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EMPOWERING ORGANISATIONAL KNOWLEDGE CREATION AND PERFORMANCE: A MODERATING FOCUS ON DYNAMIC CAPABILITY OF PROFESSIONAL AND TECHNOLOGY-DRIVEN FIRMS

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International Journal of Mechanical Engineering and Technology (IJMET)
Volume 10, Issue 03, March 2019, pp. 706-717. Article ID: IJMET_10_03_074
Available online at http://www.iaeme.com/ijmet/issues.asp?JType=IJMET&VType=10&IType=3
ISSN Print: 0976-6340 and ISSN Online: 0976-6359
© IAEME Publication
Scopus Indexed
EMPOWERING ORGANISATIONAL
KNOWLEDGE CREATION AND
PERFORMANCE: A MODERATING FOCUS ON
DYNAMIC CAPABILITY OF PROFESSIONAL
AND TECHNOLOGY-DRIVEN FIRMS
ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P.
Department of Business Management,
Covenant University, Ota, Ogun state, Nigeria
ABSTRACT
This paper examined the role of dynamic capability as a moderator in explaining
knowledge creation processes and performance of Professional and TechnologyDriven Firms. The role of four ontological dimensions (socialization, externalization,
combination and internalization) of knowledge creation in a spiral model were
explored. A total of 424 out of 450 members of the sampled firms participated,
representing 94% response rate. The information was acquired through the use of an
organized questionnaire while the participant targets include managers,
administrators, supervisors, and other classes of employees who were entreated to
honestly answer items in the questionnaire. The study evaluated construct test validity
(measurement) and structural model to establish the factor structure and degree of
relationship of a number of observed variables. Our results indicate that ability to
creatively combine resources and competencies has significantly helped sampled firms
to create new knowledge and improving such knowledge in offering greater value to
satisfy customers’ requirements and enhance performance outcomes.
Keywords: Knowledge, Knowledge creation, Dynamic capability, Technology,
Innovation, Performance.
Cite this Article: ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and
SALAU, O. P, Empowering Organisational Knowledge Creation and Performance: A
Moderating Focus on Dynamic Capability of Professional and Technology-Driven
Firms, International Journal of Mechanical Engineering and Technology, 10(3), 2019,
pp. 706-717.
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ATOLAGBE, T. M, WORLU, R. E. K, ADENIJI, A. A and SALAU, O. P
1. INTRODUCTION
Knowledge is presently recognized as the best form of information which should be created
and managed appropriately in gaining competitive advantage. Knowledge plays a substantial
role in society, and the optimal use of knowledgeable and well-informed staff is the utmost
critical asset for improving organisational actions. Nonaka and Ichijo (2007) advocated that
the process of improving organisational actions centre on organisation’s unique ability to
create new knowledge, utilize its resources and predominant application in offering greater
value to satisfy the needs and requirements of the customers. Knowledge creation, according
to Nonaka, and Ichijo (2007) is the heart of organisation’s competitive advantage and it
focuses on the ability to continuously transfer, combine and convert different kinds of
knowledge (tacit and explicit knowledge) in enhancing organisational performance.
Knowledge creation is also the act of translating new ideas into innovative product and
services to achieve competitive advantage.
The importance of knowledge and innovation in modern economic justifies the increasing
interest that scholars are taking in studying professional and technology-driven firms. The
dynamism of business environments is at an accelerating rate, causing an increasing level of
uncertainty to organizations especially in Nigeria. Even though there are initiatives for an
increase in the process of creating new insight/idea, several firms in developing countries like
Nigeria seem to get lost in their focus on knowledge creation. As a contradiction to the recent
trends, there are indeed several businesses focusing on creating profit, rather than creating
knowledge and improving the ability to combine resources and competencies for performance
effectiveness. These challenges have eroded the value of existing firm competences,
encouraging firms to create knowledge and building strategic competences that will help to
survive in a dynamic environment (Yeung, 2016, Childe, 2014). Extant literature has
identified direct connection between knowledge creation and performance; while others
argued that the relationship can be influenced by some factors. Other studies have shown that
the most pressing obstacle influencing the role of knowledge creation on performance is
firm’s ability to respond and reintegrate internal and external capabilities to address swiftly
changing environments.
