How effective leadership of knowledge management impacts organizational performance

Abstract

The current article shows how transformational leadership influences knowledge management to improve organizational performance through better use of a firm’s internal resources. Transformational leaders not only directly impact knowledge management, they also foster more effective strategy implementation and information technology use, which positively contribute to the effectiveness of knowledge management as a driver of organizational performance. This study contributes to the literature by exploring a framework upon which to continue developing a more comprehensive understanding of the relationships between transformational leadership, knowledge management, a firm’s internal resources, and organizational performance. Furthermore, the current article contributes to the practice of management by identifying ways in which managers can build a high-performance organization through leadership and knowledge management.

Keywords

Knowledge management information technology organizational performance organizational strategy transformational leadership

Introduction

The growing importance of the knowledge economy is changing business environments. The new economy is based on creating economic value through understanding how people learn, how they relearn, and how they unlearn (Kwon and Cho, 2016; Villasalero, 2014; Zhao et al., 2013). The knowledge economy includes the transformation of managers’ insights into strategic assets such as organizational knowledge (McFarlane, 2008). While knowledge is a critical resource (Borghini, 2005; Venkitachalam and Busch, 2012), it is the management of knowledge that enables firms to enhance their competitiveness (Danskin et al., 2005; Grant, 1996; Wang et al., 2012).

Leadership plays an important role in managing knowledge within organizations (Donate and Guadamillas, 2011; Singh, 2008). Insufficient or ineffective support from top managers can lead to the failure of knowledge management projects (Davenport et al., 1998; Xue et al., 2011). Traditionally, leadership research has not specifically considered leadership as an enabler of knowledge management (Lakshman, 2009). However, recent research has emphasized the importance of leaders in managing knowledge (Chu, 2016; Gamo-Sanchez and Cegarra-Navarro, 2015; Millar et al., 2016).

Although empirical studies provide evidence of the overlap between leadership and knowledge in organizations (Chu, 2016; Gamo-Sanchez and Cegarra-Navarro, 2015; Liu and Phillips, 2011; Millar et al., 2016), prior researchers have not examined the implications of transformational leadership and its impact on knowledge management. The current gap is especially problematic from the standpoint of understanding leaders’ influence on management of organizational resources such as strategy, technology, and knowledge. Prior research has failed to explore the theoretical relationships between transformational leadership, knowledge management, firm performance, and organizational resources in an integrated model. The current article, therefore, investigates the links between transformational leadership, knowledge management, organizational resources, and firm performance for developing a new integrated conceptual framework of transformational leadership and its impact on knowledge management and firm performance.

Theoretical background and linkages

Social capital theory

Adler and Kwon (2002) have argued that social capital theory encompasses three approaches. The first (external) approach, that is influenced by network theorists (e.g. Burt, 1992), highlights the role of social networks in developing relationships between actors that can potentially facilitate actions and eventually enhance the performance of individuals and groups. The relationships between actors will extend broadly across a society and therefore extend well beyond the boundaries of a particular organization. Wacquant and Bourdieu (1992) have, therefore, depicted social capital as a resource accessible through possessing social networks and mutual and institutionalized relationships among actors.

The second (internal) approach evaluates social capital as a result of internal characteristics of collective actors (Adler and Kwon, 2002) and focuses on the importance of internal structures in improving cohesiveness to achieve goals. In light of this argument, social capital could be defined as ‘the existence of a certain set of informal values or norms shared among members of a group that permit cooperation among them’ (Fukuyama, 1995: 378). The third approach adopts both external and internal approaches and highlights that the relationships between an employee and other people are external to the employee and internal to the firm (Adler and Kwon, 2002).

Prior to Adler and Kwon’s (2002) work, Nahapiet and Ghoshal (1998: 243) described social capital as

[T]he sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. Social capital thus comprises both the network and assets that may be mobilized through that network.

The above definitions understand social capital as based upon social networks and actors’ internal characteristics such as values and trust-based relationships, as well as organizations’ social structures.

The primary concern of transformational leaders is to effectively manage major changes at the organizational level. A transformational leader understands that major organizational changes depend on changing norms, values, attitudes, and assumptions at the individual and group level. Transformational leaders, therefore, emphasize the importance of employee’s attitudes and values in achieving organizational goals and highlight how effective organizational change is when it is understood as a product of social capital and relationships. Yukl and Van Fleet (1992: 174) defined transformational leadership as a

process of influencing major changes in the attitudes and assumptions of organization members (organization culture) and building commitment for major changes in the organization’s objectives and strategies.

