THE INFLUENCE OF KNOWLEDGE MANAGEMENT CAPABILITY

THE INFLUENCE OF KNOWLEDGE MANAGEMENT CAPABILITY AND KNOWLEDGE MANAGEMENT INFRASTRUCTURE ON MARKET-INTERRELATIONSHIP PERFORMANCE: AN EMPIRICAL STUDY ON HOSPITALS

Wen-Ting Li
Department of Information Management, National Chung Cheng University,
Minhsiung, Chia-Yi, 62100 Taiwan
E-mail: peggywendy@gmail.com

Shin-Yuan Hung
Department of Information Management, National Chung Cheng University,
Minhsiung, Chia-Yi, 62100 Taiwan
E-mail: syhung@mis.ccu.edu.tw

The fierceness of competition and the barriers to knowledge management has embraced the healthcare industry. In this study the benefits of knowledge management capability and infrastructure are examined to resolve these problems, based on the resource-based view. In addition, based on the process-oriented perspective, the innovation on business process will be used as a mediator to improve specific business value in the healthcare industry. From the empirical data, this study finds knowledge management capability and technical context of knowledge infrastructure benefit market-interrelationship performance through the innovation on business process. Especially, cultural knowledge infrastructure is beneficial to market-interrelationship performance directly and indirectly. Surprisingly, structural knowledge management infrastructure falls to affect innovation on business process. The reason might be the high degree in centralization within the hospital. However, this study also generally demonstrates the proposed model. The findings illustrate the significance of the perspective of practice and provide guidance for further research. Finally, the inherent limitations are also mentioned.
1. Introduction
The trend of healthcare industry faces the depressed financial environment. This condition is not only happened in OECD (Organization for Economic Cooperation and Development) countries, but also happened in Taiwan. Information technology within healthcare organizations has rapidly changed. From the healthcare environment, the financial motivation and patient leverage in motivation of the medical service activities are changing (Wilson and Lankton 2004). Before the 1995, the competition among hospitals was not significant in Taiwan. Since 1990, “the Executive Yuan charged the Department of Health actively to promote the National Health Insurance (NHI) Program” (Chang 1998, p.308). In 1995 the program of fix reimbursement for health care benefit to hospitals was promoted continuously in Taiwan (Chang et al. 2006). These policies exerted fierce financial pressure on hospitals in Taiwan. In order to face the competitive environment, hospitals not only adopted information technology (e.g. Picture Archiving and Communication System, PACS), but also provided additional services and built brand image (e.g. promoting the healthcare quality). But the technology adoption is not a necessity for generation of the superior performance in the same industry (Chang et al. 2006).
From the resource-based view, the intangible resource is superior to the tangible (Ray et al. 2004), especially in those hospitals which are knowledge-based organizations (Lin et al. 2008). However, the prior researches of the profit of knowledge management have founded the different outcome. Gold et al. (2001) knowledge management capability has impact on the organizational effectiveness. Lee and Choi (2003) points out that the knowledge management architecture has impact on the organization creativity through knowledge creation, which in turn improves organizational performance. But the other study found no relationship between knowledge creation and organizational performance (Droge et al. 2003). The knowledge resource has no specific value before knowledge application (Drew 1997; Droge et al. 2003). The various way of application of knowledge is the determinant whether that knowledge is helpful or detrimental (Brockman and Morgan 2003). Therefore, the appropriate infrastructure and application can help knowledge resources to result in generating the value in place, which in turn can improve the business value. Despite the architecture of knowledge contexts has been pointed out (e.g. Zack 1999; Alavi and Leidner 1999; Gold et al. 2001; Lee and Choi 2003), but little research has investigated the intermediated value of knowledge management resource. Additionally, the value of the resources has considered the business process capability, which in turn can provide the business value of knowledge resource (Radhakrishnan et al. 2008). In hospitals, the business process improvement is the essence for the bottom line for operational cost (Devaraj and Kohli 2000).
