The Critical Role of Knowledge Management in Achieving and Sustaining Organisational Competitive Advantage
The Critical Role of Knowledge Management in Achieving and Sustaining Organisational Competitive Advantage
The Critical Role of Knowledge Management in Achieving and Sustaining Organisational Competitive Advantage
July, 2009
Vol. 2, No. 3
and technological approach is ideal. However, little attempt has been made to address the relative importance of
different factors constituting organisational KM capability in the context of Asian emerging, less developed countries
such as Vietnam where a socialist market economy, a Confucian culture and a majority of small and medium sized
enterprises (SMEs) currently exist.
This study presents the results of a survey on the inter-relationships among the KM capability components and their
impact on a firms CA conducted in the Vietnamese construction industry. Viewed from both social and technical
perspectives, the study also aims at predicting which components of KM would be most significant and effective in the
context of Vietnam, one of the Asian developing countries with its own specific features, characteristics and conditions.
The paper begins with an overview of the RBV of KM coupled with a review of empirical studies that describe and link
KM capability components leading to positive outcomes. Drawing on the literature review and the theoretical issues
discussed, a specific model of KM capability-based CA of the firm is proposed. The next section presents an outline of
the methodology employed for conducting the survey and its findings based on various statistical analyses. The paper
concludes with an interpretation and discussion of the overall results gained from the study, followed by some
indications of the study limitations as well as the proposed future research directions.
The key implication in using this model is that practising managers in Vietnam and other Asian developing countries
with similar economic and Confucian cultural environments, while employing both social and technical KM capabilities,
need to strongly emphasise the more important role of cultural elements to achieve and sustain a CA in the current
complex landscape.
2. Literature review
This section deals respectively with a RBV of KM and a review of KM capability.
2.1 Resource-based view of knowledge management
The RBV of CA examines the link between a firms idiosyncratic attributes and performance (Barney, 1991) based on
its internal strengths to take advantage of opportunities and counter threats in the market, aimed at creating sustainable
CA through acquiring, utilising, and exploiting firm-specific resources (April, 2002; Riahi-Belkaoui, 2003) and, more
importantly, integrating different resources to form strong organisational capabilities (Grant, 1996a; Verona, and Ravasi,
2003; and Zollo and Winter, 2002).
Emerging as an extension of the RBV, the knowledge-based perspective defines firms as bodies that generate, integrate
and distribute knowledge (McEvily, and Chakravarthy, 2002; Miller, 2002; Narasimha, 2000; and Narasimha, 2001)
which is considered to be the key or strategic asset to hold the potential of sustainable CA (Grant, 1996a; and Lopez,
2005). It explains how firms leverage their KM resources to create unique KM capability to determine a firms overall
effectiveness (Gold, Malhotra, and Segars, 2001).
Thus, adopting the resource-based theory of the firm blended with a knowledge-based approach, KM capability is
explicitly recognised to be central in creating CA of a firm in todays dynamic market place. The following section
provides a review of empirical studies dealing with this concept.
2.2 Review of knowledge management capability
Extending the traditional notion of organisational resource-based capability to KM function, a firms KM capability is
defined as its ability to mobilise and deploy KM-based resources in combination with other resources and capabilities,
leading to sustainable CA (Chuang, 2004, p460). Table 1 (Appendix 1) presents a summary of empirical studies on KM
capability conducted since 1995. The columns show the names of authors and KM components including enablers or
infrastructure elements and processes. The research objectives, as displayed in the last column, are mainly to investigate
the connection among KM components and identify their impact on organisational outcomes such as KM effectiveness,
organisational effectiveness, CA, and firm performance. Using this table the study has identified perceived gaps in the
relevant literature and adapted prior research to develop a research model.
