Abstract
The resource-based view of the firm attributes superior firm performance to organizational resources that are valuable, rare, non-substitutable, and difficult to imitate. Aligned with this view, the authors contend that both information technology (IT) and knowledge management (KM) comprise critical organizational resources that contribute to superior firm performance. The authors also examine the relationship between IT and KM, and develop a new second-order variable – IT-KM competence – with IT capability and KM performance as its formative indicators. Thus, this chapter contributes not only by investigating the determinants of firm performance but also by broadening our understanding of the relationships among IT, KM, and firm performance.
TopIntroduction
For the last two decades, the investigation of the return on investments in IT has become a key objective of many studies. In pursuing this objective, researchers have developed two main theoretical frameworks: one asserts that IT has a direct impact on firm performance (Bharadwaj, 2000), while the other proposes that the effect of IT on firm performance is mediated by business process (Tanriverdi, 2005). However, no matter which theoretical framework has been employed, some studies have failed to find a significant correlation between IT and firm performance. Because the return on IT investments seems to be contingent, scholars call for more research into why IT may not benefit business, how to make IT effective, and what are the key determinants of the success of IT (Dehning & Richardson, 2002).
Meanwhile, considerable research attention has been devoted to the importance of KM in the rapidly changing, competitive, and dynamic business environment (Holsapple & Wu, 2008). Modern organizations are turning to KM practices and applications to foster the creation, integration, and usage of knowledge assets that enable them to compete in an increasingly global economy. In light of this, researchers have attempted to provide empirical evidence of the strategic consequences that KM can bring to organizations (Grant, 1996). For example, based on the survey data collected from 177 firms, Chuang (2004) finds that greater KM capabilities are significantly associated with greater competitiveness and that social KM resource has a significant impact on competitive advantage. Similarly, in a survey-based investigation of the link between KM activities and competitiveness, Holsapple and Singh (2005) observe that the KM activities of interest can be performed in ways that improve organizational competitiveness, and can do so in each/all of four ways: enhanced productivity, agility, innovation, and reputation.
Although there exist studies on IT-firm performance relationship and on KM-firm performance link, these studies have paid insufficient attention to the full map of relationships among IT, KM, and firm-level return, and have placed relatively less emphasis on the collaborative effect of IT and KM on firm performance (Wu, 2008). Given the inseparability of IT and KM, and the strategic importance of the two, a thorough investigation of both their joint and separate roles in firm performance is necessary. Such investigation would enrich not only the theoretical understanding of the mechanism for competitive advantage, but also the research models investigating determinants of superior firm performance. Thus, the work would be of value not only to practitioners striving to achieve and sustain business success, but also to researchers interested in identifying determinants of better firm performance.
This study contributes to such investigation. More specifically, the purpose of this chapter is to theorize a triangle of relationships among IT, KM, and firm performance, and to develop a theoretical model with testable hypotheses that improve our understanding of the effects of IT and KM on firm performance. The theoretical foundation of this paper is embedded in the resource-based view of the firm and prior work by Holsapple and his colleagues. The current study contributes to the literature in a number of ways. First, this study is among the first to recognize that KM may play an important role in the link between IT and firm performance. Thus, the study may provide a plausible explanation for why some previous research has failed to discover a significant relationship between IT and firm performance. Second, we examine the determinants of firm performance by introducing and employing a new perspective, which focuses on the collective impacts of IT and KM. Such a perspective may broaden our approach to identifying determinants of firm performance. Third, we present methods to measure relevant variables. Therefore, the current chapter is useful and effective in guiding future empirical research in this regard. Finally, this study also investigates the relationship between IT and KM, which has so far received relatively little research attention.
The remainder of the chapter is organized as follows. In the next two sections, we review the state of IT and KM. Then, we present the research model and hypotheses, followed by a section in which we discuss methods for measuring the variables. Finally, we provide a brief summary of the contributions provided by this research.
Key Terms in this Chapter
IT-KM Competence: Is defined as a firm’s IT and KM ability and resources that are peculiar to achieving and sustaining business success.
A Resource: Can be defined as a rare and inimitable firm-specific asset that adds value to firms’ operations by enabling them to implement strategies that improve efficiency and effectiveness (Karmi et al., 2007).
IT Capability: Refers to an organization’s ability to identify IT meeting business needs, to deploy IT to improve business process in a cost-effective manner, and to provide long-term maintenance and support for IT-based systems (Karimi et al., 2007).
Knowledge Management: Is “an entity’s systematic and deliberate efforts to expand, cultivate, and apply available knowledge in ways that add value to the entity, in the sense of positive results in accomplishing its objectives or fulfilling its purpose” (Holsapple and Joshi 2004, p. 593).
Information Technology: Can be defined as a broad range of technologies involved in information processing and handling, such as computer hardware, software, telecommunications, and databases (Huff & Munro, 1985).
KM Performance: Is the degree to which KM activities harness organizational resources to achieve the goals or purposes of KM initiatives.
Agility: Refers to an organization’s ability to detect changes, opportunities, and threats in its business environment and to provide speedy and focused responses to customers and other stakeholders by reconfiguring resources and processes and/or by developing strategic partnerships and alliances (Mathiyalakan et al., 2005).
Knowledge: Refers to a fluid mix of framed experience, values, contextual information, and expert insight that offers a framework for interpreting, assimilating, and integrating new experiences and information (Davenport & Prusak, 1998).
IT Relatedness: Is defined as “the use of common IT infrastructures and common IT management processes across business units” (Tanriverdi 2005, p. 317).
Innovation: Refers to the ability of creating valuable and useful new product, new services, new technology, or production process (Liao & Chuang, 2006).