Impact of Knowledge Management on Innovation: Evidence from a South Asian Country

Ever growing need for innovation has become a big challenge for organisations. Consequently, Knowledge management (KM) is gaining importance in the business world as one of the critical enablers for innovation. This study answers the question whether KM philosophy helps organisations develop capabilities to induce innovation, especially in the context of developing economies. Based on the empirical evidence from the service sector of Pakistan, we show that knowledge acquisition, knowledge dissemination, and responsiveness to knowledge significantly influence an organisation's capabilities to produce innovative outputs. We also bring to the fore a mutual relationship of KM components with each other, thereby highlighting that knowledge acquisition is important for knowledge dissemination which in turn determines an organisation's responsiveness to knowledge. We used structural equation modelling (SEM) to develop a model among three endogenous KM factors and one exogenous factor, innovation. Our findings show a significant relationship of all variables, though the strength of each varies, hence confirming the hypothesis that KM, if implemented effectively, improves organisation's ability to innovate.