Knowledge Creation Processes

Journal of Global Entrepreneurship Research, Winter & Spring, ٢٠١١, Vol.١, No.١, pp.٥٩-٧١ 

Knowledge Creation 

Processes: 

A Survey of SMEs 

In the Iranian Province of 

Mazandaran 

Hassanali Aghajani ١ 

Mahmood Yahyazadehfar ٢ 

Seyed Aliakbar Hosseinzadeh ٣ 

Abstract 

The study is based on Nonaka and Takeuchi’s (١٩٩٥) knowkedge creation processes 

(KCP) model and a standardized questionnaire. According to this approach, the survey 

was conducted on ٣٠٠ active SMEs of Mazandaran Province. Based on the structural 

equation modeling, socialization (٠٫٩٦) has more effect on KCP. Moreover, the variables 

of externalization (٠٫٧٩), combination (٠٫٥٤) and internalisation (٠٫٥٣) stand in next 

levels respectively. The managers of SMEs in Iran can utilize this structural equation to 

measure their firms’ potentials in organisational performance improvement and find the 

situation of their firms compared to peer groups. 

Keywords: Knowledge Creation Process, SMEs, Socialization, Externalization, 

Combination, Internalization 

I 

Introduction 

n many organizations, knowledge management (KM) is critical to decisionma-king that 

directly impacts the organizational effectiveness and competitiveness. Conversion of 

tacit knowledge to explicit knowledge or at least ability to share it offers greater value 

to an organization. The exact point of tacit knowledge transmission is unconscious tacit 

knowledge that becomes conscious tacit knowledge that is the point at which awareness hits 

us. This is the tacit meta-knowledge point. For individual thinkers, this is a critical moment of 

awareness. But, explicit knowledge can be stored in databases and manuals (Mohamed et al., 

٢٠٠٦; Hosseinzadeh, ٢٠٠٩). 

Nonaka and Takeuchi (١٩٩٥) suggested that tacit knowledge becomes explicit through the 

process of externalization, i.e. by sharing metaphors and analogies during social interaction. In 

fact, there is not a clear distinction between explicit knowledge, which is defined as knowledge 

that is codifiable, able to be articulated, and thus can be communicated, and tacit knowledge, 

١. Assistant Professor, University of Mazandaran; Corresponding Author's email: aghajani@umz.ac.ir 

٢. Assistant Professor, University of Mazandaran 

٣. MA Graduate, University of Mazandaran

which can not be codified and articulated and is ‘personal’. He made the simple observation 

that in the case of tacit knowledge ‘we know more than we can tell’ (Gopalakrishnan et al., 

٢٠٠١). Tacit knowledge is defined as experience-based knowledge that resides within an 

individual, whereas explicit knowledge is precise, formally articulated and documented. In 

organizations, knowledge is often embedded in repositories, documents, routines, operational 

processes, practices, and norms. It is generally accepted that knowledge also comes from the 

meaningfully organized accumulation of information through experience, communication, or 

inference (Zack, ١٩٩٩). 

The duty of KM is not about managing knowledge but about changing the entire business 

cultures and strategies of organizations to ones that are value learning and sharing (Kakabadse 

et al., ٢٠٠٣). By implementing the appropriate KM, the firm changes the knowledge assets, 

which depends on the quality of organizational knowledge and intangible assets in general, to 

obtain opportunity for sustainable competitive advantage (Lee et al., ٢٠٠٥). That is, the 

knowledge–based view of the firm suggests that intellectual resources are key organizational 

assets that will spur sustainable competitive advantage (Alavi et al., ٢٠٠٦). But, what is the 

operational method of promoting knowledge assets? What is the effect of knowledge creation 

process factors? and, what is the structural equation model of KCP in a firm? 

Some studies have suggested that knowledge creation is the most critical to an 

organization’s long-term success (Fahey & Prusak, ١٩٩٨). Knowledge creation process 

should drive the capability of creating and adding a greater value to the core business 

competencies (Lin & Tseng, ٢٠٠٥). According to Lee and Choi’s (٢٠٠٣) study, companies 

should attempt to link knowledge processes with intermediate outcomes. They revealed some 

of the outcomes of KCP’s factors that fall under the categories of organizational creativity, 

innovation and performance improvement. 