Viewed from resource-based and knowledge-based perspectives, Gold et al. (2001), followed by Smith (2006) are
amongst the first KM researchers to identify that technology, culture, and structure are rare and firm-specific resources
which likely serve as the source of organisational capability. Meanwhile, Lee and Choi (2003) measure the impact of
KM enablers including structure, culture, people, and technology on organisational performance. Similarly, Khalifa and
Liu (2003), Gimenez and Rincon (2003), and Zheng (2005) identify a number of factors as the primary sources of
organisational effectiveness that include strategy, culture, structure, leadership, and technology.
It is noted that Chuangs (2004) model is one of a limited number of studies employing the RBV of KM to develop
theoretical links and empirically examine the relationship between KM capability and CA. However, the model
examined the four elements of KM resources of a firm in isolation (namely structure, culture, and people as the social
perspective, and information technology as the technical perspective) which is inconsistent with extensive discussions
found in the literature of the interwoven nature among the organisational factors (Zheng, 2005). In addition, most
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July, 2009
studies were conceptually grounded and empirically examined in advanced, developed and newly industrialised
countries with a heavy focus on large companies. To date, only scant attention has been paid to address the relative
importance of different factors constituting the organisational KM capability in the context of Asian emerging, less
developed countries considering their own specific features, characteristics and conditions.
This paper seeks to fill the identified gaps by adapting Chuangs (2004), Lee and Choi (2003), and Smiths (2006)
studies to develop a theoretical model of KM capability based CA of the firm and then, empirically, to test the model by
conducting a survey in Vietnam where a socialist market economy, a Confucian culture and a majority of SMEs
currently exist. The development of the research model is discussed in the following section.
3. Theoretical development
This section discusses the technical and social KM capabilities and CA and continues to propose a research model.
3.1 Technical KM capability and CA
Though described as a major business resource and a key source for attaining long-term CA (Gold et al., 2001; Nemati,
2002), little evidence has been found of the direct effects of IT alone and performance correlations while at the same
time, if existing (though not significant), frequent negative correlations suggest that IT may worsen a firms competitive
position (Porter, 1985; and Powell and Dent-Micallef, 1997). Due to possible IT imitation by competitors, IT per se
does not generate sustainable performance advantages and firms must use IT to leverage or exploit other firm-specific,
intangible resources such as organisational leadership, culture, and business processes (Clemons and Row, 1991; and
Henderson and Venatraman, 1993). Citing the theory of technology assimilation, Khalifa and Liu (2003) also state that
technologies must be infused and diffused into business processes to enhance organisational performance (Cooper and
Zmud, 1990; and Fichman and Kemerer, 1997). In the context of KM, therefore, IT should be incorporated with other
KM capability dimensions to exhibit and significantly improve its impact on a firms CA.
3.2 Social KM capability and CA
Organisational social resources (now sometimes referred to as social capital) generally comprise the sum of the actual
and potential resources available that derive from the network of relationships possessed by a human or in a social unit
(Nahapiet and Ghoshal, 1998). Lee and Choi (2003) propose that the ability of organisational structure,
organisational culture, and people as the three critical dimensions of social KM resources to encourage the multi-faceted
activities associated with successful implementation of KM has been found to be a key distinguishing factor of
successful firms. These valuable resources typically evolve over a long period of time through the accumulation of
organisational operation experience (Gold et al., 2001), and, thus, become hard to acquire and complex to duplicate.
When effectively combined with the strong technical KM dimension they will become a unique organisational KM
capability which provides a sustained CA (Chuang, 2004).
3.3 Proposed research model
Based on findings in the literature review coupled with theoretical development, a research model of KM
capability-based CA of the firm is now proposed (Figure 1). The key components are identified as the technical KM
capability (IT) and the social KM capability contributing to organisational CA. The model demonstrates that these two
perspectives of KM capability have inter-correlations which strongly support their impacts on CA.
4. Methodology
This section deals with developing measures of theoretical constructs and techniques of data collection in this study.
4.1 Operationalising measures
There are three main constructs in the theoretical model, namely (1) technical KM capability; (2) social KM capability;
and (3) competitive advantage. Measuring these constructs are mainly adapted from studies by Lee and Choi (2003),
Chuang (2004) and Smith (2006) using seven-point Likert-type scales anchored by 1 (strongly disagree) and 7 (strongly
agree).
