Knowledge Creation and Firm Performance: The Role of Process Integration in Collaborative Relationships

In the increasingly competitive global marketplace, firms seek to maximize competitive advantage by collaborating with other firms in business-to-business (B2B) networks rather than competing as independent entities (Dyer and Singh 1998). Sharing unique knowledge is a central component of collaborative relationships (Vargo and Lusch 2004), resulting in the creation of new knowledge resources (Kahn et al. 2006). The successful exchange of knowledge resources between collaborating entities requires the integration of relevant processes (Teece et al. 2007), which can occur internally between functional units of the firm (Closs and Savitskie 2003) and externally between network partners (Richey et al. 2010).

While knowledge sharing has been discussed in the literature as a component of the integration process (Brown et al. 2000; Ellinger 2000; Kahn et al. 2006), there is a paucity of research that examines the specific roles of internal and external integration mechanisms in the creation of new knowledge resources from shared knowledge. Thus, the objective of this study is to develop an understanding of how the integration of internal and external processes in collaborative firm relationships results in new knowledge resources that influence financial performance.

Structural equation modeling of a survey of 509 business managers indicates that flexibility in collaborative relationships is positively related to the firm’s ability to achieve financial performance through the creation of new knowledge resources. Results also indicate that a firm’s ability to successfully integrate operational processes mediates the normative aspects of the collaborative relationship and the firm’s ability to arrive at innovative solutions. This integrative capability is positively associated with relationship flexibility, adding to relational governance literature views that suggest successful collaborations are governed by shared relational norms, including bilateral information sharing and relationship flexibility (Brown et al. 2000). Managerially, firms should therefore seek to increase relationship flexibility through the use of normative governance forms in order to facilitate their integration capabilities.

This research also provides evidence that the positive relationship between integration capability and financial performance is mediated by the creation of new knowledge resources. The integration of internal operations and financial performance is shown to be fully mediated by the creation of new knowledge, while the ability to integrate externally has a positive direct effect on financial performance as well as an indirect effect through knowledge creation. Thus, to realize improvements to ROI, ROA and average profits per customer, firms should seek to coordinate those internal processes and operations that will provide the greatest impact on their ability to effectively collaborate and combine resources with external partners that will result in innovative process solutions.