The role of product innovation and customer centricity in transforming tacit and explicit knowledge into profitability

Abstract

Purpose: Fusing knowledge-based theory, organizational learning theory and dynamics capability theory, this study explores on the one hand the linkage between exploration, sensing and tacit knowledge, and on the other hand exploitation, seizing and explicit knowledge. Thereby it argues that not only tacit knowledge, but also explicit knowledge contributes to competitive advantage for firms. The study also investigates how knowledge transforms into profitability. Design/methodology/approach: The conceptual model is tested with a study sample of 153 industrial organizations using structural equation modelling (SEM). Findings: Results confirm the importance of both tacit and explicit knowledge for achieving sustainable competitive advantages. Furthermore, both tacit and explicit knowledge transform into profitability, both directly and through product innovation and customer centricity which play partial mediating roles. Practical implications: Explicit knowledge strategies can be easier to manage, implement and institutionalize than tacit knowledge strategies, which require human component and intervention to succeed. Managers should hence first implement explicit knowledge strategies to gain expeditious results. Further, with the advent of digital technologies and algorithms that can extract deep customer insights and organizational experiences which are highly tacit in nature and codifying the same into explicit knowledge, the importance of explicit knowledge is further enlarged. Originality/value: Fusing three adjacent theories to establish a robust model specification able to demonstrate the contribution of explicit knowledge in the firm’s competitive advantages.