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Knowledge
Effects of environmental management
characteristics and business practices

partner relationships on improving

innovation performance through 139

the mediation of knowledge Received 3 September 2019

Revised 1 December 2019

management practices Accepted 22 December 2019

Ernawati
Faculty of Social and Political Science, Riau University,
Pekanbaru, Indonesia, and
Nurdjannah Hamid
Brawijaya University, Malang, Indonesia

Abstract
Purpose – This study aims to know the effects of environmental characteristics and business partner
relationships on improving innovation performance through the mediation of knowledge management
practices (KMPs).
Design/methodology/approach – The population of this research was all manufacturing companies
engaged in the food and beverage sector categorized into large industries. According to Jakarta’s Badan
Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan (social insurance administration body of
employment), large industries are industries with a number of employees > 100. However, in this
research, the total population did not reach 100 but only 89 companies. The analysis unit used in this
research was the companies. Data collection for this research relied on questionnaires with closed
questions. The questionnaires were then distributed to the sample companies by using enumerator
services. In accordance with the hypotheses formulated, the data analysis used in this research was
partial least square.
Findings – The three findings are the significant and negative effect of environmental characteristics on
KMPs, the significant effect of business partner relationships on innovation performance and the
insignificant effect of KMPs on innovation performance. The management of food sector manufacturing
companies needs to support the activities of generating ideas carried out by employees and support their
innovative ideas and creativity. Good cooperation between employees and management is highly needed
in an effort to develop company innovation.
Originality/value – This research used the innovation diffusion paradigm and the combination of
market-based and knowledge-based paradigms is expected to fill the previous research gap and become
the uniqueness and originality of this research. The second originality is that this research examined the
role of the KMP variable as the moderating variable. The third originality of this research is the focus on
examining the effect of business partner relationships on innovation performance. These three
originalities are rarely found in previous studies. Therefore, this research is expected to complete and
expand the study of knowledge management and innovation performance.
VINE Journal of Information and
Knowledge Management Systems
Keywords Knowledge management practices, Business partner relationships, Vol. 51 No. 1, 2021
pp. 139-162
Environmental characteristics, Improving innovation performance © Emerald Publishing Limited
2059-5891
Paper type Research paper DOI 10.1108/VJIKMS-09-2019-0137
VJIKMS 1. Introduction
51,1 Since the beginning of the industrial revolution, innovation has become the key to
competitive advantages. Problems with managerial style or approach make innovation an
important factor for the company. Some research findings have identified the benefits of
innovation for companies after using innovative strategies to realize large profit and market
share (Calantone et al., 1995; Griffin, 1995; Han et al., 1998). Furthermore, Roberts and Amit
140 (2003) stated that success in innovation is influenced by several environmental and
contextual factors surrounding each organization. Based on the results of a research
conducted by Asashi and Sukaatmadja (2017), it was concluded that market orientation has
a positive and significant effect on product innovation and marketing performance. Product
innovation has a positive and significant effect on marketing performance. Product
innovation plays a significant role in mediating the influence of market orientation on
marketing performance.
Innovation in a company can be made through collective knowledge sharing activities,
especially tacit knowledge (Nonaka et al., 2000; Howells, 1996). Recombination and
innovation can be created by conducting various dialogues or interactions between
individuals, between groups or between companies. Gold et al. (2001) revealed that because
of these interactions, relationship and perspectives are shared between employees, creating
a cooperative atmosphere required for the transfer of tacit knowledge. It indicates that
knowledge management is so important in terms of managerial aspects that it can enhance
the creation and process of knowledge sharing and play an important role in implementing
innovation. Theoretical approaches, such as knowledge management implementation
strategies, focus on the application of appropriate information technology (Swan et al., 1999;
Nonaka et al., 2000; Alavi and Leidner, 2001). Knowledge sharing activities are not only
determined by facilities and infrastructure in the field of information technology. Knowledge
management is an organizational tool for solving problems so as to increase knowledge
exploration and absorption in achieving company’s success (Swan et al., 1999).
Globalization trends indicate increased customer demands and technological
developments. Companies experiencing strong pressure always try to cooperate with their
business partners when competing in a particular group. Furthermore, Droschl and
Koronakis (2003) revealed that the often-disclosed inter-firm information sharing practices
are not sufficient to provide adequate insights and understanding to each trading partners
for optimizing its products/services. Companies trying to cooperate with their business
partners in various fields, such as knowledge management, will try to use the organizational
potential effectively and efficiently.
The main driving force in the effort of creating organizational enthusiasm for integrating
corporate strategies comes from the trust of corporate business partners, which can generate
new capabilities if they are not able to create them separately (Hall and Andriani, 1998).
Some of these capabilities include the capability of sharing risks, increasing market
reactions, supporting equation functions, and so on. All of these can be interpreted as the
benefits of competition for all companies in value chains. In this regard, it can be argued that
companies are working to establish and maintain intensive and interactive relationships
with their business partners to cooperate in new product development activities such as
integration of business processes and knowledge exchange strategies (Lin et al., 2002).
Siemieniuch and Sinclair (2004) declared that European companies continue to encourage
their business partners in taking an account of designing, developing and providing
components and systems.
Moreover, Cormican and oSullivan (2003) believed that knowledge is the main resource
that must be regulated by organizations so as to not be left behind in the global market
competition. Munir (2011) states that the application of knowledge management in Knowledge
companies is triggered by the dynamics of the business environment whose turbulence is management
increasing. Corporate knowledge collaboration is very difficult, particularly when each
company has a different system in enterprise resources planning, customer relationship
practices
management and other knowledge applications. The combination of various needs and
difficulties in inter-company knowledge sharing will bring a variety of increased demands
in strong knowledge management practices (KMPs). The absence of KMPs between
companies will lead to differences in their groups (Hult et al., 2004). It leads to various parties 141
having the opportunity to get relatively large losses, long planning and recovery times,
weakening on-time performance, frequent product shortages and order returns, swelling
cost structures, low supplier performance and low average inventory rotation.
KMPs or praktek manajemen pengetahuan are disciplines that can open opportunities for
individuals in the ranks of organizations that jointly create, share, access and apply
knowledge to penetrate company boundaries in achieving business goals for the entire
companies, especially manufacturing companies. KMP is different from inter-organizational
traditional systems (for example, electronic data interchange). Data interchange in
traditional systems has limitations so that only few transactions data can be shared. KMP
can be used to change any sorts of knowledge among the company’s business partners. It
can be done by forming a knowledge network allowing those business partners to create,
share and apply the knowledge that can improve operational efficiency and effectiveness as
well as enable analysis and regulation of the overall corporate activities. KMP can basically
change the nature of inter-organizational relationships in sharing organizational resources
and capabilities.
In countries with a newly developing industrial sector such as Indonesia, manufacturing
companies are faced with various changes, including dramatic changes in competitiveness
because of an increase in customer demands, reduction of product life cycles, low-cost
priority, increasing technological changes and the entry of international competitors into the
country. The product or service market will continue to increase internationally. Companies
realize that in facing the international or globalization market, they need to implement
international industrial strategies. This is done to adjust and ensure that the expected
benefits of implementing the strategy can be achieved.
Noting the findings and weaknesses of several previous studies as stated above, this
research which used the innovation diffusion paradigm and the combination of market-
based and knowledge-based paradigms is expected to fill the previous research gap and this
will become the uniqueness and originality (the distinctive characteristics) of this research.
The second originality is that this research examined the role of the KMP variable as the
moderating variable. The third originality of this research is the focus on examining the
effect of business partner relationships on innovation performance. These three originalities
are rarely found in previous studies. Therefore, this research is expected to complete and
expand the study of knowledge management and innovation performance.

