The impact of knowledge management on SME growth and profitability: A structural equation modelling study

Abstract

This paper uses a structural equation modelling technique to verify a theoretically proposed model of
knowledge management. The purpose of the study was to clarify the importance of different
determinants of knowledge management with the aim to investigate its influence for the firm
performance. The empirical analysis estimates the relationships in the structural model of the influence
of knowledge management on performance using data collected through questionnaires, filled by 168
firms. The proposed model of the knowledge management consists of six main dimensions; (1) use of
knowledge, (2) knowledge acquisition at individual level, (3) knowledge storage, (4) motivation, (5)
measuring the efficiency of knowledge management implementation, and (6) knowledge transfer,
nevertheless, the firm performance was measured by firm growth and firm profitability. To verify and
confirm the relationships between the proposed dimensions, an exploratory and confirmatory factor
analysis was performed. The findings indicate that all dimensions are interrelated and important for the
firm performance. However, knowledge management represents a strong factor for the firm
performance in the proposed model. The paper includes an approach to determine the measures of
knowledge management. It is not merely a theoretical reflection, but also outlines the development of
empirical model of knowledge management for the firms.