(1) Technical KM capability or IT refers to the technical systems within an organisation that determine how
knowledge travels throughout the enterprise and how knowledge is accessed (Leonard-Barton, 1995).
Measuring this variable is based on Smith (2006) reflecting numerous aspects of technological infrastructure
that are part of effective KM within an organisation such as collaboration, distributed learning, and knowledge
mapping.
(2) Social KM capability is predicted by the three-factor scales of structure, culture, and people.
Organisational structure is defined as the rules, policies, and procedures, hierarchy of reporting relationships, incentive
systems, and departmental boundaries that organise tasks within the firm (Gold et al., 2001, p. 198). In this study, the
Vol. 2, No. 3
variable is operationalised based on Smith (2006) assessing the extent to which a formal organisational structure
facilitates the discovery, creation, sharing, exchange, and transference of new knowledge within the organisation.
The most significant hurdle preventing effective KM is organisational culture (Gold et al., 2001) which is defined as
the shared values, beliefs and practices of the people in the organisation (McDermott and ODell, 2001, p. 77). This
study adapts Smiths (2006) instrument scale to measure organisational culture through its important components
including employee interaction, corporate vision, and senior management support.
Predicting the effect of human resources on KM, this study relies on task-shaped skills of employees which imply a
degree of understanding by workers of their own and others task areas (Lee and Choi, 2003) that are both deep (the
vertical part of the T) and broad (the horizontal part of the T) (Leonard-Barton, 1995). The operationalisation of this
construct developed by Lee and Choi (2003) is followed in the current study to access knowledge domains of
employees and their various applications in particular products.
(3) Competitive advantage is considered to be the objective of strategy (Day, 1984; Porter, 1985) and described as the
unique position that an organisation develops over its competitors by employing its resources (Hofer and Schendel,
1978). The multi-dimensions of the construct developed by Chuang (2004), including innovativeness, market position,
mass customisation, and difficulty in duplicating, is adopted in this study.
4.2 Data collection
The survey questionnaires attached with invitation letters were directly distributed to 600 potential respondents as senior
management participating in a large exhibition of construction firms (VinaBuild) organised in Hochiminh City, Vietnam
in September 2007.
The reason for selecting this sector to gather empirical data is because it is a project-based industry which utilises a
variety of many separate firms in a temporary multidisciplinary organisation and thus operates within a dynamic and
changing environment (Kamara, Augenbroe, Anumba, and Carrillo, 2002). Effective KM is being recognised as a vehicle
through which the industry can address its critical needs for innovation, enhanced business performance, client
satisfaction, improved efficiency, and effectiveness (Egan, 1998; Egbu, Sturgesand, and Bates, 1999). As such, it is
critical to identify on which factors to focus if construction firms are to improve their CA through effective management
of their knowledge assets.
5. Data analysis and results
This section covers sampling procedures and the statistical analyses employed.
5.1 Sample characteristics and profile
A total of 170 responses were returned, 22 had data missing and, therefore, were not included in the analysis, producing
an acceptable useable response rate of 25%. Table 2 (Appendix 2) summarises the descriptive statistics of company
profile and personal characteristics for the 148 respondents in terms of their type of business, number of employees,
education, position, and years in current company.
5.2 Reliability and validity analysis
The construct validity and reliability of the multi-item constructs were assessed using the principle component analysis
(PCA) with Varimax rotation and coefficient (Cronbach) alpha. Items with low factor loadings (absolute values below
0.5) were deleted, while values of coefficient alpha above 0.7 were considered to represent acceptable reliability (Hair,
Anderson, Tatham, and Black, 1998).