2. Literature review and conceptual framework

Based on the background of the problem, the following conceptual framework is formulated
(Figure 1).
In line with Li Murray (2002, 2007), environmental characteristics in this research consist
of environmental uncertainty, perceived competitive pressure and readiness of business
partners. Differences will appear from customer needs, supplier activities, competitor
actions and technological changes. Iansiti (1995) revealed that rapid changes in the external
environment increase uncertainty in corporate activities. Many researchers (e.g. Burns and
VJIKMS Stalker, 1961; Lawrence and Lorsch, 1967; Huber and Daft, 1987) have suggested that
51,1 environmental uncertainty has an impact on organizational structures. Theoretically,
companies will use the incorporation of organizational structures and practices as a
characteristic of uncertainty (Song and Montoya-Weiss, 2001, Tatikonda and Rosenthal,
2000).
This is quite easy because companies do not coordinate their information processing and
142 practices of assimilating knowledge on bureaucracy with functional structures that prevent
excessive freedom and information processing (Song and Montoya-Weiss, 2001). The
uncertainty reduction theory proposed by Gupta and Wilemon (1990) can help to accept the
need to integrate KMPs. Companies can reduce the negative effects of external differences
by processing information to be more effective. KMP integrates the function of knowledge
and business partner skills or abilities and creates the capability to adapt to external
differences. It indicates that higher environmental uncertainty will support more companies
to be involved in KMP.
Competition pressure is a critical factor in innovation adoption according to several
studies (Iacovou et al., 1995; Premkumar et al., 1997; Crook and Kumar, 1998). Research
analysis for rationalizing strategies based on competition pressure is a determinant of
innovation adoption. According to Porter and Millar (1985), adoption is a process of
changing into competitive environments because to accommodate new innovations,
companies must change the structure of operations and have new capabilities in the
performance competition. The same analysis can be used as an excuse to determine the
impact of competitive pressures on the adoption or implementation of KMPs. Basically,
KMPs can change the way a company run business with its business partners. Pressures
will come from competitors when they follow industry trends so as to not lag behind the
competition. Pressures also may come from business partners who have implemented
KMPs. This certainly has an impact on the continuation of their business relationships.
The company’s decision to adopt KMPs is also influenced by the adoption status and
level of KMPs implementation by business partners and value chains. As knowledge
management between companies provides full capabilities, it is important for all business
partners to adopt appropriate electronic knowledge management systems and complete
each other connectivity that is important to others (Smith, 2001). Business partner’s
readiness for KMPs can lead to close integration with customers and suppliers. The benefits
of the company’s initiative to implement KMPs depend not only on the effort to digitize the
value chain, but also the readiness of their business partners to engage in electronic
knowledge management interactions simultaneously. The unreadiness will have a
significant impact on the implementation of KMP:

H1. Environmental characteristics have a significant effect on KMPs.

Figure 1.
Research concept
model
Bassi (1998) believes that the absence of trust, commitment and sharing of vision in building Knowledge
friendships will have a serious impact on all parts of collaboration. KMP implementation management
involves business partners who dedicate a lot of time and resources, combine each strategy
and operation and deliver sensitive information and knowledge to other companies. It is
practices
unlikely to occur in poor business partner relationships. Wright (2001) asserted that a large
number of technological tools are available to help companies establish relationships with
others for each flow of knowledge and information. That is, management is very likely to
respond whenever errors occur in knowledge sharing. Expensive software can only facilitate 143
communication between companies and establish relationships. It is not possible to
compensate for any lack of human resource capabilities to think or predict business partner
relationships. In practice, practitioners are more often so concern about it that it becomes an
interest that exceeds the topic of technology, rather than paying attention to group
strategies with business partners in sharing knowledge between companies.
Generally, the obstacle encountered in building a successful knowledge network between
companies is a lack of trust (Podolny and Baron, 1997; Davenport and Prusak, 1998; Kramer,
1999; Rolland and Chauvel, 2000). A study conducted by Connelly and Kelloway (2000)
empirically confirms that knowledge sources are only provided for sharing knowledge,
especially tacit knowledge, by gaining knowledge they trust. Mayer et al. (1995) believe that
knowledge sharing creates risks for the source because it cannot be known how to share the
knowledge that will be used and whether the knowledge can be used in opposite ways when
they gain knowledge. Trust, commitment and vision sharing will directly lead to risk
sharing in relationships and reduce the possibility of giving an opportunity to one business
partner (Mayer et al., 1995).
Trust supports behaviors such as open communication and willingness to share
information (Curral and Hakim, 1995). Therefore, lack of competition in the business
environment might be promoted among fellow organizations to support collaboration,
establish learning opportunities for knowledge dissemination and new knowledge creation
(Gambetta, 1988). Gaining and providing knowledge may be useful, for example in an
environment where protective barriers open, provide and are able to get more interactions to
communicate knowledge. Moreover, with the belief that knowledge cannot be used to
disturb them, gaining knowledge is preferably attractive when divided as a whole so that
what they know can be certainly transferred in a form that is suitable and useful for the
recipient (Levin and Cross, 2004). In addition, when trust is given, the cost for knowledge
transactions can be reduced according to the need for actions of achieving a desire. Mutually
beneficial commitments and vision sharing are also critical factors influencing knowledge
collaboration. KMP requires large capital and investment in human resources. Business
partners must share agreed matters related to the importance of knowledge cooperation and
strategies for a dynamic exchange of knowledge. Smith (2001) found that one of the most
important prerequisites in implementing KMP is to change the corporate culture
encouraging cooperation. Besides, the results of previous studies by Boddy et al. (2000) and
Li Murray (2007) empirically support that lack of vision sharing will result in difficult
cooperation between companies:

H2. Relationships of business partners have a significant effect on KMPs.

