The Effects of Knowledge Sharing and Absorption on Organizational Innovation Performance – A Dynamic Capabilities Perspective

Abstract

Introduction Innovation is the key path for an enterprise to sustain its competitive advantages (Matthyssens, Vandenbempt, & Berghman, 2006; Orfila-Sintes & Mattsson, 2009). Nowadays, as competition has been globalized, production cost is no longer different between companies, and innovation is the key to competitiveness. In addition, knowledge management and innovation activities are dynamic capabilities for organizations (Zollo & Winter, 2002), and in order to survive in this era of knowledge competition, an enterprise should have an efficient knowledge management system which can facilitate knowledge innovation and sharing and repetition (Chandran, 2004; Nonaka, 1991). An organization acquires or develops a crucial index, which is whether the organization is capable to learn new knowledge during its adaptation to the environmental evolution (Peteraf, 1993). Teece (1986) believed that traditional competitiveness analysis is unable to evaluate an organization's organizational innovation performance and to guide its strategic direction in a fast changing environment, and thus he proposed the dynamic capabilities theory to help organizations in coordinating internal and external information to sustain their knowledge management systems and gain a competitive advantage. A firm needs to accumulate past experience and transform individual knowledge into organizational knowledge, and then, with the aid of continuous learning, the firm should develop the competence required to adapt to environmental changes. In addition integrating, transforming, and applying dynamic capabilities are crucial determinants of innovation (Helfat & Peteraf, 2003). The main purpose of this paper is to observe how companies use dynamic capabilities to transfer knowledge management capabilities into organizational innovation performance. The capability acquiring comes from knowledge absorptive capability. Cohen and Levinthal (1990) stated that absorptive capability is acquired by an organization on basis of existing knowledge, as well as by recognizing, absorbing, and using external knowledge. Zahra and George (2002b) further explained absorptive capability from the perspective of dynamic capability, and noted that absorptive capability is a set of processes for analyzing knowledge accumulation and transformation, and that it can lead to competitive advantage (Liao & Wu, 2010; Tsai, 2010). That is, absorptive capability is sustained and created through the development of dynamic capability. Furthermore, knowledge sharing in an organization will increase its potential absorptive capability (Spender, 1996). This paper attempts to study the effects of dynamic capabilities on organizational innovation performance with an empirical approach, based on dynamic capabilities, knowledge sharing, and absorptive capability. The main purpose is to review knowledge management studies, focusing on the effects of dynamic capability, knowledge sharing, and absorptive capability on organizational innovation performance and to propose a conceptual model and hypotheses. Furthermore, we analyze different types of firms and their dynamic capabilities, knowledge sharing, and absorptive capabilities as well as their relationships with organizational innovation performance, and finally highlight the practical implications of the results for managers. Literature Review This section reviews studies on knowledge management, innovation and organizational innovation performance, dynamic capability, and knowledge absorptive capability It then develops a model to describe the relationships among knowledge management, dynamic capability and organizational innovation performance. Knowledge Management Knowledge creates a capability that enables firms to seize opportunities while analyzing information, and is crucial to achieve competitiveness (Liao & Wu, 2010). However, only the advanced application of knowledge management can lead to a sustained competitive advantage. …