This document discusses a study investigating the relationship between knowledge management capability, supply chain management practices, and firm performance in manufacturing companies in Rasht, Iran. It presents a conceptual model showing how knowledge management capabilities, SCM practices, and performance are related. The document reviews literature on knowledge management capabilities, SCM practices, and performance measures. It develops hypotheses that knowledge management capabilities are positively related to firm performance and SCM practices, and that SCM practices are positively related to firm performance. The goal of the study is to evaluate how knowledge management capabilities and SCM practices impact firm performance.

1. Investigating the relationship between knowledge management capability,
supply chain management practices and performance (case study:
manufacturing companies in Rasht)
Introduction
In recent decades, many organizations have been seen fundamental changes in the structure,
functioning and management styles. Current institutions noted more important to understand, adapt
and manage the environment changes and surpassed on the acquisition and use of knowledge and
information in order to improve operations and provide better products and services to clients. Since
the performance improvement in organizations through human resource development, quality
improvement, reengineering and technology has a direct impact on the organization's strategy,
therefore executive are responsible for a high performance in organization. Organizations seeking
competitive capabilities that enable them to improve their performance and exceed their customers'
expectations. In the past, strength and competitive advantage of an organization was considering
greater access to financial resources. In the current competition arenas, situation has changed
completely. The main competitive advantage for organizations is their strength in knowledge
management. A firm’s ability to effectively adjust to changing conditions will be greater when it has a
well-developed knowledge management capability (Collins and Hitt, 2006). KM capabilities have been
recognize as a key factor for gaining and sustaining a competitive advantage (Corsoa et al. 2006).
To remain competitive advantage, organizations must recognize importance of supply chain practice
that not only improves the performance but also makes the coordination with supply chain partners to
improve their common performance. The supply chain consists of all stages that are directly or indirectly
involved in the realization of customer requirements and includes a range of the initial suppliers to final
customers (Chopra and Meindl, 2007). SCM and KM represent two main streams of research that have
significantly developed over the past several years and many related issues are still addressed by
consultants, practitioners or academics. One of these issues concerns the link between knowledge
management capability and SCM practices and their outcomes performance), but very few studies have
dealt with this particular aspect. There is a need to integrate the knowledge capabilities of the supply
chain members for companies to provide goods and services at low cost and high quality (Kim and Im,
2002). Specifically, a company's competitive advantage can considered based on how effectively apply
knowledge management capabilities across the supply chain management.
Now, given that today's business unit performance not assessed at a unit level, in this study we have
tried to evaluate the performance of the company using knowledge management capabilities within the
supply chain context so we intend to answer the research question of:
RQ. How knowledge management capabilities and SCM practice related to firm's performance?