Prajogo and Sohal (2001) revealed that business environment, organizational strategies and
organizational cultures have an impact on total quality management (TQM) practices that
determine innovation quality or performance. Furthermore, Raham (2004) stated that the
business environment is a factor connecting TQM practices with innovation performance,
indicating how innovation in uncertain environment shows its performance. In other words,
VJIKMS companies achieve planned quality performance from TQM practices in the internal
51,1 unstable environment but get innovation performance when the external environment
changes. According to Therin (2002) and Min Hung (2007), there is a significant relationship
between environmental characteristics and innovation performance. Meanwhile, the results
of Frishammar and Hörte’s (2005) study suggest that environment has a positive effect on
innovation performance by using multiple regression analysis:
144 H3. Environmental characteristics have a significant effect on innovation performance.
Faced with uncertainty, higher research and development costs and increasing competition,
companies not only consider in-house development but also cooperation or acquisitions to
improve their innovation performance (Pisano, 1990). Some experts have demonstrated that
in addition to having many advantages, company relationships with business partners also
have a positive effect on innovation performance (Ahuja, 2000). That is why companies tend
to determine their foreign activities, strategic technological alliances with international
business partners and are involved in revoking and procuring strategic technology units
(Gulati, 1998).
The resource-based view highlights that innovation performance is a way rarely used in
companies and has the power to influence decisions in forming partnerships (Grant, 1991;
Eisenhardt and Schoonhoven, 1996). The network theory extends the discussion by
indicating the possibility of branching into available resources on a network through
partnership/external collaboration (Gulati, 1998; Saxenian, 1994). When studying the two
features connecting individuals and the environment of a network, it is possible to
understand the factors influencing cooperation in the development of technology and
innovation (Osborn and Hagedoorn, 1997).
Collaboration for innovation performance continues to increase if it is seen as a tool to
reduce development costs, accelerate product and process development and maximize
commercialization opportunities in innovation. The ability to build and maintain networks
between organizations, such as joint ventures, licenses and strategic alliances has begun to
increase the number of product and process innovation performance (Ritter and Gemunden,
2003). The availability of technological opportunities in regions where a company operates
determines the decisions of the company’s business partners as well as the results of
innovation performance (Saxenian, 1994; Rothwell, 1994). Companies will establish informal
and formal relationships with local organizations to accelerate their technological
development.
The high appreciation of the importance of networks for innovation management leads
to the concept of the open innovation system, characterized by flexible ways for companies
to coordinate a large number of innovations and to assess their values (Chesbrough, 2003).
Geographical proximity basically comes from a certain attraction to the network theory
because of the understanding and measurement of its role from informal relationships in
innovation creation. Formal dynamic learning and informal network relationships widely
influence business partner performance (Verspagen and Duysters, 2004). Meanwhile,
Cetindamar and Ulusoy (2008) revealed that there is a relationship between business
partners and innovation performance:

H4. Relationships of business partners have a significant effect on innovation

performance.
Various studies have examined the effect of KMPs on innovation performance. Gloet and
Terziovski (2004) in their study concluded that there is a significant and positive
relationship between KMPs and innovation performance, and therefore the organization Knowledge
seeks to integrate approaches to knowledge management, helping develop organizational management
culture, as an effort to prioritize the maximization of innovation performance in competitive practices
advantage. Zhang (2006) found that knowledge management significantly influences
product innovation performance. The results of Ling (2006) study suggest that knowledge
creation has a positive effect on business innovation performance. The accumulation of
knowledge and control has a positive impact on business innovation performance. 145
Knowledge transfer also has a positive effect on business innovation performance, so does
knowledge application. Meanwhile, the results of the studies by Lundvall and Nielsen (2007)
and Chen and Huang (2009) show that knowledge management capabilities positively
influence innovation performance:

H5. KMPs have a significant effect on innovation performance.

3. Methodology
The population of this research was all manufacturing companies engaged in the food and
beverage sector categorized into large industries. According to Jakarta’s Badan
Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan (social insurance administration
body of employment), large industries are industries with a number of employees > 100.
However, in this research, the total population did not reach 100 but only 89 companies. The
analysis unit used in this research was the companies. Therefore, this research used a
census sampling technique which uses a population as a sample (Arikunto, 1998).
Data collection for this research relied on questionnaires with closed questions. The
questionnaires were then distributed to the sample companies by using enumerator services.
A validity test was conducted to ensure that each indicator in the research instruments was
able to measure the variables specified in this research. Statement item is declared valid if
the component score is greater than the minimum criteria value of 0.50 (Ghozali, 2005).
Moreover, a reliability test was also performed for determining the extent of two or more
measurement results on the same symptoms using the same measurement. Instruments are
said reliable if they have a Cronbach’s alpha of more than 0.60 (Arikunto, 1998). In
accordance with the hypotheses formulated, the data analysis used in this research was
partial least square (PLS). PLS is a structural equation modeling (SEM) based on variants or
often called component-based, it is a powerful analysis method because it is not based on
many assumptions. PLS uses least square estimator and bootstrap techniques in parameter
estimation and hypothesis testing (Solimun et al., 2019).Compared to the covariance-based
SEM (CBSEM) (represented by LISREL, EQS and AMOS software), the component-based
PLS is more able to avoid two major problems faced by the CBSEM, namely, inadmissible
solution and factor indeterminacy (Fornell and Bookstein, 1982).

