Disentangling value‐enhancing and cost‐increasing effects of knowledge management

Purpose – The main purpose of this paper is to provide large‐scale empirical evidence on the value‐enhancing and cost‐increasing effects of knowledge management (KM) techniques. Design/methodology/approach – The authors conduct structural equation analyses, using data from the Community Innovation Survey 2007 and from annual accounts of 705 innovative Belgian firms. Findings – Results confirm that the use of KM techniques has an indirect positive impact on financial performance via increased innovation performance. In addition, a direct cost‐increasing effect of KM practices on financial performance is observed. In the short term, this direct cost‐increasing effect exceeds the indirect value‐generating effect of KM techniques. Research limitations/implications – This study investigates the short‐term effects of KM techniques. Future research should study the long‐term costs and benefits. Data were collected in Belgium and may not reflect the impact of KM practices in other geographic, economic or cultural settings. Practical implications – The findings clearly indicate that the implementation of KM techniques entails significant costs. Within a two‐year time frame, the financial costs of KM techniques are more visible than their potential benefits. An exclusive focus on the short‐term implications of the use of KM techniques is hence likely to give a too pessimistic view on their potential financial contribution. Originality/value – This article is the first large‐scale study that disentangles both the value‐enhancing and cost‐increasing effects of KM techniques on financial performance and that uses time lags and accounting data (as opposed to self‐reported performance measures) to do so.