ECONOMIC AND BUSINESS REVIEW | VOL. 14 | No.

2 | 2012 | 147168

147

THE IMPACT OF KNOWLEDGE

MANAGEMENT ON ORGANISATIONAL
PERFORMANCE
Jelena Raula1
Vesna Bosilj Vuki2
Mojca Indihar temberger3

Abstract: Knowledge management is a process that transforms individual knowledge

into organisational knowledge. The aim of this paper is to show that through creating,
accumulating, organising and utilising knowledge, organisations can enhance organisational performance. The impact of knowledge management practices on performance was
empirically tested through structural equation modelling. The sample included 329 companies both in Slovenia and Croatia with more than 50 employees. The results show that
knowledge management practices measured through. information technology, organisation and knowledge positively affect organisational performance.
Keywords: knowledge management maturity, information technology, organisational performance, structural
equation modelling, survey research.

1. Introduction
For many companies, the time of rapid technological change is also the time of incessant
struggle for maintaining a competitive advantage. It is obvious that knowledge is slowly
becoming the most important factor of production, next to labour, land and capital [39].
Even though some forms of intellectual capital are transferable, internal knowledge is
not easily copied. This means that the knowledge anchored in employees minds can get
lost if they decide to leave the organisation. Therefore, the key objective of management
is to improve the processes of acquisition, integration and usage of knowledge, which is
exactly what knowledge management (KM) is all about [21].
KM is a process that through creating, accumulating, organising and utilising knowledge helps achieve objectives and enhance organisational performance. KM also consists
1

University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia

University of Zagreb, Faculty of Economics, Zagreb, Croatia

University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia, e-mail: [email protected]

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of strategy, cultural values and workflow [9]. In order to maximise its value a change in
strategies, processes, organisational structures and technologies needs to be made [17,
21].
The literature review shows there is a great number of critical success factors for KM. This
paper contributes to the knowledge management research field through understanding
those factors, their interrelation and the role of information technology in achieving a
better business performance.
One of the key benefits of introducing KM practices in organisations is its positive
impact on organisational performance. The research conducted in Croatia suggests
that KM positively affects organisational outcomes of company innovation, product
improvement and employee improvement [19]. According to Fugate et al. [16], results
collected in a logistics operations context prove the existence of a strong positive
relationship between a KM process and operational and organisational performance. Still, it is not well understood how different KM strategies affect organisational
performance. Choi et al. [11] show that combining the tacit-internal-oriented and
explicit-external-oriented KM strategies indicates a complementary relationship,
which implies synergistic effects of KM strategies on performance. The results of
the study conducted by Zheng et al. [45] suggest that KM fully mediates the impact
of organisational culture on organisational effectiveness, and partially mediates the
impact of organisational structure and strategy on organisational effectiveness. Finally, the results of numerous researches [1, 13, 26, 27, 42] show that KM affects organisational performance in a positive manner, but this relationship is very difficult
to prove.
Researchers often imply this positive effect of knowledge management on organisational
performance. However, the researches that empirically prove the existing link are very
rare. The aim of this paper is to present a different knowledge management maturity
model and to explain and test the hypothesis about impact of knowledge management
practices on organisational performance. The model was empirically tested through
structural equation modelling on a sample of 329 Slovenian and Croatian companies
with 50 or more employees.
The paper is divided into five main parts. First, the theoretical background on components and elements of KM and organisational performance is presented. Second, the
hypotheses and the conceptual model are shown. Third, the research methodology is
described. Fourth, data analysis results are presented. Finally, implications and directions for future research are outlined.
2. Literature Review and Hypotheses Development
The methodology of measuring knowledge management maturity is complex. By combining a set of critical success factors with a set of measurable knowledge management

