The Role of Knowledge Quality in Firm Performance

Introduction The role of knowledge in firm strategy and performance is well documented in the literature. There are numerous theoretical and empirical studies examining the relationship between knowledge and firm performance. The essence of these studies is that the higher the level of knowledge acquired or accumulated, the greater the level of firm innovation and performance. For example, Liebeskind et al. (1996) and Powell et al. (1996) investigated the role of social networks and found that they were important sources of learning and innovation for firms. In recent studies, Lane et al., (2001) found that knowledge acquired by an IJV from its parent company contributed to its performance, and Yli-Renko et al. (2001) found that knowledge acquisition contributed significantly to new product development. In this study, we examine an element of knowledge acquisition that is not addressed in previous studies – that of the quality of the acquired knowledge. We examine not only the frequency of knowledge acquisition but whether the knowledge being acquired is useful to the firm and innovative in terms of its newness and novelty. The study incorporates three components – first, we investigate the impact of knowledge quality on two measures of firm performance – innovation and financial performance. Second, we investigate the antecedents to knowledge quality, examining the impact of the formal and informal networks (building on the work of network and social capital theorists such as Granovetter, 1992 and Nahapiet and Ghoshal, 1998) and Cohen and Levinthal's (1990) concept of absorptive capacity. Third, our data allows us to investigate the specific sources of useful and innovative knowledge, which provides us with a richer understanding of knowledge sourcing behaviours of organizations. There is an abundance of debate and dialogue in the literature on the role of knowledge in organizations. Researchers have investigated the phenomena from numerous angles – and absorptive capacity (Cohen and Levinthal, 1990) in investigating the nature of 3 organizational knowledge acquisition and the impact on performance. Where this study differs from previous work is the development of the concept of knowledge quality – defined as the usefulness and innovativeness of acquired knowledge – and its impact on firm performance. Subsequent discussion will focus on the theoretical model and underlying constructs developed and tested in this study. The Concept of " Knowledge Quality " Numerous studies have examined the process of knowledge sourcing and its impact on firm performance. For example, Appleyard (1996) …