Burns (1978) has argued that an effective change at the organizational level is parallel to the development of relationships between leaders and followers. In this way, transformational leaders foster subordinates and then move them beyond self-interests by linking the individual interests to the collective interests (Bass and Steidlmeier, 1999; García-Morales et al., 2012; Gillespie and Mann, 2004). Transformational leaders, therefore, aggregate human capital as social capital to implement change and create valuable new human resources for organizations. A strong alignment exists between transformational leadership theory and the social capital. Transformational leaders, therefore, build their organizations as coherent communities.

Communities of practice theory is a base to understand the relations that transformational leadership, social capital, and knowledge management have to each other. Communities of practice enable social learning in groups that share common purposes in a particular domain, for example, a firm or profession. Mutual interest in learning and sharing knowledge with other community members are the core dynamics in a community of practice. Pemberton et al. (2007: 67) have described communities of practice as groups of like-minded people whose interconnectedness requires a form of leadership that empowers employees with

the freedom to explore new ideas and set its own agenda, free from the shackles of organizational missives, has been achieved by the commitment of its members and facilitated by a leader who is also a coordinator for the purposes of organizing meetings.

Coakes and Smith (2007) found that transformational leadership is appropriate for building communities of practice for innovative workplaces in which knowledge is shared because transformational leaders encourage participation in social networks. Braga (2002: 16) has maintained that transformational leaders are, themselves, effective networkers who provide ‘a flow of ideas, questions, and assumptions’ within organizations. By encouraging the flow of ideas and social capital, transformational leaders become role models (Arthur and Hardy, 2014; Henker et al., 2015; Stone et al., 2004) for followers by stimulating followers to develop trust-based relationships that create and diffuse knowledge. Furthermore, as Corno et al. (2000) suggested, leaders need to create appropriate social architectures that create supportive environments for knowledge flow and enhanced knowledge management by developing social capital. Therefore, it could be established that transformational leadership is highly engaged with the social capital theory. This review indicates transformational leaders as social architects who enhance knowledge management by developing the organizations’ social capital.

To help understand the relationship between social capital and knowledge management, it is useful to consider that Polanyi (1966) who shows that knowledge emerges in social interactions and that a necessary precursor to create knowledge is to have relationships. Following this approach, scholars have identified social capital as an important facilitator of knowledge work (Dijk et al., 2016; Inkpen and Tsang, 2005; Lang, 2004; Smedlund, 2008; Wasko and Faraj, 2005). In fact, some have described a firm ‘as a social community specializing in the speed and efficiency in the creation and transfer of knowledge’ (Kogut and Zander, 1996: 503). Nonaka and Takeuchi (1995) have proposed socialization as an essential requirement of knowledge creation by which knowledge is actually created in the act of sharing tacit knowledge. Socialization is an aspect of organizational culture that is critical to shaping the social capital, architectures, and networks for knowledge work. Trust-based relationships are important examples of social capital that help shape social architectures and inspire organizational members to share tacit knowledge to generate new ideas. The architectures of social networks that leaders facilitate are central to creating communities of practice that are ‘relatively tight-knit groups of people who know each other and work together directly’ (Brown and Duguid, 2000: 143). Mabery et al. (2013) have posited that communities of practice members frequently solve technical problems and share their ideas. Frequent positive social interaction and a strong desire to share existing practice and knowledge in solving daily technical problems enhance shared understandings among members. Studies acknowledge that sharing best practices and experiences are relevant to creating both shared understandings of problems and building trust-based relationships among employees (Holste and Fields, 2010; Rutten et al., 2016). Therefore, trust-based relationships and social networks positively contribute to knowledge work and facilitate knowledge management. The current article shows that managers should consider social capital as a way to enhance knowledge management in their organizations.

Knowledge-based view of the firm

Penrose (1959) has asserted that organizations are comprised of a bundle of heterogeneously distributed resources that create a unique firm and that internal organizational resources determine the degree to which a firm can expand and the growth pathway it takes. Barney (2002) has argued that a firm’s internal resources should, therefore, be rare and difficult for other firms to imitate to enhance competitiveness (Bakar and Ahmad, 2010; Barney, 1991; Cardinal et al., 2001; Clulow et al., 2007; Darcy et al., 2014). Going further, the resource-based view emphasizes causal ambiguity and social complexity as strategic resources.