Dynamic environments encourage the firm to respond to the changes in the environment
by sensing, reallocating, reconfiguring and renewing the existing capabilities. Hence, dynamic
capabilities are a core element for every nation to survive in today’s dynamic environment. In
the last decade, a number of researchers have considered the concept of dynamic capacities as
the heart of strategy and the methodology of the firm, firm’s competitive advantage and the
value creation. Dynamic capabilities are expected to be valuable for organizations dealing
with business turbulence, and early identification of threats or opportunities creates better
opportunities for many organisations in the developed and developing countries. The
dynamism of business environments is at an accelerating rate, causing an increasing level of
uncertainty to organizations especially in Nigeria.
Dynamic capabilities strategy explains how the manufacturing sector especially the
manufacturing firms in Nigeria adapts to changes in their business environments and at the
same time achieving sustainable competitive advantage. Also manufacturing firms in Nigeria
are becoming increasingly aware of the threats and the opportunities that ICT presents
(Safeena, Abdullah and Date, 2010) and these are continually transforming the traditional way
of providing continued services and providing competitive edge that provide those electronic
services. Changes emerging from business environments may cause an organization’s
capabilities to become less valuable or even redundant. The Nigerian professional and
technology-based firms are characterized by increased environmental dynamism brought
about by rapid technological development, customer sophistication and regulations. Hence,
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Empowering Organisational Knowledge Creation and Performance: A Moderating Focus on
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the business environment of the manufacturing firms in Nigeria is expected to remain very
dynamic (Adesina &Ayo, 2010).
In Nigeria, the issue of dynamic capabilities cannot be separated from the social and
environmental concern in the country. According to Oguntade and Mafimisebi (2011),
organizations operating in Nigeria have not done enough to improve their performance
despite the huge amount of profits they are realizing. In Nigeria, due to the existing
competitive work milieu characterized by high uncertainty and intense global competition,
knowledge has been seen as one the greatest intangible assets in the professional and
technology-driven firms. The professional and technology-driven firms are often faced with
the most uncertain environment and increasing pressure from various constituencies to remain
in market.
The expectation in responding to environmental change has become very high in Nigeria
especially among professional and technology-based firms in Nigeria and the negligence of
the expectations by those companies has resulted to a very turbulent environment for them
(Onwuchekwa, 2002). However, the practices of dynamic capabilities have been absent
among professional and technology-based in Nigeria which scholars and authors has failed to
address as this has breed negative perception and attitudes among consumers, communities’
dwellers and other stakeholders towards these concerns, thus, connotes a bad organizational
image building strategy. As a result of this, this study largely focused on moderating role of
dynamic capability on knowledge creation and performance of professional and technologydriven firms.
2. LITERATURE REVIEW
2.1. Organisational Knowledge
Knowledge is presently recognized as critical success factor which should be managed
appropriately in achieving distinctive advantage. Knowledge can be defined as the act of
knowing (with absolute certainty) through experience or education. Knowledge is an
intangible asset in human beings and held in high esteem. This knowledge can be
conceptualized as the capability of the firm to detect new opportunities, scan environment,
answer to competitive planned moves and evaluates the competitive position. Nonaka and
Takeuchi (1995) developed a knowledge-based theory to examine how knowledge can be
created and managed within an organization.
2.2. Knowledge Creation
Knowledge creation is the act of translating new ideas into innovative product and services in
order to achieve competitive advantage. Nonaka’s contribution to knowledge creation theory
development integrates the knowledge creation process of socialization, externalization,
combination and internationalization (SECI) coupled with the concept of ‘Ba’ (the
environment where the idea/knowledge is generated), and enabling capabilities (leadership,
organizational culture, learning). Consequently, knowledge creation represents the process of
enabling people to create new insights and ideas into innovative product and services as
presented in Table 1.
