Received: 11 April 2018 Accepted: 18 April 2018

DOI: 10.1002/kpm.1570

RESEARCH ARTICLE

Factors affecting effectiveness of knowledge management: A

case of Bosnia and Herzegovina trade enterprises
Roberto Biloslavo1 | Mirela Kljajić‐Dervić2 | Šemsudin Dervić3

1
Faculty of Management, Univerza na
Primorskem, Koper, Slovenia
2
Ekonomska fakulteta Bihać, Univerza v
Bihaću, Bihać, Bosnia and Herzegovina
3
Ekonomski fakultet, Evropski univerzitet u
Brčkom, Brčko, Bosnia and Herzegovina
Correspondence
Roberto Biloslavo, Faculty of Management,
Univerza na Primorskem, Cankarjeva 5, Koper
6000, Slovenia.
Email: roberto.biloslavo@fm‐kp.si
The paper presents a conceptual model of factors affecting knowledge management
effectiveness and determines whether knowledge management exerts a positive
impact on business performance in trade enterprises of Bosnia and Herzegovina.
Research data have been collected through a survey. The research sample was com-
posed of 317 Bosnian companies that employ from 10 to 600 employees. Collected
data were analysed by use of factor analysis and structural equation modelling. This
is the first research carried out to prove influence of some organisational factors on
knowledge management effectiveness in developing country such as Bosnia and Her-
zegovina by use of structural equation modelling. The research results suggest that
organisational culture mediates the impact of human capital, information technology,
organisational structure, and leadership on knowledge management effectiveness and
confirm the hypothesis that the latter influences financial and nonfinancial indicators
of business performance. The findings carry theoretical implications for knowledge
management literature as they extend the scope of research on knowledge manage-
ment from examining a set of independent organizational factors to examining a sys-
tem‐wide mechanism that connects organisational elements and knowledge
management effectiveness. The results of this study also provide a practical reference
for the business when the latter considers investment into knowledge management
system development, thus increasing their chance for success especially within devel-
oping countries.

1 | I N T RO D U CT I O N management of organisations is critical during this turmoil years,

Although some authors (see Davenport & Prusak, 1998; Grant, 1996;
Holsapple & Joshi, 1999; Koulopoulos & Frappaolo, 1999; Nonaka &
Takeuchi, 1995; Skyrme & Amidon, 1997; Wiig, 1997) drew atten-
tion to knowledge as a key economic factor almost two decades
ago, knowledge as an element of management has become an area
of serious scientific studies mostly in the last 15 years (see Akhavan,
Jafari, & Fathian, 2006; Artail, 2006; Chenari, Nazem, & Safari, 2013;
Chong & Chong, 2009; Chourides, Longbottom, & Murphy, 2003;
Du Plessis, 2007; Robinson, Anumba, Carrillo, & Al‐Ghassani,
2006; Yang, 2007; Wang & Wang, 2016; Watanabe, Benton, &
Senoo, 2011; Zheng, Yang, & McLean, 2010). The ability to effec-
tively and efficiently manage knowledge is becoming increasingly
crucial in today's fast changing and data‐driven economy. Effective
and knowledge management, if understood and applied properly,
may be a useful tool for business transformation as well as the key
to competitive advantage (Jennex, 2007).
Knowledge management enables an organisation to gain insight
and learn from its own experience, processes, and specific activities.
However, in order to accomplish this effectively, it is considered cru-
cial to identify factors that affect effectiveness of knowledge manage-
ment initiatives (Wang & Wang, 2016; Yeh, Lai, & Ho, 2006).
Knowledge management enablers support new knowledge develop-
ment within an organisation as well as its utilisation, sharing, and pro-
tection. They represent the basic building blocks of every process
carried out by the organisation in order to improve its knowledge
management. The aim of this study is to empirically study and test
the key factors affecting effectiveness of knowledge management

