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108 Journal
The WINNERS
, Vol. 15 No. 2, September 2014: 108-114
THE IMPACT OF KNOWLEDGE MANAGEMENT
AND ENTREPRENEUR’S KNOWLEDGE ON INNOVATION
AND FIRM PERFORMANCE
Hendry Hartono; Erwin Halim
School of Business Management, BINUS University
Jln. K.H. Syahdan No. 9, Palmerah, Jakarta Barat 11480
hhartono@binus.edu; erwin.halim.mba@gmail.com
ABSTRACT
There is lack of evidence from previous studies that examined the relationships among entrepreneur’s
knowledge, knowledge management, innovation, and firm performance. Entrepreneur if s/he has more knowledge
than other entrepreneurs can be more competitive. Literature studies show that entrepreneur knowledge and
knowledge management had significant and direct positive effect on innovation and firm performance. Further
studies are needed for showing a model and factors that enhance innovation and improve firm performance. The
purpose of this paper is to propose a framework of improving the firm performance by enhancing of the
innovation, through the entrepreneur knowledge and knowledge management. Based on this paper, further
research is needed on the potential role of EK and KM in innovation, and how the value of EK and KM can be
maximized to have a more valuable innovation that would be an impact on firm performance.
Keywords: entrepreneurship, knowledge, management, innovation, firms performance
ABSTRAK
Ada kurangnya bukti dari penelitian sebelumnya yang meneliti hubungan antara pengetahuan
wirausaha (entrepreneur), manajemen pengetahuan, inovasi, dan kinerja perusahaan. Wirausaha (entrepreneur)
jika memiliki lebih banyak pengetahuan dari wirausaha lain dapat lebih kompetitif dibandingkan dengan yang
lain. Studi literatur menunjukkan bahwa pengetahuan pengusaha dan pengetahuan manajemen memiliki
pengaruh yang signifikan dan secara positif langsung berpengaruh terhadap inovasi dan kinerja perusahaan.
Penelitian selanjutnya diperlukan untuk menampilkan model dan faktor-faktor yang meningkatkan inovasi dan
meningkatkan kinerja perusahaan. Tujuan dari tulisan ini adalah untuk mengusulkan kerangka kerja untuk
meningkatkan kinerja perusahaan dengan meningkatkan inovasi, melalui pengetahuan pengusaha dan
manajemen pengetahuan. Berdasarkan tulisan ini, penelitian lebih lanjut diperlukan pada peran potensial EK
dan KM dalam inovasi, dan bagaimana nilai EK dan KM dapat dimaksimalkan untuk memiliki inovasi lebih
berharga yang akan berdampak pada kinerja perusahaan.
Kata kunci: kewirausahaan, pengetahuan, manajemen, inovasi, kinerja perusahaan
The Impact of Knowledge..... (Hendry Hartono; Erwin Halim) 109
INTRODUCTION
There are so many studies that examine the relationship between knowledge and firm
performance, and also between knowledge and innovation. Knowledge is becoming hot topics among
scientists and business communities. It is because knowledge is probably a source and driver of
innovation (Emadzade, et. al., 2012). Knowledge can be a unique advantage that cannot be easily
copied by competitors. Knowledge would be a great resource if the firm can effectively and efficiently
manage it.
Moreover, an entrepreneur, if s/he has more knowledge than other entrepreneurs, can be more
competitive. It also means s/he can manage her/his firm better than the others. Entrepreneur Knowledge
(EK) is difficult to find, especially in the context of how EK affects innovation besides firm
performance. This paper, thus, purposes on a model design which measures the influence of EK on
innovation and firm performance. Entrepreneur and her/his organization are related, moreover, this
study purposes on how the organization manages knowledge since knowledge becomes more important
(Theriou, et. al, 2009) and it is an important asset in global competition (Omerzel & Antoncic, 2008).
METHOD
This research used literature review as a systematic search of published works to find out what
is already known about the intended research topic. Literature review allows the research to find out
what has been done in terms of the problem being investigated and to ensure that duplication does not
occur. Literature used in this paper did not only identify and analyze all written information about the
topic, but also gained any insight and had a notion about the problem investigated.
DISCUSSION
In the competitive environment, the entrepreneurs need to use their knowledge and skill and
use them to connect existing and new technologies to their company. Successful entrepreneurs can
develop their knowledge, skill, and managerial capabilities (Tidd & Bessant, 2009:79) in order to
survive in the competitive environment. In order to survive, they must innovate new opportunities in
their industries. In today’s competitive environment, innovation becomes more and more relevant,
mainly due to three major trends: intense international competition, fragmented and demanding
markets, and diverse and rapidly changing technologies. Firms that adapt to the needs and wants of
target customers are in a better position to create a sustainable competitive advantage (Alegre-Vidal et
al., 2004). Dobni (2010) argues that enhancing the innovative ability in organization is one of the most
important levers to increasing profitability and growth in organizations. Innovative firms are more
successful over long term if they are more creative, have desire to succeed, possess a common sense of
purpose and constituency, and they are empowered (Dobni, 2010). This means firms must understand
the relationship between strategy and innovation, and they have identified the configurations that are
best suited to their environment, and also know how the business will achieve their objectives (Dobni,
2010; Stankevice & Jucevicius, 2010).
