Management innovation and firm performance: the mediating effects of tacit and explicit knowledge

This paper examines the role of tacit and explicit knowledge in translating management innovation into firm performance in Japanese companies. While past research has been inconsistent on the role of management innovation on firm performance, this research considers how management innovation in organizations can promote tacit and/or explicit knowledge creation, and whether this leads to higher firm performance. This research uses a questionnaire survey of employees of Japanese firms and applies conditional process analysis. There was no direct effect of management innovation onto firm performance, and that instead, both tacit and explicit knowledge fully mediated the relationship between management innovation and firm performance. While management innovation programs by themselves did not directly increase firm performance, the alignment of these programs with knowledge management initiatives enhanced performance. This highlights the need for management innovation that first considers the type of knowledge needed for enhanced performance. Previous research did not consider the role of knowledge as a means to translate management innovation into firm performance. This paper uncovers the mediating role of knowledge, potentially elucidating past inconclusive results.