ABSTRACT
The knowledge-based view has identified innovative knowledge as what companies require to dominate in an industry. Past studies have dealt with knowledge management too broadly without considering specific aspects of knowledge management which has led to a limited level of understanding on the extent to which the comprehensive nature of knowledge management has influenced firms’ performance. Even though some companies have implemented knowledge management, there is no conclusive empirical evidence on the influence of knowledge management on performance. It has been noted that performance of Commercial Banks suffer because knowledge is hoarded in scattered silos, fragmented by division, department, region and a host of other organizational factors such as culture, processes and management style. It is against this background that this study sought to investigate the relationship between knowledge management and performance of Commercial Banks in Nigeria. The specific objectives of the study sought to determine the relationship between knowledge conversion and performance; to establish the relationship between knowledge transfer and performance; to determine the relationship between knowledge application and performance; to establish the mediating effect of human capital repository on the relationship between knowledge management and performance; and to determine the moderating effect of firm’s culture on the relationship between knowledge management and performance of Commercial Banks in Nigeria. To achieve these objectives, the study adopted explanatory and cross-sectional survey design. The target population of this study comprised of all the forty three Commercial Banks in Nigeria. The unit of observation was the functional area in each bank, whereas the unit of analysis was Commercial Bank. Five functional areas were identified in each bank comprising human resource, finance, marketing, information communication technology, and operations. This study used primary and secondary data. Primary data was collected using a semi-structured questionnaire. The questionnaire was administered using drop-and-pick later method. Secondary data was collected using document review and was used to validate information collected through the questionnaire. The response rate in this study was approximately seventy three percent which was considered sufficient for making inferences and drawing conclusions. Descriptive statistics was used to summarise the survey data and included percentages, frequencies, means, and standard deviations. However, inferential statistics involved regression analysis and was used for testing hypotheses and drawing conclusion. Results from quantitative data analysis were presented using figures and tables. Qualitative data was analysed on the basis of common themes and presented in narrative form. The findings of the study established that knowledge management positively influence performance. Moreover, knowledge conversion, knowledge transfer and knowledge application were found to be statistically significant. Human capital repository was found to partially mediate the relationship between knowledge management and performance. Furthermore, the findings also revealed that firm’s culture moderates the relationship between knowledge management and performance. Management of Commercial Banks can use these findings to enhance utilization of organization’s knowledge base and firm's absorptive capacity. Moreover, management of other knowledge-intensive organizations can use these findings to formulate knowledge management policies and promote knowledge management practices.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
A key ingredient of the theory of the firm is its attempt to explain performance heterogeneity among firms, an issue that has been in the focus of strategic management research over the years (Hughes & Morgan, 2007). The resource-based view (RBV) holds that companies gain sustainable competitive advantages by deploying valuable resources and capabilities that are inelastic in supply (Grunert & Hildebrandt, 2004). RBV focuses on characteristics of firm’s resources that contribute to performance in form of competitive advantage. It assumes resource heterogeneity between competing firms, and further contends that these resources are not mobile, which makes long term, sustainable competitive advantage possible based on internal configuration of strategically relevant resources.
Knowledge has increasingly been recognized as the new strategic imperative of organizations. A fundamental paradigm considers knowledge as power; therefore, one has to hoard it so as to maintain an advantage (Uriarte, 2008). Multimedia Development Corporation of Malaysia (MDCM) considered knowledge as an important resource which has to be effectively and efficiently managed for organizations to leverage and obtain competitive advantage in a dynamic business environment (MDCM, 2005). The new, knowledge-based economy places great importance on creation, use and effective diffusion of knowledge (Metaxiotis, Ergazakis & Psarras, 2005; Ford & Staples, 2006). Each firm must be able to accumulate certain intangible knowledge assets that are relevant to its diverse operations. In addition, Uriate noted that in the new paradigm, knowledge must be shared in order for it to grow within an organization.