Knowl Process Manag. 2018;1–12. wileyonlinelibrary.com/journal/kpm Copyright © 2018 John Wiley & Sons, Ltd. 1
2 BILOSLAVO
and how is this related to business performance in trade enterprises of
Bosnia and Herzegovina (BiH). This last issue is critically important
because investments in developing information and knowledge man-
agement systems are financially demanding and often subject to mar-
ket failure (Chua & Lam, 2005; Frost, 2014). According to Arrow
(1971), production of knowledge and its acquisition is a risky activity,
especially in the uncertain environment such as the one that
characterised the transition economies (Bartlett, Čičić, & Ćulahović,
2012).
This article is structured as follows: the first and second parts
cover theoretical review, the third part focuses on creation of the con-
ceptual model of factors that affect knowledge management, and the
fourth part contains a discussion of empirical data on different key
factors affecting effectiveness of knowledge management and conse-
quently business performance of companies.
2 | KNOWLEDGE MANAGEMENT IN A
D E V E L O P I N G E C O N O M Y : A CA S E OF B I H
Knowledge management (KM) is an interdisciplinary business prac-
tice, which roots lie in several disciplines, including business, econom-
ics, psychology, management, and IT (Skyrme, 1999). Chou, Chang,
Cheng, and Tsai (2007) define knowledge management as processes
and practices pertaining to creation, transfer, dissemination and appli-
cation of knowledge, skills, and experience. On the other hand, Čater
(2001) defines knowledge management as part of the entire manage-
ment process that focuses on systematic analysis, planning, collection,
creation, dissemination, storage, and utilisation of organisational
knowledge. This process transforms human knowledge into structural
capital in order to develop competitive advantage and achieve the
core organisational goals (Čater, 2002). Based on different definitions,
knowledge management can be defined as a systematic approach
that involves an entire organisation and requires a synergy between
the processing of data and information, with the support of informa-
tion–communication systems, and creativity and innovative capacities
of people. In its narrowest sense, knowledge management is the abil-
ity to exploit intellectual capital with the aim of achieving
organisational goals (Rubenstein‐Montanoa, Buchwalterb, &
Liebowitz, 2001), and a formalised and active approach to manage-
ment and optimisation of knowledge resources in an organisation
(Wong & Aspinwall, 2005).
According to Mytelka and Oyeyinka (2003), there are five sys-
temic weaknesses common to developing and transition countries
related to knowledge management:
1. Organisational rigidities hinder adjustments conducive to acquir-
ing knowledge.
2. Suboptimal knowledge networks limit interactions between criti-
cal business ecosystem actors.
3. There is a strong systemic inertia as a result of self‐reinforcing
obsolete business networks that fear change.
4. Weak connections between businesses and research and training
facilities that supply skills and knowledge production unrespon-
sive to business needs.
ET AL.
5. Weak knowledge about intellectual property rights and lack of
transparent rules that create gaps and inefficiencies in innovation
systems.
According to Bartlett et al. (2012), all of the above weaknesses
are very much present in BiH. BiH is the third country in size that
was established in the area of former Yugoslavia. After the war,
which lasted from 1991 to 1995, BiH experienced a complete stand-
still, much worse than was experienced in other former Yugoslav
Republics. During this period, most companies were completely
destroyed due to war operations, and there was no new investment.
Most Bosnians, especially those with higher education, migrated
around the world. After the war, the country tried to put itself on
the “own feet,” but with a large backlog in social and economic
development. In BiH is still seen stagnation in science, education,
leadership, decision‐making, and economic and sustainable develop-
ment (European Commission, 2010). According to Ateljevic, O'Rouke,
and Todorovic (2004), many transformational models that show to
be relevant in different international context have not been effective
in BiH, due to their lack of a holistic, equitable, and future‐oriented
approach. This finding shows how difficult and complex the socio‐
economic situation in BiH was and still is. However, BiH is one step
closer to joining the European Union (EU) since it formally applied
for membership in the February 2016. And yet it will remain a
candidate country until it makes more progress in implementing
agreed laws and policies. In practice, for businesses, this entails a
need for development of know‐how on EU requirements, but
especially competencies related to business internationalisation,
cost‐efficiency, human resource management, and knowledge
management (Madžar, 2015).
The potential of knowledge management to improve efficiency
and innovation capability has been often cited as a key source of
competitive advantage (Rahimli, 2012), even more is this important
for companies established in developing countries. Bosnian companies
are characterised by some organisational weaknesses regarding their
potential for development of effective knowledge management as
long and slow information flow that prevents effective internal
communication and change initiatives, bureaucratic organisational
culture that does not support innovation and knowledge exchange, tall
organisational structure with an imbalance between competency,
authority and responsibility, and low level of knowledge management
competencies among top management (Djonlagic, Delic, & Kovacevic,
2013). Beside that, Bosnian companies have also lack of available
capital. Therefore, Bosnian companies must do more with less that
means manage knowledge with limited resources and within evident
organisational constraints. The challenge for Bosnian companies, as
for other companies in developing countries, is to effectively capture
knowledge embedded in people's head and work practice and
leverage it throughout the organisation. Development of relevant
competencies in the field of knowledge management can represent
one of the key drivers for development of Bosnian companies and