4. Results and discussion

4.1 Validity and reliability tests of research instruments
The validity and reliability test results of the instruments for each variable are presented in
Table I.
To test the research instrument, there were 30 respondents used as the trial samples. The
results of the instrument validity and reliability tests (Table I) showed that all question
items were declared valid (with a correlation value of > 0.5) and reliable (with a Cronbach’s
alpha of > 0.6).
VJIKMS
Component Cronbach’s
51,1 Variable Dimension Indicator score alpha

Environmental Environmental Understanding of consumer tastes 0.724 0.923

characteristics uncertainty Demand fluctuations 0.875
Predictable supply from suppliers 0.635
Predictable quality of goods from 0.688
146 suppliers
Predictable competitor actions 0.639
International competition 0.763
Technology changes 0.874
Competitiveness KMP implementation by companies 0.611
pressures KMP implementation by main 0.764
competitors
KMP implementation by business 0.744
partners
Efficacy of business KMP benefits 0.791
partners Readiness to apply KMP 0.710
KMP-supporting resources 0.597
Technological support 0.778
Business partner Trust levels of business The openness of business partners 0.908 0.951
relationships Partners in cooperation
The honesty of business partners in 0.928
cooperation
The openness of business partners 0.884
to information
The openness of business partners 0.865
to knowledge
The openness of transactions 0.894
carried out by business partners
Business partner The willingness of business 0.672
commitments partners to sacrifice for the
company
The willingness of business 0.772
partners to help
The commitment owned by 0.836
business partners
The investment made by business 0.616
partners in resources
The business partners’ action to 0.733
keep promises
Sharing of vision Common goal sharing 0.840
among business Common intention (plan) sharing 0.860
partners The importance of collaboration for 0.842
the company
KMPs Knowledge creation Creation of new ideas 0.899 0.988
Creation of knowledge 0.908
Achievement of new knowledge 0.937
Knowledge renewal 0.931
Validation of new knowledge 0.959
Knowledge storage Sharing of knowledge storage 0.856
facilities
Table I. Uniformity of technological 0.864
Calculation of platforms
convergent validity (continued)
 Knowledge
Component Cronbach’s
Variable Dimension Indicator score alpha management
practices
Collaboration on the maintenance of 0.861
storage facilities
Coordination of knowledge types 0.831
Coordination of knowledge formats 0.804
Freedom of access to Knowledge access agreement 0.923 147
knowledge Knowledge access easiness 0.910
Access speed 0.890
Access to some knowledge 0.856
Knowledge Employee training 0.883
dissemination Issuance of newspaper 0.845
Knowledge dissemination setting 0.931
Reference desk maintenance 0.877
Application of Coordination of decision-making 0.901
knowledge Coordination of customer 0.882
relationship management
Coordination of new product 0.896
development
Coordination of logistic support 0.864
Inventory coordination 0.848
Production coordination 0.810
Capacity planning coordination 0.846
Innovation Product innovation Strategies for introducing new 0.891 0.944
performance performance products
Strategies for creating new markets 0.840
More innovative products 0.896
New product introduction 0.905
Consumer acceptance of new 0.734
products
The average success of new 0.848
products
Market innovation Revolutionary marketing program 0.753
performance Product changes 0.678
Use of technology 0.805
Process innovation Changes in business processes 0.712
performance New management development 0.806
Use of new ways to solve problems 0.775
Changes in production methods 0.722
Behavior innovation Management supporting new 0.694
performance things
The action of always trying new 0.576
ways
Support for employees to think 0.738
Strategic innovation The need for new product 0.680
performance development
The ability to bear risks 0.634
The provision of problem solutions 0.590
by senior executives
The action of always adopting new 0.609
things Table I.
VJIKMS 4.2 Hypothesis testing results
51,1 The results of the analysis on the relationships between the variables studied have been
described in the previous section by taking into account the path diagram of the PLS
analysis results at the final stage. Table II below provides a picture of the relationships
between the variables.
The path coefficient on each hypothesis above can also be seen in the following path
148 diagram:
The results of hypothesis testing on direct effects are presented as follows.
4.2.1 Effects of environmental characteristics on knowledge management practices. The
calculation results showed that the tcount value was greater than the ttable value
(3.385747 > 1.665) with a path coefficient of
0.186430, indicating that the null hypothesis
could be rejected and the alternative hypothesis was accepted. That is, H1 stating that
environmental characteristics have an effect on KMPs was accepted. However, it was also
concluded that the relationship between the two variables was contradictory. In other
words, the increasing environmental characteristics decreased KMPs, although the decline
is not too significant. With the acceptance of the hypothesis, it can be said that there is
adequate empirical evidence to accept H1.
4.2.2 Effects of business partner relationships on knowledge management practices. The
calculation results showed that the tcount value was greater than the ttable value
(6.375881 > 1.665) with a path coefficient of 0.541825, so the null hypothesis could be
rejected and the alternative hypothesis was accepted. That is, H2 stating that business
partner relationships have an effect on KMPs was accepted. Besides, it was also found that
the relationship between the two variables was in the same direction, in which the
increasing relationship of business partners also increased KMPs. With the acceptance of
the hypothesis, it can be said that there is adequate empirical evidence to accept H2.
4.2.3 Effects of environmental characteristics on innovation performance. The
calculation results indicated that the tcount value was greater than the ttable value
(3.287845 > 1.665) with a path coefficient of 0.416136, so the null hypothesis could be
rejected and the alternative hypothesis was accepted. That is, H3 stating that environmental
characteristics have an effect on innovation performance was accepted. Besides, the
relationship between the two variables was found to be in the same direction. In other
words, increasing environmental characteristics also increased innovation performance.
With the acceptance of the hypothesis, it can be said that there is adequate empirical
evidence to accept H3.
4.2.4 Effects of business partner relationships on innovation performance. From the
calculation results, it was found that the tcount value was greater than the ttable value
(1.924487 > 1.665) with a coefficient path of 0.448107. Indicating that the null hypothesis
could be rejected and the alternative hypothesis was accepted. That is, H4 stating that