Different resources such as technological infrastructure, organizational structure and organizational culture are linked to a firm’s knowledge infrastructure capability (Lee & Sukoco, 2007). In addition, knowledge acquisition, knowledge conversion, knowledge application and knowledge protection are linked to the firm’s knowledge process capability. Lee and Sukoco also argued that the contribution that each resource makes to organizational performance is likely to vary across firms. It is this unique make-up that enables benefits such as competitive advantage and improved performance to be realized.
An organization in the knowledge age is one that learns, remembers, and acts based on the best available information and know-how (Dalkir, 2005). In order to be successful in today’s challenging organizational environment, companies need to learn from their past errors and not re-invent the wheel again and again.The effectiveness of building knowledge within firms depend on the ability to monitor and absorb newly acquired knowledge from many sources and then integrate this knowledge into the existing knowledge base. It has been noted that firms can acquire external knowledge from research on previous products, therefore gaining valuable insights about the product; excel at benchmarking with industry leaders, and rely on strategic alliances to acquire knowledge resources needed for their business (Danskin, Englis, Solomon, Goldsmith & Davey, 2005). Firms can also acquire external knowledge about the market from their customers and distributors.
The creation and diffusion of knowledge have become an increasingly important factor in competitiveness. More and more, knowledge is being regarded as a valuable commodity that is embedded in products and in tacit knowledge of highly mobile employees. Although knowledge is increasingly being viewed as a commodity or an intellectual asset, it possesses some paradoxical characteristics that are radically different from those of other commodities. Dalkir (2005) observed that application of knowledge does not result in its consumption neither does transfer of knowledge result in losing it. Moreover, Dalkir observes that even though knowledge may be abundant in any given organization, the ability to use it is scarce and that much of valuable knowledge walks out of the organization at the end of the day.
Knowledge sharing is critical to a firm’s success as it leads to faster knowledge deployment to portions of the organization that can greatly benefit from it. However, employees need a strong motivator in order to share knowledge (Syed-Ikhsan & Rowland, 2004). It is unrealistic to assume that all employees are willing to easily offer knowledge without considering what may be gained or lost as a result of this action. It has been argued that organization culture allows the members to create, acquire, share, and manage knowledge within a context (Jones, Cline and Ryan, 2006). Moreover, organization culture helps in creating competitive advantage by determining the boundaries, which facilitates individual interaction, and/or by defining the scope of information processing to relevant levels (Krefting & Frost, 1985; Tseng, 2010). Many leaders are aware that performance comes from interdependent behavior like cooperation, knowledge sharing, and mutual assistance. Hence, organizations must foster the underlying culture necessary to support knowledge conversion, transfer and application.
1.1.1 Organization Performance
Understanding the determinants of firm performance has long been a key goal within organizational research (Short, McKelvie, Ketchen & Chandler, 2009) because performance is considered the most important criterion in evaluating organizations, their actions, and environments. In the last decade, the influence of knowledge management (KM) on performance has been an enduring research theme in organizational theory (Feng 2004; Gan, Ryan & Gururajan, 2006; Li & Seidel, 2013) providing empirical evidence that KM significantly affect performance (Choi &Lee 2002; Dröge, Claycomb & Germain, 2003; Sabherwal & Sabherwal, 2005). Extant researchers (Mohrman, Finegold & Mohrman, 2003; Abdul, Yahya, Beravi & Wah, 2008; Yusoff & Daudi, 2010) identified knowledge conversion, knowledge transfer and knowledge application as key dimensions of KM whose integration can improve firm’s performance.
Wilcox King and Zeithaml (2003) observed that KM is intended to increase the quality and performance of the organizational and help a company to compete effectively with other companies in the market. In addition, Bogner and Bansal (2007) distinguished the ability to generate new knowledge as a fundamental mechanism of KM systems that influence the performance of a company. Zaim, Tatoglu and Zaim, (2007) noted that effective operation of KM enables companies to perform more efficiently and survive in the business competitive environment through sustaining their competitive advantages and developing their knowledge assets. RBV and KBV consider knowledge and KM as critical resources which substantially influence organizational success (Beesley & Cooper, 2008).