indirectly for economic growth of the country (Drašković, Jovovic,
Draškovič, & Jereb, 2013). This is especially true for trade enterprises,
which are the largest contributor to BiH's GDP based on the World
Bank's data.
BILOSLAVO ET AL.
3 | E F F E C T I V EN E S S OF KN O W L E D G E
MANAGEMENT AND BUSINESS
PERFORMANCE
The aim of this study was to determine which factors affect effective
implementation of knowledge management in organisations. When
outlining the key factors that influence effectiveness of knowledge
management, it needs to be considered that knowledge management
requires a balance between human factors and technology and that
knowledge is a subjective category, which means that each organisa-
tion provides its own definition of knowledge relevant to it (Čadež,
2013). Subjectivity also includes ways in which knowledge is shaped,
protected, shared, and applied, so that it enables a particular organisa-
tion to create added value for customers and other stakeholders.
When all this is taken into account, it is possible to create a framework
for effective implementation of knowledge management. However,
according to Heisig et al. (2016), this is a complex organisational issue
and among the KM experts prevails an opinion that research related to
the influence of KM to support business strategy, intellectual capital,
decision‐making, knowledge sharing, organisational learning, innova-
tion performance, productivity, and competitive advantage are still
needed.
3.1 | Key factors affecting knowledge management
Davenport, De Longand, and Beers (1998) identify eight factors that
are common to all effective knowledge management projects. Skyrme
(2000) underlines the following key factors that affect effectiveness of
knowledge management: business strategy, knowledge on knowledge,
integration of vision and organisation, leadership, a systematic knowl-
edge process, a well‐developed knowledge infrastructure, and an ade-
quate level of measurability of knowledge. Bixler (2002) believes that
there are four pillars of effective implementation of knowledge man-
agement: leadership, organisation, technology and knowledge, and
support for the initiative of knowledge management development.
After analysing 360 research papers, conference papers, and books
on the topic of knowledge management, learning organisation, and
knowledge‐based view that dated from 1988 to 2015, a short list of
key resources has been developed, which is presented in Table 1.
Based on a detailed analysis of theoretical sources cited above
and other available sources, the following key factors have been iden-
tified: organisational culture, human capital, leadership, information
technology, reward system, and organisational structure.
3.2 | Impact of knowledge management on business
performance
Anantatmula and Kanungo (2006) argue that it is very important to
measure business results of knowledge management as they can serve
as an excellent basis for planning future investments in such activities.
In similar way, Wiig (1997) emphasises that the purpose of knowledge
management is to maximise effectiveness of activities related to
knowledge and maximise profitability of return on assets invested in
knowledge. The impact of knowledge management on business per-
formance has been studied by numerous authors, who have
3
attempted to prove the impact also empirically (e.g., Tseng, 2008).
For example, Ahn and Chang (2004) describe KM methodology (i.e.,
knowledge, process, product, and performance), whose aim is to mea-
sure the impact of knowledge on business performance. Marqués and
Simón (2006) similarly attempted to prove the link between knowl-
edge management and performance empirically. Demirbag, Tatoglu,
Tekinkus, and Zaim (2006) studied the impact of quality management
on business performance and used financial and nonfinancial indica-
tors to measure the latter. Results show that there is a positive corre-
lation between the constructs. On the other hand, Kalling (2003) is
cautious and says that despite the number of studies on knowledge
management, there are very few that prove there is an explicit link
between knowledge and business performance. He, too, failed to
prove in his study that creation of new knowledge influences
profitability.
Considering the fact that the impact of KM on business perfor-
mance is still an open issue, this paper investigates the impact of
effective KM on business performance defined by financial and nonfi-
nancial indicators.
3.3 | Conceptual model
After studying theoretical bases and choosing key knowledge manage-
ment factors as well as defining business performance and links
between those variables, a conceptual model has been developed (see
Figure 1). The model included six hypotheses (H1–H6) that repre-
sented the six key factors and their influence on knowledge manage-
ment (H1–H6) and two hypotheses (H7–H8) that represented a
positive impact of knowledge management effectiveness on financial
and nonfinancial indicators of the company's business performance.
4 | E M P I R I C A L ST U D Y
In the next section, the findings of the empirical study, that is, valida-
tion and verification of the conceptual model will be presented. The
goal is to determine whether factors such as leadership, organisational
culture, human capital, information culture, reward system, and
organisational structure have a positive influence on knowledge man-
agement and whether the assumption regarding influence of knowl-
edge management on business performance, both in terms of
financial and nonfinancial indicators, is true.
The empirical study began with the description of the question-
naire, followed by description of the sample and the process of data
collection as well as a short outline of descriptive statistics. In order
to successfully use structural equation modelling, validation of the
assumptions with factor analysis was carried out beforehand and then
structural equation modelling was used to empirically validate the
assumptions. Validation of the conceptual model provided an insight
into general adequacy of the proposed model and possible improve-
ments to be done.
4.1 | Questionnaire
For the purposes of the empirical research, a questionnaire was
designed. The questionnaire was divided into three sections. The first
4 BILOSLAVO ET AL.

