The influence of knowledge management infrastructure on competitive capabilities and the mediating role of IT capabilities within this effect

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The influence of knowledge

management infrastructure on

competitive capabilities and the

mediating role of IT capabilities

within this effect

Master Thesis

Author: J.C. (Niels) Baartman Student number: 10899553

Date: 29 June 2017 Version: Final

Faculty: Economics and Business

Programme: Master of Science - Executive Programme in Management Studies Track: Strategy

Institution: University of Amsterdam, Amsterdam Business School Supervisor: Dr. Sebastian Kortmann

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Final Thesis J.C. Baartman 10899553 Page 1 of 65

Statement of originality

This document is written by student Niels Baartman who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The University of Amsterdam and her faculty of Economics is responsible solely for the supervision of completion of this work, not for the contents.

J.C. (Niels) Baartman 10899553

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Abstract

The significant positive effect of Knowledge Management Infrastructure (KMI) on Competitive Capabilities (CC) is proven in this research. Where also the direct and indirect relationship on IT Capabilities (ITC) is supported by the outcomes of the study. These relationships are grounded in the theory on different constructs where the knowledge-based view and different theories on the importance of IT are stated. This research is also based on different theories of competitive advantage, competitive capabilities and other types of unique selling points for companies based on their capabilities. Most of the theories see knowledge as one of the most valuable resources of the firm, the mediated relationship of IT Capabilities within the effect of knowledge management infrastructure and competitive capabilities isn’t proven in the used literature.

The research model is an model with four hypothesis what links the three constructs. As input variable KMI, as output variable CC and as mediating variable ITC is used. The data was collected from 139 participants, employee or owner of 139 different companies with different functions within the firm. The research make use of the regressions method on direct effect and PROCESS method on the mediating effect. The results show that all constructs in the model have an significant relationship (p<0,000 ). This p-value is shown on all hypothesis. Concluding the research good processes on Knowledge Management Infrastructure will lead to Competitive Capabilities. Where IT Capabilities played an significant mediating role. This can give companies an sustained competitive advantage in the environment of digitization.

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Content

Abstract ... 2

1. Introduction ... 5

2. Theoretical foundation and hypotheses ... 8

2.1. Knowledge Management Infrastructure ... 8

2.2. Competitive Capabilities ... 11

2.3. IT Capabilities ... 13

2.4. Research model and hypotheses ... 17

2.5. Knowledge Management Infrastructure and IT Capabilities ... 17

2.6. Knowledge Management Infrastructure and Competitive Capabilities ... 19

2.7. IT Capabilities and Competitive Capabilities ... 21

3. Research Methodology ... 23

3.1. Research and survey design ... 23

3.2. Data collection and sample ... 24

3.3. Descriptive statistics ... 25

3.4. Data analysis method ... 28

3.5. Measurement instruments ... 30

3.5.1. Constructs ... 30

3.5.2. Control Variables ... 31

3.6. Construct validity and reliability ... 32

3.7. Common method variance ... 33

3.8. Non-response bias ... 33

4. Results ... 35

4.1. Correlations ... 35

4.2. Hypotheses testing for direct effects ... 37

4.3. Indirect effects and mediation results ... 41

5. Discussions and limitations ... 43

5.1. Conclusions ... 43

5.2. Discussions ... 45

5.2.1. Knowledge Management Infrastructure and IT Capabilities ... 45

5.2.2. Knowledge Management Infrastructure and Competitive Capabilities ... 46

5.2.3. IT Capabilities and Competitive Capabilities ... 47

5.2.4. The mediating role of IT Capabilities on Competitive Capabilities ... 49

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5.4. Practical implications ... 51

5.5. Limitations and future research ... 53

REFERENCES ... 54

APPENDIX A Online survey introduction ... 59

APPENDIX B Questionnaire items per variable ... 60

APPENDIX C PROCESS MATRIX ... 63

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1. Introduction

Competing between companies has increased in the last decades, where firms like to find out more forms of capabilities to increase the welfare of the firm. As mentioned by Handy (1990) the importance of knowledge inside the firm has an direct relation with the welfare of the firm. Business should be more like universities where they should follow information/knowledge to gain profits.

This knowledge inside the firm does a lot of firms seen as the way to improve firm value and to gain sustained competitive advantage on their competitor. These knowledge should lead to competitive capabilities. Furthermore we see an fast changing environment around the firm where digitization of all products and services takes place. This digitization will move firms to digitally oriented companies in decrease costs and to increase efficiency.

Eisenhardt & Martin (2000) argue that knowledge management processes will manage the development, evolution and use of knowledge within the firm in the way that it will lead to sustainable business. Here we see the importance of the knowledge management system as stated by Kogut & Zander (1996). They argue that an the firm requires tacit knowledge. This knowledge owned by their employees. This research start with the value of the existence of an good knowledge management infrastructure, especially the processes around it. This construct is based on the article of Capeda (2006) where they compare knowledge management infrastructure with dynamic capabilities. These kind of capabilities could be competitive capabilities as mentioned the outcome variable of the research.

Based on the arguments of the digitization where learning organization play an important role, the existence of system to contain learning processes is important. These learning processes should run parallel to the operations (Itami and Roehl, 1987).

This research argue that the good processes on knowledge management infrastructure will lead to competitive capabilities. This is also mentioned by Hall (2013). He argue that intangible resources in business strategy will lead to sustainable competitive advantage.

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Here the know-how of you employees, are the most important assets of your firm, what we can see as competitive capabilities. Kogut & Zander (1996) argue the same as mentioned before. Also the IT Capabilities are hypothesized as an important construct in the model. The theory on IT Capabilities will support this. According to Ross et all. (1996) IT Assets are the most important part of the firm to gain competiveness.

The best link between IT Capabilities and Competitive Capabilities grounded in the existing literature is mentioned by Chen, Y. et all. (2015). In their argumentation IT Capabilities lead to innovation performance, what could be marked as competitive capabilities. These innovativeness will lead to important competitive capability to gain competitive advantage on the competitors of firms. This is mentioned in the product line breadth part of competitive capabilities, in the article of Tracey et all (1998).

This research will investigate the relationship between knowledge management infrastructure and competitive capabilities. Here we mention the management infrastructure system to manage all processes on knowledge management.

