The Role of Knowledge Management, Managerial Competence, Market Orientation, and Innovation on Sustainable Competitive Advantage

Abstract

Purpose: This study proposes a model for future research agendas on knowledge management activities as a source of increasing sustainable competitive advantage. Based on the literature, the role of knowledge management in sustainable competitive advantage does not necessarily have a significant effect but involves other variables. For this reason, future research proposals on the role of knowledge management on sustainable competitive advantage and other relevant variables need to be carried out. Research design, data, and methodology: This research uses a literature study. The model development stage is (1) relevant research studies, (2) identification of relevant theories and related variables, (3) developing and making a hypothesis (4) proposed model. Results: From the literature study, it was found that knowledge management plays a role in increasing managerial competence, market orientation, and innovation. Furthermore, managerial competence, market orientation, and innovation significantly affect sustainable competitive advantage. However, other studies have found a different relationship. Conclusions: This study proposes a research model on the role of knowledge management, managerial competence, market orientation, and innovation to improve sustainable competitive advantage. The study results can be used for further research based on the proposed model and as a reference for company owners and management to increase competitive advantage.

1. Introduction

The company's challenges in facing the era of globalization are market by the occurrence of free trade, which also means free competition, where conditions that are difficult to predict always occur, and changes and turbulent business conditions arise. This condition became even more difficult after Covid-19 became a pandemic and a global health emergency in March 2020 (Wang et al., 2020). The global spread of Covid-19 has had various impacts on the sustainability of the production and consumption of various world commodities. In a constantly changing and unpredictable environment, sustainability has become a key goal for business success (Cardoni, 2020). Strategic action is essential for companies to face this enormous global challenge successfully. They need to develop the capabilities and skills necessary to rapidly change their business and management practices in the face of a global health crisis (Liu et al., 2020).

Theory Resources-Based View (RBV) and Knowledge-Based View (KBV) present that knowledge is a resource that can be managed to improve managerial competence and innovation. Organizational development can be knowledge-based; knowledge-based organizations must have the ability to combine practices that are oriented towards knowledge exploration and knowledge exploitation and talent-based human resources to maintain the skills of these employees (Fachrunnisa et al., 2018). Besides that, knowledge can be used to facilitate communication and understanding the market, which is an orientation in company development. Market orientation and good managerial competency skills can encourage innovation activities to increase sustainable competitive advantage.

Furthermore, considering the importance of Sustainable Competitive Advantage for companies, a research model is proposed on the role of knowledge management in managerial competence, market orientation, and innovation to increase sustainable competitive advantage.

2. Literature Review

The literature obtained identified its distribution of relevance to the theory and variables that support the explanation of the topic proposed. The supporting theories are the Resources-Based View and Knowledge-Based View. While the identified variables are Managerial Competence, Market Orientation, Innovation, and Sustainable Competitive Advantage.

2.1. Resources-Based View (RBV) Theory

Resource-Based View (RBV) theory is one of the main theoretical perspectives in strategic management research to explain company performance (Barney, 2001). RBV plays an important role and assists organizations in not only creating, nurturing, and maintaining competitive advantage but also understanding the collective resources needed to compete favorably in a globalized and highly competitive market (Assensoh-Kodua, 2019). The main principle of this view is that companies can have a sustainable competitive advantage if they have resources that are valuable, rare, inimitable, and non-substitutable (Barney, 1991). This is confirmed by Heriyanto et al. (2021) that the SCA construct of rare, valuable, non-substitutable resources and inimitability resources has already been implemented.

RBV is based on resource heterogeneity, which postulates that different firms have different resource pools, resulting in differences in competitive advantage and firm performance (Barney, 1991). Although firms may try to imitate the resources of successful competitors, the resource pool remains heterogeneous due to imperfect imitability, created by mechanisms of isolation such as long-term experience, historical uniqueness, and resource connectivity (Powell & Dent-Micllef, 1997). RBV is based on the concept that a company's success depends on its competitiveness to produce unique and distinctive capabilities, and their nature is often implicit or intangible (Adebanjo, 2018). Systematically it can be explained the source of SCA in accordance with the RBV concept in Figure 1 as follows:

Figure 1: Identification of Sources of Sustainable Competitive Advantage According to the RBV Concept

2.2. Knowledge-Based View (KBV) Theory

Knowledge, according to KBV, is the most important company resource from a strategic standpoint. Superior knowledge underlies the capacity to produce distinctive or reasonably priced goods and services. With information, businesses may make better use of their limited resources. Due to the quick transition to a knowledge-based economy, this viewpoint is gaining more and more attention. The strategic management literature explains that the Knowledge-Based View (KBV) is built on the expansion of the Resources-Based View (RBV) of the firm (Novianti, 2019).