Causal ambiguity arises when uncertain conditions mean that multiple interpretations of the conditions are possible leading to idiosyncratic and inimitable understandings and unique knowledge (Powell et al., 2006). Social complexity refers to ‘the extent to which resources are embedded in multiple organizational members and the relationships among them’ (Reus, 2004: 27). Thus, how understandings and knowledge are embedded in social relationships is critical to how knowledge drives organizational performance.

A firm’s knowledge capabilities, therefore, allow it to improve its performance, particularly when organizational knowledge capabilities unlock tacit knowledge embedded in employee relationships (Darroch, 2005; Wu and Chen, 2014). My research acknowledges the fact that causal ambiguity, social complexity, and knowledge drive performance. I now move to formulate my theoretical model based on the assumption that social capital, social relations, trust, and social complexity are all features that are relevant to knowledge management and transformational leadership.

Transformational leadership and knowledge management

Transformational leaders play a critical role in developing interactions and relationships needed for creating social capital, social networks, and opportunities for employees to explore new ideas and knowledge (Pemberton et al., 2007). Idealized influence, inspirational motivation, and intellectual stimulation which inspire followers to take risks and generate innovative solutions are important components of transformational leadership (Birasnav, 2014; Nemanich and Keller, 2007) that support knowledge management.

Prior research (Crawford et al., 2003; Jung et al., 2003) has shown a positive relationship between transformational leadership and knowledge creation processes. Birasnav (2014) has shown the crucial role of transformational leadership in facilitating knowledge acquisition. Transformational leaders improve knowledge integration through intellectual stimulation that enhances knowledge sharing (Eom et al., 2015). Furthermore, Lin and Hsiao (2014) found that transformational leaders build a climate that inspires followers to share knowledge. Therefore, transformational leadership positively affects knowledge management.

Transformational leadership and organizational performance

Transformational leaders foster development of social capital that improves organizational communication through intellectual stimulation to enhance knowledge sharing. Transformational leaders also promote sharing practices, including creating communities of practice for learning and growth opportunities for employees.

A learning climate that empowers employees can enable a firm to actively respond to environmental changes and move employees beyond self-interests through linking individual interests to the collective interests of the organization (Bass and Steidlmeier, 1999). Furthermore, transformational leaders employ individual consideration to identify employees’ needs to show concern for both firms’ needs and followers’ interests. A concern for employee’s individual needs can, in turn, contribute to increased organizational commitment that inspires employees to put extra effort into their work, which improves the quality of products or services, and customer satisfaction promoting higher returns on investments and an opportunity to increase sales or services to improve revenue. Scholars such as Avolio et al. (1988), García-Morales et al. (2012), García-Morales et al. (2008), Garvin (1988), Meindl and Ehrlich (1987), MacKenzie et al. (2000) and Shamir et al. (1993) have demonstrated that transformational leaders positively influence financial and non-financial performance, for example, improved stock price, decreased costs, increased sales, improved innovation capacity, increased responsiveness to environmental change, improved product or service quality, greater customer focus, and increased learning capability. Hence, transformational leadership is positively associated with organizational performance.

Knowledge management and organizational performance

Knowledge management is concerned about acquiring knowledge, integrating and sharing knowledge, and knowledge reconfiguration. Creating new ideas and knowledge may enhance organizational innovation and motivate employees to solve problems (Khedhaouria and Jamal, 2015). Knowledge acquisition is critical for learning the best ways to serve customer’s needs and recognize changes in the business environment (Sindakis et al., 2015). Integration of knowledge is also important. In knowledge integration, knowledge is shared and synthesized to provide higher quality products and services (Lee and Kim, 2001). Integration improves financial and non-financial performance in terms of greater customer focus, improved product and service quality, and increased sales. Furthermore, knowledge reconfiguration enables organizations to actively respond to environmental changes through developing interactions with and awareness of the external environment. Fugate et al. (2009), Lee and Choi (2003), Mills and Smith (2011), and Pathirage et al. (2007) have shown that knowledge is significant for improving organizational performance. Therefore, knowledge management has a positive relationship with organizational performance.

