An elusive antecedent of superior firm performance: The knowledge management factor

Knowledge management (KM) concepts, principles, and technologies provide a foundation for understanding and building systems for acquiring, assimilating, selecting, generating, and emitting knowledge–a crucial resource of the firm. In the knowledge management community, it is commonly contended that knowledge, and capabilities for processing it, comprise a major resource that can differentiate one firm from another in the sense of yielding better performance or a competitive edge. However, aside from anecdotes, there has been little to substantiate this contention. Can any empirical link be discovered between a firm's KM success and that firm's financial performance? To develop an answer to this question, we use an independent research company's reports of firms judged to be highly successful in their KM initiatives, plus related data reported by COMPUSTAT. As an initial investigation of the linkage between KM performance and firm performance, as measured by financial ratios, this study uses the Matched Sample Comparison Group methodology to evaluate research hypotheses. The analysis reveals a heretofore elusive antecedent of firm performance–evidence that superior KM performance is indeed a predictor of superior bottom‐line performance. This study contributes to the information systems (IS) literature by demonstrating that KM, a basic foundation for IS, is an important factor to consider from the standpoint of achieving strong financial performance. As such, it suggests that KM furnishes an important context for understanding designs, applications, and possibilities for IS with respect to achieving such performance. In the context of devising and executing KM initiatives, both technological and human treatments of knowledge need to be cultivated and integrated in ways that lead to superior KM performance. This study also contributes to the management literature by going beyond anecdotes and case studies in buttressing the proposition that a firm's KM competencies are an important ingredient in that firm's performance. It solidifies the raison d'etre for investigating KM phenomena and methods (computer‐based and human), both within and across modern organizations. It gives practicing managers evidence that bottom‐line benefits are indeed associated with superior KM strategy and execution.