How knowledge management processes can create and capture value for firms?

1 HOW KNOWLEDGE MANAGEMENT PROCESSES CAN CREATE AND CAPTURE VALUE FOR FIRMS? Abstract: Knowledge has become the main competitive tool for firms. Just as knowledge is considered as the most important strategic resource, knowledge management is considered to be critical to a firm’s success. Several attempts have been undertaken to identify and define the different knowledge management processes. From the literature review, four key dimensions stand out as affecting knowledge management processes: knowledge creation, knowledge transfer, knowledge storage/retrieval and knowledge application. The aim of this paper is to contribute to the knowledge management and value literature by determining the importance of the different processes of knowledge management for increasing value creation and value capture in firms. The context for the research hypotheses is the Spanish banking industry in 2010. The results support a positive relationship between knowledge management and value creation, and between value creation and value capture. Keywords: Competitive advantage; Knowledge creation; Knowledge transfer; Organizational memory; Knowledge use/utilization. Introduction Over the last few decades and in the current climate, a firm's attitude towards the customer is becoming crucial. In the complex competitive environment in which firms operate, the customer now expects superior value (Sanchez et al, 2009). More and more firms therefore see customer value as a key factor when seeking new ways to attain and maintain a competitive advantage (Woodruff, 1997; Carlucci et al, 2004; Schiuma et al, 2012). Managers should focus on developing the internal processes that view the customer as a key component, in order to create maximum customer value. The focus of this paper is on the knowledge management (KM) processes. The primary aim of firms that manage their knowledge processes is to offer superior customer value. Much has been written about why it is important to manage knowledge processes, but there is considerably less written about how they should be managed; that is, about the processes that are used to identify, capture, share and use knowledge in firms (Ipe, 2003; Schiuma et al, 2012). There has been also considerable discussion in the recent 2 literature of the relationship between KM processes and customer value (Rezgui, 2007; Schiuma, 2009). Although Vorakulpipat & Rezgui (2008) suggest that KM processes create value inherently, some questions still remain over this theoretical justification. Moreover, no examples in the literature examine the impact of the relationship between KM processes on customer value viewed from the firm’s point-of-view (i.e. value creation and value capture). This study addresses the gap in the literature (Schiuma et al, 2012) by determining how important are KM processes for increasing customer value and aims to identify how KM processes influence value creation and value capture. Thus, we are going to combine in this paper, both KM and value literature. The specific research question is: given that customers demand superior value, which are the KM processes that a firm requires in order to create this superior value and to capture the value created? Traditionally, value research and literature have been focused on the evaluation of how firms create value for their customers. In recent years, the emphasis has been on the need to consider customers as assets (Ulaga, 2001). This idea refers to the requirement that firms should be able to capture the value created. In short, the aim of this paper is to contribute to the KM and value literature by determining the importance of the different processes of KM for increasing value creation and value capture in firms. We attempt to propose and analyze the importance of each of the processes of KM for creating superior customer value. The paper begins with an explanation of the theoretical context, followed by a presentation of the study model and the positing of our hypotheses. The next section contains a description of the principal aspects of the methodology and data analysis. A discussion of the results and implications of the study follows and the paper concludes with the limitations of the study