One of the hypotheses is that an good knowledge management system on processes will increase competitive capabilities. Furthermore an proposed hypothesis will relate the digitization aspect, IT Capabilities, as an mediator within this effect to increase the effect of both constructs.

Also the relationship of knowledge management infrastructure and IT Capabilities will be measured, existing literature see the relationship between both constructs. This relationship will be measured in chapter two. The existing literature will also support the relationship between IT Capabilities and Competitive Capabilities. Also this effect will be measured and discussed in this research and is significantly supported by the models.

The purpose of my thesis is to see if knowledge management infrastructure (KMI) will significantly lead to competitive capabilities. Also the mediating role of IT Capabilities within

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the effect of knowledge management infrastructure on competitive capabilities is measured. Therefore, building on this discussion, the main research question of this study is:

What is the influence of knowledge management infrastructure on competitive capabilities and what is the mediating role of IT capabilities within this effect?

This research support the direct effect between all constructs and also the mediating role of IT Capabilities within this effect.

The research used the regression and PROCESS method to measure the direct relationship between constructs and also the mediating effect of IT Capabilities between the relationship of Knowledge Management Infrastructure and Competitive Capabilities.

For this analysis I use a dataset with around 139 participants who are working on 139 different organizations. These organizations are partly active in Europe, some of the companies are also working globally, but the most of the companies are only active in the Netherlands.

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2. Theoretical foundation and hypotheses

This chapter presents the theoretical foundation regarding the relation between Knowledge Management Infrastructure and Competitive Capabilities. After the explanation and theoretical foundation of these theories, the mediating effect between both theories will be discussed theoretically. The proposed direct relationships between these variables will be discussed and hypotheses are formulated. In the research model, see figure 1. are the proposed relations shown.

2.1. Knowledge Management Infrastructure

The knowledge management processes manage the development, evolution and use of knowledge within the firm to gain sustainable businesses (Eisenhardt and Martin, 2000). The most important part here, is to gain the right knowledge inside the company, to get a sustainable growth. Kogut & Zander (1996) builds on this with the resource based view that the firm requires tacit knowledge. This view contradicts that the knowledge is carried among the people inside the firm. This makes the argument clear that people are necessary for knowledge. In the processes within KMI the focus on the processes to gain knowledge is to put in the right systems. To put them in the way that quality of knowledge is measured and could be used by other individuals within the firm. The processes of KMI will lead to competitive capabilities as hypothesized in a firm where people inside the firm need to learn and routinize. This is also supported by Argote 1999, where they discuss that repeated practice is a learning process that helps individuals to understand a routine more fully and do it better. Improvisation and learning by doing, also permit the creation and correction of routines (Crossan and Sorrenti, 1997). In this view is shown that creation and correction of routines are necessary to do the existing work better. This research is going into the processes to store knowledge and use it in other departments. Improved learning of other departments will give sustainable growth on other sides of the company by improving existing work. This does not work for all resources, because not all resources are usable in other types of the firm. Only the intangible resources need to be strategic analysed regarding

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Hall (1992). This is also supported by the transaction cost theory where all resources based on the core business should be integrated. Hall (1992) suggest that sustainable competitive advantage is a result of the possession of relevant capability differentials. An important statement is that the resources inside the firm, for example patents, licenses and know-how, should lead to an increase of reputation and firm-wide know-how. This is also seen in the article of Leonard-Barton (1992), where core rigidities should become core capabilities. A firm should know their ability to gain core capabilities from their core rigidities, a form of potential capabilities who are not already integrated as core capabilities. To ensure this, the processes of KMI should be fitted to the strategy of the firm to get these intangible resources. In the article of Hall (1992) we see that the outcome of the research is that the employee know-how and reputation, are perceived as the core resources to, make and important contribution to business success. Furthermore they claim that the operations part of the company is the most important area of employee knowhow. Here we see again the importance of the operating core as mentioned in the article of Mintzberg (1979). The required knowledge for business success exist regarding Hall (1992) in the operating part of the firm. He also states that because of the existence of intangible resources in the operating core, they should play a major role in the strategic management process.

The importance of knowledge inside the firm is also supported by Handy (1990) where this article claims that business should be more like universities where they should follow information/knowledge to gain cash.

The central article for this knowledge management theory is the article of Capeda (2006) where they compare knowledge management with dynamic capabilities. The knowledge management infrastructure construct is based on the processes within the knowledge management infrastructure. For example, the systems for analysis, information systems to inform organizational members of stored and codification tools and individuals who update the stored knowledge.

This statement is also supported by Itami and Roehl (1987) where they claim that one of the characteristics of a successful organization is the recognition and existence of an system that

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the learning processes run parallel to all operations. When all learning processes are clarified in the organization, the knowhow and reputation will increase. This will lead to business welfare because they are an intangible resources. They also argue that the key element of strategy is the management of invisible assets. As the knowhow stock and reputation, this will lead to the core competencies of the business.

Argote and Epple (1990) acknowledge the intra-organizational and inter-organizational knowledge transfer when there is a variation in organizational learning rates. This statement is also valuable in analysing the firm’s ability to gain and share knowledge to increase business and to gain competitive capabilities.

Aaker (1989) claims that knowledge as one type of asset should lead to sustainable competitive advantage as well. Therefore you should manage your assets (intangible and tangible).

Prahalad and Hamel (1990) have the same arguments, but they focus on the capabilities in each strategic business unit to identify, develop and leverage each core competence of the business.

This research analyse the importance of the processes on knowledge management infrastructure, to gain competitive capabilities, what will increase the value of the firm based on an sustainable growth. Hsiu-Fen (2007) builds on this and claims that knowledge sharing will lead to firm innovation capability. Where innovation capability could be one of the competitive capabilities of an firm, based on the industry where you working with.

This research examine the influence of individual factors, organizational factors and technology factors will lead to knowledge sharing processes, what lead to the innovation capability. Reid (2003) claims that knowledge sharing will create opportunities to maximize the ability of the organization to meet the needs. It will also generate solutions and efficiencies what will lead to an business with competitive advantage. Building on the processes to gain and store knowledge, the same becomes visible in the article of Hogel et all (2003). They claim that you should use knowledge networks within organizations and

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comprise a set of shared understandings related to providing employees to share relevant information thru the company.