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factors, an intersection was made to define a new set of measurable key elements of
KM. Those elements were united into three categories [36]: (1) information technology
(the ability of technology to capture knowledge and usage of information systems), (2)
organisation (people, organisational climate and processes) and (3) knowledge (knowledge accumulation, utilisation, sharing practices and knowledge ownership identification).
The understanding of these knowledge management factors, acts as a basis in determining the type of knowledge management strategies and initiatives for an organisation. The
review of literature used to develop the questionnaire is stated below:
1. INFORMATION TECHNOLOGY
The value that knowledge management adds, lies in increasing individual, team and organisational efficiency through the use of knowledge management tools (information
technology).
Capturing knowledge: the higher the level of capturing knowledge (explicit or tacit)
with information technology tools, the better the KM result [24, 11, 25];
Usage of IT tools: the higher the quality of tools, quality of information, user satisfaction, usage and accessibility, the greater the KM effect on organisational performance
[2, 5, 39, 24, 29, 23, 40].
2. ORGANISATION
Organizational culture has a great contribution to knowledge management due to the
fact that culture determines the basic beliefs, values, and norms regarding the why and
how of knowledge generation, sharing, and utilization in an organisation. An organization can achieve a competitive edge by creating and using knowledge about its processes
and by integrating its knowledge into business processes.
People & Organisational climate: the KM success relies heavily upon the trust, creativity, team work and collaboration among employees [24, 29, 37, 23];
Processes: the integration of the KM activities into organisational processes has a
positive effect on KM results [29, 23].
3. KNOWLEDGE
Successful knowledge management applies a set of approaches to organisational knowledgeincluding its accumulation, utilisation, sharing and ownership.
Accumulation: the higher the effectiveness of knowledge accumulation (internal, external; through internalisation or externalisation) in an organisation, the greater the
KM effect [11, 2, 24, 25];
Utilisation: the higher the effectiveness of utilising the (existing) knowledge in an
organisation, the better the KM result [23];
Sharing: the improvement of sharing of knowledge (formal or informal) effects the
KM positively [25, 23];

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Ownership: the better the accessibility of knowledge, the greater the KM success [2,
24].
The items used in the questionnaire are further explained and discussed in Sections
2.1-2.3.
2.1. Information Technology
According to literature and the analysis of critical success factors of KM, information
technology (IT) is one of three components of KM [29, 39].
Some authors [29] say that the most dominant KM paradigms are about IT. Results of
research [38] show that 70 % of papers on KM stress the importance of IT systems, developed to manage explicit knowledge. Even authors, whose main field of KM research is
not about the importance of IT, state that information technology is crucial for successful knowledge management [2, 5, 20, 30, 40].
Based on research [36], two elements form the IT component of KM: the first element is
the ability of IT to capture knowledge and the second element is usage of IT tools.
First, the importance of IT systems designed to capture and store tacit or explicit knowledge will be stressed. Formalising knowledge and storing it into applications [23, 25, 34]
allows us to start the knowledge transformation cycle and the process of reshaping tacit
knowledge into explicit knowledge [32, 33]. Secondly, the usage and quality of IT tools,
the quality of information, user satisfaction, rate of usage, efficiency and accessibility, are
also very important for managing knowledge [23, 34, 39].
When it comes to judging the influence of those two elements on the KM construct, it
is believed that the level of capturing both explicit and tacit knowledge with IT tools affects KM in a positive manner [25]. It is the same with the usage of IT tools. The higher
the quality of tools, quality of information, user satisfaction, usage and accessibility, the
greater the positive influence on KM [2, 5, 40].
However, the compelling need for KM in organisations is fuelled by a host of social economic and technological factors and only when used in tandem with an appropriate KM
strategy, IT is a powerful enabler of organisational success [12].
2.2. Organisation
Organisational elements are considered to be the second component of KM [36] as organisation itself is important for establishing any form of new activities and processes
for managing knowledge. Organisation is a multi-dimensional construct that is defined
differently throughout literature. For the purpose of this research the construct was defined as a set of several key indicators, focused strictly on organisational climate ele-

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ments (such as motivation and collaboration) and on organisational processes. People

and the organisational climate, as the first element of organisation, include values, trust,
motivation, creativity, teamwork, collaboration, role of employees and managers in decision-making, development of innovative culture, and other important factors [4, 5, 8,
30, 41]. On the other hand, organisational processes, as the second element, with their
execution, re-engineering and integration, are also found to be important for successful
KM [23, 34].
Organisation, as a combination of those two elements, also affects KM practices in a
positive manner. For the first element, people and organisational climate, it is believed
that the better and higher the trust, creativity, teamwork and collaboration among employees, the greater the positive influence on KM. Also, the more the KM activities are
integrated into processes, the greater the positive influence on KM [23, 37].
2.3. Knowledge
The third key component of KM is knowledge [36]. Defined as a component of four elements it consists of knowledge accumulation, utilisation and knowledge sharing practices, and knowledge ownership identification [2, 20].
Knowledge accumulation can be internal or external, occasional or intended. Knowledge
can be accumulated through externalisation or internalisation. The term knowledge utilisation covers individual and group knowledge, learning from experience or innovative
solutions. Knowledge sharing can also be both formal and informal. The ownership of
knowledge, as the last element of this construct, can be used to describe knowledge as an
individual or group identity and to point at specialist or general sources of knowledge in
a given organisation.
The research again shows that all four elements have a positive impact on overall knowledge management practices. It is believed for knowledge accumulation that the higher
the effectiveness of knowledge accumulation (internal, external, through internalisation or externalisation) in an organisation, the greater the positive impact on KM [2,
25]. Secondly, the higher the effectiveness of utilising knowledge in organisations, the
greater the positive impact on KM [23]. Thirdly, the study shows that the higher the effectiveness of sharing of formal or informal knowledge, the greater the positive impact
on KM [23]. Lastly, the better the accessibility of knowledge and the practices of defining
ownership of knowledge in an organisation, the greater the positive impact on overall
KM practices [2].
2.4. Elements of Organisational Performance
When assessing the relationship between knowledge management and organisational
performance, it is important to know that the results depend on the used research meth-