and possible areas of further research. Theoretical Background KM Processes We are going to focus on the knowledge-based view of the firm (KBV) which is a recent approach to understand the relationship between firm processes and firm performance (Holsapple & Wu, 2008; Kiessling et al, 2009). The recognition of knowledge as a key resource for firms in the current business environment confirms the need for processes that facilitate individual and collective knowledge creation, transfer and leverage (McElroy, 2000; Becerra-Fernandez & 3 Sabherwal, 2001; Ipe, 2003). According to McElroy (2000), a second-generation KM implies understanding how knowledge is created and how it is shared and diffused throughout the firm instead of considering knowledge only as a mean to support business operations. Every firm should understand the importance of knowledge and of teaching knowledge skills to their employees and every employee should be encouraged to create, share, search out and use knowledge in their daily routines (Davenport & Prusak, 1998; Firestone & McElroy, 2003). Several attempts have been undertaken to identify and define the different KM processes (Gold et al, 2001; Ipe, 2003; Chang Lee et al, 2005; Chen & Huang, 2009; Denford & Chan, 2011). A review of the processes identified as KM processes by various authors allows us to distinguish four key KM processes: 1) Knowledge creation, 2) knowledge transfer, 3) knowledge storage/retrieval, and 4) knowledge application. Based on the review of the existing literature, we state that there are discrepancies in terms of the number and labeling of processes (Alavi & Leidner, 2001; Schiuma et al, 2012); but, at least, we must consider the above-mentioned four key KM processes. Knowledge creation The process of knowledge creation refers to the accumulation of knowledge in firms (Gold et al, 2001; Jantunen, 2005; Lin & Lee, 2005) Since the accumulation of knowledge is a result of not only internal development of knowledge but also the assimilation of external knowledge, the absorptive capacity of the firm (Cohen & Levinthal, 1990) is critical to its success. Therefore, we argue that absorptive capacity is closely related to the process of creating knowledge. In fact, the absorptive capacity: a) represents an important part of the firm ability to create new knowledge (Cohen & Levinthal, 1990; Chou, 2005; Lane et al, 2006; Wales et al, 2013), b) helps firms to introduce knowledge from the outside in an effort to collect a set of changing information that will enable the development of new products/services (Newey & Zahra, 2009), and c) gives firms a potential advantage in terms of knowledge acquisition (Jantunen, 2005; Wales et al, 2013). 4 Zahra & George (2002) distinguish between a firm's potential and realized absorptive capacity. On the one hand, potential absorptive capacity (PACAP) makes the firm receptive to acquiring and assimilating external knowledge but does not guarantee the exploitation of this knowledge. On the other hand, realized absorptive capacity (RACAP) reflects the firm's capacity to leverage the knowledge that has been absorbed. Hence, knowledge creation in our paper refers to the absorptive capacity of firms. In this way, we define knowledge creation as ‘the knowledge accumulation in the firm resulting from its ability to absorb external knowledge’. Knowledge transfer Knowledge transfer is basically the act of making knowledge available to others within the organization (Ipe, 2003). To make knowledge become available, it is crucial that individuals and departments are involved in the process of knowledge transfer (De Vries et al, 2006). Knowledge transfer with each other is seen as an effective way to improve the knowledge that a firm has about the competitors and the industry, and to acquire local knowledge (Gold et al, 2001). Knowledge transfer refers to the knowledge exchange between the source and the recipient of it (Gold et al, 2001; Jantunen, 2005; Baskerville & Dulipovici, 2006; Chou et al, 2007; Radaelli et al, 2011). To remain competitive in the market, organizational knowledge and skills must be shared within the firm (Gold et al, 2001). In this way, knowledge transfer activities are an essential component in the process of KM (Alavi & Leidner, 2001; Gold et al, 2001; Lee & Ahn, 2007). Knowledge storage/retrieval All individuals in a firm must have access to the knowledge base in order to obtain the relevant knowledge to help them in their work and decision making. However, if knowledge created for years through KM activities is not retained systematically, it cannot be beneficial for future decision-making needs (Chang Lee et al, 2005). The storage and retrieval mechanisms allow firms to quickly and easily access to knowledge (Baskerville & Dulipovici, 2006; Chou et al, 2007). The objective is to make knowledge accessible to those who need it (Davenport & Prusak, 1998). We advance that knowledge storage and retrieval processes are closely related to the idea of ‘organizational memory’. In fact, Walsh & Ungson (1991) define organizational 5 memory as ‘the stored information from an organization’s history that can be brought to bear on present decisions’. Researchers and practitioners recognize that organizational memory is an important factor for the success of the firm operations and reactions to the changes and challenges of the environment (Nilakanta et al, 2006). As such, organizational memory is simply a collection of knowledge stored in different places in a firm. In our paper, when we speak of knowledge storage/retrieval we refer to the organizational memory. Hence, we define knowledge storage/retrieval as ‘the retention of stored information from an organization’s history and its quick and easy access in order to be applied on present decisions’. Knowledge application There is not a lot written in the literature regarding the application of knowledge. According to Gold et al (2001), knowledge application seems to be assumed by authors since it does not appear explicitly in the literature. Several authors (Gold et al, 2001) do not make a distinction between the process of knowledge application and the process of knowledge storage/retrieval. We are going to consider them separately (Alavi & Leidner, 2001) due to its importance for an effective KM. Thus, we refer to knowledge application as the actual use of knowledge in the firm (Ipe, 2003; Jantunen, 2005). One of the most common ways to use knowledge is to adopt the best practices of a leader firm, to find the relevant knowledge and to apply it (Firestone & McElroy, 2003; Chang Lee et al, 2005). The application of knowledge implies the use of the knowledge generated in the phase of knowledge creation and retained in the phases of transfer and storage/retrieval. Therefore, knowledge application entails the internalization of knowledge in a firm. For example, when information about customers and suppliers is assimilated by decision makers in a firm and it changes their mental models about market environment. Value Creation and Capture After a review of the existing literature, the importance of value for a firm’s success is proved (Carlucci et al, 2004; Marr et al, 2004; Sanchez & Iniesta, 2006; Wiig, 2007; Carlucci, 2012). 6 Practitioners have long since recognized that the essential elements of a firm's business strategy consist of being able to understand what customers value within a particular offering, creating value for them, and then managing this value over time (Slater & Narver, 1998). Being able to identify what customers want from a product or service also helps a firm to formulate its value proposition. Understanding customer value from the perspective of the value of the customer to the firm has also received attention from researchers (Payne & Holt, 2001; Mckenzie, 2008). This stream of research focuses on the value of the customer to the firm; considering it as an output, rather than an input, of value creation. As such, it focuses not on the creation of value for the customer but on the value outcome that can be derived from delivering superior customer value. According to Payne & Holt (2001), a key concept that forms part of this perspective is that of “customer lifetime value”. This perspective views customer value as the value that a firm can obtain from its customers (Woodall, 2003) and does not consider the value provided by the firm to its customers. From an analysis of Payne & Holt’s (2001) description of this customer value perspective, we would venture that this refers to firm value capture. Superior performance results