may be the causes of no significant
relationships found in association with NPD performance. Hence, our findings
suggest that managers should strike a balance between emphasis on process-based
reward for R&D and on outcome-based reward for manufacturing. For example,
other mechanisms for successful NPD results, e.g. performance management
systems promoting knowledge sharing (Hsu, 2006), enhance communication (Song
and Parry, 1993), and reward systems designed to build co-operative knowledge
sharing environment (Shih et al., 2006) should be considered because the benefits
brought by extrinsic rewards would diminish over time.
Rewards contingent on various phases of NPD appear to be more complicated
than were expected. More dimensions and contexts need to be explored to further
clarity the concepts. Future studies may incorporate extrinsic and intrinsic reward
mechanisms to test the interaction effects of JRS to clarify the complementary
effects in NPD under diversified contexts as suggested by Sarin and Mahajan
(2001).
Contrary to the prior studies claiming that the use of over-reward incentives
stimulates knowledge sharing among organizational members (Keidel, 1985; Harder,
1992), our empirical results suggest that over-reward incentives has no significant
effects on knowledge sharing. HR practitioners value rewards that facilitate knowledge
sharing at the initiation stage (c.f. Bock and Kim, 2002, p. 19), but acknowledge that
such reward may not elevate organizational participants level of commitment.
The significant and positive relationship between knowledge sharing and NPD
performance is also consistent with prior studies (Song and Parry, 1993; Griffin and
Hauser, 1996). Therefore, fostering knowledge sharing among NPD members is the
essential tasks for management. In addition, formal reward systems based on
knowledge sharing behaviors, collective efforts, team-based and company-wide
incentives, and informal reward systems based on procedural fairness and trust, are all
conducive to knowledge sharing.

Limitations
While this study has yielded major findings that possess significant implications for
both theory and practice, several limitations need to be addressed as well. First, more
objective NPD performance measurement (Godener and Soderquist, 2004), such as
finance, customer satisfaction, strategic management, process management,
technology management, innovation, and knowledge management should be
employed in future studies to ensure that quantitative outcomes of NPD
performance is consistent with qualitative measures. Second, because data for this
study were collected from high-tech organizations across electronics, semiconductor,
biotechnology, and pharmaceutical industries, it would be helpful for future studies to
replicate our findings in non-high tech settings to enhance the generalizability of our
results in other settings. Third, this study ignored the importance of individuals
variance in terms of knowledge, skill, and ability (KSA) for teamwork and knowledge
sharing (Stevens and Campion, 1994). Future studies may need to incorporate the
necessary KSA of NPD members into related studies for further clarification.
Finally, while within-team and interunit networks had different effects on the
outcomes of three knowledge-sharing phases (Hansen et al., 2005), future studies on
knowledge sharing under NPD setting should examine how multiple networks affect
different phases of knowledge sharing.

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Appendix 1

Construct and response formats

Measurement items

Jointly determine the allocation:

(alpha 0:89)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)

1. Participative management was used commonly in our

company
2. Our company offers a joint reward to cross-functional NPD
teams for their performance
3. A policy of jointly determine the allocation of rewards in our
company is emphasized as a means for motivating NPD members
4. All NPD-involved functions are invited to determine how to
properly allocate their rewards jointly in our company
1. In initiation phase of NPD, team members are rewarded for
completing major milestones/stages
2. In initiation phase of NPD, team members are rewarded for
meeting certain prescribed conditions
3. In initiation phase of NPD, teamwork behavior is taken into
account when evaluating/rewarding the team
4. In implementation phase of NPD, the rewards received by team
members are related entirely to the profit contribution attributed
to the team
5. In implementation phase of NPD, the rewards received by team
members are deferred until bottom-line results of the team (e.g.
product performance, market share, profitability, and sales) are
available
1. In NPD process, if team members encounter failure,
management encourages them to keep trying
2. Management encourages team members undertake
entrepreneurial behavior by supporting new ideas and
risk-taking
3. Initial failures in NPD process do not reflect on your
competence
1. Our company provides over-reward incentives to team
members for a successful NPD project
2. In our company, even though the teams failed in their mandate,
they remained a base pay
3. In our company, rewards accrue to those who perform superbly
on a failing project
1. Contributes explicit knowledge to organizational database
2. Sharing explicit knowledge in formal interactions within or
across teams or units
3. Sharing tacit knowledge in formal interactions within or across
teams or units
4. Sharing explicit knowledge in informal interactions among
individuals
5. Sharing tacit knowledge in informal interactions among
individuals
6. Sharing explicit knowledge within communities of practice,
which are voluntary forums of employees around a topic of
interest
7. Sharing tacit knowledge within communities of practice, which
are voluntary forums of employees around a topic of interest
(continued)

Rewards contingent on NPD

phase: (alpha 0:91)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)

Risk-free to participants:
(alpha 0:90)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)
Over-reward incentives:
(alpha 0:90)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)
Knowledge sharing: (alpha 0:91)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)

Table AI.
Construct, construct
reliability, and
measurement items

Construct and response formats

Measurement items

Innovation performance:
(alpha 0:90)
Please indicate the degree to which
you agree or disagree with the
following statements (1 ( strongly
disagree, 7 ( strongly agree)

1. The innovation performance of our team or program in terms

of profits, sales, and market share has met our firms objectives
2. Compared with our major competitors, our innovation
performance in terms of profits, sales, and market share is far
more successful
3. Compared with our other teams in our firm, the innovation
performance of our team is far more successful
4. From an overall profitability standpoint in the industry, the
innovation performance of our team has been very successful

Joint reward
system

295
Table AI.

IJM
28,3/4

Appendix 2

Scale items

296

Table AII.
Results of factor analysis
of JRS items

1. Participative management was used commonly

in our company
2. Our company offers a joint reward to
cross-functional NPD teams for their performance
3. A policy of jointly determine the allocation of
rewards our company is emphasized as a means for
motivating NPD-involved members
4. All NPD-involved functions are invited for
determining how to allocate their rewards jointly in
our company
5. In initiation phase of NPD, team members are
rewarded for completing major milestones/stages
6. In initiation phase of NPD, team members are
rewarded for meeting certain prescribed conditions
7. In initiation phase of NPD, teamwork behavior is
taken into account when evaluating/rewarding the
team
8. In implementation phase of NPD, the rewards
received by team members are related entirely to
the profit contribution attributed to the team
9. In implementation phase of NPD, the rewards
received by team members are deferred until
bottom-line results of the team (e.g. product
performance, market share, profitability, and sales)
are available
10. In NPD process, if team members encounter
failure, management encourages them to keep
trying
11. Management encourages team members
undertake entrepreneurial behavior by supporting
new ideas and risk-taking
12. Initial failures in NPD process do not reflect
your competence
13. Our company provides over-reward incentives
to team members for a successful NPD project
14. In our company, even though the teams failed in
their mandate, they remained on base pay
15. In our company, rewards accrue to those who
perform superbly on a failing project

Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

0.73
0.75
0.70
0.67
0.86
0.83
0.65
0.88

0.79
0.78
0.71
0.83
0.47
0.98
0.46

Notes: Factor 1 corresponds to joint determination of reward allocation, Factor 2 corresponds to

process-based reward at initiation phase, Factor 3 corresponds to outcome-based reward at
implementation phase, Factor 4 corresponds to risk-free to participants, and Factor 5 corresponds to
over-reward incentives; n 233

Joint reward
system

Appendix 3

Scale items
1. Contributes explicit knowledge to organizational database
2. Sharing explicit knowledge in formal interactions within or across
teams or units
3. Sharing tacit knowledge in formal interactions within or across
teams or units
4. Sharing explicit knowledge in informal interactions among
individuals
5. Sharing tacit knowledge in informal interactions among
individuals
6. Sharing explicit knowledge within communities of practice, which
are voluntary forums of employees around a topic of interest
7. Sharing tacit knowledge within communities of practice, which are
voluntary forums of employees around a topic of interest
8. The innovation performance of our team or program in terms of
profits, sales, and market share has met our firms objectives
9. Compared with our major competitors, our innovation performance
in terms of profits, sales, and market share is far more successful
10. Compared with our firms other teams, the innovation
performance of our team or program is far more successful
11. From an overall profitability standpoint in the industry, the
innovation performance of our team or program has been successful

Factor 1

Factor 2

0.74

297

0.80
0.77
0.79
0.81
0.77
0.76
0.82
0.85
0.80
0.81

Notes: Factor 1 corresponds to knowledge sharing, Factor 2 corresponds to NPD performance; All
items loaded on the factors as designed and are accounted for 73 percent of the total variance; n 233

About the authors

Tsun-Jin Chang is an Associate Professor in the Department of Business Administration at Shih
Chien University, Kaohsiung Campus. He received a BS in Business Administration from Tam
Kang University, and an MBA and a PhD in Management from the Institute of Business
Management of National Sun Yat-Sen University. His current research interests include the
management of R&D, internal customer satisfaction incentives for NPD, and improving the
process of NPD. Tsun-Jin Chang is the corresponding author and can be contacted at:
stevechg@mail3.kh.usc.edu.tw
Shang-Pao Yeh is an Associate Professor of the Department of International Business at
Leader University. He received a Masters degree in Public Administration from the University
of Southern California (USC), an MBA from Northrop University, and a Doctorate in
Management from Webster University. His recent research interests are job insecurity,
knowledge sharing, and OCB under organizational reform and change.
I-Jan Yeh is an Assistant Professor of the Department of Public Policy and Management at
Shih Hsin University. He received a Masters degree in Public Administration and a PhD in
Public Policy from the University of Southern California (USC). His recent areas of research
interest are in knowledge management in regulatory process and digital government.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

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Table AIII.
Results of factor analysis
of all constructs except
for JRS items

