The Influences of Knowledge Management on Organizational Performance of Taiwan-Listed IC Design Houses:Using Intellectual Capital as the Mediator

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1 The Influences of Knowledge Management on Organizational Performance of Taiwan-Listed IC Design Houses:Using Intellectual Capital as the Mediator Yung-Chieh Chien, Kao-Yuan University, Kao-Hsiung City, Taiwan ABSTRACT In a knowledge-based economy, if an enterprise has adept knowledge management, an increasingaccumulation of intellectual capital, and is able to improve organizational performance, it can master competition of the future. The major purpose of this study is to validate and understand the impact of knowledge management, of the listed IC design houses in Taiwan, on organizational performance, using intellectual capital as the mediator. The Simple Random Sampling method is used to sample the population, while Structural Equation Modeling (SEM) is used to verify the overall research model and the goodness-of-fit of its Structural Model and Measurement Model. The findings of this study are: (1) good knowledge management has a positive effect on the accumulation of intellectual capital; (2) the accumulation of intellectual capital has a significant positive effect on organizational performance; and (3) knowledge management has a positive effect on organizational performance. It is apparent from the findings noted above that intellectual capital has some mediating effect. In addition, the study results can not only be offered to the managers of the listed IC design houses in Taiwan to help in the understanding of the importance, and the associated benefits, of knowledge management and intellectual capital to the industry, they can also serve as a decision-making reference for relevant business operators. In short, the results of this study may help these businesses to effectively use knowledge management and accrueintellectual capital, so as to improve organizational performance and subsequently create a sustainable competitive advantage. Keywords: Knowledge Management, Intellectual Capital, Organizational Performance RESEARCH BACKGROUND AND OBJECTIVE In the era of a knowledge-based economy, whoever masters knowledge and technology will be able to take control of the competitive future; in other words, the competition of the future involves knowledge and technology. To enhance organizational performance, it has become more important than ever for businesses to manage and share knowledge. Effective knowledge management will be one of the key components required for businesses to win (Wu, 2009). Whether good knowledge management and the accumulation of intellectual capital can enhance organizational performance, improve the value of a business, and ensure continuous growth to enhance the potential of sustainable business development (Chen, 2012) is one of the most important topics at the moment worthy of exploration. While IC s design is the forefront process of the supply chain including: IC manufacturing, packaging, testing and support industries, it is also a highly capital-intensive industry. If an enterprise wants to control the advantages presented in the rapidly changing era of a knowledge-based economy, it must improve its organizational performance through the accumulation of intellectual capital. Intellectual capital can create high enterprise value, bring forth the competitive 50 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

2 advantages, and become the core competitiveness required for a company s survival (Jian, 2006). In short, in a knowledge-based economy, if an enterprise has adept knowledge management, an increasing accumulation of intellectual capital, and is able to improve organizational performance, it can master competition of the future. Therefore, this study would like to validate and understand the impact of knowledge management of the listed IC design houses in Taiwan on organizational performance, using intellectual capital as the mediator. The three major focuses of this study are: (1) To verify whether good knowledge management has a positive effect on the accumulation of intellectual capital of Taiwan-listed IC design houses. (2) To verify whether the accumulation of intellectual capital has a significant positive effect on the organizational performance of Taiwan-listed IC design houses. (3) To verify whether good knowledge management has a positive effect on the organizational performance of Taiwan-listed IC design houses. LITERATURE REVIEW The literature review concerning major dimensions of this study that includes: knowledge management, intellectual capital and organizational performance is discussed in the following paragraphs: The Definition and Dimensions of Knowledge Management There is a multitude of research literature concerning the study of knowledge management. The "conceptual definition" of knowledge management for this study draws upon the definition from Alavi&Leidner (2001), that is: from the object perspective, knowledge management focuses on the process management of knowledge flow, and on the creation, distribution of knowledge; from the process perspective, knowledge management focuses on the construction and preservation management of knowledge stock; from the capability perspective, knowledge management focuses on the building of core competitiveness and the understanding of business competition strategies, thereby generating positive effects on organizational performance. The Operational Definition of this study concerning knowledge management is drawn from the four modes of the spiral of knowledge theory of Nonaka and Takeuchi (1995): (1) Socialization; (2) Externalization; (3) Combination and (4) Internalization. The relevant literature on the basic concept of "knowledge management", as mentioned, above is briefly described in the following: Nonaka and Takeuchi (1995) divided knowledge into Tacit Knowledge and Explicit Knowledge, using Epistemological and Ontological dimensions to describe the spiral of knowledge. The concept of knowledge spiral states that knowledge is created through the interaction of tacit knowledge and explicit knowledge. It is set in four different modes: (1) the movement from "tacit knowledge" to "tacit knowledge" is called "Generalization" or "Socialization", which is the conversion process of changing personal tacit knowledge to group tacit knowledge; (2) from "tacit knowledge" to "explicit knowledge" is called "Externalization", which is a process of manifestation through metaphors, analogies, concepts and assumptions, so that others can understand; (3) from "explicit knowledge" to "explicit knowledge" is called "Combination", which is the process of systemizing the concept of knowledge to form a knowledge system that involves combining varieties of different explicit knowledge, and systemizing that knowledge through the methods of communication and dissemination; and (4) the transferring of the "explicit knowledge" systemized by the organization or group into personal "tacit knowledge" is called "Internalization", which is learning by doing and thinking, so as to internalize the learned knowledge. In The Journal of International Management Studies, Volume 10 Number 1, February,