from providing superior customer value; it is not an end in itself (Slater, 1997). Two processes, which combine and interact, are fundamental to achieving this outcome (Mizik & Jacobson, 2003); and we focus on this two processes in this paper. One of the processes involves the creation of customer value; the other focuses on capturing value in the marketplace. The marketing concept identifies the customer as the main focus and the force that defines the scope and purpose of a firm. Value creation alone, however, is insufficient to achieve success in the marketplace; a firm’s ability to restrict competitive forces (e.g. erect barriers to imitation) to enable it to capture some of the value that it has created in the form of profit, is also necessary (Mizik & Jacobson, 2003; Mckenzie, 2008). Therefore, due to increasing turbulence in the environment and constant changes in the current economic and competitive situations, some authors (Venkataraman & Sarasvathy, 2001; Nonaka & Toyama, 2002; Käpylä et al, 2011) have recently stressed that for a strategy to be effective it should foster both value creation and value capture. Conceptual Model The existing literature discusses the relationship between KM processes and customer value (Gebert et al, 2003). In fact, many authors describe KM as a bundle of processes that firms need to enable them to use what they know in order to create value for their 7 customers (Vorakulpipat & Rezgui, 2008). According to Schiuma et al (2012), the effectiveness of efforts of managing knowledge processes depends on the alignment of these processes with the firm’s processes while supporting firm’s value proposition. In order to assess the importance of each KM process in KM, we have stated the four key KM processes as formative components of KM (see Figure 1) because our paper’s aim is analyzing the importance of processes of KM in the firm’s value cycle (creationcapture). Insert Figure 1 about here Firms must focus on knowledge creation (KC). It is important for firms to develop an ‘absorptive capacity’ because it refers to the ability to use prior knowledge to recognize the value of new information, assimilate it and apply it to create new knowledge and capabilities (Cohen & Levinthal, 1990). That is, KM requires the acquisition and assimilation of external knowledge (i.e. PACAP). Once knowledge is acquired and assimilated, the next step must be the transformation and exploitation of this knowledge; that is, firms need to leverage the knowledge that has been absorbed (i.e. RACAP). Firms also must focus on knowledge transfer (KT) and knowledge storage/retrieval (KSR). These two processes are related to the retention of knowledge. We posit knowledge transfer as an implicit way of knowledge retention. What the firm knows is going to be available for people throughout the firm and is going to be stored in people minds. Regarding knowledge storage/retrieval, we posit this other process as a way of storing knowledge itself. And finally, firms must be able to actual use what they know in order to increase the value created for customers (KA). In summary, a firm with these KM processes possesses key elements for the creation of customer value. We therefore propose the following hypothesis: H1: KM processes influence positively on value creation of the firm. If a firm creates value, the next step must be the capture of the value it has created. Just as when the firm creates value, it needs to have –or if not, to develop– a set of capabilities, such as barriers to imitation, in order to capture the value created. 8 Value creation alone is insufficient to achieve competitive advantage and financial success and therefore, firms without the ability to restrict competitive forces (e.g. erect barriers to imitation) are unable to capture the value that they have created (Teece et al, 1997). Mizik & Jacobson (2003) stress that value creation investment decisions cannot be divorced from those related to value capture, since countless examples exist of innovations that created enormous value, but where the innovating firm was unable to capture the surplus. According to these authors, firms that fail to pay sufficient attention to value capture cannot be expected to achieve sustained competitive advantage and capture the benefits