Knowledge sharing should be done on the individual and organizational level. Mostly you see that employees ask each other to help to do the job more quickly and more efficiently. For an organization it is better to store the knowledge centrally. It should be stored in the way that the knowledge is captured within the company, so they can use it for other departments in the organization. There are studies who demonstrated that knowledge sharing is essential, because it gives companies the opportunity to enhance innovation performance and reduce redundant learning efforts (Calantone et all. 2002, Scarbrough, 2003).

2.2. Competitive Capabilities

Competitive capabilities are the capabilities what attract customers to the attributes of an organization. These will lead to business growth, because they can add new clients by having these capabilities. Furthermore this will lead to sustainable growth by adding new customers. This will also lead to growth by having existing customers.

Besides these competitive capabilities there are also potential points to differentiate from their competitors to gain sustained competitive advantage. Innis and Lalonde (1994) and Koufteros (1995) described different segments in their article that lead to competitive capabilities. In any market there is competition between competitors to gain new business and serve different customers. In adding competitive capabilities a company could be better than others. This will increase their position in the market by adding the customers who buy their services and products.

This constructs (Competitive Capabilities) is based on the article of Tracey (1998). From this article the product line breadth is used as one of the competitive capabilities of a firm. This would be the dependent variable in the model, where product line breadth will clarify the expectation of customers about the availability of various products and features.

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These products and features should satisfy their individual requirements (Meredith et all. (1994). They claim that in case the firm understands what services and products their clients wants, it will increase their competitive market position.

The product line breadth has an influence on value and market share. If the product will fit to the customer need, the more value will be given to this by the customer. In case that product line breadth expands, more of the customers are able to find a product that meets their needs and sales should increase.

Furthermore this is comparing with the responses to changing customer preferences and the offering of products the client needs. This could also be compared with the statement of Leonard and Barton (1992) who claim that core capabilities create competitive advantage. They mention that any company has capabilities and rigidities. When core capabilities not building on knowledge that is developed in the past, the core capabilities are not aligned with the environment anymore and can become core rigidities.

This is also mentioned by Hall (2013) where he claims that the role of intangible resources in business strategy is that they lead to sustainable competitive advantage. This results from the possession of relevant capability differentials. Hall (2013) claims that intangible resources are for example data bases, personal and organizational networks, the knowhow of employees, professional advisers and suppliers/distributors, the reputation of products/company and the culture of the organization. These resources could be classified as ‘assets’ or ‘Competencies’.

In this study different companies are asked to clarify their respond on well changing customer preferences, regarding products and accompanying services. Furthermore the product offerings related to client needs and the demand for ‘new’ features is measured. Regarding Coyne (1986) these abilities will lead to sustainable competitive advantage, when you consistently produce products and/or delivery systems with attributes client needs. These should include prices, specification, reliability, functionality and availability.

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To manage client needs in the product line breadth of competitive capabilities, Li, S et all (2004) claim that competition between firms are no longer between organizations, but among supply chains. These supply chains are according their strategic supplier partnership, customer relationship, level of information sharing (combined with knowledge-based view), quality of information sharing and postponement. This article claim the importance of product innovation to gain competitive advantage as well. Two questions of this article are used in the survey. They are about the product offerings that meet client needs and the well responding to customer demands for ‘new’ features. Other items from the empirical research that are important to gain competitive capabilities are: price/cost, quality, delivery and flexibility (Tracey, M. 1999, Roth A, Miller 1990, Skinner, W. 1985). These constructs are not used in this research. The focus in this research is on the product line breadth where innovativeness of the firm is the most important part.

This innovativeness will lead to an important competitive capability of the firm to gain competitive advantage on their competitors.

To make the combination with the next construct in the discussion, the article of Ross et all (1996) is useful. They argue that IT Capabilities are an important resource to be competitive. Based on IT Assets, by building and leverage on a strong IT staff, a reusable technology base, and a partnership between IT and business management to generate sustainable competitive advantage through information technology.

2.3. IT Capabilities

In the theories of IT Capabilities the place of IT in the firm is mostly discussed, IT could be seen as an staff function, but also as an strategic partner. According to Bharadwaj, IT have a strategic role within the company, in the way that IT should be an strategic player to gain competitive advantage in the long run. This theory started with the resource-based view of the firm (Barney 1991, Eisenhardt and Schoovenhoven 1996 and Penrose 1958). In these

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views they talk about resources who need to be hard to imitate, non-substitutable, valuable and rare.

The article of Ross et all (1996) claims the same, but they see IT Assets as the most important part of the firm to gain competiveness. The questions about how firms can apply IT to enhance competitiveness is hereby answered. They believe it is about the development of IT capability, where they control IT-related costs, deliver systems when they are needed. Furthermore they argue that the combination of IT solutions with the business should be successful. This requires IT assets like highly competent IT human resource, a reusable technology base and in the third place the strong partnering relationship between IT and business management.

This can be combined to construct IT capabilities, what is one of the constructs in the research. The focus is on IT business partnerships and Business IT strategic thinking according to Bharadwaj (1999). Where IT business partnerships refers to the firm’s ability to foster rich partnerships between technology providers (IT professionals) and technology users (business unit managers). This refers to risk sharing and experimentation with IT related to comparison of the business and IT experience through multi-disciplinary teams. (Henderson 1990). Especially the understanding of IT on the business where you gain IT potential by the dialogue between information systems communities and the business (Feeny and Willcocks 1998). To gain innovative IT applications it is necessary that there is a CIO in the expert channel to get the interaction between IT staff and business unit managers.

Another part of this theory is about the business IT strategic thinking. This theory refers to the envision to contribute IT to business value and to fit the IT strategy and planning to the business strategies. In the literature about IT is claimed that the importance to integrate IT capabilities within the business strategy gives a grounding that IT affects the firm strategies and also that IT implications are the outcome of strategy implementation (Bakos and Treacy 1986; Quinn and Baily 1995; Beath and Ives 1986; Henderson and Venkatraman 1993;

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Feeny and Wilcocks 1998). There is also prove that pioneering on frame breaking innovation with IT, will lead to the developed of clear roles of IT and also the connections between IT and their core value propositions (McKenney 1995).

