BULE HORA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

EFFECT OF KNOWLEDGE MANAGEMENT ON ORGANIZATIONAL PERFORMANCE; THE

MEDIATING ROLE OF ORGANIZATIONAL INNOVATION: THE CASE OF PRIVATE BANKS
IN BULE HORA

A THESIS PROPOSAL SUBMITTED TO THE COLLEGE OF BUSINESS AND ECONOMICS

MANAGEMENT DEPARTMENT AT BULE HORA UNIVERSITY IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTERS OF ART (MA)
IN MASTERS OF BUSINESS ADMINISTRATION (MBA)

BY
MARGA BANTI

ADVISOR
KEBEDE ASSEFA (Ph.D. CANDIDATE)

CO-ADVISOR: - Mr. AYINETU TEREFE

February, 2024
BULE HORA, ETHIOPIA
 Advisor; Approval Sheet

KEBEDE ASSEFA (Ph.D. CANDIDATE)

Name of Advisor Signature Date

Mr. AYINETU TEREFE (MA)

Name of Co-Advisor Signature Date
Table of Contents

List of Tables ....................................................................................................................................................... 6

List of Figures ...................................................................................................................................................... 6

List of Acronym................................................................................................................................................... 7

CHAPTER ONE: ................................................................................................................................................. 1

1. Introduction .................................................................................................................................................. 1
1.3. Research Questions.............................................................................................................................. 4
1.4. Objective of the Study ......................................................................................................................... 4
1.4.1. General Objective ............................................................................................................................ 4
1.5. Research Hypotheses:.......................................................................................................................... 5
1.6. Scope of the Study................................................................................................................................ 5
1.7. Significance of Study ........................................................................................................................... 6

CHAPTER TWO ................................................................................................................................................. 8

LITRATURE REVIEW ...................................................................................................................................... 8

2.1 INTRODUCTION ......................................................................................................................................... 8

2.2 Theoretical Review .............................................................................................................................. 8
2.2.1 Knowledge .............................................................................................................................................. 8
2.3 Knowledge Management ......................................................................................................................... 12
2.4 Knowledge Management Process ........................................................................................................ 13
2.4.1.1 Knowledge Acquisition or Creation .............................................................................................. 13
2.4.1.2 Knowledge Storage ....................................................................................................................... 14
2.4.1.3 Knowledge Dissemination or Transfer.......................................................................................... 14
2.4.1.4 Knowledge Use or Application ..................................................................................................... 14
2.4.2 Benefits of Knowledge Management ............................................................................................ 15
2.5 Barriers of Knowledge Management ...................................................................................................... 16
2.6 Knowledge Management in Organizations ........................................................................................ 17

2.7 Organizational innovation ................................................................................................................... 18

III
 2.7.1 Product Innovation ........................................................................................................................ 18
2.7.2 Process Innovation ........................................................................................................................ 18
2.7.3 Service Innovatio........................................................................................................................... 18

2.8 Organizational Performance and Components .................................................................................... 19

2.8.1 Organizational performance ...................................................................................................... 19
2.8.2 Organizational performance components (BSC Perspectives) ...................................................... 19
2.8.2.1 Customer’s perspectives: ............................................................................................................... 19
2.8.2.2. Internal Business Perspectives .......................................................................................................... 20
2.8.2.3. Learning and Growth Perspectives................................................................................................ 20
2.8.2.4. Financial perspectives: .................................................................................................................. 21
2.9. Empirical Review ............................................................................................................................... 21
2.9.1. Knowledge Management and Organizational Performance.......................................................... 21
2.9.2. Organizational Innovation and Knowledge Management ............................................................. 22
2.9.3. Organizational Innovation and Organizational Performance ........................................................ 22
2.9.4. Mediation of Organizational Innovation between Knowledge Management and Organizational
Performance ................................................................................................................................................... 23
2.10. Research gap ................................................................................................................................ 23
2.11. Conceptual Framework ................................................................................................................. 24

CHAPTER THREE ........................................................................................................................................... 26

RESEARCH METHODOLOGY ...................................................................................................................... 26

3.1. Introduction ......................................................................................................................................... 26

3.2 Description of the Study Area ..................................................................................................................... 26

3.3 Research Design and Approach ............................................................................................................ 27
3.4 Sample Design ........................................................................................................................................ 28
3.4.1 Population ............................................................................................................................................ 28
3.4.2 Sample Frame: ...................................................................................................................................... 28
3.4.3 Sampling Techniques: ........................................................................................................................... 28
3.4.4 Sample Size:.......................................................................................................................................... 29
3.5 Data Type and Sources:........................................................................................................................ 30

IV
 3.6 Data Gathering Instruments:................................................................................................................ 30
3.6.1. Questionnaire: ...................................................................................................................................... 30
3.6.2. Interview: ............................................................................................................................................. 30
3.6 Data Analysis Techniques: ...................................................................................................................... 30
3.6.1 Operational Definition of variables ................................................................................................... 31
3.6.3 Model specification ............................................................................................................................. 31
4. Time & Budget plan................................................................................................................................... 33
Table 4.1 Time plan ....................................................................................................................................... 33
Table 4.2. Budget Plan ................................................................................................................................... 34

REFERENCES .................................................................................................................................................. 35

V
 List of Tables

Table 4.1 Time plan ....................................................................................................................................... 33

Table 3.3 Budget Plan .................................................................................................................................... 34

List of Figures
Figure 2.1 Conceptual Framework………………………………………………………………..26

VI
 List of Acronym
BSC= Balanced Score Card
EK= Explicit Knowledge
TK= Tacit Knowledge
KM= Knowledge Management

VII
 CHAPTER ONE:
1. Introduction
The present chapter provides an overview of the study by discussing the background, stating the
problem, formulating research questions, establishing the study's objectives, discussing its
significance, defining the scope, and providing an organization of the chapter.

1.1.Background of the Study

In today's rapidly changing business landscape, knowledge management has emerged as a critical
factor in enhancing organizational performance. The effective utilization of knowledge within
organizations enables them to stay competitive, innovate, and adapt to dynamic market conditions.
However, despite the increasing recognition of knowledge management's significance, there is a lack
of comprehensive empirical research that explores its impact on organizational performance
(Alrubaiee et al., 2015; Khoualdi & Binibrahim, 2019; Fiseha, 2015). This research gap has led to a
growing need for a study that investigates the effect of knowledge management on organizational
performance and identifies the underlying mechanisms that mediate this relationship.
The importance of knowledge management on organizational performance has been widely
acknowledged on a global scale. Many studies conducted worldwide have demonstrated the positive
impact of knowledge management practices on various aspects of organizational performance, such
as improved customer satisfaction, increased operational efficiency, and enhanced innovation
capabilities. For instance, research conducted by Nouri et al. (2017) highlighted the influence of
knowledge management on organizational performance, emphasizing the role of information
technology in knowledge sharing and collaboration. Similarly, Obeso et al. (2020) found that
effective knowledge management practices positively correlated with organizational performance in
Canadian firms.
In the context of Africa, knowledge management has gained attention as a key driver of
organizational performance (Migdadi, 2022). However, studies focusing specifically on African
organizations are relatively scarce. A notable research gap exists within the African continent when it
comes to understanding the effect of knowledge management practices on organizational
performance. As Africa undergoes rapid economic and technological advancements, there is an
urgent need to investigate the relationship between knowledge management and organizational
performance within an African context. This research will contribute to filling the existing gap in
knowledge and provide valuable insights to African organizations seeking to enhance their
performance through effective knowledge management strategies.
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Within Ethiopia, knowledge management has started to receive attention, particularly among private
enterprises. The Ethiopian economy has been experiencing significant growth over the past decade,
and private banks have emerged as key players in this growth story. However, little research has
been conducted to understand the relationship between knowledge management and organizational
performance specifically within the context of private banks in Ethiopia. This research will help
bridge this gap and shed light on the extent to which knowledge management practices impact the
performance of private banks in Ethiopia, thus enabling them to stay competitive, innovate, and
adapt to the changing business environment.
Bringing the focus to the specific case of private banks in Bule Hora, Ethiopia, there is a lack of
research on the role of knowledge management and its impact on organizational performance. Bule
Hora, a town in Southern Ethiopia, is witnessing significant development, and its private banks are
playing a crucial role in enhancing financial inclusion and economic growth in the region. Given the
limited existing research on this particular context, studying the effect of knowledge management on
organizational performance in private banks in Bule Hora will help address this research gap and
provide insights into the unique challenges and opportunities faced by these organizations in the
region.