The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0143-7720.htm

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28,3/4

E-business through knowledge

management in Spanish
telecommunications companies

298

Juan G. Cegarra-Navarro and Eusebio Angel Martnez-Conesa

Polytechnic University of Cartagena, Cartagena, Spain
Abstract
Purpose E-business requires small and medium-sized enterprises (SMEs) to seek both external and
internal knowledge and to establish external and internal relationships with partners, such as
customers and suppliers. This paper aims to describe a model that examines how knowledge
management has an impact on the adoption of e-business, particularly in SMEs.
Design/methodology/approach This paper reviews literature to identify relevant measures
through a structural equation model, which is validated through an empirical investigation of 107
SMEs in the Spanish telecommunications sector.
Findings The results show that, in order to implement e-business systems, companies need to
provide and support the acquisition, sharing and application of knowledge as prior steps.
Research limitations/implications Other factors that have not been included in this study are
also likely to affect knowledge acquisition.
Practical implications Organisations that engage in learning from their customers and suppliers
not only test the effectiveness of a new direction of e-business, but also have the potential to design
their e-business around what customers truly need and want, and as such gain a sustainable
competitive advantage.
Originality/value These results have implications for e-business managers in formulating policies
and targeting appropriate organisational capabilities to ensure the effective adoption of e-business
systems.
Keywords Customer orientation, Electronic commerce, Knowledge management,
Small to medium-sized enterprises, Spain
Paper type Research paper

Broadly speaking, e-business can be defined as any business carried out over an
electronic network (exchanging data files, having a website, using other companies
websites or buying and selling goods and services online). Some of the major benefits of
e-business are providing more timely and accurate information for decision-making,
enabling improved coordination and communication with business partners, facilitating
improved customer service, and helping reduce administrative costs (Zhuang and
Lederer, 2003).
Small and medium-size enterprises (SMEs) have been recognised as being
fundamental players within the European e-business economy (Howard, 1990). In
Spain, SMEs represent more than 99.8 per cent of all businesses registered, generate about
70 per cent of the employment and contribute to 65 per cent of the gross domestic product
International Journal of Manpower
Vol. 28 No. 3/4, 2007
pp. 298-314
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755263

The data of this research originated from a research program supported by the European
Regional Development Fund entitled: Knowledge management, intellectual capital, technology
systems and other management alternatives Reference: EX-300-503.

(Cegarra and Sabater, 2005). Even though e-business provides many opportunities for
SMEs, a number of SMEs have not capitalised on this new method (Fillis et al., 2004). The
barriers to change are no longer technological they are now barriers of competence and
will. This resistance to implement e-business can be related to issues of uncertainty,
trust and lack of knowledge, which impede the rate at which SMEs adopt e-business
(Fillis et al., 2003). This is especially true if managers in SMEs have never previously used
any electronic means of communication (Nath et al., 1998).
Denning (2000) suggests that the growth of this new electronic world requires
innovation and the generation of new businesses with developing and leveraging
knowledge assets, including many different types of new skills, new forms of
integrated and intensive relationships with external entities, new sets of perceptions
held by customers, channels and suppliers, and, of course, significant new knowledge.
Therefore, e-business must be structured around the knowledge and context needed for
the integration of technology systems (TS).
Knowledge management (KM) is the process of collecting, organising, storing and
exploiting the information and data within organisations (Nonaka and Takeuchi, 1995),
particularly tacit and explicit knowledge. The key benefits of using KM among SMEs
have been identified as: the provision of environmental information (Birley, 1985); support
and confirmation in decision-making (Carson et al., 1995); the generation of new contacts
(Birley, 1985) and the development of ideas for new product offerings (Carson et al., 1995).
This study aims to examine the impact of KM on the adoption of e-business systems.
In the following section, we introduce the key concepts of KM phases (knowledge
acquisition, knowledge sharing and knowledge application) and e-business for SMEs.
Contextual framework
SMEs have been using TS applications for many years (Maguire and Magrys, 2001). It
is however important to realise that knowledge creation cannot be accomplished solely
using technology tools (Ackerman, 2000). Decision support systems, executive
information systems, data warehousing and mining systems along with a host of other
technologies have all been evaluated by Davenport and Prusak (1998), and more
recently by Smith and Farquhar (2000) who have discussed artificial intelligence,
alluding to how all these solutions fall short in the process of knowledge creation.
Malhotra (2000) emphasised that it is not the computers but what people do with them
that matters, suggesting the role of the users motivation and commitment in TS
performance. In this regard, Ackerman (2000) asserts that creating and using
knowledge is a human endeavour in that it requires individuals to think and to reason;
in short, to make sense of the current and emerging context around them.
KM applications provide a novel architecture for enterprises that contributes
significantly to understanding and facilitating the e-business transformation of
operational processes (Fahey et al., 2001). Johannessen et al. (1999) for instance, argued
that knowledge integration and related applications have been developed as strategic
competitive factors in modern organisations, such as the managing of intellectual and
social capital, the promotion of organisational innovation and the support of new forms
of collaboration. From the perspective of technological innovation, knowledge
acquisition, knowledge sharing and the practical application of knowledge are the
main elements for developing technological capabilities (Gilbert and Cordey-Hayes,
1996; Johannessen et al., 1999).

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Knowledge acquisition
Knowledge acquisition (KA) is defined as the business processes that capture
knowledge (Lin and Lee, 2005). Resources are scarce in SMEs and a chief knowledge
officer cannot be justified, so knowledge is likely to result from secondary data (e.g.
trade journals, sector research, conferences and professional magazines) or from
personal contacts (Langerak, 2003). In this regard, Dewhurst and Cegarra (2004)
suggest that since resources are scarce in SMEs and since any practice to acquire
knowledge will generally be more expensive than encouraging meetings with suppliers
or customers, it is likely that these will be favoured by SMEs.
From the point-of-view of this paper, the context of KA results from companies
working cooperatively with other organisations to support new products, satisfy
customers and create new market innovations. Customer orientation (CO) and supplier
orientation (SO) focus on determining the relevant customers or suppliers, processes
and domain knowledge needed to carry out business activities successfully and
acquiring or generating this knowledge by monitoring suppliers and customers
activities within the e-business system. Under this framework, sellers or front-line
contact people acquire knowledge based on their direct experiences and observations,
which are stored in their memories as cognition, belief and values (Selnes and Sallis,
2003). Davenport et al. (2001) call this knowledge human data or knowledge, because
it is captured and used mainly by employees interacting with customers or observing
and interpreting the behaviour of colleagues.

Knowledge sharing
There is a problem with previous arguments in that the information given by the
customer or the supplier is one thing, and the knowledge used by the company is
another. For example, the knowledge created by sales is not formulated or controlled
directly by the management, but it is being continuously created through new
customers and lost as employees move, groups dissolve and application wanes, thus,
the sharing of knowledge commences. Knowledge sharing (KS) is defined as the
transmission of knowledge from individuals who have been related with customers
and suppliers to the rest of the people that form part of the organisation. Very often,
this process takes place by members sharing stories or anecdotes of actual work
practices, as opposed to what is mentioned in formal job descriptions or procedure
manuals (Brown and Duguid, 1991).
According to Sinkula et al. (1997), open-mindedness (i.e. the willingness to consider
ideas and opinions that are new or different) is associated with the concept of learning,
through which managers encourage the distribution of knowledge by social processes
between groups and individuals. The result of these externalisation and combination
processes will be shared explicit knowledge stored in the organisational memory.
The goal of this social knowledge is that all members of the organisation are aware
(Cohen, 1991) of where the useful complementary abilities reside (e.g. who knows what?
Who can help with that? Who can exploit new information?). The maintenance of the
organisational memory supposes in each case, the reactivation and development of
new information, which fosters learning and the integration of new knowledge in
members of the organisation, thus, knowledge application begins.

Knowledge application
Knowledge application (KAP) includes the absorption of the knowledge generated in
the acquisition and sharing phases (i.e. the internalisation of the knowledge within an
organisation), so it could be applied to what has already been learnt in those phases to
businesses and its own activities. For example, when information on customers and
suppliers is assimilated by decision-makers and it changes their mental models of the
market environment, it has been applied to make a decision (Dickson, 1994, p. 46).
Therefore, before the organisation can use the shared knowledge, it must first be
assimilated. In this regard, Kim (1998) conceptualises absorptive capacity as learning
capability and problem solving skills that enable individuals to assimilate knowledge
and create new knowledge.
Kim (1993) argues that individual learning can be classified as conceptual or
operational. On the one hand, conceptual learning concerns thinking about why things
are or why they are done in the first place, sometimes challenging the very nature or
existence of the prevailing conditions, procedures, or conceptions and potentially
leading to new mental models and new ways of understanding. Through conceptual
learning, individuals develop cognitive maps (Huff, 1990) of the different domains in
which they operate. Differently, operational learning basically refers to learning how to
do something. It relates to learning how to complete the steps necessary to perform a
particular task. Operational learning is this nexus between what individuals can do
(capability), what they want to do (motivation), and what they need to do (focus) which
enhances the application of knowledge.
Research model and hypotheses
Knowledge acquisition is greater when more assorted interpretations are developed by
the individuals that form part of the organisation. Huber (1991) asserts that one of the
principal factors that influence the success of getting multiple interpretations is
collaboration with other organisations. Taking into account Hubers contributions, CO
and SO are ideal platforms to learn and explore new possibilities, because two or more
individuals are working together with different resources and complementary
capacities, which is a learning facilitator factor. Communication and collaboration with
customers and suppliers provide a face-to-face interaction so that the desired
exchange of knowledge can occur. However, at those stages, knowledge is individual
rather than social (Cohen, 1991), and tacit rather than explicit (Nonaka, 1994).
Therefore, it is necessary that this knowledge becomes embedded within
organisational memory-structures in order that it becomes a component of the
dominant design.
New knowledge may be further consolidated through the emergent
understandings that are created by group members when they interact (Schein,
1992). Cegarra and Sabater (2005) suggest that knowledge sharing supports
knowledge application because it reduces uncertainty. It tells employees about their
learning what is working (do more of this) and what is not (do less of this).
Considering this, we suggest that KS helps learners adjust what they are doing so
they are more successful in their tasks. In this regard, Akgun et al. (2005) suggest that
when an individual considers the alternatives and shows curiosity about
understanding related issues, their ability to discover new and novel practices
increases, which in turn may affect the implementation of new routines.