H Effect Path coefficient T-count Des

1 Environmental characteristics ! KMPs
0.186430 3.385747 Significant

2 Business partner relationships ! KMPs 0.541825 6.375881 Significant
3 Environmental characteristics ! Innovation performance 0.416136 3.287845 Significant
4 Business partner relationships ! Innovation performance 0.448107 1.924487 Significant
Table II. 5 KMPs ! Innovation performance 0.088965 0.316311 Insignificant
Hypothesis testing
results Note: Significant at the 5% level with a t-table value at the 5% level of 1.66
business partner relationships have an effect on innovation performance was accepted. In Knowledge
addition, the relationship between the two variables was found to be in the same direction, in management
which the increasing business partner relationship also increased innovation performance.
With the acceptance of the hypothesis, it can be concluded that there is adequate empirical
practices
evidence to accept H4.
4.2.5 Effects of knowledge management practices on innovation performance. The
calculation results showed that the tcount value was greater than the ttable value
(0.316311 > 1.665) with a path coefficient of 0.416136, so the null hypothesis could be 149
accepted and the alternative hypothesis was rejected. That is, H5 stating that KMPs have an
effect on innovation performance was declared rejected. Besides, the relationship between
the two variables was found to be contradictory. In other words, increasing environmental
characteristics decreased innovation performance. With the rejection of the hypothesis, it
can be said that there is inadequate empirical evidence to accept H5.

4.3 Direct and indirect effects

Direct effects are the coefficient of all coefficient lines with one-end arrows, indirect effects
arise through an intervening variable, while total effects come from various other effects
(Ferdinand, 2000). Table III shows the magnitude of direct, indirect and total effects between
the variables. From the comparison between the total effects and direct effects, it can be seen
that there were pathways whose relationship between the variables had the same total effect
with the direct effect, namely, the effect of environmental characteristics on innovation
performance and the effect of business partner relationships on innovation performance.

4.4 Discussion
4.4.1 Significant effects of environmental characteristics on knowledge management
practices. Based on the results of hypothesis testing as presented in Table III and Figure 2, it
is found that “environmental characteristics have a significant effect on KMPs.” The
relationship between the two variables is negative. In other words, the higher the

Exogenous variable
Environmental characteristics
Business partner relationships
Path coefficient
Effect Endogenous variable Direct Indirect Total Comparison
Table III.
! Innovation performance 0.416136 0.000000 0.416136 Tot = Lgsg Direct and indirect
! Innovation performance 0.448107 0.000000 0.448107 Tot = Lgsg effects

