See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/220363244

The effect of knowledge management practices on firm performance

Article  in  Journal of Knowledge Management · May 2006

DOI: 10.1108/13673270610670911 · Source: DBLP

CITATIONS READS

203 2,729

2 authors, including:

Fernando J. Garrigos-Simon
Universitat Politècnica de València
60 PUBLICATIONS   1,093 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

social media in tourism View project

PIME 2014-2015 View project

All content following this page was uploaded by Fernando J. Garrigos-Simon on 05 June 2014.

The user has requested enhancement of the downloaded file.

The effect of knowledge management
practices on firm performance
Daniel Palacios Marqués and Fernando José Garrigós Simón
Daniel Palacios Marqués
and Fernando José
Garrigós Simón are both
Associate Professors at the
Department of Business
Administration, Universitat
Jaume I, Campus Riu Sec,
Castellón, Spain.
This research was supported
by a grant
(SEC2003-01825/ECO) from
the Spanish Ministry of Science
and Technology and FEDER
(European Fund for Regional
Development) and BANCAJA
grant for visiting lecturers.
DOI 10.1108/13673270610670911
Abstract
Purpose – This research proposes to study the connection between knowledge management practices
and firm performance.
Design/methodology/approach – Theoretical relations are tested through an empirical study carried
out on 222 Spanish firms in the biotechnology and telecommunications industries.
Findings – This paper shows how the firms that adopt knowledge management practices obtain better
results than their competitors.
Research limitations/implications – The subject of principles has not been considered a dimension of
knowledge management. New avenues of inquiry are opened considering this dimension.
Practical implications – It determines practices that have a positive incidence on firm performance.
Originality/value – The conceptualization of knowledge management practices represents a
theoretical innovation. This scale can be used in other knowledge-intensive industries. The paper
concludes that these practices have a positive incidence on firm performance.
Keywords Knowledge management, Organizational performance
Paper type Research paper
Introduction
In the last decade, knowledge management (KM) has become a line of research attracting
much interest. Although the literature had already worked implicitly with knowledge, the
increasing spread of theoretical works on KM is due to the importance it has for the firm, as
well as the development of the competence-based view (CBV).
The aim of this research is to study the importance of KM as a source of sustainable
competitive advantages for firms and to analyze how the introduction of KM practices
enables firm performance to improve. The practices that have a more positive influence on
firm performance are also obtained.
To achieve this aim, it is initially analyzed the theoretical framework of KM in order to specify
the features and processes by which economic rents are created. Firstly, it is necessary to
conceptualize KM as a starting point for designing an instrument for measuring it in the firm.
In order to develop the various objectives proposed in the paper, it is necessary to take
account of different theoretical fields. CBV includes a set of approaches with a common
factor, the importance of intangible assets as source of sustained competitive advantages.
In this sense, this approach focuses on the importance of firms’ specific competences in
their strategy and performance.
Foss (1996, p. 1) emphasizes this approach and states that a firm can be conceptualized as
a set of competences, and the ability of the firms to accumulate, protect and develop
competences is the key to getting the competitive advantage.
VOL. 10 NO. 3 2006, pp. 143-156, Q Emerald Group Publishing Limited, ISSN 1367-3270 j JOURNAL OF KNOWLEDGE MANAGEMENT j PAGE 143
 ‘‘ To estimate the benefit of a KM program, a conceptual
perspective is required, as well as the use of tools and
methods, rather than the ad hoc use of analytical
approaches. ’’

Sanchez et al. (1996) accentuate the role of learning in organizations as an enabler for the
process of creation of competences. In fact, for Sanchez et al. (1996, p. 3):

CBV supposes that firms compete through learning based on experience, in order to develop
competences that are used in different business activities and make possible the development of
individual products.

However, there are some disadvantages which have slowed down the diffusion of the
approach as a leading paradigm and its recognition as ‘‘business theory’’. In this sense, it
has been reviewed as being essentially static and for laying emphasis on individual
resources (Knudsen, 1996), so the approaches with a dynamic view are the ones that have
made progress.