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Table 1 Operational Terms
S/N
1
2
3
4
5
6
7
8
9
Organisational Knowledge Creation defined
…translating ongoing experiences into knowledge
…the act of translating new ideas into innovative product and services that
meets stakeholders’ expectations.
…is a product of the interplay between knowledge and knowing.
…is the process of development of new knowledge.
Dynamic Capabilities defined
…capability of sensing opportunities, which is the organization’s ability to
direct operational changes and sense new opportunities.
…capability of seizing opportunities, which is the firm’s ability to create
and provide structures that improve creativity and innovation.
…capability of implementing innovations, which is the firm’s ability to
manage innovation and projects implementation.
…capability of reconfiguration, which is the organization’s ability to
readjust available resources.
Firm Performance
…a subset of organizational effectiveness that covers operational and
financial outcomes.
Authors
Dixon (2000)
Nonaka and Ichijo
(2007)
Wellman (2009)
Teece (2007);
Dannells (2002).
Gordonet, et al., (2008);
Kunc and Bhandari,
(2011); Pertusa-Ortega,
et al., (2010).
2.3. Organisational Knowledge Creation and Performance
In the twenty first century, to compete effectively, there is need for organisations to know
about the environmental changes within and outside the organisation and must be at the forefront of creating and managing this knowledge. To achieve this, its importance for both staff
/employees of the firm to be fully involved in creating knowledge. Knowledge creation is not
only learnt from others or obtained from outside but knowledge can also be built from
communicating and interacting with individuals within the organisation. Nonaka (2014) and
Ngulube (2003) breaks knowledge creation (KC) into four modes: socialisation (tacit to tacit
knowledge), externalisation (tacit to explicit knowledge), combination (explicit to explicit
knowledge), and internalisation (explicit to tacit knowledge). These specialised modes of
organisational knowledge continuously is needed to transform data into information and
endow it with relevance through the tacit and explicit knowledge (Hamzah, Mahmood &
Khaled, 2013) as displayed in Figure 1.
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
Socialization is tacit to tacit knowledge transfer and it can be physical or experiences
shared like brainstorming, information sharing, but sometimes may be difficult to
formalize and interpret (Nonaka & Takeuchi, 2004). This knowledge fosters the need
for openness and further promotes cross fertilization and improvement of ideas.
 Externalization is tacit to explicit knowledge. It focuses on the ability to explain an
individual’s ideas to others in such a way that they will understand thereby, becoming
the basis of new knowledge (Nonaka & Takeuchi, 2004).
 Combination is explicit to explicit knowledge collected within and outside the
organisation, combined, processed to transform into new knowledge which is shared
among members in the organisation (Nonaka & Takeuchi, 2004).
 Internalization is explicit to tacit knowledge where individual continually reflect, see
connections and recognize patterns and capacity to make sense between ideas, and
concepts.
By implications, the professional and technology-based firms have become highly
competitive and are constantly changing from simple to complex and from tame to hostile,
and as a result, the need to be customer-centric and innovative becomes inevitable for
sustaining performance. Presently, innovative performance is a crucial factor in determining
competitiveness and the survival of firm. In relevance to how organisational knowledge
creation enhance innovation performance, literatures have shown that knowledge creation
enhances organisational performance. For instance, studies and theories suggest that
knowledge creation enables firms to innovate (Jin, et al., 2015; Nonaka, 1994). Yang (2010)
found significant support for the relationship between knowledge creation and organizational
effectiveness of a firm. Researchers in various countries focused mostly on the aspect of
organizational effectiveness rather than on organisational performance. As far the research in
the area of knowledge management is concerned, scholars have also focused on pivotal role
played by knowledge creation in enhancing organisational outcomes.
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2.4. Moderating Role of Dynamic Capability
Dynamic capabilities are valuable for organizations dealing with environmental turbulences,
and early identification of threats or opportunities to create better opportunities for many
organisations in the developed and developing countries. Teece (2007) & Danneels (2002)
opined that the indices of dynamic capabilities include: (i) Capability of sensing
opportunities, which is the organization’s ability to direct operational changes and sense new
opportunities; (ii) Capability of seizing opportunities, which is the organization’s ability to
create and provide structures that improve creativity and innovation; (iii) Capability of
implementing innovations, which is the organization’s ability to manage innovation and
projects implementation and (iv) Capability of reconfiguration, which is the organization’s
ability to readjust available resources.
