Investigating the effects of knowledge management and organizational innovation on organizational strategy: Evidence from insurance industry

Article history: Received June 4, 2014 Accepted 12 October 2014 Available online October 17 2014 This paper presents an exploratory factor analysis on knowledge management and organizational innovation items influencing on organizational strategy. The study designs a questionnaire in Likert scale and distributes it among 210 employees in an insurance firm named Dana located in Iran. Cronbach alpha has been well above 0.90, which confirms the validity of the overall survey. Using principle component analysis, the study extracts six critical success factors influencing on knowledge management including knowledge management processes, organizational culture, organizational structure, human resources, information technology, top management support and three factors of innovation including product innovation, process innovation, and organizational performance. © 2014 Growing Science Ltd. All rights reserved. Knowledge Management Innovation Exploratory factor analysis Insurance Strategy


Introduction
In the age of communication and information technology, knowledge is known as the primary key and a critical source of organizations, to achieve sustainable competitive advantages.Therefore, by turning the industry-based economy into a knowledge-based economy, organizations also have to depend on their knowledge and apply it within the business process to increase their competitiveness.To understand on why some organizations are successful in the competition, it is necessary to understand the role of knowledge.Critical Success Factors (CSFs) are known as the primary sources for firm success and performance in several activity domains (Sedighi & Zand, 2012).Knowledge management (KM) is a managerial philosophy, which is perceivable in the practices of various firms.Utilizing knowledge management yields better performance by interaction between individuals or groups.However, KM is not an ultimate tool, which resolves all necessary information and knowledge creation problem.Moreover, to be efficient, knowledge management needs storage for information and knowledge to help organizations' members search for critical information, knowledge or the best practices.Thus, KM is a learning method for knowledge sharing (KS) and interaction and it clarifies which way to operate.KM needs to be considered an organizational process used to reach better performance because of effective KS and organizational learning, recognizing and developing competencies, and gaining from individuals' different skills and knowledge (Bairi et al., 2013).KM builds a new working environment where knowledge and experience can be shared, enables information and knowledge to emerge, and flows to the right people at the right time so they could act more efficiently and effectively (Akhavan et al., 2006).
Information technologies (IT) offers essential support for integration and building necessary knowledge.Many believe that IT could enhance both organizational processes and knowledge systems.It may also create numerous opportunities to transform products, processes and firms.On the other hand, IT supports the knowledge flows among the important actors and artifacts, and then enhances the new knowledge creation (Xiang-yang, 2007).Human resources management (HRM) builds a link between human capital management and KM within organizations (Jha, 2011).People are important because any changes or entry of new technology may infuence on the labors inside the organization; so it is necessary to evaluate the organizational culture and individual readiness for adoption of innovative and new technology (Asl et al., 2012).
Hierarchies play an important role in coordinating organizational activities and resources.Exploitative innovations depend on existing knowledge and they are driven by narrowing and converging processes of learning, which occur in periodic, stable conditions.Thus, mechanistic forms of most firms are efficient.On the contrary, exploratory innovations help creation of new knowledge.They are directed by the learning processes of expansion and divergence and T organic organization forms are preferred, next.Mechanistic forms of firm, characterized by hierarchical control, provide a relatively high level of control over tasks.On the contrary, organic forms of firms, characterized by dispersed control, shift task and innovation to the most knowledgeable parties (Xiang-yang, 2007) Both of socio-cultural view and practice perspective of knowledge assume that learning contains a complex social process and new knowledge often is socially constructed and embedded within routine working practices (Xiang-yang, 2007).Many organizations apply various tools and methods to gain and to manage knowledge about customer's business processes and domain skills.The best approach used is a mix of technology solutions and human knowledge acquisition (Bairi et al., 2013).Table 1 represents a brief review of most important previous studies regarding innovation and knowledge management.

Table 1
The summary of recent studies on KM and innovation

Area Reference
Knowledge management processes (knowledge creation, knowledge using, knowledge acquisition, knowledge sharing, knowledge and maintenance of knowledge) .000 The Skewness, multi-collinearity, measure of sampling adequacy (MSA) was tested and by principal component analysis (PCA) as well as varimax rotation are derived.

The results
In this section, the results of the factor analysis are presented.Due to the variable weights for each table, all the variables are sorted by highest to lowest weight.

Knowledge management processes
The first variable of the factor analysis is knowledge management processes, which influences on KM.This factor includes five variables including Knowledge acquisition, Knowledge creation, Knowledge store, Team working, KM financial support.Cronbach alpha has been calculated as 79.4% and Table 3 shows details of our findings.

Innovation
The second variable of the factor analysis is innovation.This factor includes four variables including competitive advantage, turnover, product introduction, employee performance.Cronbach alpha has been calculated as 70.3% and Table 4 shows details of our findings.

Human resource management
The third variable of the factor analysis is human resource management, which influences on knowledge management.This factor includes four variables including employees tend to learn, organizational structure, employees skills and experience, continuous improvement.Cronbach alpha has been calculated as 65% and Table 5 shows details of our findings.

Top management support
The fourth variable of the factor analysis is top management support, which influences on knowledge management.This factor includes three variables including management support of training and knowledge development, management support of IT development, using knowledge of the insurance industry.Cronbach alpha has been calculated as 65.8% and Table 6 shows details of our findings.

Information technology
The fifth variable of the factor analysis is information technology, which influences on knowledge management.This factor includes three variables including information security, automation, and IT infrastructure.Cronbach alpha has been calculated as 64.1% and Table 6 shows details of our findings.

Table 7
The summary of factors associated with information technology At the end of the first order exploratory factor analysis, we entered new factors as a variable in SPSS for beginning the second order exploratory factor analysis.The MSA for new Factors is larger than 0.5 and the KMO for all factors were as follows, .000 In addition, the Correlation Matrix determinant is greater than zero.To investigate the items loaded on the identified factors, the factor loadings before and after rotation are used to summarize the results of which are shown in Table 9 as follows,

Conclusion
Formulating strategies of the company is mostly based on the competitive advantages of each company and its capabilities to use the opportunities in the most useful way.Competitive core of knowledge based companies is their experience and knowledge together with innovation in idea generation for offering the best solutions for the customers.In service industry, it is very important that we recognize our faults and try to avoid facing such problems while improving past successful Fig. 2. Th Variance Inflation Factor (VIF) was greater than 2.75 have been deleted.Thus, the number of questions was dropped to 25 and Cronbach's alpha was reduced to about 90%, which reveals good reliability of the questionnaire.KMO and Bartlett's test of sphericity produces the Kaiser-Meyer-Olkin measure of sampling adequacy and Bartlett's test.The value of KMO should be greater than 0.5 if the sample is adequate.

Table 4
The summary of factors associated with innovation

Table 5
The summary of factors associated with HRM

Table 6
The summary of factors associated with top management support

Table 9
Total Variance Explained