3 addition, knowledge spiral also denotes systematic, purposeful, and meaningful knowledge learning between individuals and groups that exhibits a positive spiral movement of knowledge accumulation. Overall, "Tacit Knowledge" is the product of a special situation that is difficult to express in a specific form. In terms of cognition, it is a creation of individualized work elements, including cognition and skill, through the processes of continuous manufacturing, processing, and analogizing by an individual's internal mind: including examples such as internal beliefs, insight, and intuition. These cognitive elements can assist an individual in facing the challenge of understanding oneself, and can be expressed in the individual's action and experience. "Explicit Knowledge" is the knowledge that can be objectively expressed with words and numbers. It has regularity and is systematic. It can be communicated and shared through concrete data, scientific equations, standardized formulas, and standardized procedures. Therefore, in an organization with good knowledge management, employees are expected to make significant impacts on organizational performance after going through the process of knowledge wheel learning. Leonard-Barton (1995)propose that the core competencies of a business, i. e. its knowledge assets, consist of at least four dimensions: (1) Employee Knowledge and Skill: knowledge and skill embodied by the employees that also include proprietary skill of the company and science philosophy; (2) Physical System: core competencies are gradually accumulated in employees' minds, and are expressed in the physical system built by the employees, such as database, machinery, and software programs; (3) Managerial System: the accumulation of employees' knowledge occurs through company education, compensation, and the guidance and supervision of motivation systems. These managerial systems create the channels for knowledge attainment, while establishing barriers to undesirable knowledge activities; (4) Value and Norm: Value and norm allow organizations to decide what type of knowledge is to be pursued and cultivated, and what type of knowledge creation activities to support and encourage. Core competencies distinguish a company from others, and provide a competitive advantage to the company(perng, 2006). Snowden (2000) proposed that knowledge management is the confirmation, optimization and active management of intellectual assets; while the so-called intellectual assets refers to artificial products with explicit knowledge, or tacit knowledge embodied by an individual or a community. Wu (2001) argued that knowledge management is the process of knowledge collection, collation, analysis, sharing and creation, which enables constant revisions of the original knowledge and continuous generation of new knowledge. It can also preserve and accumulate new and old knowledge, and facilitate effective translation into systematic and institutionalized knowledge. Such cycles of continuous generation, accumulation and creation of knowledge are helpful to organizations in making effective decisions and action strategies, and subsequently in increasing assets, expanding wealth, enhancing wisdom and achieving goals. The dimension taxonomy for the measurement of knowledge management of this study is drawn from the theoretical models proposed by Nonaka and Takeuchi (1995). The four measurement dimensions: (1) Socialization; (2) Externalization; (3) Combination; and (4) Internalization are used as variables for knowledge management of this study, while their classified definitions are adopted as the "operational definition" of this study. 52 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

4 The Definition and Dimensions of Intellectual Capital The conceptual definition of this study concerning "Intellectual Capital" is drawn on Chen (2001) definition: "That which encompasses the entire company and is expressed through skills, knowledge, information, experience, problem-solving capability and wisdom, and which is integrated in human capital, structural capital and relationship capital." Its operational definition is briefly described as follows: (A) Human Capital: knowledge, skills and experiences of a company s entire staff and management; (B) Structural Capital: a company s overall system/procedures concerning problem-solving and value creation; (C) Relationship Capital: the initiation, maintenance and development of an organization s external relationships with customers, suppliers, and business partners. The basic concept concerning Intellectual Property as mentioned above is deducted from the following research papers. Stewart (1997) published intellectual capital accumulation: the New Wealth of Organizations, a book loaded with case studies in a bid to explain the three elements of intellectual capital: human, structural and customer capitals. Stewart (1997) argued that intellectual capital includes these three types of capital and defined human capital as the sum of innovations, employees mindsets, seniority, turnover rate, work experiences, and learning ability; structural capital as the existing knowledge efficiently collected, tested, organized and integrated, with irrelevant components sifted out for further diffusion; customer capital as the way a specific organization deals with all relevant parties, which involves the satisfaction, retention rate and loyalty of customers. In their book Intellectual Capital Accumulation: Realizing Your Company's True Value by Finding Its Hidden Brainpower Edvinsson& Malone (1997) explained the intellectual capital implementation process and measurement indicators at Scandia Inc. They agreed that intellectual capital comprises human, structural and customer capitals, with the human capital being the sum of personal competencies, knowledge, skills and experiences of a company s entire staff and management, as well as the organization s capabilities in creativity and innovation. Structural capital, they said, is a supportive framework and organized capacity that gives human capital a tangible form, authority and support, including the palpable system for communicating and storing intellectual materials. The customer capital involves customer satisfaction, durability, price sensitivity, and the long-term customers financial conditions, the argued. Intellectual capital, according to Sveiby (1998), is made up of individual competencies and the internal/external structure of a company, where individual competencies is defined as the employees capabilities of taking actions under varied circumstances with explicit knowledge, skills, experiences, value judgments, social networks, among others; the internal structure is defined as the sum of patents, concepts, patterns/models, computer and management systems; the external structure, the sum of company-customer or company-supplier relationships such as brands, goodwill, and trademarks. Johnson (1999) addressed intellectual capital in three categories, namely the human, structural and relationship capitals, where human capital is defined as the combination of idea capital (or the labor force for knowledge-oriented tasks and employee aptitudes/attitudes) and leadership capital (or the personal qualities of an expert/manager); structural capital is defined as the combination of innovation capital (i.e., patents, trademarks, copyright and knowledge archives) and process capital (i.e., work procedures, trade secrets); relationship capital, the sum of a company s relationships with customers, suppliers and online-community members. While Knight (1999) tackled the issue of intellectual capital in four dimensions, namely human, structural and external capitals besides financial performance, he said human capital comprises the The Journal of International Management Studies, Volume 10 Number 1, February,