from their value creation capabilities. We therefore propose the following hypothesis: H2: Value creation has a positive influence in value capture. Methodology Data Collection The context for our research hypotheses (1 and 2) is the Spanish banking industry, including retail and commercial banks and savings banks that serve the general public, representing around 18% of the national GDP in 2010. This industry sector is suitable because banking demonstrates KM capabilities. Banking is a very knowledge-intensive industry and therefore an appropriate one in which to identify, analyze and evaluate the different KM processes. The increasingly intense competition within this industry is forcing banks to recognize the need to seek new ways of creating customer value. In addition to the competitiveness of the industry, the relative intangibility of their products/services creates the need to capture and retain customers by offering them something extra (i.e. KM). The crisis in the financial services industry is highly significant (both now and at the time the study took place). The effect of this crisis has been to force many countries to apply severe measures to reduce the impact on their financial services industry. Numerous banks and insurance company takeovers and capitalizations have taken place, the number of company mergers as a rescue measure has multiplied and crashes have increased. The full extent of this crisis is still unknown, since events have occurred at an unusually high speed, leading to enormous changes within a short time span, mainly following the crash of Lehman Brothers in September 2008. The total number of banks operating in Spain at the time of the study (i.e. 2010) was 110; of 9 which 65 were commercial/retail banks and 45 were savings banks. The small number of players making up the banking industry in Spain could be an advantage as the study can examine the whole population instead of a particular sample. Only 85 of the banks met the requirements of the study (i.e. banks serving the general public). Therefore, the target group consists of 85 financial bodies, representing around 77% of the total. The response rate was high, at around 90%, with 76 of the 85 banks completing the questionnaire by personal interview to the general manager in the main branch office. Of note is that all of the completed questionnaires are valid. Furthermore, because the data sample (76) is very close to the real population in Spanish banking industry (85), we used the factor correction suggested by Malhotra & Birks (2006) to adapt the standard error generated. To measure value capture, we opted to use secondary data (financial reports) because we believe that this variable should be measured objectively. We decided to combine these sets of data (from banks and financial reports) to test the hypotheses in our theoretical model. Measures We opt for an absorptive capacity scale proposed by Jansen et al (2005) to measure knowledge creation, which adds to the conceptual richness of the study. This scale consists of 9 items to measure PACAP and 12 items to measure RACAP (see Appendix 1). The final cleaned scale consists of 17 items for the knowledge creation (KC) process. The model uses Gold et al's (2001) scales to measure knowledge transfer (KT) and knowledge application (KA). KT scale consists of 10 items and KA scale consists of 12 items (see Appendix 1). After cleaning the data, KT scale includes 7 items and KA scale includes 9 items. To measure knowledge storage/retrieval (KSR), we use Chou et al's (2007) scale, which consists of 4 items and measures organizational memory. Organizational memory refers to the processing of saved knowledge, a concept that coincides with our understanding of KSR (see Appendix 1). The final cleaned scale retains the 4 items. 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Journal of the Academy of Marketing Science 25(2), 139-153. Zahra SA and George G (2002) Absorptive capacity: a review, reconceptualization, and extension. Academy of Management Review 27(2), 185-203. 