Figure 2.
Path diagram of
hypothesis testing
results
VJIKMS environmental characteristics are, the lower the KMPs in the company will be. The results of
51,1 this research also indicate that environmental uncertainty, competitiveness pressure and the
efficacy of business partners as forming dimensions of the environmental characteristics
construct have not fully supported knowledge creation, knowledge storage, freedom of
access to knowledge, knowledge dissemination and application of knowledge as forming
dimensions of the KMP construct.
150 The results of several empirical studies related to environmental uncertainty have also
shown that in reality, companies still doubt whether they can predict supplier supplies.
Then, it can also be learned that companies are still not confident if they can predict the
quality of the material from suppliers. The actions of competitor suppliers are actually still
difficult to predict by companies. Companies’ doubts also arise in their ability to compete in
the international market. Besides, it can be said that companies still doubt if they always
follow changes in the technology of production processes. In addition to matters related to
environmental uncertainty, the results of this research empirically indicate that the
companies doubt if their business partners have resources supporting the implementation of
KMP. It is reflected by the great number of hesitant answers to the third indicator in the
dimension of business partners’ readiness. Moreover, still in the same dimension, the
companies are found to doubt if their business partners have technology supporting KMP.
The results of this research enrich the results of Yulong (2007) study stating that
environmental characteristics have a direct and positive effect on KMPs. In linear, the
results of the study by Selamat et al. (2006) also suggest that KMPs are supported by the
environment. Furthermore, it can be also stated that the company’s decision to adopt KMP is
also influenced by the adoption status and implementation level of KMP by business
partners and value chains. As knowledge management between companies provides full
capabilities, it is important for all business partners to adopt appropriate electronic
knowledge systems and complete each other connectivity that is important to others (Smith,
2001).
4.4.2 Significant effects of business partner relationships on knowledge management
practices. From the results of hypothesis testing as presented in Table III and Figure 2, it is
found that “business partner relationships have a significant effect on KMPs.” The
relationship between the two variables is positive. That is, higher business partner
relationships will lead to increased KMPs in the company. The results of this research also
indicate that the trust level of business partners, business partner commitment and shared
vision among business partners as forming dimensions of the business partner relationship
construct have fully supported knowledge creation, knowledge storage, freedom of access to
knowledge, knowledge dissemination and knowledge application as forming dimensions of
the KMP construct.
The results of this research are in contrast with Yulong (2007) stating that business
partner relationships have no direct and positive effect on KMPs. Meanwhile, the results of
the study by Connelly and Kelloway (2000) empirically confirm that knowledge sources are
only provided for sharing knowledge, especially tacit knowledge, by gaining knowledge
they trust. In addition, the results of Smith’s (2001) study show that one of the most
important prerequisites in implementing KMP is to change the corporate culture
encouraging cooperation. Based on the empirical findings, it can be said that the results of
this research are different from the one carried out by Yulong (2007) in the USA. It indicates
that companies in Indonesia still uphold their trust in business partners although the
business partners are not yet fully open to the knowledge they have and willing to sacrifice
for the company.
 4.4.3 Significant effects of environmental characteristics on innovation performance. The Knowledge
results of hypothesis testing as presented in Table III and Figure 2 suggest that management
“environmental characteristics have a significant effect on innovation performance.” The
relationship between the two variables is positive, meaning that the higher the
practices
environmental characteristics are, the higher the innovation performance in the company
will be. The results of this research also indicate that environmental uncertainty,
competitiveness pressure and the efficacy of business partners as forming dimensions of the
environmental characteristics construct have fully supported product innovation 151
performance, market innovation performance, process innovation performance, behavior
innovation performance and strategic innovation performance as forming dimensions of the
innovation performance construct.
These findings support several previous studies, one of which was conducted by
O’Regan and Ghobadian (2004) stating that environmental uncertainty has a positive and
significant effect on product innovation performance. Similarly, the results of studies by
Iacovou et al. (1995), Premkumar et al. (1997) and Crook and Kumar (1998) reinforce that
competitiveness pressure is a critical factor in innovation. In general, this research is also in
accordance with the opinion of Prajogo and Sohal (2001) stating that business environment,
organizational strategy and organizational culture have an impact on TQM practices that
determine the quality or performance of innovation. Furthermore, Raham (2004) found that a
business environment is a factor connecting TQM practices with innovation performance,
indicating how innovation in uncertain environment shows its performance. In other words,
companies achieve planned quality performance from TQM practices in the internal
unstable environment but get innovation performance when the external environment
changes. Moreover, according to Therin (2002) and Min Hung (2007), there is a significant
relationship between environmental characteristics and innovation performance.
Meanwhile, the results of Frishammar and Hörte’s (2005) study suggest that environment
has a positive effect on innovation performance.
4.4.4 Significant effects of business partner relationships on innovation performance.
The results of hypothesis testing as presented in Table III and Figure 2 conclude that
“business partner relationships have a significant effect on innovation performance.” The
relationship between the two variables was positive. In other words, the higher business
partner relationship would lead to increased innovation performance in the company. These
findings indicate that the trust level of business partners, business partner commitment and
shared vision among business partners as forming dimensions of the business partner
relationship construct have fully supported product innovation performance, market
innovation performance, process innovation performance, behavior innovation performance
and strategic innovation performance as forming dimensions of the innovation performance
construct.
This empirical finding is consistent with the opinion of Ahuja (2000) stating that
company relationships with business partners positively influence innovation performance.
Resource-based views highlight that innovation performance is a way rarely used in
companies and has the power to influence decisions in forming partnerships (Grant, 1991;
Eisenhardt and Schoonhoven, 1996). The ability to build and maintain networks between
organizations, such as joint ventures, licenses and strategic alliances has begun to increase
the number of product and process innovation performance (Ritter and Gemunden, 2003).
The availability of technological opportunities in regions where a company operates
determines the decisions of the company’s business partners as well as the results of
innovation performance (Saxenian, 1994; Rothwell, 1994). Companies will establish informal
and formal relationships with local organizations to accelerate their technological
VJIKMS development. Meanwhile, Cetindamar and Ulusoy (2008) revealed that there is a correlation
51,1 between business partner relationships and innovation performance.
4.4.5 Significant effects of knowledge management practices on innovation performance.
From the results of the testing hypothesis as presented in Table III and Figure 2, it is found
that “KMPs have no significant effect on innovation performance.” It indicates that the
aspects of knowledge creation, knowledge storage, freedom of access to knowledge,
152 knowledge dissemination and knowledge application generally cannot be used directly to
improve product innovation performance, market innovation performance, process
innovation performance, behavioral innovation performance and strategic innovation
performance. Furthermore, by observing more deeply, the score of the knowledge storage
dimension was found to be still low (with a score of 4). It can be seen from the statement of
33.7 per cent of respondents that they still doubted if, with collaboration, advice on storing
knowledge would be shared. In addition, 31.5 per cent of respondents stated that they
doubted if collaboration would have a uniform technology platform. Then, there were 33.7
per cent of respondents doubting that collaboration would help maintain storage facilities.
As for the statement that collaboration helped coordinate knowledge types, it turned out
that 37.3 per cent of respondents said they still doubted it. Lastly, 38.6 per cent of
respondents still doubted if collaboration could help coordinate knowledge formats.
Besides, the respondents’ answers also still less support the knowledge creation
dimension, in which 24.1 per cent of respondents still doubted that collaboration would
produce new ideas. Then, 26.5 per cent of respondents still doubted that collaboration would
produce knowledge and 24.1 per cent of respondents doubted that collaboration
would create new knowledge. Additionally, there were 21.7 per cent of respondents stating
that they doubted if collaboration could renew knowledge while 24.1 per cent of respondents
stated that they doubted if collaboration could validate new knowledge.
This is not in line with Chang and Lee (2008), showing that knowledge is significantly
correlated with innovation. In addition, the results of this research are also not consistent
with Lundvall and Nielsen’s (2007) finding that companies that have knowledge and
characteristics of learning organizations are more innovative than other companies. The
results of this research also contradict to Leiponen (2006), suggesting that knowledge
management has a significant and positive effect on innovation. Likewise, Gloet and
Terziovski (2004) also proved that KMPs have no positive and significant effect on
innovation performance, not supporting the results of this research.
Various studies have been conducted to examine the effect of KMP on innovation
performance. Gloet and Terziovski (2004) in their study concluded that there is a significant
and positive relationship between KMPs and innovation performance, and therefore, the
organization seeks to integrate approaches to knowledge management, helping build
organizational culture as an effort to prioritize the maximization of innovation performance
in competitive advantage. Of course, the different results of this research will further enrich
previous findings and become something unique. Several studies having contradictory
results include Zhang’s (2006) finding that knowledge management significantly influences
product innovation performance. The results of Ling (2006) study are also in contrast with
this research, showing that knowledge creation has a positive effect on business innovation
performance.