However, the knowledge management within the hospitals in Taiwan has the barriers of knowledge flows, including knowledge source, knowledge receiver, knowledge transferring, and organizational context (Lin et al. 2008). To resolve the barriers of knowledge management in healthcare industry, this study not only investigates the way to deploy and exploit knowledge resource effectively but also appraises the knowledge benefits. Based on the process-oriented perspective, this study investigates the knowledge resource and knowledge context of organizational infrastructure applied to the business processes. In addition, the culture within the hospital is also the interesting issue while the leverage of patients is increasing. In summary, based on the resource-based view and process-oriented perspective, this research investigates four key questions:
(i) Does the value of knowledge management capability lead to the innovation on business process?
(ii) How does the value of knowledge management infrastructure enjoy the innovation on business process?
(iii) Does the innovation on business process lead to the metrics within the market-interrelationship performance?
(iv) Does the cultural knowledge context directly lead to the market-interrelationship performance?


2. Theoretical Background
From the broader view of knowledge-based, knowledge management capability subsumes the information-based, the technology-based and the managerial perspective from the execution opinion (Alavi and Leinder 1999). Based on the synergies of knowledge management, knowledge management capability includes product knowledge, customer knowledge, and managerial knowledge which is related to the governing business units (Tanriverdi 2005). Based on the resource-based view, the knowledge management resources should subsume knowledge management infrastructure and knowledge management capability. The knowledge management infrastructure is the basic infrastructure to support the knowledge management activities in the firms. The knowledge management capability is involved in the primary knowledge management activities and practices in the firms.
2.1. Knowledge management capability
Knowledge management capability is the organizational capability which in dynamic hypercompetitive environments, which capability creates the valuable business activities. From the theoretical insights of the resource-based view (RBV) within strategic management (Barney 1991), the knowledge capability is not only the strategic resource, but also the development and distribution knowledge resource as well. The firm posses the varied knowledge resource, but the most-strategic knowledge management resources are the product, customer, and managerial relatedness knowledge (Tanriverdi 2005). The interrelationship between the resource and capability is complex, and the capability refers to the coordination of resource and the people who exploit the resources (Grant 1991).
The knowledge management capability includes the three perspectives which are related to the product, customer and management. The complementarities among the product, customer and managerial knowledge can generate the super-additive value synergies (Tanriverdi and Venkatraman 2005). In order to gain the value, these three knowledge resources may need to exist simultaneously. Through coexistence of those knowledge relatedness resources can attach inimitable value in the same industry (Tanriverdi and Venkatraman 2005).
2.2. Knowledge management infrastructure
The separated embeddedness of knowledge management (KM) infrastructure was comparatively more valuable and inimitable, which can represent the more comprehensive concept (Sambamurthy et al. 2003). Based on the concepts of maximum social capital, the critical elements of the knowledge management infrastructure are technology, structure and culture (Gold et al. 2001). The context of knowledge management architecture refers to the strategic context, knowledge context, organizational context, and technology context (Zack 1999). The Knowledge management infrastructure is the basis for the knowledge management application. In order to support knowledge management activities and manage knowledge resources, the KM infrastructure has the three contexts which is technical, structural, and cultural knowledge management. The technological context is capable of supporting knowledge sharing, storage, and management (Alavi and Leidner 2001). The structure refers to the support of the knowledge management activities and motivation for the knowledge sharing (O’Dell and Grayson 1998; Zack 1999). The cultural context is the knowledge management behaviors and the organizational vision (Gold et al. 2001; Alavi et al. 2006).
2.3. The innovation on business process
The definition of the innovation on business process is the combination of “the adoption of a process view of the business with the application of innovation to the key processes” (Davenport 1993, p. 1). Business process is defined by the activities underlying value generating processes (Melville et al. 2004). Business process is a set of interdependent activities and tasks undertaken to achieve business goals (Raghu and Vinze 2007). From the perspective of resource-based, business process is related the resource exploitation in organizations (Melville et al. 2004). The exploitation of knowledge resources is the most-strategic resource within multiple business firms (Tanriverdi 2005). However, exploitation is about reusing and sharing the existing resources, and exploration is related to the knowledge creation (Gray 2001). Therefore, based on the resource-based view, the business process outcomes come from the advantage of the knowledge resource exploitation.