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odology [40]. Organisational performance alone could be gauged in many different ways,
with financial or non-financial indicators.
There are several approaches to organisational performance measurement which include
different stakeholders perspectives. The Balanced Scorecard (BSC) is a performance
management tool for measuring whether small-scale operational activities of a company
are aligned with its large-scale objectives in terms of vision and strategy [10] and includes four perspectives: financial, customer, internal process and innovation and learning perspective.
The financial perspective examines if companys implementation and execution of its
strategy contributes to bottom-line improvement [37]. Some of the commonly used financial measures are economic value added, revenue growth, costs, profit margins, cash
flow, net operating income etc. The customer perspective defines the value proposition
that an organisation will apply to satisfy customers and generate more sales to the most
desired customer groups [10, 37]. The measures should cover both the value that is delivered to the customer which may involve time, quality, performance and service, and
the outcomes that arise as a result of this value proposition, such as customer satisfaction
and market share. The internal process perspective focuses on all the activities and key
processes required in order for the company to excel at providing the value expected by
the customers [37]. The clusters for the internal process perspective are operations management (by improving asset utilisation, supply chain management), customer management (by expanding and deepening relations), innovation (by new products and services)
and regulatory & social (by establishing good relations with external stakeholders). The
innovation and learning perspective focuses on the intangible assets of an organisation,
mainly on the internal skills and capabilities that are required to support the valuecreating internal processes [37].
In addition to these four perspectives, some researchers [43] include the supplier perspective, which is also important in assessing non-financial performance.
3. Research Hypotheses and Model Conceptualisation
According to literature and our experience from business practice, we believe that
strong relations between organisational elements, information technology and
knowledge management can be established. Besides, our intention is to investigate
and prove the existence of a positive impact of knowledge management on organisational performance. Therefore the findings from literature and our assumptions are
systemised and structured in a form of hypotheses and examined by the empirical
research.
Research shows that the better the collaboration and trust among employees, the better the processes of creating knowledge [24] and the better the organisational climate,
the better the transfer of knowledge [41]. Moreover, organisational climate directly

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affects knowledge management practices [30]. Therefore, we propose the following hypotheses:
H1. Organisational elements (such as culture, climate and collaboration) have a positive
impact on elements of knowledge in the context of knowledge management.
The connection between IT and elements of knowledge was also researched in the past
and the results show that the better the use of IT tools, the better the knowledge creating processes [24]. Not only that, extensive use of IT tools has a positive relationship
with the performance of knowledge transfer and the creation of knowledge assets [41].
Furthermore, technological infrastructure directly affects the knowledge management
practices [30]. The survey conducted by Kruger and Johnson [22] shows that information
and communication technology and information management are prerequisites to, and
enablers of KM.
Some researchers cannot find proof of direct impact of IT elements on knowledge. On
the other hand, others empirically prove that IT affects organisational elements such as
organisational learning and organisational culture [42]. According to Benbya et al. [7]
it has become largely agreed that KM activities should be integrated within business
processes to ensure continual process improvement and facilitate learning and gradual development of organisational memory. The results of the research conducted by
Chen and Huang [9] show that organisational climate works its beneficial effects on KM
through increasing trust and communication between employees. Besides, organisational structure can improve social interaction, and in turn, results in a higher degree
of knowledge sharing and application. Consequently, it can be concluded that social
interaction plays a mediating role in the relationship between organisational structure
and KM. Aligned with the results of literature review, the following research hypothesis
is proposed:
H2. There is a positive indirect effect of IT application on knowledge management adoption through organisational elements.
Many authors assessed the influence of KM elements on organisational performance
whilst some say that the impact is hard to measure [1]. Some authors [26, 27] suggest that
elements of knowledge positively affect organisational performance, while others [13, 15,
42] try to gauge the relationship indirectly, through other measurable indicators such as
type of organisational strategy and elements of organisational learning etc. Therefore, we
propose the following hypothesis:
H3. Knowledge management has a positive impact on organisational performance.
The conceptual model is presented in Figure 1.