5 employee turnover rate, employee satisfaction, the number of new products/ideas conceived and recommended to be proposed/received; the structural capital comprises the operating-capital turnover rate, ratio of salespersons to general/administrative staff, and the length of time required to launch a new product; the external capital comprises customer persistency/satisfactions, the list of customers for maximum profitability, indicators of suppliers product quality/reliability; the financial performance comprises the Economic Value Added (EVA), the 90-day accounts receivable, and the value added per employee. Dzinkowski (2000) suggested that intellectual capital comprises complex meanings, and is often synonymous with intellectual property, intellectual asset, and knowledge asset, and that it can be accumulated through capital, or is equal to a knowledge-based company procedure. The intangible intellectual capital is a major referential indicator of enterprise value(ev), as contended by Chen (2001), who said intellectual capital consists of human, structural and relationship capitals while defining it as something that integrates into such capitals all the skills, knowledge, information, experiences, problem-solving abilities and wisdom of a company. She went on to define human capital as the knowledge, skills and experiences of a company s employees and management; structural capital, a company s overall system/procedures concerning problem-solving and value creation; relationship capital, the initiation, maintenance and development of an organization s external relationships with customers, suppliers, business partners, among others. Edvinsson (2003) gave a simple description of intellectual capital: something all businesses will rely on for future growth, as well as an indicator of efficiency in business operations. It is impossible to implement any corporate reform without first investing in intangible assets (Tsen and Hu, 2010). Chuang, Lin, Shen, and Lee (2011) believed that intellectual capital is the value created by knowledge that has the property of intangibility, uniqueness and deferred effectiveness, and is presented in the form of skills, knowledge, information, experience, and innovation, a competitive advantage that differentiates the company from the rest in the industry. The Definition and Dimensions of Organizational Performance The conceptual definition of organizational performance in this study quoted the definition made by Ling and Hung (2010), which referred to organization performance means an organization and its relevant operations and departments have jobs completed before deadline for the purpose to achieve phased or overall goals of the organization ; meanwhile, this study discussed the measurement dimensions of corporate performance also quoted from Kaplan & Norton (1996) about financial dimension and non-financial dimension in a perspective of the balanced scorecard. Conceptual definition and dimensions of categories for organizational performance were inspired by the following literature. Bonoma and Clark (1988) found that firms frequently used profitability ratio, growth of sales, market share and cash flow to measure their financial aspects. Vorhies and Morgan (2005) pointed out that companies use three performance indicators to decide if organizational marketing capabilities can generate a competitive advantage. These three measurement indicators need to be built between the company s main competitors and act as a comparison benchmark to effectively measure if marketing capabilities have a competitive advantage,. The features and contents of the three measurement indicators are as below: (1) Customer satisfaction: this indicator contains all measurements which can assess actions used to increase customer satisfaction. For example: customer satisfaction, ability to deliver customer value, ability to satisfy customer s needs and retain valued customers etc. 54 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