2.4. Market-interrelationship performance in healthcare organization
The organizational overall performance is revealed after by aggregating each business value within the value chain (Ray et al. 2004). The business value in the value chain subsumes the production interrelationships and the market interrelationships (Porter 1985). The production interrelationships include the inbound logistics (e.g. Supplier relations) and operations, the market interrelationships associate the outbound logistics (e.g. customer relations), marketing and sales, and service (Porter 1985; Tallon 2000). The market interrelationship involves the value of the sharing in reaching and interacting with the consumer to enhance the opportunities and sharing market-related activities (Porter 1985). The specified business value chains reflect the business value superior than the other firms within the same industry, and then have the impact on the specified organizational performance (Melville et al. 2004). While the prior research indicated IT can support to generate improved performance in hospitals as knowledge intensive organizations (Devraj and Kohli 2000), knowledge management practices may not directly impact on financial performance, but through effect on the product leadership, customer intimacy, and operational excellence, then reach the financial performance (Mckeen et al. 2006). Therefore, the metrics of the market-interrelationship performance is preferred to measure the knowledge management investment. The three metrics of market-interrelationship performance are customer relations, marketing and sales, and service (Porter 1985; Tallon 2000).
3. Research Model and Hypotheses Development
3.1. Research model
The proposed model is depicted in Figure 1. Based on the resource-based view and process-oriented perspective, this research model suggests knowledge management capability and knowledge management infrastructure are hypothesized to positively influence organizational market-interrelationship performance through the innovation on business process. The market-interrelationship performance metrics include service enhancement, sales and marketing support, and patient relations.

Figure1. Research Model
3.2. Hypotheses development
According to the resource-based view, the knowledge resource exploitation and the application of kernel knowledge resource will result in the underlying the innovation on business processes (Melville et al. 2004; Raghu and Vinze 2007). The effective management of knowledge resource could not create unnecessary redundant knowledge, but create the necessary redundant knowledge which improves the innovation on business process (Nonaka 1990). The capability of knowledge management seems as the essence related to the innovation and improvement of process (Earl 2001). Based on the KM infrastructure, the organization can achieve the maximum value of knowledge resources. The value of knowledge management underlies the generation of value of the business processes (Raghu and Vinze 2007). Additionally, the value of knowledge management resources could create the innovation (Nonaka 1994; Fichman 2004). The effectiveness of knowledge resource deployment has influence on the innovation (Nonaka 1990). Thus, these observations lead to the following hypotheses:
Hypothesis 1. Knowledge management capability will be positively related to the innovation on business process.
Hypothesis 2. Technological knowledge management infrastructure capability will be positively related to the innovation on business process.
Hypothesis 3. Structural knowledge management infrastructure will be positively related to the innovation on business process.
Hypothesis 4. Cultural knowledge management infrastructure will be positively related to the innovation on business process.
Business process outcome has the profit for the organization, and the innovation on business processes is related to the operational efficiency, effectiveness, and flexibility (Karimi et al. 2007). The innovation on business process also includes improved productivity, increased responsiveness, and reduced waste (Karimi et al. 2007). Business process is a set of interdependent activities and tasks, which is made to achieve business goals (Raghu and Vinze 2007). The strategic business goals of the service-oriented industry are regarding the market interrelationship performance. The market interrelationship performance includes service enhancement, marketing support, and patient relations (Porter 1985). Therefore, these observations suggest the following hypotheses:
Hypothesis 5. The innovation on business process will be positively related to service enhancement.
Hypothesis 6. The innovation on business process will be positively related to sales and marketing support.