First, the KCP’s factors affecting the amount of knowledge creation process are explained 

via the literature review and an empirical examination of SMEs in the Mazandaran Province. 

Then, the structural equation model of KCP in the SMEs of the Mazandaran Province is 

presented. The SECI model of this research is shown in Figure١. 

Effective Factors (Independent Variables) of KCP 

Socialization 

Externalization 

Combination 

Internalization 

Knowledge Creation 

Process (KCP) 

Fig. ١. The SECI Research Model 

Knowledge Creation Processes: A Survey of SMEs in The Iranian Province of Mazandaran ٦٠

Literature Review 

Tacit knowledge is the knowledge that cannot be easily described such as skills, 

experience or inherent talent, but explicit knowledge is the skills and facts that can 

be written down and taught to others such as technical documents (Polanyi, ١٩٦٧; 

Hosseinzadeh, ٢٠٠٩). Brooking (١٩٩٦) defines that organizational knowledge is 

the collective sum of market assets, infrastructure, intellectual property and human-centered 

assets. Management is defined as the strategy-driven motivation and facilitation of people, 

aimed at reaching an organization’s set goals (Roelof & Beijerse, ١٩٩٩). Knowledge 

management (KM) refers to the process of capturing the collective expertise and intelligence in 

an organization and using them to foster innovation through continued organizational learning 

(Nonaka, ١٩٩١; Quinn et al., ١٩٩٦; Davenport & Prusak, ١٩٩٨). KM is complex because 

knowledge is intangible and surfaces in a variety of forms (Rowley, ٢٠٠٤; Golipour et al., 

٢٠١٠). O’Dell and Grayson (١٩٩٨) believe that knowledge management is assumed to be all 

systematic approaches to finding, understanding, and using knowledge to create value. Recent 

contributions to the study of knowledge management have moved from a focus on information 

indexing and retrieval systems to effective knowledge management through human resource 

practices (Nonaka & Toyama, ٢٠٠٣; Soliman & Spooner, ٢٠٠٠; Bhatt, ٢٠٠١). The two 

objectives of knowledge management are to make the organization ‘act as intelligently as 

possible in order to secure its viability and overall success; and otherwise realize the best value 

of its knowledge assets’ (Wiig, ١٩٩٣, ٧١-٧٢). 

There is an overemphasis on information technology and other measurement tools in many 

organizations that can undermine knowledge management and creation in a constricting 

paradigm rather than an enabling one (Krogh et al., ٢٠٠٠). Zarraga and Garcia-Falcon 

(٢٠٠٣) believe that the knowledge is buried in the minds of individuals. The knowledge that 

has been created by each of the individuals within the organization will have to be transferred 

from those individuals to others in order to be shared. Those separate pieces of knowledge, 

once transferred and received, will have to be integrated and become one mass of knowledge. 

The knowledge transferred to each individual will be integrated with the knowledge that they 

already possess and be internalized to the point that it becomes one set of knowledge. 

Therefore, knowledge management can be conceptualized as a process whose input is the 

individual knowledge of a person, which is created, transferred and integrated in work teams 

within the company, while its output is organizational knowledge (Zarraga & Garcia-Falcon, 

٢٠٠٣; Dutta et al., ٢٠٠٥). Therefore, the most challenging practical problem for the 

understanding of KM is to give priority to human factors (Svetlik & Stavrou-Costea, ٢٠٠٧; 

Golipour, ٢٠١٠). 

What are the main processes that create organizational knowledge? How should knowledge 

creation be measured in organizations? A useful way of coming to understand the processes of 

KCP is to study various models of knowledge creation process. Models of processes give 

visual ways of thinking about visual metaphor. Therefore, all of these statements show the 

output of knowledge creation process which, as KCP in this research, is hidden, intangible or 

invisible (Hosseinzadeh, ٢٠٠٩). 