6 (2) Market effectiveness: this indicator is mainly used to measure the company s ability to achieve market-related goals. For example: growth of market share, growth in sales, growth in the amount of new customers and increasing the current growth of customer sales volume. (3) Expected or current profitability: this indicator measures the company s profitability over the past year and the expected profitability in the coming year. For example: profitability of subsidiaries, return on investments, return on sales and the ability to achieve financial goals. It was discovered from the research of Baldwin & Clark (2000) that sales growth rate, profitability ratio and market share are most frequently adopted by businesses for performance measurement indicators. Atkinson and McCrindell (1997) believed that the development trends of performance system will improve the current financial indicators (e.g. economic value added) and also guide organization in non-financial indicators (e.g. Customer satisfaction, employee satisfaction, product quality etc.). Tatikonda s(1998)study indicated that in an environment change, emphasizing only on the performance management system of short-term financial goals will waste the company s limited resources. Therefore companies need a dynamic performance measurement system which will project financial performance and more. There have been many studies on measurement dimensions of organizational performance in the past. As it will ultimately lead back to financial dimensions, most scholars will use financial performance as one of the measurement indicator. However, in today s environment where information transfer is convenient and markets are rapidly changing, companies cannot only rely on financial performance as the only factor to achieve survival and competition. In other words, just using a single financial performance indicator cannot fully measure organizational performance. Additionally, Ling etal (2010) believed that organizational performance refers to organization achieving phased or overall goals, and with all related businesses and departments inside the organization accomplishing it within the deadline. Kaplan et al (1996) emphasized that organizations should not place an over-reliance on just financial dimension to achieve strategic objectives, but should consider both financial and non-financial dimensions. In other words, measuring financial performance should be proceeded from both the financial and non-financial dimension. Non-financial dimension includes: (1) Customer dimension; (2) Internal business process dimension and (3) Learning and growth dimension. Relevant Literature for Knowledge Management and Intellectual Capital In terms of the relationship between knowledge management and intellectual capital, this study obtained the following hypotheses through a comprehensive review of the following literature: H 1 : a good knowledge management has a positive effect on the accumulation of intellectual capital of Taiwan-listed IC design houses. The empirical study results of Huang (2009) showed that, in the structural models of the R&D unit of the Defense Department and the R&D teams of private hi-tech companies, there aresignificant positive relationships between knowledge management and intellectual capital, and between intellectual capital and organizational performance. The impact of knowledge management on organizational performance is indirectly through the causal effects between factors of intellectual capital. Such an indirect impact is seen in the path of human capital, which follows the path via structural capital and innovation capital and incurs a positive effect on customer capital. Yan (2007) suggested that customer knowledge and relational marketing are both important intellectual capital, and customer knowledge management has a significant positive effect on intellectual capital. The Journal of International Management Studies, Volume 10 Number 1, February,

7 Lin (2008) constructed an FAQ web-application system within the fields of knowledge management and intellectual capital with the goal of effectively resolving the complex issues of structuring knowledge, thereby strengthening the effectiveness of knowledge acquisition. Both building the consensus of knowledge sharing and creating the culture of sharing is helpful in improving the richness of knowledge bank content. Summarizing the above, the research target of each of these papers is different from this study. To verify if the Hypothesis 1 (H 1 ), i.e. a good knowledge management has a positive effect on the accumulation of intellectual capital of Taiwan-listed IC design houses, proposed by this study is valid, it is necessary to use interview/questionnaire/data collection and statistics methods. Relevant Literature for Intellectual Capital and Organizational Performance In terms of the relationship between intellectual capital and organizational performance, this study obtainedthe following hypotheses through a comprehensive review of the following literature: H 2 : the accumulation of intellectual capital has a significant positive effect on the organizational performance of Taiwan-listed IC design houses. Chen (2010) proposed that currently intellectual capital is regarded as an important key to business competitiveness. His study combines intellectual capital with organizational strategies and organizational performance, and explores their correlations. The study result also reveals that intellectual capital and organizational performance are significantly positively correlated. Lee (2007) explored the impact of intellectual capital of higher education institutions on organizational performance, and verified the mediating effect of structural capital and relational capital. The research results found that high quality human capital brings high performance for the schools, and relational capital has a mediating effect between human capital and organizational performance. Liao (2010) integrated resource-based theory and institutional theory, and proposed that isomorphism of the organizational culture points the way of success and guides members of the organization to utilize intellectual capital jointly to enhance performance. The results of this study showed that the interactive effect of organizational culture and the ability to use knowledge indeed affects the relationship between intellectual capital and performance. The type of intellectual capital must match the type of organizational culture and knowledge using ability to enhance organizational performance, in particular, in the area involving human capital. If a business lacks the mechanism to update knowledge, it must be able to provide staff with appropriate job flexibility or innovation incentive, so that human capital can facilitate a positive impact on performance; otherwise, human capital may even affect performance negatively. Chang (2010) proposed that intellectual capital has a significant positive effect on organizational performance; additionally, intellectual capital has a partial mediating effect between a High Performance Work System and organizational performance, which means that an organization that adopts a higher quality High Performance Work System may enhance organizational performance through the accumulation of intellectual capital. Hung (2003) argued that organizational capital plays a mediating role between knowledge documentation and the Value Added Market. In particular, after separating high tech and low tech companies, employee equity in relational capital management can be significantly improved through internal relational capital, and subsequently improve the performance of Intangibles-driven Earnings (IDE) of the high-tech company. Summarizing the above, the research target of each of these papers is different from this study. To verify if the Hypothesis 2 (H 2 ), i.e. the accumulation of intellectual capital has a significant positive effect 56 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