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Even though e-business provides all employees with the necessary tools to make the
right decisions, very little is achieved if they do not link these tools with their previous
cognitive maps (Hsiu-Fen and Gwo-Guang, 2005). This means that for users of
e-business to realise the full potential of the technology, they must be willing to use the
technology and become an effective user (Bontis and Fitz-enz, 2002). In this aim, the set
of elements that contribute having employee sentiment should be considered. By
facilitating a high level of KAP, organisations will have members who will assume
responsibilities in using TS (Venkatesh and Speier, 2000; Robey et al., 2002).
According to Koh and Maguire (2004), one of the main drivers of the emerging trend
of SMEs implementing e-business systems is the pressure from the big players (their
business customers). In turn, Kotler (2000) suggests that when information or
knowledge is fragmented within a company, customer feedback is hard to obtain and,
as a result, performance suffers. E-business systems enable order processing to be
computerised and performance to be monitored in real-time. Therefore, SMEs equipped
with e-business can provide a better and competitive service to their customers, which
could enhance organisational performance.
Given the aforementioned discussion, we propose the structural model shown in
Figure 1 and the following hypotheses:
H1. Supplier orientation leads to knowledge sharing.
H2. Customer orientation leads to knowledge sharing.
H3. Knowledge sharing leads to knowledge application.
H4. Knowledge application leads to e-business systems.
H5. E-business systems lead to better business performance.
Method
The Spanish telecommunications industry was the subject of our data collection. The total
market in Spain for telecommunications (including fixed and mobile and data
communications with broadband internet access as a key means of transmission),
represents 18 percent of the total European telecommunications market and nearly 4.7
percent of the Spanish gross domestic product. SMEs that comprise the Spanish
Telecommunications industry are highly motivated to introduce processes for KM and

Figure 1.
E-business process via
KM

e-business as they have to face up to a highly dynamic environment, strong competition

and rapid advances in technology. Considering this, we suggest that the
telecommunications industry in Spain is an appropriate setting for an investigation of
KM and its impact on e-business adoption.
The Spanish National Classification of Economic Activities (CNAE) was used to
define the sector to which the SMEs belonged. Based on the Statistical Year 2002, we
used a list of 665 SMEs provided by the Sistema de Analisis de Balances Ibericos[1]
(SABI) database as an initial sampling frame. All companies were included in the
CNAE-642 and were classified according to the European Union classification (COM,
1996) as SMEs (with fewer than 250 employees, an annual turnover not exceeding e50
million, and an annual balance sheet total not exceeding of e43 million).
In order to develop appropriate measures for the constructs that were of interest in this
study, we combined scales from several other relevant empirical studies with some
additions to make an initial list of 49 items; 24 measuring the extent of e-business;
5 2 10 measuring the two factors of customer and supplier orientation (CO and SO);
5 2 10 measuring the two factors of sharing and application of knowledge (KS and
KAP) and FIVE measuring business performance (BP). We eliminated several redundant
items through interviews with businesspeople and colleagues, and we then tested a first
draft of the questionnaire using three leading Spanish telecommunications businesses.
The questionnaire constructs comprised the following:
(1) The initial measures relating to the existence of SO and CO scales consisted of
eight items (4 2 8 measuring CO and SO factors) adapted from a scale
designed by Dewhurst and Cegarra (2004) to measure the construct of external
communities of practice. Consistent with Dewhurst and Cegarra (2004), items
that tapped the SO and CO were interwoven with issues related to encouraging
individuals in the organisation to track changing markets and share market
intelligence with customers and suppliers.
(2) The measures relating to the existence of the knowledge sharing (KS) scale
consisted of four items adapted from a scale designed by Baker and Sinkula
(1999) to measure the construct of open-mindedness. These items describe the
way management faced up to change, introduced it actively into the company
through projects, collaborated with other members of the organisation, and
recognised the value of new information or taking risks.
(3) The existence of conditions necessary to support knowledge application
(KAP) were measured using an adapted version of a scale designed by Bontis
et al. (2000). This construct focuses on the generation of new insights, engaging
in actions that are experimental in nature, breaking out of traditional mind-sets
to see things in new and different ways, developing the competencies necessary
for doing ones job, having a sense of pride and ownership in ones work, and
being aware of the critical issues that affect ones work.
(4) Cegarra and Sabater (2005) classify TS into three categories: the internet enables
customers and employees to have access to instant available information about
products and services across time and distance; groupware provides collaborative
groups formed by employees, managers and sometimes customers with the ability
to link large amounts of information in a dynamic manner; and collective systems
facilitate flows of information that may be controlled by users. Table I presents

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Table I.
Summary of survey
e-business items

1. Internet connection
2. Web page or homepage
3. Website, e.g. catalogue on internet
4. Banners or links with other sites
5. Counters and trackers
6. Site map
7. Search engine
8. Bulletin board systems
9. E-mail
10. Open discussion forums
11. Open voting systems
12. Open distribution lists
13. Online calendars or agendas
14. Repository of documents
15. Newsgroup (USENET)
16. Access to share database
17. Tools to provide vendor recommendations
18. Tools to provide estimated costs
19. Tools to provide timeframes
20. Affiliate programs with tracking (e.g. cookies)
21. Creation of customised billing systems
22. Customer service management solutions
23. Complete shopping cart solutions
24. Payment and verification systems

A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes
A Yes

A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No
A No

these measurement constructs, where items one to eight measured the internet;
items nine to 16 measured groupware; and items 17 to 24 measured collective
systems.
(5) The initial measures relating to the existence of a BP scale consisted of three items.
Several measures of business performance have appeared in the literature and we
adopt the growth-based measures proposed by McDougall et al. (1994), Roth and
Ricks (1994), and Bontis et al. (2000) for sales, profits and profitability on total
assets.
Before conducting the surveys, Spanish telecommunication businesses were contacted
and asked by our team to participate in the study. They were informed by telephone of the
work objectives and they were assured of its strictly scientific and confidential nature, as
well as the global and anonymous treatment of the data. In total, 665 companies were
solicited for participation in the study by telephone, and only 195 agreed.
The information-collecting period lasted for about two months, from early May to
early July 2005. Three data collection sources have been mainly used for the part of the
study reported here. First, the information about CO, SO, KS and KAP was collected by
sending letters and e-mails to the manager or general director of the SMEs. Table II
shows the 12 items used to measure the KS (Y1-3), KAP (Y4-6), SO (X1-3), and
CO, (X4-6). In these questions, the individual responding had to indicate his degree of
agreement or disagreement on a seven point Likert scale (where 1 strong
disagreement and 7 strong agreement). From the sample size of 195, a total of 107
valid responses were received giving a response rate of 54.87 per cent with a factor of
error of 6.35 per cent for p q 50 per cent and a level of reliability of 95.5 per cent.

Item description
(KS): Knowledge sharing
Y1: The management has ability to work in team
Y2: Meetings in which employees from different
departments participate, are organised
Y3: The management accepts the change introducing
it actively in the company

Standardised
loading

t-value

Reliability SCR *

0.83

9.61

SCR =
0.833

0.75

8.48

0.79

8.99

(KAP): Knowledge application

Y4: Employees provide creative solutions before
unforeseen
Y5: Employees put at the disposal of the company all
the information they possess
Y6: Employees do not conceal their mistakes

0.85

10.41

0.85
0.63

10.43
6.86

E-business
Y7: Internet technology
Y8: Groupware
Y9: Collective systems

0.90
0.89
0.81

11.52
11.31
9.76

(BP): Business performance

Y10: Growth rate of sales 2002
Y11: Growth rate of profits 2002
Y12: Profitability rate on total assets 2002

0.73
0.71
0.94

8.28
7.99
11.64

0.89

11.54

0.70

8.22

0.83

10.41

(SO): Supplier orientation

X1: Novelties are introduce thanks to your suppliers
X2: There is a frequent contact (three times per
month) with suppliers
X3: From time to time suppliers inform about new
technologies and products of the sector
(CO): Customer orientation
X4: Informal activities (dinners, lunches, and travels),
in which customers and employees participate, are
organised
X5: Customers give your company information about
the offers that receive from competitors
X6: After a product has been delivered, we contact
with clients to ask them the degree of satisfaction

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305
SCR =
0.826

SCR =
0.901

SCR =
0.842

SCR =
0.876

SCR =
0.77

8.95

0.89

10.93

0.70

0.833

7.76
x280

Notes: The fit statistics for the 18 measurement constructs were:

163:86; GFI 0:89;
RMSA 0:077; CFI 0:90; IFI 0:90; *With scale composite reliability (SCR) of (pc Sli 2 var
(j)/[(Sli)2 var (j)+Suii]
Source: Bagozzy and Yi (1988)

Then, every web page of each SME was examined to identify the presence of specific
e-business applications (1) or otherwise (0). As a result, three variables with a minimum
value of zero and a maximum value of eight were identified and the confirming
factorial model, shown in Table II (Y7-Y9), indicated that they could be represented by

Table II.
Construct summary,
confirmatory factor
analysis and scale
reliability

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306

a single factor e-business. Finally, the continuous measures of business performance