Selection of The KCP Model 

Many studies have addressed knowledge management processes and have divided 

knowledge management into several processes. Alavi and Leidner (٢٠٠١) considered the four 

processes which include creation, storage, transfer and application. These processes are often 

concurrent and not always in a linear sequence. Lee et al. (٢٠٠٥) describe components of 

knowledge management processes into knowledge creation, accumulation, sharing knowledge 

and knowledge internalization. In this way, organizations need to support the combination of 

٦١ 

Journal of Global Entrepreneurship Research, Winter & Spring ٢٠١١, Vol.١, No.١, pp. ٥٩-٧١

various components of the knowledge management system, such as developing its 

infrastructure, securing new and existing knowledge, distributing it, and combining it. 

Allard and Holsapple (٢٠٠٢) suggest a knowledge chain model to gain competitive 

advantage in e-commerce. Beckett et al. (٢٠٠٠) develop a framework with three KM 

strategies– acquisition, retention, and exploitation. Chakravarthy et al. (٢٠٠٣) identify three 

KM activities –knowledge protection, knowledge leverage and knowledge accumulation. 

Chuang (٢٠٠٤) investigates the KM capability from four KM resources – technical, human, 

cultural, and structural. Gloet and Terziovski (٢٠٠٤) claim that KM implements human 

resource management practices and IT practices lead to higher innovation within an 

organization. Sabeherwal and Becerra-Fernandex (٢٠٠٣), using Nonaka and Takeuchi’s SECI 

model, argue that socialization and combination influence organizational effectiveness. The 

study also shows that individual effectiveness affects group effectiveness, which, in turn 

affects organizational effectiveness (Sabeherwal & Becerra-Fernandex, ٢٠٠٣). Chan and 

McKeen (٢٠٠٦) identified four elements for knowledge processes: A) scanning process: an 

emphasis on scale and scope of the scanning process that assists organizations to recognize 

novel knowledge that subsequently enhance the organization’s innovations, B) knowledge 

experimentation process: Brown and Eisenhardt (١٩٩٧) argue that experimenting “into the 

future” can include four tactics. First, organizations must be able to quickly experiment the 

knowledge to see if it is useful. Second, the organizations should have a group of futurists, 

whose primary task is to think in the future. Third, organizations must be in a position to form 

partnerships with others to probe and anticipate the future, and finally, they should hold 

frequent meetings to ponder over the future, C) knowledge transfer process: Organizations 

should encourage formal and informal networks for knowledge transfer, D) knowledge 

integration process: the final stage in gainfully using the knowledge that has been determined 

to be useful and transferred is its integration with knowledge existing in parts of the 

organization for innovation (Cohen & Levinthal, ١٩٩٠; Kogut & Zander, ١٩٩٢; Leonard- 

Barton, ١٩٩٥). 

Despite several descriptions provided for the KM process, it is commonly accepted that 

KM refers to acquiring, storing, diffusing and applying knowledge (Shin et al., ٢٠٠١; Benbya 

et al., ٢٠٠٤; Chen & Chen, ٢٠٠٥). Knowledge creation is a critical competitive weapon in 

today’s global marketplace and without a continuous knowledge creation, a business is 

doomed to failure (Choi & Lee, ٢٠٠٣). We follow this concept which is consistent with 

studies that focus on knowledge creation (Choi & Lee, ٢٠٠٣; Sabherwal & Becerra- 

Fernandex, ٢٠٠٣; Chou, ٢٠٠٥). Nonaka and Takeuchi (١٩٩٥) introduced the SECI Model 

(acronym for Socialization, Externalization, Combination and Internalization) as a model of 

knowledge creation based on the action and interaction between tacit and explicit knowledge. 

Even though Nonaka suggest that a failure to build a dialogue between tacit and explicit 

knowledge can cause problems (Nonaka et al., ١٩٩٤), many researchers have focused on 

separating these knowledge dimensions and measured the individual impact that explicitoriented 

(or tacit-oriented) KM initiatives have on corporate performance (Bohn, ١٩٩٤; 

Hansen et al. ١٩٩٩; Singh & Zollo, ١٩٩٨; Swan et al., ٢٠٠٠). 

