Empowering organisational knowledge creation and performance: a moderating focus on dynamic capability of professional and technology-driven firms

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This paper examined the role of dynamic capability as a moderator in explaining knowledge creation processes and performance of Professional and Technology-Driven Firms.

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International Journal of Mechanical Engineering and Technology (IJMET) Volume 10, Issue 03, March 2019, pp. 706-717. Article ID: IJMET_10_03_074 Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=10&IType=3 ISSN Print: 0976-6340 and ISSN Online: 0976-6359 © IAEME Publication Scopus Indexed EMPOWERING ORGANISATIONAL KNOWLEDGE CREATION AND PERFORMANCE: A MODERATING FOCUS ON DYNAMIC CAPABILITY OF PROFESSIONAL AND TECHNOLOGY-DRIVEN FIRMS ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P. Department of Business Management, Covenant University, Ota, Ogun state, Nigeria ABSTRACT This paper examined the role of dynamic capability as a moderator in explaining knowledge creation processes and performance of Professional and Technology- Driven Firms. The role of four ontological dimensions (socialization, externalization, combination and internalization) of knowledge creation in a spiral model were explored. A total of 424 out of 450 members of the sampled firms participated, representing 94% response rate. The information was acquired through the use of an organized questionnaire while the participant targets include managers, administrators, supervisors, and other classes of employees who were entreated to honestly answer items in the questionnaire. The study evaluated construct test validity (measurement) and structural model to establish the factor structure and degree of relationship of a number of observed variables. Our results indicate that ability to creatively combine resources and competencies has significantly helped sampled firms to create new knowledge and improving such knowledge in offering greater value to satisfy customers’ requirements and enhance performance outcomes. Keywords: Knowledge, Knowledge creation, Dynamic capability, Technology, Innovation, Performance. Cite this Article: ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P, Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on Dynamic Capability of Professional and Technology-Driven Firms, International Journal of Mechanical Engineering and Technology, 10(3), 2019, pp. 706-717. http://www.iaeme.com/IJMET/issues.asp?JType=IJMET&VType=10&IType=3 http://www.iaeme.com/IJMET/index.asp 706 editor@iaeme.com
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P 1. INTRODUCTION Knowledge is presently recognized as the best form of information which should be created and managed appropriately in gaining competitive advantage. Knowledge plays a substantial role in society, and the optimal use of knowledgeable and well-informed staff is the utmost critical asset for improving organisational actions. Nonaka and Ichijo (2007) advocated that the process of improving organisational actions centre on organisation’s unique ability to create new knowledge, utilize its resources and predominant application in offering greater value to satisfy the needs and requirements of the customers. Knowledge creation, according to Nonaka, and Ichijo (2007) is the heart of organisation’s competitive advantage and it focuses on the ability to continuously transfer, combine and convert different kinds of knowledge (tacit and explicit knowledge) in enhancing organisational performance. Knowledge creation is also the act of translating new ideas into innovative product and services to achieve competitive advantage. The importance of knowledge and innovation in modern economic justifies the increasing interest that scholars are taking in studying professional and technology-driven firms. The dynamism of business environments is at an accelerating rate, causing an increasing level of uncertainty to organizations especially in Nigeria. Even though there are initiatives for an increase in the process of creating new insight/idea, several firms in developing countries like Nigeria seem to get lost in their focus on knowledge creation. As a contradiction to the recent trends, there are indeed several businesses focusing on creating profit, rather than creating knowledge and improving the ability to combine resources and competencies for performance effectiveness. These challenges have eroded the value of existing firm competences, encouraging firms to create knowledge and building strategic competences that will help to survive in a dynamic environment (Yeung, 2016, Childe, 