20 Appendix 1. Questionnaire items PACAP Acquisition ACQ_1: Our unit has frequent interactions with corporate headquarters to acquire new knowledge. ACQ_2: Employees of our unit regularly visit other branches. ACQ_3: We collect industry information through informal means (e.g., lunch with industry friends, talks with trade partners). ACQ_4: Other divisions of our company are hardly visited (reverse-coded). ACQ_5: Our unit periodically organizes special meetings with customers or third parties to acquire new knowledge. ACQ_6: Employees regularly approach third parties such as accountants, consultants, or tax consultants. Assimilation ASS_1: We are slow to recognize shifts in our market (e.g., competition, regulation, demography) (reverse-coded). ASS_2: Ne opportunities to serve our clients are quickly understood. ASS_3: We quickly analyze and interpret changing market demands. RACAP Transformation TRA_1: Our unit regularly considers the consequences of changing market demands in terms of new products and services. TRA_2: Employees record and store newly acquired knowledge for future reference. TRA_3: Our unit quickly recognizes the usefulness of new external knowledge to existing knowledge. TRA_4: Employees hardly share practical experiences (reverse-coded) TRA_5: We laboriously grasp the opportunities for our unit from new external knowledge (reverse-coded). TRA_6: Our unit periodically meets to discuss consequences of market trends and new product development. Exploitation 21 EXP_1: It is clearly known how activities within our unit should be performed. EXP_2: Client complaints fall on deaf ears in our unit (reverse-coded). EXP_3: Our unit has a clear division of roles and responsibilities. EXP_4: We constantly consider how to better exploit knowledge. EXP_5: Our unit has difficulty implementing new products and services (reversecoded). EXP_6: Employees have a common language regarding our products and services. Knowledge transfer My organization has processes for: KT_1: converting knowledge into the design of new services KT_2: converting competitive intelligence into plans of action KT_3: filtering knowledge KT_4: transferring organizational knowledge to individuals KT_5: absorbing knowledge from individuals into the organization KT_6: absorbing knowledge from business partners into the organization KT_7: distributing knowledge throughout the organization KT_8: integrating different sources and types of knowledge KT_9: organizing knowledge KT_10: replacing outdated knowledge Knowledge storage and retrieval KSR_1: Organizational conversation keeps the lessons learned from service development history at the front of our minds KSR_2: We always audit unsuccessful service development endeavors and communicate the lessons learned KSR_3: We have specific mechanisms for sharing lessons learned in the service development process KSR_4: Formal routines exist to uncover faulty assumptions about the service development process Knowledge application. KA_1: My organization has processes for applying knowledge learned from mistakes KA_2: My organization has processes for applying knowledge learned from experiences 22 KA_3: My organization has processes for using knowledge in the development of new services KA_4: My organization has processes for using knowledge to solve problems KA_5: My organization matches sources of knowledge to problems and challenges KA_6: My organization uses knowledge to improve efficiency KA_7: My organization uses knowledge to adjust strategic direction KA_8: My organization is able to locate and apply knowledge to changing competitive conditions KA_9: My organization makes knowledge accessible to those who need it KA_10: My organization takes advantage of new knowledge KA_11: My organization quickly applies knowledge to critical competitive needs KA_12: My organization quickly links sources of knowledge in solving problems Customer value creation. CV_1: Levels of customer loyalty compared to competitors CV_2: Levels of customer satisfaction compared to last year CV_3: Levels of customer loyalty compared to last year ! 