Our study adopts the SECI for the following reasons. First, this model has become widely 

accepted (Scharmer, ٢٠٠٠); it has been used in many research areas such as organizational 

learning, new product development, and IT (Scharmer, ٢٠٠٠; Scott, ١٩٩٨). Second, this 

model includes not only knowledge creation but also knowledge transfer. The transfer of 

existing knowledge and the creation of new knowledge are important, and both of them should 

be considered in knowledge management (Krogh et al., ٢٠٠١). 

Knowledge Creation Processes: A Survey of SMEs in The Iranian Province of Mazandaran ٦٢

SECI Model and Hypotheses of Research 

Nonaka and Takeuchi (١٩٩٥) proposed that knowledge conversion, from tacit to explicit 

knowledge and vice-versa, occurs through a life ‘knowledge flow’ cycle: socialization, 

externalization, combination and internalization. Therefore, knowledge management can be 

described as management of the environment, making knowledge flow through different 

phases of its life cycle. 

Socialization 

Socialization is the process of converting tacit knowledge into explicit through shared 

experiences. Since tacit knowledge can not be expressed by spoken language, the conversion 

has to take place through experiences, such as observation, imitation, and practice. According 

to Nonaka et al. (٢٠٠٠), socialization typically occurs in a traditional apprenticeship, where 

apprentices learn the tacit knowledge needed in their craft through hands-on experience. 

Socialization also may occur in informal social meetings outside the workplace, where tacit 

knowledge such as world-views, mental models and mutual trust can be created and shared. 

Finally, socialization can occur beyond organizational boundaries. Organizations often acquire 

and take advantage of the tacit knowledge embedded in customers or suppliers by interacting 

with them. 

H١: Knowledge creation process is explanatory of socialization as one of the observed 

independent variables. 


Externalization is the interchange of tacit knowledge to explicit knowledge. Externalization 

is defined as the process of articulating tacit knowledge into explicit knowledge. When tacit 

knowledge is made of explicit, knowledge is crystallized, which allows it to be shared by 

others, and it becomes the basis of new knowledge (Nonaka et al., ٢٠٠٠). The concept of new 

product development and a quality control circle are examples of this conversion process. The 

tools of this conversion use different metaphors, analogues, concepts, hypotheses and models. 

If workers can find knowledge from the knowledge source of organization or firm, they are 

able to apply it to complete their work successfully (Lee et al., ٢٠٠٥). 

H٢: Knowledge creation process is explanatory of externalization as one of the observed 


Combination 

Combination is the interchange of tacit knowledge with tacit knowledge. Nonaka et al. 

(٢٠٠٠) defined the combination as the process of converting tacit knowledge into more 

complex and systematic sets of explicit knowledge. Explicit knowledge can be collected from 

inside or outside the firm and then combined, edited or processed to form new knowledge. 

This new explicit knowledge can be directly disseminated among the members of the 

organization by presentations or meetings (Nonaka & Konno, ١٩٩٨). Organizations need to 

support the combination of various components of your system, such as developing its 

infrastructure, securing new and existing knowledge, distributing it, and combining it (Lee et 

al., ٢٠٠٥).The combination mode of knowledge conversion can also include the ‘breakdown’ 

of concepts. Breaking down a concept such as a corporate vision into operational business or 

product concepts will also create systemic and explicit knowledge (Nonaka et al., ٢٠٠٠). 

H٣: Knowledge creation process is explanatory of combination as one of the observed 


٦٣ 



Internalization is the process of embodying explicit knowledge into tacit knowledge 

(Nonaka et al., ٢٠٠٠). The explicit knowledge may be embodied in actions and practice, so 

that the individual acquiring the knowledge can re-experience what others go through. 