Conceptualization of KM
Although in the last few years KM has become quite an important line of research, it is still
difficult to find a conceptualization commonly accepted by anyone. The literature stresses
the application of knowledge in the firm, through its human capital or in assets placed in the
firm as patents, routines, databases, etc. to value creation.
The definitions proposed by Lei et al. (1996) and Beckman (1997) fit the aims pursued in the
research, as they relate KM to the creation of distinctive competences. However, most
definitions consider KM as a set of phases, not taking into account the relationship with the
distinctive competences.
The KM conception used is not irrelevant. In this sense, KM includes new elements which
determine the management method, although KM it is not considered as a new management
paradigm, as it has neither a properly structured methodology nor a prescriptive framework
for the successful management of any type of organization (Johannessen and Olsen, 2003).
KM is considered a managerial system that captures established models of organization
and broadens them to provide a practical methodology.
KM practices refer to a more practical and perceptible level of research. From this
dimension, KM can be viewed as an organizational innovation involving important changes
in the introduction of the strategy and in traditional management practices. Works that have
focused on the process of introduction of KM in the firm have centered on the most relevant
areas so the system can be applied effectively.
A review of the literature enables us to identify the following set of practices:
B orientation towards the development, transfer and protection of knowledge;
B continuous learning in the organization;
B an understanding of the organization as an overall system;
B development of an innovative culture to encourage R&D projects;
B approach based on individuals; and
B competence development and management based on competences.
Dibella and Nevis (1998) admit that the overall conception of the organization as a
successful factor in the introduction of the KM in the firm. KM can be understood from a

j j
PAGE 144 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
 global view drawing together not only the functions of an organization, but all its members,
as well as all the organizations that have a direct relationship with it.

Literature review
The study of the possible effects of introducing KM in the firm has centered on determining
whether it is able to carry out quantifiable improvements. As Davenport (1999) points out,
although the relationship between KM and performance indicators has been discussed at
length (exchange value, market value, balance sheet, etc.), few firms have been able to
establish a causal relationship between KM activities and firm performance.
Firestone (2001) proposes an intuitive approach to clarify the relation between KM,
corporate objectives and benefits. He suggests an abstract model called ‘‘benefit global
estimation’’. To estimate the benefit of a KM program, a conceptual perspective is required,
as well as the use of tools and methods, rather than the ad hoc use of analytical approaches.
To relate KM programs and firm performance, the previous analysis of corporate objectives
and business processes is required. In this sense, KM is a business process that can help
firms reach their goals. Firestone (2001) argues that a KM program is made up of tasks (T1,
T2, . . . , Tn). These tasks have an impact on business processes (P1, P2, . . . , Pn) and are
compounded by different attributes which determine their present state. The difference
between the present state and the objective state aids the understanding of how the
introduction of a KM program influences firm performance.
One of the main problems of this model is the excessive simplicity of the effects deriving from
the introduction of KM in the firm. There are variables related to human capital that the model
does not include, such as the improvement of its capabilities or skills.
Davenport (1999) relates KM activities with some intermediate activities that affect financial
results. Progress in KM activities affects intermediate variables such as project performance
measurements, indicators of the capacity of employees to carry out tasks related to
knowledge, and finally, the generation of ideas and innovations.
The generation of new ideas and innovations in the firm, due to a better use of knowledge,
could have an effect on the improvement of processes. In the same way, an improvement in
processes perfects employees’ capabilities.
Wiig (1999) creates a cause and effect diagram depicting the effects of introducing a KM
program. The added value of the model lies in introducing all the effects deriving from a
program that encourages the creation and sharing of knowledge.
Decarolis and Deeds (1999) study the impact of organizational knowledge on firm
performance. Organizational knowledge is conceptualized through stocks and flows of
knowledge (Dierickx and Cool, 1989). Knowledge stocks accumulate knowledge assets that
are internal to the firm. Flows refer to all the elements able to modify the stock of knowledge.
A suitable context for examining stocks and flows of organizational knowledge and its
relationship with firm performance is a dynamic industry in terms of knowledge generation,
so the authors are using the biotechnology sector for the empirical study.
Decarolis and Deeds (1999) conclude that from the variables used to make flows of
organizational knowledge operational, only the munificence of the geographical area is
significant. This means geographical location influences capacity for capturing knowledge.
As for the variables used to measure knowledge stocks, there are two that positively affect
firm performance: the number of products that the firm is developing and the number of

‘‘ There are no models that measure the relationship between

KM practice and firm performance. ’’

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 145
 times works created by a firm are cited. In addition, organizational knowledge stocks have
greater impact on firm performance than knowledge flows.
However, there are no models that measure the relationship between KM practices and firm
performance. The theoretical model proposed is shown in Figure 1.
Now, from the theoretical model, the main hypotheses of the research are developed.
H1. The degree to which an organization takes on the introduction of KM practices is
positively related to firm performance.

The acceptance of these practices or techniques creates an appropriate environment for the
development of some distinctive competences (Lei et al., 1996; Beckman, 1997). This
hypothesis can be formulated by distinguishing every dimension of the KM practices.
H1a. There is a positive relationship between the orientation towards the development,
transfer and protection of knowledge and firm performance.
H1b. There is a positive relationship between continuous learning in the organization and
firm performance.
H1c. There is a positive relationship between an understanding of the organization as a
global system and firm performance.
H1d. There is a positive relationship between the development of an innovative culture
that encourages R&D projects and firm performance.
H1e. There is a positive relationship between an approach based on individuals and firm
performance.
H1f. There is a positive relationship between competence development and
management based on competences and firm performance.

