Knowledge Acquisition, Knowledge Application, and Innovation Towards the Ability to Adapt to Change

Introduction

Development of information technology (IT) has contributed to the transformation of economies, societies, and business environments. These changes have not only affected some or leading sectors, but all economic sectors have received new tools that significantly influence business processes (Cohen, DeLong, & Zysman, 2000). In other words, information technology has transformed all industries with different levels of influence. Brynjolfsson and Kahin (2000) state that the new era refers to the transformation of all sectors of the economy under the influence of, first of all, computers that have enabled digitization of data. This new era is known as: the digital economy, the new economy, the information economy, the knowledge-based economy, etc. What is most important in observing business of the new era are continuous and dynamic changes. Luftman, Lewis, and Oldach (1993) state that the world is experiencing profound changes and only things that are not changing are the changes themselves. These changes bring challenges and opportunities with them (Luftman, Lewis and Oldach, 1993). Many of these changes require a dramatic formation of business processes and activities in order to enable control of challenges and exploitation of opportunities.

Because of that, knowledge has become an essential strategic asset that distinguishes economies, societies, and firms (Hsu and Sabherwal, 2011). However, knowledge implies a productive application of information through the ability to convert information into decisions and actions (Pandey and Dutta, 2013). Thus, Darroch (2005) highlighted that “…simply owning resources is not necessarily going to provide any kind of advantage to the firm…” In other words, knowledge contributes to creating added value for a firm only when used. The most common form of value-added creation in the new era is innovation. Therefore, knowledge management (KM) has been seen as an essential concept and according to many authors, a source of innovation (Carneiro 2000; Kalotra 2014; Darroch 2005).

In addition, both knowledge management and innovation are seen as headstones of business success of a contemporary firm. KM provides a flow of knowledge in the process of innovation, enables the development of the skills necessary for innovation and creates an organizational culture that fosters innovation (du Plessis, 2007). Innovative firms support new ideas and change, encourage risk-taking and new business approaches (Tsai and Yang, 2014). Besides using their strengths, these firms are always looking for new opportunities (Dibrell, Craig and Hansen, 2011) and they are more capable of developing creative solutions than their competitors which contributes to the business success (Hult, Hurley and Knight, 2004). Knowledge management and innovation are widely considered to be valuable capabilities associated with the competitive advantage and superior business performance (Chen and Huang, 2009; Chen and Huang, 2012). Thus, this relationship has been well established in the literature. However, this study aims to analyze whether processes of knowledge acquisition and knowledge application could have the freestanding influence on product and process innovation. There is a lack of research demonstrating how they work together to enhance business performance, especially when it comes to specific types of innovation as product and process innovation. Consequently, the main objective of this paper is to provide important empirical evidence to support the role of knowledge acquisition and knowledge application for both product and process innovation within firms. Besides, the effect of knowledge acquisition, knowledge application, and product and process innovation on organizational business performance would be analyzed. In addition, these relationships would be analyzed and empirically tested in the context of the transitional economy. Instead of direct effects, this study investigates the mediating effect of product and process innovation between knowledge acquisition and performance as well as between knowledge application and business performance. We examine the direct impact of both KM processes and innovation types on firm business performance. In addition, we explore the role of product and process innovation as a mediating mechanism to explain the effect of knowledge acquisition and knowledge application on firm’s business performance.