However, there is a need to extend the empirical literature through the inclusion of mediating and moderating variables in the relationship between KM and performance in knowledge-intensive organizations (Lara, Marques & Devece, 2012). The argument advanced by Chong and Choi (2005) that employees and managers who are well equipped with skills and information are essential success ingredient for any KM implementation presents a strong case for the need for mediating role of human capital repository on the effect of KM on performance. In addition, it has been noted that KM cannot be effectively implemented without significant behavioral and cultural change in an organization (Akhavan, Jafari & Fathian, 2006; Lai & Ho, 2006; Rasula,Vukšić & Štemberger, 2012).
Commercial Banks are considered as typical knowledge-intensive organizations where performance is driven and sustained by information and thus KM is a source of competitiveness (Shih, Chang & Lin, 2010). As noted by Rono (2011), competition and most of the work in the banking sector are knowledge-based; therefore, effective management of knowledge can help Commercial Banks to improve internal processes, customer service and products. In this study, non financial indicators of performance such as new products, product improvement, speed of response to market crises, customer retention and new processes were adopted from Maltz, Shenhar and Reilly (2003), Raymond and St-Pierre (2005), and Kaplan and Norton (2007).
According to Jafari, Jalal, Akhavan and Mehdi (2010), non-financial indicators are suitable for measuring performance because they can be implemented at all levels of organizations and represent a more precise picture than financial indices whose results are superficial. Furthermore, Zhang and Li (2009) observed that financial indicators can only reflect the performance of banks in the past and cannot reflect the bank's current and future operating conditions. Financial measures of performance which are based on traditional accounting practices and emphasizes short-term indicators such as profit, turnover, cash flow and share prices, are not fully suitable for measuring corporate performance (Lee, Lee & Kang, 2005).
1.1.2 Knowledge Management
Knowledge Management (KM) is the new era technological application of knowledge in critical planning, appraisal, decision making, evaluation and redesign of firm’s operative systems (Kipchumba, Chepkuto, Nyaoga & Magutu, 2010). It is obvious that knowledge is slowly becoming the most important factor of production, next to labor, land and capital (Sher & Lee, 2004). Knowledge-based assets or resources such as patents provide heterogeneous capabilities that give each company its unique character and are the essence of competitive advantage (Liu & Wei, 2009). KM represents a deliberate and systematic approach to ensure full utilization of organization’s knowledge base, coupled with the potential of individual skills, competences, thoughts, innovations and ideas to create a more efficient and effective organization (Dalkir, 2005).
Abdul et al., (2008) considered knowledge management processes to include knowledge identification, creation, acquisition, transfer, sharing, and exploitation. Becerra-Fernandez, Gonzales and Sabherwal (2004) noted that KM processes can help create knowledge, which can then contribute to improved firm’s performance. Furthermore, firm’s performance is improved when organisations create, transfer, use and protect knowledge (Mohrman et al., 2003; Marques & Simon, 2006).
Yusoff and Daudi (2010) used KM processes, including knowledge acquisition, knowledge conversion and knowledge application, to manage and increase social capital, and enhance firm’s performance. A firm's absorptive capacity could be enhanced through KM processes that allow acquisition, conversion and application of existing and new knowledge through addition of value to social capital while remaining competitive in the market. Moreover, Yusoff and Daudi were emphatic that organisations need to generate knowledge continually, facilitate sharing of knowledge within the organisation and apply knowledge so that the organisation can generate new products or services.
1.2 Statement of the Problem
Performance of Commercial Banks in Nigeria has improved tremendously over the last ten years (Mwega, 2009). Moreover, only two banks have been put under CBK statutory management in this period compared to 37 bank-failures between 1986 and 1998. However, despite the overall good picture a critical analysis indicates that there has been heterogeneity in performance of different Commercial Banks. It has been noted that small and medium sized banks which constitute about 57 percent of Commercial Banks posted a combined loss before tax, of N 0.09 billion in 2009 compared to a profit before tax of N 49.01 billion posted by the big financial institutions (CBK, 2009). The huge profitability enjoyed by the large banks vis-a-avis small and a medium banks suggests that there are some significant factors that influence the performance of Commercial Banks in Nigeria.