Figure 1 Theoretical model

j j
PAGE 146 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
Dibella and Nevis (1998) state that the introduction of KM programs facilitates the acquisition
of new knowledge, which will have a bearing on the creation of new routines and mental
models. Ranft and Lord (2002, p. 420) hold that knowledge transfer occurs when
knowledge-based assets are acquired and used. So, an organization directed towards
knowledge development and transfer allows its human capital fast and unimpeded access
the knowledge (Szulanski, 1996). Besides, the importance of knowledge as basic factor to
create competitive advantages is reinforced in industries that are constantly innovating
(Decarolis and Deeds, 1999).

Research methodology
The biotechnology and telecommunications industries have been chosen for the research
because the management of intangibles is appreciated more clearly than in other types of
industries. Knowledge is not a simple asset but it focuses other assets. To be successful,
firms must be able to learn continually and apply their knowledge, anticipating market
changes (Alvesson, 2000). In this environment, the ability to create and apply knowledge
becomes an important source of competitive advantages.

In the biotechnology industry, the development cycle is long if it is compared with other
industries, but nowadays it is emphasizing the speeding up of the rhythm of scientific
discoveries in order to reach the market first, and the reduction and control of expenditure on
R&D at all the levels.

In 2001, according to the Spanish National Statistical Institute, the number of Spanish firms
belonging to the biotechnology industry was 226, while in the telecommunications industry
there were 846. The Spanish National Statistical Institute includes a database with
information about biotechnology and telecommunications industries: address, telephone
and fax numbers, e-mail, business activities and directors’ full names. The questionnaire
respondent was the manager of the firm, as this person has the overall information about the
organization necessary for answering the questions.

A total of 257 questionnaire responses were achieved. The statistical debugging of the
questionnaires meant 35 of them had to be eliminated for various reasons (existence of items
without answers, doubts about the reliability of the responses, etc.). The sample finally
included 222 firms (102 from the biotechnology industry and 120 from the
telecommunications industry) so the response rate was 45.1 and 14.2 percent
respectively. This final sample has a statistical margin of error of ^ 5.7 percent, with a
95.5 percent confidence interval. As for the general features of the respondents, the average
number of employees was 123, the annual turnover was e30,160,000 and the annual R&D
budget was e3,860,000.
The technical specification can be found in Table I.
The questionnaire is made up of two parts, corresponding to the two theoretical constructs
postulated in Figure 1.
The first one measures KM practices. The scale was made up of 23 items (see Appendix 1).
To measure KM practices a Likert scale from 1 to 7 was used. The respondent answers 7 if
the practice is always used with an established method in the organization, 1 if the practice
is never used and an intermediate number if the practice is used sporadically.

Table I Technical specifications of the empirical work

Sample Biotechnology and telecommunication firms

Scope Spanish firms (questionnaire carried out by mail)
Sample size 222 firms
Margin of statistical error ^5.7 percent (95 percent significance level)
Fieldwork period December 2001-March 2002

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 147
 ‘‘ One of the problems in the area of KM is the inability to
measure the most important concepts. ’’

In this research it is used the scale designed and validated by Camisón (2004). It includes a
dimension for the capacity to compete, outstanding in strategy theory, especially in the
research carried out (Appendix 2).
The generic procedure used to develop the two measurement scales (KM and firm
performance) is based on Churchill (1979) and DeVellis (1991). Measurement scales are
obtained using a Delphi study consulting KM experts from academic and business
backgrounds, a pre-test, and a validation process based on confirmatory factorial analysis.
All sociometric properties (dimensionality, reliability and validity) required for measurement
scales in social sciences have been checked for the two scales.
The panel of experts was made up of 22 people with the following backgrounds: two
recognized experts from each industry included in the empirical study plus eight academics
of international origin. The 12 industrial experts were company managers and specialists in
the industry coming from business associations or institutions related to the sector.
Academics were experts on knowledge management. This plurality in the panel of experts
prevents bias in the information. By allowing group members to consider their answers and
reply in private, undue social pressures are avoided. No member of the panel can be
influenced by the others, the only influence is the coherence of the argument.
The identification of the attributes to form part of the measurement instrument has followed
the recommendations in the literature, being carried out in two stages. The first stage
consists of bringing together a broad sample of items including the greatest possible
number of attributes configuring all the dimensions of the construct domain. The technique
used to generate items has been an extensive review of the literature relating to the
construct. Next, it is necessary to reduce the number of items so the measurement
instrument may be applied for empirical research, selecting only relevant attributes that are
real determinants for evaluation. To reduce the scale it has been resorted to the Delphi
technique and, then, to carrying out a pre-test.
Respondents indicated the extent of their agreement on a seven-point Likert scale. The
mean of the median for the items was 6.1. As it was very high, the process for eliminating
items was difficult, following these criteria:
B eliminate items where the mean of the median was lower than 5.6;
B draw up or eliminate items with greater variability in the answers. These items do not
reach a high degree of consensus between the experts; and
B include the experts’ suggestions. According to them, items considered similar can be
grouped.
After carrying out two rounds, the items with the lowest level of agreement were removed and
the suggestions for improving the measurement scales received from the experts were
included, with the consultation of experts considered as completed. The analysis of the
results obtained indicates that the majority of the items are important in determining the
scope of the construct to be measured, enjoying a high degree of consensus from the expert
panel.
EQS 5.7 was used to test the theoretical model postulated in Figure 1. Through its flexible
interplay between theory and data, the structural equation model approach bridges
theoretical and empirical knowledge for a better understanding of the real world (Fornell and
Larcker, 1981). Such analysis allows for modeling based on both latent (unobservable)
variables and manifest (observable) variables, a property well suited for the hypothesized