(BP) in Table II (items Y10-Y12) were collected using data from the SABI database.
Measurement model
To assess the uni-dimensionality of each construct, a confirmatory factor analysis of
the five constructs was conducted. The application of this technique requires that an
initial model be proposed, so that if data do not fit well, then the model can be modified
until a good fit is achieved. We transitioned from one model to another, removing those
items that did not converge substantially with their respective latent variable. To
perform this analysis, modification indices, path coefficients and change statistics were
examined (the enhanced or attenuated reliability given by the removal of the item)
(Anderson and Gerbing, 1988). Table III provides means, standard deviations and
correlations for the resulting 18 items (three for each construct).
As shown in Table II, the results suggest a good fit for the 18 measurement
constructs since: x2 163:86, df 80, p 0:00; goodness-of-fit index GFI
0:89;
comparative fit index CFI
0:90; incremental-fit index IFI
0:90; root mean
square error of approximation RMSEA
0:07. Tables II and IV summarise the
reliabilities and convergent and discriminant validities for all the constructs.
The reliability of the measures is calculated using Bagozzi and Yis (1988) composite
reliability index and with Fornell and Larkers (1981) average variance extracted index.
For all the measures, both indices are higher than the evaluation criteria of 0.6 for the
composite reliability and 0.5 for the average variance extracted (Bagozzi and Yi, 1988).
As shown in Table II, all those path coefficients, from the six constructs to the 18
measures, are statistically significant with the lowest t-value for the items measuring
KAP effectiveness being 6.86. The fact that all the t-values considerably exceed the
standard of 2.00 and the standardised parameters (. 0.5), indicates a satisfactory
convergent validity for the five constructs at a level of reliability of 99 per cent.
Discriminant validity was assessed in two ways (Baker et al., 2002): first, the
confidence interval for each pair-wise correlation estimate (i.e. ^ two standard errors)
should not include 1 (Anderson and Gerbing, 1988). Table IV shows that this condition
was satisfied for all pair-wise correlations in the measurement model. Second, for each
construct, the percentage of variance extracted should exceed the constructs shared
variance with every other construct (i.e. the square of the correlation) (Fornell and
Larcker, 1981). This condition is satisfied for all the constructs, as shown in Table IV.
For example, the extracted variance for KS rcAVE 0:624, which exceeds its shared
variances with KAP (0.25), e-business (0.02), BP (0.14), SO (0.38) and CO (0.28).
Results
The proposed structural model is specified from the hypothesised relationships H1-H5
depicted graphically in Figure 2. In terms of our hypotheses (Table V), the findings for
H1 and H2 show that SO and CO had a positive and significant influence on KS. By
testing the third hypothesis (H3), Table V shows that the effect of KS on KAP had a
significant influence at a level of ( p , 0.01). In testing the fourth hypothesis (H4)
Table V, again, shows that the existence of conditions necessary to stimulate
knowledge application has a positive and significant effect on e-business. The finding
for H5 shows that e-business is associated with BP at a level of ( p , 0.01). Our data
further indicates that e-business mediates the effects of KS and KAP on BP.

5.32
1.22
1.00
0.27
0.40
0.43
0.12
0.16
0.09
0.28
0.24
0.27
0.49
0.34
0.43
0.56
0.09
0.23

5.36
1.20

1.00
0.61
0.06
0.24
0.30
2 0.09
0.01
2 0.10
0.10
0.07
0.17
0.48
0.41
0.34
0.40
0.43
0.17

5.14
1.58
1.00
0.61
0.65
0.41
0.44
0.35
0.16
0.17
0.12
0.26
0.24
0.35
0.50
0.16
0.22
0.52
0.38
0.41
1.00
0.71
0.67
0.28
0.18
0.21
0.34
0.32
0.42
0.54
0.33
0.47
0.39
0.49
0.43

5.03
1.53

Y4

1.00
0.58
0.35
0.33
0.34
0.35
0.34
0.46
0.56
0.43
0.40
0.32
0.49
0.46

4.96
1.52

Y5

1.00
0.19
0.22
0.11
0.32
0.19
0.42
0.35
0.41
0.28
0.29
0.21
0.13

4.33
1.34

Y6

1.00
0.81
0.72
0.28
0.09
0.30
0.10
0.03
0.11
0.02
0.00
0.10

3.98
2.48

Y7

1.00
0.73
0.20
0.04
0.21
0.11
0.02
0.07
0.06
0.03
0.07

2.13
1.78

Y8

1.00
0.10
0.02
0.15
0.06
0.03
20.01
20.05
20.01
0.13

1.96
1.93

Y9

1.00
0.55
0.69
0.21
0.22
0.20
0.18
0.13
0.11

2 0.07
0.68

Y10

1.00
0.67
0.25
0.21
0.20
0.26
0.18
0.13

20.07
0.29

Y11

1.00
0.26
0.30
0.12
0.29
0.29
0.16

2 0.41
0.86

Y12

1.00
0.69
0.83
0.52
0.64
0.42

5.33
1.68

X1

1.00
0.78
0.31
0.49
0.17

4.80
1.89

X2

1.00
0.36
0.45
0.27

5.23
1.61

X3

X5
5.47
1.05

1.00
0.63

X4
5.77
1.17

1.00
0.68
0.55

1.00

5.56
1.01

X6

Notes: Mean (m); Standard deviation (s); Knowledge sharing (Y1-3); Knowledge application (Y4-6); Business performance (Y7-9); Supplier orientation
(X1-3); Customer orientation (X4-6)

h
O
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
Y11
Y12
X1
X2
X3
X4
X5
X6

Y3

Y2

Y1

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307

Table III.
Correlation matrix
analysed

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308

Table IV.
Cross loading and
discriminant validity for
each pairwise of
constructs

KS ! KAP
KS- ! E-business
KS ! BP
KS ! SO
KS ! CO
KAP ! KS
KAP ! E-business
KAP ! BP
KAP ! SO
KAP ! CO
E-business ! KAP
E-business ! KS
E-business ! BP
E-business ! SO
E-business ! CO
BP ! KS
BP ! KAP
BP ! E-business
BP ! SO
BP ! CO
SO ! KS
SO ! KAP
SO ! E-business
SO ! BP
SO ! CO
CO ! KS
CO ! KAP
CO ! E-business
CO ! BP
CO ! SO

wi

(wi 2 *1)

Shared variance

0.50 *
0.13
0.37 *
0.62 *
0.53 *
0.50 *
0.38 *
0.56 *
0.70 *
0.61 *
0.38 *
0.13
0.27 *
0.11
0.04
0.37 *
0.56 *
0.27 *
0.29 *
0.33
0.62 *
0.70 *
0.11
0.29 *
0.69 *
0.53 *
0.61 *
0.04
0.33 *
0.69 *

0.09
0.11
0.10
0.07
0.09
0.09
0.10
0.08
0.06
0.08
0.10
0.11
0.10
0.10
0.11
0.10
0.08
0.10
0.09
0.10
0.07
0.06
0.10
0.09
0.06
0.09
0.08
0.11
0.10
0.06

0.68
0.35
0.57
0.76
0.71
0.68
0.58
0.72
0.82
0.77
0.58
0.35
0.47
0.31
0.26
0.57
0.72
0.47
0.47
0.53
0.76
0.82
0.31
0.47
0.81
0.71
0.77
0.26
0.53
0.81

0.25
0.02
0.14
0.38
0.28
0.25
0.14
0.31
0.49
0.37
0.14
0.02
0.07
0.01
0.00
0.14
0.31
0.07
0.08
0.11
0.38
0.49
0.01
0.08
0.48
0.28
0.37
0.00
0.11
0.48

Extracted variance
KS
rcAVE =
0.624
KAP
rcAVE =
0.618
E-business
rcAVE =
0.756
BP
rcAVE =
0.644
SO
rcAVE =
0.704
CO
rcAVE =
0.626

Note: * , 0.01; Average variance extracted (pc = Sli 2 var (j)/[Sli 2 var (j)+Suii]
Source: Fornell and Larcker (1981)

Figure 2.
The theoretical structural
model

In order to provide greater confidence in our model specification with KS and KAP
treated as intermediate variables between CO, SO and BP, omitting the direct
relationship between CO, SO, KS and e-business, we tested our theoretical model (TM)
against alternative model specifications (AM). This procedure is recommended by

Standardised parameter
Hypotheses
estimates
Number Sign Parameter Estimate t-value

Linkages in the model

Hypotheses
Supplier orientation ! knowledge sharing
Customer orientation ! knowledge sharing
Knowledge sharing ! knowledge application
Knowledge application ! e-business systems
E-business systems ! business performance

H1
H2
H3
H4
H5

Indirect effect
Supplier orientation ! knowledge application
Supplier orientation ! e-business systems
Supplier orientation ! business performance
Customer orientation ! knowledge application
Customer orientation ! e-business systems
Customer orientation ! business performance
Knowledge sharing ! e-business systems
Knowledge sharing ! business performance
Knowledge application ! business performance

g11
g12
b21
b32
b43

0.37
0.24
0.56
0.46
0.24

3.28 *
2.13 * *
5.01 *
3.69 *
2.65 *

k21
k31
k41
k22
k32
k42
i31
i41
i42

0.21
0.09
0.02
0.13
0.06
0.01
0.26
0.06
0.11

2.89 *
2.37 * *
1.78 * * *
2.01 * *
1.81 * * *
1.50
3.19 *
2.06 * *
2.18 * *b

Notes: *p , 0.01; * *p , 0.05; * * *p , 0.1; Fit statistics for measurement model of 18 indicators for
six constructs: GFI 0:84; CFI 0:82; IFI 0:82

E-business
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309

Table V.
Construct structural
model

Anderson and Gerbing (1988) using the chi-square difference test (CDT) to test the null
hypothesis; MT MA 0. Compared with a less parsimonious AM, a non-significant
CDT would lead to the acceptance of the more parsimonious TM. Table VI reports a
significant change in the chi-square between our model and AM. The CDT presents a
p , 0.01 level, which leads to the consideration of the alternative models fit as
significantly worse.