FIGURES

154

Title: The Impact of Knowledge Management on Organisational Performance

Authors: Jelena Raula, Mojca
Indihar temberger, Vesna Bosilj Vuki
ECONOMIC AND BUSINESS REVIEW | VOL. 14 | No. 2 | 2012
Figure 1: Conceptual Figure
model1: Conceptual model
KNOWLEDGE MANAGEMENT MATURITY

ORG. PERFORMANCE

Information
technology

H3
H2

Organisational
performance

Knowledge

H1
Organisation

4. Research Methodology

Figure 2: Path diagram of the conceptualised model

4.1. Research Instrument

orCOLLAB

0.85 was orMOTIV

With the aim of testing the hypotheses formulated above, an empirical research
carried out. The questionnaire (Appendix 1) was based on previous findings 0.77
reported
in literature that is reviewed in section 2. It included 23 questions on knowledge man-orPROCES
0.85
agement and 16 questions on organisational performance. Questions about knowledgeknACCUM
management are divided into 3 parts knowledge, informationOR
technology and organi0.78litera- knUTILIS
sation. For example, questions about knowledge are based on [2, 23, 25] and other
0.65 was used
ture described in section 2.3. A seven-point Likert scale
0.94in order to specify
0.58 the
knSHARE
respondents
levelopSUPPLY
of agreement to statements.
0.30
0.83

0.28
0.41

0.27

0.39

0.67

0.31

0.84
0.24

0.70
opPROCES

0.87

IT

0.85
4.2. Data Collection and Sample
Characteristics
0.28

knOWNER

0.52

knCOLLAB

0.35

KN
0.81

opLEARN
0.79

The research was conducted among companies with more than 50 employees in SloveniaopFINANC
0.57
and Croatia. In Slovenia, the sample included 1339 companies and the response rate was
opREPUT
0.73
9.6 %. In Croatia, 200 responses were received from the 1750 questionnaires
distributed
OP
0.84
with an 11.4 % response rate [35].
opSUPPLY

0.67

0.47

0.30

0.77

Slovenian respondents were mainly from the manufacturing industries (39 %),
whole-opPROCES
0.76
sale and retail trade (10 %), other service activities (7 %), construction (7 %) and agriculture, forestry and fishing (5 %). Other activities were represented in less than 5 %. opLEARN
In Croatia, the responses were mainly sent from the manufacturing industry (29 %),
construction (13 %), wholesale and retail trade (8 %), accommodation and food service

27

0.41

0.42

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155

activities (6 %) and other service activities (6 %). Other activities were represented in 5
% or less [35].
Since a single source of data was used, we tested the data for the Common Method Bias
[44] by Harmans single factor test. The test showed that CMB does not exist, because in
exploratory factor analysis based on the unrotated solution a single factor did not explain
the majority of the variance. It explained only 40% of variance.
4.3. Model Construction
Four constructs were formed in the research: First, information technology (IT),
which determines the usage, quality and benefits of IT tools for knowledge management. Second, organisation (OR) that represents a human perspective of organisation
and processes. Third, knowledge (KN) that covers accumulation, utilisation, sharing
practices, and knowledge ownership identification. Fourth, organisational performance (OP) is defined as a construct composed of financial and non-financial indicators.
The first construct is of exogenous nature, while the last three constructs are endogenous
latent variables. Latent variables in the model are measured by manifest variables.
5. Data Analysis and Results
The Structural Equation Modelling (SEM) was used to empirically verify the hypotheses. SEM is a statistical technique for testing and estimating causal relationships using a
combination of statistical data and qualitative causal assumptions [6]. It has the ability to
model constructs as latent variables and allows the researcher to accurately estimate the
structural relationships between latent variables [3, 14]. Moreover, the specialised SEM
programming tool LISREL 8.51 was used for the analysis.
5.1. Validity of Defined Constructs
The exploratory factor analysis using SPSS 16.0 was conducted to verify the construct validity of the measurement model. The principal axis factoring extraction
method with a Varimax rotation was used to determine whether the questionnaire
items represent the defined model correctly. The results of factor analysis for the
KM construct are presented in Table 1. Only factor loadings higher than 0.50 are
presented.