8 on the organizational performance of Taiwan-listed IC design houses, proposed by this study is valid, it is necessary to use interview/questionnaire/data collection and statistics methods. Relevant Literature for Knowledge Management and Organizational Performance In terms of the relationship between knowledge management and organizational performance, this study obtainedthe following hypotheses through a comprehensive review of following literature: H 3 : good knowledge management has a positive effect on the organizational performance of Taiwan-listed IC design houses. Yang (2007) proposed that the impetus of knowledge management must be constructed on knowledge management strategies that are appropriate to the business. An organization with proper knowledge management strategies can enhance its knowledge management performance and thereby improve organizational performance. Wu (2009) argued that to the technology industry which changes rapidly and that requires complex skills, social relations and knowledge management between organizations pose a certain impact on the development of organization memory and organizational performance. Wu (2009) suggested that the mechanism of knowledge management has obvious impacts on organizational performance, and that an enterprise's organizational performance will be enhanced once the mechanism of knowledge management is implemented. Liu (2007) suggested that personality traits of employees and organizational culture have a positive significant impact on knowledge management, and have an indirect impact on organizational performance by way of knowledge management. Yeh (2000) argued that business knowledge resources can be classified as innovation, customer, human, and process capitals; additionally, if a business enhances its creation and accumulation of knowledge resources, it can improve overall value of the business. Therefore, a business should attach great importance to strategic efficacy of knowledge management. If a business can effectively operate knowledge management, it can create a sustainable competitive advantage. Summarizing the above, the research target of each of these papers is different from this study. To verify if the Hypothesis 3 (H 3 ), i.e. good knowledge management has a positive effect on the organizational performance of Taiwan-listed IC design houses, proposed by this study is valid, it is necessary to use interview/questionnaire/data collection and statistics methods. RESEARCH FRAMEWORK The research framework is generated based on the above research objective, hypotheses and literature review as shown in Figure1. The Journal of International Management Studies, Volume 10 Number 1, February,

9 Human Capital Structural Capital Relational Capital Intellectual Capital Socialization H 1 H 2 Externalization Combination Knowledge Management H 3 Organizational Performance (BSC) Internalization Figure1: Research Framework Financial Construct (EPS) Non-Financial Construct * Customer Construct * Internal Process Construct * Learning and Growth Construct RESEARCH METHOD Research Subjects and Questionnaire Design The management staff of section supervisor or above from the listed IC design houses in Taiwan were selected to be subjects of this study, adopting the Simple Random Sampling for testing. To enhance the Content Validity and Reliability of questionnaires, thereby, questionnaires were given out to experts in a pilot-test before working on respective questionnaires, and the Pilot test implemented next to modify or exclude inappropriate questions of the questionnaires. Eventually, the Post-test was operated to have the management staff of section supervisor or above from the listed IC design houses in Taiwan being the subjects receiving samples, totally sending out 680 copies of questionnaires, with a receipt of 223 copies valid response questionnaires for a 32.79% response rate. The Structure Table of questionnaire question numbers for variables within the main dimension (Conceptual Dimension) and sub-dimension (Operational Measurement Dimension) was shown as Table 3.1. Additionally, something worthy of your attention was the questionnaire of measurement dimension for the organizational performance. Based on the purpose to further understanding organizational performance of the listed IC design houses in Taiwan, the financial performance-related measurement indicators are arisen from the measurement indicators of the subject companies Earnings per Share (EPS) from year 2003 to 2013, and these indicators were obtained from Taiwan Economic Journal (TEJ) Database. As for non-financial performance perspective, it conformed to the non-financial performance dimensions of Kaplan & Norton (1996): (1) Customer Dimension; (2) Internal Process Dimension and (3) Learning and Growth Dimension, designing each own questionnaire. 58 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

10 The Data Obtained from Questionnaire and Measurement Model To validate the research framework, this paper uses SEM (structural equation modelling) for a confirmatory factor analysis (CFA). The questionnaire was constructed on the basis of three latent variables (i.e., knowledge management, organizational performance and intellectual capital), each divided into observable/explicit sub-variables that contain several questions. The data collected was processed to create a primary file for the questionnaire. As for the establishment of measurement model, this study designed the questionnaire by way of Multi-Dimension Measurement but adopted the Dual Measurement method to ensure successful data processing by computer software (Chen, 2010). Table 1 shows the number of questions under each implicit and explicit variable, along with the referential sources. Main dimension Knowledge Management(KM) Intellectual capital(ip) Organizational Performance (OP) Table 1: Structure of No. of Questions Sub-dimension or measurement No. of indicators questions Socialization(SO) 2 Externalization (EX) 2 Combination (CO) 2 Internalization (IN) 2 Human Capital (HRC) 2 Structural Capital (SRC) 2 Relational Capital (RC) 2 Earnings per Share (EPS) 2 Customer Dimension (CD) 4 Internal Process Dimension (OIP) 2 Learning and Growth Dimension (OLG) 3 References of questionnaire Perng (2006) Chen (2001) TsenandHu (2010) Kaplan &Norton (1996); Taiwan Economic Journal (TEJ) Database Linear Structure Model Analysis This study conducted a CFA, an analytical approach contrary to the Exploratory Factor Analysis (EFA), on each pair of the three main dimensions (i.e., knowledge management, organizational performance and intellectual capital). Made up of structural and measurement models, SEM effectively addresses the cause-effect relations among implicit variables. Models in this study were verified in three regards: (1) whether the overall model conforms to the goodness-of-fit indicators; (2) goodness-of-fit of the measurement model; (3) goodness-of-fit of the structural model. CMV Test Using CFA to test and compare, common method variance does not exist in the questionnaire designed by this study. Results are shown in Table 2. Table 2: CMV Test Results Model χ2 DF Δχ2 ΔDF P Single-Factor Multiple-Factor The Journal of International Management Studies, Volume 10 Number 1, February,