Discussion
The adoption of e-business is a complex process that is influenced by numerous factors
such as what customers want and need, subjective norms, stages of adoption, user
competence, implementation processes and organisational factors (Chiasson and
Lovato, 2001). In turn, although knowledge from sellers or front-line contact people is
the most important success factor in the implementation of e-business, it is also its
biggest risk factor, as employees are afraid of giving away their expertise with

Model
Theoretical model (TM)
Alternative model (AM)

Chi-square

Degrees of
freedom

Chi-square
difference

Degrees of freedom
difference

Probability

222.87
232.28

86
88

9.41

p 0:009 *

Note: *Compared with the proposal model (TM), the alternative models (AM) present a significant
worse fit and a less parsimonious specification. Therefore, TM is preferred as a better alternative

Table VI.
Sequential chi-square
tests

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310

customers and suppliers to colleagues who would use this knowledge to get promoted
at their expense.
This paper examines the relative importance and significance of KM on e-business
within SMES. The results suggest that in order to implement e-business systems,
companies need to provide and support the acquisition, sharing and application of
knowledge as prior steps. Note that the results also indicate that e-business contributes
to the creation of BP. The theoretical and managerial implications of the bi-directional
relationships observed across those constructs are discussed in further detail in the
following paragraphs.
With regard to H1 and H2, the analytical results reveal significant associations
between two knowledge acquisition factors (CO, and SO) and the level of knowledge
sharing. This addresses the concerns expressed by authors such as Sinkula et al. (1997)
when they refer to market information processing as a necessary condition for KM, as
it is the process by which information is converted into knowledge. Organisations
which engage in learning from their customers and suppliers not only test the
effectiveness of a new e-business direction, but also have the potential to design their
e-business around what customers truly need and want, and as such gain sustainable
competitive advantage. Therefore, SMEs must be more aware of the benefits in their
surrounding environment to implement e-business (Gossain and Kandiah, 1998).
Understanding how customers and suppliers form perceptions of a firm innovation
would help designers, implementers and users in their evaluation, selection,
implementation and on-going use of an e-business system.
Regarding H3, our findings suggest that KAP is driven by sharing what has already
been learned. These results also support that KS has an indirect effect on e-business
through KAP. This supports what authors such as Lin and Lee (2005, p. 176) express,
when they suggest knowledge sharing is important in innovation processes in the
e-business context. By knowledge sharing, organisations may provide outcomes and
benefits in two main ways:
(1) Sharing solutions provided by customers and suppliers.
(2) Redefining or adapting organisational goals or ways of doing things.
Some solutions adapted by businesses may include new TS. Therefore, e-business
cannot occur without a KS context. In fact, when somebody represents knowledge, they
are influenced by the context in which the subject performs articulation. Through KS,
organisations foster a dynamic capacity where teams and their members are
continuously able to increase their abilities to articulate knowledge (Fahey et al., 2001).
Regarding H4, the analytical results of this study support that firms that stimulate
and improve organisational application of knowledge (KAP) are more likely to adopt
e-business systems. This finding is consistent with Gilbert and Cordey-Hayes (1996)
conceptualisation of KAP as the facilitator of successful technological innovation.
People usually take advantage of databases after colleagues direct them to a specific
location in a database for lessons or tools (Gold et al., 2001). For example, rather than
engaging in an extensive search through an organisations information
technology-based repository of knowledge (e.g. databases), employees turn first to
friends and peers to learn where to find relevant knowledge. Furthermore, the results
support that KA has an indirect effect on KAP through KS. These findings support the
views of Hsiu-Fen and Gwo-Guang(2005), which draw attention to the fact that

knowledge application enables employees to both use existing knowledge and create
new knowledge, both of which are crucial for e-business systems adoption.
With regard to H5, our results support the importance of e-business to enhance
organisational performance. Our data further indicates that e-business systems are
significant, but not enough to achieve higher levels of business performance, in this
way, only if they are supported for KM drivers (i.e. SO, CO, KS and KAP) can they
become powerful tools for success. An effective e-business application is expected to
improve performance, but if poorly planned, developed or implemented without due
recognition to increase human resource effectiveness, it can breed disaster and hold
back individual and/or group performance (Templer, 1989). That is, if organisational
e-business systems are focused on making knowledge useful, firms are more likely to
achieve increased levels of performance.
Conclusions
The findings of this study stress that companies may be over-investing in the adoption
of most hyped technologies, and under-investing on mechanisms to facilitate the flow
of knowledge creation. Furthermore, the firms that consider KM as a lineal process (i.e.
KA ! KS ! KAP) can expect to achieve higher levels of e-business adoption.
Consequently, in the context of e-business systems adoption, it is important to note that
managers should encourage employees to create and use knowledge rapidly and
effectively as a prior step.
The study has some limitations. First, although the telecommunication industry
falls clearly within the category of SMEs, they might not be representative of all SMEs
because of the types of products and services they sell. Second, we are able to provide
only a snapshot of ongoing processes and not measurements of the same process over
time. Moreover, other factors that have not been included in this study are also likely to
affect KM processes.
Taking into account its limitations, this study points to the need for further avenues
of research, including more precise measurement constructs; the effects of other
learning facilitators and life-cycles on e-business systems. A longitudinal study is
needed to examine the relationships between knowledge application and e-business
and the ways in which they affect customer relationships. Finally, future studies
including large companies may help improve the rigor of the results.
Note
1. Sistema de analisis de balances ibericos or SABI is a database containing information on
over 555,000 Spanish companies and over 67,000 Portuguese companies.
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About the authors
Juan G. Cegarra-Navarro is a Doctor in Business Administration, and Master in marketing and
communications. Currently, he is an assistant professor at the Polytechnic University of
Cartagena, Cartagena, Spain. Juan G. Cegarra-Navarro is the corresponding author and can be
contacted at: juan.cegarra@upct.es
ngel Martnez-Conesa is lecturer and PhD student at the Polytechnic University of
Eusebio A
Cartagena. His investigation line is focused in knowledge management and organisational
learning.

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www.emeraldinsight.com/0143-7720.htm

Knowledge sharing and firm

innovation capability:
an empirical study
Hsiu-Fen Lin

Knowledge
sharing

315

Department of Shipping and Transportation Management,

National Taiwan Ocean University, Keelung, Taiwan
Abstract
Purpose The study sets out to examine the influence of individual factors (enjoyment in helping
others and knowledge self-efficacy), organizational factors (top management support and
organizational rewards) and technology factors (information and communication technology use) on
knowledge sharing processes and whether more leads to superior firm innovation capability.
Design/methodology/approach Based on a survey of 172 employees from 50 large organizations
in Taiwan, this study applies the structural equation modeling (SEM) to investigate the research
model.
Findings The results show that two individual factors (enjoyment in helping others and knowledge
self-efficacy) and one of the organizational factors (top management support) significantly influence
knowledge-sharing processes. The results also indicate that employee willingness to both donate and
collect knowledge enable the firm to improve innovation capability.
Research limitations/implications Future research can examine how personal traits (such as
age, level of education, and working experiences) and organizational characteristics (such as firm size
and industry type) may moderate the relationships between knowledge enablers and processes.
Practical implications From a practical perspective, the relationships among knowledge-sharing
enablers, processes, and firm innovation capability may provide a clue regarding how firms can
promote knowledge-sharing culture to sustain their innovation performance.
Originality/value The findings of this study provide a theoretical basis, and simultaneously can
be used to analyze relationships among knowledge-sharing factors, including enablers, processes, and
firm innovation capability. From a managerial perspective, this study identified several factors
essential to successful knowledge sharing, and discussed the implications of these factors for
developing organizational strategies that encourage and foster knowledge sharing.
Keywords Knowledge sharing, Organizational innovation
Paper type Research paper

Introduction
Knowledge sharing creates opportunities to maximize organization ability to meet
those needs and generates solutions and efficiencies that provide a business with a
competitive advantage (Reid, 2003). Knowledge sharing can define as a social
interaction culture, involving the exchange of employee knowledge, experiences, and
skills through the whole department or organization. Knowledge sharing comprises a
set of shared understandings related to providing employees access to relevant
information and building and using knowledge networks within organizations (Hogel
The author would like to thank the National Science Council (NSC) of the Republic of China,
Taiwan for financially supporting this research.

International Journal of Manpower

Vol. 28 No. 3/4, 2007
pp. 315-332
q Emerald Group Publishing Limited
0143-7720
DOI 10.1108/01437720710755272

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et al., 2003). Moreover, knowledge sharing occurs at the individual and organizational
levels. For individual employees, knowledge sharing is talking to colleagues to help
them get something done better, more quickly, or more efficiently. For an organization,
knowledge sharing is capturing, organizing, reusing, and transferring
experience-based knowledge that resides within the organization and making that
knowledge available to others in the business. A number of studies have demonstrated
that knowledge sharing is essential because it enables organizations to enhance
innovation performance and reduce redundant learning efforts (Calantone et al., 2002;
Scarbrough, 2003).
A firm can successfully promote a knowledge sharing culture not only by directly
incorporating knowledge in its business strategy, but also by changing employee
attitudes and behaviors to promote willing and consistent knowledge sharing
(Connelly and Kelloway, 2003; Lin and Lee, 2004). Moreover, various studies focused on
the relationship between knowledge sharing enablers and processes (Van den Hooff
and Van Weenen, 2004a; Van den Hooff and Van Weenen, 2004b; Bock et al., 2005; Yeh
et al., 2006), while others have focused on the relationship between knowledge sharing
enablers and innovation performance (Calantone et al., 2002; Syed-Ikhsan and
Rowland, 2004). However, researchers and practitioners have not tried an integrative
model that explores the effectiveness of knowledge sharing from a holistic perspective,
and little empirical research has examined the relationships among knowledge sharing
enablers, processes, and firm innovation capability.
To fill this gap, this study develops a research model that links knowledge sharing
enablers, processes, and firm innovation capability. The study examines the influence
of individual factors (enjoyment in helping others and knowledge self-efficacy),
organizational factors (top management support and organizational rewards) and
technology factors (information and communication technology use) on knowledge
sharing processes and whether leads to superior firm innovation capability. Based on a
survey of 172 employees from 50 large organizations in Taiwan, this study applies the
structural equation modeling (SEM) to investigate the research model. Additionally,
the current study contributes to knowledge sharing research by further clarifying
which factors are essential for knowledge sharing effectively. At a minimum, the
findings of this study provide a theoretical basis, and simultaneously can be used to
analyze relationships among knowledge sharing enablers, processes, and firm
innovation capability. From a managerial perspective, the findings of this study can
improve understanding and practice of organizational management of knowledge
sharing. Specifically, this study identified several factors essential to successful
knowledge sharing, and discussed the implications of these factors for developing
organizational strategies that encourage and foster knowledge sharing.
Analysis model and hypotheses
Figure 1 illustrates the general framework of strategic decision processes that are
contrasted below. Following the approach proposed by Rajagopalan et al. (1993), the
analytical framework of this study comprises three aspects: enablers, processes and
outcomes. Enablers are the mechanism for fostering individual and organizational
learning and also facilitate employee knowledge sharing within or across teams or
work units. In related research, knowledge sharing enablers include the effects caused
by employee motivators, organizational contexts, and information and communication

