Astitva International Journal of Commerce Management and Social Sciences

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1 AN EMPIRICAL EVALUATION OF CRITICAL SUCCESS FACTORS OF KNOWLEDGE MANAGEMENT FOR ORGANIZATIONAL SUSTAINABILITY ABSTRACT DR. ANLI SURESH Assistant Professor of Commerce Madras Christian College Chennai The rapidly changing business environment and the constant challenges it poses to organizations and businesses makes it imperative to continuously enhance knowledge and skill sets across the organization. Knowledge Management involves several strategies that an organization may use to educate, train, share experiences, document processes and procedures, distribute information, and keep that information up to date. However the success of knowledge management lies in the role played by the organization, the developers and the users themselves. A critical success factor is a performance area of critical importance in achieving consistently high productivity and sustainability. There are at least two broad categories of key success factors that are common to virtually all organizations: business processes and human processes. Both are crucial to building great companies. The focus of this paper is on the human process areas. Compared to the work on explicit knowledge, the management of tacit knowledge is relatively unexplored. The purpose of this study is to gain a better understanding of how some factors are critical for the successful application of Knowledge Management (KM). This paper makes an exploratory study about Knowledge Management in practice at various organizations in Chennai and tries to identify the critical success factors. Based on various literatures review key factors for tacit knowledge management have been identified and the positive impact of tacit knowledge on organizational sustainability is analyzed. A survey was done among 160 stakeholders of various organizations in Chennai and based on their responses a factor analysis was carried out. The outcome of this empirical research provides indications on the leverages for the effective development and management of KM through Critical Success Factors (CSFs). The evaluation confirms the critical success factors, as dependent on both tacit and explicit knowledge sharing and interaction which play a significant role for Knowledge Management to thrive in an organization to enhance its sustainability. 1

2 Keywords: Critical Success Factors (CSFs), Knowledge Management (KM), Knowledge Transfer, Learning, Sharing, Sustainability. INTRODUCTION What is Knowledge? Knowledge is the basis for, and the driver of, our post-industrial economy. In today's economy, knowledge is people, money, leverage, learning, flexibility, power, and competitive advantage. Knowledge is the full utilization of information and data, coupled with the potential of people's skills, competencies, ideas, intuitions, commitments and motivations. Knowledge is more relevant to sustained business than capital, labor or land. Nevertheless, it remains the most neglected asset. It is more than justified true belief and is essential for action, performance and adaption. Knowledge provides the ability to respond to novel situations. A holistic view considers knowledge to be present in ideas, judgments, talents, root causes, relationships, perspectives and concepts. Knowledge is stored in the individual brain or encoded in organizational processes, documents, products, services, facilities and systems. Knowledge is the result of learning which provides the only sustainable competitive advantage. Knowledge is action, focused innovation, pooled expertise, special relationships and alliances. Knowledge is value-added behavior and activities. For knowledge to be of value it must be focused, current, tested and shared. Knowledge has been recognized as a key corporate asset and the only source of sustainable competitive advantage. Organizations today can effectively create knowledge and also utilize, manage and share that knowledge to sustain in the race for the top position. This is made easier with the advancement in internet and e-commerce technologies that enable companies to share knowledge easily and evaluate their intangible assets more accurately. What is Knowledge Management? Knowledge management is an audit of "intellectual assets" that highlights unique sources, critical functions and potential bottlenecks which hinder knowledge flows to the point of use. It protects intellectual assets from decay, seeks opportunities to enhance decisions, services and products through adding intelligence, increasing value and providing flexibility. Knowledge management complements and enhances other organizational initiatives such as total quality management (TQM), business process re-engineering (BPR) and organizational learning, providing a new and urgent focus to sustain competitive position. To serve customers well and 2