11 ANALYSES AND RESULTS Test regarding fit of the overall model This study built the overall model framework following a literature review and a factor analysis of sample data and, as recommended by Hair, Anderson, Tatham& Black (1998), measured the overall model s goodness-of-fit in three different ways: the Measures of Absolute Fit, the Incremental Fit Measures, and the Parsimonious Fit Measures. The test results are listed in Table 3(Chen, Fang, Chen and Chien, 2008). Table 3: Test Regarding Fit of the Overall Model Indicators Standards of Judgment Test Results GFI > Measures of AGFI > Absolute Fit RMR < Incremental Fit NFI > Measures Parsimonious Fit Measures CFI > PNFI > PGFI > Measurement Model The factor loading measures the intensity of linear correlation between each item under the latent/implicit variables (or main perspectives) and manifest/explicit variables (or sub-dimensions). The closer the factor loading is to 1, the more capable ameasurement variable (or sub-dimension variable) is in measuring the main perspectives. This study proves reliable with an above-0.7 factor loading in any sub-perspective. That is, all sub-perspectives (i.e., explicit variables) in the proposed measurement model properly measure the main perspectives (i.e., implicit variables). Meanwhile, the Average Variance Extracted (AVE) measures the unobservable/implicit variables explanatory power of variance regarding measurement variables; a higher AVE suggests greater reliability and convergent validity of a latent/implicit variable. It usually takes an above-0.5 AVE to prove a dimension s explainable variance exceeds the measurement error (Fornell and Larcker, 1981). As AVEs in this study invariably exceed 0.5, the latent/implicit variables have excellent reliability and convergent validity (See Table 4 and Figure 2). Implicit Variables Knowledge Management (KM) Intellectual Capital (IP) Organizational Performance (OP) Table 4: Judgment Indicators for the Measurement Model Measurement Average Variance Factor loading Cronbach s α Variables Extracted Socialization(SO) Externalization (EX) Combination (CO) Internalization (IN) Human Capital (HRC) Structural Capital (SRC) Relational Capital (RC) Earnings per Share (EPS) Customer Dimension (CD) Internal Process Dimension (OIP) Learning and Growth Dimension (OLG) The Journal of International Management Studies, Volume 10 Number 1, February, 2015

12 Coefficient of Determination The so-called coefficient of determination is also known as Squared Multiple Correlation (SMC), which is the explaining level of the implicit independent variable on the implicit dependent variable. In other words, the R 2 value shown in Table 5 indicates that the implicit independent variable has adequate explaining ability on the implicit dependent variable respectively. Table 5: Path Coefficient of Determination Coefficients of Determination R 2 Knowledge Management(KM) Intellectual Capital (IP) 0.61 Intellectual Capital (IP) Organizational Performance(OP) 0.58 Knowledge Management(KM) Organizational Performance(OP) 0.43 Path Coefficient of LatentVariables in the Model After the model passed an internal goodness-of-fit test, the estimates of standardized path coefficients and Critical Ratio (C.R.) for latent/implicit variables, were calculated (see Tables 6). Figure 2 is an illustration of the path analysis results. Table 6:Parameters of Latent Variables Estimation Estimate S.E. C.R. P Knowledge Management(KM) Intellectual Capital (IP) *** Intellectual Capital(IP) Organizational Performance(OP) *** Knowledge Management(KM) Organizational Performance(OP) *** Remark: *** It indicates a significant C.R. Value (α=0.001). Correlation analysis The results indicate that all the correlations between factors are significant. As can be seen, the relationships between research variables are as follows: (1)KM is positively related to IP; (2) IP is positively related to OP; and (3) KMis positively related to OP; as shown in Table 7. Table 7: Correlation matrix Dimensions SO(1) EX(2) CO(3) IN(4) HRC(5) SRC(6) RC(7) EPS(8) CD(9) OIP(10) OLG(11) SO(1) EX(2).651*** CO(3).575***.653*** IN(4).481***.651***.652*** HRC(5).472***.481***.481***.331*** SRC(6).473***.483***.483***.342***.651*** RC(7).491***.512***.491***.351***.681***.681*** EPS(8).411***.384***.332***.323***.663***.351***.483*** CD(9).339***.372***.363***.333***.573***.361***.491***.361*** OIP(10).342***.381***.411***.332***.561***.692***.381***.363***.431*** OLG(11).331***.362***.402***.351***.541***.332***.392***.352***.462***.463*** ***denotes α<0.001 The Journal of International Management Studies, Volume 10 Number 1, February,