TABLE 1 Overview of key success factors of knowledge management

Author and year Factor

Nonaka & Takeuchi, 1995 Macroenvironment, organisational culture, technology, information, and people
Skyrme & Amidon, 1997 Business vision, leadership, creative skills and exchange culture, continuous learning,
information technology, and systematic processes of organisational knowledge
Holsapple & Joshi, 1999 Leadership style, resource influence, environment influence
Davenport et al., 1998 Purpose and language, standard and flexible knowledge structure, channels for knowledge
transfer, organisational culture, technical and organisational infrastructure, motivational
practices. and management support
Liebowitz, 1999 Strategy with management support, KM elements, knowledge, systems and tools, knowledge
sharing, and supportive culture
Arthur Anderson Business Consulting, 1999 Information technology, people, corporate culture
Alavi & Leidner, 2001 Information technology, culture, structure
Earl, 2002 Information technology, people and company culture.
Holsapple & Joshi, 2000 Culture, leadership, technology, employees' motivation, external factors
Hasanali, 2002 Leadership style, organisational culture, structure, roles and responsibilities, IT, and
measurement
Davenport & Probst, 2002 Leadership, organisational policy, knowledge sharing, information systems structure
Bixler, 2002 Leadership, organisation, technology, learning
Chourides et al., 2003 Strategy, human resources (management, organisational climate and culture, training),
information technology, quality, marketing, and innovation
Mathi, 2004 Culture, KM organisation, systems, and IT infrastructure
Hung, Huang, Lin, & Tsai, 2005 Leadership, organisational culture, measurement, IT, training
Wong & Aspinwall, 2005 Management leadership, culture, information technology, strategy and purpose,
measurement, organizational infrastructure, processes and activities, motivational
aids, resources, training and education, and human resource management
Akhavan et al., 2006 Knowledge management strategy, user training, management support and commitment,
business processes, knowledge network, organisational culture
Du Plessis, 2007 Innovation
Yang, 2007 Leadership and culture
Chong & Chong, 2009 Implementation of knowledge, application of knowledge.
Lehner & Haas, 2010 Top management, personality, personnel development, meta‐communication of knowledge
management, goal system of knowledge management, process of knowledge management,
delegation/participation, staff member motivation, social nets/relationships, corporate
culture, ICT, Information‐communication system, knowledge management system–content
Yang, Fang, & Lin, 2010 Organisational knowledge and strategy
Valmohammadi, 2010 Top management support, leadership, organisational culture
Zheng et al., 2010 Organisational culture, structure, and strategy
Zuzevičiūtė & Teresevičienė, 2010 Human resource management
Watanabe et al., 2011 Leadership, organisational culture, organisational control, and work style
Chenari et al., 2013 Strategy, organisational culture, intellectual capital, learning organisation, leadership
Girneine, 2014 Organisational culture, structure, learning, innovation

FIGURE 1 Conceptual model of the

empirical study [Colour figure can be viewed
at wileyonlinelibrary.com]
BILOSLAVO ET AL. 5

section included some general questions about organisation involved. TABLE 2 Test for normal distribution of knowledge management
The second section aimed at determining the influence of individual elements
factors. The third and last section was related to knowledge manage- Knowledge Shapiro–Wilk
ment and organisational effectiveness. A more detailed description management
elements Statistics df Sig.
of the questionnaire applied is given in Appendix A.
KM1 0.76 317 0.00
The questionnaire was first tested on 10 managers of Bosnian
KM2 0.75 317 0.00
companies; they were subsequently also included in the study. The
KM3 0.81 317 0.00
purpose of testing was to validate the questionnaire and collect addi-
KM4 0.75 317 0.00
tional information. Based on the feedback, some questions related to
KM5 0.82 317 0.00
leadership and organisational culture was slightly changed. In terms
KM6 0.75 317 0.00
of influence of each factor (organisational culture, leadership, informa-
tion technology, reward system, human capital, and organisational
structure), we assessed individual factors in relation to knowledge
4.4 | Structural equation modelling
management effectiveness. The financial indicator (FI) of business per-
formance was measured by profitability. The nonfinancial indicator 4.4.1 | General adequacy of the model
(NFI) of the business performance was assessed by market share. The purpose of assessing the general part of the model is to determine
Respondents were asked to rate how true is the given statement for the degree of the entire model's consistency with the empirical data.
their organisations using a 5‐point Likert‐type scale from 1 (not at When assessing the model's general adequacy, consistency of the
all) to 5 (completely). model with available empirical data is also determined. The model is
assessed with several adequacy measures as presented in Table 4.
General acceptance of the model is assessed in terms of several
4.2 | Sample dimensions. From the results, it is evident that values for certain ade-
quacy measures are adequate; others are less than adequate.
The empirical study was carried out in trade enterprises across BiH in
the last quarter of 2015. The target population was composed of busi-
ness entities in wholesale and retail trade with at least 10 and not
4.4.2 | Structural model: Knowledge management
more than 600 employees (large, medium‐sized, and small companies).
effectiveness
The questionnaire was sent all over BiH, that is, all 10 cantons of Fed-
As indicated above, we followed aggregate approach and then calcu-
eration of BiH, Republika Srpska, and Brcko District in 1,657 copies.
lated composite variables as mean values of the variables with
Three hundred seventeen completed questionnaires were returned
weighting coefficients on individual factors. After validating the struc-
and used for statistical analysis.
tural model, it is determined that the model fits the data well enough
The highest response rate was among companies with 10 to 50
to be considered. The results are displayed in Figure 2. In Figure 2,
employees (47.3%), followed by companies with 50 to 250
abbreviations are used where OC stands for organisational culture, L
employees (32.5%). The questionnaire was answered mainly by
for leadership, IT for information technology, RS for reward system,
retailers dealing in food, beverages, and tobacco products sold in
OS for organisational structure, HC for human capital, KM for knowl-
specialised shops (18%); second‐hand goods retailers (13%); and
edge management, FI for financial indicator, and NFI for nonfinancial
wholesale food and beverages suppliers (11%). As many as 37.5%
indicator.
of the sample is represented by companies that are in business
General adequacy of the model was assessed in terms of several
between 10 to 20 years. Most respondents were men (68.1% of
measures. Findings indicated that certain measures identified the
317 that responded).
model as good, whereas others showed it to be less adequate. Once
an attempt had been made to examine posited hypotheses with the
data obtained through the questionnaire, it was found that four of
4.3 | Factor analysis the posited hypotheses could not be confirmed (see Table 5).
There are two types of factor analysis: exploratory and confirmatory. Results of the bivariate regression analysis confirmed positive
In addition to other things, when performing factor analysis using influence of key knowledge management effectiveness factors such
SPSS software, factor extraction method, rotation type, and limits of as organisational culture, leadership, information technology, reward
factor weighting coefficients must be decided. In this study, it was system, and human capital, linked with hypotheses H1, H2, H3, H4,
suitable to use the Shapiro–Wilk test where the null hypothesis (H0) and H6; the exception was the organisational structure factor (H5),
is that the data are normally distributed and the alternative hypothesis which did not have a statistically significant influence on effectiveness
(H1) is that data are not normally distributed (Shapiro–Wilk Test for of knowledge management. However, when the conceptual model
Non‐Normality 2008). According to Fornell and Larcker (1981), reli- was tested with structural equation modelling, only two of the six
ability is adequate if the composite reliability coefficient > 0.60 (see assumptions (H1–H6) could be confirmed; these two assumptions
Tables 2 and 3). were leadership (H2) and human capital (H6), which had a statistically
Interpretation of the results of factor analysis is presented in the significant positive influence on effectiveness of knowledge
next section. management.
6 BILOSLAVO ET AL.