Considering both makes visible the IT department should be a professional organization where they implement IT with expert teams. At the other hand they should understand the business clearly. In the way that IT can implement the strategic thinking of the business. In the IT business partnership, IT is seen as a strategic partner between the line management and IT service providers. Here line management will see IT as a strategic investment to gain more profit. These are IT capabilities which could lead to competitiveness.

The vision of Bharadwaj (1999) is that the climate of the firm should allow risk taking and experimentation with IT and also the vision that IT should think actively with the business to make the best solutions. This should lead to the management’s understanding on the value of IT investments. Furthermore they claim that business strategic planning should be fully aligned with IT planning.

Chen, Y et all (2015) makes the combination with competitive capabilities in their argumentation that IT capabilities lead to innovation performance, what could be marked as one of the competitive capabilities.

IT Capabilities have the potential to help firms outperform their competitors in terms of cost reduction, profit increasing and other performance measures (Jacks et all, 2011). IT business partnership refers to the extent to which IT and the business operations share congruent goals and maintain a harmonious relationship (Luftman, 1999). Where they share the goals together to get the harmonization to increase overall firm performance.

The relationship between IT and firm innovation has drawn much attention from academics and practitioners. Here they would clarify the relationship in innovation-enabling effects of specific IT capabilities in isolation as for example the IT infrastructure (Pavlou 2010). This product innovation construct is a firm-wide process that involves all different strategic business units and activities of the firm (Popadiuk, 2006). This impact is also measured in

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this research where the relationship between IT Capabilities on Competitive Capabilities is clarified. This construct IT Capabilities is also measured as a mediation effect within the relationship between knowledge management infrastructure and competitive capabilities. The most important statements are mentioned before where the research measure the impact of IT Capabilities on these capabilities. The necessarity of IT Capabilities on competitiveness of a firm is measured in this research.

The relationship between IT Capabilities and Knowledge Management Infrastructure is also measured where the inter-organizational communication and collaboration enabled by IT is mentioned. This will lead to product development and delivery to the market. This relationship support the firm’s new market expansion strategies (Cordon, 2003). Another type of IT Capabilities is the response time of IT to evolve business needs (Bhatt, 2010). A firm with flexible IT infrastructure can reduce the time to market. This they need to implement new products based on new applications. Here you need easy access to relevant data and networking abilities. The IT capabilities are expected to facilitate firm-wide technological foundation what can facilitate firm-wide technological foundation. This would facilitate flexible processes and operations. Those are necessary for implementing new ventures and to develop new products and renewing business processes and business models.

This is substantiated by the article of Bharadwaj et all. (2013). Here they claimed that the information technology strategy has been combined with functional level strategy and is aligned with the firm’s chosen business strategy. This is the alignment view, business strategy directed IT strategy.

The formulation of this digital business strategy includes also the design of products and services. Also their interoperability with other complementary platforms and also their deployment as products and services by taking advantage of digital resources. A lot of firms oversee the power of digital resources, they create with them new IT capabilities and integrate new products and services with IT (Rai et all, 2012, Ray et all. 2005,Sambamurthy et all. 2003).

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2.4. Research model and hypotheses

This study focusses on the direct relation of Knowledge Management Infrastructure on competitive capabilities and the mediating role of IT capabilities.

Figure 1 shows the research model for this study, also the hypotheses are named in the model. These hypothesis are clarified and grounded on theory in the following chapters.

Figure 1:

H1 (+) H4 (+) H3 (+)

H2 (+)

Control variables: The control variables in the model are: firm age, firm size, function within the firm and firm industry.

In this figure the direct effect between the different constructs are mentioned in hypothesis one, two and three. In hypothesis four the mediation relationship between the input and output construct is measured.

2.5. Knowledge Management Infrastructure and IT Capabilities

The comparison between both theories can be found in the theory on the resource-based view. In knowledge management it’s about the knowledge inside the firm or the knowledge to improve processes (Capeda 2006). Here they talk about the knowledge that is an important capability of the firm to gain competitive advantage (Leiblein 2003). These resources should be valuable, rare, non-substitutable and in-imitable according to Barney (1991) as written before. Feeny and Willcocks 1998 claim that valuable can be gained by IT knowledge when there is a good understanding of the business. The direct link between IT and the Knowledge

IT Capabilities

Knowledge management Infrastructure

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Management Infrastructure is shown. They also claim that IT knowledge is a valuable resource within the firm, because it reflects the firms abilities on strategy and business. The argumentation is based on the knowledge in the field of business, but also on innovativeness where can be discussed that knowledge on the market is necessary. A good knowledge management infrastructure should make it possible to integrate IT capabilities based on the ability of CIO (Chief IT Officer) and business unit managers. The strategic thinking of the business could gain IT implications as the outcome (Bakos and Treacy 1986).

In the knowledge management infrastructure is about the existence of processes to gain and store knowledge. The existence of a system for the analysis and filtration of information should be shown, the same with the existence of tools to access the stored knowledge. This could be related to the business IT strategic thinking. Here IT needs the clarity of a vision regarding IT contributes on business value and to Integrate the business strategic planning and IT planning.

The organisation could be able to store knowledge, but the IT systems should be able to do this in the right way that the knowledge could be find when other people in the firm would use IT. IT is often seen as a costly investment, because IT is a staff department, what in most of managers opinion only cost money to support the business. At one side IT should understand the business’s needs, but the business should also invest in IT. They should understand the value of IT investments. The knowledge management infrastructure on processes is also related to the existence of individuals who update the stored knowledge. We could compare this to the multi-disciplinary teams in IT business partnerships to blend business and technology expertise.

The relationship between line management and IT service providers to know how to store the knowledge is shown. For this we need a good knowledge system to store the knowledge and search tools to acquire the knowledge. The importance of knowledge inside the firm is also supported by Handy (1990). Where this article claims that business should be more like universities, where they should follow information/knowledge to gain cash.

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In line with the article of Ross et all (1996) IT Assets and knowledge are the most important part of the firm to gain competiveness. Here they answer the questions about how firms can apply IT to enhance competitiveness. They believe it is about the development of IT capability, where they control IT-related costs, deliver systems when they are needed and also the combination with the business to implement IT solutions. This requires IT assets like highly competent IT human resource, reusable technology base and in the third place the strong partnering relationship between IT and business management.