Based on these criteria, the results of the study (described in Table 3 - Appendix 3) showed that all construct
measurement scales had satisfactory coefficient (Cronbach) alpha (though slightly lower for IT construct). The PCA for
all composite variables except organisational culture and people extracted only one underlying component with an
eigenvalue greater than 1 explaining from 46.154% to 61.230% of the total variance in the original sets of variables and
so unidimensionality was assumed. Moreover, all relevant items were found to have component loadings greater than the
minimum criterion of 0.5, therefore, these were considered to be acceptable for further analyses.
However, the two constructs (organisational culture and people) were both found to load into two components. To
improve their validity and reliability, it was decided to recalculate these two variables using only those items correlated
with the first of the underlying components which were then found to have acceptable levels of reliability and, thus,
were used in all subsequent analyses.
5.3 Pearson correlation analysis
As presented in Table 4 (Appendix 4), the results of Pearson product-moment correlations show significant positive
correlations between all different components of KM capability, namely culture, structure, people, and IT. In addition,
each of these factors was also found to be significantly correlated with CA (p < 0.01).
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Vol. 2, No. 3
It is also widely recognised by many Asian and Vietnamese scholars that the adopted Western based managerial practices
should be different from the original models due to different business and culture conditions. In addition, they must be
implemented gradually and, thus, can limit an organisations flexibility. As such, this explains why organisational
structure, though positively correlated with other factors, may depend heavily on other social KM dimensions and does
not give any unique and significant contribution to a firms CA.
6.3 Human resources
King-Kauanui, Su, and Ashley-Cotleur (2006) indicate that Vietnamese human resource management practices rely more
heavily on human labour factor than is found elsewhere. The scholars also acknowledge the importance of culture in
forming organizational norms and practices which greatly emphasise collectivism and commitment.
However, contrary to this argument and other scholars expectations, these current findings show that human KM
capability does not contribute uniquely significantly to the prediction of a firms CA. According to Tuan and Napier (2000)
although emphasising collectivism, Vietnamese may not necessarily work as effective teams as generally expected
because of a lack of common well-defined goals in group work while encouraging an increasing popularity of pursuing
their personal goals.
As presented in Table 4, human KM capability is positively correlated with other KM capability components and, thus,
may depend on them, which supports the findings of this study and explains why no significant contribution of human
KM resource to organisational CA was found.
6.4 Information technology
According to Le (2006), Vietnamese entrepreneurs demands for technological innovation are relatively low. The
average expenditure of Vietnamese SMEs for this purpose accounts for only 0.2-0.3% of total revenue in comparison
with 5% for Indian SMEs or 10% for Korean SMEs. This figure indicates that SMEs are not proving to be able to
upgrade their technology and equipment to high levels of technological development.
As found recently by Nguyen et al., (2007a), although facing an urgent need for technological innovation and CA
improvement, many private firms in Vietnam do not have the capability to adopt new technology due to an inadequate
labour force, inadequate capital and managerial skills. Most private SMEs equipment and production facilities are based
on traditional technologies operated under manual or semi-automatic control or transferred from State-own enterprises
(SOE) as well as other domestic sources which are already out of date by two to three or even four technological
generations in comparison with regional countries and even with larger Vietnamese companies in the same industry.
The construction industry in Vietnam, though representing by 90% as SMEs (less than 300 employees) as the result of this
study, has experienced several distinct characteristics such as a high demand in technology and a fast-speed development
to meet ever increasing infrastructure needs and requirements. Moreover, a major part of the industry originated from
SOEs (41% as joint stock, joint venture, or fully owned by foreigners, 22 % SOEs, and only 37% private companies as
shown in Table 2) who are eligible to the States policies such as special credit loans, tax incentives, training assistance,
support in importing equipment and transferring technologies. They also receive more preferential support from their own
governing body and get easier access to resources than private SMEs (Nguyen et al., 2007a). These specific industrial
characteristics, plus the emerging private business sector and the fast growing economic boom, have created a more
intensive and dynamic competition landscape, requiring firms to upgrade their technological equipment and information
systems to acquire and maintain a CA. As a result, the technical KM capability positively and significantly influences the
firms CA.
