Title: Effect of Knowledge Management Systems on Operating Performance: An Empirical Study of Hi-Tech Companies using the Balanced Scorecard Approach
Authors: Pang-Lo Liu1, Chih-Hung Tsai
Subject: Knowledge management
Publish: 2007
Status: full text
Source: International Journal of Management; Dec2007, Vol. 24 Issue 4, p734-743
Preparation: Scientific Database Management Journal Articles www.SYSTEM.parsiblog.com
Abstract: Since the development of information technology and the use of web-based information systems by firms, business management methods have become more sophisticated, leading to significant changes in high-tech business models. To deal with globalization, Taiwan"s hi-tech enterprises have gradually adopted information technology to shorten manufacturing processes, reduce cost, increase flexibility, and improve product quality and service quality to increase their overall international competitiveness. Many of them, in consequence, have integrated their internal and external resources, and introduced knowledge management (KM) systems to improve their operating performance. In the present study, which utilized the balanced scorecard (BSC) approach to investigate the effects of the introduction of a knowledge management system on operating performance, 560 managers from major Taiwanese hi-tech companies competed a specially-designed questionnaire. The results showed that after introducing knowledge management there was a 5% to 10% improvement in performance in the customer financial, and internal business process areas and a 10% to 15% improvement in performance in the learning and growth area, suggesting that the knowledge management systems that were introduced had a positive effect on operating performance.   --Download Article

Introduction: Since 1990 hi-tech enterprises in Taiwan have become ofthe world"s main production centers, with an good understanding of the importance of knowledge management systems for their operations. Many of them have in fact made effective use of their knowledge management (KM) systems to win orders from leading international suppliers. They found that among the advantages of such systems were: (1) significantly shortened delivery time (2) dramatically reduced time spent on information searching (3) more flexible production, and (4) smoother coordination and integration of tasks. With this as background, the two major ives of this study were to use the balanced scorecard (BSC) approach to understand the operating performance of Taiwan hi-tech companies, and to investigate the effects on operating performance among these companies of knowledge management systems. According to Davenport et al. (1996, 1998), knowledge management treats knowledge as an extremely important asset that deserves to be carefully looked after. Anything related to knowledge assets, their acquisition, organizing, sharing and use are knowledge management activities. Nonaka et al. (2000) regarded knowledge as the application of information and its output. Knowledge stems from experience and learning, and comes from analyzing data in the form of reports, tables, and figures. Armbrecht et al.
(2001) argued that the acquisition, storage and application of knowledge creates value for an organization and directly influences its performance. Gold etal. (2001) claimed that knowledge infrastructure capability and knowledge process capability will have a significant effect on the efficiency of an organization. Knowledge infrastructure capability consists of technology, infrastructure and culture, whereas knowledge process capability consists of knowledge acquisition, modification, application, and the capability to protect knowledge. Wiig (1995) argued that Knowledge Management (KM)is a group of well-defined procedures and methods used to excavate key knowledge from various operations to assist in product development and strategies and to improve human resource management practice. Hothouses (1998) regarded knowledge as a "kind of flow" that can be exchanged between supplier and demander. Nonaka et al. (2000) argued that, although the creation of knowledge is important, it is knowledge sharing that is really critical to an organizatin"s success. The main goal of KM is to create knowledge so that organization members can learn from each other through the "screw processes" of socialization, externalization and combination—to enhance the competitiveness of an organization. Liu et al. (2004) claimed that knowledge has become the main manufacturing resource and a prerequisite for success in an increasingly competitive global economy. Liu et al. (2005), argued that KM has a significant and beneficial effect on new product strategy and new product development performance, especially in the case of hi-tech companies in Taiwan. Davenport ef a/. (1996, 1998) concluded from an analysis of case studies, that any successful KM system includes knowledge and skills as well as relevant online search systems for obtaining knowledge—which systems in turn help or assist employees to coordinate effectively with the relevant technology. In the present study we will examine four aspects of KM, namely knowledge acquisition, knowledge creation, knowledge storage, and knowledge sharing.
Kaplan & Norton (1996) proposed the idea of a so-called Balanced Scorecard (BSC) to assess or measure the performance of organizations or enterprises, an approach they felt was necessary to compensate or make up for defects in the traditional measurement of performance, with its emphasis on financial indicators of success. BSC goals and measures are derived from the vision and strategy of an organization. Four measurement perspectives, financial, customer, internal business processes, and learning and growth can be adopted in measuring the performance of an organization. Cameron (2002) pointed out the effective implementation of BSC starts with top or senior managers. According to the study by Olson & Slater (2002), different market strategies produce different results, depending on which of these four perspectives is used to assess or measure performance. In practice when using the BSC approach, innovation and growth are the perspectives most frequently used. Youngblood & Collins (2003) proposed that in developing an overall score, each BSC measure must be given a weight depending on its importance. Hilton etal. (2000) argued that BSC is a kind of strategic tool for converting strategy into action. A "cross-linked value chain" can be formed by combining these four perspectives. Stewart (2001) developed a so-called Project Life Cycle performance measurement system based on combining financial, organization, training and innovation.
and customer relationship perspectives. Khalid et al. (2002) conducted a study in which they applied the BSC concept in a British steel company, using several indices of financial and non-financial success, including market share, customer satisfaction, new product introduction, operational profits, and return on investment. Operating Performance There are many ways to evaluate the operating performance of enterprise. For instance. Van de Ven & Ferry (1980) argued that traditional financial measures of performance are most frequently used by researches to indicate the effectiveness of an organization, measures such as return on revenue, sale revenue, and profitability. In a study of 115 Canadian enterprises that used measures of product innovation and sales service, De Brentani (1989) found that different groupings for different services and products leads to different results, or indicators of performance. Sicotte & Langley (2000) argued that "cross-functional" horizontal communication and information exchange can effectively decrease the uncertainty that arises so often during the new product development process.
According to Brouthers (2002), market share, sales status, reputation, and customer satisfaction are the most important indices of business performance. Kaufman (1988) argued that any index of organizational performance must distinguish the extent to which organizations are reaching their planned goals. Fortuin (1988) treated indicesof performance as measures of overall efficiency in different parts of the organization, measures whose aim is to help us understand whether and why managerial processes are meeting their intended goals. MacArthur (1996) felt that measures of organizational performance can be divided into quantitative or qualitative measures, depending on the nature ofthe variables being assessed. A quantitative variables, such as lead time, can be ively and directly assessed or measured. However, it may sometimes be more convenient and suitable to evaluate such a variable subjectively, for instance when you just want to divide lead times into high, medium, and low categories and ive data are not easily or quickly obtainable. Eccles & Pyburn (1992) argued that in normal circumstances if someone wants to understand whether enterprise assets are being used to increase stockholder value, financial indices should be used, they are the appropriate index for assessing this aspect of an organizations"s performance. This research based on above literature will define and measure operational performance in four ways, as:
(I) financial performance; (2) business performance; (3) organization performance; and (4) long-term resource advantages Hi-tech Enterprises Gould & Keeble (1984) argued that the appropriate performance measures for hi-tech companies should be based on the proportion of R&D fees to outcomes, the speed of technical innovation, and the percentage of employees who are managers, technicians and R&D personnel, inand R&D. According to Shanklin & Ryans (1984), hi-tech enterprises must have a strong technology foundation, posssess new or up-to-date technology for replacing technology that may become obsolete, and the ability to adapt to changing markets and alterations in demand. Chiu (2002) proposed that these characteristics should include:
 (1) talent-intensive technology (2) capital-intensive technology (3) high technology levels and complicated manufacturing processes (4) highly concentrated markets, and (5) short product life cycles. In his examination of hi-tech companies in Taiwan, Chiu (2002) divided them into six industrial groups: (1) integrated circuit industry (2) computer and peripheral industries (3) telecommunication industry (4) optic-electronic industry; (5) precision machinery industry, and (6) biotech industry. We will adopt these groupings throughout this study.