2014). Extant literature has identified direct connection between knowledge creation and performance; while others argued that the relationship can be influenced by some factors. Other studies have shown that the most pressing obstacle influencing the role of knowledge creation on performance is firm’s ability to respond and reintegrate internal and external capabilities to address swiftly changing environments. Dynamic environments encourage the firm to respond to the changes in the environment by sensing, reallocating, reconfiguring and renewing the existing capabilities. Hence, dynamic capabilities are a core element for every nation to survive in today’s dynamic environment. In the last decade, a number of researchers have considered the concept of dynamic capacities as the heart of strategy and the methodology of the firm, firm’s competitive advantage and the value creation. Dynamic capabilities are expected to be valuable for organizations dealing with business turbulence, and early identification of threats or opportunities creates better opportunities for many organisations in the developed and developing countries. The dynamism of business environments is at an accelerating rate, causing an increasing level of uncertainty to organizations especially in Nigeria. Dynamic capabilities strategy explains how the manufacturing sector especially the manufacturing firms in Nigeria adapts to changes in their business environments and at the same time achieving sustainable competitive advantage. Also manufacturing firms in Nigeria are becoming increasingly aware of the threats and the opportunities that ICT presents (Safeena, Abdullah and Date, 2010) and these are continually transforming the traditional way of providing continued services and providing competitive edge that provide those electronic services. Changes emerging from business environments may cause an organization’s capabilities to become less valuable or even redundant. The Nigerian professional and technology-based firms are characterized by increased environmental dynamism brought about by rapid technological development, customer sophistication and regulations. Hence, http://www.iaeme.com/IJMET/index.asp 707 editor@iaeme.com
Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on Dynamic Capability of Professional and Technology-Driven Firms the business environment of the manufacturing firms in Nigeria is expected to remain very dynamic (Adesina &Ayo, 2010). In Nigeria, the issue of dynamic capabilities cannot be separated from the social and environmental concern in the country. According to Oguntade and Mafimisebi (2011), organizations operating in Nigeria have not done enough to improve their performance despite the huge amount of profits they are realizing. In Nigeria, due to the existing competitive work milieu characterized by high uncertainty and intense global competition, knowledge has been seen as one the greatest intangible assets in the professional and technology-driven firms. The professional and technology-driven firms are often faced with the most uncertain environment and increasing pressure from various constituencies to remain in market. The expectation in responding to environmental change has become very high in Nigeria especially among professional and technology-based firms in Nigeria and the negligence of the expectations by those companies has resulted to a very turbulent environment for them (Onwuchekwa, 2002). However, the practices of dynamic capabilities have been absent among professional and technology-based in Nigeria which scholars and authors has failed to address as this has breed negative perception and attitudes among consumers, communities’ dwellers and other stakeholders towards these concerns, thus, connotes a bad organizational image building strategy. As a result of this, this study largely focused on moderating role of dynamic capability on knowledge creation and performance of professional and technology- driven firms. 2. LITERATURE REVIEW 2.1. Organisational Knowledge Knowledge is presently recognized as critical success factor which should be managed appropriately in achieving distinctive advantage. Knowledge can be defined as the act of knowing (with absolute certainty) through experience or education. Knowledge is an intangible asset in human beings and held in high esteem. This knowledge can be conceptualized as the capability of the firm to detect new opportunities, scan environment, answer to competitive planned moves and evaluates the competitive position. Nonaka and Takeuchi (1995) developed a knowledge-based theory to examine how knowledge can be created and managed within an organization. 2.2. Knowledge Creation Knowledge creation is the act of translating new ideas into innovative product and services in order to achieve competitive advantage. Nonaka’s contribution to knowledge creation theory development integrates the knowledge creation process of socialization, externalization, combination and internationalization (SECI) coupled with the concept of ‘Ba’ (the environment where the idea/knowledge is generated), and enabling capabilities (leadership, organizational culture, learning). Consequently, knowledge creation represents the process of enabling people to create new insights and ideas into innovative product and services as presented in Table 1. http://www.iaeme.com/IJMET/index.asp 708 editor@iaeme.com