An extension of the RBV is the Knowledge-Based View (KBV) which shows that knowledge is a critical corporate resource (Grant, 1996) and that a heterogeneous knowledge base and capabilities are the main determinants of sustainable competitive advantage (Winter, 2003). According to knowledge-based research, company-specific knowledge can be exploited as a sustainable competitive advantage. Ownership of knowledge resources also provides companies with a basis for building dynamic capabilities (Corte-Real et al., 2017). According to Rasool et al. (2019), in human resource organizations, human resources management practices have been aimed at employees' acquisition, development, and motivation as keys to achieving sustainable organizational performance. Rasool also stated that many theories in the existing literature support this notion that staff should be treated as an essential resource of any organization. Notably, the RBV and KBV theories present this argument, and human resources are weighted equally to other organizational resources in producing sustainable organizational performance.

2.3. Knowledge Management (KM)

Most experts describe KM as creating, sharing, transferring, and applying knowledge as the primary process, with the additional acquisition and utilization of knowledge as a secondary process (Shehabat, 2020). KM is concerned with acquiring, integrating, sharing, and reconfiguring knowledge (Sayyadi, 2019). KM is related to creating new ideas and knowledge that can increase organizational innovation and motivate employees to solve problems (Khedhaouria & Jamal, 2015). KM is the capacity to generate new knowledge, transfer it throughout the company, and express it through systems, services, and products. A knowledge management strategy consists of a variety of options and courses of action that can be used to produce new knowledge or to capitalize on already existing knowledge.

KM processes become systemic activities of organizational competence considered vital (Alaarj et al., 2016) and enable organizations to acquire, share and utilize knowledge (Sahibzada et al., 2020). According to Obeidat et al. (2016), the characteristics of the KM process are the acquisition, convention, application, storing, and protection of knowledge. Top management support has the most significant relationship with the successful implementation of knowledge management (Hojabri et al., 2015). Other studies also confirm that human resource management practices affect innovation performance by increasing knowledge processes such as knowledge acquisition, creation, sharing, and utilization (Soto-Acosta et al., 2014).

KM is the part of company's strategy in developing resources through exploration, transfer, and sharing of knowledge to increase employee competency and innovative activities, accommodate market demands, to create new value to increase SCA.

2.4. Managerial Competence (MC)

The modern global economy is in a state of increasingly fierce competition, intense economic crises, and aging of technology and knowledge every day, and therefore success is achieved by companies where the critical factor among all resources is the human factor, especially management personnel (Dzwigol et al., 2020). For the company's operational activities to run well, personnel who occupy structural positions must have an MC according to the requirements. MC is a specific type of individual competence: activities, knowledge, skills or attitudes, and personal characteristics needed to improve management performance (Martina et al., 2012). MC is a characteristic that individuals have abilities and are used consistently according to the desired performance. Aspects of self-image, social motivation, character, mindset, and ways of thinking, feeling, and executing are among these characteristics. Individual or organizational competencies or characteristics are a source of competitive advantage if they can answer questions related to values, things that rarely occur, cannot be imitated, and cannot be substituted (Wright et al., 2001). In the IN process, because of the complexity of the process, people working to improve or develop new and untapped solutions are required to have the appropriate set of skills and competencies because implementing and bringing innovative activities to market is always the work of many people. The set of human competencies required reflects what skills people should have when they work as creators or co-creators of IN. It presents elements of communication, leadership, and organizational skills, which are critical aspects of teamwork and contribute to an organizational climate conducive to IN (Newman et al., 2020).

MC is the characteristic of a leader, including the knowledge and skills the manager possesses, which reflects the manager's ability to carry out management tasks and functions. MC is needed in IN activities to fulfill organizational performance and support and support the creation of SCA.

2.5. Market Orientation (MO)

Narver and Slater (1990) view MO as the organizational culture that most effectively and efficiently creates the behaviors necessary to create superior value for buyers and, thus, superior performance for the business. Furthermore, Narver and Slater (1990) stated that MO concentrates on customers and competitors and integrates company functions to create superior value for customers. MO is an activity that involves the creation of market intelligence relevant to organizational operations and the practical and valuable distribution of knowledge to create appropriate judgments with market-supportive design responses (Ullah et al., 2019). MO is a business culture that generates outstanding performance through its commitment to creating superior customer value (Slater & Narver, 2000). MO is a company's ability to build and develop existing resources to provide superior customer value (Fang et al., 2014).

