Linking Knowledge Management Orientation To Balanced Scorecard Outcomes

Linking knowledge management
orientation to balanced scorecard

outcomes
Hsiu-Fen Lin
Abstract
Purpose – This study aims to develops the decomposed model to examine the influence of knowledge
management orientation (KMO) dimensions (organizational memory, knowledge sharing, knowledge
absorption and knowledge receptivity) on balanced scorecard outcomes (learning and growth, internal
process, customer satisfaction and financial performance).
Design/methodology/approach – Survey data from 244 managers (in charge of KM projects in their
companies) in large Taiwanese firms were collected and used to test the decomposed model using the
Hsiu-Fen Lin is based at structural equation modeling approach.
the Department of Findings – This study finds that knowledge sharing is the strongest predictor of internal process
Shipping and performance, while knowledge absorption is pivotal in improving customer satisfaction. The results also
Transportation show that non-financial performance measures (i.e. learning and growth, internal process and customer
Management, National satisfaction) directly and indirectly affect financial performance through cause-and-effect relationships.
Taiwan Ocean University, Practical implications – In an increasingly dynamic environment, the building of internal knowledge
Keelung, Taiwan. stocks is likely insufficient, but knowledge must be moved between a firm and external entities (e.g.
customers, business partners and education and research institutes) (i.e. building knowledge flows) to
achieve increased customer satisfaction and financial performance.
Originality/value – Theoretically, the findings of this study suggest that the decomposed approach
helps to understand the complex relationships embodied in the KMO–performance link, which cannot
be surmised using a composite model. From the managerial perspective, the findings of this study may
help academics and managers design and sustain KMO implementation throughout the organization to
achieve higher effectiveness, efficiency and profitability.
Keywords Balanced scorecard, Performance indicators, Knowledge sharing,
Knowledge management
Paper type Research paper
1. Introduction
Because organizations are constantly under intense competition, globalization and
innovation and time-to-market pressures, knowledge management (KM) and its application
are considered an imperative for achieving business success (Zack et al., 2009). KM is a
set of procedures and managerial tools developed to capture, acquire, organize and
communicate both tacit and explicit knowledge of employees so that other employees can
utilize them to make their work more effective and productive and maximize organization
knowledge (Xu and Quaddus, 2012). Developing and maintaining KM is vital to firm
long-term survival and success. KM can gradually transform individual knowledge into
group and organizational knowledge, in turn, improving the stock and flow of firm
knowledge. Consequently, firms invest in KM particularly to accumulate business
management experience and develop a sustainable competitive advantage (Chang and
Lee, 2008; Mills and Smith, 2011).
In the information age, the concept of knowledge management orientation (KMO) has attracted
Received 4 April 2015
Revised 14 June 2015
enormous attention from KM academics and practitioners. This is unsurprising, as it is
Accepted 15 June 2015 closely related to the fundamentals of firm knowledge base (Grant, 1996), with KMO
PAGE 1224 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 19 NO. 6 2015, pp. 1224-1249, © Emerald Group Publishing Limited, ISSN 1367-3270 DOI 10.1108/JKM-04-2015-0132
implementation as an organizational-wide philosophy that creates economic, social,
intellectual and cultural value (DeCarolis and Deeds, 1999; Zack et al., 2009). KMO can
be defined as the relative propensity of a firm to build on existing knowledge
(organizational memory), as well as to share knowledge (knowledge sharing),
assimilate external knowledge within the existing framework of internal knowledge
(knowledge absorption) and be receptive to new knowledge (knowledge receptivity)
(Wang et al., 2008). Stankosky (2005) specifically stated that KMO implementation is a
sequence of knowledge-based behaviors that most effectively and efficiently improve
firm problem-solving capabilities, and thus that ensure firms are continuously more
productive than its competitors. While the nature of the relationship between KMO and
firm profitability has received substantial attention in the literature (Wang et al., 2008,
2009; Wang and Lin, 2013), previous research has tended to bundle the dimensions of
KMO. A clear model of the different forms of organizational performance (such as
financial and non-financial performance) that individual KMO dimensions may
significantly impact is lacking.
While understanding KMO implementation is important, business managers must also
understand how to systematically examine its impact on performance improvement. Choy
et al. (2006) argued that KMO implementation is an investment that needs resources, and
where effort is required to measure its results. Measurable success is essential to
continued enthusiasm and support for KMO implementation (Ranjit, 2004). Organizations
traditionally have assessed performance based largely on financial indicator analysis.
However, the financial indicator analysis does not relate to important organizational
strategies and non-financial aspects of performance, such as learning, innovation, internal
business process and customer value (Gonzalez-Padron et al., 2010). Researchers have
generally agreed that the evaluation of organizational performance through KM efforts is
increasingly important, as it promotes organizational learning strategies and so fits with the
requirement to meet financial and non-financial needs (Arora, 2002; Marr, 2004; Lee and
Lee, 2007; Chen and Mohamed, 2008; Chen et al., 2009a). The balanced scorecard
approach involves balancing financial and non-financial measures and specifically looked
at a business from four perspectives: learning and growth, internal process, customer
and financial (Kaplan and Norton, 2004a, 2004b). The balanced scorecard may be a
feasible approach for measuring the contribution of KM to performance improvement. The
linking of individual KMO dimensions to balanced scorecard outcomes, thus, requires
further investigating and understanding.
However, to the best of our knowledge, researchers rarely examine empirically exactly how
individual KMO dimensions impact organizational performance based on the balanced
scorecard approach. The central objective of this study is to propose the decomposed
model to examine the influence of four dimensions of KMO, namely, organizational memory,
knowledge sharing, knowledge absorption and knowledge receptivity, on balanced
scorecard outcomes. The next objective is to explore and analyze the interrelationships
among four balanced scorecard perspectives (learning and growth, internal process,
customer satisfaction and financial performance) in the context of KMO implementation.
Then this study tested the decomposed model and hypothesized relationships using
survey data from 244 Taiwanese organizations. The data analysis was performed by
structural equation modeling (SEM) approach. The results may help academics and
managers design and sustain KMO implementation throughout the organization to achieve
higher effectiveness, efficiency and profitability.
The reminder of this paper is organized as follows. First, the theoretical model is developed
for explaining the relationship between KMO dimensions and the balanced scorecard
outcomes. Then, the research design is outlined and results are reported. The paper
concludes with a discussion of empirical findings, managerial implications and limitations
and future research.
VOL. 19 NO. 6 2015 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 1225