As noted by Rono (2011), KM is indispensable in the banking industry because competition and most of the work in the industry are knowledge-based. The dynamic nature of the global business environment have led commercial banks to rationalize their products and processes as well as examine the role of KM in improvement of performance (CBK, 2012). Commercial Banks have continued to leverage on knowledge assets in the development of quality services that are efficient and on a wider scope in the fight for market share and enhanced performance (CBK, 2021).
The knowledge-based view of the firm has identified innovative knowledge as what organizations require to dominate in an industry (Malik & Malik, 2008). The vast body of knowledge documented indicates that there are several dimensions of knowledge that have potential to drive performance (Choi & Lee 2002; Dröge et al., 2003; Sabherwal & Sabherwal, 2005,). Extant researchers (Mohrman et al., 2003; Abdul et al., 2008; David & Yusoff, 2010) have identified knowledge conversion, knowledge transfer and knowledge application as key dimensions of knowledge management whose integration can improve firm’s performance.
Lara et al., (2012) further suggested that there is a need to extend the empirical literature through inclusion of mediating and moderating variables in assessing the relationship between KM and performance in knowledge-intensive organizations. The argument advanced by Chong and Choi (2005) that employees and managers who are well equipped with skills and information are essential success ingredient for any KM implementation presents a strong case for possibility of mediating role of human capital repository on the effect of KM on performance. As noted by a stream of recent researchers (Akhavan et al., 2006; Lai & Ho, 2006; Rasula et al., 2012), KM cannot be effectively implemented without a significant behavioral and cultural change in the organization. There should be a strong culture of trust and transparency in all areas of the organization.
Bourini, Khawaldeh and Al-qudah (2013) concluded that KM activities are positively correlated to strategy. However, this study was based on exploratory research design which does not support formulation and testing of research hypotheses. Zaied, Hussein and Hassan (2012) concluded that knowledge conversion, storing and human resources affect performance. Nevertheless, this study failed to integrate knowledge transfer in the KM framework and also concluded that knowledge application and culture do not affect performance. Mosoti and Masheka (2010) concluded that knowledge management practices influence efficiency of not-for-profit organizations. However, this conclusion was based on descriptive statistics and thus lacked the statistical rigor for making inferences. Ongore and Kusa (2013) utilized such measures of profitability as return on equity, return on asset and net interest margin as indicators of performance. Although the study concluded that bank’s specific factors significantly affect performance, it ignored non-financial indicators which offer a more precise representation of performance on the basis of current and future operating conditions (Zhang & Li, 2009).
Thus considering these scenarios, KM needs to be modelled in such a way that its effect on performance can be better explained. In the case of Commercial Banks in Nigeria that have registered mixed performance results in an era characterized by rapid knowledge development, contribution of knowledge needs to be investigated. However, extant empirical literature has shown that there are limitations in the attempt to explain how the comprehensive nature of KM has influenced performance (Carlucci, Marr & Schiuma, 2004). In addition, the understanding of the influence of KM on performance is still developing and further research and collation of knowledge is required to develop this understanding, model new relationships and formulate universally enduring guidelines for appropriate KM practices. Therefore, there was a need to investigate the relationship between KM and performance of Commercial Banks in Nigeria while integrating the mediating and moderating role of human capital repository and firm’s culture respectively.
1.3 Objectives of the Study
1.3.1 General Objective of the Study
The general objective of this study was to investigate the relationship between knowledge management and performance of Commercial Banks in Nigeria.
1.3.2 Specific Objectives of the Study
The specific objectives of this study were;
i) To determine the relationship between knowledge conversion and performance of Commercial Banks in Nigeria.
ii) To establish the relationship between knowledge transfer and performance of Commercial Banks in Nigeria.
iii) To determine the relationship between knowledge application and performance of Commercial Banks in Nigeria.
iv) To establish the mediating effect of human capital repository on the relationship between knowledge management and performance of Commercial Banks in Nigeria.
v) To determine the moderating effect of firm’s culture on the relationship between knowledge management and performance of Commercial Banks in Nigeria.
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