5. Conclusion
Based on the results of the inferential research using a PLS analysis tool, it can be learned
that there are three new proposals or findings distinguishing this research from previous
studies. The three findings are the significant and negative effect of environmental
characteristics on KMPs, the significant effect of business partner relationships on Knowledge
innovation performance and the insignificant effect of KMPs on innovation performance. management
Further research is recommended to expand the industrial sector under study. The scope
of research location for further research also needs to be expanded, not limited to Jakarta.
practices
How more interesting it will be if such research is also conducted in other provinces in
Indonesia and if innovation performance and KMPs are compared in each province. In
addition, the research sample can be increased in number by not focusing only on large-scale
companies. Furthermore, the researcher recommends the management of food sector 153
manufacturing companies to support the activity of generating ideas carried out by
employees and to support their innovative ideas and creativity. Cooperation between
employees and management is needed in an effort to develop company innovation.
Furthermore, management needs also to cooperate with BPJS Ketenagakerjaan regarding
employee welfare for the progress of the company.
Theoretical research findings in this research are expected to be useful for the
development of science. Some of the findings are related to strategy management associated
with knowledge management consisting of one indicator, namely, KMPs, especially those
developed by Alavi and Leidner (2001) and Cormican and oSullivan (2003).These findings
are also expected to enrich the science of strategy management in relation to innovation
performance, some of which are developed by Wang and Ahmed (2004), Lyon et al. (2000),
North and Smallbone (2000), Subramanian and Nilakanta (1996), Rainey (1999), Hurley and
Hult (1998) and Avlonitis et al. (1994).
With regard to practical benefits, this research is expected to be beneficial for the
business world such as providing new breakthroughs in managing resources of knowledge
and technology owned by manufacturing companies so that they can compete both at
regional and international levels; providing new breakthroughs for manufacturing
industries in Indonesia from relying on other countries to be technology-based industries
and ready to compete in the free market; contributing ideas to manufacturing companies to
be more innovative so that they have competitive advantages; and contributing ideas
to manufacturing companies’ leaders in optimizing their capabilities so that they are able to
penetrate the free market.

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Ernawati can be contacted at: ernawati.unri.jp@gmail.com

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