6.5 Conclusion
This research has developed, operationalised, and empirically validated a theoretical model that explains the
inter-relationships amongst KM infrastructure elements and their role in achieving CA in Vietnam, an emerging Asian,
less developed country where a Confucian culture, a socialist market economy and a majority of SMEs exist. A survey
study of 148 senior executives in the construction industry provides strong support for the research model proposed.
Consistent with general agreement in the literature that a combined social and technological approach is ideal, it is
contended that there are significant positive correlations amongst the KM capability components as well as between
them and organisational CA. However, the findings show that, in the current Vietnamese-specific environment, only
two critical factors of cultural and technological KM dimensions make a unique significant contribution to a firms CA
with culture having a major influence. This result highlights the necessity to consider culture as a dominant issue in KM
to enhance organisational outcomes.
In terms of practical implications, the paper attempts to provide Vietnamese business executives, especially those from
SMEs in the construction industry, with a better understanding about how firms need to be effectively managed to
improve their overall KM capability to leverage, exploit, and sustain CA. In addition to consider a combination of
technical and social KM resources, practising managers should investigate and take full advantages of IT in relation to
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July, 2009
other key organisational factors to overcome cultural barriers and strengthen their contribution to long-term
performance.
The limitations suggest that further research needs to be conducted in other sectors to provide a more comprehensive
picture of KM in Vietnam. Moreover, an external business environment, especially involving cultural issues, also needs
to be investigated systematically to link organisational resources in moving towards a more proactive dynamic approach
for long-term strategies.
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Appendix 2
Table 2. Descriptive statistics of the usable responses
Variables
Education
Diploma
Bachelor
Master
Doctoral
Position
Senior executive (CEO, MD)
Functional manager
Years in current company
Less than 2 years
3-5 years
6-10 years
More than 10 years
Number of employees
Less than 20
20-49
50-199
200-299
More than 300
Type of business
State-owned
Private Limited
Joint Stock
Joint Venture
100% foreign invested
14
Frequency
Percent (%)
31
96
18
3
21
65
12
2
64
84
43
57
54
56
26
12
36
38
18
8
18
40
50
25
15
12
27
34
17
10
33
54
36
14
11
22
37
24
10
7
July, 2009
15
Vol. 2, No. 3
Appendix 4
Table 4.Correlations between KM capability dimensions and CA
CA
Structure
.474(**)
.000
121
Culture
.543(**)
.000
131
IT
.363(**)
.000
131
People
.452(**)
.000
136
.523(**)
.000
122
.498(**)
.000
119
.533(**)
.000
124
.270(**)
.002
131
.568(**)
.000
135
.515(**)
.000
135
CA
Pearson Correlation
Sig. (2-tailed)
N
140
Structure
Pearson Correlation
Sig. (2-tailed)
N
.474(**)
.000
121
127
Culture
Pearson Correlation
Sig. (2-tailed)
N
.543(**)
.000
131
.523(**)
.000
122
139
IT
Pearson Correlation
Sig. (2-tailed)
N
.363(**)
.000
131
.498(**)
.000
119
.270(**)
.002
131
137
People
Pearson Correlation
Sig. (2-tailed)
N
.452(**)
.000
136
.533(**)
.000
124
.568(**)
.000
135
.515(**)
.000
135
1
142
(Constant)
Structure
Culture
People
IT
Unstandardized
Coefficients
B
Std. Error
.628
.661
.107
.121
.493
.122
.031
.111
.199
.094
Standardized
Coefficients
Beta
.094
.406
.028
.200
Sig.
.949
.885
4.041
.282
2.113
.345
.378
.000
.779
.037
a. Dependent Variable: CA
Source: Developed for this research
Appendix 1
Figure 1. Theoretical model
16
Correlations
Zero-order
Partial
Part
.420
.518
.359
.356
.086
.367
.027
.202
.071
.323
.022
.169