Linking Knowledge Management and Innovation in SMEs : A Structural Equation Modeling Approach

Small and Medium Enterprises (SMEs), the backbone of the economy, significantly benefit from Knowledge Management (KM). However, the extant literature has little empirical support for this statement. Using the literature review, this paper has developed KM instrument to test a conceptual model linking KM and innovation using regression analysis and structural equation modeling technique. Primary data was collected from SMEs of three industries i.e., software, pharmaceutical and textiles, in North India. The study confirmed the relationship between adoption of KM practices and innovation strategies in the selected SMEs. The findings of the study also revealed that the use of KM practices provides the ability to make use of information flowing into an organization to improve organizational performance, facilitate innovation and create sustainable competitive advantage