Sabherwal et al. (٢٠٠٣) state that individuals could acquire tacit knowledge alternatively, in 

virtual situations, either vicariously by reading or listening to others' stories, or experientially 

through simulations or experiments. Learning by doing, learning by observing, face-to-face 

meetings, and on-the-job training are some of the means individuals acquire knowledge 

through the internalization processes (Sabherwal et al., ٢٠٠٣). Therefore, internalization may 

give rise to new knowledge (Lee et al., ٢٠٠٥). 

H٤: Knowledge creation process (KCP) is explanatory of internalization as one of the 

observed independent variables. 

Based on the above discussions, the main hypothesis is as follows: 

H٥: The generality of the proposed model and their related variables 

(Socialization, Externalization, Combination and Internalization) are 

confirmed and have significant fitness in the SMEs of the Mazandaran 

Province. 

Methodology 

This study is conducted as a standard questionnaire-based survey of middle managers 

at the Iranian small and medium sized enterprises to present the structural equation 

model of knowledge creation process in an empirical examination. Samples are 

selected from active SMEs of Mazandaran Province. The sample is randomly 

selected with the same probability. The manager of each selected firms is asked to respond to 

the questionnaire. Questionnaires were distributed among ٥٠٠ middle managers of sample 

firms out of ١،٥٠٠ SMEs. ٣٠٠ usable responses were received, providing a response rate of 

٦٠٪. 

The alpha level selected was ٠٫٠٥ (Lee & Choi, ٢٠٠٣; Saarenket et al., ٢٠٠٣). 

A multiple-item method was used to construct the questionnaire. Each item was based on a 

ten point scale, from "very low" to "very high". Questionnaire items for the explanation of the 

knowledge creation process, which were used in this study, had been validated. Because in this 

research the items of Nonaka and Takeuchi’s model are taken from Lee and Choi’s (٢٠٠٣) 

study to be localized, then two professors and two doctoral candidates who had been studying 

KM for years confirmed the validity of the questionnaire. 

Research constructs were operationally on the basis of related studies (Lee & Choi, ٢٠٠٣). 

One test in this study was for measuring reliability. There are various methods to determine the 

reliability of the tools of measurement one of which is the assessment of internal conformity 

(Conca et al., ٢٠٠٤). The internal conformity of measurement tools can be measured by the 

coefficient of Cronbach Alpha (Cronbach, ١٩٥١) and it was equal to ٠٫٨٩٨ by using SPSS ١ 

software for all of the items. 

Other tests in this study were ANOVA ٢ , binomial test (for specifying effective\ ineffective 

factors), T-value test, estimate model, standard solution, structural equation modeling (SEM), 

and focuses on important indexes of LISREL ٣ software similar to Root Mean Square Error of 

١. Statistical Package for the Social Science 

٢. Analysis of Variance 

٣. Linear Structural Relations 

Knowledge Creation Processes: A Survey of SMEs in The Iranian Province of Mazandaran ٦٤

Approximation (RMSEA), Goodness of Fit Index (GFI), as appropriate indexes in statistical 

analysis (Joreskog and Sorbom, ١٩٨٩). 

Descriptive Data 

According to descriptive data ٤٤٫٧٪ of managers (respondents) were between ٣٠ to ٤٠ 

years old. Small and medium sized enterprises (SMEs) were categorized in six groups such as 

food and pharmaceutical industries, metal industries, loom and clothing industries, chemical 

industries, machinery industries and finally other industries. Many of the SMEs so survived, 

were related to food and pharmaceutical industries plus metal industries (more than ٥٠٪). The 

surveyed sample has determined that almost all SMEs in Mazandaran Province in Iran have 

employees fewer than ١٠٠ staff (more than ٩٩٪). In addition, other data of SMEs have been 

presented in Table ١. 