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Table 1: Rotated factor matrix for the knowledge management part of model
FACTOR
1
KM1
KM2
KM3
KM4
KM5
KM6
KM7
KM8
KM9
KM10
KM11
KM12
KM13
KM14
KM15
KM16
KM17
KM18
KM19
KM20
KM21
KM22
KM23

4
.554

.581
.680
.606
.709
.515
.547
.682
.673
.536
.808
.854
.695
.595
.580

.556
.581
.756
.678
.609
.525
.551

.616
.583

.586

Factors 1 and 4 are combined to represent the elements of knowledge (knACCUM,

knUTILIS, knSHARE, knOWNER), both formal and informal aspects of accumulating, utilising, sharing knowledge and defining its ownership. Factor 2 represents the
elements of information technology (itUSAGE, itQUALITY, itBENEFIT), while Factor
3 stands for elements of organisation (orCOLLAB, orMOTIV, orPROCESS). Several
indicators were excluded from further research (KM5, KM17, KM21 and KM22) as
they did not meet the required standards, having factor loadings lower than 0.5 or
multiplied over several factors, which makes them difficult to identify. Based on the
factor analysis, we formed a new indicator, knCOLLAB, to represent the ways of collaboration between employees with an objective to spread knowledge across the organisation.
Factor loadings higher than 0.50 for the organisational performance construct (OP) are
presented in Table 2.

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157

Table 2: Rotated factor matrix for the organisational performance part of model
1
OP1
OP2
OP3
OP4
OP5
OP6
OP7
OP8
OP9
OP10
OP11
OP12
OP13
OP14
OP15
OP16

.525

FACTOR
2
.886
.891
.804

.501

.590
.563
.587
.707
.613
.583
.605
.695
.613
.777
.584

Factors 1 and 3 were combined to represent the non-financial indicators of organisational performance (opSUPPLY, opLEARN, opPROCESS) and form the supplier, process
and learning perspective. The indicators for customer perspective of BSC (OP4 and OP5)
did not meet the required criteria, having factor loadings lower than 0.5 or multiplied
over several factors. Factor 2 represents the financial view of organisational performance
(opFINANCE), measuring profit growth, return on assets (ROA) and employee value
added. Based on the factor analysis and isolation of item OP6, we formed a new indicator,
opREPUT, to represent the view of organisational reputation.
To conclude, the first construct (IT) was measured by the following three variables:
Usage of IT tools and systems for knowledge management (itUSAGE).
Quality of IT tools and systems for knowledge management (itQUALITY).
Detected benefits of IT tools and systems for knowledge management (itBENEFIT).
For measuring the second construct, OR, the following variables were used:
Collaboration among people in the organisation (orCOLLAB).
Motivation of people in the organisation (orMOTIV).
The process view of the organisation (orPROCESS).
To test the third latent variable, knowledge (KN), these measures were applied:
Knowledge accumulation (knACCUM).
Knowledge utilisation (knUTILIS).
Knowledge sharing practices (knSHARE).
Knowledge ownership identification (knOWNER).
Collaboration aspect of people and spreading knowledge (knCOLLAB).

FIGURES
Title: The Impact of Knowledge Management on Organisational Performance
Authors: Jelena Raula, Mojca Indihar temberger, Vesna Bosilj Vuki
158

ECONOMIC AND BUSINESS REVIEW | VOL. 14 | No. 2 | 2012

Figure 1: Conceptual model

The fourth construct is measured from a financial and non-financial perspective with:
MANAGEMENT
MATURITY
ORG. PERFORMANCE
KNOWLEDGE
Financial perspective
(opFINANCE).
Supplier perspective (opSUPPLY).
Innovation and learning perspective (opLEARN).
Customer
Information perspective (opCUSTOM).
technology
Internal
processes perspective (opPROCESS).
Reputation (opREPUT).
H3
H2

Knowledge

Organisational
performance

5.2. Confirmatory
H1 Analysis using Structural Equation Modelling
Organisation

Model fit signifies the level of consistency of hypothesised model and the data [1, 14]. It
is gauged in three steps: (1) overall fit assessment (2) assessment of measurement model
and (3) assessment of structural model. The path diagram of the model is presented in
Figure 2.
Figure 2: Path diagram of the conceptualised model
Figure 2: Path diagram of the conceptualised model

0.85

orCOLLAB

0.28

orMOTIV

0.41

orPROCES

0.27

knACCUM

0.39

knUTILIS

0.67

knSHARE

0.31

knOWNER

0.52

knCOLLAB

0.35

opFINANC

0.67

opREPUT

0.47

opSUPPLY

0.30

opPROCES

0.41

opLEARN

0.42

0.77
0.85

OR
0.78
0.65
0.30

0.94

0.58

opSUPPLY
0.83
0.84

0.24

0.70
opPROCES

0.87

IT

KN
0.81

0.85
0.28

opLEARN
0.79
0.57
0.73

OP
0.84
0.77
0.76

5.3. Overall Fit Assessment

The aim of assessing the overall model fit is to determine the consistency level of a model
as a whole with available empirical data [14]. 27
The most commonly used fit indices are
shown in Table 3.