TABLE 3 Test for normal distribution of factors affecting knowledge management

Factors Shapiro–Wilk Factors Shapiro–Wilk

affecting affecting
knowledge knowledge
management Statistics df Sig. management Statistics df Sig.
OC1 0.62 317 0.00 RS1 0.81 317 0.00
OC2 0.78 317 0.00 RS2 0.86 317 0.00
OC3 0.81 317 0.00 RS3 0.79 317 0.00
OC4 0.62 317 0.00 RS4 0.87 317 0.00
OC5 0.91 317 0.00 OS1 0.82 317 0.00
OC6 0.82 317 0.00 OS2 0.85 317 0.00
OC7 0.75 317 0.00 OS3 0.78 317 0.00
L1 0.62 317 0.00 OS4 0.89 317 0.00
L2 0.67 317 0.00 OS5 0.79 317 0.00
L3 0.37 317 0.00 OS6 0.65 317 0.00
L4 0.60 317 0.00 OS7 0.83 317 0.00
L5 0.78 317 0.00 HC1 0.83 317 0.00
L6 0.59 317 0.00 HC2 0.84 317 0.00
L7 0.54 317 0.00 HC3 0.66 317 0.00
IT1 0.79 317 0.00 HC4 0.78 317 0.00
IT2 0.79 317 0.00 HC5 0.82 317 0.00
IT3 0.75 317 0.00
IT4 0.82 317 0.00
IT5 0.80 317 0.00
IT6 0.80 317 0.00
IT7 0.75 317 0.00

TABLE 4 Model adequacy indicators Results of the bivariate regression analysis also showed that knowl-

Adequacy Model Reference General adequacy edge management had a statistically significant positive influence on
measure value value of the model financial and nonfinancial indicators of business performance; in this
χ2 (p value) 0.001 p ≥ .05 NO respect, the confirmation of hypotheses H7 and H8 was made possible.
RMSEA <0.07 RMSEA ≤ 0.100 YES Because the aim of the study was to determine the influence of knowl-
CFI 0.97 >0.95 YES edge management on business performance in the conceptual model,
NFI 0.95 >0.95 YES these two hypotheses were examined with structural equation model-
GFI 0.97 >0.95 YES ling. Results enabled the confirmation of both hypotheses (H7 and H8)
S RMR 0.06 S RMR < 0.05 slightly over the seeing that knowledge management had a statistically significant posi-
threshold tive influence on financial and nonfinancial performance of companies.
NNFI 0.91 >0.95 YES These findings as well as not a very good overall fit of the concep-
IFI 0.97 >0.95 YES tual model to the statistical data lead to making an additional step and
Chi 34.9 modifying the conceptual model.
df 13

4.4.3 | The modified model

After the model had been evaluated, it was assessed whether it can be
improved. Whether the model could be improved or not is shown by
the adequacy measurements of the modified model and by compara-
tive measurements of the original model and the modified model.
Modification of the model is done when there are clear and justifi-
able grounds that are supported either by theoretical knowledge or
empirical findings. Modification can lead to greater or better or, in some
cases, even excellent fit of the model; however, this is valid only when
applied to a specific sample, whereas when it is used with another sam-

