Knowledge capability, strategic change, and firm performance : The moderating role of the environment

Purpose – This paper seeks to examine the relationships between knowledge capability, strategic change, and firm performance in the US airline industry from regulation to deregulation. Design/methodology/approach – This is a longitudinal study with a cross‐sectional time series research design. A theoretical model is tested in which knowledge capability exerts a direct effect on strategic change; strategic change then influences firm performance. The environment moderates the relationship between strategic change and firm performance. The sample of the study includes the major US air carriers from 1972 to 1995. Knowledge capability is operationalized as the education level and functional diversity of top management. Strategic change is measured as change in hub concentration, a key variable for the airlines. The data for the present study come from archival sources. Findings – Time series statistics with fixed effects are used to examine the relationships between the variables. The results support the theoretical model: knowledge capability influences change in strategy, which, in turn, influences firm performance. The results also indicate that the environment serves as a moderator in the relationship between strategic change and firm performance. Originality/value – This study examines strategic change in the major US airlines during a period of profound environmental change. It integrates several streams of management research and should be useful to academics and managers who want to understand the performance implications of strategic change.