Hypothesis 7. The innovation on business process will be positively related to patient relations.
The literature investigates the relationship between the organizational culture and the organizational performance (Barney 1986; Hult et al. 2003; Ray et al. 2004). Culture is an organizational tacit that is measured by the firm’s actions (Brockman and Morgan 2003). Additionally, the knowledge-centered culture (Janz and Prasarnphanich 2003), entrepreneurship and cohesiveness culture (Brockman and Morgan 2003), and a clear corporate vision culture (Gold et al. 2001) positively affect improved organizational outcome. A clear corporate vision culture emphasizes entrepreneurship and creativity in finding new market and direction of growth (Brockman and Morgan 2003). The cultural knowledge management infrastructure is a strategic resource which may directly influence the superior performance (Baer and Frese 2003; Hult et al. 2003). The superior cultural knowledge management is knowledge sharing and contribution to achieve the valuable outcomes (Alavi et al. 2006). These observations suggest the following hypotheses:
Hypothesis 8. Cultural knowledge management infrastructure will be positively related to service enhancement.
Hypothesis 9. Cultural knowledge management infrastructure will be positively related to sales and marketing support.
Hypothesis 10. Cultural knowledge management infrastructure will be positively related to patient relations.


4. Research Methodology
4.1. Measures
All of the variables are operationalized by multiple items. First, knowledge management capability was measured with 12 survey items adapted from the Tanriverdi (2005) the previously validated instrument. Second, knowledge management (KM) infrastructure consists of technological, structural, and cultural KM infrastructure. The measurement scales of the technological, structural, and cultural KM infrastructure were measured by seven-point Likert scales and adapted form Gold et al. (2001) previously developed and validated instrument. The innovation on business process was measured using the previous validated instrument from Karimi et al. (2007). Then, the innovation on business process examined the operations improvement and the change of business process, which posited resulting in the profit outcome (Clark and Stoddard 1996; Fichman 2004; Karimi et al. 2007). Finally, market-interrelationship performance was measured by the impact of the innovation on business process leading to competitive advantage within the same industry. Moreover, the valuable business activity of market-interrelationship consist of three constructs, which is service enhancement, sales and marketing support, and patient relations (Porter 1985; Tallon et al. 2000). Service enhancement, sales and marketing support, and patient relations measured by seven-point Likert scales and adapted from Tallon et al. (2000). Additionally, the pretest and the pilot test are used to check the content validity.
4.2. Data collection and analysis
The sample list is obtained from the database of Bureau of National Health Insurance in Taiwan. The data was collected for the year 2007. The sample in this study includes 25 medical centers, 72 regional hospitals and 401 distinct hospitals. According to the resources of the hospitals (e.g. numbers of the beds, number of the physicians), the department of health of government group hospitals into medical centers, regional hospitals, and distinct hospitals in Taiwan. Hence, this study investigates the proposed model through a mail survey targeting 497 hospitals in Taiwan. Data was collected from the chief information officer (CIO) in sampled hospitals. In total, 170 questionnaires were obtained from 497 hospitals. Of these 129 questionnaires was usable, after excluding incomplete questionnaires and non-implementation of knowledge management. Consequently, the effective response rate is about 26 percent. The response rate of the medical centers is 96 percent, and the response rate of regional hospitals is 82 percent.
4.2.1. Reliability and validity analysis
For the internal consistency reliability was tested by the Cronbach’s alpha. All of the Cronbach’s alpha values of the variables are higher than 0.86, which were above the recommend value of 0.70. Convergent validity test assess the different measures gathered indicating the same concept (Kerlinger and Lee 2000).