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159

Table 3: Fit indices

Fit indices
2 per degree of freedom (2/df)
Root Mean Square Error of Approximation (RMSEA)
Non-Normed Fit Index (NNFI)
Comparative Fit Index (CFI)
Standardised Root Mean Square Residual (S RMR)
Goodness of Fit Index (GFI)
Adjusted Goodness of Fit Index (AGFI)
Parsimony Goodness of Fit Index (PGFI)

Reference
value
2/df < 5.00
RMSEA 0.100
NNFI closer to 1
CFI closer to 1
S RMR < 0.05
GFI closer to 1
AGFI 0.90
PGFI 0.50

Model
value
2/df = 2.03
RMSEA = 0.074
NNFI = 0.93
CFI = 0.94
S RMR = 0.052
GFI = 0.88
AGFI = 0.84
PGFI = 0.65

Overall
Model fit
Yes
Yes
Yes
Yes
Acceptable
Acceptable
No
Yes

The 2 test shows whether the data perfectly fits the conceptual model and is therefore
not considered to be the best measure for assessing model fit. Root mean square error of
approximation (RMSEA) is considered to be one of the most informative fit indices [14].
The values below 0.05 indicate a good fit, the values between 0.05 and 0.08 a mediocre fit
[18], while the values between 0.08 and 0.10 represent a poor fit. Nonetheless, researchers
mostly use the 2 per degree of freedom (2/df) index, the comparative fit index (CFI) and
the non-normed or Tucker-Lewis fit index (NNFI) to assess the model fit [20]. The 2 per
degree of freedom index indicates a reasonable fit when it is lower than 5.00 [28], however
ratios between 1.00 and 2.00 are recommended [18]. CFI and NNFI indices should be
close to 1.00 to represent a good fit [1, 14].
The Root mean square Residual index (RMR) is based on the residual matrix and is used
to compare the fit of two different models with the same data. Values of the standardised
RMR index lower 0.05 represent a good model fit [14].
The absolute fit value for the Goodness of fit index (GFI) is not computed; however values closer to 1.00 represent a better model fit [18]. Diamantopulos [14] states that 0.90 is
considered to be an appropriate value that represents an acceptable model fit. The same
stands for the adjusted goodness of fit index.
The Parsimony Goodness of fit index (PGFI) adjusts the GFI index to complexity of the
given model and degrees of freedom. Values above 0.50 represent a good model fit [31].
In our case, the model indices imply that the model has a good overall fit.
5.3.1. Assess ment of Measurement Model
The second step of model fit assessment is to analyse the relationships between latent and
manifest variables. The aim of such analysis is to determine the validity and reliability of
the used construct measures.
The next step is to assess the measurement model with the focus being on the relationship between latent variables and manifest variables. The aim is to determine the validity

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and reliability of the measures used to represent the construct of interest. Validity signifies the extent to which an indicator measures what it is supposed to measure, while the
reliability shows the consistency of measurement or the rate to which the measure could
be subjected to measurement error [14]. The relationship between manifest variables and
latent variables should be significantly different from zero (t-values should exceed 1.96
in absolute terms). As seen in Table 4, all t-values are larger than 1.96. Therefore, the
construct validity is assured.
Table 4: Completely standardised loading estimates and t-values
Latent
variable

Manifest variable

IT

itUSAGE
itQUALIT
itBENEFI

Completely standardised
factor loading
LAMBDA-Y
0.84
0.87
0.85

t-value
13.65
14.49
13.86

LAMBDA-X
orCOLLAB

0.85

-a

OR

orMOTIV
orPROCES
knACCUM

0.77
0,85
0.78

12.40
14.52
-a

knUTILIS

0.58

8.02

KN

knSHARE

0.83

12.34

OP

knOWNER

0.70

9.97

knCOLLAB

0.81

11.95

opFINANC

0.57

-a

opREPUT

0.73

7.46

opSUPPLY

0.84

8.05

opPROCES

0.77

7.69

opLEARN

0.76

7.65

Indicates a fixed parameter

Secondly, the reliability of the model which refers to the measurement consistency
needs to be determined. It is determined by assessing the reliability of individual
indicators and composite reliability. The former is measured by squared multiple
correlations (R 2), which show the share of variance in an indicator that is explained
by its latent variable [14]. The least reliable indicators in the model are knUTILIS
and opFINANC, while the other indicators range from 0.48 to 0.76, as presented in
Table 5.