Inkpen and Tsang, (2005) opined that knowledge creation is an importance aspect of
innovation and sustainable performance. Bowman and Ambrosini, (2003) stated that firms
create new knowledge through a productive and capability to respond to changes that
facilitates abundance of competencies (skills) to increase returns for sustainable performance.
Dash and Mahaptra (2010) have shown that lack of productive capability is one of the
obstacles influencing the relationship between knowledge creation and innovation
performance. King, Fowler and Zeithaml (2001) in their work, managing organisational
competitive advantage also stated that organisational learning and learning culture are
importance source of competitive advantage.
Dynamic capabilities have been troubled by few problems related to their operations,
explanations and by their expected terms with the performance of the organization. There are
however some proofs which show that performance of an organization can be affected by its
dynamic capabilities (Henderson & Cockburn, 1994). Makkonen et al. (2014) assessed the
relationship of dynamic capabilities with internal processes. Survey research design was
applied. They found that dynamic capabilities have a positive effect on organizational change,
which in turn positively affects product innovativeness. Findings from the study showed that
dynamic capabilities give firms competitive advantage and increase their evolutionary fitness.
Gathungu & Mwangi (2012) carried out a study on Dynamic Capabilities, Talent
Development and Firm Performance in which they investigated the nature of sensing, seizing
and transforming managerial dynamic capabilities and their interconnection influence firm
performance.
Dynamic capabilities are valuable for organizations dealing with environmental
turbulences, and early identification of threats or opportunities to create better opportunities
for many organisations in the developed and developing countries. Deeds, DeCarolis, &
Coombs (2000) proves that dynamic capabilities like the process of forming alliance is
considerably related to the number of products that are developed newly in biotechnology
area. The firm must have the ability to reshape its resource base by sensing the changes in the
environment effectively and respond accordingly. If a firm has the ability to be responsive to
the changes of the environment including analysing the competition, it would have a positive
impact on redefining the marketing as well as technological competences which lead to the
redefining and renewal of the product portfolio. Last, the flexibility of the firm in terms of
being responsive to the changes in the environment is also linked with the organizational
structure that a firm is following which is decentralized structure. If a firm doesn’t possess
dynamic capabilities, it would restrain to seek the renewal opportunities.
3. RESEARCH DESIGN
The survey design method was adopted for the study and it was descriptive in nature. The unit
of investigation comprised staff at different management cadres of the eight (8) selected
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Professional and Technology (IT) based firms which are: Accenture, Cisco system Inc,
International Business Machine Corporation (IBM), Oracle Corporation, Deloitte, Ernst and
Young (E&Y), Klynveld Peat Marwick Goerdeler (KPMG) and Price-water house Cooper
(PWC). The target population of this study comprised Professional and Technology (IT)
based firms listed on JarusHub Nigeria (2017), Nigerian Yellow Pages (2011) and Nigeria
Search Engine (2011) as presented in Table 2.
Table 2 Names and Number of Selected Professional and Technology (IT) based firms
S/N
Firms
KIBS Sector
Location
1.
Accenture
Information
Technology (IT)
Information
Technology (IT)
Information
Technology (IT)
Information
Technology (IT)
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
Victoria
Island, Lagos
2.
Cisco System
Inc.
3.
IBM
4.
Oracle
5.
Deloitte
Professional
6.
Ernst and
Young
Professional
7.
KPMG
Professional
8.
PWC
Professional
YoE
Staff
Strength
Sample
1985
176
31
1984
151
20
1961
145
26
1977
115
27
1952
336
60
1989
387
69
1978
572
102
1998
645
115
2527
450
Total
Source: JarusHub Nigeria (2017)
*YoE means Year of Establishment
The study randomly collected data from 450 staff of Accenture, Cisco system Inc, IBM,
Oracle Corporation, Deloitte, Ernst and Young, KMPG and PWC. The KIBS firms are of
different size and composition, however, a percentage of the population was determined
earlier (see Table 3.3). The study used the multi-staged sampling technique comprising of the
probability sampling technique and non-probability sampling techniques. For the probability
sampling techniques, the use of purposive sampling (first step), stratified sampling (second
step) and convenience sampling (third step) was adopted.