3 remain in business companies must: reduce their cycle times, operate with minimum fixed assets and overhead (people, inventory and facilities), shorten product development time, improve customer service, empower employees, innovate and deliver high quality products, enhance flexibility and adaption, capture information, create knowledge, share and learn. None of this is possible without a continual focus on the creation, updating, availability, quality and use of knowledge by all employees and teams, at work and in the marketplace. The concept of knowledge management is to ensure that reinvention of the wheel does not take place, to ensure that one can build on what he learn from others and in the organizational context to ensure that the response time to adapt to environmental changes is reduced. In a highly competitive world where every unit of time is crucial and where every decision is strategic, it becomes imperative that an organizational repository of knowledge is generated and stored in an accessible place. Knowledge management is an essential part of strategic management process hence; organizations should undertake knowledge management programs. In doing so, they would gain competitive advantage that comes with improved or faster learning and new knowledge creation. KM programs may lead to greater innovation, better customer experiences, consistency in good practices and knowledge access across a global organization, as well as many other benefits. In the knowledge economy, organizations are no longer driven by their physical assets but by the value of their knowledge. In this paper an attempt is made to identify the critical success factors for KM to thrive in an organization to capture tacit knowledge of different stakeholders of the organization and make it explicit so that other employees can take advantage of it and an organization can enhance its sustainability. REVIEW OF LITERATURE According to a case study made by Goswami (2004) large organizations suffer from a lack of cohesiveness and duplicates efforts because they have scattered or virtual units, flexi-hours and work from home options. Moreover the employees working in such organizations suffer from lack of self-esteem and do not show loyalty. In such cases although a large amount of knowledge will be generated, it will not be put to proper use due to lack of connectivity. Hence knowledge dissemination will not take place. Kim et al, (2004) suggest that: the decision-making oriented approach is a valid way of identifying knowledge requirements. Interaction with others, as opposed to isolation is important if knowledge conversion is to take place Stover (2004, p. 167). 3

4 Spring (2003) argued that transfer of tacit knowledge strongly depends on the distinction between face-to-face and arm s length relationships. According to Cavusgil et al (2003) the closeness of the two partners are key to the degree of tacit knowledge transfer. Kochikar (2001) in his case study suggest that Infosys has conceived, developed and deployed internally an elaborate architecture for KM, that aims to take the company to a Learn Once, Use Anywhere paradigm. The challenge is to create direct people-to-people sharing mechanism. Knowledge which is new to an organization has to either be invented internally, or acquired from external sources. There are two types of knowledge: explicit knowledge and tacit knowledge. Nonaka et al. (2000) and other authors such as Hall and Andriani (2002) describe explicit knowledge as what can be embodied in a code or a language and as a consequence it can be communicated, processed, transmitted and stored relatively easily. It can be shared in the form of data, scientific formulae, manuals and such like. In contrast, tacit knowledge is personal and hard to formalize it is rooted in action, procedures, commitment, values and emotions etc. Tacit knowledge is not codified, it is not communicated in a language, and it is acquired by sharing experiences, by observation and imitation Hall & Andriani (2002). Tacit and explicit knowledge are complementary, which means both types of knowledge are essential to knowledge creation. Explicit knowledge without tacit insight quickly looses its meaning. Knowledge is created through interactions between tacit and explicit knowledge and not from either tacit or explicit knowledge alone (Nonaka et al. 2000). Davenport and Marchand (1999) suggest that: whilst knowledge management does involve information management, beyond that it has two distinctive tasks: to facilitate the creation of new knowledge and to manage the way people share and apply it. Prahlad and Hamel (1990) suggest that intellect clearly resides inside the firm s human brains. Elements of knowledge, skills and understanding can also exist in the organization s systems, databases or operating technologies. If properly matched, intellect in each form is both highly leverage able and protectable. STATEMENT OF THE PROBLEM Murphy & Verma (2008) stated that, As globalization and shifting demographics reshape competitive ground rules, companies that fail to treat knowledge management (KM) as an initiative of the highest importance will lose intellectual assets, suffer from employee turnover, exacerbate security threats, and ultimately lower valuations. It s time for enterprises to exert 4

5 control over KM and treat it as an issue of the highest order. Knowledge Management programs are typically claimed to be tied to specific organizational objectives and are intended to lead to the achievement of specific targeted results such as improved performance, competitive advantage, or higher levels of innovation. Tacit knowledge is only known by an individual. The complexity is in finding a way of communicating it to the rest of an organization. It is personal knowledge that is rooted in individual experience, and involving personal belief, perspective and values. Explicit knowledge is knowledge that can be articulated, codified, and stored in certain media. Considering the tacit knowledge of an organization as one key for the efficiency of it, knowledge becomes a vital and tangible asset. To facilitate the sharing of knowledge thus can highly improve the efficiency of the whole organization by leveraging the existing knowledge. The implementation of a knowledge management process that aims to target, transfer and organize this knowledge is obviously especially important for companies that have to face a high number of people leaving and joining. In general Knowledge management comprises three main factors - designing learning cycles into all activities of an organization; developing ways of systematic applying new knowledge in the activities of the organization; and in the process finding ways to help convert the personal knowledge of individuals into organizational knowledge, and vice versa. Although these elements have been discussed at length in the extant literature on the subject, there have been no broad-based analyses of critical success factors for KM to thrive in an organization to capture tacit knowledge make it explicit and its relationship to one another to enhance its sustainability, and this gap in the literature is a serious deficiency for both organizations and researchers alike. OBJECTIVE OF THE STUDY To identify the critical success factors for KM to thrive in an organization to capture tacit knowledge of different stakeholders of the organization as customers, shareholders, employees, suppliers etc. and make it explicit so that other employees can take advantage of it and an organization can enhance its sustainability. RESEARCH METHODOLOGY The methodology adopted is exploratory and descriptive based on the figures from the Primary data questionnaire from the sample size which consists of 160 respondents of various 5