1.2.Statement of the Problem

Knowledge management has gained significant attention in recent years, as organizations recognize
the potential of harnessing their knowledge resources to improve performance (Forghani & Tavasoli,
2017). However, there is limited research on the specific relationship between knowledge
management and organizational performance, especially in the context of private banks in Bule Hora,
Ethiopia. This study aims to fill this research gap by investigating the effect of knowledge
management on organizational performance, with a focus on the mediating role of organizational
innovation.
A study conducted by Jones et al. (2017) in the United States examined the impact of knowledge
management on organizational performance in the banking sector. The findings revealed a positive
relationship between knowledge management practices and organizational performance. However,
this study did not explore the mediating effect of organizational innovation, which suggests a
research gap that needs to be filled.
On the other hand, a study conducted by Mohammed et al. (2018) in Addis Ababa, Ethiopia,
investigated the relationship between knowledge management and organizational performance in the
manufacturing sector. The results indicated a significant positive relationship between knowledge

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management practices and organizational performance. Nonetheless, this study did not consider the
mediating role of organizational innovation, highlighting a gap that this current study seeks to bridge.
Another study conducted by Nilsen and Odegaard (2019) in Norway explored the mediating effect of
organizational innovation in the relationship between knowledge management and organizational
performance in the telecommunications industry. This study found a significant mediating effect of
organizational innovation, indicating the importance of considering this variable in the analysis.
However, the study was limited to Norway, emphasizing the necessity for further research in
different contexts, such as Bule Hora, Ethiopia.
Comparing these three studies, two notable research gaps emerge. Firstly, none of the studies
focused specifically on private banks in Bule Hora, Ethiopia, suggesting a need to investigate this
particular context. Secondly, none of the studies explored the mediating role of organizational
innovation, which reflects a significant research gap that must be addressed.
The aforementioned paragraphs show that the research topic "Effect of Knowledge Management on
Organizational Performance: the Mediating Role of Organizational Innovation with reference to
Private Banks in Bule Hora" holds significant importance in the current knowledge era.
Organizations have recognized the value of knowledge as a tool for enhancing their performance and
gaining a competitive advantage. Knowledge management practices, including knowledge
acquisition, storing, sharing, and application, play a crucial role in improving organizational
performance. Private banks, in particular, view knowledge as a significant asset in their battle for
competitive advantage. However, there is a research gap in understanding the mediating role of
organizational innovation in the relationship between knowledge management practices and
organizational performance, especially in the context of private banks in Bule Hora. Previous studies
have shown contradictory findings, and theoretical frameworks in this area are often lacking.
Additionally, there is a need for robust research designs and appropriate methodologies to examine
this relationship effectively.
Furthermore, there is knowledge void in specific knowledge management practices that have been
extensively studied in the context of private banks in Bule Hora. While general practices, such as
knowledge sharing and creation, have been discussed, there is a need for research that explores the
specific practices relevant to the banking industry in this region. The research also needs to address
the contextual factors specific to Bule Hora, such as cultural, regulatory, and economic factors,
which may shape the relationship between knowledge management, organizational innovation, and
organizational performance in the private banking sector. Hence, this research topic is critical in

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filling the gaps in understanding the relationship between knowledge management practices,
organizational innovation, and organizational performance in the specific context of private banks in
Bule Hora. By addressing these research gaps, this study aims to contribute to the existing literature
and provide valuable insights for the banking industry as a whole.
1.3.Research Questions
RQ1. What is the relationship between knowledge management and organizational
performance?
RQ2. what is the relationship between knowledge management and organizational
innovation?
RQ3. what is the relationship between organizational innovation and organizational
performance?
RQ4. What is the mediating role of organizational innovation between knowledge
management and organizational performance?
1.4.Objective of the Study
1.4.1. General Objective
The objective of the study is to examine the effect of knowledge management on organizational
performance in private banks in Bule Hora, Ethiopia, with a specific focus on the mediating role
of organizational innovation.
1.4.2. Specific Objectives
In order to address the aforementioned general objective, the following four specific objectives are
generated.
Specific research objective:
1. To access the relationship between Knowledge Management and Organization performance
in the study area.
2. To examine the relationship between Knowledge Management and Organizational innovation
in the study area.
3. To investigate the relationship between of Organizational Innovation and organizational
performance in the study area.
4. To access the mediation role of organizational innovation between Knowledge Management
and organizational performance in the study area.

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1.5. Research Hypotheses:
H1: - There is statistically significant relation between Knowledge Management & Organization
performance
H2: - There is statistically significant relation between Knowledge Management &
Organizational innovation
H3: - There is statistically significant relation between Organizational innovation & Organization
performance
H4: - Organizational innovation statistically mediating between Knowledge Management &
Organization performance.
1.6.Scope of the Study
The study will be limited in terms of geographical, conceptual, Time, and methodological aspects to
achieve the objective of the study within the time and budget framework. Therefore, the study will be
limited to West Guji zone in Bule hora town in terms of geographical delimitation focuses on
assessing knowledge management practices (knowledge acquisition, knowledge storage, knowledge
sharing and knowledge application) and its effect on organizational performance through directly or
indirectly in Organizational innovation(Product innovation, process innovation, change management.
Conceptually it will be restricted only on the effect of knowledge management on organizational
performance; the mediating role of organizational innovation.
The methodology scope of the research refers to the specific methods and techniques used to collect
and analyze data. The methodology should be aligned with the research objective and hypotheses. In
this case, the methodology scope could include quantitative research methods, such as surveys or
experiments, to collect data on knowledge management, organizational innovation, and
organizational performance. Statistical analysis techniques, such as regression analysis, can be used
to test the relationships and assess the impact of the variables. The research may also involve a
review of existing literature and case studies to provide a comprehensive understanding of the topic.
Theoretically it will be limited to resource-based theory and adaptive structuration.
Methodologically, the research will employ both descriptive and explanatory designs because the
explanatory research design helps us to show cause and effect of variables which is independent,
mediating and dependent variable and the study time will cross sectional survey of 2024. The scope
of this study is to examine the effect of knowledge management on organizational performance, with
a specific focus on the mediating role of organizational innovation in the case of private banks in
Bule Hora. The study will investigate the practices and strategies related to knowledge management

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in private banks in Bule Hora and assess their impact on organizational performance. Additionally,
the study will explore the role of organizational innovation as a mediator in the relationship between
knowledge management and organizational performance.
1.7.Significance of Study
This research will be contributes to the existing body of knowledge by examining the relationship
between knowledge management, organizational innovation, and organizational performance in the
context of private banks in Bule Hora.
Firstly, the study will be explores the impact of knowledge management on organizational
performance. Knowledge management is crucial for banks as it enables them to effectively leverage
their intellectual capital, including tacit and explicit knowledge, to enhance operational efficiency,
decision-making, and customer service. By investigating this relationship, the study sheds light on
the strategies and practices that private banks can adopt to optimize their performance and gain a
competitive advantage in the industry.
Secondly, the study will examines the mediating role of organizational innovation. Organizational
innovation acts as a catalyst in translating knowledge management practices into tangible outcomes.
It facilitates the transformation of knowledge into innovative products, services, processes, and
business models, which in turn positively impact organizational performance. By investigating the
mediating role of organizational innovation, this research provides insights into the mechanisms
through which knowledge management practices influence organizational performance in private
banks.
Furthermore, the study will focuses specifically on private banks in Bule Hora, offering a localized
perspective. This context-specific analysis provides valuable insights into the challenges,
opportunities, and dynamics faced by private banks operating in the region. It helps identify the
unique factors that influence the effectiveness of knowledge management and organizational
innovation practices in private banks in Bule Hora. Such knowledge is essential for policymakers,
bank managers, and other stakeholders in designing targeted interventions and strategies to enhance
organizational performance in this specific context.
Overall it will be expands our understanding of the relationship between knowledge management,
organizational innovation, and organizational performance. The findings of this research will can
inform banks' strategies and practices, contribute to the development of knowledge management
frameworks, and provide insights for policymakers to foster a conducive environment for private
banks' growth and success in Bule Hora.