The convergent validity test uses the correlation of items with total-score. All the items with item-to-total correlation scores are higher than recommend value of 0.50, ranging from 0.52 to 0.90. For discriminant validity test, the factor analysis is used. (Kerlinger and Lee 2000). Factor analysis adopts the principal factor analysis and varimax rotation grouping the items representing each construct. Therefore, the factor analysis is used to check undimensionality among items. Items with factor loading values less than cutoff value of 0.5 are deleted. From correlations among constructs, the cultural knowledge management infrastructure is more strongly correlated to the market-interrelationship performance than technological and structural knowledge management infrastructure. The pairs of correlations are below the recommend cutoff value of 0.9 (Hair et al. 2006), which shows no multicollinearity problem. The lower of the correlation metric indicates the conditions that free of the multicollinearity. Additionally, the result of the collinearity test of the dependent variable also suggests no multicollinearity problem. The variance inflation factors were less than the threshold value of 10, ranging from 1.73 to 2.70 (Hair et al. 2006). In addition, in order to satisfy the normality of the variables in the survey, the better method is the use of normal probability plots (Hair et al. 2006). All of the normal probability plots represent almost straight diagonal line. There is no normality of the variables problems.
4.3. Hypotheses testing
From the previous mention that research model and the hypotheses, the hypotheses were analyzed using structural equation modeling based path analysis. The structural equation modeling use AMOS 7.0. The SEM can provide various causal links and are useful for explaining multiple observable variables (Joreskog and Sorbom 1982). The SEM based path analysis also estimates the variances and covariances of independent variables in contrast to the multiple regression testing. In addition, the SEM is related to the multivariate technique, which is the multiple regression to examine the relationship among the variables. The overall validity of the model is measured by the goodness of fit indices. Specifically, the fit indices are used to access the rational acceptable model, which including the absolute, incremental, and badness of fit index (Hair et al. 2006). The model fit measures is shown in Table 1.
Table 1. The Model Fit Statistics
Indices Recommendation Value Value
p-value > 0.05 0.097
χ2/df < 3.00 1.642
GFI > 0.90 0.973
AGFI < 0.90 0.891
RMSR < 0.08 0.023
CFI > 0.90 0.992
NFI > 0.90 0.979
RMSEA < 0.08 0.071
The results of the hypotheses tested by structural equations modeling are shown in Figure 2. Additionally, the standardized parameter estimates and statistical significance of all hypotheses are shown in Figure 2. Overall, nine of ten hypotheses are supported in the proposed model. The result indicated knowledge management capability is positively associated with innovative business process at the 0.001 level, which support hypothesis 1. In addition, the standardized coefficient score of 0.44 shows that knowledge management capability would significant influence the innovation on business process. Hypothesis 2 is supported by the relationship between technological KM infrastructure and the innovation on business process has weak statistical significance at the 0.1 level. However, hypothesis 3 which proposes structural KM infrastructure has positive influence the innovation on business process is not supported. As for cultural KM infrastructure, the results indicate cultural KM infrastructure would positively influence the innovation on business process, service enhancement, sales and marketing support, and patient relations. Hence, hypothesis 4, 8, 9 and 10 are statistically supported at the 0.001 level.
The relationship between the innovation on business process and market-interrelationship outcomes has positive association. The results of the relationship between the innovation on business process and service enhancement has statistically significant influence at the 0.001 level, which support hypothesis 5. Hypothesis 6 is also supported at the 0.001 level, which demonstrates that the innovation on business process positively influence on sales and marketing support. Lastly, business process would positively impact on patient relations, supporting hypothesis 7 at the 0.1 level. Additionally, the four antecedents (knowledge management capability, technology, structure, and culture) explain 62.9% of the variance in the innovation on business process. Moreover, the innovation on business process in conjunction with the four antecedent variables and cultural knowledge management infrastructure explains 42.6% of the variance in service enhancement, 38.3% of variance in sales and marketing support, and 65.8% of variance in patient relations.

