Does Knowledge Management Pay Off?

The resource-based theory of the firm attributes superior firm performance to organizational resources that are valuable, rare, irreplaceable, and not readily reproduced. Aligned with this theory, this study examines the widely expressed notion that knowledge management (KM) competencies form a critical organizational resource that contributes to firm performance. Specifically, the current study addresses the question: does KM pay off? Using the findings of an independent research company and the data from COMPUSTAT, this study empirically examines the relationship between KM performance and firm performance in terms of both profit and cost ratios. Matched Sample Comparison Group (MSCG) methodology is employed to test the research hypotheses. The results of this study suggest that firms with superior KM performance are likely to enjoy higher profitability ratios and lower cost ratios.