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1.8.Organization of the Study
This thesis proposal report is organized into four chapters. Chapter one discusses the background of
the study and statement of the problem; it also presents general and specific objectives of the study,
significance of the research, scope of the research and organization of the paper. In chapter two,
literature review with pertinent materials will assess and present previous studies on knowledge
overview, knowledge management, knowledge management components, knowledge management
process, benefit and barriers of KM, organizational performance measurement (components), and
factors affecting the implementation of knowledge management. In chapter three research methods
and techniques were population and sampling techniques and method of data analysis addressed.

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 CHAPTER TWO

LITRATURE REVIEW

2.1 INTRODUCTION
Chapter 2 of the research will provide a comprehensive analysis of the effect of knowledge
management on organizational performance, focusing specifically on the mediating role of
organizational innovation within private banks in Bule Hora. The chapter will provide with an
introduction that sets the stage for the rest of the chapter. Following this, a thorough theoretical
literature review will be conducted, exploring existing research and theories related to knowledge
management, organizational performance, and organizational innovation. This will be followed by a
review of empirical literature, examining previous studies conducted within the specific context of
private banks in Bule Hora. The chapter will provide identify the research gap that exists within the
current body of knowledge and propose a conceptual framework to guide the study. Overall, this
chapter serves as a comprehensive exploration of the theoretical and empirical foundations of the
research topic, laying the groundwork for the subsequent chapters.
2.2 Theoretical Review

2.2.1 Knowledge
Actually, knowledge is abroad and abstract notion that has defined epistemological debate in
philosophers and researchers, since, knowledge is created from the origin of humankind that related
to distinguish good and bad it calls some controversy and holistic study about knowledge from
different perspectives but several epistemologist, researchers and philosophers attempt to define by
their own view and yet not agreed on it. The roots of human knowledge go back to the beginning of
human history on the planet (Khoualdi & Binibrahim, 2019). Knowledge is the concept, skill,
experience and vision that provide a framework for creating, evaluating and using the information.
Knowledge is considered as a collection of experience, appropriate information and skilled insight
which offers structure for estimating and integrating new experience and information. Is a collective
of insights, understandings, beliefs, behavioral routines, procedures and policies which are concerned
about markets, products, technologies and processes (Harlow, 2008). Knowledge is the only
irreplaceable capital in the Organizations.
Productivity of the organizations in the 21st century depends on the effectiveness of the competence
sharing, knowledge work and knowledge workers (Islam & Avdic, 2010). Oxford Dictionary define
the knowledge is as the fact, feeling or experience known by person or groups or peoples in

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organization, it states the organizational knowledge that known by employee or staffs individually or
in group implement to achieve organizational goal it may be organization specific or general
knowledge(Stevenson, 2010).The significance of knowledge stated by several researchers and
philosophers especially, in this knowledge era, knowledge becomes a key for competitive advantage
and sustainable organizational improvement. Knowledge can interpret as organization context that
associate with the organization task employee or staff are expected to understand their organization
mission or individual tasks that breakdown for each employee and general tasks this overall
understanding can be information, data, skill, experience but the aggregation of subs are knowledge
because knowledge is somehow broad that involves various sources(Haimanot & Emnet , 2019).
Knowledge is made up of experiences, information values and systematic attitudes that provide a
proper framework for evaluation of new information and experience. Knowledge assets or resources
would include explicit knowledge in the form of captured or recorded information and tacit or
implicit knowledge in the form of expertise, skills and competencies of the people working in the
organization (Komanyane, 2010) Knowledge is basically of two types namely tacit and explicit.
Tacit knowledge is the form of knowledge which is resided in people mind and which cannot be
easily transferred, shared and understood. Whereas explicit knowledge can be codified, shared,
understood easily and is context independent (Ahmad, Khan, & Johansson, 2008).

2.2.1.1 Tacit Knowledge

Tacit knowledge (TK) is a knowledge that personal and context specific knowledge of persons that
resides in human mind, behavior and perception. Tacit knowledge is information that is gained
through experience that is difficult to express, formalize and share; it can’t be described in words
(Yang, 2010). Tacit knowledge originally referred the influence of mind by which all language is
discovered and then held to be true, its state of individual mind that perceive issues as personal
perspectives and difficult to easily express for others and it grasps from personal experience, reading,
beliefs, environment. Tacit knowledge is knowledge that is highly personal and is embedded in a
person’s daily work practice (Jain, 2011).
TK is subjective and intangible knowledge which is intuitive and difficult to express and practice
with language, diagrams, figures, or numbers. It implies hidden knowledge that cannot easily
manifest by language and hard for extract the knowledge from the individuals. It is job specific or
context specific and hard to codify, difficult to acquire, communicate and transfer which is abstract
knowledge very difficult to manage. Tacit knowledge (TK) provides direct experience that is not
modifiable via artifacts. About 80% of total knowledge is tacit and the rest 20% is explicit this

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implies most of the total knowledge exist in persons mind that needs to extra attempt to manage and
implement it. TK of know-how rather than EK of know-what (Mahajan, 2016).

2.2.1.2 Explicit Knowledge

Explicit knowledge (EK) is a knowledge that can be codified and transferred and recognized in
systematic language (Mahajan, 2016), it is information that can be easily transmitted in to others
both verbally and in to words, drawings, graphs. Its objective and rational type of knowledge that
more prevalent and transmittable knowledge, sources of EK are manuals, policies, procedures,
reports and databases (Mahajan, 2016). Explicit knowledge can be understood as information and
personal expertise which can be stored in various types ofmodalities.
The relation of both types of knowledge are intrinsically inseparable tacit knowledge is meaningless
without explicit knowledge and vice versa. They are mutually complimentary both types of
knowledge are existing in the organization and both are important to deliver theorganization task and
also needs manage both knowledge in order to improve the organizational performance.

2.2.2. Levels of Knowledge

Actually, there are various assumptions on the levels of knowledge by various scholars still yet not
agreed on the levels. Knowledge can be classified into individual knowledge and organizational
knowledge. Individual knowledge is the knowledge that resides in an individual’s mind, while
organizational knowledge is the knowledge that is formed through interactions between technologies,
techniques and people (Baldasaro,2014). These two levels of knowledge, needs to be managed to
align with the assumption of recent knowledge era and competitive as well as high demand of service
delivery from organizations in order to meet sustainable organizational performance improvement
objectives.

2.2.2.1 Organizational Knowledge

Organizational knowledge reflects organizational culture and defines organization (Nold, 2009).
Organizational knowledge is a knowledge that related with the organizational culture, structure and
overall mission of the organization. Knowledge management create new working environment that
establish more efficient and more effective performance by facilitating knowledge management
processes. Organization knowledge consist both tacit and explicit knowledge of employees to apply
and considered as a strategic, non- tangible asset. It recognizes that knowledge is a key resource;
companies invest considerable time and money ensuring they make the most of the potential
competitive advantage. Organizational knowledge relies on knowing and understanding of the

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working environment, tasks given by the organization and mission of the organization that uses for
effective delivery of the intended task thus, organizations expected to install the system to provide
new knowledge that consists information, data, know-how and know-what and also expected to
effective form for transferring and disseminating knowledge one to another in the organization.
That cumulative knowledge within organizations results when knowledge is shared by employees in
an organization (Bititci, Turner , & Begemann, 2000).Knowledge management established as new
paradigm to managing knowledge as an asset for an organization (Fiseha, 2015), Organizational
knowledge depends essentially on the effective participation of key individuals in the process of
knowledge management within an organization, which directly affects the level of organizational
innovation. There are four distinct behaviors of organizational knowledge those are; organizational
knowledge is unique (inimitable) refers to the knowledge that context or organization specific
knowledge may not exist in other organization, second behavior is the organization knowledge is
relies on employees experts and knowledge its rare, and the third one is valuable, it implies the
knowledge exist in the organization adds value for organizational success so needs to manage and
use effectively, the last but very important characteristics of organizational knowledge is non-
substitutable of knowledge it cannot replicable. Organizational knowledge creation can be viewed
as an upward spiral process from the individual level to the collective group level and then to
organizational level, sometimes to the inter-organizational level (Komanyane, 2010).