Table ١. Descriptive Data of Sample Population 

Age 

(Year) 

Backgroun 

d (Year) 

Level of 

Voucher 

Type of Firms 

Number of 

employee 

Range 

[٣٠- 

[٢٠-٣٠) 

٤٠) 

[٤٠-٥٠) ٥٠³ Total 

Number ٣٧ ١٣٤ ٨٤ ٤٥ ٣٠٠ 

Precent ١٢٫٣ ٤٤٫٧ ٢٨ ١٥ ١٠٠٪ 

Range 

Under 

Diploma Associate Bachelor 

Diploma 

MS PhD Total 

Number ١٨ ٨٣ ٥١ ٨٩ ٣٧ ٢٢ ٣٠٠ 

Precent ٦ ٢٧٫٧ ١٧ ٢٩٫٧ ١٢٫٣ ٧٫٣ ١٠٠٪ 

Range ٠-٥ ٥-١٠ ١٠-١٥ ١٥-٢٠ ٢٠- ٢٥≥ 

Total 

٢٥ 

Number ٥٤ ٥٧ ٥٢ ٣٨ ٣٣ ٦٦ ٣٠٠ 

Precent ١٨ ١٩ ١٧٫٣ ١٢٫٧ ١١ ٢٢ ١٠٠٪ 

Food 

Loom 

Machinery 

Range Pharmace Metal Chemical Ohter 

Total 

Clothing 

Utical 

Number ٩١ ٦٢ ٤٨ ٢٧ ٦٨ ٤ ٣٠٠ 

Precent ٣٠٫٣ ٢٠٫٧ ١٦ ٩ ٢٢٫٧ ١٫٣ ١٠٠٪ 

[١٠- 

Range [٢-١٠) [٢٠-٣٠) [٣٠-٤٠) [٤٠- [٥٠- [٦٠- [٧٠- 

other Total 

٢٠) 

٥٠) ٦٠) ٧٠) ٨٠) 

Number ٦٥ ٥٤ ٤٦ ٣٨ ٢٢ ٢٤ ١٧ ٣١ ٣ ٣٠٠ 

Precent ٢١٫٧ ١٨ ١٥٫٣ ١٢٫٧ ٧٫٣ ٨ ٥٫٧ ١٠٫٣ ١ ١٠٠٪ 

Results 

ANOVA, Binomial Test and Reliability 

Based on ANOVA test (Table ٢), there is no difference between responses of respondents 

of six groups of firms about four variables of socialization, externalization, combination and 

internalization (Because sig≥٠٫٠٥). 

Table ٢. Analysis of Variance (Based on Six Groups of Firms) 

Sum of 

Squares 

df 

Mean 

Square 

F 

Sig. 

٦٥ 


Socialization 


Combination 


Between Groups ٢٫٣٤٧ ٥ .٤٦٩ 

Within Groups ٤١٨٫٢١٧ ٢٩٤ ١٫٤٢٣ 

Total ٤٢٠٫٥٦٣ ٢٩٩ 

Between Groups ٨٫٩٥٦ ٥ ١٫٧٩١ 

Within Groups ٦٥٠٫٧٠٧ ٢٩٤ ٢٫٢١٣ 

Total ٦٥٩٫٦٦٢ ٢٩٩ 

Between Groups ١١٫٥١٢ ٥ ٢٫٣٠٢ 

Within Groups ٨٦٢٫٢٠٧ ٢٩٤ ٢٫٩٣٣ 

Total ٨٧٣٫٧١٩ ٢٩٩ 

Between Groups ١٫٦٥٦ ٥ ٠٫٣٣١ 

Within Groups ٢١٠٫٠١١ ٢٩٤ ٠٫٧١٤ 

Total ٢١١٫٦٦٧ ٢٩٩ 

٠٫٣٣ 

٠ 

٠٫٨٠ 

٩ 

٠٫٧٨ 

٥ 

٠٫٤٦ 

٤ 

٠٫٨٩ 

٥ 

.٥٤٤ 

٠٫٥٦ 

١ 

٠٫٨٠ 

٣ 

It is observable that the selected variables (socialization, externalization, combination and 

internalization) are effective in SME’s of Mazandaran Province (Table٣). 

Table ٣. Results of Binomial Test 

Question\ Hypothesis 

Hypothesis 

Number Observed 

Category 

(H٠\ H١) 

(Frequency) Prop. 