2. Literature review
2.1 Knowledge-based view and organizational sensemaking view
The study of relationships between individual KMO dimensions and balanced scorecard
outcomes has been without substantial theoretical grounding. Yet, several preliminary
theoretical works still provide us with insights into the KM-organizational performance. First,
centered on the knowledge-based view, it is a widely applied paradigm to explain variance
in firm competiveness across competing firms (DeCarolis and Deeds, 1999; Zack et al.,
2009; Zheng et al., 2010). With its roots in the resource-based view of the firm, this
theoretical perspective posits that superior firm performance derives from strategic assets
(such as knowledge, competence and skill) that are valuable, rare, difficult to imitate and
sustainable (Barney, 1991; Grant, 1996). From this perspective, it is recognized that firm
abilities to exploit existing knowledge (knowledge stocks) and explore new knowledge
(knowledge flows) are the main source of firm-sustainable competitive advantage (Foss,
2006; Prieto and Easterby-Smith, 2006). Knowledge stocks are described as the
accumulation of knowledge within a firm, while knowledge flows represent the streams of
knowledge that move within and between firms, and can be assimilated and transformed
into stocks of knowledge (DeCarolis and Deeds, 1999; Dierickx and Cool, 1989).
Knowledge stocks refer to firm ability to utilize and store existing knowledge and
organizational memory (Dierickx and Cool, 1989). The value of knowledge stocks is
determined by the accumulated knowledge and skills of employees that enable a firm to
accelerate internal innovation and respond to market needs (Chang and Lee, 2008;
Johannessen et al., 1999; Tiwana, 2004). Moreover, knowledge flows are crucial for
strategic renewal of new knowledge, as well as firm ability to absorb and transfer useful
knowledge among employees and across firm boundaries (Dierickx and Cool, 1989).
Particularly in dynamic environments, the flow of knowledge both within and across firms is
essential for innovation and continuous adaptation, which, in turn, increases the value of
products or services, and thus market value (Darroch, 2005; Donate and Guadamillas,
2011; Jayasingam et al., 2013; Nonaka and Takeuchi, 1995; Spender, 1996). From the
above studies, it can be inferred that the development of knowledge stocks and knowledge
flows facilitates organizational performance (both within and across organizations).
Second, based on the organizational sensemaking view, scholars suggest that
organizational behaviors, both external-procedural (e.g. how a firm effectively manages
knowledge) and internal-cognitive (e.g. an open-minded organizational culture), determine
firm decision-making processes and ultimately improve organizational performance (Daft
and Weick, 1984; Milliken, 1990; Neill et al., 2007; Thomas et al., 2001). Organizational
sensemaking can be viewed as a set of mechanisms that shape what meaningful
information is assimilated, how it is interpreted and which actions are considered (Thomas
et al., 1993; Weick et al., 2005). As a capability, organizational sensemaking contributes to
a firm’s ability to build and sustain a competitive advantage (Bogner and Barr, 2000) by
enhancing the ability to collect (through knowledge collection and storage), communicate
(by knowledge exchange with colleagues), interpret (through assimilating external
knowledge with internal and existing knowledge frame) and accept (by an open-minded
receptivity to new and possibly different ideas) organizational knowledge (Neill et al., 2007).
Therefore, the organizational sensemaking view can be viewed as a complementary
theoretical basis to create links between inside-out capabilities (such as KMO) and
balanced scorecard outcomes.
2.2 Knowledge management orientation

KMO refers to the propensities and behaviors that help firms facilitate KM efforts involving
organized and systematic knowledge accumulation and utilization (Wang et al., 2009). KM
scholars agree that KMO (required for storing, sharing, absorbing and accepting
knowledge within and from outside the organization) is required for a firm to take advantage
of emerging opportunities before rivals can recognize them (Cohen and Levinthal, 1990;
PAGE 1226 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 19 NO. 6 2015

Davenport et al., 1998; Gray, 2001; Huber, 1991; Hult, 2003; Nonaka and Takeuchi, 1995).
Wang et al. (2008), thus, defined and measured KMO through four broad dimensions:
organizational memory, knowledge sharing, knowledge absorption and knowledge
receptivity.
2.2.1 Organizational memory. Organizational memory is broadly defined as the firm’s ability
to remember and learn from past experience by avoiding the repetition of past mistakes
and adopting proven methods for achieving success (Day, 1994; Johnson and Paper,
1998). According to Walsh and Ungson (1991), organizational memory can be viewed as
a method for acquiring, retaining and retrieving knowledge and making it accessible to
help organizations realize their objectives. Organizational memory exists at both the
individual and organizational levels. At the individual level, employees remember the
events, rules, special skills and learning experiences required to perform their tasks in
the work environment. At the organizational level, organizational memory often becomes
embedded in documents, repositories, organizational routines and procedures and the
values of the organizational culture (Argote, 1999; Davenport and Prusak, 1998; Pollitt,
2009). Regarding the technology-based perspective, several scholars have conceived
organizational memory as building a knowledge repository (such as shared databases,
knowledge bases or even the intranet) to capture individual knowledge and store that
knowledge such that others can easily access it (Handzic, 2005; Wang et al., 2003).
2.2.2 Knowledge sharing. Knowledge sharing refers to collective beliefs or behavioral
routines related to exchanging employee knowledge, experiences and skills throughout a
department or organization (Moorman and Miner, 1998). Previous research has discussed
that knowledge sharing involves both the supply (disseminating or donating) and demand
(collecting or receiving) for organizational knowledge (Ardichvili et al., 2003; Van den Hooff
and Van Weenen, 2004). Knowledge collecting can be defined as the process of consulting
colleagues to encourage them to share their intellectual capital, while knowledge donating
can be defined as the process of individuals communicating their personal intellectual
capital to others. To cultivate a positive attitude to knowledge sharing among employees,
organizations must provide support, resources and a clear mandate that encourage
employees to share their knowledge with others. Because knowledge exists within different
individuals and different levels of an organization, employees must share it to achieve and
maintain strategic competitiveness (Nonaka and Takeuchi, 1995).
2.2.3 Knowledge absorption. Knowledge absorption is similar to the term “absorptive
capacity”, which refers to the organization identifying the value of external knowledge, and
then assimilating and applying that knowledge (Cohen and Levinthal, 1990). Smith (1995)
further specified that knowledge absorption is a set of organizational routines and
processes through which employees assimilate knowledge from outside the firm, such as
from market sources, business partners, education and research institutes and personnel
flow. KM initiatives rely on absorbing external knowledge, including the employment of a
professional workface, engagement in environmental scanning and collection of
satisfaction data from organizational suppliers and customers, that improve continuous
learning within the firm (Knudsen and Roman, 2004). Knowledge absorption can also be
considered the foundation of firm competitive advantage because it can strengthen,
complement or refocus the knowledge base of the firm (Zahra and George, 2002).
2.2.4 Knowledge receptivity. Knowledge receptivity means a positive disposition to new
ideas, and it reflects the ease of the internal adoption of new ideas (Wang et al., 2008). For
organizations to create value, employees must have a positive attitude toward new
knowledge (Davenport et al., 1998). This positive attitude can involve several aspects,
including employees being intellectually curious and willing to explore new ideas and
consider their possible adoption and managers encouraging employees to contribute their
new ideas without fear of repercussions. Therefore, Wang et al. (2008, p. 224) stated that:
“knowledge receptivity as the extent to which a firm encourages ideas and evaluates them
on a fair, effective, and regular basis, and subsequently incorporates them into business

practice”. Research also suggested that knowledge receptivity is closely allied with the
concept of issue orientation, the extent to which new ideas are judged based on their merit,
unrelated to the identity and status of the contributor (Popper and Lipshitz, 1998).
2.3 Balanced scorecard outcomes