j j
PAGE 148 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
 model, where most of the constructs represented are abstractions of unobservable
phenomena. Furthermore, structural equation modeling takes into account errors in
measurement, variables with multiple indicators, and multiple-group comparisons.

Results
Before developing the causal relationship proposed in the hypothesis, it is necessary to
verify that the measurement scales are useful for gathering information on the construct to be
evaluated, and furthermore that this information is obtained by the most accurate and
true-to-life procedure possible. A useful, faithful and accurate instrument for measurement
must meet three requirements:
1. Dimensionality.
2. Reliability.
3. Validity.
Dimensionality
The aim of the dimensionality analysis consists of verifying the existence of the dimensions
proposed in the theoretical model.
KM practices scale. The study assumes KM practices to be a second-order measurement
model, comprising six dimensions. The fit indices for this model are shown in Table II.
The fit indices are statistically significant, so it is assumed that the model developed to
measure KM practices is dimensionally correct. Another important question is determining
the weight of the six dimensions (Table III).
The approach based on individuals (0.912) and management based on competences
(0.872) are the two dimensions with the greatest weight in the KM construct. This highlights
the relevance of the human dimension, necessary for developing an effective KM strategy.
From the results, it can be deduced that this is more important than the development of an

Table II Fit indices for KM practices

Chi 2 Satorra-Bentler df P BB NFI IFI GFI AGFI PGFI

Orientation towards the development, transfer

and protection of knowledge 0.0289 2 0.8595 0.9972 0.999 0.9952 0.9762 0.9856
Continuous learning in the organization 0.0811 1 0.2956 0.9452 0.9587 0.9586 0.9198 0.9365
An understanding of the organization as a global
system 0.856 2 0.6523 0.9740 0.9795 0.9625 0.9478 0.9785
Development of an innovative culture that
encourages R&D projects 0.965 2 0.5263 0.9553 0.9584 0.9377 0.9101 0.9562
Approach based on individuals 0.0365 2 0.8462 0.9947 0.9976 0.9917 0.9744 0.9832
Competence development and management
based on competences 0.0726 1 0.3125 0.9402 0.9458 0.9256 0.9103 0.9289

Notes: BB-NFI ¼ Bentler-Bonett normed fit index $0.9; IFI ¼ Incremental fit index (good values around 1); GFI ¼ LISREL goodness of fit
index $0.9; AGFI ¼ LISREL adjusted goodness of fit index $0.9; PGFI ¼ Parsimony adjusted fit index $0.9

Table III Loadings for KM practices

Measurement Loading

Orientation towards the development, transfer and protection of knowledge 0.672

Continuous learning in the organization 0.841
An understanding of the organization as a global system 0.582
Development of an innovative culture that encourages R&D projects 0.728
Approach based on individuals 0.912
Competence development and management based on competences 0.872

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 149
 innovative culture encouraging R&D projects, which it is capital in the biotechnology and
telecommunications industries.
Firm performance scale. The study assumes firm performance to be a second-order
measurement model, comprising five dimensions (capital profitability, growth, operational
and financial efficiency, stakeholder satisfaction and competitive position). The fit indices for
this model are shown in Table IV. All of them are statistically significant.