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P Table 1 Operational Terms S/N Organisational Knowledge Creation defined Authors 1 …translating ongoing experiences into knowledge Dixon (2000) …the act of translating new ideas into innovative product and services that Nonaka and Ichijo 2 meets stakeholders’ expectations. (2007) 3 …is a product of the interplay between knowledge and knowing. Wellman (2009) 4 …is the process of development of new knowledge. Dynamic Capabilities defined …capability of sensing opportunities, which is the organization’s ability to 5 direct operational changes and sense new opportunities. …capability of seizing opportunities, which is the firm’s ability to create 6 and provide structures that improve creativity and innovation. Teece (2007); …capability of implementing innovations, which is the firm’s ability to Dannells (2002). 7 manage innovation and projects implementation. …capability of reconfiguration, which is the organization’s ability to 8 readjust available resources. Firm Performance Gordonet, et al., (2008); …a subset of organizational effectiveness that covers operational and Kunc and Bhandari, 9 financial outcomes. (2011); Pertusa-Ortega, et al., (2010). 2.3. Organisational Knowledge Creation and Performance In the twenty first century, to compete effectively, there is need for organisations to know about the environmental changes within and outside the organisation and must be at the fore- front of creating and managing this knowledge. To achieve this, its importance for both staff /employees of the firm to be fully involved in creating knowledge. Knowledge creation is not only learnt from others or obtained from outside but knowledge can also be built from communicating and interacting with individuals within the organisation. Nonaka (2014) and Ngulube (2003) breaks knowledge creation (KC) into four modes: socialisation (tacit to tacit knowledge), externalisation (tacit to explicit knowledge), combination (explicit to explicit knowledge), and internalisation (explicit to tacit knowledge). These specialised modes of organisational knowledge continuously is needed to transform data into information and endow it with relevance through the tacit and explicit knowledge (Hamzah, Mahmood & Khaled, 2013) as displayed in Figure 1. http://www.iaeme.com/IJMET/index.asp 709 editor@iaeme.com
Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on Dynamic Capability of Professional and Technology-Driven Firms  Socialization is tacit to tacit knowledge transfer and it can be physical or experiences shared like brainstorming, information sharing, but sometimes may be difficult to formalize and interpret (Nonaka & Takeuchi, 2004). This knowledge fosters the need for openness and further promotes cross fertilization and improvement of ideas.  Externalization is tacit to explicit knowledge. It focuses on the ability to explain an individual’s ideas to others in such a way that they will understand thereby, becoming the basis of new knowledge (Nonaka & Takeuchi, 2004).  Combination is explicit to explicit knowledge collected within and outside the organisation, combined, processed to transform into new knowledge which is shared among members in the organisation (Nonaka & Takeuchi, 2004).  Internalization is explicit to tacit knowledge where individual continually reflect, see connections and recognize patterns and capacity to make sense between ideas, and concepts. By implications, the professional and technology-based firms have become highly competitive and are constantly changing from simple to complex and from tame to hostile, and as a result, the need to be customer-centric and innovative becomes inevitable for sustaining performance. Presently, innovative performance is a crucial factor in determining competitiveness and the survival of firm. In relevance to how organisational knowledge creation enhance innovation performance, literatures have shown that knowledge creation enhances organisational performance. For instance, studies and theories suggest that knowledge creation enables firms to innovate (Jin, et al., 2015; Nonaka, 1994). Yang (2010) found significant support for the relationship between knowledge creation and organizational effectiveness of a firm. Researchers in various countries focused mostly on the aspect of organizational effectiveness rather than on organisational performance. As far the research in the area of knowledge management is concerned, scholars have also focused on pivotal role played by knowledge creation in enhancing organisational outcomes. http://www.iaeme.com/IJMET/index.asp 710 editor@iaeme.com