To ensure successful KMO implementation, organizations must measure the performance
of its KM efforts (Bose, 2004). Performance evaluation methods in the KM literature can be
divided into three broad groups: financial (tangible) performance (Goll et al., 2007; Vaccaro
et al., 2010), innovation (intangible) performance (Andreeva and Kianto, 2012; Darroch,
2005; Ferraresi et al., 2012; Rhodes et al., 2008a, 2008b) and the balanced scorecard
approach (Arora, 2002; Chen and Mohamed, 2008; Gonzalez-Padron et al., 2010;
Pietrantonio, 2007). As a cross-functional performance measurement framework, the
balanced scorecard reflects how effectively an organization meets not only financial
requirements but also the need to improve learning and innovation, internal process and
customer service (Srivastava et al., 1999). The balanced scorecard is a more useful
measure than financial performance or innovation performance because it provides a
comprehensive view of actual organizational performance (Kaplan and Norton, 2000; Lueg
and Julner, 2014).
The balanced scorecard contains four perspective levels, namely, learning and growth,
internal process, customer satisfaction and financial performance (Kaplan and Norton,
1996, 2004a, 2004b). Learning and growth looks at organization intangible assets,
including employee skills and capabilities necessary to facilitate organizational growth and
improvement. Internal process focuses on operation management and innovation
processes that create and deliver business value. Customer satisfaction emphasizes the
customer relationship and service delivery to customers. Financial performance
emphasizes the tangible outcomes of the strategy using traditional financial terms, such as
economic value added, revenue growth, return on investment and net benefit.
3. The decomposed model and hypotheses development

Based on the prior research, KM-organizational performance has been informed by three
dominant theoretical perspectives. First, from the knowledge-based view, the development
of knowledge stocks (i.e. stocks of organizational memory) and knowledge flows (including
the transfer and absorption of knowledge within and outside the organization) influences
not only internal firm governance but also external market success (Chang and Lee, 2008;
Donate and Guadamillas, 2011; Jayasingam et al., 2013). The second perspective pertains
to the organizational sensemaking view. Firms with a developed sensemaking capability
have the ability to rapidly understand, incorporate and assimilate new information, which
directly and indirectly influences organizational performance (Thomas et al., 1993). Third,
according to Kaplan and Norton (1996, 2004a, 2004b), the balanced scorecard is a
strategic management tool which provides feedback around both the internal business
processes and external outcomes that continuously improve organizational performance.
Because building a KM-oriented organizational environment is an activity that involves the
whole organization, this study considered the balanced scorecard to be a more proper to
measure organizational performance through the development of KMO.
Overall, the above discussion can be formulated as the decomposed model depicted in
Figure 1. The model shows the relationship between KMO dimensions and balanced
scorecard outcomes taking into account both direct and indirect effects.
3.1 Impact of KMO on balanced scorecard outcomes

An organization cannot solely rely on the knowledge embedded in individuals. As Hult
(2003) suggests, organizational memory or knowledge repository must act as a mechanism
for the organization to remember what previously worked and why, so that such knowledge

Figure 1 The decomposed model
KMO dimensions Balanced scorecard outcomes
Organizational H1 Ha
memory Learning and growth
H5c
H5a
H2 Hb
Knowledge sharing Internal process
H5b
H6a
H6b
H3 Hc
Knowledge absorption Customer satisfaction
H7
H4 Hd
Knowledge receptivity Financial performance
can be applied in future decisions. Organizational memory is a strategic asset that, if

successfully managed, can yield the following benefits:
organization-wide communication support;
access to decision-support modeling; and
computerized aids for identifying and capturing individual learning experiences (Chen
et al., 2003; Olivera, 2000).
Teece et al. (1997) also observed that firm experiences influence firm behavior.
Organizations that can effectively retrieve and manipulate past knowledge in and from their
organizational memories are capable of enhanced or accelerated learning (Abel, 2008;
Gagnon and Sheu, 2000), the development of innovative products or services (Moorman
and Miner, 1997, 1998) and improved efficiency and superior customer services (Lai et al.,
2011). In a similar vein, Gong and Greenwood (2012) and Wexler (2002) emphasized that
organizational memory allows employees to retrieve knowledge with less search effort,
apply knowledge after a shorter learning period, rapidly develop coping strategies and
increase firm economic value.
Summarizing the previous arguments, organizational memory is expected to have a
positive effect on the four performance perspectives of the balanced scorecard (learning
and growth, internal process, customer satisfaction and financial performance):
H1. Higher organizational memory levels will help to drive higher learning and growth
(H1a), internal process (H1b), customer satisfaction (H1c) and financial
performance (H1d).
Knowledge, ideas and understanding are intangible, and individuals should interact and
share knowledge and ideas to establish new routines and mental models (Davenport and
Prusak, 1998; Galunic and Rodan, 1998). A firm that promotes employees to contribute
knowledge within groups and organizations is likely to generate new ideas and develop
new business opportunities, thus facilitating innovation activities (Darroch and
McNaughton, 2002). Specifically, a firm proficient in sharing knowledge is more likely to
have unique and rare knowledge that is difficult for rivals to replicate, and hence has the
potential to improve overall firm performance (Lin, 2007). Also, when employees are willing
to cooperate with colleagues to contribute knowledge to the firm, they can generate
collective learning and synergistic benefits through exchanging knowledge and resources,
thereby increasing the potential for process improvement or novel products (Moustaghfir,
2008; Nonaka and Konno, 1998; Syed-lkhsan and Rowland, 2004; Tsai, 2001). Effectively
knowledge transfer enables employees to make fewer mistakes and reduce redundancy

(Grant, 1996; Gold et al., 2001) and improve their work performance (Janz and
Prasarnphanich, 2003). Previous studies also argued that knowledge-sharing networks are
increasingly recognized as means of facilitating the development of new processes,
products or services, thus creating economic value (Bierly et al., 2009; Kamasak and
Bulutlar, 2010; Rhodes et al., 2008a; Zack et al., 2009).
In sum, it is suggested that firms that are able to effectively share knowledge among
employees are likely to achieve business performance across four balanced perspectives:
H2. Higher knowledge-sharing levels will help to drive higher learning and growth
performance (H2d).
Firm capacity to absorb external knowledge determines knowledge renovation and
reconfiguration, and thus, enhances business values (Lane et al., 2006; Lichtenthaler,
2009). The basic concept of knowledge absorption was originally stated by Cohen and
Levinthal (1990), who defined knowledge absorption as firm ability to identify, assimilate
and exploit knowledge from its external environment. They also suggested that knowledge
absorption is largely a function of the prior related knowledge of an organization and
argued that it is critical to organizational learning activities. As modern literature on
organizational learning emphasizes the importance of the ability to absorb external
knowledge sources in organizational learning activities (Cohen and Levinthal, 1990;
Daghfous, 2004; Garcia-Morales et al., 2007; Levinthal and March, 1993), it is suggested
that firms can better learn external knowledge when they better understand its value.
Knowledge absorption, thus, is clearly related to organizational learning. Additionally, the
incentives for absorbing external knowledge allow firms to expand their knowledge and skill
base, improve their ability to assimilate, utilize future information and eventually achieve
innovation performance and competitive advantage (Chen et al., 2009b; Cockburn and
Henderson, 1998; Fichman, 2004; Jantunen, 2005; Vinding, 2006). Likewise, in an
uncertain environment, firms can apply their newly absorbed external knowledge in various
ways, for instance, to replenish their knowledge base (Schilling, 1998), reconfigure existing
capabilities (Pavlou and El Sway, 2006), increase customer relationship management
performance (Chen and Ching, 2004) and create innovative products and services
(Roberts et al., 2012).
To summarize, the development of knowledge absorption can determine organizational
adaptability (Daghfous, 2004), and thus, knowledge absorption is expected to positively
impact the balanced scorecard outcomes:
H3. Higher knowledge absorption levels will help to drive higher learning and growth
performance (H3d).
Knowledge receptivity describes the concept, whereby new ideas must be received
positively and subsequently evaluated effectively and regularly (Wang et al., 2008). With
the openness of employees to new ideas considered a necessary initial condition for
facilitating the extent of internal uptake (Hinduan et al., 2009), it can be concluded that, to
maximize work performance, employees must actively seek new and different experiences.
As such, organizational learning is the insights gained through open minds and create
receptivity to new ideas (Tobin, 1993). On the other hand, knowledge receptivity is similar
to the term issue orientation (evaluation of a new idea strictly on its merits, regardless of the
identify and status of the contributor) which helps to open communication channels (McGill
et al., 1993) and reinforces the mechanism for evaluating the quality and usefulness of the
processed information (Hult, 2003). Prior research suggested that KM-oriented
organizations with values oriented toward openness and support are prepared to develop
behaviors through which employees accept more new ideas and creative thoughts, which,
in turn, implies they can be more innovative, and respond more easily and rapidly to