FIGURE 2 Model of knowledge management effectiveness ple of the population, such model may be entirely inadequate. Because a
(standardised regression coefficient) [Colour figure can be viewed at specific sample was used in the study and the original model was not
wileyonlinelibrary.com] completely adequate, a decision was made to modify it.
BILOSLAVO ET AL. 7

TABLE 5 Examination of posited hypotheses

Hypotheses Standardised regression coefficient t Statistic Hypothesis accepted

H1 Organisational culture ➔ knowledge management 0.18 2.17 ✓
H2 Leadership ➔ knowledge management 0.26 3.33 ✓
H3 IT ➔ knowledge management 0.00 0.02 –
H4 Reward system ➔ knowledge management 0.10 1.17 –
H5 Organisational structure ➔ knowledge management 0.02 0.19 –
H6 Human capital ➔ knowledge management 0.16 2.02 ✓
H7 Knowledge management ➔ financial indicator 0.17 2.74 ✓
H8 Knowledge management ➔ nonfinancial indicator 0.14 2.15 ✓

After an examination of the entire conceptual model, it was found Based on the modified model, statistically significant correlations
that there are multiple possible scenarios for change. could be determined between the factors (organisational culture,
Evaluation of the conceptual model has shown that it is a direct human capital, leadership, organisational structure, information tech-
link between organisational culture, leadership, reward system, and nology, and reward system) and effectiveness of knowledge manage-
knowledge management effectiveness and that the correlation is sta- ment as well as positive influence on effectiveness of knowledge
tistically significant and positive. management, confirmed by cited studies.
On the other hand, the evaluation of the conceptual model has
also shown that it is reasonable to consider the link between informa-
tion technology (IT), human capital (HC), organisational structure (OS), 5 | DISCUSSION
leadership (L), and knowledge management (KM) effectiveness
through the organisational culture (OC). Effective organisations look for ways to turn their knowledge into
When checking the validity of measures and testing the modified improved business processes and decision‐making process that result
model, the RMSEA value was found to be <0.05, which indicated a in the increase satisfaction of their customers and other stakeholders.
good fit of the model. Compared with the original model, the modified Based on different empirical research, tacit knowledge hard to be cop-
model was adequate. The value of nonnormed fit index of the modi- ied (i.e., know‐how, patents, personal and organisational networks,
fied model was NNFI = 0.99, meaning the model was a good fit with and specific organisational culture) and effective knowledge manage-
regard to this measure. The value of CFI = 1 was indicative of an ade- ment represent the main source of competitive advantage for all types
quate model. In this case, SRMR = 0.03, indicating a good fit. The of organisations and especially those in the service sector (Preece,
value of GFI was 0.99, which is consistent with values of adequate 2015). The purpose of this study was to design a conceptual model
models. This led to the conclusion that the model fit the data very well of factors affecting knowledge management effectiveness and deter-
(see Table 6). mine whether knowledge management effectiveness exerts a positive
In the case of the modified model, all regression coefficients are impact on business performance.
statistically significant (see Figure 3). Review of literature and research done in the field of knowledge
The data clearly show that the model fits the empirical data very management revealed a large range of definitions of knowledge man-
well (see Table 7). agement, citing various key factors influencing effectiveness of knowl-
The model modified in accordance with the listed measures edge management and proposing different models of knowledge
showed a better fit than the original model. The modified model was management effectiveness. Nonetheless, sources rarely provide some
less parsimonious, which could be expected due to greater complexity specific and assessed models of knowledge management effective-
in comparison with the original. The conclusion is that the modified ness, which could be used as a standardised solution for measuring
model is adequate and better fit to the data than the original. effectiveness of knowledge management in organisations.
Knowledge management represents one of the ways in which risks
TABLE 6 Indicators of model adequacy
and unpredictability of the business environment can be transformed
Adequacy Model Reference General adequacy into opportunities and potential competitive advantage. To this end,
measure value value of the model
factors that influence effectiveness of knowledge management were
χ2 (p vrednost) 0.671 p ≥ .05 YES
analysed based on the theoretical papers. The next step was looking
RMSEA <0.05 RMSEA ≤ 0.100 YES
at empirical studies on factors that influence knowledge management
CFI 1 >0.95 YES
and examining which factors are identified by researchers as key factors
NFI 0.98 >0.95 YES
of knowledge management effectiveness. By comparing and combining
GFI 0.99 >0.95 YES
these studies, key factors that influence effectiveness of knowledge
S RMR 0.03 S RMR < 0.05 YES
management were outlined. It was concluded that key factors influenc-
NNFI 0.99 >0.95 YES
ing effectiveness of knowledge management are the following:
IFI 1 >0.95 YES
organisational culture, human capital, information technology, reward
df 13
system, organisational structure, and leadership.
8 BILOSLAVO ET AL.