Reliability
Measurement of internal consistency and stability of the scales. Determining reliability is
equivalent to establishing the quality of the instruments used, in the sense that the structure
of the scales is correctly designed, and the measurements are therefore free from the
distortions produced by casual errors. The process of refinement by the Delphi method and
the pre-test will have minimized this effect. In the study, it is calibrated the reliability of the
scales using two methods, the compound reliability coefficient and the re-test method, each
of which evaluates one of the two dimensions of reliability: consistency and stability.
The re-test procedure. The re-test was sent to the first 200 respondents to the survey. The
time between the two measurements was approximately 45 days, a period considered long
enough to prevent the first measurement influencing the second, but short enough for the
context not to have changed. Following the first mailing procedure, the respondents were
sent a reminder card after two weeks. A total of 172 firms finally participated in this re-test
exercise, but three had to be rejected due to defects of form or inconsistencies in content,
leaving the final rate of response to the re-test at 84.5 percent. The scale built is stable, since
there were no significant differences between the content of the answers in the two mailings.
The compound reliability coefficient. The statistic used for determining the reliability of the
measurement based on its internal consistency is the compound reliability coefficient. This
coefficient is greater than 0.7 in all the dimensions, which is the acceptable minimum. As a
result, it can be concluded that KM dimensions are accurately measured. This means that
the items chosen to measure each dimension are reliable.

Validity of the scales

The validity of a measurement refers to the degree to which the measuring process is free
from both systematic and random error. In contrast to the case of reliability, no statistic offers
a general index of validity of the measurements made. There are three basic types of validity.
Content validity. Content validity indicates that the procedure for developing the measuring
instrument is adequate (Nunnally, 1978). The content validity of a scale is difficult to verify,
because there is no objective criterion for its evaluation. One frequently used procedure is to
verify whether the process of construction of the scale fits the criteria suggested in the
literature, both in methodology and the techniques and coefficients used. With regard to
methodology, this study was carried out in accordance with the recommendations made by
(Churchill, 1979). This methodology, with adaptations, has been used by a wide-range of
authors to construct scales for measuring key constructs in strategy. With regard to
techniques or coefficients, scales were developed with the instruments normally used in this
type of study, such as the literature review or compound reliability coefficients. When
elements other than those listed by Churchill (1979) were introduced, they were in all cases
adapted from earlier studies on measurement scales, as with the Delphi methodology for

Table IV Fit indices for firm performance

Chi 2 Satorra-Bentler df p BB NFI IFI GFI AGFI PGFI

Capital profitability 0.0663 2 0.5126 0.9522 0.9621 0.9786 0.9532 0.9485

Growth 0.0811 1 0.2956 0.94 0.94 0.94 0.9198 0.9365
Operational and financial efficiency 0.0556 2 0.7352 0.9901 0.9935 0.9878 0.9656 0.9877
Stakeholder satisfaction 0.0693 2 0.5121 0.95 0.95 0.95 0.9371 0.9512
Competitive position 0.0597 2 0.5365 0.98 0.98 0.98 0.9601 0.9742

j j
PAGE 150 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
reducing the scale (Malhotra, 1981) or the re-test method for evaluating the reliability of the
scale (Conant et al., 1990).
Convergent validity. Convergent validity is said to exist when the measurement is strongly
and positively correlated with other measurements of the same construct (Churchill, 1979),
or with the variable with which it should theoretically correlate. As Bentler-Bonett coefficient
is greater than 0.9, the magnitude of factorial loadings is . 0:4 and all the parameters
estimated are statistically significant at 95 percent (t $ 1:96), convergent validity is proved.

This property provides evidence that the items all converge on the same construct
Discriminant validity. This indicates to what extent two measurements developed for similar
but conceptually different constructs are related (Bearden et al., 1993). In Table V, for all the
dimensions, 15 chi-squared tests were carried out, in which the difference between the
values of two chi-square models is gathered, one in which a perfect correlation is considered
and a second one in which there is no correlation.
Chi-square values have statistically significant differences (p # 0:05), so every dimension
represents a different concept, and the existence of discriminant validity is therefore proven.
So, it is demonstrated that the two scales (KM practices and firm performance) meet the
sociometric requirements required for scales in social sciences. Now the causal
relationships formulated in the hypothesis are studied.

Causal relationships
The estimated parameters and reliability index for the first hypothesis structural model is
shown in Table VI.
All the structural models fit properly, so the first hypothesis and the six sub-hypothesis that
can be derived from it have been verified. It is important to highlight that the reliability
parameter used is not very high in all the models. This is due to the fact that there are other
variables that affect firm performance that are not included in the model.
From the results it could be concluded there is a strong and positive relationship between
the adoption of KM practices and firm performance.