changes and new market opportunities (Donate and Guadamillas, 2010; Earl, 2001;
Garavelli et al., 2004; Gold et al., 2001; Song, 2008).
In sum, employees with strong receptiveness to new ideas are expected to be more likely
to realize business performance in learning and growth, internal process, customer
satisfaction and financial performance:
H4. Higher knowledge receptivity levels will help to drive higher learning and growth
performance (H4d).
3.2 Interrelationships of the balanced scorecard outcomes

Kaplan and Norton (2004b) developed the balanced scorecard approach to highlight the
links between leading indicators as performance-driven factors (non-financial
performance) and lagging indicators as results’ measurements (financial performance).
Huang et al. (2007) also suggested that the cause-effect relationship of the balanced
scorecard perspectives should be clearly linked to firm financial targets. However, no
previous empirical studies have investigated the interrelationships among the four
balanced scorecard perspectives in the context of KMO implementation.
Learning and growth describe employee capacity to manage a business and adapt to
change. Firms have different degrees of effectiveness in structuring human resources that
align with their abilities to mobilize and sustain procedural changes required to meet
external environmental challenges (Chareonsuk and Chansa-Ngavej, 2010; Kaplan and
Norton, 2004b). As Lee and Choi (2003) articulated, employees with T-shaped skills
(combining broad skills and knowledge as the horizontal top part of the T with specialist
skills in a specific functional area as the vertical bottom part of the T) may influence both
the financial and non-financial performance of a firm through the intermediate outcome of
business processes. Previous studies have suggested that KM initiatives are strongly
related with organizational learning and growth, which, in turn, facilitate a formal learning
organization (Yeung et al., 1999; Wu and Kuo, 2012). Given the unpredictability of dynamic
environment, the impact of learning and growth capabilities was clearly indicated in core
business processes (Chareonsuk and Chansa-Ngavej, 2010; Huang et al., 2007), both in
results related to customer satisfaction (Gonzalez-Padron et al., 2010; Lee et al., 2011) and
in financial results (Arh et al., 2012; Lee et al., 2012). Thus, employee competence and
engagement is the most valuable firm asset, and it further indicates the potential links to
internal process performance, customer satisfaction and financial performance.
Summarizing the previous arguments, KMO-enabled learning and growth are expected
have a positive effect on internal process, customer satisfaction and financial performance:
H5. Higher KMO-enabled learning and growth will drive higher internal process (H5a),
customer satisfaction (H5b) and financial performance (H5c).
The internal process involves a focus on critical business activities including internal
process improvement and innovation performance. Improving internal process as a means
of organizing and operating in an organization will increase firm flexibility by improvement
of customer satisfaction and elimination of redundant and duplicated activities (Galbraith,
2002; Skrinjar et al., 2008). A sustainable organizational advantage may be built through
streamlined internal processes that derive from developing relationships with key
customers (Hillman and Keim, 2001) and facilitating firm profitability (Davenport, 1999;
Huang et al., 2007; Quinn et al., 1996; Wu and Kuo, 2012). Furthermore, organizational
knowledge becomes visible through its application in various innovation processes and,
once visible, can improve corporate performance (Gloet and Terziovski, 2004; Leonard and
Sensiper, 1998; Lopez-Nicolas and Merono-Cerdan, 2011). Lee and Lee (2007) also
examined KM effectiveness and revealed that KM capabilities influence customer
satisfaction and financial performance through intermediate business processes.

In sum, it is expected that the potential links may be argued between internal process and
customer and financial performance:
H6. Higher KMO-enabled internal process will drive higher customer satisfaction (H6a)
and financial performance (H6b).
Customers are invaluable and crucial success assets in organizations because acquiring
new customers is nearly five times more costly than retaining existing ones. Effective
knowledge gathered from customers can be used to customize products or services based
on individual customer needs and preferences and also to offer new products or services
in response to changing and new needs (Bose and Sugumaran, 2003; Lee and Yang,
2000). Firms able to integrate customer knowledge into customer relationship management
and maintain more satisfied and loyal customers allow companies to improve business
performance, for example, through increased revenue, market share and profitability.
Some studies have identified a significant relationship between customer satisfaction and
financial performance, including Banker et al. (2000), Chareonsuk and Chansa-Ngavej
(2010) and Ittner and Larcker (1998). In a similar vein, as discussed in previous research,
when a company improves customer relationships through KMO implementation it reaps
direct financial outcomes (Gonzalez-Padron et al., 2010).
In sum, it is suggested that better KMO-enabled customer satisfaction leads to better
financial performance:
H7. Higher KMO-enabled customer satisfaction will drive higher corporate financial
performance.
4. Research methodology
4.1 Sample and data collection
This study mainly explores the impact of KMO dimensions on balanced scorecard
outcomes. The firms that qualified for this study must emphasize investments in KM
infrastructures and have considerable experience in KM projects. Thus, this study assumes
that larger firms are more likely to have these experiences. A sample frame was assembled
from the list of the top 1,600 Taiwanese firms published by Common Wealth Magazine,
which contains 1,000 manufacturing, 500 retail/wholesale distributions and 100 financial
service firms. To ensure that managers (currently and directly in charge of KM projects)
received the questionnaire and maximize the response rate, six research assistants spent
one month telephoning these 1,600 firms; they asked the target firms whether they have
adopted KM and asked for the name of the managers (currently and directly in charge of
KM projects) in their companies. Firms that were not adopters of KM or lacked permission
to participate in the survey were removed from the list. As the result, about 1,028 firms
across different industries formed the sampling frame for this study. The final
questionnaires were mailed to the 1,028 managers who are responsible for KM projects in
their companies.
To encourage response, follow-up letters were sent approximately three weeks after the
initial mailing. Finally, this study received 253 questionnaires, 9 of which were incomplete
and thus discarded. A total of 244 completed questionnaires provided the study with an
effective response rate of approximately 23.7 per cent. The respondents came from six
different industries, including computer and electronics (91), machinery (40), banking/
insurance (22), transportation (13), retail/wholesale (71) and health/foods (7). The number
in the parenthesis is the sample size in a particular industry. The average number of years
that respondents had worked in their organizations was 14.1. The respondents themselves
had senior representation, with 91 per cent assuming the position of chief information or
knowledge officer, chief executive officer or human resource manager. These indicate that
they were knowledgeable about their organizations and their reported data could
reasonably represent the actual situation of their organizations.