2. Literature review
KM capability
KM capability is the capability to create and the application of knowledge by integrating/combining
various resources and activities in KM to positively affect competitive advantage, KM ef fectiveness and
organizational effectiveness (Gold et al., 2001; Chuang, 2004). KM capabilities are integral for effective
knowledge sharing between individuals. Knowledge use is associated with people and behavior and
organizations benefit when knowledge is shared in context and according to need. Organizations need
to adopt an integrative approach to developing KM capabilities that covers all potential sources of
knowledge and reduces barriers to knowledge sharing and organizational learning. KM capabilit ies,
namely infrastructure and processes, provide the support structure required to share knowledge within
the context in which it is required. KM capability that is molded from infrastructure and process will
eventually lead to knowledge integration. By viewing from the perspectives of infrastructure and
process, it will therefore provide a useful theoretical foundation for defining important aspects of KM
capability (Gold et al., 2001). Gold et al. (2001) identify information technology, organizational st ructure,
and culture as infrastructure capabilities, and acquisition, conversion, application and protection as
process capabilities. Technology which refers to fundamental information technological structure of the
organization, both the hardware and software including the database and the network system, within
and outside the organizations (Yang and Chen, 2007) which are inter-connected and efficient in the
utilization of information technology. Researchers have noted that technology comprises an important
element for the creation of knowledge (Davenport & Prusak, 1998; Leonard, 1995; Leonard & Sensiper,
1998). The cultural component refers to the firm’s vision and values, and the attitudes toward learning
and knowledge transfer (Gold et al., 2001). Structure refers to the formal organizational structure, as
well as the presence of norms and trust mechanisms (Nonaka, 1991). In order to leverage infrastructure,
KM processes must be present to store, transform and transport knowledge throughout the
organization, and these activities are related to the aspect of knowledge development (Earl, 2001). A
process capability in KM is the organization’s ability to create new knowledge through the process of
converting tacit to explicit knowledge and eventually transforming it to organizational knowledge
(Nonaka & Takeuchi 1995), and new knowledge stems from a firm’s combinative processes (Kogut &
Zander 1996). Recent scholarly and popular literature has recognized the role of socio-technical factors
in promoting organizational collaboration and knowledge sharing (Pan and Scarbrough, 1998;
Damodaran and Olphert, 2000). Socio-technical perspective treats both social and technical factors as
equally. The socio-technical view of knowledge management focuses on a firm’s strategy for
harmonizing knowledge management activities with technological drivers and social enablers to achieve
its business objectives (Yang, Chen, 2009). So, from this point of view, knowledge management is
recognized as a socio-technical phenomenon where the basic social constructs such as person, team and
organization require support from information and communication technology applications (Ly tras,
Pouloudi, 2006). Building on recent studies, this study focuses on technology (Grant, 1996, Grundstein,
2008), structure (McNabb, 2007), culture (Meso and Smith, 2000) and process (Earl, 2001).

3. Supply chain management practices
Supply chain management can defined as the management of upstream and downstream relationships
with suppliers and customers in order to deliver superior customer value at less cost to the supply chain
as a whole. Thus, the focus of supply chain management is upon the management of relationships in
order to achieve a more profitable outcome for all parties in the chain. Hayes and Upton (1998) argue
that supply chain practices are an area in which firms can effectively differentiate themselves from their
competitors. SCM practices implemented to achieve superior supply chain performance require internal
cross-functional integration within a firm and external integration with suppliers or customers to be
successful (Narasimhan, 1997). This study considers some of the more widely advocated SCM practices
examined in prior SCM literature. The literature portrays SCM practices from a variety of different
perspectives with a common goal of ultimately improving organizational performance. These include
information sharing (Donlon, 1996, Li et al, 2005), building long-term relationships between supply chain
partners (Min and Mentzer, 2004, Kim, 2006), design of the distribution network (Tracey et al, 2005) ,
design of the supplier network (Choi and Wu, 2009), supply chain integration, delivery and response
time improvement, and quality (Tan et al., 1998) . In reviewing and consolidating the literature, six
distinctive dimensions, including strategic supplier partnership, customer relationship, information
sharing, information quality, lean system and response time are selected for measuring SCM practice.
Firm Performance
Firm performance refers to how well an organization achieves its market-oriented goals as well as its
financial goals (Yamin S et al, 1999). There have been various definitions of firm performance, with
some studies emphasizing operational measures, while others stressing financial measures. Many
studies have selected a combination of pertinent operational and financial measures to reflect overall
organizational performance. For example, Tracey et al. (2005) measure performance through four
separate dimensions including perceived value, customer loyalty, market performance and financial
performance. A number of prior studies have measured organizational performance using both financial
and market criteria, including return on investment (ROI), market share, profit margin on sales, the
growth of ROI, the growth of sales, the growth of market share, and overall competitive position (Zhang
QY, 2001, VickeryS et all, 1999). In line with the above literature, the same items will be adopted to
measure firm performance in this study. Based on the above, we developed the conceptual model as
shown in Figure 1.