One measure of the company's success is the achievement of marketing and sales performance. This performance can be achieved by implementing MO culture, namely how companies understand market needs, wants, and demands (Andriyanto & Sufian, 2017). Companies with MO present a tendency to develop products and services that offer value to clients based on market information and promote action in direct response to consumer demands through innovation in products/services and processes, which are the results of the application of market intelligence information (Hult et al., 2004). MO, as a company resource, can be turned into output valued by customers (Al Mamun et al., 2018).

MO is employee behavior directed at customers, competitors, and inter-functional components, which form the basis and input for the company's strategic activities, further placing superior customer value in the creation of IN to enhance SCA.

2.6. Innovation (IN)

Krammer (2017) says that IN is the use of new procedural knowledge to present innovative goods or services to end users and customers. Therefore, IN is considered a new technique in business that may contain equipment, goods, services, processes, strategies, policies, and projects (Lin, 2007). In other words, IN is the creation of innovative policies and promotion of thought to help create new products and services, improve organizational processes, and produce market-based goods and services (Baregheh & Sambrook, 2009).

Panigrahy and Pradhan (2015) say that IN is a new idea from recombining unique old ideas that are considered new by the individuals involved and can be developed internally. IN is the process of creating a new product, process, or service idea, considered the soul of the organization and very important in maintaining competitive advantage and keeping the business alive in a dynamic market environment (Shehabat, 2020). According to (Al-Ansari et al., 2013), IN has a positive effect on improving business performance. Innovative strategies affect company growth and can support company performance to make the company better and different from its competitors (Usman et al., 2020). According to Kuncoro and Suriani (2018), product innovation and market drivers (creating, mobilizing, and educating the market through a product) significantly affect SCA (Kuncoro & Suriani, 2018).

IN is implementing a new idea, supported by other resources, into a product, service, process, or other company's activities. IN focuses on the process of commercializing ideas into products and enhancing SCA.

2.7. Sustainable Competitive Advantage (SCA)

The company’s ability to conduct business processes intelligently and utilize its resources effectively to create value and not be able to be replicated by rivals is known as a competitive advantage. At the same time, sustainability is maintaining a certain level for a time interval (Hussain et al., 2020). Sustainability is a company’s capacity to thrive in a hypercompetitive and changing global business environment (Hussain et al., 2020). The competitive advantage created must also be able to become a driving force for sustainable company operations so that it becomes an SCA.

SCA is one of the critical goals of an organization. Past experts have deepened the concept of SCA from two perspectives. First, research the sources and features of competitive advantage, and experts believe that competitive advantage comes from the value creation and distribution process. Therefore, companies need to integrate internal and external resources to reflect the organization’s competitive advantage from resources or capabilities that are rare, inimitable, valuable, and irreplaceable in the production and marketing process (Quaye & Mensah, 2019). Second, attention and deepening of sustainability, past experts developed the concept of sustainability from the perspective of long-term organizational development. They define sustainability as a situation in which an organization can sustain long-term and non-repeatable market advantages (or benefits) compared to current or potential competitors (Amoako, 2019). SCA is a dynamic process that can tolerate current competitive demands without risking an organization’s ability to meet its competitive needs in the future (Mahdi et al., 2019). The SCA is directly influenced by a valuable, uncommon, unique, and non-replaceable resource.

SCA is a company's ability to compete now and in the future. Companies must be able to manage resources to produce competitive products and meet market needs.

3. Methodology

The methodology used is a literature study. The purpose of this study is to propose a research model on the role of knowledge management on managerial competence, market orientation, and innovation to enhance sustainable competitive advantage. Based on the results of the literature study, relevant theories and variables were found. Theory definitions are developed based on references; the existing variables are also identified. From the study of existing literature, obtained the relationship between variables. After knowing the relationship between variables, it was further developed with other literature studies, especially from the results of empirical research, in order to obtain a hypothesis of a relationship according to the topic. The next step is to develop hypothetical relationships within a proposed model. Systematically, the stages of the literature study can be explained in Figure 2 below:

Figure 1: Research Methodology

4. Results and Discussion

4.1. The Effect of Knowledge Management on Managerial Competence, Market Orientation, and Innovation

KM activities is a strategic activity in the management of the company. Nguyen and Nguyen (2022) suggest that companies should increase their investment in developing KM elements to achieve high business results. Research by Nasikhin and Danila (2018) proves that KM, which consists of socialization, externalization, combination, and internalization, has a significant effect on employee performance indirectly through employee competency. Therefore, increasing competence is needed, especially to answer organizational demands (Prabawati, 2018). Research by Naim and Lemka (2017) found that knowledge-sharing activities, which are part of KM activities, have a positive effect on employee competency development. Furthermore, Yin et al. (2019) stated that KM activities can be used to create employee competencies at all levels, including managers. Likewise, research by Sabokro et al. (2018) stated that there is a positive effect of KM on MC.