FIGURE 3 The modified structural model (standardised regression coefficients) [Colour figure can be viewed at wileyonlinelibrary.com]

TABLE 7 Checking the modified structural model

Connections β t p Value

IT ➔ Organisational culture 0.30 15.34 <.001

Organisational structure ➔ Organisational culture 0.41 17.81 <.001
Human capital ➔ Organisational culture 0.52 24.03 <.001
Leadership ➔ Organisational culture 0.39 10.62 <.001
Organisational culture ➔ knowledge management 0.14 2.91 .004
Leadership ➔ knowledge management 0.18 2.84 .005
Reward system ➔ knowledge management 0.16 2.71 .007
H7 Knowledge management ➔ financial indicator 0.17 2.74 .006
H8 Knowledge management ➔ nonfinancial indicator 0.14 2.15 .032

Note. β = standardised regression coefficient; t = t statistic.

An additional aim of the study was to determine with the use of a
questionnaire which of recognised factors—organisational culture,
human capital, information technology, reward system, organisational
structure, and leadership—influence effectiveness of knowledge man-
agement in the case of companies from BiH. For the purposes of
empirical examination of posited hypotheses, predicting that each of
the six factors (H1–H6) had a statistically positive influence on effec-
tiveness of knowledge management, factor analysis and structural
equation modelling were used.
Results of the bivariate regression analysis confirmed positive
influence of key knowledge management effectiveness factors such
as organisational culture, leadership, information technology, reward
system, and human capital, linked with hypotheses H1, H2, H3, H4,
and H6; the exception was the organisational structure factor (H5),
which did not have a statistically significant influence on effectiveness
of knowledge management. Influence of all six factors included in the
conceptual model was then tested with structural equation modelling,
which yielded additional results. It was found that based on the con-
ceptual model used and cumulative influence of key factors on effec-
tiveness of knowledge management, only two of the six hypotheses
(H1–H6) could be confirmed; these two assumptions were leadership
(H2) and human capital (H6), which had a statistically significant posi-
tive influence on effectiveness of knowledge management.
Given the fact that the original conceptual model was not entirely
adequate and did not sufficiently fit the statistical data, a decision was
made to modify the model, which leads to new findings and insights.
Organisational culture serves not only as an antecedent to knowledge
management effectiveness but also as one of the intervening mecha-
nisms through which other organizational factors as human capital,
information technology, organisational structure, and leadership
influences knowledge management effectiveness. This research
result confirms findings of other authors (e.g., Zheng et al., 2010)
that knowledge is created, made sense of, and utilised in accordance
with a set of cultural values and norms that are embedded within
employees' (i.e., human capital) sensemaking process and their struc-
tural relationships as well as is reflected in leadership and information
technology applied. For example, knowledge‐sharing practices are
affected by cultural expectations such as what knowledge should be
shared and what should be hoarded by individuals, by structural rela-
tionships such as how quickly the knowledge flows through different
hierarchical levels and among different business areas, and by informa-
tion technology such as what knowledge is to be paid attention to and
saved and what to be ignored. Based on the modified model, all six key
factors have a statistically significant positive influence on effective-
ness of knowledge management, which confirms the six hypotheses
(H1–H6) of this study.
BILOSLAVO ET AL.
6 | F U T U R E S C O P E A N D LI M I TA T I O N O F
THE STU DY
Determining the influence of factors on the effectiveness of knowl-
edge management and indirectly on the business performance is one
of the most important empirical contributions of this work. Similar
research has been proposed before, but not for the area of BiH or
other developing countries. The results obtained in this research will
enable primarily trading companies, but also companies from other
industry sectors, to better understand the factors that influence the
effectiveness of knowledge management.
The research included large, medium, and small enterprises from
the trade sector, which is the leading business sector in BiH. As men-
tioned at the beginning, this research represents the first research on
this topic when it comes to developing country such as BiH. This kind
of research has not been done before in BiH, so some additional
obstacles were encountered as a lack of prior research and most
importantly of statistical data organised in a way to be directly applica-
ble. For this reason, data needed to be collected and compared from
different sources in a way to get a reliable overview of the trading
sector and companies involved in the research. This kind of problem
is very much present in developing country.
The research included Bosnian–Herzegovinian companies that
employ 10 to 600 employees. It would be interesting to find out
how the stated model can be applied in other contexts, possibly in
other countries with similar degree of development and other indus-
trial sectors.
7 | C O N CL U S I O N
The driving forces such as globalisation and development of ICT have
lead individuals and organisations to appreciate the important role of
knowledge in an increasingly competitive world market. In this com-
petitive world, market companies from developing countries are strug-
gling for their share of profit and success. However, many of these
companies have not realised the importance of knowledge and knowl-
edge management.
Companies that took part in this study stated that the most
important advantage of using knowledge management resides in
improving performance of employees as well as better flexibility in
terms of working tasks, sharing of knowledge among employees, and
improvement of their relationship with customers. The results also
show a positive impact of knowledge management on business perfor-
mance, both on financial as well as nonfinancial indicators of company
business performance. In that view, the study can indirectly contribute
to improvement in Bosnian companies in the area of knowledge
management, company culture, employee management, rewards,
company structure, and human resource management. The model
can help Bosnian companies to make allocation of financial resources
for development of knowledge management more rationally and more
efficiently, while allowing them to use research results in various
development programmes sponsored by international community that
are already present in the territory. There is strong reason to believe
that Bosnian companies willing to promote knowledge management
9
will have a better competitive position in the future despite a
nonsupportive business environment.
After taking into account all particularities of BiH as a developing
country, the empirical results show that leadership, human capital, and
organisational culture have the most important roles regarding effec-
tiveness of knowledge management and business performance. The
developed questionnaire can be useful for any organisation that wish
to assess critical success factors of knowledge management, and
based on the information obtained, the organisation can compare
the data obtained with the results of Bosnian companies. The model
is useful as a tool for self‐assessment as well as for comparison with
competitors. In this way, management can gain insight into which
areas the company needs improvements. The model of influential fac-
tors for effective knowledge management represents for organisations
that operate in developing countries, such as BiH, an important oppor-
tunity to create the desired and at the same time necessary compre-
hensive approach to development of knowledge management.
ORCID
Roberto Biloslavo http://orcid.org/0000-0002-6135-0536
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APPENDIX A
QUESTIONNAIRE
The 37 items of six critical success factors of knowledge management were used to ask respondents to describe their organisational practice
based on their experience and perceptions. Another 6 items were used to describe knowledge management effectiveness and two indicators
of business performance, one financial (i.e., profitability) and one nonfinancial indicator (i.e., market share). Content items are presented below,
and they formed the basis for formulation of the research questions together with the main sources used to develop them.
Factor 1: Organisational culture (open, trustful, and accepting
mistakes)
Content items
Culture that values the search for knowledge and problem solving
The high level of trust among employees
Frank recognition of mistakes without fear of punishment
Promoting cooperation among employees
Empowering employees to explore new options
Individuals are encouraged to ask
Exchange of knowledge as an advantage
11
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A case study. Industrial Management & Data Systems, 106(6), 793–810.
Zheng, W., Yang, B., & McLean, G. N. (2010). Linking organizational culture,
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How to cite this article: Biloslavo R, Kljajić‐Dervić M, Dervić
Š. Factors affecting effectiveness of knowledge management:
A case of Bosnia and Herzegovina trade enterprises. Knowl
Process Manag. 2018;1–12. https://doi.org/10.1002/kpm.1570
Sources
Sveiby, 2002; Wong & Aspinwall, 2005;
Yeh et al., 2006; King, 2007; Rai, 2011.
Theriou, Maditions, & Theriou, 2011.
12 BILOSLAVO ET AL.