Following Armstrong and Overton (1977), this study tested for the potential non-response
bias. A comparative analysis of two descriptive variables (total assets and employee
numbers) was conducted to see if responding firms have significantly different
characteristics from non-respondents. The t-test results provide evidence that there was
no-response bias problem in the sample (p-values are 0.138 and 0.121), suggesting that
non-response bias was not a concern in this study.
4.2 Measures
To test the research model, a draft questionnaire was developed by identifying appropriate
measurements from a comprehensive literature review. The existing scale was modified to
make the measurements more suitable for the context of KMO implementation. With
establishing the content validity, the questionnaire was refined through rigorous
pre-testing. The pre-testing focused on instrument clarity, question wording and validity.
During the pre-testing, four KM field experts were invited to comment on the questions and
wordings. The comments of these four individuals then provided a basis for revisions to the
construct measures. All measures were assessed with five-point Likert scales, ranging from
“strongly disagree” to “strongly agree”. The Appendix shows the items in the questionnaire.
The KMO scale is measured by four dimensions discussed previously: organizational
memory, knowledge sharing, knowledge absorption and knowledge receptivity.
Organizational memory refers to the building of a knowledge repository (such as shared
databases, knowledge bases or even the Intranet) that facilitates knowledge searching,
storage, and retrieval and promotes employees to communicate with colleagues. Accordingly,
this construct uses the four items measures of organizational memory modified from Cross and
Baird (2000) and Templeton et al. (2002). Knowledge sharing is the process through which
employees share knowledge between individuals, across teams, throughout the organization
and across the organization. This study used four items modified from Gold et al. (2001) to
measure firm knowledge sharing. Knowledge absorption refers to the firm ability to recognize
the value of external knowledge, assimilate it and apply it to commercial ends (Cohen and
Levinthal, 1990). Knowledge absorption was measured using four items that assessed the
extent to which knowledge is absorbed through market sources, business partners, education
and research institutes and personnel flow (Smith, 1995). Knowledge receptivity is defined as
the extent to which employees maintain a positive attitude toward new ideas and evaluate them
fairly, effectively and regularly (Wang et al., 2008). A five-item measure taken from the work of
Nemeth (1997) and Popper and Lipshitz (1998) was modified to assess knowledge receptivity.
Consistent with the conceptualization in the balanced scorecard approach, this study
examined the balanced scorecard outcomes along four dimensions: learning and growth,
internal process, customer satisfaction and financial performance (Kaplan and Norton,
2004a). Based on Arora (2002) and Kaplan and Norton (2004a), learning and growth was
measured using four items focused on improvements in employee skills, employee
satisfaction, awareness of shared visions, objectives and values and new product or
service development since KMO implementation. Internal process was assessed using four
items derived from Arora (2002) and Gold et al. (2001). These items assessed the extent to
which KMO have been successfully implemented to streamline corporate internal
processes, improve product or service quality, innovate new products or services and
rapidly commercialize new innovations. Five items used to capture the customer
satisfaction were adapted from Moore et al. (2001) and Niven (2002). These items asked
respondents to rate the degree to which KMO implementation resulted in improvements in
market share, customer satisfaction, complainant response time, creation of new
customers and customer retention. To measure financial performance, respondents were
asked the extent to which they agree with the following statements: the implemented KMO
had contributed to improve net benefit, economic value added, sales growth and return on
investment (Anantatmula, 2007; Fugate et al., 2009).

5. Results
This study used the SEM to test the research model, supported by LISREL software (version
8.8) (Joreskog and Sorbom, 1996). The LISREL software was chosen primarily because of
its emphasis on the overall variance– covariance matrix and the overall model fit (Fornell
and Bookstein, 1982). As the first step of the Anderson and Gerbing (1988) procedure, the
measurement model used confirmatory factor analysis to test reliability and validity of
the constructs. Then, the structural model examined the associations hypothesized in the
decomposed model.
5.1 Measurement model

As shown in Table I, the measurement model provides a reasonably good fit for the data
(␹2 ⫽ 577.94; degrees of freedom [df] ⫽ 315; ␹2/df ⫽ 1.84; goodness-of-fit index [GFI] ⫽
0.83; non-normalized fit index [NNFI] ⫽ 0.95; comparative fit index [CFI] ⫽ 0.96; root mean
square error of approximation [RMSEA] ⫽ 0.071). Therefore, this study could proceed to
evaluate the psychometric properties of the instrument in terms of construct reliability and
convergent and discriminant validity. The internal reliability of the measurement model was
tested using Cronbach’s alpha. As shown in Table II, all Cronbach alpha values were
higher than the minimum cutoff score of 0.70 (Nunnally and Bernstein, 1994). The
convergent validity of constructs was assessed with three criteria recommended by
Anderson and Gerbing (1988). First, all standardized factor loadings were significant at
p ⬍ 0.01 (Gefen et al., 2000). Second, composite reliabilities should exceed the
recommended cut-off level of 0.70 (Hair et al., 1998). Third, average variance extracted
(AVE) by each construct should exceed 0.50 (Fornell and Larcker, 1981). As shown in
Table II, all standardized factors loadings were significant (p ⬍ 0.01); the composite
reliabilities of constructs were higher than 0.70 (0.79-0.91); and AVE for all constructs were
above the 0.50 threshold (0.58-0.75). Table II also shows that the AVE of the individual
constructs was greater than any squared correlation among constructs, confirming
Table I Fit indices for the measurement model and structural model
Measurement Structural Recommended value for satisfactory
Type Index model model fit for a model to data
␹2 test ␹2 577.94 916.74

df 315 483
␹2/df 1.84 1.90 ⱕ3.00 (Bagozzi and Yi, 1988)
Absolute fit index GFI (goodness-of-fit index) 0.83 0.85 ⱖ0.80 (Seyal et al., 2002)
Comparative fit index NNFI (non-normed fit index) 0.95 0.94 ⱖ0.90 (Bentler, 1988)
CFI (comparative fit index) 0.96 0.94 ⱖ0.90 (Bentler, 1988)
RMSEA (root mean square effort 0.071 0.074 ⱕ0.08 (Hair et al., 1998)
of approximation)
Table II Results of the measurement model

Range of Convergent
Cronbach’s standardized validity Composite Construct
Construct ␣ path loadings (p-value) reliability 1 2 3 4 5 6 7 8
Organizational memory 0.87 0.77-0.89 All ⬍0.01 0.88 0.67a

Knowledge sharing 0.80 0.72-0.85 All ⬍0.01 0.82 0.46 0.64a
Knowledge absorption 0.74 0.76-0.81 All ⬍0.01 0.79 0.50 0.45 0.58a
Knowledge receptivity 0.88 0.82-0.90 All ⬍0.01 0.88 0.42 0.28 0.20 0.71a
Learning and growth 0.81 0.73–0.83 All ⬍0.01 0.82 0.44 0.40 0.37 0.41 0.61a
Internal process 0.90 0.84–0.92 All ⬍0.01 0.91 0.47 0.51 0.65 0.40 0.56 0.75a
Customer satisfaction 0.88 0.82–0.90 All ⬍0.01 0.89 0.26 0.30 0.43 0.38 0.29 0.47 0.69a
Financial performance 0.80 0.74-0.86 All ⬍0.01 0.84 0.19 0.39 0.50 0.32 0.12 0.54 0.48 0.65a
Notes: aDiagonals represent the AVE; other entries represent the squared correlation among constructs

discriminant validity (Fornell and Larcker, 1981). In summary, the measurement model
demonstrated adequate reliability, convergent validity and discriminant validity.
5.2 Common method bias