Table V Chi-square tests to analyze discriminant validity

T1 T2 T3 T4 T5 T6

T1
T2 0.526
T3 0.325 0.425
T4 0.526 0.356 0.542
T5 0.251 0.353 0.487 0.329
T6 0.423 0.463 0.125 0.219 0.65

Note: T ¼ technique

Table VI Estimated parameter and reliability index

g coefficient in the equation Structural equation reliability
Model FP ¼ gKMP þ D (R 2)

KMP ! FP (H1) 0.921 0.582

KM P1 ! FP (H1a) 0.715 0.449
KM P2 ! FP (H1b) 0.763 0.458
KM P3 ! FP (H1c) 0.708 0.442
KM P4 ! FP (H1d) 0.801 0.477
KM P5 ! FP (H1e) 0.845 0.498
KM P6 ! FP (H1f) 0.802 0.489

Note: *All the estimated parameters are significant at a 95 percent confidence level (t $ 1:96)

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 151
 Conclusions and managerial implications
When KM practices were conceptualized, the existence of a factorial structure
distinguishing six dimensions was assumed. The introduction of the six dimensions
makes it easier for managers to focus their attention on them, determining the specific
actions to carry out to introduce them. Results highlight the relevance of the human
dimension, necessary for developing an effective KM strategy.
One of the problems in the area of KM is the inability to measure the most important concepts
(Decarolis and Deeds, 1999; Davenport, 1999). Through this study, it is obtained an
instrument for measuring the key element of this topic, the degree to which KM practices
have been introduced in the firm. As for the generalizability of the scale, it can be used in
other knowledge-intensive industries such as software or consultancy, as there are no items
specific to the industries included in the empirical study.
In addition, the methodology developed here may also serve as a reference in the process of
conceptualization, operationalization and measurement of all the other basic constructs in
strategic management, all of a clearly multidimensional nature, due to the number of
dimensions or elements that play a part in their definition. The problems underlying the
empirical study of such variables and of their inter-relationships, deriving from the difficulty of
measurement, also find some useful working proposals in the study.

The instrument developed adopted a qualitative scale of classification, which allows

managers’ experience and opinion to be translated into subjective measurements of
intangible assets. Another important result of the research is the validity of the procedure for
measuring using a subjective scale, constructed on the basis of managers’ self-classification
of the firm in relation to their competitors. The reliability and the validity of measuring by this
means leads us to consider it as a replacement for objective measures based on proxy
variables, whose representation of the attributes of the construct tend to lack completeness.
As refers to the generalizability of the scale, it can be used in other knowledge-intensive
industries such as software or consultancy, since there are no items specific to the industries
analyzed in the empirical study. In the same way, the findings of Spain-based organizations
are equally applicable to organizations in the same sectors located in other countries,
regions, since there are no items specific to Spain-based organizations.
With the development of this instrument, new avenues of inquiry are opened. Intermediate
variables could be introduced, as Davenport (1999) states. In addition, and following
Decarolis and Deeds (1999), a longitudinal study could be developed to determine how and
when firm performance changes with the introduction of KM. Another level of analysis could
be considered, taking into account stocks and flows of knowledge.

References
Alvesson, M. (2000), ‘‘Social identity and the problem of loyalty in knowledge-intensive companies’’,
Journal of Management Studies, Vol. 37 No. 8, pp. 1101-11.

Bearden, W.O., Netemeyer, R.G. and Mobley, M.F. (1993), Handbook of Marketing Scales: Multi-item
Measures for Marketing and Consumer Behavior Research, Sage Publications, Newbury Park, CA.

Beckman, T. (1997), ‘‘A methodology for knowledge management’’, paper presented at Artificial
Intelligence and Software Computing Conference, Banff.

Camisón, C. (2004), ‘‘Shared, competitive, and comparative advantages: a competence-based view of

industrial-district competitiveness’’, Environment and Planning A, Vol. 36, pp. 2227-56.

Churchill, G.A. (1979), ‘‘A paradigm for developing better measures of marketing constructs’’, Journal of
Marketing Research, Vol. 16 No. 1, pp. 64-73.

Conant, J.S., Mokwa, M.P. and Varadarajan, P.R. (1990), ‘‘Strategic types, distinctive marketing
competencies and organizational performance: a multiple measures-based study’’, Strategic
Management Journal, Vol. 11 No. 5, pp. 365-83.

j j
PAGE 152 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
Davenport, T. (1999), ‘‘Knowledge management and the broader firm: strategy, advantage, and
performance’’, in Liebowitz, J. (Ed.), Knowledge Management Handbook, CRC Press, Boca Raton, FL,
pp. 1-11.