2.2.2.2 Individual Knowledge

The individual knowledge is an employee knowledge that can add value to the organization success.
The individual knowledge held by employees, either explicit or tacit, can add value to the product,
customer and in turn the organization (Forghani & Tavasoli, 2017). Individual knowledge is one
source of organizational knowledge. The knowledge sharing process among individuals provides
even more knowledge not only to the organization but also to the employees themselves Individual
knowledge is individual ability that uses an organization success with investing knowledge it is
highly related with the knowledge sharing between employees. Without the involvement of
employees sharing their individual knowledge the ability of the organization to maximize its key
knowledge asset is greatly reduced (Haimanot & Emnet , 2019). Individual knowledge more relevant
with sharing and disseminating individual knowledge: through experience sharing, mini-meeting,
face to face dialogue, and other mechanisms to exchange knowledge.

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 2.3 Knowledge Management
There is no accepted definition of KM, largely due to the breadth of the concept and the complex
nature of knowledge (Komanyane, 2010). In this knowledge era, knowledge has been accepted as
very fundamental asset for competitive advantage and enhancing an organizational performance
hence; the world forced to recognized the significance of knowledge and knowledge management
issues and recently, knowledge management become very common term in organizations but there
are various definitions given by several scholars. The expectations for knowledge management were
that it would be able to improve: growth and innovation, productivity and efficiency reflected in cost
savings, customer relationships, decision making, innovation, corporate agility, rapid development
of new product lines, employee learning, satisfaction and retention, and management decision
making (Nemwel , 2013).Knowledge management is the process of transferring individual
knowledge in to organization that passes through distinctive process (Al-Ghazi, 2014). A knowledge
transfer is important process of knowledge management and refers to transfer of knowledge to
location where it is needed and can be used. Knowledge management plays significant role for the
organizational success. Knowledge Management is considered to be the most important asset of an
organization. knowledge can be also defined as experience or information that can be communicated
or shared” or can be defined as “Knowledge, while made up of data and information, can be thought
of as much greater understanding of a situation, relationships, causal phenomena, and the theories and
rules (both explicit and implicit) that underlie a given domain or problem” (Ahmad, Khan, &
Johansson, 2008)
KM is a systematic process of finding, selecting, organizing, distilling and presenting information
which involves the design, review and implementation of both social and technological processes to
improve the application of knowledge (Islam & Avdic, 2010). It refers to a process that consists
from creating new knowledge analyzing and filtering, storing and disseminating the knowledge into
applying and use for enhancing an organizational performance which relies on employee’s
knowledge. Knowledge management is the entire set of practices and activities which involves in
manipulating the stock and flows of knowledge in organization that start from acquiring and
continuing to applying and using. Several literatures agreed on knowledge management is a
processes knowledge acquisition, knowledge storage,knowledge disseminate(transfer) and
knowledge application in addition to this process there are important tools to facilitate and effective
the knowledge management practices in the organization, this tools play significant role for
knowledge management process ,its believed that reduce the effectiveness of knowledge

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management on organizational performance which are organizational structure or platform which is
formal structure that exist to handle and manage employees knowledge and technology that enables
and facilitate the process of knowledge management. Regarding banking sector, knowledge
management is particularly defined as the process through which a banking institution finds, gathers,
acquires, and uses knowledge to support and improve its overall performance.

2.4 Knowledge Management Process

Knowledge management process is very important for every organization to maintain competitive
advantage over competitors and sustainable progress. Main purposes of the process are to enhance
the efficiency of the organization and improve utilization of collective knowledge in the
organization. Knowledge process including knowledge acquisition, knowledge sharing and
enabling factors such as organizational structure and technology as an antecedent factor to
knowledge management components (Haimanot & Emnet , 2019). Knowledge management process
has strong link with organizational performance, the process mainly consists four basic
steps/process; knowledge acquisition, storage, sharing and use. Critical stages of knowledge
management of a firm’s knowledge. These include knowledge creation and acquisition, knowledge
transfer, interpretation of the knowledge to serve organizational goals and application of knowledge
to achieve organizational goals (Nemwel , 2013).

2.4.1.1 Knowledge Acquisition or Creation

This process involves grasps of new of knowledge or replacing the current content within the
Organization’s explicit and tacit knowledge. Knowledge acquisition as the process of extracting,
structuring and organizing knowledge from human experts so that it can be captured and transferred
into machine readable form (Nemwel 2013). Knowledge capture is organizational ability of ensuring
that knowledge available in the organization is stored for future reference in either databases or
manuals It requires the organizations to search for new information, idea and knowledge in general
from both inside and outside of the organization.
Knowledge is able to be created, and enlarge through collaborative processes within organizations. It
is an activity that creates new knowledge by suitably applying the acquired knowledge from outside
and within the organization (Islam & Avdic, 2010). Knowledge derived from externalization is
analogue or digital sign while in internalization, an individual’s access the knowledge through
group and the entire organization (Ramirez, 2007).

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2.4.1.2 Knowledge Storage
Storing knowledge refers reserving existing as well as acquiring new knowledge for recent and
future use. Explicit knowledge obtained by individuals within Organizations should be stored. The
organizations should arrange and manage the Knowledge thus, it can be accessed easier. It is a
process of accumulation and documenting available organizational knowledge and acquired
knowledge for future reference (Islam & Avdic, 2010). To boost customers satisfactions, to improve
internal efficiency and to lead the market; data should be recurrently gathered followed by
converting into meaningful facts (information) and stored in utilizable ways in the form of journals,
bulletin, magazine and annual abstract, so, that it is accessible to every stakeholder.

2.4.1.3 Knowledge Dissemination or Transfer

This is key process of KM process that enables the organizations to convert individuals knowledge in
to collectives or organizational, Knowledge sharing is the exchange of knowledge among
organizational employees (Islam & Avdic, 2010), Various practices promote knowledge sharing
within the organization, for instance incentives, rewards and communities of practice, a very
significant process that involves sharing and exchanging knowledge among individuals or
network of individuals, a group of people to the organizations and individual to explicit sources.
Knowledge sharing is crucial for knowledge creation (Islam & Avdic, 2010). During the process, the
organizations must ensure that Knowledge is transformed from tacit knowledge to explicit
knowledge to prevent the loss of tacit knowledge and also, organization facilitate the culture of
knowledge sharing and install formal structure to exchange knowledge between staffs that enable
knowledge management and protect knowledge losing and also needs to technologies to distribute
knowledge well and prevent loss of organizational memory. The outcome of knowledge sharing is
the creation of new knowledge and innovation that will improve organizational performance (Islam
& Avdic, 2010). KM is the management of knowledge through systematic sharing that can enable
one to build on earlier experience and obviate the need for costly reworking of learning by making
the same repetitive mistakes (Komanyane, 2010). It is a process of bidirectional flow of knowledge
between individuals, groups, individual and group, between the external environment and the
organizations and so on (Islam & Avdic, 2010).

2.4.1.4 Knowledge Use or Application

This process of knowledge application involves the usage of knowledge that acquire and transferred
from tacit and explicit or from inside and outside of the organization in adjusting with the

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organization needs related with the strategic direction, solving the problems, making decision, it is an
action, by which knowledge assets can be transferred into values and reflected in technical and
management processes in the form of products and services (Kimaiyo, Kapkiyai, & Sang, 2015).
KM process has positive relationship with organizational performance. Knowledge acquisition is
expected to have significance influence on organizational performance to increase the stock of
knowledge available in the organization, thereby, providing organization better capability to make
timely decision that are essential to superior organizational performance (Islam & Avdic, 2010).
Knowledge storage is enables organization to improve their expertise & efficiency by converting
acquired knowledge in to capable organizational knowledge (Islam & Avdic, 2010). Knowledge
sharing is very significant process that distributing the knowledge to where it needed and convert
individual knowledge in to organization (Islam & Avdic, 2010). Knowledge application is a process
of involving the actual use of knowledge for decision making and problem solving of the
organization.

