Management of internal and external knowledge has a significant impact on dynamic capabilities and as a result – knowledge management is one of the major sources of successful business transformation (Sher & Lee 2004).
Knowledge management has a link to dynamic and operational capabilities. Dynamic capabilities and knowledge management are closely related because they both require experience collection and knowledge generation (Cepeda & Vera 2007). Capeda & Vera (2007) argue that dynamic capabilities are what influence organizations to develop new skills and environments that allow them to compete. There are a lot of definitions of dynamic capabilities, however Capeda & Vera (2007) claim that dynamic capabilities are always positive and can be a source of competitive advantage. Therefore there is tautological perception of dynamic capabilities because if the organization is performing well, it should have a dynamic capability and if the firm has this capability it must perform well respectively (Cepeda & Vera 2007).
On the other hand, operational capabilities are related to how firms operate in business (Cepeda & Vera 2007). Therefore, dynamic capabilities are devoted to the transformation of operational capabilities which can lead to changes in products of firms or even business processes. Hence, according to Capeda & Vera (2007) ‘capabilities are organizational processes and routines rooted in knowledge’. Moreover, inputs of dynamic capabilities have a relationship between resources and operational routines. Finally, business transformation involves dynamic capabilities which create new configuration of methods, resources and of course operational routines (Cepeda & Vera 2007).
Capeda & Vera (2007) in their paper examined the relationship between two capabilities from knowledge management perspective. In order to understand firms’ objectives executives should take into account knowledge configuration because empirical study show that this strategy articulate dynamic and operational capabilities (Cepeda & Vera 2007). Furthermore, findings also show that knowledge management is a chief foundation of new operational capabilities.
Based on the research Sher & Lee (2004), knowledge of endogenous management can enhance dynamic capabilities, and this process controlled by different IT applications. For example, enterprise resource planning (ERP) was found to elaborate the power of management of endogenous and exogenous knowledge on the increasing of dynamic capabilities (Sher & Lee 2004).
Another important point is that email has impact on dynamic capabilities as well. However, considering that this feature reduces explanatory power of management, Sher & Lee (2004) claim that email was not very effective from a Knowledge Management perspective.
Sher & Lee (2004), argue that management of knowledge that derived from other practices enhanced dynamic capabilities as well. For example, document management is another element of increasing dynamic capabilities; however document management across organizations might sometimes lead to interlocking effects which undermine dynamic capabilities.
Like email, on-line knowledge search was found to reduce explanatory power of management, increasing dynamic capabilities of organizations at the same time (Sher & Lee 2004). On-line search capabilities have a negative aspect as it reduces the critical capabilities of individuals making decisions. This can lead to producing illogical responses from employees during changing task conditions(Sher & Lee 2004).
Finally, data warehousing can be increase dynamic capabilities. The reason for this can be that implementation of knowledge management in business transformation depends on databases (Sher & Lee 2004). These scholars recommend that more attention should be paid to the information accessed from exogenous business.