Based on the articles of Carpeda (2006) and Bharadwaj (1999), I propose the following hypotheses to investigate the effect of Knowledge Management Infastructure on IT Capabilities:

H1: Knowledge Management Infrastructure is positively related to IT Capabilities

2.6. Knowledge Management Infrastructure and Competitive Capabilities

This resource-based view approach is discussed by Leiblein (2003) as well. They claim that firms should obtain resources and knowledge that are valuable, rare, imitable, and non-substitutable. In order to achieve superior performance over other companies and create a sustained competitive advantage (Barney 1991, Grant 1991). In addition to this argument, Prahalad and Hamel (1990) discuss that a firm should invest and focus on its core competences as they take a long time to develop and can create a sustained competitive advantage, this will lead to competitive capabilities.

According to Gilley & Rasheed, 2000 the firm has a competitive advantage by integrating resources when these activities relies on the firms core competences. This give the firm sustainable competitive advantage. They claim that there is a risk of knowledge spill-over when the knowledge isn’t integrated, but add the knowledge outside the firm when it’s related to its core competences. This we can compare with the statement of Leonard & Barton

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(1992). If rigidities could become capabilities then the firm could obtain for more competitive advantage because of these capabilities.

Based on the existing theories there could be an relationship between good knowledge management infrastructure, and competitive capabilities. As Leonard & Barton argues knowledge and capability is needed to integrate knowledge from core rigidities. The knowledge-based view could be compared to the resource-based view in a lot of ways. One of the theories in resource-based view is dynamic capabilities. Eisenhardt and Martin (2000) agree with the statement that dynamic capabilities leads to competitive advantage. According to them one of the dynamic capabilities of the firm should be to recombine existing knowledge to generate new knowledge.

This is also according Zahra & George (2002), where they claim that knowledge is the key driver of competitive advantage. Aaker (1989) argues that knowledge as one type of assets should lead to sustainable competitive advantage. Therefore you should manage your assets (intangible and tangible). Prahalad and Hamel (1990) have the same arguments, but they focus on the capabilities in each strategic business unit to identify, develop and leverage each core competence of the business.

This research analyse the importance of the processes on knowledge management infrastructure to gain competitive capabilities what will increase the value of the firm based on an sustainable growth. Hsiu-Fen (2007) builds on this and claims that knowledge sharing will lead to firm innovation capability, where innovation capability could be one of the competitive capabilities of a firm. Based on the industry where you working with.

Hall (1992) suggest that sustainable competitive advantage is a result of the possession of relevant capability differentials. An important statement is that the resources inside the firm, (for example patents and licenses and also knowhow) should lead to an increase of reputation and knowhow.

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H2: Knowledge Management Infrastructure is positively related to Competitive capabilities

2.7. IT Capabilities and Competitive Capabilities

In the previous chapter I mentioned that IT Capabilities are a form of resources inside the firm. These resources could lead to competitive advantage as stated by Leonard and Barton (1992). They claimed that core capabilities create competitive advantage. They also mentioned that any company has capabilities and rigidities. When core capabilities are not builded on knowledge that is developed in the past, the core capabilities are not aligned with the environment anymore and can become core rigidities.

They make an important statement that it is not standard that core rigidities will lead to capabilities. The firm should be able to do that. Maybe the link with knowledge management infrastructure on competitive advantage with the mediator of IT capabilities is found. The link between both mechanisms is that the firm should be able to absorb knowledge (Zahra&George, 2002). The absorptive capacity to absorb the knowledge from IT to gain competitive advantage, what is not clarified in this research. This shows the link between Knowledge Management Infrastructure and Competitive Capabilities when the mediator IT Capabilities has his influence.

Chen, Y et all (2015) makes the combination with competitive capabilities in their argumentation that IT capabilities lead to innovation performance, what could be marked as one of the competitive capabilities.

IT Capabilities has the potential to help firms outperform their competitors in terms of cost reduction, profit increasing and other performance measures (Jacks et all, 2011). IT business partnership refers to the extent to which IT and the business operations share congruent goals and maintain a harmonious relationship (Luftman, 1999). Where they share the goals together to get the harmonization to increase overall firm performance and could also be mentioned as an competitive capability.

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To make the combination with the next construct in the discussion, the article of Ross et all (1996) is useful. They claim that IT Capabilities are important resources to be competitive. This is argued based on IT Assets by building and leverage on a strong IT staff, a reusable technology base. Furthermore a partnership between IT and business management to generate sustainable competitive advantage through information technology.

In this research I investigate both, the indirect and the direct effect of IT Capabilities on Competitive Capabilities and also the mediating effect of IT Capabilities within the relationship between knowledge management infrastructure and competitive capabilities. Ross et all (1996), support this direct link between Competitiveness and IT Assets/Capabilities.

To test the conceptual model and our expectations, I made the following hypothesis

H3: IT Capabilities is positively related to Competitive Capabilities

H4: The relation between knowledge management infrastructure and competitive capabilities is positively mediated by IT Capabilities.

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3. Research Methodology

3.1. Research and survey design

For this study an deductive approach is used to study the relationship between Knowledge Management Infrastructure and Competitive Capabilities and also the mediating role of IT Capabilities. This study is done within an fixed time frame, so I used an cross-sectional study to test the hypotheses.

The research data is collected via an online survey. This questionnaire is conducted and tested in advance with separate participants. This was before the formal data collection. The survey is made with an team of students. These students are all studying the executive master of business administration. We all have the same topic, namely: digitalization.

The questionnaire is built and applied with an structured online-questionnaire with closed questions. These questions are listed in Appendix B.

The whole survey is conducted digitally in Qualtrics. Qualtrics is an online survey platform that is used by the university. This type of questionnaire, the electronic questionnaire, is preferred above a paper response method. It is proven that there are fewer missing responses, besides there is more coding and distribution flexibility (Boyer et al;, 2001).

The questionnaire is sent to business partners from different companies with a personal email-invitation. This should stimulate a higher response rate (Yu & Cooper, 1983).

Furthermore an Likert-scale is used in the digital survey to save time for the respondents, what will increase the response rate (Jamieson, 2004).

In order to ensure validity and reliability, the selected participants are reduced to one participant per company. In case that more participants within one company filled in the survey, the one with the highest function within the firm stayed in the questionnaire. Each participants got an email with an hyperlink to get access to the online survey. Each student implement different constructs with different questions in the survey to have one survey with about 150 questions. The goal is to have 150 participants at the end of the survey.