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317

Figure 1.
A general framework for
studying knowledge
sharing

technology (ICT) applications (Taylor and Wright, 2004; Bock et al., 2005; Wasko and
Faraj, 2005; Lin and Lee, 2006). The knowledge sharing processes dimension refers to
how organizations employees share their work-related experience, expertise,
know-how, and contextual information with other colleagues. Knowledge sharing
processes consist of both employee willingness to actively communicate with
colleagues (i.e. knowledge donating) and actively consult with colleagues to learn from
them (i.e. knowledge collecting). Finally, the organizational promotion of knowledge
sharing is changing traditional ideas about managing intellectual resources and
employee work styles by providing new processes, disciplines and cultures, thus
constituting an organizational innovation (Darroch and McNaughton, 2002). The
outcomes dimension reveals the effects of the degree of knowledge sharing
effectively achieved on firm innovation capability.
The literature recognizes the existence of different influences on employee
knowledge sharing activities, such as individual, organizational, and technology
factors (Lee and Choi, 2003; Connelly and Kelloway, 2003; Taylor and Wright, 2004).
Referring to the individual dimension, most authors agree that knowledge sharing
depends on individual characteristics, including experience, values, motivation, and
beliefs. Wasko and Faraj (2005) suggested that individual motivators may enable
employee willingness to share knowledge. Employees are motivated when they think
that knowledge sharing behaviors will be worth the effort and able to help others.
Therefore, the expectation of individual benefits can promote employees to share
knowledge with colleagues. Furthermore, referring to the organizational dimension,
organizational climate is usually made to capture efficiently the benefits of
innovation-supportive culture (Saleh and Wang, 1993). In the context of knowledge
sharing, the different aspects of organizational climate are critical drivers of knowledge
sharing, such as reward systems linked to knowledge sharing (Bartol and Srivastava,
2002), open leadership climate (Taylor and Wright, 2004), and top management
support (MacNeil, 2003; MacNeil, 2004). Finally, referring the technology dimension,
ICT can be effectively used to facilitate the codification, integration, and dissemination
of organizational knowledge (Song, 2002). For example, using ICT, such as groupware,

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online databases, intranet, and virtual communities, for communicating and sharing
knowledge has been the focus of several previous researches (Koh and Kim, 2004).
Knowledge sharing processes can be conceived as the processes through which
employees mutually exchange knowledge and jointly create new knowledge (Van den
Hooff and Van Weenen, 2004a). Ardichvill et al. (2003) discussed knowledge sharing as
involving both the supply and the demand for new knowledge. Van den Hooff and Van
Weenen (2004b) identified a two-dimension of knowledge sharing process that consists
of knowledge donating and knowledge collecting. Knowledge donating can be defined
as the process of individuals communicating their personal intellectual capital to
others, while knowledge collecting can be defined as the process of consulting
colleagues to encourage them to share their intellectual capital. Additionally, an
important challenge for organizations is which motivations influence both knowledge
donating and knowledge collecting and lead to superior firm innovation capability
(Jantunen, 2005). Therefore, this study focuses on the relationships between knowledge
sharing enablers (i.e. individual, organizational, and technology factors) and firm
innovation capability by elaborating on the significance of knowledge sharing
processes (i.e. knowledge donating and knowledge collecting). Figure 2 illustrates the
set of hypotheses considered in the research model that is discussed below.
Individual factors as determinants of knowledge-sharing processes
The research considered here has focused on individual factors that promote or inhibit
organizational knowledge sharing activities. The two factors that may be proximal
determinants of knowledge sharing are identified: enjoyment in helping others and
knowledge self-efficacy. Enjoyment in helping others is derived from the concept of
altruism. Organ (1988) defined altruism includes discretionary behaviors that help
specific others with organizationally relevant tasks or problems. Knowledge workers
may be motivated by relative altruism owning to their desire to help others (Constant
et al., 1994; Davenport and Prusak, 1998). Previous research shows that employees are
intrinsically motivated to contribute knowledge because engaging in intellectual
pursuits and solving problems is challenging or pleasurable, and because they enjoy

Figure 2.
The research model

helping others (Wasko and Faraj, 2000; Wasko and Faraj, 2005). Knowledge workers
who derive enjoyment from helping others may be more favorable oriented toward
knowledge sharing and more inclined to share knowledge in terms of both donation
and collecting. The following hypothesis thus is proposed:
H1. Enjoyment in helping others positively influences employee willingness to
both (a) donate and (b) collect knowledge.
Self-efficacy is defined as the judgments of individuals regarding their capabilities to
organize and execute courses of action required to achieve specific levels of
performance (Bandura, 1986). Self-efficacy can help motivate employees to share
knowledge with colleagues (Wasko and Faraj, 2005). Researchers have also found that
employees with high confidence in their ability to provide valuable knowledge are
more likely to accomplish specific tasks (Constant et al., 1994). Knowledge self-efficacy
typically manifests in people believing that their knowledge can help to solve
job-related problems and improve work efficacy (Luthans, 2003). Employees who
believe that they can contribute organizational performance by sharing knowledge will
develop greater positive willingness to both contribute and receive knowledge. Hence,
the following hypothesis is proposed:
H2. Knowledge self-efficacy positively influences employee willingness to both (a)
donate and (b) collect knowledge.
Organizational factors as determinants of knowledge-sharing processes
Top management support is considered one of the important potential influences on
organizational knowledge (Connelly and Kelloway, 2003). Numerous studies have
found top management support essential to creating a supportive climate and
providing sufficient resources (Lin, 2006). MacNeil (2004) emphasized the importance
of the visible top managements support to organizational knowledge sharing climate.
Moreover, Lin and Lee (2004) proposed that the perception of top management
encouragement of knowledge sharing intentions is necessary for creating and
maintaining a positive knowledge sharing culture in an organization. Consequently,
this study expects that top management support positively influences employee
willingness to share knowledge with colleagues both in terms of donating and
collecting. The following hypothesis is therefore formulated:
H3. Top management support positively influences employee willingness to both
(a) donate and (b) collect knowledge.
Organizational rewards indicate what the organization values shape employee
behaviors (Cabrera and Bonache, 1999). Organizational rewards can range from
monetary incentives such as increased salary and bonuses to non-monetary awards
such as promotions and job security (Davenport and Prusak, 1998; Hargadon, 1998).
Several organizations have introduced reward systems to encourage employees to
share their knowledge. For example, Buckman Laboratories recognizes its 100 top
knowledge contributors through an annual conference at a resort. Moreover, Lotus
Development, a division of IBM, bases 25 per cent of the total performance evaluation
of its customer support workers on the extent of their knowledge sharing activities
(Bartol and Srivastava, 2002). This study thus expects that if employees believe they
can receive organizational rewards by offering their knowledge, they would develop

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greater positive willingness to both donate and receive knowledge. The following
hypothesis is proposed:
H4. Organizational rewards positively influence employee willingness to both (a)
donate and (b) collect knowledge.

320

Technology factors as determinants of knowledge-sharing processes

Information and communication technology (ICT) use and knowledge sharing are
closely linked, because ICT can enable rapid search, access and retrieval of
information, and can support communication and collaboration among organizational
employees (Huysman and Wulf, 2006). Within knowledge sharing, the use of ICT
development facilitate new methods and applications (such as groupware, online
databases, intranet, virtual communities, etc.), and allow firms to expand available
social networks by overcoming geographical boundaries and thus achieving more
effective collaborative activities (Pan and Leidner, 2003). Moreover, Zack (1999)
believes that ICT plays the following three different roles in knowledge management
activities:
(1) Obtaining knowledge.
(2) Defining, storing, categorizing, indexing, and linking knowledge-related digital
items.
(3) Seeking and identifying related content.
Moreover, according to Yeh et al. (2006), effective knowledge management requires
employees sharing their knowledge through ICT facilities, because ICT can provide
communication channels for obtaining knowledge, correcting flow processes, and
identifying the location of knowledge carriers and requesters. Hence, the following
hypothesis is proposed:
H5. ICT support positively influences employee willingness to both (a) donate and
(b) collect knowledge.
Knowledge-sharing processes and firm innovation capability
It is obvious that a firms ability to transform and exploit knowledge may determine its
level of organizational innovation, such as faster problem-solving capability and
enhanced rapid reaction to new information. Many scholars stress the importance of
knowledge sharing to enhancing innovation capability (Liebowitz, 2002; Lin, 2006).
The definition of Davenport and Prusak (1998) indicates that knowledge is personal.
Organizations can only begin to effectively manage knowledge resources when
employees are willing to cooperate with colleagues to contribute knowledge to the firm.
Knowledge donating aims to see individual knowledge become group and
organizational knowledge over time, which in turn improves the stock of knowledge
available to the firm. A firm that promotes employees to contribute knowledge within
groups and organizations is likely to generate new ideas and develop new business
opportunities, thus facilitating innovation activities (Darroch and McNaughton, 2002).
Knowledge collecting consists of processes and mechanisms for gathering
information and knowledge from internal and external sources. The process of
knowledge collecting in which organizational knowledge becomes group and
individual knowledge, involves the internalization and socialization of knowledge.