4. Figure1. Conceptual model
KM capability
Technology
Structure
Culture
Process
SCM practices
Strategic supplier
partnership
Customer
relationship
Information sharing
Information quality
Lean system
Response time
Theoretical background and hypotheses
Performance
Return on
investment (ROI)
Market share
Profit margin on
sales
Growth of ROI
H1. Knowledge management capabilities are positively related to firm performance.
Recent literature has identified the contributions of knowledge on firm performance in terms of abilities
to improve productivity and competitiveness, decision-making, responsiveness, innovation, product or
service quality, learning curve, flexibility and cost efficiency (Sharmillah et al., 2007; Bixler, 2000). For
example, Gold et al. (2001) and Zaim et al. (2007) showed that both knowledge infrastructure capability
and knowledge process capability have a significant and positive impact on organizational effectiveness.
In assessing the relationship between knowledge management practices and performance outcomes,
Zack et al. (2009) found that knowledge management practices are related to measures of
organizational performance. Irene Goll et al. (2005) found that knowledge capability influences change
in strategy, which, in turn, influences firm performance. Several past researchers had supported that

5. technological capability of knowledge management enhances firm performance. For instance, Leonard-
Barton (1995) argued that although technology is an enabler of KM, poor implementation or over
emphasis on this capability could inhibit the effectiveness of KM programs. Sambamurthy et al. (2003)
further highlighted that KM technological capability influences contemporary firm performance through
dynamic organizational learning.
Martin (2000) indicates that the key elements of a knowledge culture are a climate of trust and
openness in an environment where constant learning and experimentation are highly valued,
appreciated and supported. Cultures that explicitly favour knowledge sharing and knowledge integration
encourage debate and dialogue in facilitating contributions from individuals at multiple levels of the
organization (Davenport & Prusak 1998). McDermott and O‟Dell (2001) conclude that culture is a key
inhibitor to effective knowledge sharing that lead to improving performance.
Dilnutt (2000) also concludes that organizational structure can inhibit or enable effective KM through
the influence of the structural framework in place, the way this framework facilitates knowledge
creation and innovation, the impact of this framework on corporate behaviour, and the provision of
access to knowledge to foster creativity with the allocation of responsibility to individuals.
Organizational structure comprises the organizational hierarchy, rules and regulations, and reporting
relationships and is considered a means of co-ordination and control whereby organizational actors can
be directed towards organizational effectiveness (Herath, 2007).
Gold et al. (2001) suggested that knowledge process capabilities (required for storing, transforming and
transporting of knowledge throughout the organization) are needed for leveraging the infrastructure
capability. Grant (1996) also highlighted that KM process capability contributes to firm performance
through innovation and value-adding activities.
H2. Knowledge management capabilities are positively related to SCM practices.
Coordination of supply chain activities across internal business functions as well as across company
borders implies collaboration, information sharing, integration and long-term commitment that place
learning issues at the heart of supply chain efficiency. Knowledge may be an important source o f
coordination and is central to chain functioning (Hansen, 2002). Simon (2005) showed that KM
capabilities (e.g. through technology such as web browser and internet) have a profound impact on
SCM. It was found that in the Toyota system, the suppliers were developing a “dynamic learning
capability” that improved their competitive capabilities. This type of network – a network where
manufacturers and suppliers are highly involved in the interactions and learning – is referred to as
knowledge sharing network (Dyer and Nobeoka, 2000). Thonemann (2002) and Pedroso and Nakano
(2009) claim that if KM capability is embedded into SCM practices, it will create values in the chain, and
ultimately enhance firm performance
H3. Supply chain management practices are positively related to firm performance.
Several researchers had examined the relationship between SCM practices and firm performance.
Narasimhan and Carter (1998) suggest that efficient SCM and purchasing practices may also have a

6. significant effect on firm performance. SCM practice is expected to increase an organization’s market
share, return on investment (Shin et al., 2000) and improve overall competitive position (Stanley and
Wisner, 2001). In addition, some successful examples of supply chain practices in the real world such as
Amazon.com, Tesco, Dell Computer, and Toyota confirm the existence possibility of significant causal
relationship between the utilization characteristics of supply chain practice and firm performance.
Methodology