The survey contains different constructs. The constructs I implemented are Knowledge management infrastructure, IT capabilities and competitive capabilities. The survey was

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online, because the whole personal network of contacts. In this way the survey has been completed in different places and countries. All people where non committal to fill in the survey. Anonymity was guaranteed by using an untracked open link to the survey, which was protected against indexation by online search engines and secured uploading files. Non-respondents will receive a subsequent reminder after two weeks, when they don’t filled in the survey within the timeframe to stimulate participation (Yu & Cooper, 1983). After this reminder no other reminder was sent because the survey was without any obligation.

The respondents were informed about the purpose on forehand, see Appendix A. The survey was conducted in English only. I got some respondent who struggled with the English language and gave this as an reason to not fill in the survey.

To make clear what the purpose is of all questions, each construct started with an sub instruction per section.

To see the difference between firm industries, firm sizes, firm function and the age of the firm, control variables are included.

3.2. Data collection and sample

Describing of the sampling technique start with the population. The target group in this research design are individuals who have the overview of digital innovation within their company. They could either be involved with the innovation as team member, manager or as C-level executive. It is impossible to survey every company about their possible digitization activities, however the target companies should be active in diverse industries. By having a broad scope of possible respondents & companies it becomes achievable to generate a broad dataset to use in the research.

The used survey is an structured survey with statements and questions, based on the different constructs from the different team members in the thesis process. The sampling method is an non-probability sampling. It will be an online survey with an sample size over 150 participants who are selected within different business field, they are chosen in a simple

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random way. The response rate was 344 participants, but still 139 are useful for analyses. For this survey different Likert-scale rates are used. The questions about competitive capabilities and IT Capabilities are measured on an 5-point likert scale. The questions about Knowledge Management Infrastructure are measured on an 7-point Likert scale.

The data will be of quantitative nature. Different variations of Likert-type scales, such as “Strongly disagree/Strongly agree”, “Exceptionally well/ poorer than most” (Grewal et al., 2010). The results will be presented in tables of descriptive statistics and graphical techniques.

As mentioned before 139 of 344 respondents filled out the questionnaire fully completed (40,4% response rate). The reason could be that the group survey took 25 minutes to fill in the questions properly. The deleted data is written in the next chapter about descriptive statistics.

3.3. Descriptive statistics

In this section I will discuss the steps I took before analysing the data (from raw data to hypothesis testing). First all generated data was downloaded from Qualtrics, which was used as online tool for the survey. At the beginning the amount of participants was N=344.

The data cleaning was done together with our thesis group, because the same data was used. We started to deleted all empty cases, following by deleting different variables in SPSS (V2-V10, INTRO, and location data generated by Qualtrics. This data are the introduction questions and other information we don’t need for analyses, therefore it was deleted.

After deleting variables we count the missing variables with SPSS. Therefore a new variable was made. We deleted all variables who missed an value in one of the questions. This result in an amount of N=161 (list-wise deletion).

There was some data missing like names of the firms (control variable). We tried to add some information, because we saw company names in the contact name and mail address. Other firms or contact details were not clear enough to fill in the company name. After this

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action we used MISSING VALUES, we count 99 for empty values. The results of this action was N=158 (pairwise deletion).

We also transferred the company names to the same format. Like acato  Acato and Kuehne & Nagel Logistics  Kuehne + Nagel. After this action we delete the other missing company names, result: N=155 (pairwise deletion).

If we had more than one participant in a company after this, we deleted the one with the lowest percentage complete. Then we selected the highest function within the company. This result in N=139 (pairwise deletion).

We deleted different other variables after recoding, we put the information in Qualtrics to explain the constructs and questions, but we don’t need them for analyses.

In the total dataset we saw some negatively-keyed items. We recode these counter-indicative items with SPSS. Some of the variables of other group members were negatively-keyed. One of my construct was also negatively-keyed: Innovation Orientation (all questions) (7=1- 1=7). We also recode the construct CA (Competitive Advantage), because all questions are measured on a 5-point Likert-scale, but number 6 was not applicable. We deleted all items where they filled in ‘6’. In my construct Competitive capabilities I used some questions from competitive advantage because they were doubled in both constructs. Furthermore I recode all CA items 1-5 to 1-7 because my items are on a 7-point Likert-scale. Otherwise this will give problems in the analyse.

Furthermore the names of the four control variables are recoded. E.g. CONT2 to Firm_Age. The last recoding was KMI_T_1 and KMI_P_7. The wrong name was given to them after sending out the survey. KMI_T_1 = KMI_P_7 and vice versa.

Table 1 shows the statistics from the samples/participants in the survey. The different segments are firm age, firm industry, firm function and firm size. The most of the firm exist more than 20 years. 32,4% Exist 20-49 years and 39,6% exist longer than 50 years. All different firm industries in the sample size exist. 23,7% Of the participants answered ‘other’,

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while the rest of the participants answered one of the different industry segments. 48,2% Of the participants answered ‘other’ at firm function. This is an strange outcome, because I mentioned that most of the people are middle manager or higher. It could be that participants don’t understand the position of an middle manager and/or don’t feel themselves as a ‘manager’. There are no operating core options. The firm size has an outcome what is not positioned in the middle, something I expect. 31% Percent of the companies employed 49 people or less, while 51,8% of the participants answered that their firms employ 200 people or more. In this case we deal with an big amount of big firms, and also small firms. 17,2%. Are middle size firms.

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3.4. Data analysis method

Analyse results: The results of the survey will be analysed with SPSS Statistics. As mentioned in chapter 3.3 first all variables are recoded and the data is made useful for analysis.

After this the Skewness, Kurtosis and normality test were computed. Skewness and Kurtosis on all variables in the study are normally skewed, because almost all values are between -1

Table 1

Overall

(N=139) Percentage

Cumulative Percent

Less than 5 years 7 5,0 5,0

6-11 years 13 9,4 14,4

12-19 years 19 13,7 28,1

20-49 years 45 32,4 60,4

50 years or m ore 55 39,6 100,0

Firm Indus try (In which indus try in your organization?)