Factor 2: Leadership (catalyst, knowledge‐sharing promoter,

and model)

Content items Sources

Leadership acts as a catalyst for KM Storey & Barnett, 2000; DeTienne, Dyer, Hoopes,
Leadership establishes the conditions required for KM development & Harris, 2004; Wong & Aspinwall, 2005;
Leadership acts as a model for the desired behaviour Akhavan et al., 2006; Singh, 2008.
Leadership encourages the creation, sharing, and use of knowledge
Leadership recognises KM as an important factor in business success
Leadership demonstrates commitment to KM
Leadership indicates support for KM

Factor 3: Information–communication technology (ICT;

user‐friendly, comprehensive, and flexible)

Content items Sources

Use of proper ICT system to support KM needs Darroch, 2003; Lee & Choi, 2003; Kulkarni & Louis,
Use of technological tools (collaborative tools, knowledge database, 2003; Wong & Aspinwall, 2005; Wu & Wang,
document management systems, intelligent systems, etc.). 2006; Yeh et al., 2006; Du Plessis, 2007.
Use of knowledge maps supported by ICT tools
ICT solutions easy to use
Adequacy of ICT tools according to user needs
Use of ICT tools for storing knowledge
Use of ICT tools to improve the quality and efficiency of work

Factor 4: Reward system (extrinsic, intrinsic, transparent, and

individual and group level)

Content items Sources

Use of financial rewards Sang, 2001; Chomicz, 2002; Akhavan et al., 2006;
Use of nonfinancial rewards Robinson et al., 2006; Šajeva, 2014.
Rewards based on individual work performance
Rewards based on work group performance

Factor 5: Organisational structure (bidirectional,

decentralised, and flat)

Content items Sources

Top‐down knowledge flow supported Kulkarni & Louis, 2003; Salojärvi, Furu, & Sveiby,
Bottom up knowledge flow supported 2005; Wong & Aspinwall, 2005; Mahmoudsalehi,
Horizontal and vertical decision making process Moradkhannejad, & Safari, 2012.
Participation of external stakeholders (e.g., suppliers and customers)
Degree of centralisation of organisational decision making structure
Participation of employees in decision making processes

Factor 6: Human capital (professional expertise, wisdom, and

training)

Content items Sources

Further training to take up knowledge related rules Davidsson & Honig, 2003; Kubr, 2002; Bricklin, 2001;
Level of individual knowledge Argyris, 2002; Bozbura, Beskese, & Kahraman, 2007;
Level of individual skills and expertise Palacios‐Marques, Gil‐Pechuán, & Lim, 2011.
Work experience