23 Table 1: Factor loadings for the measurement model  ACQUISITION ASSIMILATION TRANSFORMATION EXPLOITATION KTRANSFER KAPPLICATION KSTORAGE/ RETRIEVAL  VALUE CREATION VALUECAPTURE ACQ1 0,8095 0,4212 0,5781 0,5391 0,6584 0,6743 0,4868  0,3911 0,1085 ACQ2 0,6959 0,193 0,4735 0,2901 0,3655 0,3447 0,2973  0,1332 -0,052 ACQ3 0,7485 0,1132 0,4798 0,3423 0,3893 0,3953 0,2765  0,0187 -0,0632 ACQ4 0,7258 0,3302 0,4947 0,5334 0,4971 0,4209 0,4129  0,2175 -0,1011 ACQ5 0,6993 0,231 0,5033 0,3842 0,4567 0,4383 0,3454  0,0872 -0,0349 ASS1 0,3194 0,79 0,4453 0,33 0,4468 0,4876 0,5121  0,3413 0,073 ASS2 0,4743 0,9046 0,6232 0,6749 0,6579 0,633 0,6402  0,3664 -0,025 ASS3 0,3128 0,9096 0,5776 0,5201 0,5276 0,5172 0,5501  0,3082 0,0728 TRA1 0,5697 0,499 0,7549 0,5073 0,6744 0,6319 0,5641  0,2639 0,1379 TRA2 0,4423 0,3802 0,7226 0,5385 0,4982 0,4776 0,4936  0,1227 -0,063 TRA3 0,5357 0,5793 0,7994 0,5263 0,5546 0,5823 0,6719  0,2751 -0,086 TRA6 0,5266 0,4419 0,7087 0,5771 0,4845 0,523 0,5587  0,1484 -0,1736 EXP1 0,5086 0,5123 0,6028 0,8364 0,5851 0,5788 0,6285  0,39 -0,1812 EXP4 0,4451 0,4753 0,6185 0,8493 0,718 0,5092 0,7158  0,2301 -0,1201 EXP5 0,4213 0,4747 0,5305 0,7225 0,5066 0,4935 0,5468  0,2448 -0,1624 EXP6 0,4657 0,4001 0,4985 0,7124 0,4579 0,4662 0,4364  0,3035 0,0981 KT1 0,5168 0,5641 0,7093 0,6694 0,8194 0,7472 0,6589  0,3105 0,0983 KT2 0,5165 0,5398 0,6373 0,5601 0,857 0,7522 0,5941  0,4243 0,0724 KT3 0,5482 0,5482 0,6333 0,6777 0,8837 0,7236 0,6158  0,3451 0,0922 KT4 0,5097 0,4609 0,479 0,5686 0,7924 0,7271 0,5336  0,3743 0,1107 KT7 0,5372 0,5181 0,5464 0,6105 0,8128 0,6769 0,5785  0,3859 0,1471 KT8 0,4751 0,5305 0,5254 0,5405 0,807 0,724 0,6188  0,3246 0,1598 KT9 0,5964 0,5129 0,6411 0,5381 0,8596 0,702 0,5737  0,1855 0,0307 KA1 0,4199 0,3787 0,5338 0,5303 0,5832 0,7602 0,5169  0,2289 0,064 KA2 0,4915 0,5643 0,6211 0,583 0,707 0,8441 0,5798  0,3158 0,0617 KA3 0,594 0,6023 0,6913 0,6518 0,703 0,8917 0,6483  0,336 0,0767 KA4 0,601 0,6948 0,6877 0,6435 0,7065 0,8721 0,7045  0,347 0,0983 KA5 0,4344 0,5301 0,5244 0,6514 0,6952 0,7775 0,5875  0,2531 0,0676 KA6 0,6133 0,3843 0,5704 0,5729 0,7091 0,8035 0,5815  0,3034 -0,0201 KA7 0,598 0,4616 0,5667 0,4739 0,6848 0,776 0,6044  0,3366 0,081 KA10 0,5126 0,5068 0,5507 0,6502 0,7444 0,842 0,6969  0,3599 0,0263 KA11 0,5487 0,5334 0,6301 0,6519 0,7165 0,8226 0,6963  0,2859 -0,0838 KSR1 0,491 0,6568 0,6986 0,6708 0,7148 0,6882 0,8565  0,4084 0,0132 KSR2 0,4126 0,5132 0,614 0,6623 0,5664 0,6183 0,8625  0,3651 -0,1489 KSR3 0,5183 0,5254 0,6059 0,6 0,6316 0,6876 0,8576  0,29 -0,1166 KSR4 0,3657 0,5356 0,6187 0,6406 0,5749 0,6428 0,8644  0,3087 -0,1511 VC1 0,2396 0,3812 0,2826 0,3024 0,3587 0,344 0,3846  0,823 0,1423 VC2 0,2834 0,2705 0,1668 0,338 0,352 0,3532 0,3224  0,8447 0,0673 VC3 0,2019 0,3349 0,2313 0,3171 0,3398 0,3236 0,3276  0,8987 0,1156 PROFIT1 -0,0132 0,0727 -0,0401 -0,1002 0,1238 0,0655 -0,0636  0,1313 0,9831 PROFIT2 0,0071 0,0093 -0,0928 -0,1452 0,0604 0,0272 -0,1549  0,1226 0,9806  24 Table 2: Descriptive statistics and correlation matrix Meana SD CA CR AVE 1 2 3 4 5 6 1. KCREATION 5.29 1.16 n.a n.a n.a n.a 2. KTRANSFER 5.38 1.14 0.94 0.94 0,70 0.81 0.84 3. KAPPLICATION 5.47 1.09 0.93 0.95 0.69 0.80 0.77 0.83 4. KSTORAGE/RETRIEVAL 5.16 1.12 0.88 0.92 0.74 0.79 0.81 0.76 0.86 5. VALUE CREATION 5.24 1.21 0.89 0.81 0.73 0.42 0.37 0.39 0.40 0.85 6. VALUE CAPTURE 0 1 0.98 0.96 0.96 -0.04 0.07 0.04 -0.11 0.12 0.98 Notes: a Mean = the average score for all of the items included in this measure; SD. = Standard Deviation; CA = Cronbach’s Alpha; CR = Composite Reliability; AVE = Average Variance Extracted; n.a. = not applicable. The bold numbers on the diagonal are the square root of the Average Variance Extracted. Off-diagonal elements are correlations among constructs.  Table 3: Weights of formative constructs High-order constructs and their dimensions (level) weights t-valuesa KNOWLEDGE MANAGEMENT PROCESSES (higher-order) KCREATION (third-order) 0.52 3,78 Potential Absorptive Capacity (second-order) 0.57 24.11 Acquisition (first order) 0.32 3.64 Assimilation (first-order) 0,82 14.00 Realized Absorptive Capacity (second-order) 0.51 21.66 Transformation (first-order) 0.1 0.71 Exploitation (first-order) 0.93 8.96 KTRANSFER 0.01 0.01 KAPPLICATION 0.24 1.26 KSTORAGE/RETRIEVAL 0.32 2.43 a Factor correction applied.  Table 4: Model statistics Hypotheses Path coefficients t-valuesa R2 H1: KM Processes → Value Creation 0.437*** 15.21 0.19 H2: Value Creation → Value Capture 0.128*** 4.69 0.02 ***p <0.001, **p <0.01, *p <0.05, ns: not significant (based on a Student t (4999), one-tailed test). t(0.05, 4999) = 1.645158499, t(0.01, 4999) = 2.327094067, t(0.001, 4999) = 3.091863446 a Factor correction applied.  25 Figure 1: Proposed Research Model