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P 2.4. Moderating Role of Dynamic Capability Dynamic capabilities are valuable for organizations dealing with environmental turbulences, and early identification of threats or opportunities to create better opportunities for many organisations in the developed and developing countries. Teece (2007) & Danneels (2002) opined that the indices of dynamic capabilities include: (i) Capability of sensing opportunities, which is the organization’s ability to direct operational changes and sense new opportunities; (ii) Capability of seizing opportunities, which is the organization’s ability to create and provide structures that improve creativity and innovation; (iii) Capability of implementing innovations, which is the organization’s ability to manage innovation and projects implementation and (iv) Capability of reconfiguration, which is the organization’s ability to readjust available resources. Inkpen and Tsang, (2005) opined that knowledge creation is an importance aspect of innovation and sustainable performance. Bowman and Ambrosini, (2003) stated that firms create new knowledge through a productive and capability to respond to changes that facilitates abundance of competencies (skills) to increase returns for sustainable performance. Dash and Mahaptra (2010) have shown that lack of productive capability is one of the obstacles influencing the relationship between knowledge creation and innovation performance. King, Fowler and Zeithaml (2001) in their work, managing organisational competitive advantage also stated that organisational learning and learning culture are importance source of competitive advantage. Dynamic capabilities have been troubled by few problems related to their operations, explanations and by their expected terms with the performance of the organization. There are however some proofs which show that performance of an organization can be affected by its dynamic capabilities (Henderson & Cockburn, 1994). Makkonen et al. (2014) assessed the relationship of dynamic capabilities with internal processes. Survey research design was applied. They found that dynamic capabilities have a positive effect on organizational change, which in turn positively affects product innovativeness. Findings from the study showed that dynamic capabilities give firms competitive advantage and increase their evolutionary fitness. Gathungu & Mwangi (2012) carried out a study on Dynamic Capabilities, Talent Development and Firm Performance in which they investigated the nature of sensing, seizing and transforming managerial dynamic capabilities and their interconnection influence firm performance. Dynamic capabilities are valuable for organizations dealing with environmental turbulences, and early identification of threats or opportunities to create better opportunities for many organisations in the developed and developing countries. Deeds, DeCarolis, & Coombs (2000) proves that dynamic capabilities like the process of forming alliance is considerably related to the number of products that are developed newly in biotechnology area. The firm must have the ability to reshape its resource base by sensing the changes in the environment effectively and respond accordingly. If a firm has the ability to be responsive to the changes of the environment including analysing the competition, it would have a positive impact on redefining the marketing as well as technological competences which lead to the redefining and renewal of the product portfolio. Last, the flexibility of the firm in terms of being responsive to the changes in the environment is also linked with the organizational structure that a firm is following which is decentralized structure. If a firm doesn’t possess dynamic capabilities, it would restrain to seek the renewal opportunities. 3. RESEARCH DESIGN The survey design method was adopted for the study and it was descriptive in nature. The unit of investigation comprised staff at different management cadres of the eight (8) selected http://www.iaeme.com/IJMET/index.asp 711 editor@iaeme.com
Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on Dynamic Capability of Professional and Technology-Driven Firms Professional and Technology (IT) based firms which are: Accenture, Cisco system Inc, International Business Machine Corporation (IBM), Oracle Corporation, Deloitte, Ernst and Young (E&Y), Klynveld Peat Marwick Goerdeler (KPMG) and Price-water house Cooper (PWC). The target population of this study comprised Professional and Technology (IT) based firms listed on JarusHub Nigeria (2017), Nigerian Yellow Pages (2011) and Nigeria Search Engine (2011) as presented in Table 2. Table 2 Names and Number of Selected Professional and Technology (IT) based firms Staff S/N Firms KIBS Sector Location YoE Sample Strength Information Victoria 1. Accenture 1985 176 31 Technology (IT) Island, Lagos Cisco System Information Victoria 2. 1984 151 20 Inc. Technology (IT) Island, Lagos Information Victoria 3. IBM 1961 145 26 Technology (IT) Island, Lagos Information Victoria 4. Oracle 1977 115 27 Technology (IT) Island, Lagos Victoria 5. Deloitte Professional 1952 336 60 Island, Lagos Ernst and Victoria 6. Professional 1989 387 69 Young Island, Lagos Victoria 7. KPMG Professional 1978 572 102 Island, Lagos Victoria 8. PWC Professional 1998 645 115 Island, Lagos Total 2527 450 Source: JarusHub Nigeria (2017) *YoE means Year of Establishment The study randomly collected data from 450 staff of Accenture, Cisco system Inc, IBM, Oracle Corporation, Deloitte, Ernst and Young, KMPG and PWC. The KIBS firms are of different size and composition, however, a percentage of the population was determined earlier (see Table 3.3). The study used the multi-staged sampling technique comprising of the probability sampling technique and non-probability sampling techniques. For the probability sampling techniques, the use of purposive sampling (first step), stratified sampling (second step) and convenience sampling (third step) was adopted. The collection of the quantitative data on organisational knowledge creation, dynamic capability and innovation performance of KIBS firms (professional and Technology based firms) was done with the used of questionnaire. Respondents were asked to give response to items with self-administered copies of questionnaire which is structured (close-ended) and unstructured (open-ended) in order to help achieve the research objectives. A multi-item index was used to measure knowledge creation processes, dynamic capability and performance of the sampled professional and technology-based firms. The questionnaire is divided into two different sections, the demographics of the participants and the section regarding the variables on knowledge creation, dynamic capability and innovation performance. To measure these variables, thirty-five items were adapted as presented in Table 3. http://www.iaeme.com/IJMET/index.asp 712 editor@iaeme.com
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P Table 3 Items in the questionnaire and their sources Table 1 A Measure of Organisational Knowledge Creation: Scale Development and Validation Definition First-order Variable # Items Source Socialization (Tacit) Adopted from Items = 4 … refers to firms’ ability to Externalisation Nonaka et al., 2000); Items = 4 Knowledge identify and satisfy the needs (Tacit to Explicit) Shih, Chang, & Lin Items = 4 Creation and requirements of its Combination (2010); Takeuchi & customers. Items = 4 Nonaka (2004) (Explicit to Explicit) Internalization (Explicit to Tacit) Intelligence dissemination Items = 1 … refers to the firms’ ability to Customers’ respond proactively and Items = 2 Dynamic Responsiveness Adopted from innovatively to internal and Items = 1 Capability Competitors focus Rebelo & Gomes, (2011) external changes in the business Items = 2 environment Inter-functional Coordination … refers to the assessment and Sales growth Firm Items = 3 Yang (2008); Parnell outcome of investment activities Customer Retention Performance Items = 4 (2011); Parnell and of an organization over a given Return on Investment Items = 3 Hershey (2005) period Market share Source: Measurement Variables of the Knowledge Creation, Dynamic Capability and Performance 3.2. Measurement and Instrumentation The paper adopted Confirmatory Factor Analysis (CFA) to evaluate the validity of items and the fit of the measurement model. The convergent phase was adopted for the validation of the items. The study adopted the conditions to assess convergent validity as presented in Table 4. This indicates that all loading scales and items are significant when they are equal or above value criterion of 0.70; while the composite reliability is expected to be greater than 0.80 and