Knowledge Management

CHAPTER ONE

INTRODUCTION

1.1 Research background

Knowledge management is becoming increasingly important as organizations realize that sustainable competitive advantage hinges on effective management of their vast and varied knowledge assets (Kulkarni and Freeze 2004). Nowadays, many firms focus on developing knowledge management to make the knowledge become useful information, since then improve the firm’s performance. It is believed that knowledge management capability will lead the firm to the innovation.

In theory, all new resources, including knowledge, are created through two processes, combination and exchange. Combination and exchange of knowledge for creation of new knowledge requires the presence of social capital(Gold and Arvind Malhotra 2001). The concept of social capital has become increasingly popular in a wide range of social science disciplines. A growing number of political scientists, sociologists and economists have led to the search for answers about the concept of social capital. Social capital is the resource available to actors as a function of their location in the structure of their social relations(Adler and Kwon 2002). When the relations between the employees of the firm are good, they will want to share their knowledge to each other. By this way, the firm can manage knowledge better.

Entrepreneurial orientation (EO) refers to a firm's strategic orientation, capturing specific entrepreneurial aspects of decision-making styles, methods, and practices. As such, it reflects how a firm operates rather than what it does(Lumpkin and Dess 1996). The essential of EO is new entry. New entry is like entering new markets or establishing new markets with existing or new goods or services. In this perspective, new entry is very similar to the firm’s innovation.

Innovation represents today’s competitive advantage, supported  by strong mainstream capabilities in quality, efficiency, speed and flexibility. Innovation can help firms play a dominant role in shaping the future of their industries. High performing innovators are able to maintain a giant juggling act of capabilities, and consistently bring new high quality products to the market faster, more frequently and at a lower cost than competitors. Moreover, these firms use process and systems innovation as a way of further improving their products and adding value to customers. This combination creates a dynamic and sustainable strategic position making the organisation a constantly moving target to competitors(Lawson and Samson 2001).

This research wants to analyze the relationship between each construct in order to know how each construct contribute to the innovation of the company. The model consists of entrepreneurial orientation, social capital, knowledge management capability and innovation. In addition, this research hope can bring some implications to the practices of the company.

1.2 Research objectives

The objectives which will be analyzed in this research listed below:

1. To identify how entrepreneurial orientation effects social capital and knowledge management capability
2. To identify how social capital and knowledge management capability effect the firm’s innovation
3. To investigate the effects of social capital to knowledge management capability
4. To investigate the effects of entrepreneurial orientation to innovation

CHAPTER TWO

LITERATURE REVIEW

2.1 Definition of Research Variables