Arts , Entertainm ent and Recreation 4 2,9 2,9

Banking/Ins urance 9 6,5 9,4

Cons truction 6 4,3 13,7

Education 10 7,2 20,9

Financial and Ins urance 7 5,0 25,9

Health and social work 11 7,9 33,8

Hotels and res taurants 6 4,3 38,1

IT/com puters 15 10,8 48,9

Marketing/com m unication 8 5,8 54,7

Manufacturing 7 5,0 59,7

Other 33 23,7 83,5

Public adm inis tration 5 3,6 87,1

Transportation/storage 5 3,6 90,6

Utility 3 2,2 92,8

Wholesale and retail trade 10 7,2 100,0

Firm Function (What is your function title?)

CEO 7 5,0 5,0

Vice Pres ident 1 0,7 5,8

Director 17 12,2 18,0

Senior Manager 18 12,9 30,9

Middle Manager 29 20,9 51,8

Other 67 48,2 100,0

Firm Size (How m any people are em ployed at your com pany?)

0-19 14 10,1 10,1 20-49 29 20,9 30,9 50-99 13 9,4 40,3 100-199 11 7,9 48,2 200-999 23 16,5 64,7 1000 or m ore 49 35,3 100,0

Firm Age (How Long has your organization been in business?

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and 1. Only the Kurtosis value of firm size is -1,475, an negative kurtosis. The reason of this is written in the previous chapter. There isn’t an normal distribution of firms within the different firms. The focus on firms in this variable is on the biggest and smallest firms in the analysis. An part of the data results in a few outliers. This can be explained by the use of non-probability sample. Because of the small scale (Likert scale 1-7 and 1-5) no outliers were removed from the sample as mentioned in the previous chapter.

In chapter 3.6 the reliability of scales by analyses of the Cronbach’s alpha is mentioned to measure the internal consistency of measurements.

Furthermore I used the regression analysis with the use of scale means to test for direct and indirect effects. Furthermore also correlation models to see if the different constructs have positive and negative relationships to each other. After this every team member will work with his constructs to make conclusions about their hypothesis.

I made use of the structural equation modelling method. This is a correlation research method. Therefore, the measurement scale, restriction of range in the data values, missing data, outliers, nonlinearity and non-normality of data affect the variance – covariance among variables and thus can impact the SEM analysis. The built-in menu options to examine, graph, and test for any of these problems in the data prior to conducting any SEM model analysis, will be used (Schumacker and Lomax, 2004).

In this study the partial least squares (PLS) technique is used to test the outcome data of the survey. This technique is a variance-based structural equation modelling (SEM) method. PLS is a valuable technique due to the following (Roldan & Sanchez-Franco, 2012): in the first place, the reduced sample (N=139) is small, in the second place the focus of the study is the prediction of the dependent variables. In the third place the research model is considerably complex according to the type of relationships in the hypotheses. In the fourth place the study make use of latent variables’ scores in the following analysis of predictive relevance. For the PLS analysis this study makes use of SmartPLS 3.0 software (Ringle, Wende & Becker, 2014).

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To test the hypothesis, I will use an 3-step approach. In step 1 I will include the control variables in the regression model and include all four control variables (firm age, firm industry, firm function and firm size). In step 2 I insert the independent variable, to test the effect of the dependent variable on the independent variable. In the third step I measured the direct effect of the mediator IT Capabilities. For this analysis I used the PROCESS-macro of Hayes (2016). This macro compute the size or degree of the indirect effect. Furthermore they include the confidence intervals and also explain the presence of the mediation effects, after controlling this effect by firm age, firm industry, firm function and firm size.

3.5. Measurement instruments

For this study I used different constructs: knowledge management infrastructure, competitive capabilities and IT capabilities. These constructs are based on different studies, previous research and are all validated constructs. This is also the case with the control variables.

3.5.1. Constructs

All constructs exist in an couple of questions to load the particular construct. The Likert-scale of these questions are based on the existing article where the construct comes from. These questions and the questionnaire is shown in Appendix B.

Knowledge Management Infrastructure: This construct is based on the article of Capeda

(2006). From this construct I used the questions of the processes part. The KMI constructs includes seven questions about the processes within the knowledge management infrastructure. The Cronbach’s alpha loadings within this construct in the article of Capeda (2006) on the construct Processes are between 0.74 and 0.85. Based on these loadings, the questions are good to use in the testing. All of these questions are based on an 7-point Likert-scale where 1=Strongly disagree and 7 = Strongly agree).

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Competitive capabilities: This construct is based on the article of Tracey et all. (1999). From

this construct I used the product line breadth questions. The CC constructs includes four questions about product line breadth. All questions are measured on an 5-point Likert-scale where 1=strongly disagree and 5=strongly agree. In the existing article this PLB construct has an Cronbach’s alpha loading of 0,843 on the construct competitive capabilities. The underlying questions on competitive capabilities has an Cronbach’s alpha loading between 0,561 and 0,730 separately.

IT Capabilities: this construct I use as an mediator in the model to measure it as the

mediating effect between knowledge management infrastructure and competitive capabilities. This construct is based on the article of Bharadwaj et all (1999). Within this construct I use the questions on IT business partnerships (IBP) and Business IT strategic thinking (BTI). The ITC constructs includes five questions about IT business partnerships and three questions about Business IT strategic thinking. These questions are based on an 5-point Likert-scale where 1= exceptionally well and 5=poorer than most. The overall construct had an Cronbach’s alpha of 0,92. The first order construct IBP had an Cronbach’s alpha of 0,80, BTI has an Cronbach’s alpha of 0,75. These first order constructs had the highest CA.

3.5.2. Control Variables

This research make use of four control variables, namely firm age, firm size, function within the firm and firm industry. These variables are used to test the impact on the constructs.

In the first question the age of the firm is measured. To test the outcome of the digitization model on the age of the firm and to measure if there is a correlation between the age of the firm and the outcome of the model. The participants have five choices as shown in table 1. The second CV is about the firm industry, here the participants have the choice in fourteen industries and also an ‘other’ industry. Furthermore we measure the function of the participants within the firm, based on the article of Sanders (2005). Here they have the choice between Middle Manager to CEO and the functions between (sr. Manager, Director,

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Vice President). They have also the choice to answer ‘other’. In the last CV the firm size is measured. The participants have six options in this control variable as shown in table 1 and Appendix B.