Research Method
The purpose of this study is to examine the effects of knowledge management systems on operating performance in hi-tech companies. Figure 1 shows the research structure adopted. Based on the literature survey, the following hypotheses were developed, each of which is to be tested in the present study:
Relation between KM and operating performance
Hp KM capability has a significant effect on operating performance
H| p There is a significant positive effect of knowledge acquisition on operating
performance
H| j : There is a significant positive effect of knowledge creation on operating
performance
H| 3: There is a significant positive effect of knowledge storing on operating
performance
H| 4: There is a significant positive effect of knowledge sharing on operating
Performance Relations among enterprise characteristics, enterprise scale and operating
performance
Hj. Enterprise characteristics have a significant effect on operating performance.
H^ p Specific enterprise characterisitics have a positive effect on operating
performance.
H2.2: Enterprise scale or size has a significant positive effect on operating
performance.
In this research a specially-<leveloped questionnaire was mailed individually to 1000managers working in different well-known Taiwanese hi-tech companies, each of whomwas involved in KM to some extent because they each were all hi-tech companies. 800of this managerial sample replied. After excluding those responses which could notbe analysed for one reason of another (e.g., incomplete or missing data, confused orambiguous answers), we were left with 560 competed questionnaires, giving a responserate of 56% from the managerial sample. Each response was from a manager in aparticular or different hi-tech firm.
SPSS 10.0 for Windows (software) was used to analyse these reponses from the560 managers. The specific statistical techniques employed at different stages ofthe investigation to test the research hypotheses were Cronbach"s alpha coefficient,ANOVA analysis, and the t-test for independent samples. Nunnally (1978) proposedthat scales—in questionnaires- are of acceptable reliability if they have alpha (internalreliability) coefficients greater than 0.7. Since these coefficients were greater than 0.7fkoreach ofthe scales use din this study, the scales in question can be regarded as beingsufficiently reliable( Table 1).

Analysis of Results
Some results of the study are given in the Table 2 which shows the effects of each of thefour aspects of KM on operating performance; specifically, they indicate the differencebetween the mean operating performance of enterprises that "carry out" or "do" this aspect of knowledge management (KM), in the view of the manager in the enterprise who completed the survey, more than the average enterprise (first group) and the mean operating performance scores of those that carry out or do this aspect of KM. less than the average enterprise in the sample (second group), in the views ofthe respective managers.
As can be seen in Table 2, the p values or levels of significance (of the difference) between these two groups of enterprises in their mean operating performances, as given by the results of a series of t-tests, were 0.000 for knowledge acquisition, .003 for knowledge creation, .000 for knowledge storing, and .001 for knowledge sharing. These significant results suggest that carrying out or doing these each of these four aspects of KM by enterprises has significantly positive effects on their operating performances, as hypothesized.   --Download Article