IT CAPABILITY AND ORGANIZATIONAL BUSINESS PERFORMANCE: AN ANALYSIS OF KNOWLEDGE MANAGEMENT MEDIATION EFFECT

Understanding the relationship between information technology (IT) and organizational business performance is a subject of great interest to researchers and IT and management practitioners. Results from empirical studies have reported mixed findings. The well-known quote says: "you can see the computer age everywhere but in the productivity statistics". This has come to be known as the "IT productivity paradox". Therefore, this study seeks to enhance understanding of this relationship by introducing knowledge management as a mediator between IT capability and organizational business performance. The success of an organization is increasingly dependent on its ability to acquire and manage knowledge. In other words, the competitiveness of organizations relies less on traditional tangible factors, and knowledge now appears to be replacing these traditional factors. Hence, this paper investigates the mediating role of knowledge management in the relationship between information technology capability and organizational business performance. The study uses survey data from 408 managers and structural equation madding to evaluate the conceptual model and hypotheses. The results show that knowledge management fully mediates the relationship between IT capability and organizational business performance. This means that organizational IT capability contributes to processes of knowledge acquisition, integration, and knowledge application, which further enhance business performance. This paper adds to the existing body of research in both management and IS literature emphasizing the indirect impact of IT capability on financial business performance through knowledge management processes. Besides, the findings provide a better understanding of the IT-related sources of knowledge management and their interplay toward business performance.