Because the data were self-reported, common method variance (CMV) is a possible
concern (Podsakoff and Organ, 1986). Following Podsakoff et al. (2003), this study applied
a single-informant approach to collect survey data, which make it necessary to examine for
the possibility of common method bias. Harman’s single-factor test was used to examine
whether a single factor emerges from principal component analysis or if one factor
overwhelmingly accounts for the majority of covariance among the variables in an
unrotated factor analysis (Podsakoff et al., 2003). All construct items were subjected to
principal components factor analysis. The results indicated that multiple factors emerged
to explain the data variance. Therefore, CMV does not appear to be a serious concern for
this study. This is consistent with previous research (Carlo et al., 2012) showing that CMV
does not significantly affect KM studies based on single-source survey data.
5.3 Hypotheses testing

A similar set of fit indices was used to examine the structural model (Table I). The ratio of
␹2 to degrees-of-freedom was 1.90 (␹2 ⫽ 916.74; degrees of freedom [df] ⫽ 483) for the
structural model, again within the recommended level of 3. Comparison of other fit indices
with their corresponding recommended values provided evidence of a good model fit
(GFI ⫽ 0.85, NNFI ⫽ 0.94, CFI ⫽ 0.94, RMSEA ⫽ 0.074). Therefore, this study could
proceed to examine the path coefficients of the structural model.
The research model was further evaluated by estimating the structural relationships among
the research constructs. According the results shown in Table III, 19 direct path coefficients
were statistically significant. Thus, H1a-H1b, H2a-H2d, H3a-H3d, H4a-H4d, H5a-H5b,
H6a-H6b and H7 were supported. Three of the 22 hypothesized paths, from organizational
memory to customer satisfaction (H1c) and financial performance (H1d) and from learning
and growth to financial performance (H5c), were not supported by statistically significant
path coefficients. The R2 values represent the explanatory power of the research model.
Table III Summary of statistically significant effects and hypotheses tests

Hypothesis Independent variable Dependent variable Direct effect Indirect effect Total effect Supported?
H1a Organizational memory Learning and growth 0.18* – 0.18* Yes

H1b Internal process 0.16* 0.07 0.23* Yes
H1c Customer satisfaction 0.10 0.10 0.20* No
H1d Financial performance 0.08 0.09 0.17* No
H2a Knowledge sharing Learning and growth 0.26** – 0.26** Yes
H2b Internal process 0.43** 0.09 0.52** Yes
H2c Customer satisfaction 0.19* 0.21* 0.40** Yes
H2d Financial performance 0.21* 0.25** 0.46** Yes
H3a Knowledge absorption Learning and growth 0.17* – 0.17* Yes
H3c Customer satisfaction 0.35** 0.13* 0.48** Yes
H3d Financial performance 0.22* 0.20* 0.42** Yes
H4a Knowledge receptivity Learning and growth 0.29** – 0.29** Yes
H4c Customer satisfaction 0.30** 0.16* 0.46** Yes
H4d Financial performance 0.20** 0.21* 0.41** Yes
H5a Learning and growth Internal process 0.36** – 0.36** Yes
H5b Customer satisfaction 0.18* 0.11* 0.29** Yes
H5c Financial performance 0.06 0.15* 0.21* No
H6a Internal process Customer satisfaction 0.31** – 0.31** Yes
H6b Financial performance 0.21* 0.08 0.29** Yes
H7 Customer satisfaction Financial performance 0.25** – 0.25** Yes
Notes: *p ⬍ 0.05; **p ⬍ 0.01

The research model accounted for 52.8, 47.3, 36.6 and 41.9 per cent of the variance in
learning and growth, internal process, customer satisfaction and financial performance.
Not all of the hypothesized relationships were significant, but several important direct and
indirect relationships were discovered. The decomposition of direct, indirect and total
effects can also be found in Table III. Based on Table III, organizational memory,
knowledge sharing, knowledge absorption and knowledge receptivity affect the four
balanced scorecard perspectives, either directly or indirectly. Results of statistical analysis
also confirm the cause– effect relationships between the perspectives of the balanced
scorecard.
6. Discussion
This study proposes and tests the decomposed model that examines the influence of KMO
dimensions on organizational performance based on the balanced scorecard approach.
The empirical analysis demonstrates several major findings. Interpretations based on these
findings are discussed below. First, the results provide clear support for H1a and H1b,
proposing the influence of knowledge stocks (i.e. stocks of organizational memory) on
learning and growth (H1a, direct coefficient at 0.18) and internal process (H1b, direct
coefficient at 0.16). The result is consistent with the finding that the previous or cumulative
success of a firm can provide a basis for future success (Henderson and Cockburn, 1994).
Another study by Wexler (2002) suggested that the codification, storage and reuse of past
knowledge are necessary to stimulate employee thinking, problem-solving and skill level
and to maintain a high-performance work environment. However, organizational memory
did not show a statistically significant direct effect on both customer satisfaction (H1c) and
financial performance (H1d), but the indirect effects are significant due to its mediation by
improvement in learning and growth (indirect coefficient at 0.10) and internal process
(indirect coefficient at 0.09). One possible explanation is if market turbulence reduces the
value of organizational memory for customer and financial performance, in which case,
organizations may need to turn to additional information mechanisms to supplement the
value of memory. It can also be inferred that retrieving and manipulating past firm
experience is important to facilitate continuous learning and innovation in business
processes, and its consequent translation into improved customer satisfaction and
financial performance. That is, repository-based organizational memory facilitates external
market success when harnessed by instilling a learning culture and building innovative
business processes.
In addition, concerning the relationship between the remaining three KMO dimensions
(including knowledge sharing, knowledge absorption and knowledge receptivity) and
balanced scorecard outcomes, all hypotheses are supported. In line with expectations, a
positive relationship exists between knowledge sharing and all the four balanced
scorecard perspectives (H2a-H2d). This result confirms the earlier observations of Wang
and Wang (2012) that a knowledge-sharing culture contributes to firm operational and
financial performance either directly or through improved innovativeness. Knowledge
sharing also impacts internal processes more strongly than the other three performance
perspectives (direct coefficient at 0.43 vs 0.26, 0.19 and 0.21). The reasons behind this
result may be described as below. Knowledge must flow freely throughout the firm.
Organizational knowledge is created and converted into products, services and processes
by transforming general knowledge into new and valuable knowledge (Choy et al., 2006).
According to Darroch (2005), knowledge sharing is an important source of innovation, such
as increased creativity and innovation in products and services, due to the existence of
personalization KM strategy, thus improving operational efficiency. Therefore, to develop
both product and operational innovation, firms should encourage employees to share tacit
(skills or experience) and explicit (institutionalized approaches and practices) knowledge
with each other.