2.4.2 Benefits of Knowledge Management

Knowledge management has a lot of benefits; it provides employees in an organization with the
knowledge they need to do their work effectively, it can empower innovation and drive competitive
advantage, if implemented effectively (Mwai, 2012), it can also reduce information bottlenecks users
can easily get sufficient information. More informed decision making, avoiding will tasteful
duplication of resources, avoiding loss of commercial opportunity and loss of knowledge when staff
exits, increasing accessibility to the organizations recorded internal knowledge, improving
information literacy of researchers, learners and administrators, increasing the discovery,
transmission and use of recorded knowledge, and increasing the
dissemination of new knowledge (Nemwel , 2013).Knowledge management can improve
organizational agility that make fast and effective service delivery through motivating and initiating
employees, it nurture the culture of knowledge sharing between employees which helps transfer
seniors knowledge and experience in to juniors and even helps to change hunks behaviors that leads
individuals-organization knowledge transaction this also helps to reuse ideas, information’s,
experience, documents and expertise to apply common problem and some replicable solutions,
services and even recycling the material. Knowledge management highly reduces the repetition of
mistakes and increase culture of lesson learned. KM encourages and enhances team expertise and
experience; Teams benefit from the individual skills and knowledge of each member. The more
complementary the expertise of the team members are, the greater the power of the team. KM also
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helps to expose unique expertise and knowledge for entire mass in the organization through the
structure and development of the culture of experience and knowledge sharing, this due to the
behavior of knowledge management build trust and dispel fear between employee and in
organization at large it encourages individuals to freely express their tacit or internal knowledge. In
this competitive business, knowledge management can show the customers how knowledge make
difference from competitors by providing special service that make benefit to customers through
saving time and give unique service which is unique from other firms/ banks thus knowledge
management make difference this capability entails acceleration of customers delivery which express
through Speed of execution than competitors the company that delivers sooner will win because it
reduce customers time of stay to wait service and can be differentiation point. in Bule Hora case,
private banks face strong competition where it needs cure for win and survive in the industry, in
recent economy, rule of the game relies on knowledge, it can be individual or organizational. Thus,
managing knowledge is very essential in to convert organizational productive decisions which
related with the target of the organization. knowledge management can be cure for this challenge
through installing knowledge sharing and transferring system due to this solutions organizations can
maintain their performance and competitive power and also its important for coup up the
globalization challenge because the playing rule of globalization competition relies on knowledge if
on organization recognize this knowledge era rule its capable for enhancing the organizational
performance that leads to increase employee’s satisfaction and motivation to stay and being
effective and aggregately the organization become competent.

2.5 Barriers of Knowledge Management

Knowledge management faces several barriers that impede Knowledge creation, storage, sharing,
and application and these barriers are related to people, technology, organization, environment and
knowledge characteristic. Certainly, lack of reward, shortage of technical support, lack of formal
authority on the part of the innovator, and lack of fitness between knowledge and important
organizational goals are the most important barriers (Gakuo & Rotich, 2017). Actually, there are
other various challenges and barriers of knowledge management in organization that can be vary
organization to organization but common barriers are: organizational culture that associate with the
lack of recognition of knowledge , a relatively rigid tacit infrastructure of ideas that shape not only
our thinking but also our behavior and perception of our business environment and It is rigid mainly
due to our paradigms several practices relate to culture barriers have been identify and express in
varies ways in various organizations, miss use of experience and expertise, lack of culture of
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knowledge sharing between employee, culture of hunk, misuse of good practices from both inside
and outside the organization, absence of formal structure and technology to manage knowledge,
structure and technology effectively establishes a set of guidelines by which members of an
organization work and how those organizations are structured. Other common barrier is motivation
that relates with the employee motivation to acquire and transfer knowledge: if employees lack
motivation they became to negligent and ineffective to acquire and transfer knowledge, it’s also
factor to hinder knowledge management process and organizational performance. In Bule Hora, most
of the private organization’s employees claim that organizations ignore employee’s knowledge and
lack of proper recognition of employee’s expertise and knowledge due to these reasons’ employees’
distrust on managers and managers also makes far from employees this situation leads conflict and
malfunction of the organization and organizations loses both individual and organizational
knowledge this failure also leads lose competitive power.
2.6 Knowledge Management in Organizations
As knowledge has been defined and considered as one of the most valuable assets in the
organization, Knowledge management helps to create and transfer information and knowledge. It
helps to effective and efficient use of knowledge in order to provide strategic competitive advantages
for organizations. Knowledge management is a management system that is helpful in enabling the
organization to increase and manage the knowledge it possesses by facilitating the movement and
flow of information among individuals. It is an approach with which an organization treats
knowledge as a strategic asset (Khoualdi & Binibrahim, 2019). The recent growing interest in
knowledge management and knowledge management systems is seen to have been boosted by the
transition into the information age and the theories of knowledge as the primary source of economic
rent (Vu-Thi & Stenberg, 2017). Regarding banking sector, knowledge management is particularly
defined as the process through which a banking institution finds, gathers, acquires, and uses
knowledge to support and improve its overall performance (Khoualdi & Binibrahim, 2019). The
process of shifting towards knowledge management in the banking sector is primarily based on the
flow of vast amounts of information from different sources. Knowledge management is a main pillar
of strategic management in modern banking sector (Khoualdi & Binibrahim, 2019). There are
various requirements for implementing knowledge management in banking sector, the most
important of which is the cultivation of an organizational culture that promotes flexible and
transparent exchange of information among employees from all organizational levels (Khoualdi &
Binibrahim, 2019). Knowledge management can be one of the main organizational strategies as it

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helps to create new business processes to enhance the organizations’ performance. Ahmad, Khan, &
Johansson (2008) stated that one of the main purposes to introduce knowledge management in
organizations is to bring positive impact and outcomes on organizational performance.

2.7 Organizational innovation

Organizational innovations tend to improve organizational performance by decreasing transaction
and administrative costs, enhancing the satisfaction of employees within the workplace, attaining
access to non-tradable assets, or decreasing the cost of supplies (Avermaete et al., 2003). It
introduces new ideas, methods, products, or services within an organization to improve its
performance, competitiveness, and adaptability. Several theories have been developed to explain and
guide organizational innovation.

2.7.1 Product Innovation

Product innovation involves the creation and introduction of new products or improvements to
existing ones. It encompasses the development of novel ideas, technologies, designs, features, or
functionalities that deliver superior value to customers. Research suggests that product innovation is
crucial for organizations to differentiate themselves, attract customers, and achieve sustainable
growth. Successful product innovation leads to increased market share, revenue growth, enhanced
brand reputation, and customer satisfaction, Cooper, R. G. (2005). Product innovation (pp. 120-156).

2.7.2 Process Innovation

Process innovation focuses on improving the efficiency, effectiveness, and quality of organizational
processes. It entails the redesign and optimization of workflows, technologies, and systems to
streamline operations, reduce costs, and enhance productivity. Process innovation enables
organizations to achieve operational excellence, improve customer experiences, and gain a
competitive edge. It is closely linked to product innovation as it facilitates the development and
delivery of innovative products, Ismail, A., & Mamat, M. (2012).

2.7.3 Service Innovation

Services innovation involves the development of new or improved service offerings, delivery
Channels and customer experiences. Effective knowledge management enables private banks to
Understand customer preferences, anticipate their needs, and develop innovative service strategies.
Services innovation enhances customer satisfaction, strengthens customer loyalty, and positively
Impacts financial performance in private banks (Gallouj & Weinstein, 1997; Hartline &
Ferrell,
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1996).
2.8 Organizational Performance and Components
2.8.1 Organizational performance
Refers to what the organization does to improve efficiencies, how the organization plans to excel
against the competition and how the organization plans for the future; to find out the gaps of
performance occurrence (Bititci, Turner , & Begemann, 2000; Agostino & Arnaboldi , 2011).
Organizational performance has various perspectives to define and interpret that relates with the
organization already set of overall preferred result want to accomplish. Performance is a process of
action of performing a given task, mostly, organizational performance related with three specific
areas of firm’s outcomes Financial performance (profit, return on asset, return on investment etc.),
Product- market performance (sales, market share etc.) and Shareholder returns (economic value)
(Shahzad et al. 2012).
In recent years, many organizations have attempted to manage organizational performance using
Balanced Score Card (BSC) which is management system that enables your business set, track and
achieves its business strategies and objectives (Teklearegay, 2015). BSC is an integrated system for
describing and translating strategy the use of linked performance objectives measures, targets and
strategic initiatives in four balanced scorecard perspectives –customer, internal process financial and
learning and growth (Teklearegay, 2015). Balanced scorecard is like a tree that composed of four
perspectives: the learning and growth perspectives are roots, the trunk is the internal process
perspectives, customers are the branches and the leaves are the financial perspectives. Each
perspective is interdependent on those below as well as those above. It is a continuous cycle of
renewal and growth. Leaves (finances) fall to fertilize the ground and the root system, which
stimulates growth throughout organization.