Socialization=S 

≤٣ 

٧١ ٠٫٢٤ 

>٣ ٢٢٩ ٠٫٧٦ 

Externalization=E 

≤٣ ١١٠ ٠٫٣٧ 

H٠- ineffective >٣ ١٩٠ ٠٫٦٣ 

Combination=C 

variable ≤٣ ١٠٩ ٠٫٣٦ 

H١- effective >٣ ١٩١ ٠٫٦٤ 

Internalization=I 

variable ≤٣ 

٨٦ ٠٫٢٩ 

>٣ ٢١٤ ٠٫٧١ 

All Four Variables 

≤٣ ١٢٤ ٠٫٤١ 

>٣ ١٧٦ ٠٫٥٩ 

The statistics for reliability tests are shown in Table (٤) below. 

Test 

Prop. 

Sig. 

Accept\ Reject 

of H ٠ 

٠٫٧٠ ٠٫٠٠١ Reject 

٠٫٧٠ ٠٫٠٠١ Reject 

٠٫٧٠ ٠٫٠٠١ Reject 

٠٫٧٠ ٠٫٠٠١ Reject 

٠٫٧٠ ٠٫٠٠١ Reject 

Table ٤. Reliability Tests of Measures (by Cronbach α) 

Measure 

Number of Items 

Reliability 

(Cronbach α) 

Socialization ٦ ٠٫٧٣٧ 

Externalization ٥ ٠٫٨٣٢ 

Combination ٥ ٠٫٨٠٧ 

Internalization ٥ ٠٫٧٨٤ 

KCP ٢١ ٠٫٨٩٨ 

Structural Equation Model to Explain the Effective Factors 

For other tests, Lisrel software has been used. The advantage of this software is to measure 

the direct and indirect effect of observed variables on latent variable/ variables. Therefore, it is 

better than other statistical softwares that only compute the direct effect of observed variables 

Knowledge Creation Processes: A Survey of SMEs in The Iranian Province of Mazandaran ٦٦

on the dependent/ independent or latent ones. The output of tests is presented below (Figure ٢, 

٣ and ٤). 

١٫٢٩ 

Socialization 

٦٫٨٢ 

٩٫٦٣ 


Combination 

١٦٫٠ 

٥ 

١٢٫٤ 

٦ 

٧٫٩٢ 

KCP ٠٫٠٠ 

٧٫٨٧ 

٩٫٦٤ 


Fig. ٢. T-Value Test 

According to T-Value result, KCP is explanatory of socialization, externalization, 

combination and internalization (H١, H٢, H٣ and H٤ confirmed). In addition, the T-Value 

shows that socialization just directly has effect on KCP as latent variable. That is, there is no 

indirect relationship between socialization and other three variables (externalization …) on 

KCP (as a latent dependent variable). Because the number of T-Value test has become between 

-٢ and ٢ (Figure ٢). 

The goodness of fit index (GFI) is ٠٫٩٤ (١>GFI=٠٫٩٤>٠٫٩٠), and then again the 

validity of models is confirmed. The root mean square error of approximation (RMSEA) = 

٠٫٠٣٥

Fig. ٤. Estimates Test of Path Diagram 

The variables and their coefficients in the structural equation model (SEM) are summarized 

in Table ٥. 

Table ٥. Variables and Direct Coefficients of the SEM 

Confirmation/ 

Rejection of 

the Relations 

Confirmation/ 

Rejection of the 

Model Generality 

(H٥) 

Nonstandard 

Coefficients 

(Estimates 

Coefficients) 

Standard T -Value 

Coefficients Coefficients 

Symbol 

of 

Observed 

Variables 

Observed 

Variables 

Latent 

Variable 

H١ 

١٫٢٩ 

٠٫٩٦ 

١٦٫٠٥ 

S 

Socialization 

H٢ 

H٣ 

RMSEA=٠٫٠٣٥, 

GFI = ٠٫٩٤; 

Therefore, 

Generality of the 

model is 

confirmed. 