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Table 5: R 2 values for indicators

Indicator
itUSAGE

R2 value
0.70

itQUALIT

0.76

itBENEFI

0.72

orCOLLAB

0.72

orMOTIV

0.59

orPROCES

0.73

knACCUM

0.61

knUTILIS

0.33

knSHARE

0.69

knOWNER

0.48

knCOLLAB

0.65

opFINANC

0.33

opREPUT

0.53

opSUPPLY

0.70

opPROCES

0.59

opLEARN

0.58

In addition to reliability of individual indicators, composite reliability value (c) is calculated for each latent variable, where values should exceed 0.6 [6]. In the proposed model,
all indicators as a set provide a reliable measurement for each construct, as their values
are higher than proposed (c(IT)=0.88, c(OR)=0.87, c(KN)=0.86 and c(OP)=0.86).
5.3.2. Assessment of Structural Model
The structural model fit assessment is carried out to evaluate whether the data support
the hypothesised relationships in the conceptualisation model [14]. Evaluation includes
the following assessment: (1) Do signs of parameters indicate the same direction as hypothesised (2) What is the statistical significance and magnitude of estimated parameters
and (3) What are the squared multiple correlation factors (R 2) for structural equations.
In our model the signs of all relationships (IT-OR, OR-KN and KN-OP) are consistent
with hypothesised relationships between latent variables. Moreover, all parameters are
statistically significant with t-values 8.44, 11.69 and 6.97, respectively, and are moderate
to high (0.65, 0.94 and 0.79). Lastly, R 2 values indicate that independent latent variable IT
explains 42 % of variance in endogenous latent variable OR, 89 % of variance of KN and
62 % of variance of OP.
Considering all three aspects of model fit assessment, the confirmatory analysis has verified all three hypotheses.

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6. Discussion
6.1. Findings and Implications
Our intention was to investigate and prove the existence of a positive impact of knowledge management on organisational performance. Although researchers often imply this
positive effect of knowledge management on organisational performance, the researches
that empirically prove the existing link are very rare. For this research, a new survey
was developed and tested, and it proves to be a successful and justified new measure of
knowledge management constructs in any organisation.
A direct result of this research is also a newly defined knowledge management maturity
model that consists of three empirically tested constructs. The new conceptual model
consists of information technology, organisational elements and knowledge, each defined and explained throughout chapter 2. This model not only proves that the chosen
constructs are a good measure for defining knowledge management maturity, but also
evolves into a measurable scale that puts organisations on a 0 - 4 level chart.
There are rare researches that cover all aspects of knowledge management maturity assessment. This research (1) defines their own knowledge management maturity model
(2) statistically proves the fit of the chosen constructs (3) develops a survey as a measure
of knowledge management maturity (4) applies the measure on a set of companies in
two countries and (5) assesses and empirically proves the theoretically implied effect
of knowledge management maturity, as a construct of those three factors, on organisational performance.
The results of this research also have several implications. First, the feedback from business practice supported the theoretical framework and hypotheses proposed in Chapter
2. The most important finding is that knowledge management components positively
affect organisational performance. In order to have a positive effect on organisational
performance, those three components need to be developed, managed and integrated
into organisational processes and practice.
Second, this empirical research proved that KM heavily relies on technology. However,
business practice shows that many organisations have experienced difficulties in effectively using KM technologies. In order to have a positive impact on elements of knowledge, information technology needs to be introduced through a set of organisational
changes. In practice it means that introducing information technology is successful and
has a positive impact on knowledge management practices only if it is backed up by
changes in people, organisational climate and organisational processes. Organisational
change helps an organisation to optimise processes and define process oriented structure; in that case KM can be adopted correctly within the organisation. Effective KM
cannot be implemented without a significant behavioural and cultural change. There
should be a strong culture, trust and transparency in all areas of the organisation. Besides, the cultural elements, which distinguish organisations from each other, are found