Hansen (1999) suggested that knowledge collecting represents a key aspect of

successful project completion, especially for organizations heavily involved in
innovation projects. The generation of new ideas and the improvement of firm
products, because of a better absorptive capacity, could improve innovation
performance (Jantunen, 2005). Specifically, a firm with proficiency in gathering and
integrating knowledge is more likely to be unique, rare, and difficult for rivals to
replicate, and hence has the potential to sustain high levels of firm innovation
capability. This study expects that employee willingness to both donate and collect
knowledge with colleagues is likely to sustain innovativeness and thus better position
the firm in terms of long-term competitive advantage. The following hypotheses thus
are formulated:
H6. Employee willingness to donate knowledge positively influences firm
innovation capability.
H7. Employee willingness to collect knowledge positively influences firm
innovation capability.
Methods
Sample and data collection
A draft questionnaire was pilot tested by five MIS professors to ensure that the content
and wording were free of problems. A total of 30 participants from ten organizations in
five industries in Taiwan then examined the revised questionnaire. These participants
were given the questionnaire and asked to examine it for meaningfulness, relevance,
and clarity.
A total of 50 organizations were randomly selected from the top 1,000 firms list
published by Common Wealth magazine in 2004, which listed the 1,000 largest firms in
Taiwan. Ten survey packets were mailed to each of these 50 organizations in the
summer of 2005. A cover letter explaining the study objectives and a stamped return
envelope were enclosed. Follow-up letters also were sent about three weeks after the
initial mailings. Of the 500 questionnaires distributed, 172 completed and usable
questionnaires were returned, representing a response rate of 34.4 percent. Table I lists
the respondent company characteristics, including industry type, gender, age,
education level, working experience, and position.
Measures
In this study, items used to operationalize the constructs were mainly adapted from
previous studies and modified for use in the knowledge-sharing context. All constructs
were measured using multiple items. All items were measured using a seven-point
Likert-type scale (ranging from 1 strongly disagree to 7 strongly agree). A list of
items for each scale is presented in the appendix. The measurement approach for each
theoretical construct in the model is described briefly below.
Enjoyment in helping others was measured using four items derived from Wasko
and Faraj (2000), which focused on employee perceptions of pleasure obtained through
sharing knowledge. A four-item scale measuring knowledge self-efficacy was adapted
from a measure developed by Spreitzer (1995). It assesses employee judgments of their
capability to share knowledge that is valuable to the organization. Top management
support was measured using four items adapted from studies by Tan and Zhao (2003).

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Frequency
Demographic characteristics
Industry type
Manufacturing
Banking/insurance
Computers/communication
Transportation
Retail/wholesale
Real estate/construction
Health/foods
Utility
Others

13
6
10
4
6
5
3
1
2

No. of response
51
27
32
17
21
11
5
2
6

Gender
Male
Female

126
46

73.3
26.7

Age
21-25
26-30
31-35
36-40
Over 40
Missing

13
70
41
24
21
3

7.6
40.7
23.8
13.9
12.2
1.8

11
102
59

6.4
59.3
34.3

Working experience
0-3 years
3-5 years
5-10 years
10-15 years
Over 15 years
Missing

18
57
43
30
21
3

10.5
33.1
25.0
17.4
12.2
1.8

Position
Director
Manager
Chief employee
Employee
Others

13
31
72
51
5

7.6
18.0
41.8
29.7
2.9

Education level
High school
Bachelor
Graduate

Table I.
Profile of respondents
(n 172)

No. of company

%
29.7
15.7
18.6
9.9
12.2
6.4
2.9
1.1
3.5

These measurements assess the extent to which employees perceive support and
encouragement of knowledge-sharing from top management. Organizational rewards
were measured using four items derived from Hargadon (1998) and Davenport and
Prusak (1998), which were defined as the extent to which employees believe that they
will receive extrinsic incentives (such as salary, bonus, promotion, or job security) for
sharing knowledge with colleagues. Additionally, ICT use was measured based on four

items taken from Lee and Choi (2003), which referred to the degree of technological
usability and capability regarding knowledge sharing. Knowledge donating was
measured using three items adapted from an investigation by Van den Hooff and Van
Weenen (2004a), which assess the degree of employee willingness to contribute
knowledge to colleagues. Knowledge collecting was measured using four items derived
from Van den Hooff and Van Weenen (2004a), which referred to collective beliefs or
behavioral routines related to the spread of learning among colleagues. Finally, firm
innovation capability was measured using six items derived from Calantone et al.
(2002), which focused on firm rate of innovation adoption.
Data analysis and results
Data analysis in this study was performed using structural equation modeling (SEM)
to validate the research model. This approach was chosen because of its ability to test
casual relationships between constructs with multiple measurement items (Joreskog
and Sorbom, 1996). Numerous researchers have proposed a two-stage model-building
process for applying SEM (Joreskog and Sorbom, 1996). The measurement model was
first examined for instrument validation, followed by an analysis of the structural
model for testing associations hypothesized in the research model. These results are
described next.
Measurement model
The measurement model with all eight constructs was assessed using confirmatory
factor analysis (CFA) (Anderson and Gerbing, 1992). The appendix presents factor
loadings of indicators in the measurement model. All factor loadings exceed 0.5 and
each indicator was significant at 0.01 levels. Moreover, from the appendix, the
observed normed x2 for measurement model was 1.99 (x2 =df 1:99; df 201) which
was smaller than 3 recommended by Bagozzi and Yi (1988). Other fit indexes included
the goodness-of-fit index (GFI) and comparative fit index (CFI), they exceeded the
recommended cut-off level of 0.9 (Bagozzi and Yi, 1988). The adjusted goodness-of-fit
index (AGFI) also exceeded the recommended cut-off level of 0.8 (Chau and Hu, 2001).
The root mean square error of approximation (RMSEA) was below the cut-off level of
0.08 recommended by Browne and Cudeck (1993). The combination of these results
suggested that measurement model exhibited a good level of model fit.
The psychometric properties of eight constructs and indicators (dimensional scales)
were assessed with respect to convergent validity and discriminant validity (Joreskog
and Sorbom, 1996). The reliability of the constructs (composite reliability) and the
average variance extracted were used as the measures for convergent validity (Fornell
and Larcker, 1981; Bagozzi and Yi, 1988). From the appendix, the composite reliability
of all constructs exceeded the benchmark of 0.7 recommended by Nunnally and
Bernstein (1994). In terms of average variance extracted, all constructors exceed the
suggested value of 0.5 (Bagozzi and Yi, 1988), indicating the measure has adequately
convergent validity. Discriminant validity is demonstrated when the respective
average variance extracted is larger than the squared correlation between two
constructs (Fornell and Larcker, 1981). Table II shows the comparison between
squared correlations of two constructs (off-diagonal elements) and the average
variance extracted for each construct (diagonal elements). Overall, all of the eight
constructs show evidence of high discriminant validity. In summary, the measurement

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1.
2.
3.
4.
5.
6.
7.
8.

Enjoyment in helping others

Knowledge self-efficacy
Top management support
Organizational rewards
ICT use
Knowledge donating
Knowledge collecting
Firm innovation capability

0.59 *
0.21
0.32
0.24
0.45
0.25
0.32
0.50

0.67 *
0.37
0.31
0.13
0.41
0.21
0.39

0.51 *
0.19
0.27
0.38
0.31
0.25

0.58 *
0.23
0.10
0.26
0.26

0.64 *
0.08
0.37
0.17

0.66 *
0.50
0.39

0.61 *
0.51

0.59 *

Notes: *Diagonal elements are the average variance extracted for each of the eight constructs.
Table II.
Test of discriminant
validity

Off-diagonal elements are the squared correlations between constructs. For discriminant validity,
diagonal elements should be larger than off-diagonal; All of the correlations are significant at the
p , 0.01 level

model demonstrated adequate reliability, convergent validity and discriminant

validity.
Structural model
The first step in model estimation was to examine the goodness-of-fit of the
hypothesized model in Figure 3. The observed normed x 2 was 2.24
(x2 =df 477:25=213). The GFI is 0.88, AGFI is 0.84, NFI is 0.87, CFI is 0.92, and
RMSEA is 0.06. The results of goodness-of-fit indices exhibited a moderate but
acceptance level of overall model fit and, therefore, provided support to the overall
validity of the structural model. The second step in model estimation was to examine
the significance of each hypothesized path in the research model. The results of the
analysis are depicted in Figure 3 (significant paths depicted by bold lines and
insignificant paths by dash lines) and summarized in Table III.
In hypotheses H1a, H1b, H2a, and H2b, this study examined the effects of
individual factors on knowledge sharing processes. The results found that both

Figure 3.
Results of structural
model

Hypothesis

Hypothesized path

H1a

Enjoyment in helping others ! knowledge

donating
Enjoyment in helping others ! knowledge
collecting
Knowledge self-efficacy ! knowledge donating
Knowledge self-efficacy ! knowledge collecting
Top management support ! knowledge donating
Top management support ! knowledge collecting
Organizational rewards ! knowledge donating
Organizational rewards ! knowledge collecting
ICT use ! knowledge donating
ICT use ! knowledge collecting
Knowledge donating ! Firm innovation capability
Knowledge collecting ! Firm innovation
capability

H1b
H2a
H2b
H3a
H3b
H4a
H4b
H5a
H5b
H6
H7

Path coefficient

Results

0.31 *

Supported

0.27 *
0.45 *
0.38 *
0.23 *
0.19 *
0.12
0.07
0.04
0.28 *
0.29 *

Supported
Supported
Supported
Supported
Supported
Not supported
Not supported
Not supported
Supported
Supported

0.41 *

Supported

Note: *p , 0.01

enjoyment in helping others and knowledge self-efficacy were found to positively

influence knowledge donating and knowledge collecting. Furthermore, the top
management support variable was found to be influential in knowledge sharing
processes, supporting H3a and H3b. However, hypotheses H4a and H4b were not
supported, the results show that organizational rewards had no significant relationship
with employee willingness to donate and collect knowledge. Moreover, ICT use was
found to positively influence knowledge collecting (H5b), but the linking ICT use and
knowledge donating was not supported (H5a). Finally, the impact of firm innovation
capability was found to be strongly positively associated with employee willingness to
donate and collect knowledge, supporting hypotheses H6 and H7.