13 SO e 4 λ y11 =.83 λ y21 =.81 EX e 5 KM λ y31 =.81 λ y41 =.83 CO e 6 e 1 HRC λ x11 =.83 γ x11 =.56 IN e 7 e 2 SRC λ x21 =.81 IP δ x21 =.37 λ x31 =.83 e 3 RC γ x21 =.66 ε 1 λ y51 =.86 EPS e 8 OP λ y61 =.85 λ y71 =.81 CD e 9 λ y81 =.83 OIP e 10 ε 2 OLG e 11 Figure 2: Standardized Results of SEM Analysis Analytical Test of Path Effect for the Structural Model Focused on the path coefficients between implicit/unobservable variables in the structural model, this study adopted Bayesian Estimation for an analytical test to determine the structural model s path effect, with intellectual capital (ME) as the mediator, as shown in Table 8: (1) Knowledge Management (KM) versus Intellectual Capital (IP), Path Coefficient a1=0.16, 95% Confidence Interval (0.126, 0.257), significant, First-order Significant Efficacy. (2) Intellectual Capital (IP) versus Organizational Performance (OP), Path Coefficient b1=0.53, 95% Confidence Interval (0.756, 0.785), significant, Second-order Significant Efficacy. (3) Knowledge Management (KM) versus Organizational Performance (OP), Path Coefficient c=0.65, 95% Confidence Interval (0.761, 0.799), significant, Third-order Significant Efficacy. 62 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

14 Table 8: Bayesian Estimation Regression weights Mean S.D. 95% Lower 95% Upper Name bound bound Knowledge Management (KM) Intellectual Capital (IP) a1 Intellectual Capital(IP) Organizational Performance (OP) b1 Knowledge Management (KM) Organizational Performance (OP) c Table 9:Custom Estimands Numeric Estimands Mean S.D. 95% Lower bound 95% Upper bound Direct Efficacy a Direct Efficacy b Direct Efficacy c Indirect Efficacy (a1*b1) Total Efficacy (c+a1*b1) Proportion of Indirect Efficacy to Total Efficacy The following details were obtained from Table 9: (1) The estimated Indirect Efficacy a1*b1 was =0.372, 95% confidence interval (0.247, 0.497), significant, significant indirect efficacy; the estimated proportion of indirect efficacy to total efficacy =50%. (2) Due to the fact that indirect and direct efficacy were both significant, "intellectual capital" of this model had a partial mediating effect. According to the above analysis results, the following conclusions were developed by this study: (1) Good knowledge management has a positive effect on the accumulation of intellectual capital of Taiwan-listed IC design houses; with the parameter value of standardized estimate being 0.561, the Hypothesis H 1 was supported. (Hypothesis is substantiated). (2) The accumulation of intellectual capital has a significant positive effect on the organizational performance of Taiwan-listed IC design houses; with the parameter value of standardized estimate being , the Hypothesis H 2 was supported. (Hypothesis is substantiated). (3) Good knowledge management has a positive effect on the organizational performance of Taiwan-listed IC design houses; with the parameter value of standardized estimate being 0.372, the Hypothesis H 3 was supported. (Hypothesis is substantiated). CONCLUSIONS AND SUGGESTIONS According to the afore-mentioned analyses and results, this chapter specifies the conclusions and contributions of the present study. The research limitations and suggestions for future research are mentioned in the last passages. Conclusions Taking a panoramic view of previous discussion, the management staff of section supervisor or above from the listed IC design houses in Taiwan were selected to be subjects of this study, as well as sub-data of Taiwan Economic Journal Database were deliberated, using the SEM model to verify the effects of Knowledge Management on Organizational Performance using the Intellectual Capital as a mediator; herewith the study conclusion was specifically described as below: The Journal of International Management Studies, Volume 10 Number 1, February,