١٫١٩ 

٠٫٩٧ 

٠٫٧٩ 

٠٫٥٤ 

١٢٫٤٦ 

٧٫٩٢ 

E 

C 


Combination 

Knowledge 

Creation 

Process=KCP 

H٤ 

٠٫٧٣ 

٠٫٥٣ 

٧٫٨٧ 

I 


Structural Equation Model 

As we know, the amount of KCP created by knowledge creation and transformation factors 

is hidden. That is, KCP as an independent variable which has the characteristics of latent 

variable. Therefore, structural equation of KCP according to estimate/ standard solution tests 

(Figure ٣, ٤) is equal to direct and indirect effect of socialization, externalization, combination 

and internalization on KCP plus their indirect effect on it (KCP= direct effect of socialization, 

externalization, combination and internalization on KCP + indirect (interaction) effects of 

KCP’s variables). The equation of direct and indirect effects of KCP is presented in 

continuance. The structural equation model (SEM) according to the standard and estimate 

coefficients is shown in continuance. 

A: According to Standard Solution Test (Figure ٣): 

KCP= direct effects of KCP’s variables + (٠) 

KCP={(٠٫٩٦S+٠٫٧٩E+٠٫٥٤C+٠٫٥٣I)}+ (٠) 

B: According to Estimate Test (Figure ٤): 

KCP= direct effects of KCP’s variables + indirect effects of KCP’s variables 

KCP= {(١٫٢٩S+١٫١٩ E+٠٫٩٧C+٠٫٧٣I)} + {[(-٠٫١٦E × ٠٫٩٧C) + (-٠٫٢٢E 

Knowledge Creation Processes: A Survey of SMEs in The Iranian Province of Mazandaran ٦٨ 

× ٠٫٧٣I) + [(-٠٫١٦ C× ١.١٩E) + (٠٫٦٥ C ×٠٫٧٣I) + [(-٠٫٢٢I × ١٫١٩E) + 

( I × C)]}

Conclusion 

Our study has confirmed that the main outcome of knowledge creation processes such 

as socialization, externalization, combination and internalization is KCP. The 

generality of the proposed model and their related variables (socialization, 

externalization, combination and internalization) have been confirmed and have 

significant fitness in the SMEs of Mazandaran Province. 

The research model empirically tests the explanation and prediction of the structural 

equation between KCP and their factors. Socialization has the greatest coefficients similar to 

Lee and Choi’s (٢٠٠٣) results. In addition, socialization, externalization, combination and 

internalization have greater effects on KCP respectively. Apart from socialization, other 

variables of KCP have indirect effect on KCP in addition to their direct effect. 

The existing knowledge has an imperative role in knowledge management process. 

Therefore, access to information, ideas and experience from knowledge creation process will 

enable teams and organizations to build good ideas and incorporate them for creating 

innovative products and process. Also, the critical role of the knowledge management, 

especially creating an internal working environment, supporting creativity and fostering 

innovation by focusing on knowledge creation process, has been emphasized. Therefore, KCP 

is not necessarily related to the amount of knowledge that an employee possesses, but rather to 

the way in which knowledge is created and shared in organizations. 

The result shows that knowledge creation is important for knowledge management in 

SMEs, because developing tacit knowledge into explicit and, vice versa, and also its diffusion 

to such knowledge is essential in organizations with scarce resources. A part of knowledge is 

stored in individuals, and a part of it is stored in organizations. However, the whole 

organizational knowledge is an embodiment of the importance of SMEs. In case of 

socialization, managers of the Iranian SMEs should stress traditional apprenticeship, informal 

social meetings outside the workplace and beyond organizational boundaries. This will help 

organizations to affect their performance through creating intermediate outcomes in the 

process of the knowledge creation. 

This study is probably the first research to establish this view of knowledge management in 

SMEs of Iran. The study presents a local structural equation model for measuring of KCP in 

Iran’s SMEs. It helps industrial managers, legislators and strategists toward economic 

development based on SMEs’ KCP. It is recommended that similar researches be conducted in 

other provinces and countries using small, medium or large companies’ data. 

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