Organizational Knowledge and Organizational Performance: A Dynamic Relationship

The influence of variables related to knowledge (knowledge management, stocks of knowledge, organizational learning) on organizational performance, has been the subject of numerous studies. It has not been the case of the influence of the performance itself on these variables. It should then be asked, if organizational performance is just a result of these variables, or if it, in turn, influences them. If so, how this interaction occurs and what its dynamic behavior is. There are few studies exploring this relationship, although several authors suggest a relationship of mutual interaction between learning and performance, and that has raised the importance of considering performance as an endogenous variable (not just as a dependent one) within models formulated in strategic management research in general, and particularly in organizational learning research. Scarcity of research on the dynamic relationship between learning, knowledge and performance, despite its obvious relevance, could be justified in part by the methodological difficulties that longitudinal studies entail and, partly, by the high complexity involved in developing formal models capable of describing this relationship. To cope with these difficulties, several authors have used simulation models as a methodological proposal that allows, usually based on secondary data, development and verification of theory, and makes it possible the formulation of complex models involving, as in the case of this research, the integration of diverse but complementary theoretical perspectives. Within the existing simulation methods we have chosen the system dynamics approach in part because of the use it makes of the concept of stocks and flows for describing the evolution of strategic assets, as knowledge, and in part because it is the most suitable one for studying the behavior of systems with high dynamic and causal complexity. In this document we formulate a conceptual model that links, dynamically, organizational learning, knowledge and performance and we intend, based on related academic literature, to develop a simulation model that allows the application of a longitudinal study. The model made use of the prospect theory to explain how decision makers determine to increase, maintain or finally get out of investments in intellectual capital, founding these decisions in their perception of financial results as gains or losses, taking their own expectations of what the behavior of these results over time should be (managerial dynamic hypothesis), as the reference point for labeling a result as a gain or as a loss. Investments in intellectual capital determine the level of stocks of knowledge which, in turn, relates to the financial performance through the innovation capability of the firm as the mediator variable. Results of simulations using a simple linear managerial dynamic hypothesis and a more complex non-linear one are shown, and conclusions, based on these results, are formulated.