6 organizations in and around Chennai through simple random sampling. This sampling technique is an economical method for collecting data from a large geographical area. This method is cheaper and also faster. However, there is a chance of sampling error. This constraint was overcome by increasing the required sample size. Sampling unit for this research are managers from various selected industries. Questionnaire consisted of 25 factors which directly or indirectly influenced Knowledge Management also consists of statements asking the respondents to state their agreement/disagreement on the issues of knowledge management. Each question was scored using a five-point Likert scale. Secondary data collected from various books, journals, reviews and websites. After the data had been collected, it was processed & tabulated directly in to SPSS 17.0 Software. SPSS version 17.0 statistical software was used and the results obtained thereby have been analyzed and interpreted. Cronbach s Alpha reliability was done to find out the reliability of the data. Data Analysis & Interpretation As predicted KM awareness is higher in IT companies. More than 90% respondents from IT companies are aware about Knowledge Management. Compare to that, 60% respondents from Pharma & Chemical, 80% respondents from Banking and Insurance, and 75% respondents from other industry are aware about knowledge management. This suggests that IT company executives are more aware about knowledge management than other industry executives. Here it can be observed that 70% of the respondents from IT industry are not only aware but also using KM concepts, which is significantly higher than of others. KM has been more popularized in last decade and more famous as an IT enabled concepts. Because of high employee turnover and organizational knowledge losses, first implementers of KM are IT organizations. The critical success factors of KM to thrive in an organization are validated by the findings. Data Reliability The data reliability score alpha is 79.84% i.e. is approximated to 80% which is at an acceptable level. Table 1 - Re l i a b i l i t y An a l y s i s - Sc a l e (A L P H A) Reliability Coefficients 6

7 N of Cases = N of Items = 25 Alpha =.7984 Source: Primary Data Factor Analysis - Critical Success Factors Factor Analysis was done on the 25 factors that are believed to influence and promote knowledge management. These factors were selected after doing an extensive literature review. Exploratory factor analysis was conducted and the initial results of tests of sampling adequacy showed the following results. Table 2- KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy..884 Bartlett's Test of Sphericity Approx. Chi-Square Df 136 Sig..000** **Significant at the 0.01 level. Source: Primary Data A KMO score of 0.9 is an acceptable score and therefore factors with low KMO statistic values were dropped till the overall KMO rose to near about 0.9. Nine factors were dropped and factor analysis was done on the remaining 16 factors. Table 3- Communalities Table Initial Extraction Improving competitive advantage Innovation and knowledge creation

8 Employee development Cost reduction Revenue growth Faster response to key business issues Improving quality Improving delivery Changing people s behaviour from knowledge hoarding to knowledge sharing Determining what kind of knowledge to be managed & making it available Willingness of employees to co-operate Overcoming technological limitations Attracting & retaining talented people Improving work culture Personal responsibility for knowledge Total Quality Management Extraction Method: Principal Component Analysis. Source: Primary Data 8

9 Table 4- Final Critical success factors towards KM Factor Statements Factor Loading I Quality Output II Organizational Adjustments III - Leadership Eigen Value Cumulative % of Variance Improving quality.865 Improving delivery.970 Overcoming technological limitations.871 Innovation and knowledge creation Employee development.782 Cost reduction.536 Faster response to key business issues.897 Attracting & retaining talented.924 people Total Quality Management.621 Changing people s behaviour from knowledge hoarding to knowledge sharing Improving competitive advantage.692 Determining what kind of knowledge.863 to be managed & making it available Personal responsibility for knowledge.864 IV Culture Improving work culture Revenue growth.759 Willingness of employees to cooperate Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 7 iterations. Source: Primary Data Interpretation Component 1 comprises of Improving quality, improving delivery, and Overcoming technological limitations. This group maybe labeled as Quality Output which is expected both from the system developers and the users. Component 2 comprises of Innovation and knowledge creation, Employee development, Cost reduction, Faster response to key business issues, Attracting & retaining talented 9