Additionally, the results of this study add to the previous literature on the role of knowledge
absorption in enabling firm performance (Chen et al., 2009b; Fichman, 2004; Jantunen,
2005; Vinding, 2006). Previous studies did not examine the relationship between
knowledge absorptive capacity and balanced scorecard outcomes. The results of this
study showed that knowledge absorption directly and indirectly enhances organizational
performance across the four balanced scorecard perspectives (H3a-H3d). Knowledge
absorption through bringing in new knowledge from outside sources significantly affects
both the internal and external aspects of performance improvement, including learning and
growth, internal process and the customer and financial perspectives. A deeper analysis of
the results highlights that knowledge absorption has a distinct impact on different balanced
scorecard outcomes. Specially, knowledge absorption clearly strongly affects customer
satisfaction (direct coefficient at 0.35), followed by internal process (direct coefficient at
0.25), financial performance (direct coefficient at 0.22) and learning and growth (direct
coefficient at 0.17). This may be explained by the fact that knowledge absorption can
benefit an organization by integrating external knowledge and then applying these
knowledge resources to build marketing intelligence that meets customer needs and
expectations. Similarly, Chen and Ching (2004) also found that knowledge absorption
positively influences customer service and market-oriented product development. Firm
ability to absorb external knowledge, thus, can be considered as a critical determinant of
market orientation (such as proficiency of predevelopment activities, proficiency of
marketing activities and protocol) and is the basis of firm creation of sustainable
competitive advantages.
The results also show that knowledge receptivity has been reported to exhibit a similar
impact pattern from the four balanced scorecard perspectives, learning and growth (direct
coefficient at 0.29), internal process (direct coefficient at 0.25), customer satisfaction
(direct coefficient at 0.30) and financial performance (direct coefficient at 0.20) (i.e.
H4a-H4d were supported). This finding reinforces the concept of issue orientation, which
proposes that employees tending to receive new ideas or different opinions can foster
effective communication channels and, subsequently, enhance organizational
performance (Hult, 2003; McGill et al., 1993; Popper and Lipshitz, 1998). This view is
consistent with previous studies, which posited that employee openness and transparency
may lead to greater efficiency and effectiveness at both organizational and individual levels
(Donate and Guadamillas, 2010; Garavelli et al., 2004; Song, 2008). The research results
have emphasized the amplifying role of knowledge receptivity in influencing financial and
non-financial performance. This study confirms that establishing a regulatory system that
strongly facilitates employee openness to new ideas and knowledge is crucial to improve
employee learning outcomes, internal process, customer satisfaction and, ultimately,
financial performance.
Concerning the interrelationships among the four balanced scorecard perspectives, the
results demonstrated that most of the hypotheses were supported, except H5c (on the
relationship between learning and growth and financial performance). Because KMO
implementation can be viewed as an input to the process of knowledge production and
creation, firms effectively exercise learning and growth, to make innovation and process
performance more efficient (H5a, direct coefficient at 0.36). The redesign of operational
and innovation process, ultimately, serves customers and increases customer satisfaction
(H6a, direct coefficient at 0.31). Profit and revenue (corporate financial performance) are
the final outcomes of this causal chain (H7, direct coefficient at 0.25). This result supports
the findings by Wang and Chang (2005) and the significant correlations identified by
Chareonsuk and Chansa-Ngavej (2010). The results also found that learning and growth
directly influenced customer satisfaction (H5b, direct coefficient at 0.18), while internal
process and financial performance are also directly linked (H6b, direct coefficient at 0.21).
Even though the direct effect of learning and growth on financial performance (H5c) did not
appear significant in this study, the indirect effects are significant and suggest that
mediating factors play an important role. That is, KMO-enabled continuous learning and

growth in an organization can affect financial performance through internal process and
customer performance (indirect coefficient at 0.15). It is possible to infer that an
organization must develop effective learning activities to encourage innovative thinking
among employees and gain greater customer satisfaction, and its consequent translation
into improved financial performance. Consequently, the empirical results show that
non-financial performance measures (i.e. learning and growth, internal process and
customer satisfaction) directly and indirectly affect financial performance through
cause-and-effect relationships.
7. Conclusions
7.1 Theoretical contributions
To the best of our knowledge, this study is the first study to theoretically specify or
empirically test the relationships between KMO dimensions and the balanced scorecard
outcomes by integrating three theoretical perspectives – knowledge-based view,
organizational sensemaking view and balanced scorecard approach. More recently, some
studies empirically discussed the effects of KMO on organizational performance (Wang
et al., 2008, 2009; Wang and Lin, 2013). However, few researches link individual KMO
dimensions and the balanced scorecard outcomes from a holistic perspective. For these
reasons, this study developed and validated the decomposed model to examine the
influence of four dimensions of KMO (organizational memory, knowledge sharing,
knowledge absorption and knowledge receptivity) on balanced scorecard outcomes
(learning and growth, internal process, customer satisfaction and financial performance).
This study is significant because it proposes theoretical foundation to investigate the
consequences of individual KMO dimensions from balanced scorecard perspectives, and
thus, contributes to the KM literature.
Compared with the existing literature, this study has conceptualized the linkages between
KMO and organizational performance, and has further given more specific detail by
dividing KMO into four dimensions, and by assessing organizational performance using
four balanced scorecard perspectives. Consistent with the organizational sensemaking
view, the findings have emphasized the critical role of organizational inside– out capabilities
(such as KMO) in maximizing overall organizational performance. The results strongly
support that knowledge sharing, knowledge absorption and knowledge receptivity
differently influence the four balanced scorecard perspectives. Particularly, knowledge
sharing has greater impact on internal process, while knowledge absorption more strongly
impacts customer satisfaction. Few studies have decomposed the effects of individual
KMO dimensions in relation to the balanced scorecard outcomes. The findings further
suggest that the decomposed approach helps to understand the complex relationships
embodied in the KMO–performance link, which cannot be surmised using a composite
model. Therefore, the decomposed model can provide an alternative theoretical model for
research aimed at acquiring an in-depth understanding of KM effectiveness, as opposed
to achieving parsimony or focusing on main effects.
Finally, the empirical evidence also demonstrates the cause-and-effect relationships
among different balanced scorecard outcomes. Although organizational performance is
ultimately the financial goal within the context of KMO implementation, this study
emphasizes the importance of intermediate output measures, such as non-financial
performance (learning and growth, internal process and customer satisfaction). This opens
an opportunity for further research on performance improvement from firm KMO
implementation, based on the assumed linkage between non-financial and financial
performance measures.
7.2 Implications for practice

The findings have a number of implications for managers. First, this study indicates that
knowledge stocks (i.e. stocks of organizational memory) do not directly influence external

marketing success (i.e. customer satisfaction, market orientation and financial
performance). Firms should first build knowledge repositories (such as shared databases,
knowledge bases or even the intranet) to improve internal organizational performance (i.e.
improvement in internal process and learning and growth) and then achieve customer and
financial performance. One important implication is that leveraging knowledge stocks (i.e.
stocks of organizational memory) is probably the safest route to continuous process
improvement and incremental organizational product or service innovation. Managers
should understand that the accumulative stock of existing knowledge can realize
innovation benefits, but it is not enough to fully achieve customer and financial
performance. That is, in an increasingly dynamic environment, the building of internal
knowledge stocks is likely insufficient, but knowledge must be moved between a firm and
external entities (e.g. customers, business partners and education and research institutes)
(i.e. building knowledge flows) to achieve increased customer satisfaction and financial
performance.
More importantly, the strong relationships between knowledge flows (including the transfer
and absorption of knowledge within and outside the organization) and all the four balanced
scorecard outcomes have important implications for managers. To improve the overall
organizational performance (including learning and growth, internal process, customer
satisfaction and financial performance), firms must foster increased knowledge flows both
within and between firms. The findings reveal that knowledge sharing appears to be the
most important driver of internal process performance, while knowledge absorption
appears to be the strongest predictor of customer satisfaction. Managers should
encourage employees to share their experiences and think together to cultivate a
knowledge-sharing work environment when the organizational goal is to pursue innovative
improvements in its processes, products and services. Managers should also encourage
employees to absorb external knowledge, which will enable a market-oriented firm to
become proactive both in how it serves its customers and how it develops marketing
strategies.
Additionally, knowledge receptivity is important in ensuring that KM contributes to
performance improvement and to firm ability to provide the “soft” KM mechanisms, such as
trust, respect, consideration and open communication; it is an essential aspect that firms
must encourage. Ultimately, employee trust and openness at work first improve learning
and innovation performance, and then enhance firm profitability. Organizations focused on
achieving KMO implementation success as enabled through their employees, besides a
solid innovation process that fosters long-term production and profitable growth, should
focus on recruiting and developing key employees that have a willingness to receive new
ideas or different opinions and a strong thirst for organizational knowledge. Managers
should also encourage discussion and openness to new and different ideas, which is
conducive to interpersonal communication and the integration of organizational knowledge
into effective firm growth and performance. For example, managers in knowledge-intensive
organizations should consider employee positive and open attitudes in the workplace as
the key ingredient to organizational success, which enables the balanced scorecard
outcomes from KM activities.
Finally, managers should be aware of the interrelationships among the four balanced
scorecard perspectives through the development of KMO. The results show that, with the
exception of learning and growth, internal process and customer satisfaction have direct
effects on firm financial performance. Although learning and growth do not directly impact
financial performance, they do directly affect other non-financial performance measures,
which, in turn, affect financial performance. Therefore, KM-enabled learning and growth
environment can be viewed as the primary leading factor into which management should
put the most effort. Managers must also consider the time-lag effect between KMO and the
balanced scorecard outcomes. Maximizing financial performance requires an extended
period of time for successful implementation of KMO. Considering how performance