DeVellis, R.F. (1991), Scale Development: Theory and Applications, Sage Publications, Newbury Park,
CA.
Decarolis, D.M. and Deeds, D.L. (1999), ‘‘The impact of stocks and flows of organizational knowledge on
firm performance: an empirical investigation of the biotechnology industry’’, Strategic Management
Journal, Vol. 20, pp. 953-68.
Dibella, A. and Nevis, E. (1998), How Organizations Learn: An Integrated Strategy for Building Learning
Capacity, Jossey-Bass, San Francisco, CA.
Dierickx, I. and Cool, K. (1989), ‘‘Asset stock accumulation and sustainability of competitive
advantage’’, Management Science, Vol. 35 No. 12, pp. 1504-13.
Firestone, J.M. (2001), ‘‘Estimating benefits of knowledge management initiatives: concepts,
methodology, and tools’’, Journal of Knowledge and Innovation, Vol. 1 No. 3, pp. 13-27.
Fornell, C. and Larcker, D.F. (1981), ‘‘Evaluating structural equations models with unobservable
variables and measurement error’’, Journal of Marketing Research, Vol. 18, pp. 39-50.
Foss, N.J. (1996), ‘‘Introduction: the emerging competence perspective’’, in Foss, N.J. and Knudsen, C.
(Eds), Towards a Competence Theory of the Firm, Routledge, London, pp. 1-12.
Johannessen, J. and Olsen, B. (2003), ‘‘Knowledge management and sustainable competitive
advantages: the impact of dynamic contextual training’’, International Journal of Information
Management, Vol. 23 No. 4, pp. 277-89.
Knudsen, C. (1996), ‘‘The competence perspective: a historical view’’, in Foss, N.J. and Knudsen, C.
(Eds), Towards a Competence Theory of the Firm, Routledge, London, pp. 13-37.

Lei, D., Hitt, M.A. and Bettis, R. (1996), ‘‘Dynamic core competences through meta-learning and
strategic context’’, Journal of Management, Vol. 22 No. 4, pp. 549-69.
Malhotra, N.K. (1981), ‘‘A scale to measure self-concepts, person concepts and product concepts’’,
Journal of Marketing Research, Vol. 18, pp. 456-64.
Nunnally, J.C. (1978), Psychometric Theory, McGraw-Hill, New York, NY.

Ranft, A. and Lord, M. (2002), ‘‘Acquiring new technologies and capabilities: a grounded model of
acquisition implementation’’, Organization Science, Vol. 13 No. 4, pp. 420-41.
Sanchez, R., Heene, A. and Thomas, H. (Eds) (1996), Dynamics of Competence-Based Competition:
Theory and Practice in the New Strategic Management, Elsevier Science Publishers, Oxford.

Szulanski, G. (1996), ‘‘Exploring internal stickiness: impediments to the transfer of best practice within
the firm’’, Strategic Management Journal, Vol. 17, pp. 27-44.
Wiig, K.M. (1999), ‘‘Introducing knowledge management into the enterprise’’, in Liebowitz, J. (Ed.),
Knowledge Management Handbook, CRC Press, Boca Raton, FL, pp. 1-41.

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 153
 Appendix 1
Table AI Scale for measuring KM practices
Items Average Standard deviation

Orientation towards the development, transfer and protection of knowledge

R1 The firm has a system to codify its explicit knowledge 5.618 1.056
R2 Information technologies and systems (intranet, internet,
etc.) are available to give the employee access to the
information required 4.875 0.985
R3 Mechanisms are in place to encourage the members of an
organization to share information 4.209 1.259
R4 Inter-departmental projects are carried out in the firm 6.436 0.812

Continuous learning in the organization

R5 The firm has a career plan to stimulate continuous learning 5.623 1.063
R6 Employees receive general training which is applied to their
usual tasks 6.203 0.956
R7 A continuous improvement system is in place allowing for
improvement in processes which have reached the set
quality standards 5.962 0.463

An understanding of the organization as a global system

R8 A system exists to inform clients, suppliers, employees,
according to the needs detected 6.378 0.914
R9 The firm encourages knowledge transfer through
instruments such as inter-functional teams, quality circles,
improvement groups, etc. 5.711 1.662
R10 Best practices in one department are shared by others 6.325 1.105
R11 There are incentives when the overall aims of the firm are
achieved 5.669 0.712
R12 The firm has systems that capture and deal with information
about processes 6.399 0.603

Development of an innovative culture that encourages R&D projects

R13 Employees who develop R&D projects have the necessary
training to put them into practice 4.250 1.289
R14 Techniques are established to develop external
benchmarking, which enables the company to learn about
the success or failure of other firms 3.127 1.841
R15 R&D projects are provided with control mechanisms to
monitor them 6.873 0.772
R16 When an R&D project finishes, feedback is obtained that is
useful in developing new projects 6.669 1.154

Approach based on individuals

R17 Tasks are established to identify the information resources
necessary for the organization 3.952 1.548
R18 The firm encourages teamwork 5.691 1.236
R19 Procedures are established (such as surveys or
discussions) to find out employees’ opinions and levels of
satisfaction 3.125 0.852
R20 The managers inform of and reward their collaborators’
achievements 3.695 1.962