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to be related to KM efficiency. It was also discovered that knowledge management practices have a positive impact on organisational performance.
Third, although many researchers have proposed different frameworks for assessing KM
maturity, this survey was conducted to identify and to understand three components
that play a role in a successful adoption of KM: information technology, organisation and
knowledge. The results clearly show that the selected constructs present a good measure
for the knowledge management construct.
Moreover, the questionnaire constructed and used in this research could become a
standard for measuring knowledge management maturity. Organisations could use the
results of the survey as a benchmark.
6.2. Limitations and Further Research
The major limitation of this study is associated with the scope of empirical research, which
is limited on two small countries, one of them being an EU member (Slovenia), while the
other (Croatia) is not. The research is constrained by the sample size despite the fact it
was carried out in two countries. The sample involved 3089 companies. Nonetheless, with
the response rate being just slightly over 10 %, it included only 329 respondents in both
countries. Furthermore, a bigger sample size would allow the model to be cross-validated.
Further research could involve more countries in order to get more comparable results.
Further research is also possible. First of all the survey could be repeated to compare
the results and to check the improvement. Besides that the same investigation could be
performed in other countries to compare the results and to check how KM maturity is
developing.
7. Conclusions
We conclude that this paper presents three main components important for knowledge
management, namely: (1) information technology, (2) organisational elements and (3)
knowledge. Connections between those components are presented through main hypotheses and the conceptual model is validated through the empirical research. The results of this research confirmed all three given hypotheses.
Empirical data show that organisational elements (such as culture, climate and collaboration) have a positive impact on elements of knowledge in the context of knowledge
management (H1). Through an organisational change we affect the degree of knowledge
sharing and application and consequently improve the practices of KM.
The positive indirect effect of IT application on knowledge management adoption
through organisational elements was also confirmed (H2). Therefore, the study high-

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lights some of the issues raised by IT implementation to improve KM. The codification
of knowledge in information systems, databases and knowledge repositories does not
guarantee efficient KM, but has a potential to influence it in a positive way. It is important to notice that IT does not have a direct influence on knowledge, but an indirect one
through organisational elements as an enabler of a better collaboration among people in
the organisation, motivation of people in the organisation and the process view of the
organisation.
The results of the empirical investigation also confirmed a positive effect of knowledge
management practices on organisational performance (H3). These findings can be used
to improve the knowledge management practice of each organisation and each knowledge entity. Possible applications include business process restructuring initiatives, human capital development, knowledge mapping, the introduction of more team, crossfunctional working, increased emphasis on collaboration, the introduction of more
formal channels for knowledge sharing.
Finally, we argue that the KM conceptual model presented in this paper is a useful starting point to gain a deeper insight into KM elements and their influence to the organisational performance. Despite the claims for a relation between KM and organisational
performance, few researchers have actually proved the existence, as well as the nature
of this link. In this paper, a positive influence of KM on organisational performance is
examined and proved. This conclusion can be applied as a starting point for managers
who are to implement KM through their organisation.
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APPENDIX 1: QUESTIONNAIRE
KNOWLEDGE MANAGEMENT
Please assess to what extent the following statements related to knowledge management
apply to your organisation
Indicate the degree of agreement or disagreement that fits the situation in your organisation. Please circle one choice for each of the following statements (1 = completely disagree
... 7 = completely agree; X = do not know / can not answer).
A. Knowledge
1
2
3
4
5
6
7
8

Our employees obtain a good extent of new knowledge from external sources
(e.g. through seminars, conferences, educational courses, subscription journals,
expert networks).
Our employees obtain a good extent of new knowledge from business partners
(e.g. suppliers, clients).
Our employees exchange knowledge with their co-workers.
In their work, our employees rely on experience, skills and knowledge.
In their work, our employees rely on written sources (e.g. previously implemented
projects documentation, organisational procedures, instructions and other
documented sources).
Our employees share their knowledge orally at meetings or informal gatherings
(e.g. during lunch, in the hallway).
Our employees share their knowledge through formal procedures (e.g. project
reports, organisational procedures and instructions, reports and company
publications).
Employees in our organisation consider their knowledge as an organisational
asset and not their own source of strength.

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B. Information technology
1
2
3
4
5
6

In our organisation, IT tools are used to store data on implemented projects, tasks
and activities.
In our organisation, IT tools are used to store information on suppliers and
customers.
In our organisation, IT tools are used to support collaborative work (e.g. calendars,
video conferencing systems, communication tools).
IT tools in our organisation are simple to use and have a user friendly interface.
IT tools in our organisation enable effective work.
In our organisation we see the advantage of using IT tools in the fact that it
prevents the loss of knowledge.

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C. Organisation
1
2
3
4
5
6
7
8
9

In our organisation, there is a general inclination to cooperation and exchange of

experience among employees.
The general management/leadership of our organisation promotes cooperation
and exchange of experience among employees.
Our employees generally trust each other; in their work they can easily rely on
knowledge and skills of their co-workers.
In our organisation good work is rewarded accordingly.
In our organisation innovative practices are rewarded accordingly.
When that is required, our employees are prepared to take additional efforts and
work.
The general management/leadership motivates employees to engage in formal
education systems to achieve a higher lever of education.
The general management/leadership motivates employees to engage in informal
education systems (e.g. seminars, courses).
In our organisation we support the exchange of data, information and knowledge
among organisational units.

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