Discussion and implications

This study is interesting from both theoretical and practical perspectives.
Theoretically, this study proposed a research model for empirical studies to link
knowledge sharing enablers and processes with firm innovation capability. The results
from a structural equation modeling approach provide quite a strong support for the
hypothesized relations. The results show that two individual factors (enjoyment in
helping others and knowledge self-efficacy) and one of the organizational factor (top
management support) significantly influence knowledge sharing processes. The
results also indicate that employee willingness to both donate and collect knowledge
enable the firm to improve innovation capability. From a practical perspective, the
relationships among knowledge sharing enablers, processes, and firm innovation
capability may provide a clue regarding how firms can promote knowledge sharing
culture to sustain their innovation performance. Discussion of the findings,
implications for practitioners and limitations and directions for future research are
presented below.

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325

Table III.
Results of structural
model

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326

Discussion of findings
First, the findings of this study indicate that both enjoyment in helping others and
knowledge self-efficacy were strongly associated with employee willingness to share
knowledge. This result implies that employees who feel pleasure in sharing knowledge
and thus helping others tend to be more motivated to donate and collect knowledge
with colleagues. Additionally, a sense of the competence and confidence of employees
may be requirement for employees to engage in knowledge sharing. That is, employees
who believe in their ability to share organizationally useful knowledge tend to have
stronger motivation to share knowledge with their colleagues.
Related to organizational factors, top management support was effective for
employee willingness to both donate and collect knowledge with colleagues, but
organizational rewards was not. The findings indicate that perceptions of top
management encouragement of knowledge sharing influence employee willingness to
share knowledge. Therefore, management should recognize that organizational
rewards only secure temporary compliance. To promote knowledge sharing activities,
top management facilitation of social interaction culture is more important than
extrinsically motivated employees (such as those motivated by monetary
compensation).
Moreover, the results show a positive significant relationship between ICT use and
knowledge collecting, but no significant relationship with knowledge donating.
Although analytical results show that most respondents agreed that the use of various
ICT tools help employees in receiving knowledge, the results reveal no significant
relationship between ICT use and knowledge donating. This phenomenon may be
explained by the fact that organizations exhibit a tendency for employees to use
knowledge as their source of power for personal advantage rather than as an
organizational resource (Syed-Ikhsan and Rowland, 2004). Knowledge thus cannot be
distributed simply via online database or intranet. This finding might also be caused
by the fact that investing in ICT alone is not enough to facilitate knowledge donating,
because ICT can provide access to knowledge, but access is not the same as using or
applying knowledge. That is, knowledge sharing involves social and human
interaction, not simply ICT usage.
Finally, the results indicate that employee willingness to both donate and collect
knowledge is significantly related to firm innovation capability. The findings suggest
that innovation involves a broad process of knowledge sharing that enables the
implementation of new ideas, processes, products, or services. As Jantunen (2005)
noted, a positive knowledge sharing culture helps firms improve innovation capability.
Therefore, the change introduced by the companies involves a broad incorporation of
knowledge sharing mechanisms which attempt to foster innovation, such as the
allocation of a budget for providing adequate training for knowledge transfer, the
linking of staff-turnover to the generation of new ideas, or the creation of teams
systematically devoted to new initiatives generation.
Implications for practitioners
This study proposes the following implications for helping managers establish a
successful knowledge sharing strategy. First, the findings of this study confirm that
individual factors are associated with knowledge sharing processes. Since enjoyment
in helping others significantly influenced employee knowledge sharing behaviors,

managers need to increase the level of enjoyment that employees experience as they
help one another through knowledge sharing. Managers interested in developing and
sustaining knowledge sharing should focus on enhancing the positive mood state of
employees regarding social exchange (i.e. enjoyment in helping others), which precedes
knowledge sharing activities. Moreover, managers should pay more attention to
provide useful feedback to improve employee knowledge self-efficacy. For instance, a
highly self-efficacious staff can be established being by recruiting and selecting
employees who are proactive, and who have high cognitive aptitude and self-esteem
and are intrinsically motivated. Second, top management facilitation of knowledge
sharing is important to enable a firm with superior competence in knowledge sharing
to succeed in innovation performance. However, this study has verified that
organizational rewards are not significantly related to knowledge sharing processes.
Therefore, this study suggests that do not emphasize organizational rewards (such as
salary incentive, bonuses, promotion incentive, or job security) as a primary knowledge
sharing mechanism, because extrinsic rewards secure online temporary compliance
(Kohn, 1993). This means that organizational rewards may provide temporary
incentives for knowledge sharing, but is not fundamental force forming employee
knowledge sharing behaviors. Finally, reliance on a techno-centric approach to
knowledge sharing is insufficient for achieving the necessary social relationships and
interpersonal interactions of employees for facilitating employee willingness to donate
knowledge. Therefore, all transitional elements, such as organizational culture, top
management support, ICT use, and human resources, should always be considered
together when promoting knowledge sharing initiatives.
Limitations and directions for future research
Future studies should focus on five areas to overcome the limitations of the present
study. First, previous research has suggested a significant relationship between
individual differences and employee perceptions of knowledge sharing culture
(Connelly and Kelloway, 2003). Future research can examine how personal traits (such
as age, level of education, and working experiences) and organizational characteristics
(such as firm size and industry type) may moderate the relationships between
knowledge enablers and processes. Second, the significance of inter-organizational
level in relation to knowledge sharing has not been considered. Future research could
consider outer knowledge sharing to come from the stakeholders such as customers
and suppliers, which represent valuable sources of intelligence and new ideas. Third,
this study focused on empirical studies to link knowledge sharing enablers and
processes with firm innovation capability. This study, however, did not consider all
enablers that are critical for knowledge sharing. Van den Hooff and Van Weenen
(2004a) proposed that communication climate and employee affective commitment are
antecedents for knowledge sharing. Lee et al. (2006) verified empirically that
dimensions of climate maturity (e.g. learning oriented, trust, and employee
commitment) had an effect on the knowledge quality and level of knowledge
sharing. Further research considering these factors could enhance an understanding of
critical determinants for knowledge sharing. Fourth, the sample was drawn from 172
employees in 50 Taiwan organizations. Hence, the research model should be tested
further using samples from other countries, since cultural differences among
organizations influence employee perceptions regarding knowledge sharing, and

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further testing thus would provide a more robust test of the hypotheses. Finally, an
important focus for future research is the long-term effects (i.e. whether the factorable
employees reactions were temporary or whether such reactions were sustainable) of
motivation on employee knowledge sharing behaviors. Future studies can gather
longitudinal data to examine the causality and interrelationships between variables
that are important to knowledge sharing processes.

328
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Knowledge
sharing

Appendix

Constructs

Indicators/Items

Enjoyment in
helping others

I enjoy sharing my knowledge with

colleagues
I enjoy helping colleagues by sharing my
knowledge
It feels good to help someone by sharing
my knowledge
Sharing my knowledge with colleagues is
pleasurable
I am confident in my ability to provide
knowledge that others in my company
consider valuable
I have the expertise required to provide
valuable knowledge for my company
It does not really make any difference
whether I share my knowledge with
colleagues (reversed coded)
Most other employees can provide more
valuable knowledge than I can (reversed
coded)
Top managers think that encouraging
knowledge sharing with colleagues is
beneficial
Top managers always support and
encourage employees to share their
knowledge with colleagues
Top managers provide most of the
necessary help and resources to enable
employees to share knowledge
Top managers are keen to see that the
employees are happy to share their
knowledge with colleagues
Sharing my knowledge with colleagues
should be rewarded with a higher salary
Sharing my knowledge with colleagues
should be rewarded with a higher bonus
Sharing my knowledge with colleagues
should be rewarded with a promotion
Sharing my knowledge with colleagues
should be rewarded with an increased job
security
Employees make extensive use of
electronic storage (such as online
databases and data warehousing) to access
knowledge

Knowledge
self-efficacy

Top
management
support

Organizational
rewards

ICT use

Factor
loadings

Composite
reliability

Average
variance
extracted

0.77

0.84

0.59

0.86

0.67

0.72

0.51

0.75

0.58

331
0.87
0.71
0.84
0.88
0.85
0.81
0.85
0.80
0.68
0.73
0.67
0.70
0.80
0.75
0.84

0.87

0.83

0.64
(continued)

Table AI.
Scale items and
measurement model
loadings

IJM
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Constructs

332

Table AI.

Indicators/Items

Employees use knowledge networks (such

as groupware, intranet, virtual
communities, etc.) to communicate with
colleagues
My company uses technology that allows
employees to share knowledge with other
persons inside the organization
My company uses technology that allows
employees to share knowledge with other
persons outside the organization
Knowledge
When I have learned something new, I tell
donating
my colleagues about it
When they have learned something new,
my colleagues tell me about it
Knowledge sharing among colleagues is
considered normal in my company
Knowledge
I share information I have with colleagues
collecting
when they ask for it
I share my skills with colleagues when
they ask for it
Colleagues in my company share knowledge
with me when I ask them to
Colleagues in my company share their
skills with me when I ask them to
Firm innovation Our company frequently tries out new
capability
ideas
Our company seeks new ways of doing
things
Our company is creative in its operating
methods
Our company is frequently the first to
market new products and services
Innovation is perceived as too risky in our
company and is resisted (reversed coded)
Our new product introduction has
increased during the last five years

Factor
loadings

Composite
reliability

Average
variance
extracted

0.78

0.66

0.80

0.61

0.77

0.57

0.81
0.80
0.75
0.72
0.81
0.83
0.75
0.81
0.84
0.70
0.72
0.78
0.82
0.75
0.81
0.77

Notes: All t-values are significant at p , 0.01; Measurement model goodness-of-fit:

x2 =df 417:6=201 1:99; GFI 0:90; AGFI 0:85; NFI 0:89; CFI 0:94; RMSEA 0:05

About the author

Hsiu-Fen Lin is an Assistant Professor of Information Management in the Department of
Shipping and Transportation Management, National Taiwan Ocean University. Her primary
research interests include electronic commerce, knowledge management and organizational
impact of information technology.

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