The collection of the quantitative data on organisational knowledge creation, dynamic
capability and innovation performance of KIBS firms (professional and Technology based
firms) was done with the used of questionnaire. Respondents were asked to give response to
items with self-administered copies of questionnaire which is structured (close-ended) and
unstructured (open-ended) in order to help achieve the research objectives. A multi-item index
was used to measure knowledge creation processes, dynamic capability and performance of
the sampled professional and technology-based firms. The questionnaire is divided into two
different sections, the demographics of the participants and the section regarding the variables
on knowledge creation, dynamic capability and innovation performance. To measure these
variables, thirty-five items were adapted as presented in Table 3.
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Table 3 Items in the questionnaire and their sources
Table 1 A Measure of Organisational Knowledge Creation: Scale Development and Validation
Definition
Knowledge
Creation
Dynamic
Capability
Firm
Performance
First-order Variable
Socialization
(Tacit)
Externalisation
… refers to firms’ ability to
(Tacit to Explicit)
identify and satisfy the needs
and requirements of its
Combination
customers.
(Explicit to Explicit)
Internalization
(Explicit to Tacit)
Intelligence dissemination
… refers to the firms’ ability to
Customers’
respond proactively and
Responsiveness
innovatively to internal and
Competitors focus
external changes in the business
Inter-functional
environment
Coordination
Sales growth
… refers to the assessment and
outcome of investment activities Customer Retention
of an organization over a given Return on Investment
period
Market share
# Items
Source
Items = 4
Items = 4
Items = 4
Items = 4
Adopted from
Nonaka et al., 2000);
Shih, Chang, & Lin
(2010); Takeuchi &
Nonaka (2004)
Items = 1
Items = 2
Adopted from
Items = 1
Rebelo & Gomes, (2011)
Items = 2
Items = 3
Items = 4
Items = 3
Yang (2008); Parnell
(2011); Parnell and
Hershey (2005)
Source: Measurement Variables of the Knowledge Creation, Dynamic Capability and Performance
3.2. Measurement and Instrumentation
The paper adopted Confirmatory Factor Analysis (CFA) to evaluate the validity of items and
the fit of the measurement model. The convergent phase was adopted for the validation of the
items. The study adopted the conditions to assess convergent validity as presented in Table 4.
This indicates that all loading scales and items are significant when they are equal or above
value criterion of 0.70; while the composite reliability is expected to be greater than 0.80 and
finally, each Average Variance Extracted estimate (AVE) must be higher than 0.50 as
recommended by Fornell and Larcker (1981) and Bagozzi and Yi (1988).
Table 4 Measurement Models (Result of Internal Consistency and Convergent Validity)
Measurement
No of
Items
Socialisation
Externalisation
Combination
Internalisation
Dynamic Capability
Performance
5
5
5
5
5
5
Error
Variance
> 0.7
< 0.5
Organisational Knowledge Creation
0.8260
0.6823
0.3177
0.8002
0.6403
0.3597
0.7918
0.6269
0.3731
0.7822
0.6115
0.3885
0.8622
0.7434
0.2566
0.8174
0.6681
0.3319
Loading
Indicator
Reliability
Compose
Reliability
> 0.8
Ave. Variance
Estimated
> 0.5
0.8574
0.8819
0.8708
0.8168
0.9301
0.8446
0.7396
0.7743
0.7580
0.5277
0.7406
0.7602
The measurement models (result of internal consistency and convergent validity) proved
that scale items have satisfied and met all the three conditions as acclaimed by Anderson and
Gerbing (1998). To validate the construct validity, measures of discriminant validity were
conducted. Essentially, measures of discriminant validity help us determine if two measures
that should not correlate are actually not interrelated and correlated. For discriminant validity
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to be achieved, the value of square root of AVE of a particular construct should be higher than
the correlation matrix as demonstrated in Table 5.