Competence development and management based on competences

R21 The organization has systems to measure its employees’
competences 3.712 0.996
R22 Remuneration and promotion systems have an influence on
the development of competences, ideas and knowledge by
the employees 4.185 1.255
R23 The firm uses benchmarking techniques to improve its
employees’ competences 5.266 0.744

j j
PAGE 154 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006
Appendix 2

Table AII Scale for measuring organizational performance

Items Average Standard deviation

Capital profitability
R1 Average economic profitability ROA (subjective scale 1-5) 3.512 0.793
Average economic profitability ROA (book value in percent) 7.493 16.321
R2 Average financial profitability ROI (subjective scale 1-5) 3.412 1.221
Average financial profitability ROI (book value in percent) 6.017 7.433
R3 Average profitability in sales ROS (subjective scale 1-5) 3.386 0.993
Average profitability in sales ROS (book value in percent) 5.920 4.992
R4 Average gross production margin (subjective scale 1-5) 3.127 1.025
Average gross production margin (book value in percent) 33.115 25.479

Growth
R5 Average annual growth in sales 1997-2001 (subjective scale
1-5) 3.234 1.160
Average annual growth in sales 1997-2001 (book value in
percent) 10.318 3.124
R6 International annual average growth in sales 1997-2001
(subjective scale 1-5) 3.369 0.782
International annual average growth in sales 1997-2001 (book
value in percent) 6.815 2.193
R7 Market share increase 1997-2001 (subjective scale 1-5) 3.577 0.857
Market share increase 1997-2001 (objective value in percent) 4.199 1.442
R8 Expected growth in sales 2002-2004 (subjective scale 1-5) 3.440 0.816
R9 International expected growth in sales 2003-2005 (subjective
scale 1-5) 3.204 1.205

Operational and financial efficiency

R10 Financial solvency (subjective scale 1-5) 3.593 0.791
Financial solvency – ratio total debt/own assets (book value) 1.723 0.661
R11 Financial liquidity (subjective scale 1-5) 3.104 1.441
Financial liquidity – ratio current assets/current liabilities –
(book value) 1.123 0.336
R12 Labor productivity (subjective scale 1-5) 3.265 0.843
Labor productivity – ratio added value/average total personnel
(objective value in millions e) 3.104 1.698
R13 Cost-efficiency – total unit cost of the product – (subjective
scale 1-5) 3.580 1.001

Stakeholder satisfaction
R14 Wealth creation (subjective scale 1-5) 3.183 1.376
Wealth creation – ratio market value/book value (objective
value) 1.672 0.502
R15 Customer satisfaction (subjective scale 1-5) 3.347 0.925
R16 Employee satisfaction (subjective scale 1-5) 3.312 0.651
R17 Global image of the environment (subjective scale 1-5) 3.206 1.389

Competitive position
R18 Domestic competitive position (subjective scale 1-5) 2.914 1.733
R19 European competitive position (subjective scale 1-5) 3.813 1.393
R20 Overall competitive position (subjective scale 1-5) 2.777 1.350
R21 Prices/internal competitive position (subjective scale 1-5) 3.124 0.813
R22 Prices/external competitive position (subjective scale 1-5) 3.118 0.946
R23 Quality/internal competitive position (subjective scale 1-5) 2.192 1.533
R24 Quality/external competitive position (subjective scale 1-5) 2.443 1.619

Firm’s competitive position* 2.911 1.568

Firm’s overall performance** 3.218 1.590

Notes: *Calculated as average of items of the dimension ‘‘competitive position’’ (R18 to R24);
**Calculated as average of 24 scale items; Cronbach alpha coefficient of firm overall performance
scale ¼ 0:9037; Cronbach alpha coefficient of firm competitive position scale ¼ 0:8134

j j
VOL. 10 NO. 3 2006 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 155
 About the authors
Daniel Palacios Marqués PhD is an Associate Professor in the Department of Management,
Universitat Jaume I (Spain). Engineer in Computer Science from the Polytechnic University
of Valencia (Spain). Master’s Degree in Information Systems, Polytechnic University of
Valencia (Spain). Visiting Scholar at the International Centre for Information Technologies in
Pisa (Italy) and the Department of Business in Saldford University (England). He has carried
out several research projects supported by the Spanish government related to the
introduction of knowledge management in the firm. He has also developed an intranet for
knowledge management with consultant and software firms. Daniel Palacios Marqués is the
corresponding author and can be contacted at: dpalacio@emp.uji.es
Fernando José Garrigós-Simón PhD is an Associate Professor in the Department of
Management, University Jaume I (Spain). Degree in Economic and Entrepreneurial
Sciences, University of Valencia (Spain). MSc in Tourism Management and Planning,
Bournemouth University (England). Visiting Scholar at the International Centre for Tourism
and Hospitality Research (Bournemouth University), Visiting Fellow at Institute of
Management Science, Walailak University (Thailand) and Visiting Fellow at the Miami
University.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints

j j
PAGE 156 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 10 NO. 3 2006

View publication stats