10 people and Total Quality Management. This group maybe labeled as Organizational Adjustments which is expected from the Top level management. Component 3 comprises of Changing people s behaviour from knowledge hoarding to knowledge sharing, Improving competitive advantage, Determining what kind of knowledge to be managed & making it available and Personal responsibility for knowledge. This group maybe labeled as Leadership which is expected from the Team leader. Component 4 comprises of Improving work culture, Willingness of employees to cooperate and Revenue growth. It is observed that Willingness of employees to co-operate shows a negative correlation, indicating that Willingness of employees to co-operate is not a prominent factor. This group maybe labeled as Culture which is expected from the Organization culture. Thus it can be concluded that for KM to thrive, the above mentioned critical success factors i.e. Quality Output, Organizational Adjustments, Leadership and Culture have to play a prominent role in an organization. CONCLUSION From the above findings of factor analysis one can observe that everybody seems to agree and believe in sharing and application of knowledge. However they disagree that the entire knowledge base of an employee can be easily transferred to another person or database. In conclusion it can be said that emphasis is being given on the critical success factors of Quality Output, Organizational Adjustments, Leadership and Culture identified in this study while formulating strategies. The ambience within the organization is that of willingness to share one s own experience and learn from other s experience. Knowledge dissemination and sharing is believed to lead to rich dividends but a direct link with profits is still not yet clear cut. Knowledge management is not an unknown phenomenon to organizations in India. With increase in information technology usage, many organizations have started KM initiatives in India. The identified CSFs through this outcome of this research of 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 actions in ways that strive to improve organizational sustainability. 10

11 SCOPE FOR FUTURE RESEARCH This work may form a basis for further research in the areas of knowledge management. Several recommendations for additional research have emerged naturally from the present study. Study of knowledge management in other industries will help practitioners and researchers to understand the diversity of knowledge management in different business environments. One question that requires further investigation is whether the findings of critical success factors in this study are specific to the organizations studied or if this is a general phenomenon, which can be observed in other organizations as well. Finally, even though the results of this study can be generalized to other sectors or industry, it is necessary to expand the study into a wider range of various industries and various management levels to see whether are there any differences between the findings of the study. It is hoped that the findings proposed in this study would help Indian companies to better organize their knowledge management activities, as well as helping the country to create wealth and a knowledgeable society. It is also hoped that additional research will be undertaken to build upon this work, and to further develop and enhance our knowledge on differences in knowledge management understanding between various industries. Further research should go towards the direction of empirical approximation using quantitative and qualitative analysis methods to explore the relevant tacit knowledge in companies, to buildup and sustain their competitive advantage. Therefore, it will be challenging to do further empirical research especially on the field of the transfer of tacit knowledge, to include both the transfer of tacit knowledge within the organization, and to only the relevant locations and individuals within the organization and transfer of tacit knowledge to only appropriate locations and individuals outside the organization. REFERENCES: Cavusgil, S.T., Calantone, R.J., Zhao, Y. (2003): Tacit knowledge transfer and firm innovation capability, in: Journal of Business & Industrial Marketing, 18 (1), Davenport, T. H., and Marchard, D. (1999): Is KM just good information management, in: Financial Times Mastering Information Management Supplement, Financial Times, and London March 8th,

12 Goswami Chandana, (2004). Managing the Technical, Professional Workforce: Can Knowledge Management is the answer? In: Managing Trade, Technology and Environment (M. Mallikarjun and Pawan K. Chugan Ed.), pp , Excel Books, India. Hall, R., and Andriani, P. (2002): Managing knowledge for innovation, in: Long Range Planning, 35, Kim, S. K., Lim, S., and Mitchell, R. B. (2004) Building a knowledge model: a decisionmaking approach, [Online], Available: [25 October 2010]. Kochikar V.P. (2001). Creating the KM Infrastructure at Infosys: The Technology Challenge ; Management Review, Vol 13, No.4, pp Murphy, J & Verma, K 2008, Gaining the Knowledge Management Edge, Part 1: The Master Key to Business Growth, AMR Research - AMR-R-21767, Boston. Nonaka, I., Toyama, R., Konno, N. (2000): SECI, the concept of Ba and Leadership: a unified model of dynamic knowledge creation, in: Long Range Planning, 33(4), Prahlad C.K. and Gary Hamel, (1990). The core competence of the Corporation ; Harvard Business Review, May-June, pp Spring, M. (2003): Knowledge management in extended operations networks, in: Journal of Knowledge Management, 7 (4), Stover, M. (2004): Making Tacit Knowledge explicit, in: Reference Services Review, 32 (2),

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