evaluation is steadily used as an important managerial tool affecting the development of
various KM strategies, the time-lag effect needs to be properly integrated to effectively link
KMO with corresponding observed performance effects.
7.3 Limitations and future research

Despite some intriguing findings, the results of this study should be interpreted with caution
due to the following limitations. First, because the data set is cross-sectional and not
longitudinal, the posited casual relationships could only be inferred rather than proven.
Future research should collect longitudinal data to determine the causal links more
explicitly. Second, this study adopted the balanced scorecard approach (Kaplan and
Norton, 2004a) and viewed organizational performance from four perspectives: learning
and growth, internal process, customer satisfaction and financial performance. Sabherwal
and Becerra-Fernandez (2003) argued that KM effectiveness should be assessed on three
levels, namely, the individual, group and organizational levels. Future studies can test how
different KMO dimensions affect perceived individual-, group- and organizational-level KM
effectiveness, and thus gain a deeper understanding of the consequences of a
well-organized KMO implementation. Third, a limitation of the research model is that we do
not provide cross-industry comparisons. Choi and Lee (2003) found that different types of
industries (such as manufacturing and non-manufacturing industries) differ in their KM
styles implementation. Knowledge of how industry-specific differences affect
organizational performance through KM efforts will heighten the generalizability of KM
research. Finally, the sample was drawn from Taiwanese managers. Hence, the research
model should be tested further using samples from other countries, as the findings may be
influenced by cultural differences between Taiwan and other countries, and further testing,
thus, would provide a more robust test of the hypotheses. However, it may provide a
fundamental reference for firms located in other areas or countries with similar
environments to Taiwan.
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Appendix. Scale items

KMO dimensions
Organizational memory. My organization builds a knowledge repository (such as shared

databases, knowledge bases, or even the intranet) that [. . .]:
1. [. . .] facilitates employees to search for new knowledge.
2. [. . .] facilitates employees to store ideas and knowledge.
3. [. . .] facilitates employees to retrieve and use knowledge.
4. [. . .] promotes employees to communicate with colleagues.
Knowledge sharing. My organization [. . .]:

1. [. . .] has a process for sharing knowledge between individuals.
2. [. . .] has a process for sharing knowledge across teams.

3. [. . .] has a process for sharing knowledge throughout the organization.
4. [. . .] has a process for sharing knowledge among our business partners.
Knowledge absorption. My organization [. . .]:

1. [. . .] has a process for absorbing knowledge from market sources into the
organization.
2. [. . .] has a process for absorbing knowledge from business partners into the
organization.
3. [. . .] has a process for absorbing knowledge from education and research institutes
into the organization.
4. [. . .] has a process for absorbing knowledge from personnel mobility into the
organization.
Knowledge receptivity. In my organization [. . .]:

1. [. . .] employees who contribute new idea are invited to participate in future
development and implementation of this new idea.
2. [. . .] employees hesitate to speak out their ideas because new ideas tend to be highly
criticized or ignored. (Reverse coded)
3. [. . .] new ideas are evaluated equitably.
4. [. . .] employees evaluate ideas based on their merits, no matter who comes up with the
ideas.
5. [. . .] employees evaluate new ideas rapidly on a regular basis.
Balanced scorecard outcomes

After the implementation of KMO, my organization has improved its ability to [. . .]:
Learning and growth

1. [. . .] improve employee skills.
2. [. . .] improve employee satisfaction.
3. [. . .] improve awareness of shared visions, objectives, and values.
4. [. . .] improve new product or service development to market.
Internal process
1. [. . .] streamline corporate internal processes.
2. [. . .] improve product or service quality.
3. [. . .] innovate new products or services.
4. [. . .] rapidly commercialize new innovations.
Customer satisfaction
1. [. . .] improve market share growth.
2. [. . .] increase customer satisfaction.
3. [. . .] improve customer complainant response time.
4. [. . .] create new customers.
5. [. . .] keep current customers.
Financial performance
1. [. . .] increase net benefit.
2. [. . .] improve economic value added.
3. [. . .] improve sales growth.
4. [. . .] increase return on investment.

About the author
Hsiu-Fen Lin is Professor in the Department of Shipping and Transportation Management,
National Taiwan Ocean University. She received PhD in Information Management from
National Taiwan University of Science and Technology, Taiwan. Her research interests
include electronic commerce, knowledge management and organizational impact of
information technology. Her research has appeared in the Journal of Knowledge
Management, Knowledge Management Research & Practice, Information and
Management, International Journal of Information Management and Journal of Information
Science and several conference proceedings. Hsiu-Fen Lin can be contacted at:
[email protected]
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Linking Knowledge Management Orientation To Balanced Scorecard Outcomes

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Linking knowledge management

orientation to balanced scorecard

VOL. 19 NO. 6 2015 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 1225

2.2 Knowledge management orientation

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2.3 Balanced scorecard outcomes

3. The decomposed model and hypotheses development

3.1 Impact of KMO on balanced scorecard outcomes

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KMO dimensions Balanced scorecard outcomes

can be applied in future decisions. Organizational memory is a strategic asset that, if

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3.2 Interrelationships of the balanced scorecard outcomes

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5.1 Measurement model

␹2 test ␹2 577.94 916.74

Table II Results of the measurement model

Organizational memory 0.87 0.77-0.89 All ⬍0.01 0.88 0.67a

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5.2 Common method bias

5.3 Hypotheses testing

Table III Summary of statistically significant effects and hypotheses tests

H1a Organizational memory Learning and growth 0.18* – 0.18* Yes

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7.2 Implications for practice

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7.3 Limitations and future research

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Daghfous, A. (2004), “Absorptive capacity and the implementation of knowledge-intensive best

VOL. 19 NO. 6 2015 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 1241

Earl, M. (2001), “Knowledge management strategies: toward a taxonomy”, Journal of Management

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VOL. 19 NO. 6 2015 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 1243

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VOL. 19 NO. 6 2015 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 1245

Song, J.H. (2008), “The key to organizational performance improvement: a perspective of

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Appendix. Scale items

Organizational memory. My organization builds a knowledge repository (such as shared