finally, each Average Variance Extracted estimate (AVE) must be higher than 0.50 as recommended by Fornell and Larcker (1981) and Bagozzi and Yi (1988). Table 4 Measurement Models (Result of Internal Consistency and Convergent Validity) Indicator Error Compose Ave. Variance No of Loading Measurement Reliability Variance Reliability Estimated Items > 0.7 < 0.5 > 0.8 > 0.5 Organisational Knowledge Creation Socialisation 5 0.8260 0.6823 0.3177 0.8574 0.7396 Externalisation 5 0.8002 0.6403 0.3597 0.8819 0.7743 Combination 5 0.7918 0.6269 0.3731 0.8708 0.7580 Internalisation 5 0.7822 0.6115 0.3885 0.8168 0.5277 Dynamic Capability 5 0.8622 0.7434 0.2566 0.9301 0.7406 Performance 5 0.8174 0.6681 0.3319 0.8446 0.7602 The measurement models (result of internal consistency and convergent validity) proved that scale items have satisfied and met all the three conditions as acclaimed by Anderson and Gerbing (1998). To validate the construct validity, measures of discriminant validity were conducted. Essentially, measures of discriminant validity help us determine if two measures that should not correlate are actually not interrelated and correlated. For discriminant validity http://www.iaeme.com/IJMET/index.asp 713 editor@iaeme.com
Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on Dynamic Capability of Professional and Technology-Driven Firms to be achieved, the value of square root of AVE of a particular construct should be higher than the correlation matrix as demonstrated in Table 5. Table 5 Discriminant Analysis Items Mean SD Soc Ext Com Int Dyn. Cap Perf. Soc 3.3180 .55733 0.7948 .350** .451* .089 .235* .437* Ext 3.2008 .64128 0.7814 .272** .321* .296** .393** Com 2.1225 .75078 0.8945 .484** .365* .352** Int 2.7322 .82525 0.8452 .643** .373* Dyn. Cap 2.9664 .88137 0.8738 .348** Perf. Eff 2.7478 .79096 0.8826 *. Correlation is significant at the 0.05 level (2-tailed) **. Correlation is significant at the 0.01 level (2-tailed) The diagonal values represent the square root of the average variance extracted (AVE) of the specific construct. Construct legend: Soc_Socialization; Ext_Externalization; Com_Combination; Int_Internalization; Dyn. Cap_dynamic capability; Firm_Perf _Performance Effectiveness Then, we continue to test the extended model using structural indices. These analyses were conducted using PLS. Figures 2 and 3 demonstrated the major findings with the solid lines indicate significant results. Figure 2 First Order CFA Model Note: Soc= Socialization| Ext= Externalization| Com= Combination| Int = Internalization. http://www.iaeme.com/IJMET/index.asp 714 editor@iaeme.com
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P Figure 3 Second Order CFA Model Note: Soc= Socialization| Ext= Externalization| Com= Combination| Int= Internalization| Dyn_Cap= Dynamic Capability| Performance = Performance Effectiveness. Table 6Index of Hypothetical Decision First Order Second Order External Fit Value of Value of External Fit Value of Value of Result Result Indicators Threshold Estimation Indicators Threshold Estimation CMIN/DF < 5.00 3.626 Supported CMIN/DF < 5.00 3.163 Supported GFI > 0.90 0.923 Supported GFI > 0.90 0.983 Supported AGFI > 0.90 0.936 Supported AGFI > 0.90 0.944 Supported CFI > 0.90 0.967 Supported CFI > 0.90 0.959 Supported RMSEA < 0.08 Supported RMSEA < 0.08 Supported 0.043 0.051 This implies that the model has ‘goodness of fit’ and the values of estimation met all the requirements for Index of Hypothetical Decision. It can be concluded that in order for an organization to remain relevant, it must be able to explore its dynamic capabilities well enough to adapt to early signals emerging from its environments. 4. CONCLUDING REMARKS To summarize, we have developed a theoretical model to illustrate the mechanism underlying the impact of knowledge creation modes on firm performance. Specifically, we argue that knowledge creation modes promote innovativeness that enhances firm performance. Moreover, this relationship can be moderated through dynamic capabilities. When an organization develops stronger agility through knowledge creation processes, it also becomes more receptive to creative solutions. In this process, organizational agility plays a critical role between knowledge creation processes and the resulting innovative culture. When knowledge creation processes afford the organization the freedom to experiment with new ideas and take risks, the enriched knowledge environment can significantly facilitate the organisation to be more creative. In order to achieve this renewal, the selected firms are required to find out and http://www.iaeme.com/IJMET/index.asp 715 editor@iaeme.com
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