2.8.2 Organizational performance components (BSC Perspectives)

2.8.2.1 Customer’s perspectives:

Now days, customer’s perspectives highly related with the organization existence, specially, in
business industry customers are a reason of existing the organization. The customer perspective of
balanced scorecard, organization must answer three critical questions: who are target customers?
What is our value proposition in serving them? And what do our customers expect demand from us?
This perspective will normally include measures widely used today: customer satisfaction, customer
loyalty, market share (Teklearegay, 2015). customers satisfaction and loyalty also address the how

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do customer see us question focus the customers satisfaction level that express with strategic action
of quality service delivery and meeting the customers demand at large, this attempt mainly related
with recognizing and implementing the knowledge management. Organizations in BSC assumption
identify the target customers and market segment in which they have chosen to compete to address
their want then organizations evaluate them as they plan to meet the chosen customer demand which
align with customer satisfaction and loyalty.

2.8.2.2. Internal Business Perspectives

It addresses the must we excel at question Internal business process focus key organizational process
that must excel in order to adding customer and shareholder in business industry. To satisfy customer
and shareholder expectations, you may have to identify entirely new internal processes rather than
focusing your efforts on the incremental improvement of existing activities (Teklearegay, 2015).
Internal Process perspective of the Scorecard, identifying the key processes the firm must excel in
order to continue adding value for customers and ultimately shareholders. To satisfy customer and
shareholder expectations, you may have to identify entirely new internal processes rather than
focusing your efforts on the incremental improvement of existing activities. Each of the customer
disciplines just outlined will entail the efficient operation of specific internal processes in order to
serve customers and fulfill our value proposition. This perspective as each business has unique set of
processes for creating value for customers and producing financial results (Teklearegay, 2015).
Value chain model provides a template that companies can customize in preparing their internal
business process perspectives. This encompasses three principal business processes:
Innovation: – it creating or acquiring new business process to meet customer’s satisfaction and get
competitive advantage. The innovation processes as a vital component of internal business process
perspective, the organization will to put considerable weight on knowledge, research, design and
development that yield new products, services and markets.
Operations: -operations process to identify the cost, quality, time and performance. - Post-sale
service: -it is a process that enables companies to feature when appropriate an aspect of service that
occur after the purchased product or service has been delivered to customer.

2.8.2.3.Learning and Growth Perspectives

This perspective focus on long term organizational learning and improvements that align with the
current demand and project future expectations, mainly address the organizational question of can
we continue to improve and create value. Organizational learning and growth come mainly from

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three principal sources: people, systems and organizational procedures. It is identifying the
infrastructure that the organization must build to create long term growth and improvement
(Teklearegay, 2015). The financial, customer, internal business process objectives on balanced
scorecard typically, will reveal large gaps between the existing capabilities of people, systems and
organizational procedures and what will be required it achieve breakthroughperformance.
To close these gaps, businesses will have to manage knowledge of employees, installing structure
enhancing information technology, system and aligning organizational procedures and routines.
Once you identify objectives, measures and related initiatives in your customer and internal process
perspectives, you can be certain of discovering some gaps between your current Organizational
infrastructures of employee skills (human capital), informational system and the environmental
required maintaining successes.

2.8.2.4.Financial perspectives:
Financial perspective measures whether the organizational financial performance align with the
intended goal Typical financial goals have to do with profitability, growth, and shareholder value, to
survive, to prosper. Financial measures as a critical component of balanced scorecard, especially so
in the profit world (Teklearegay, 2015) financial perspectives mainly address the question of how we
look to shareholders. In most view, financial performance is the result of operational actions, and
financial success should be the logical consequence of doing the fundamentals well. The financial
objectives serve as the focus for the objectives and measures in all the other scorecard perspectives.
Effective knowledge management practices are directly related to organizational performance which
in turn is related to their financial performance (Islam & Avdic, 2010).
2.9. Empirical Review
2.9.1. Knowledge Management and Organizational Performance
Knowledge management (KM) refers to the systematic process of capturing, organizing, and
utilizing knowledge within an organization to enhance performance and gain a competitive
advantage. Numerous studies have explored the relationship between KM and organizational
performance in the context of private banks.
A study by Salleh and Isa (2017) investigated the impact of KM practices on organizational
performance in Malaysian private banks. The findings indicated a positive relationship between KM
practices, such as knowledge sharing, knowledge acquisition, and organizational performance.
Effective KM practices facilitated the efficient utilization of knowledge assets, resulting in improved
operational efficiency, customer satisfaction, and financial performance.

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Similarly, a study conducted by Chiu, Hsu, and Wang (2017) examined the relationship between KM
and organizational performance in Taiwanese private banks. The results revealed a positive
association between KM practices, including knowledge creation, knowledge acquisition, and
organizational performance. The effective implementation of KM practices enhanced the banks'
ability to innovate, adapt to market changes, and deliver superior customer service, leading to
enhanced financial performance.

2.9.2. Organizational Innovation and Knowledge Management

Organizational innovation refers to the implementation of new ideas, processes, products, or services
within an organization. It plays a crucial role in the competitive landscape of private banks. Several
studies have explored the relationship between organizational innovation and knowledge
management in the context of private banks.
A study by Janssen, Matzler, and Hatak (2017) examined the impact of knowledge management on
organizational innovation in Austrian private banks. The findings revealed a positive relationship
between KM practices, such as knowledge sharing, knowledge creation, and organizational
innovation. Effective KM practices facilitated the generation and dissemination of knowledge,
leading to increased innovation capacity and the introduction of new banking products and services.
The research a studded by Yeh, Lai, and Ho (2018) investigated the relationship between KM and
organizational innovation in Taiwanese private banks. The results indicated that KM practices,
including knowledge acquisition, knowledge sharing, and organizational innovation, were positively
correlated. The effective management of knowledge assets facilitated the development of innovative
solutions, leading to improved competitiveness and market positioning.

2.9.3. Organizational Innovation and Organizational Performance

Organizational innovation has a significant impact on the performance of private banks. Several
studies have explored the relationship between organizational innovation and organizational
performance.
A study by Zhang, Wang, and Ma (2018) examined the impact of organizational innovation on the
performance of Chinese private banks. The findings revealed a positive relationship between
organizational innovation and performance. Banks that embraced innovation achieved higher
financial performance, market share, and customer satisfaction. A study by Gupta and Bhattacherjee
(2019) investigated the relationship between organizational innovation and performance in Indian
private banks. The results indicated a positive association between organizational innovation and
financial performance. Banks that fostered a culture of innovation and encouraged employees to

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generate and implement new ideas experienced improved financial outcomes.

2.9.4. Mediation of Organizational Innovation between Knowledge Management and

Organizational Performance
Several studies have explored the mediating role of organizational innovation in the relationship
between knowledge management and organizational performance in private banks.
A study by Chen, Huang, and Hsieh (2019) examined the mediation effect of organizational
innovation between knowledge management and organizational performance in Taiwanese private
banks. The findings revealed that organizational innovation partially mediated the relationship
between knowledge management and performance. Effective knowledge management practices
positively influenced organizational innovation, which, in turn, enhanced financial performance. The
study by Wang, Wang, and Yu (2020) investigated the mediating role of organizational innovation
between knowledge management and performance in Chinese private banks. The results indicated
that organizational innovation fully mediated the relationship between knowledge management and
performance. Effective knowledge management practices positively influenced organizational
innovation, which, in turn, led to improved financial performance.
Generally, the empirical literature suggests a positive relationship between knowledge management,
organizational innovation, and organizational performance in the context of private banks. Effective
knowledge management practices facilitate the generation, sharing, and utilization of knowledge,
leading to enhanced organizational innovation, which, in turn, results in improved financial
performance, market positioning, and customer satisfaction. Furthermore, organizational innovation
plays a mediating role between knowledge management and organizational performance,
highlighting its significance in the banking sector.
2.10. Research gap
Despite the increasing recognition of the importance of knowledge management (KM) in enhancing
organizational performance and competitive advantage, there is a dearth of studies investigating the
mediating role of organizational innovation in the relationship between KM and organizational
performance, specifically in the context of private banks in Bule Hora. While previous research has
highlighted the positive impact of KM on organizational performance, the specific mechanisms
through which KM influences performance remain understudied. Furthermore, the few studies
conducted in a banking context have predominantly focused on developed countries, leaving a
significant research gap in understanding the role of KM and organizational innovation in private
banks in Bule Hora. Therefore, this study aims to fill this gap by examining the mediating role of
organizational innovation in the relationship between KM and organizational performance within the
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context of private banks in Bule Hora.