Research on the relationship between KM and MO found that as a global phenomenon shows that if KM, MO, and IN concerning performance are practiced, then the results are promising and widely encouraged in a constructive way, as validated by a review of the literature (Ozkaya et al., 2015). Research by Ullah et al. (2019) stated that increasing knowledge of KM activities is essential in growing IN and MO. Research by John et al. (2016) found that KM is a resource that, when aligned with organizational goals, increases corporate value through support for MO culture and generates IN. Meanwhile, according to Emerson and Berge (2018), the need for more organization in KM implementation can hinder and disrupt the efficiency of its actions in creating and deploying MO. However, the relationship between KM and MO, besides having a direct impact, also has an indirect and significant effect on market performance through open IN (Seifollahi & Hamidzadeh, 2021).

Research by Obeidat et al. (2016) also Ullah et al. (2019) found that there is a positive correlation between KM and IN processes in companies. Thus, it is crucial for enterprises to discover new information, produce it, and transform it into innovation. The KM function has received significant attention in business and has been recognized as a vital element in designing strategies and developing new products and services (Mardani et al., 2018). Durmus-Ozdemir and Abdukhoshimov (2018) show that the KM process affects innovation performance. The same is also stated by Inkinen et al. (2015); Inkinen (2016). Khaliq (2017) found that organizational performance is enhanced by KM dimensions, namely IN, organizational learning, and management competence.

The above explanation can be summarized in Table 1 below:

Table 1: Effect of KM on MC, MO, and IN

Based on the description above, it is formulated as follows:

H1: KM has a significant effect on MC.

H2: KM has a significant effect on MO.

H3: KM has a significant effect on IN.

4.2. The Effect of Managerial Competence and Market Orientation on Innovation

Research results from Ferigotti et al. (2020) who examined the relationship between MC and the capacity for sustained IN, demonstrated that IN is the result of interactions between MC, organizational processes, and routines. Whereas other results show that the level of IN is related to interactions between MC, including individual competencies in project teams and organizational competencies, organizational processes, and routines, contributing to the development of technological capabilities in accordance with sustainability requirements.

Ali and Aijuan (2020), company owners/managers need to be able to coordinate and know the interactions between factors supporting their innovation capabilities. Renkema et al. (2021) state that realizing IN requires the involvement of function managers or structural officials within the organization. Small and medium enterprises are more successful if they are under the dedicated and resourceful leadership of owner-managers who possess the entrepreneurial and technical competence to heighten firm innovativeness (Ng & Kee, 2018). In another study, Hawi et al. (2015) also found a positive and significant relationship between MC and corporate IN.

Companies must pay attention to market needs and behavior MO in carrying out IN activities. Market needs are represented by the needs and wants of customers and the level of competition that exists. Market conditions must also be identified and become the basis for considering IN activities. According to Narver and Slater (1990), MO can be seen as innovative behavior because it involves constant changes in response to market demands. MO significantly contributes to the social aspects of customer engagement, such as building connections, participation, and dialogue and creating co-creations with their customers (Al Mamun et al., 2018). MO implementations such as building, developing, and maintaining customer relationships produce customer intelligence, enabling customer involvement in delivering shared values (Hapsari et al., 2017).

Creating superior customer value through customer orientation, competitor orientation, and cross-functional orientation is a significant factor in determining organizational goals. The research results of Mashahadi et al. (2016) state that MO positively affects the formation of ambidexterity in technological and non-technological IN. Mu et al. (2017) state that new product development performance is highest when MO (entrepreneurial), networking capability, and networking ability are all high. However, Zhang and Zhu (2016) found different results, that MO did not improve IN performance directly.

The above explanation can be summarized in Table 2 below:

Table 2: Effect of MC, and MO on IN

Based on the description above, the hypothesis is formulated as follows:

H4: MC has a significant effect on IN

H5: MO has a significant effect on IN.