These control variables are used in this research to see some correlations between one of the control variables and the outcome of the model. Furthermore the relationship between the different control variables and the separate constructs is shown.

3.6. Construct validity and reliability

Now I computing the reliability because I do a survey based study. Each of the three constructs is separately measured with all their variables. I will do this with SPSS, selecting ‘scale if item deleted’, measuring the Cronbach’s alpha. N=139 of total dataset. The CA represents the estimator of the internal consistency of all items within the construct. An CA of 0,7 or higher assures sufficient internal reliability (Nunally & Bernstein, 1994; Carmines & Zeller, 1979). In this case I will show the different total construct CA’s in table 2. Besides this I will clarify the internal reliability within the constructs and analyse if some constructs could be improved. Table 2: Variable Cronbach’s Alpha N of cases valid

N of items Improvement Delete item*

IV: KMI 0.902 115 7 0.908 No

DV: CC 0.803 99 4 0.816 No

Med: ITC 0.919 108 8 0.918 No

*I did no improvements because the improvement if item deleted is <0,1.

Overall conclusion all constructs: all cronbach’s alpha >0,70. Any corrected item total correlation >0.30. Also, none of the items would substantially affect reliability if they were deleted.

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- Knowledge management infrastructure: The overall construct has an CA of 0,902 which is

pretty good, and also better than the article of Capeda (2006) with highest score of CA: 0,85. The improvements in the model are between 0,884 and 0,908 on seven questions, where none of the improvements have an significant impact. So there aren’t improvements done.

- Competitive capabilities: The overall construct has an CA of 0,803 which is pretty good (CA

> 0,7), but it isn’t better than this construct in the article of Tracey et all. (1999) with highest score of CA 0,843. The improvements in the model are between 0,712 and 0,816 on four questions, where none of the improvements have an significant impact. So there aren’t improvements done.

- IT Capabilities: The overall construct has an CA of 0,919 which is pretty good, and is the

same as the article of Bhardadwaj (1999) with the score of CA - 0,92. The improvements in the model are between 0,901 and 0,918 on eight questions, where none of the improvements have an significant impact. So there aren’t improvements done.

3.7. Common method variance

As mentioned before the survey is sent by Qualtrics with an untracked URL to lower the risk of common method bias. This URL is sent to participants who are working at different firms, this method also secured the indexation by online search engines and ensure the

participants of anonymity and confidentiality.

To ensure the outcome and quality of data we fitted the constructs in an non-structured order (Podsakoff et all., 2003). The different constructs are ordered randomly in case that an participant opened the questions. This should lead to the reduction of randomly given answers.

3.8. Non-response bias

An non-response bias is also an phenomenon what will happen , because the survey is sent to an wide scope of people. 344 Participants started the survey, while 139 brought the survey

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to an good end. I mentioned also before that some participants didn’t finish the interview, because they struggled with the English language. Other people gave the answer by mail that their company is too small to answer questions IT capabilities and knowledge

management because those people work on their own within their own firm.

Other people gave the answer that their not in the position to answer. This gave an limitation on the scope of people and maybe also the explanation of the negative kurtosis, while the amount of people in small firms is also well presented in the sample size.

Overall I mentioned that the respondents who are asked personally to answer by mail they were more able to fill in the survey than people who were invited by an automatic mail and social network cannels like LinkedIn.

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4. Results

This chapter reports the correlations analyses between constructs, it analyses furthermore the quantitative results of the hypothesized direct results. Here the direct results in the correlation between knowledge management infrastructure are mentioned and also the competitive capabilities, and between knowledge management infrastructure and IT capabilities. The last part of this chapter analysed the mediating role of IT capabilities within the effect of knowledge management infrastructure and competitive capabilities.

4.1. Correlations

I made three total variables, based on the IV (KMI), DV (CC) and the mediator (ITC).

After that the assembling of a full correlation matrix (including means, standard deviations, reliabilities on the diagonal) is made, see table 3. Here I took all the different total variables included the control variables (firm Age, firm industry, firm function and firm size) to test correlations. For this analysis SPSS was used. In SPSS I used bivariate correlations, because I have more than one variable. Here I take the Pearson test and also in statistics: ‘means and standard deviations’. In appendix D the full correlation between all variables is shown.

Correlation between IV, DV and Mediator

Based on table 3, there are different correlations between the variables. First of all IT capabilities has a strong positive relationship with competitive capabilities (r =.445, p<0,01). There is also a strong positive relationship between knowledge management infrastructure and competitive capabilities (r =.348, p<0,01) and knowledge management infrastructure and IT Capabilities (r =.437, p<0,01).

It is therefore concluded that all variables in the model (independent, dependent an mediator) have an strong positive relationship. This was also hypothesized in the model.

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Correlation between IV, DV and Mediator and Control Variables

The relationship between all control variables in the model is shown, therefore I discuss this based on the IV (Knowledge Management Infrastructure), DV (Competitive Capabilities) and mediator (IT Capabilities).

- Competitive capabilities: there is an negative correlation between competitive capabilities

and firm age (r =-,201, p<0,05). So, the age of the firm is negative related to competitive capabilities. There is also a positive relationship with firm industry (r=,206, p<0,05). Here we can conclude that some industries have an positive relationship on competitive capabilities. Firm function and firm size does not have a significant correlation with competitive capabilities, there is a negative correlation (r=-,100 and r=-,165), but this is not significant.

- IT Capabilities: There is no significant relationship between IT Capabilities and the control

variables. There is an non-significant negative correlation between IT Capabilities and firm age, firm function and firm size (r=-,170, r=-,109 and r=-,053). Furthermore there is a non-significant positive correlation between IT Capabilities and firm industry (r=,034).

- Knowledge Management Infrastructure: There is no significant relationship between Knowledge Management Infrastructure and the control variables. There is a non-significant negative correlation between Knowledge Management Infrastructure and firm age, firm industry (r=-,012, r=-,002). Furthermore there is a non-significant positive correlation between Knowledge Management Infrastructure and firm function and firm size (r=,110, r=,143).

Correlation between control variables

Table 3 mentioned also the correlations between the control variables. Firm age has a strong positive correlation measured with firm function (r =.308, p<0,01) and firm size (r =.552, p<0,01). There is also a strong positive correlation measured between firm function and firm size (r =.409, p<0,01). The other relationships between control variables are all