A successful entrepreneur constantly supplements the system of acquiring knowledge with his
or her vision. Therefore entrepreneurs combine their knowledge, broaden it, and create new innovative
ideas (Omerzel & Antoncic, 2008) and organization needs individual key that has power and influence
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acting as gatekeeper—collecting information from various sources and passing it to the relevant people
(employee) who will be best able to use capabilities (Tidd & Bessant, 2009:114). It is expected that:
Hypothesis 1: Entrepreneur Knowledge (EK) is positively related to innovation.
Entrepreneur uses knowledge to recognize or create an opportunity and to take action, and also
uses innovation knowledge by realizing it into pratice or product. Joseph Schumpeter pointed out that
entrepreneur is often an innovator. S/he brings new goods and new technologies to market, open new
markets, proceses, and also ideas. Entrepreneurs at organization must transform into organizational
knowledge (Theriou et. al., 2009) which is must shared to employees, and therefore use this knowledge
to improve organizational performance. Knowledge management (KM) enables the existing individual
knowledge to be captured and transformed into organizational knowledge, which in turn must be
diffused and shared by many employees (Theriou et. al. 2009). The knowledge-based view of the firms
mentioned that the organization as the key element in the creation process and application of knowledge
(Grant, 1997; Nonaka, 1994). This theory recognized that organization performance depends on the
capabilities in developing and deploying knowledge. Organizations need to understand how they create
and manage new knowledge (Nonaka & Takeuchi, 1995) to strengthen organization capability to
innovate (Jennex & Olfman, 2004). It is expected that:
Hypothesis 2: Entrepreneur knowledge (EK) is positively related to Knowledge Management (KM).
Many literatures indicate that knowledge management tends to reflect the experience of the
entrepreneur. At organizational level the entrepreneur must have a lot of experiences in maintaining
her/his organization aiming to perform competitive firm. Entrepreneur tends to be more competitive in
case of her/his knowledge base, as well as facing resource scarcity and time constraints, entrepreneur
also faces tougher competition in the market. Entrepreneurs have to be more adapted in the fast of
changing world; they must develop new learning and skills that are crucial ingredients in the world of
successful economy.
Globalization and knowledge driven economy require entrepreneur to develop a more skillful
entrepreneur in order to compete within global market and global competition. This means that
entrepreneur should pay attention to her/his knowledge and manage it to be source of innovation and
for further improvement that should be useful for organization. Experiential knowledge of the
entrepreneur and making tacit or explicit knowledge and developed within the firm in order to share,
combine knowledge, and create new knowledge are the innovative process that lie at the heart of
knowledge management. Entrepreneur has facing major challenges: (a) keeping the firm's capabilities,
resources and routines up to date; (b) maintaining the owner-manager's entrepreneurial and
management competences; (c) acquiring new knowledge, which raises issues concerning the source of
information (formality/informality, education/experience), the internal absorptive capacity for
interpreting and absorbing the new information as applicable knowledge and the use of the new
knowledge; and (d) creating new knowledge, which also raises very interesting and challenging issues
concerning innovation, creativity, and strategy.
Theriou et al. (2009) indicates that knowledge management is considered to be vehicle for
organization effectiveness and competitiveness. Global competition in this era becomes more and more
intense; this indicates that organization must survive and face the challenge of daily instability and
uncertainty environment that force organization to be more innovative (Trias de Bes & Kotler,
2011:14). It is expected that:
Hypothesis 3: Knowledge Management (KM) is positively related to Innovation.
Knowledge management is recognized as a process of capturing collective organizational skills.
Knowledge, wherever, it is located, either in the database, the papers, or in people's heads, and then is
The Impact of Knowledge..... (Hendry Hartono; Erwin Halim) 111
distributed to any knowledge in order to increase of organization performance. According to Wiig
(1997), Knowledge management is a systematic building, explicit and deliberate, renewal, and
application of knowledge to maximize the effectiveness with respect to organizational knowledge.
While Townley (2003), KM as a set of the process of creating and sharing of knowledge
throughout the organization to optimize achievement the mission and goals of the organization. Thus,
knowledge management is about improving the use of organizational of knowledge through
information management practices and organizational learning to achieve excellence competitive
advantage.
Uhlaner, et. al. (2007) found that KM acquisition or input strategies may be the most important
aspect of the innovation process influencing the performance of small firms they also found that the
knowledge exchange is critical in the success of KM innovation efforts. It should be a point of attention
to entrepreneurs. Small firms often lack the financial capacity to make full use of new methods and
innovations developed by academic researchers. Nevertheless they also found that KM input strategies
related to knowledge acquisition are positively related to sales turnover growth. Their research results
emphasize the importance of both knowledge absorption and knowledge creation to the success of
innovative efforts in small firms.