4.3. The Effect of Managerial Competence, Innovation, and Market Orientation on Sustainable Competitive Advantage

MCs play an essential role in multi-tasks enterprises (Olafenwa et al., 2021). MC has been developed due to emerging business dynamics and their impact on competitive advantage observed in business performance. Ali and Anwar's research (2021) shows that skills and competence as dimensions of strategic competitiveness have a significant and positive effect on competitive advantage. The managerial competence aspect dramatically influences the existence of competitive advantage (Kamukama et al., 2017). Managerial competence is significantly related to competitive advantage (Ismail et al., 2014).

Managers must have competence because MC can be used to achieve the desired sustainable development output (Hassan, 2020). Veliu and Manxhari's research (2017) shows that skills in communication, leadership, development orientation, achievement orientation, motivation, teamwork, innovation, and decision-making are the most critical parts of MC that can improve manager performance to achieve sustainable development projects (Hassan, 2020). In line with Hassan, other researchers stated that MC helps managers achieve their sustainable development targets (Shaikh et al., 2017).

Sustainable competitive advantage refers to value creation where companies pursue high IN by encouraging market competition (Kuncoro & Suriani, 2018). AnningDorson's (2018) research states that IN is mostly positively related to competitive advantage. In specific terms, the IN market was found to be the most significant determinant of competitive advantage. Chapman and Hyland (2004) revealed that IN helps increase the chances of survival. Considering the different dimensions of IN, they found that IN plays a strategic role in enhancing sustainable competitive advantage opportunities for companies. IN will be a strategic tool in this significant competition for business improvement, creation, and improvement to create competitive advantages that are the same or better than abroad to realize sustainable development (Distanont & Khongmalai, 2020). Meanwhile, Kuncoro and Suriani (2018) state that IN products have a positive effect on sustainable competitive advantage, and the better the IN, the better the sustainable competitive advantage. Meanwhile, Byukusenge et al. (2021) revealed that IN is a significant mediator in the relationship between managerial competence and business performance.

IN activities must be carried out based on MO. Marketing experts have developed the MO concept as a strategic framework to explore how companies pursue and secure sustainable competitive advantages (Kumar et al., 2011). Research by Kamboj and Rahman (2017) found a positive relationship between marketing ability and sustainable innovation. Moreover, the findings reveal that marketing capability fully mediates MO to the sustainable performance relationship and partially mediates the relationship between sustainable innovation and competitive advantage. Meanwhile, according to Pratono et al. (2019), there is a strong tendency to receive input from entrepreneurial orientation and MO, which acts as a product creation construct to achieve a larger sustainable competitive advantage. By Na et al. (2019), it is suggested that the detailed application of MO at the work level can become a driving force that can create new shared values, including sustainable competitive advantage; there are various factors and relationships that were not considered in this study, need to be identified with systematic steps in future.

The above explanation can be summarized in Table 3 below:

Table 3: Effect of MC, IN, and MO on SCA

Based on the description above, the hypothesis is formulated as follows:

H6: MC has a significant positive effect on SCA.

H7: IN has a significant positive effect on SCA.

H8: MO has a significant positive effect on SCA.

5. Proposed Model

KM is critical in increasing competitive advantage, especially in this era of civilization, where companies are open to new ideas that can help them develop their goods and services (Jarad, 2020). Mahdi et al. (2019) it is stated that KM activities can formulate various aspects of organizational activities. KM is the primary driver of organizational performance and an essential tool for survival, competitiveness, and profitability (Omotayo, 2015). The role of KM is very strategic in increasing SCA, but this role also involves other variables, so it is essential and necessary to carry out further research, and a research model is proposed on the role of KM on MC, MO, and IN to increase SCA as shown on Figure 2 below:

Figure 2: Proposed Model

While the supporting references for each hypothesis are explained in Table 4 below:

Table 4: Research Reference on The Proposed Model​​​​​​​

6. Conclusion

Based on the existing literature, the findings are in the form of a proposed research model. The proposed research model is a substantial allegation of the role or relationship of the variables that influence SCA. These variables are often referred to in the literature as intrinsic and extrinsic drives to increase SCA.

The results of this study can provide further research ideas and management implementation. For further research, in order to support the hypothesis in the proposed model, it is necessary to develop it at the operational level of companies. If the conditions are not possible for further research, it is also possible to carry out research on some of the existing model variables. The operational condition depends on the size of the company that is the research object. Likewise, with regard to the tools (software) used, it must also be adjusted to the population and sampling.

Meanwhile, in implementation management can be a reference for company owners in increasing SCA by implementing strategies and improving KM activities. It will also be an idea for employees, especially personnel who hold structural positions, to improve competence so that they can manage resources to become a source of innovation that creates new value for SCA improvement.