Figure 2. The Path Model Results
5. Discussion
This study started with the objective of addressing the research question, which is related to the source of value of knowledge management. In addition, the value of knowledge management impacts hospitals primary value activities, which in turn leads to the superior competitive advantage within the same industry. Therefore, the major research questions include: (1) does the value of knowledge management capability lead to the innovation on business process, (2) how does the values of knowledge management infrastructure enjoy the innovation on business process, (3) does the innovation on business process lead to the metrics within the market-interrelationship performance, and (4) does the culture of knowledge context lead to the market-interrelationship performance directly? In order to explore these questions, resource-based view and process-oriented perspective are taken as the theoretical bases in this study. Based on resource-based view, the knowledge resources of knowledge management capability and infrastructure are postulated to create the valuable and inimitable knowledge resource, which in turn affects innovation (Nonaka 1994). The value of knowledge-related valuable activities is related to the business process change positively. The business process change achieves the process efficiency, process flexibility and process effectiveness (Karimi 2007). The business process positive is related to the innovation on business process (Davenport 1993). Therefore, this study proposed ten hypotheses related to the previous four questions.
The empirical findings of this paper suggest that knowledge management capability is positively associated with the market-interrelationship performance through the innovation on business process. The valuable resource of the knowledge management capability creates the valuable resources delivered by the innovation on business process. This result is in line with Raghu and Vinze (2007) and Radhakrishnan et al. (2008). In addition, the findings reveal that technological and cultural KM infrastructure has significant and positive effects the innovation on business process, and also that cultural KM infrastructure is beneficial to market-interrelationship performance.
These findings confirm the IT and non-IT resource implementation of the previous study, and these resources effected to relative business process and specify value chains (Ray et al. 2005; Radhakrishnan et al. (2008). Additionally, the inimitable and rare cultural KM infrastructure has the significant influence the three metrics of market-interrelationship performance. The three metrics of market-interrelationship performance are the service enhancement, sales and marketing support, and patient relations.
Thus, the findings generally support to the proposed hypotheses, except for structural KM infrastructure is not significant association with the innovation on business process. This result is in line with the report of hospital structure of the previous empirical study which pointed out high degree of hospital centralization (Chang et al. 2006). The centralization is the hamper of the valuable knowledge resource creation (Lee and Choi 2003). Therefore, the structural KM infrastructure has no significant influence on the innovation on business process. Based on the process-oriented perspective, the result also demonstrates positive association between the innovation on business process and market-interrelationship performance. One of the most valuable chains of business value within the healthcare industry is the market-interrelationship performance. Knowledge management capability, technological and cultural KM infrastructure enables this business value to be achieved through the innovation on business process.
6. Conclusion
In line with Ray et al. (2005), this study contributes to integrate the resource-based view and process-oriented perspective. Based on the resource-based view, the valuable resource of the KM capability and the context of KM infrastructure accrued the innovation on the business process. Consequently, the process-oriented perspective is the mediation to deliver the value of knowledge capability, which is beneficial to the market-interrelationship performance. As such, this study concentrates on the mediation of the innovation on business process as a critical value, reflecting the valuable KM capability and context of KM infrastructure. Additionally, cultural KM infrastructure is one of the critical resources in healthcare organizations within the service-based industry.
The innovation on business process is effected by the knowledge deployment and resources. The dynamic capability of knowledge management infrastructure is capable of improvement absorbing, exploiting and transfer of the valuable knowledge to generate innovative business processes. The results of this research could help hospital managers to reach strategic knowledge management related decisions. The decision is related to the type of knowledge management infrastructure and capability deployment. In addition, it allows effective deployment of strategic knowledge resources.
Longitudinal study is needed to further explore these issues. The longitudinal study provides the insight of knowledge resource accumulation accrued and the innovation within the business process. Based on stages of innovation diffusion, the different stages achieve different valuable business value chains. Furthermore, from the circle of resource-based view, the innovation on business process could generate resources and capability for the organizations (Porter 1991).
Although the findings of this study had found some interesting results, the necessary of consideration of the inherent limitations. One limitation is that the data focuses on relatively large hospitals. The results may not be the same in the small hospitals. Another limitation is that the empirical analysis was conducted in the healthcare industry. The generalizability of the results may be limited.
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