Kim (2003) defines knowledge as something that makes both data and information manageable
and meaningful. He also classified knowledge into different types: know-what, know-why, know-how
and know-who. “Know-what” and “know-why” are the explicit knowledge that can be expressed
through language. Thus, the explicit knowledge is relatively easy to codify and transfer to others. On
the other hand, “know-how” and “know-who” – are tacit knowledge that is acquired mainly by
experience and are more difficult to codify, measure, and transmit.
Types of knowledge according Kim (2003) are as follows. “Know-what” refers to knowledge
about “facts”. It is close to what is normally called information. In dealing with some complicated
matters, experts like lawyers and analyst must have a lot of know-how (information) to perform a
specific job. “Know-why” refers to scientific knowledge of the principles and laws of nature. The
acquisition of know-why is accomplished in specialized organizations such as research laboratories.
“Know-how” refers to skills or the capability to do something. This kind of knowledge is hard to codify
in language. A firm may establish industrial networks to share and combine elements of know-how or
adopt out-sourcing to efficiently utilize others’ know-how. “Know-who” refers to information about
who knows what and who knows how to do what. It involves the formation of special social
connections, which make it possible to get access to experts and use their knowledge efficiently. Know-
who is important in economies where information is widely dispersed and imbalanced because of a
highly developed division of work forces and a rapid change (or an advance) of technology.
Zhou et. al. (2007) found that external acquisition has a positive indirect effect on innovation
behavior, mediated by innovation orientation. Also SMEs rather seek opportunities and acquire new
external knowledge through social ties and communication with external resources than building new
knowledge and creating innovation opportunity in-house. Further Zhou et al (2007) conclude that
favorable external communication system can make SMEs more innovative, perhaps by improving their
judgment of perceived opportunities in order to react to the changing environment.
Madhoushi et al (2011) examined the relationships among EO, knowledge management and
innovation performance in industrial zone SMEs. They found that entrepreneurial orientation both
directly and indirectly through the knowledge management influence on innovation performance.
Further, they also conclude that knowledge management plays a mediating role between entrepreneurial
orientation and innovation performance and they proposed the needed to understand organizational
knowledge, knowledge management process, entrepreneurship process and their integrated influences
on firms’ innovation performance.
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Hypothesis 4: Knowledge Management (KM) boosting up the EK to increasing the innovation.
Innovation is defined as "the creation of new knowledge and ideas to facilitate new business
outcomes, aimed at improving internal business processes and structures and to create market driven
products and services"(Al-Hakim & Hassan, 2012). When defined as an outcome, innovation is the
tangible product, service or process that is adaptable or diffusible, meaning it can be used in various
contexts by different individual (Schaper & Vollery, 2004). Successful organization indicates that
knowledge management enables the organization to become innovative (Theriou et al., 2009) and
innovative becomes priority action for established corporations (Grant, 2010) also as a main reason to
survive and growth (firm performance). It is expected that:
Hypothesis 5: Innovation is positively related to Firm Performance.
Hence, the conceptual framework from the 5 hypotheses is in Figure 1.
Figure 1 Conceptual Framework
Knowledge is one of important elements for innovation. This paper focuses on the
Entrepreneur Knowledge, Knowledge Management, Innovation, and Firm Performance. EK
significantly related to the innovation. Innovations refer to practice, ideas or any object, which is
perceived as new (Mirza & Ali, 2011). Tidd and Bessant (2009) argue that innovation has four
dimensions, such as: product innovation, process innovation, position innovation, and paradigm
innovation. Rodrigues and Riccardi (2002) argued that entrepreneurship, knowledge and innovation are
the three key elements necessary to assure continuity to our economic model and success to the new
organization. The success of the new organization would be based on conditioning its behavior, in
terms of aligning entrepreneurial behavior to knowledge learning and acquisition, in order to reach
innovation. They also conclude that innovation in the organization is the object of entrepreneurship and
knowledge and also have higher levels of competitiveness.
Knowledge management plays an invaluable role in innovation (Du Plessis, 2007), and she
defines the value proposition of KM in innovation: KM assists in creating tools, platforms and
processes for tacit knowledge, creation, sharing and leverage in the organization; KM assists in
converting tacit knowledge to explicit knowledge; KM ensures the flow of knowledge used in
innovation process.KM also has a function to maximizing (Wiig, 1997), optimizing (Townley, 2003)
and improving the efficiencies in organizing of knowledge to improving the firm performance through
the innovation.
The Impact of Knowledge..... (Hendry Hartono; Erwin Halim) 113
CONCLUSION
Company in the coming year views knowledge as the most powerful source that can be
valuable to build strategic competitive advantage (Long Wu & Chang Lin, 2009) in the very rapid
market environment. Firms that use this knowledge require KM as vehicle for
organizations’effectiveness and competitiveness (Theriou et al., 2009). KM facilitates organizations to
be faster, more efficient, and more innovative. Organization also views KM as powerful solution to
contribute innovation improvement and also improve its performance. KM helps developing skill and
knowledge of the entrepreneurs in order to transfer, disseminate, and accumulate knowledge, and
stimulate this knowledge to become an innovation through products and services. Based on this paper,
further research is needed on the potential role of EK and KM in innovation and how the value of EK
and KM can be maximized to have a more valuable innovation that will impact firm performance.
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