15 The Impact of Knowledge Management on Intellectual Capital The research results showed that hypothesis 3 is supported, i.e. "knowledge management has a positive effect on intellectual capital". This result is inconsistent with the research findings of Huang (2009), Yen (2007) and Lin (2008). It is probably due to the differences in industry characteristics. The Effects of Intellectual Capital on Organizational Performance The research results showed that hypothesis 2 is supported, i.e. "intellectual capital has a significant positive effect on organizational performance." This result is consistent with the research findings of Chen (2009), Lee (2007), Liao (2010), Chang (2010), and Hung (2003). The Effects of Knowledge Management on Organizational Performance The research results showed that hypothesis 1 is supported, i.e. "knowledge management has a significant positive effect on organizational performance." This result is consistent with the research findings of Yang (2007), Wu (2009), Wu (2009), Liu (2007), and Yeh (2000). In summary, the three conclusions mentioned above show that the constructed models of this study have a good fitting effect, and that intellectual capital has partial mediating effect. This conclusion is consistent with the "complete mediating effect" as proposed by Baron and Kenny (1986), which refers to the argument that after introducing mediators into the model, the relationship between the original independent variables and dependent variables becomes weaker or less significant. Research Contributions (1) This study results can encourage and inspire businesses to increase business organizational performance by organizational citizenship behavior between employees, as well as strengthen their organizational commitment to enhance business organizational performance, further accomplish added business values and constant business growth to upgrade the potentialfor business sustainable development. (2) All dimension indicators established and verified in this study can be defined as key factors for business creating sustainably competitiveadvantages that actually can be good reference while business managers are making important decisions. (3) On the study topic of the effect of knowledge management on organizational performance in the listed IC design houses in Taiwan, scholars used to focus on Exploratory Factor Analysis (EFA), and this study will integrate relevant study results achieved in the past to set up a modeling and verify the fit of the model; therefore, such a model can be understood whether it has excellent goodness-of-fit effects. Thus, this study s topic is one importantly practical topic of the Confirmatory Factor Analysis (CFA), which deserves more researchers to continue studying further in this field for future research references. Research Limitations This study suffers from limited resources, although it seeks to complete all the stages of research tasks in a manner as robust as possible. Below is a list of research limitations: (1) This study adopted the Simple Random Sampling for the sampling of the population that resulted in a lower response rate of valid samples. (2) This study used EPS as a measurement indicator for organizational performance; thereby, this indicator was from the sub-data of Taiwan Economic Journal Database that can t fully guarantee 64 The Journal of International Management Studies, Volume 10 Number 1, February, 2015

16 100% accuracy of the data. Hence, the study s data may not completely and accurately present the corporate performance. Recommendation for Future Studies Because the correlation study on knowledge management, organizational performance and intellectual capital is applicable to every industry, not confining it to Taiwan-listed IC design houses, and because the definitions of knowledge management and organizational performance, and the measurement indicators for intellectual capital adopted by researchers are different, in addition to the fact that this study only sampled the management staff of section supervisor or above of Taiwan-listed IC design houses, subsequent researchers should attempt the exploration on the impact of various attributes on different industries for the sake of information extensiveness, or breakthrough innovation, so that analyses of good attributes and comparison on their impacts on different industries may be obtained. REFERENCES Alavi, M. &Leidner, D. E. (2001). Review: Knowledge Management and Knowledge Management System Conceptual foundation and Research Issues. MIS Quarterly, 25(1): Atkinson, A. A. and McCrindell, J. Q. (1997).Strategic Performance Measurement in Government. CMA Management, 71(3), Baldwin, C. Y. & Clark, K. B. (2000). Modularity after the Crash: Harvard Business School, Boston, MA. Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51, Bonoma, T.V. and Clark, B. H. (1988). Marketing Performance Assessment, Boston: Harvard Business School Press. Chang, Ching-fang (2010). A study of the relationship among HPWS, intellectual capital and organizational performance, Taiwan: Master s degree thesis, Graduate Institute of Human Resource, National Central University. Chen, Fu-chiang; Fang, Hsien-kuang; Chen, Kuo-chia and Chien, An-jan (2008). A Study of Relationship on Organizational Culture, Intellectual Capital and Organizational Performance, Taiwan: Journal of Chinese Economic Research, Vol. 6, Chen, Jen-Kuei (2012). The Family Business, relationship of Justice,Trust and Affective Commitment, Taiwan: Master s degree thesis, Department of Business Administration, National Chung Hsing University. Chen, Mei-Chun (2001). The effect of information technology investment and intellectual capital on business performance. Taiwan: Doctoral Dissertation, Department of Information Management, National Central University. Chen, Shun-yu (2010). Structural Equation Modeling, Taiwan: Psychological Publishing Co., Ltd. Chuang, Chih-Hsun; Lin, Fu-Lai; Shen, Ming-Jian; Lee, Yueh-Jung (2011). "Employee Stock Bonus and Firm Performance: A Perspective of Intellectual Capital", Management and System, 18(2), Dzinkowski, R. (2000). The Measurement and Management of Intellectual Capital: An introduction. Management Accounting, Vol.2, pp Edvinsson, L. & Malone, M. S. (1997).Intellectual Capital: Realizing Your Company s True Value by finding its Hidden Roots. New York: HarperCollins Publishers Inc. Edvinsson, L. (2003). Corporate Longitude: What You Need To Know To Navigate The Knowledge Economy, Financial Times Prentice Hall. Pearson Education, Inc., Upper. Fornell.C.,&Larcker, D. F. (1981).Evaluating structural equation models with un-observables and measurement error.journal of Marketing Research, 18: Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998). Multivariate Data Analysis(5th ed.).englewood Cliffs, NJ: The Journal of International Management Studies, Volume 10 Number 1, February,