Table 5 Discriminant Analysis
Items
Soc
Ext
Com
Int
Dyn. Cap
Perf. Eff
Mean
3.3180
3.2008
2.1225
2.7322
2.9664
2.7478
SD
Soc
Ext
Com
Int
.55733
.350**
.451*
.089
0.7948
.64128
.272**
.321*
0.7814
.75078
.484**
0.8945
.82525
0.8452
.88137
.79096
*. Correlation is significant at the 0.05 level (2-tailed)
**. Correlation is significant at the 0.01 level (2-tailed)
Dyn. Cap
.235*
.296**
.365*
.643**
0.8738
Perf.
.437*
.393**
.352**
.373*
.348**
0.8826
The diagonal values represent the square root of the average variance extracted (AVE) of
the specific construct.
Construct legend: Soc_Socialization; Ext_Externalization; Com_Combination;
Int_Internalization;
Dyn. Cap_dynamic capability; Firm_Perf _Performance Effectiveness
Then, we continue to test the extended model using structural indices. These analyses
were conducted using PLS. Figures 2 and 3 demonstrated the major findings with the solid
lines indicate significant results.
Figure 2 First Order CFA Model
Note: Soc= Socialization| Ext= Externalization| Com= Combination| Int = Internalization.
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Figure 3 Second Order CFA Model
Note: Soc= Socialization| Ext= Externalization| Com= Combination| Int= Internalization|
Dyn_Cap= Dynamic Capability| Performance = Performance Effectiveness.
Table 6Index of Hypothetical Decision
First Order
External Fit Value of Value of
Indicators Threshold Estimation
CMIN/DF < 5.00
3.626
GFI
> 0.90
0.923
AGFI
> 0.90
0.936
CFI
> 0.90
0.967
RMSEA
< 0.08
0.043
Result
Supported
Supported
Supported
Supported
Supported
Second Order
External Fit Value of Value of
Indicators Threshold Estimation
CMIN/DF < 5.00
3.163
GFI
> 0.90
0.983
AGFI
> 0.90
0.944
CFI
> 0.90
0.959
RMSEA
< 0.08
0.051
Result
Supported
Supported
Supported
Supported
Supported
This implies that the model has ‘goodness of fit’ and the values of estimation met all the
requirements for Index of Hypothetical Decision. It can be concluded that in order for an
organization to remain relevant, it must be able to explore its dynamic capabilities well
enough to adapt to early signals emerging from its environments.
4. CONCLUDING REMARKS
To summarize, we have developed a theoretical model to illustrate the mechanism underlying
the impact of knowledge creation modes on firm performance. Specifically, we argue that
knowledge creation modes promote innovativeness that enhances firm performance.
Moreover, this relationship can be moderated through dynamic capabilities. When an
organization develops stronger agility through knowledge creation processes, it also becomes
more receptive to creative solutions. In this process, organizational agility plays a critical role
between knowledge creation processes and the resulting innovative culture. When knowledge
creation processes afford the organization the freedom to experiment with new ideas and take
risks, the enriched knowledge environment can significantly facilitate the organisation to be
more creative. In order to achieve this renewal, the selected firms are required to find out and
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learn innovative ways along with being able to exploit the things which they have learned in
the past. This will help the firm to integrate all the tacit knowledge as well as codified
knowledge in order to produce and deliver those products that are cost effective and get more
information and data about the needs and demands of the customers. Moreso, the firm can
foster a coordination capability that will consistently help to develop existing and new
product where cross functional team composed of different departments works together to
design any particular product. In addition to that, sharing knowledge as well as the creation of
cross-cultural teams would result in the combination of that knowledge that is novel or new.
The reason is that the cross functional teams will foster employee’s engagement to interact
with each other who belongs to different functional department and that leads to the
recombination or renewal of technological as well as marketing competences. Moreover, job
rotation fosters the process of absorption of knowledge more effectively.
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