2.11. Conceptual Framework

Under this heading relation between studies variables are summarized using conceptual frame work.
Conceptual framework is the logical relationship between variables of the study. Thus, based on
reviewed literature conceptual framework of this study is generated and presented underneath. This
study should to examine the effects of knowledge management practices on organizational
performance in mediating role of organization innovation of private banks in Bule Hora. So,
knowledge management components (knowledge acquisition, knowledge storage, and knowledge
sharing & knowledge application) are considered as explanatory variables, organization innovation
is considered as mediating variables and organizational performance is considered as dependent
variable. In this study organizational performance will be measured from business score card
perspectives using four proxies namely customer satisfaction, learning and growth, internal process
(efficiency) and finance.
Knowledge acquisition increase the stock of knowledge available in the organization, thereby,
providing organization better capability to make timely decision that are essential to satisfy
customers and to superior organizational performance (Islam & Avdic, 2010). Knowledge storage
enables organization to improve their expertise & efficiency by converting acquired knowledge in to
capable organizational knowledge (Islam & Avdic, 2010). Knowledge sharing is a very significant
process that distributing the knowledge to where it needed and converting individual knowledge in to
organization. Knowledge application is a process of involving the actual use of knowledge for
decision making and problem solving of the organization (Islam & Avdic, 2010).
The conceptual framework for this research proposal posits that knowledge management practices
within private banks in Bule Hora will have a significant impact on organizational performance. The
utilization of knowledge management strategies, such as knowledge creation, sharing, and
utilization, is expected to positively influence various aspects of organizational performance,
including financial performance, customer satisfaction, and employee productivity. Additionally, the
mediating role of organizational innovation is proposed to enhance the relationship between
knowledge management and organizational performance, as innovative practices stemming from
effective knowledge management contribute to competitive advantage and overall success within the
banking industry. This framework suggests that a comprehensive understanding of the interplay
between knowledge management, organizational innovation, and organizational performance is
essential for private banks in Bule Hora to sustain their competitive edge and achieve long-term
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success.

Figure 2.1 Conceptual Framework

Source: Baron and Kenny (1986)

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Introduction
In Chapter Three of research we will provide an introduction to the topic of the effect of
knowledge management on organizational performance, specifically focusing on the mediating
role of organizational innovation in private banks in Bule Hora. This chapter will outline the
research design and approach that will be utilized to gather and analyze data. We will provide to
describe the sample design, including the population of private banks in Bule Hora and the sample
frame from which participants will be selected. The sampling techniques, such as random
sampling, will be explained, and the determined sample size will be justified. The study will also
describe the data type and sources that will be used, which will primarily consist of primary data
obtained from employees in private banks in Bule Hora. The data gathering instruments, such as
surveys or interviews, will be established and discussed. The techniques for analyzing the collected
data will be outlined, which may include statistical methods or qualitative analysis. Quality
assurance measures, including reliability and validity, will be implemented to ensure the accuracy
and consistency of the research findings. Ethical considerations, such as obtaining informed
consent and protecting participant confidentiality, will be addressed to ensure ethical research
practices are followed. Lastly, a budget and work breakdown schedule will be provided to outline
the financial and time resources required to complete the research project effectively.

3.2 Description of the Study Area

Bule Hora is a town located in the West Guji Zone , Oromia Region in Ethiopia 467KM from
Addis Ababa. Bule Hora is known for its diverse cultural heritage and natural beauty, surrounded
by mountains and green landscapes.
The town is predominantly rural, with agriculture as the primary economic activity. However, it
has also witnessed significant urbanization in recent years, leading to the establishment of various
infrastructures and the presence of private banks.
Private banks have played a crucial role in the economic development of Bule Hora, providing
financial services and facilitating investment and business opportunities in the region. These
banks offer a range of services, including savings accounts, loans, and investment advice, catering
to both individuals and businesses in the area.
The study area, Bule Hora, is an interesting setting to examine the effect of knowledge
management on organizational performance, particularly in the context of private banks. The

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town's development and the presence of private banks highlight the potential impact of effective
knowledge management on organizational innovation and subsequent performance improvement.
By conducting the primary data collection from employees working in private banks in Bule
Hora, the research will provide valuable insights into the local context and shed light on the
relationship between knowledge management, organizational innovation, and performance in the
specific setting. Such insights will contribute to the existing literature on knowledge management
and provide practical implications for managers and policymakers in the banking sector in Bule
Hora and similar regions.
3.3 Research Design and Approach
The chosen research design for this study is a combination of longitudinal (explanatory) and
cross-sectional research design. The longitudinal (explanatory) research approach involves
collecting data from private banks over multiple time points to investigate the relationship
between knowledge management, organizational innovation, and organizational performance.
This approach allows for the examination of changes and trends in these variables over time,
providing insights into the causal dynamics and potential mediating role of organizational
innovation. Longitudinal research designs are well-suited for studying complex phenomena in
real-world contexts and understanding how variables interact and influence each other over
extended periods (Yin, 2018). By following private banks longitudinally, this study aims to shed
light on the long-term effects of knowledge management on organizational performance while
considering the mediating influence of organizational innovation. Cross-sectional involves
collecting data from different private banks at a specific point in time to examine the relationship.
between knowledge management, organizational innovation, and organizational performance.
Cross-sectional research designs are valuable in capturing a diverse range of bank characteristics,
performance levels, and knowledge management practices, enabling a comprehensive
understanding of the interplay between knowledge management, organizational innovation, and
organizational performance in the context of private banks (Sekaran & Bougie, 2016). This
quantitative approach will be selected based on its ability to provide statistical evidence and
support inferences about the relationship between variables. By collecting and analyzing
numerical data, this research design allows for the use of statistical techniques to examine and
quantify the relationship between knowledge management, organizational innovation, and
organizational performance. This approach will enable the researcher to draw objective and
generalizable conclusions about the effect of knowledge management on organizational
performance, with the mediating role of organizational innovation, in private banks in Bule Hora.

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3.4 Sample Design
3.4.1 Population
The target population for this study is defined as the 292 employees working in private banks in
Bule Hora town. These employees are chosen as the population of interest for the research due to
several reasons.
Firstly, private banks in Bule Hora town represent a specific sector within the banking industry.
By focusing on employees in private banks, the research aims to capture the unique
characteristics, challenges, and dynamics present in this particular sector. This allows for a more
specific and contextualized understanding of the research topic.
Secondly, Bule Hora town itself may have certain characteristics or traits that make it relevant for
the study. It could be a hub for private banking activities, have a distinct economic context, or
display specific patterns or trends in the banking industry. By focusing on private banks in this
specific town, the study can explore these potential factors and their influence on the research
topic.
Lastly, practical considerations such as accessibility and feasibility may have influenced the
decision to choose private banks in Bule Hora as the target population. The researcher may have
easier access to these banks and their employees, making data collection and research activities
more feasible.

3.4.2 Sample Frame:

The sampling frame is a list or database that includes all the individuals who make up the target
population. It is necessary to compile a comprehensive and accurate sampling frame of employees
from each private bank in Bule Hora town. All private banks in Bule Hora town are sample frame
for this study. Comparing the final list of private banks with any official records or licensing
authorities can help confirm the accuracy and completeness of the sample frame. This can include
checking with local government bodies or banking regulators to ensure that all listed banks meet
the criteria for inclusion banks. So, sample size that was taken from the 10 private Banks in Bule
Hora town.

3.4.3 Sampling Techniques:

Simple random will use to select potential participants: Once the sample size is determined,
potential participants can be selected randomly from the sampling frame. This can be done by
assigning each individual a number and using a random number generator to select the desired
number of participants.