The mediating effects of organizational resource

Organizational strategy

Chandler (1962) has posited that organizational strategy is a process in which organizations determine their long-term goals, allocates resources, and adopts actions that will achieve defined goals. Similarly, Andrew (1971) has said that strategy is a pattern of decision-making, plans, and policies necessary for accomplishing goals. Strategy therefore is a pattern of deploying organizational resources and of interacting with the external environment.

Importantly, for the current article, strategic management includes managing knowledge assets to achieve organizational objectives. Sveiby (2001) has, therefore, argued that strategy is concerned with avoiding blockages to sharing and creating new knowledge. Organizational strategy allocates internal resources that affect knowledge to create competitive advantage. Knowledge is an important mediating factor in creating competitive advantage.

For the current study, organizational strategy draws on Bergeron et al. (2004) empirical investigation which uses four strategic perspectives: analysis, proactiveness, defensiveness, and futurity. Analysis refers to use of information systems for analysis in decision-making and finding innovative solutions to problems (Cohen and Sproull, 1996; Talke, 2007; Zheng et al., 2010). Transformational leaders build innovative workplaces where employees explore new ideas and solutions and use analysis to find innovative solutions. Futurity refers to taking a long-term view to investigate opportunities, trends, and possible changes that enhance competitive advantage (Akman and Yilmaz, 2008). Transformational leaders use futurity to develop comprehensive visions for the future, incorporating new trends and opportunities. Defensive strategy recommends undertaking defensive behaviors that manifest themselves in enhancing efficiency and in cutting costs (Venkatraman, 1989). Transformational leaders act as creators of change and take a defensive strategy to mediate the ways in which organizations operate to improve product quality and efficiency as they attempt to allocate resources to become more competitive. Proactiveness incorporates a proactive and informed approach to customers, competitors, and new technologies to improve organization’s competitive advantage. Proactiveness is a factor that transformational leaders use to identify new opportunities in the external environment and stimulate communication about the opportunities. Therefore, transformational leadership is positively associated with organizational strategy.

Analysis, proactiveness, defensiveness, and futurity also influence knowledge management. Analysis is the ability to apply information systems to develop capabilities in knowledge gathering that leads to the identification of shortcomings and taking appropriate actions to solve them. Discovery of new knowledge and methods leads to improved performance (Wei and Wang, 2011). Proactiveness helps organizations to acquire new knowledge and synthesize it to improve performance by eliminating operations that are no longer effective and efficient (Menguc and Auh, 2008). Thus, a proactive approach to strategy applies knowledge to identify weaknesses. Defensiveness enhances efficiency through creating mediating methods and cutting costs (Venkatraman, 1989), which in turn enhances the use and reuse of knowledge (Wee and Chua, 2013). Futurity promotes knowledge use to forecast emerging trends and respond to the demands of the future. Zheng et al. (2010) have shown that analysis, defensiveness, futurity, and proactiveness considerably improve knowledge generation, knowledge sharing, and knowledge use within organizations. I propose that organizational strategy is an important enabler for knowledge management, and therefore, organizational strategy positively affects knowledge management.

Information technology

Gold et al. (2001) have suggested that information technology is a resource for knowledge integration. More specifically, Caya (2008) has argued that information technology enables knowledge integration through Impersonal, Personal, and Collective Mechanisms.

Impersonal mechanisms enable knowledge integration using information technology to enact regulations, procedures, and rules that coordinate intellectual capital. Thus, information technology can disseminate protocols across a firm, allowing managers to see progress toward meeting milestones. Personal mechanisms relate to communication technology that vertically and horizontally diffuses knowledge among employees. While collective mechanisms uses information technology to synthesize knowledge acquired from multiple organizational members. Information technology, therefore, encourages people to find and share new ideas and solutions to solve problems. Malik and Nilakany (2015) have argued that lack of innovation and creativity adversely impacts an organization’s capability to integrate knowledge. I argue, therefore, that information technology plays a critical role in integrating knowledge.

Transformational leaders develop relationships and encourage interactions within companies, set expectations, and inspire followers to identify opportunities in the business environment (Druskat, 1994; Eagly and Carli, 2003). Further, I argue that when information technology is used as an internal resource facilitating organizational communications that there is an increased capability to search for knowledge. Transformational leaders, therefore, should develop ways of using information technology to build knowledge sharing and this in-turn enhances organizational effectiveness. Yee (2000) has posited that transformational leaders serve as role models who highlight the importance of the application of information technology. Schepers et al. (2005) found a significant correlation between transformational leadership and perceived usefulness of the information technology. Furthermore, Schepers et al. (2005) found that transformational leaders create higher degrees of technology acceptance by enabling employees to analyze problems and by challenging people to be innovative and creative. Therefore, transformational leadership positively affects information technology.

Social capital theory also supports the idea that knowledge creation is dependent on developing organizational communication. Information technology enables organizations to promote knowledge access and sharing within companies (Gressgard et al., 2014; Ray, 2008). Grant (1996) has highlighted how communication technologies play a crucial role in improving knowledge creation. Similarly, decision-aid technology is a facilitator of knowledge creation through providing the infrastructures to store and retrieve knowledge. Hence, information technology positively impacts knowledge management. Based on the theoretical linkages, an integrated framework is depicted as Figure 1.

Figure 1.

Relationship Between Transformational Leadership, Knowledge Management, Internal Organizational Resources, and Organizational Performance.

Discussion and conclusion

Theoretical contributions

The current study has several implications for theory and research. First, while prior studies (García-Morales et al., 2012; Zack et al., 2009) have established the importance of transformational leadership and knowledge management for performance outcomes, the current study adds to a relatively small body of literature on transformational leadership and knowledge management and develops a greater understanding of the direct impact of transformational leadership on organizational performance as well as the indirect contribution of transformational leadership in improving organizational performance through its influence on knowledge management.

Second, the current study develops a new and dynamic concept of transformational leadership. Importantly, my research advances current knowledge of transformational leadership by offering novel insights into how transformational leaders affect internal organizational resources. In particular, I argue that transformational leaders effectively implement organizational strategy and information technology. Drawing from social capital theory and the knowledge-based view, the current study suggests new insights by identifying transformational leadership as a primary influence on internal organizational resources. Thus, when change becomes increasingly valuable, transformational leadership is a catalyst for effectively implementing planned changes to a firm’s internal resources. In my study, I suggest that transformational leadership is formative in the implementation of strategy and information technology that are important with a firm’s strategic framework. The current study opens up an avenue of inquiry that explores organizational knowledge and leadership as drivers of successful organizational change.

Beyond illustrating that transformational leaders are change agents, the nature of the interactions between transformational leadership and knowledge management also suggest several complementary insights. Most importantly, the current study on the role of transformational leadership allows a fresh understanding of the mechanisms by which knowledge management is influenced. Whereas researchers have searched for transformational leadership’s direct impacts on knowledge management and organizational performance (Brandt et al., 2016; Donate and Guadamillas, 2011), the current study articulates a different approach by examining how transformational leaders contribute to knowledge management and organizational performance by fostering effective strategy and application of information technology, which have a direct impact on knowledge management effectiveness. In my review of the literature, I found insufficient consideration of the impact of transformational leadership on a firm’s internal resources. For example, to date, no published work has explored how transformational leadership impacts organizational strategy. Moreover, the current study provides a detailed picture of the effects of transformational leadership on internal organizational resources.

Managerial implications

The current study also offers practical implications for managers. Knowledge is appreciated as a strategic resource (Kruger and Johnson, 2010). However, many organizations are known to implement knowledge management initiatives without sufficient consideration of their leadership style, skill effectiveness in ensuring knowledge management effectiveness. The current study raises a vital question about how leaders can successfully contribute to knowledge management and subsequently improve organizational performance. The current study highlights the potential benefits of applying transformational leadership. For example, I suggest that a firm’s ability to enhance knowledge management, in addition to organizational performance, is positively affected by transformational leaders.

I found that transformational leaders not only directly support knowledge management, but also cultivate effective strategy that when coupled with information technology use, better enables knowledge management within organizations. Transformational leaders are, therefore, possibly the most qualified leaders to contribute to communities of practice through developing social networks and diffusing knowledge by creating effective IT infrastructure and better use of strategy.

The current study suggests that transformational leadership, strategy, and information technology constitute the foundation of a supportive workplace that improves the effectiveness of knowledge management. If a firm’s strategy and information technology are not supportive of knowledge management, organizations may not benefit from knowledge management.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

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