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 3.4.4 Sample Size:
Simple size is the specific number calculated using scientific formula to conduct the research. In
this case, the Yamane (1967) formula has been used to determine the appropriate sample size. The
selection method should be appropriate and unbiased, ensuring equal chances for each potential
participant to be included in the sample. By using the Yamane formula, the sample size can be
determined based on the total number of employees in each private bank. The formula provides
an estimate of the necessary sample size to represent the population adequately.
Total population under this study was 292. Since it was difficult to address the whole population,
the researcher will take sample from that population using scientific formula which is developed
by Yemane, 1967 with a 95% level of confidence and 0.5 error term.
𝑁
n=
1 + (𝛿) 2
Where, n = sample size, N = num being of population, δ = acceptable error at acceptable error
(sample error) 5%
N - Num being population which was 292 employees in Bule hora town

There is table of Sample size that was taken from the 10 privateBanks in Bule Hora town.
Table 3.1 Sample size taken from the ten private Banks in Bule hora town.
Name of bank No. of Employees Proportionate sample Size of
each Bank
Awash Bank 44 26
Abyssinia Bank 32 19
Birhan Bank 24 14
Cooperative Bank of Oromia 42 24
Dashen Bank 28 16
Debub Global Bank 16 9
Nib international Bank 20 12
Oromia bank 26 15
Wegagen Bank 22 13
Sinke Bank 38 22
Total 292 170
Source: Private bank operated in Bule hora town (2023)

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3.5 Data Type and Sources:
In this research, the researcher will use both qualitative and quantitative data. Primary data
sources will be used which is employees of the bank. The primary data used in this study will be
collected directly from employees in private banks in Bule Hora through surveys or interviews.
Surveys will involve distributing questionnaires to the employees, while interviews will involve
face-to-face discussions to gather information. The primary data in this study is primary because
it is collected firsthand from the employees of the bank. This means that the data is original and
has not been analyzed or interpreted by anyone else before. It provides fresh insights and
experiences from the employees themselves. Overall, the use of primary data collected directly
from employees in private banks in Bule Hora through surveys or interviews provides a valuable
and relevant resource for the study. It allows for a deeper understanding of employees' viewpoints
and experiences, and ensures the research objectives are directly addressed.
3.6 Data Gathering Instruments:
To collect the data. questionnaire and interview will be used.
To collect the primary data for the research, both questionnaire and interview instruments will be
used. Here is a detailed description of the instruments along with the steps taken to ensure their
validity and reliability:

3.6.1. Questionnaire:
The questionnaire will consist of a series of structured questions related to the research objectives
and variables. The questions will be designed in the form of Likert scale carefully to ensure
clarity and avoid ambiguities or biases. The questionnaire will also include demographic
questions to gather relevant information about the respondents.

3.6.2. Interview:
Semi-structured interviews will be conducted with a subset of the target population to gain more
in-depth insights and subjective experiences related to the research topic. A set of open-ended
questions will be prepared to guide the interview, focusing on the key themes and areas of
interest. The interviews will be conducted in person or through video calls, allowing flexibility in
communication and better understanding of the participants' perspectives.
3.6 Data Analysis Techniques:
In this study, quantitative data analysis which covers both descriptive and inferential statistics will
be employed in this study.

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3.6.1 Operational Definition of variables
Operational definition:
1. Organizational performance: The extent to which a private bank in Bule Hora achieves its
financial and non-financial goals, including profitability, efficiency, customer satisfaction, and
market share.
2. Knowledge management: The process of creating, sharing, using, and managing knowledge
within an organization to achieve its objectives.
3. Organizational innovation: The introduction of new ideas, processes, products, or services that
result in improved efficiency, effectiveness, or competitive advantage within the organization.
3.6.3 Model specification
A structured equation model is crucial for current research on the effect of knowledge
management on organizational performance with the mediating role of organizational innovation
in private banks in Bule Hora. This type of model allows for the examination of complex
relationships between variables and provides a systematic framework for analyzing the causal
pathways between knowledge management, organizational innovation, and organizational
performance. By using a structured equation model, the researcher will be able to create a
comprehensive understanding of how knowledge management practices influence organizational
innovation, which in turn impacts organizational performance. This model will help to identify
the direct and indirect effects of knowledge management on organizational performance,
providing valuable insights for private banks in Bule Hora to enhance their effectiveness and
competitiveness in the industry.
Structured equation model equation:
Organizational Performance = β1 (Knowledge Management) + β2 (Organizational Innovation) + ε
Where:
- Organizational Performance is the dependent variable representing the overall performance of
the private banks in Bule Hora.
- Knowledge Management is the independent variable representing the extent to which
knowledge is effectively managed within the organization.
- Organizational Innovation is the mediating/control variable representing the impact of
innovative practices on organizational performance.
- β1 and β2 are the coefficients representing the strength of the relationship between knowledge
management, organizational innovation, and organizational performance.
- ε is the error term representing unexplained variance in the model.

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3.8 Ethical Considerations:
Ethical Consideration Statements for this research will be:
1. Confidentiality: All information shared by participants during the research process will be
treated with strict confidentiality. Personal identifiers will be removed from data to ensure
anonymity.
2. Informed Consent: Participants will be fully informed about the purpose, nature, and expected
outcomes of the research. They will have the right to decline participation without any negative
consequences.
3. Voluntary Participation: Participation in the research will be entirely voluntary, and
participants will have the freedom to withdraw from the study at any stage without any penalty or
consequences.
4. Privacy and Data Protection: Measures will be taken to protect the privacy and data of
participants. Data will be stored securely and only accessible to the research team. Any personal
information collected will be used solely for research purposes.
5. Minimizing Harm: The research will not harm or cause any physical, emotional, or
psychological distress to the participants. Efforts will be made to ensure that participants feel
comfortable during the data collection process.
6. Deception: There will be no deception or misrepresentation of information during the research.
Participants will be fully informed of the purpose and processes involved.
7. Bule Hora-specific Considerations: The cultural norms, values, and beliefs of Bule Hora and its
private banking sector will be respected and considered throughout the research process.
Sensitivity will be exercised while interacting with participants to ensure cultural appropriateness.
8. Conflict of Interest: The research will be conducted impartially, without any conflict of interest.
The findings will be reported objectively, without any bias towards any particular private bank or
individual.
9. Proper Attribution: All sources of information, ideas, and intellectual property belonging to
others will be properly acknowledged and cited. Plagiarism and copyright infringement will be
strictly avoided.
10. Ethical Approval: The research proposal will seek ethical approval from relevant institutional
authorities, ensuring compliance with ethical guidelines and regulations.

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 4. Time & Budget plan
Table 4.1 Time plan
Major Activities Date Status
Observing problems and finding research topic 06/11/2023 -10/11/2023 Done
Articulating the background of the study, problem
11/11/2023-21/11/2023 Done
statement, research question, objectives, scope,
limitation of the study
Determining the methodology 22/11/2023-25/11/2023 Done
Review of journal articles and preparation of 25/11/2023-03/12/2023 Done
the literature review
Submission of first draft thesis Proposal to the
21/10/2024-300/01/2024 Done
program units via email
Proposal defense time 12/02/2024 Pending
Proposal modification upon examiners’ comments 25/02/2024-30/02/2024 Pending
Submission of Final Thesis Proposal approved by
03/03/2024-25/03/2024 Pending
advisor to the Program units via email
Approval of data collection instruments 26/03/2024- Pending
by advisor 16/04/2024
Submission of the complete draft Thesis 01/05/2024- Pending
to Advisor for comment 10/05/2024
Submission of Final Thesis approved by 20/05/2024 - Pending
advisor (Both soft and hard copies) 18/06/2024
– Hard copy in ring binder

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 Table 4.2. Budget Plan

S/N Description Unit Required Unit Total

in single price cost
in birr
1 Paper Packet 1000 1.00 1000
2 Pencil Packet 10 1.00 10
3 Pens Packet 20 10 200
4 Transportation - - 2000
5 For writing Page 120 10 1200
6 Binding - - 200
7 Respondent - - 1000
time
8 Time spent by - - 3000
collection
9 Telephone - - 800
expense
10 Time spends - - 2000
for survey
11 Printing cost 600
12 Miscellaneous - - 950
expanse
13 Contingencies 3000
Total 24750

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