01 Adrian Denar.pmd Dwi Irawan, Mudrifah, Knowledge Sharing, Innovation Capability, and Public Sector Performance in Indonesia 2525 Knowledge Sharing, Innovation Capability, and Public Sector Performance in Indonesia Dwi Irawan, Mudrifah* Fakultas Ekonomi dan Bisnis, Universitas Muhammadiyah Malang e-mail: mudrifah@umm.ac.id Abstract: This study aims to investigate the impact of knowledge-sharing innovation capability on the public sector performance in Indonesia. This study’s data consisted of all Regional Work Units from various provinces in Indonesia. The data is analyzed using Structural Equation Modelling (SEM) with PLS 3.0 tools. The result shows that tacit knowledge sharing does not affect innovation capability, but explicit knowledge sharing positively affects the innovation capability of public sector organizations. Furthermore, the innovation capability affects the organizational performance, which means that new ideas, new services, and improving the quality of services carried out by public sector organizations can improve organizational performance. Keywords: explicit knowledge sharing, innovation capabilities, public sector performance, tacit knowledge sharing INTRODUCTION Knowledge is a mixture of experience, values, contextual information, expert views, and basic intuition that provides an environ- ment and framework for evaluating and inte- grating new experiences with information (Ray & Little, 2001). Knowledge is created on individual initia- tive and interactions that occur in particular groups, which will later be crystalized through a process of dialogue, discussion, various expe- riences, and observations (Sudarno & Yulia, 2012). In terms of managing, knowledge has be- come an essential function of every organiza- tion, appreciated, and discussed in organiza- tions over the past few years. Organizational knowledge is considered as one of the most important sources of competitive advantage (Yeºil, Koska, & Büyükbeºe, 2013). Knowledge Management (KM) means building a system that has culture and technology to innovate knowledge and feedback to the system by infor- mation sharing, integration, records, accession, and updating, which can accumulate knowledge uninterruptedly for individuals and organiza- tions, strengthen organizational wisdom capital, and adapt to changes in the external environ- ment. Public services, which have traditionally been slower to adopt innovative management practices, only started after realizing the impor- tance of KM (Taylor & Wright, 2004). As a result, the New Public Management theory pro- vides an opportunity to adopt KM into the public sector. As a vital pattern in management, KM is accepted directly by the public sector and be- comes a policy tool in public sector innovation. Public services also need to pay attention to the importance of KM because it also faces inter- national competition. Customers are also put- ting pressure on it because of the increased demand for excellent services and products, which some private firms provide the same Business and Finance Journal, Volume 6, No. 2, March 2022 26 benefits as the government. With the current financial crisis, there is a need to share knowl- edge and information between departments to reduce service replication. Loss of institutional memory due to staff turnover also leads the public sector to embrace KM practices. Knowl- edge is often stored in documents or reposito- ries and organizational routines, processes, prac- tices, and norms in organizations. Consequently, knowledge sharing is critical to transforming the information held by individuals in the com- pany into an organizational asset that all orga- nization members can access (Irawan, Bastian, & Hanifah, 2019). Innovation capability is defined as the company’s ability to identify new ideas and turn them into new, improved products, services, or processes that benefit it (Aas & Breunig, 2017). Moreover, innovation is an essential determi- nant of organizational performance because organizational performance can be improved through technical and administrative innovation (Elfita & Agustina, 2021). Therefore, techno- logical and corporate innovation is vital for improving performance and increasing value (Saunila, Pekkola, & Ukko, 2014). To meet those current issues such as cli- mate change, an aging society, obesity, and the financial crisis, public sector institutions must discover a new method to innovate (Bommert, 2010). Innovation systems theory emphasizes that innovation does not occur in isolation but relies on interactions between different actors who take part and play various roles in the innovation process. Often innovation happens in the relationship between actors and their respective knowledge bases through recombina- tion of existing knowledge (Bloch & Bugge, 2013). Therefore, the innovation capabilities of Public Sector Organizations (PSOs) depend on the collaboration of many stakeholders, includ- ing those already involved in the day-to-day business of PSO, as well as relying on specific organizational configurations that enhance the development of innovative work behaviors, idea generation, and realization of each employee (Boukamel & Emery, 2017). Prior studies have shown that knowledge sharing can improve innovation capabilities. Ganguly, Talukdar, and Chatterjee (2019) stated that knowledge sharing and knowledge quality are positively related to innovation capability in an organization. Aulawi et al. (2009) stated that KS behavior plays a role in encouraging indi- vidual innovation abilities. Abdallah, Khalil, and Divine (2012) state that organizational under- standing of knowledge sharing can help the organization utilize its resources to influence its innovation capability. Long et al., (2012) believe that a knowledge-sharing culture will provide numerous benefits to the business, such as allowing workers to come up with new ideas and be inventive in their organization in terms of an organization’s performance. Saunila et. al. (2014) stated that innovation capability signifi- cantly affects organizational performance. Prior studies Adeyemi, Uzamot, & Temim, (2022); Kumar et al. (2022) showed how the link between information sharing and an organi- zation’s ability to innovate could enhance per- formance are still from corporate or private organizations. There are currently few studies that give empirical evidence regarding this in public sector organizations (Azeem, et al., 2021; Christa and Kristinae, 2021; El-Kassar et al., 2022). Therefore, based on the preceding con- text, where public sector organizations must also enhance their innovation skills, the pur- pose of this study is to investigate the impact of knowledge sharing on the innovation capacities of public sector organizations in Indonesia (Aza- mela et al., 2022). Dwi Irawan, Mudrifah, Knowledge Sharing, Innovation Capability, and Public Sector Performance in Indonesia 27 explicit knowledge that is easy to use for all organizations so that no words are needed. 2. The externalization process is shared through metaphors and ideas from tacit knowledge to explicit knowledge. 3. From explicit knowledge to explicit knowl- edge, with a combination process, namely through storage, combination, and classifica- tion of knowledge to obtain systematic, ex- plicit knowledge. 4. From explicit knowledge to tacit knowledge, by an internalization process, namely by in- spection and application methods, internal- ization of explicit language, words, graphics, or information into one’s knowledge through a combination of socialization and externali- zation. In this context, innovation is a means to change the organization, either in response to changes in the internal or external environment or as preventive measures taken to affect the environment (Damanpour, 1991). Companies that lack initiative and creativity in developed nations today have nothing to say since innova- tion capacity is the ability of organizations to acquire new goods and services, processes and ideas, and enhance successful economic pro- cesses (Selakjani & Kelidbari, 2016). Innova- tion is introduced as an idea, product, or pro- cess that is new to the organization and refers to the tendency of the organization to develop new elements or new combinations of elements of existing products, technologies, procedures, or organizational practices (Chen, Huang, & Hsiao, 2010). The capacity of a business to find new ideas and transform them into new or better goods, services, or procedures that ben- efit the firm is referred to as its innovation capability (Aas & Breunig, 2017). CONCEPTUAL FRAMEWORK AND RE- SEARCH METHODOLOGY Knowledge-Based View (KBV) is a new extension of Resource-Based View (RBV). The basic assumptions of corporate knowledge-based theory come from a resource-based view of the firm (Wang, Wang, & Liang, 2014). In terms of this study, knowledge sharing carried out by HR can certainly disseminate better informa- tion to improve the innovation of an organi- zation’s performance. The knowledge-based theory of the enterprise outlines the following distinctive characteristics: 1. Knowledge holds the most strategic meaning in organizations. 2. Activities and processes within organizations involve the application of knowledge. 3. The individuals within the organization who are responsible for creating, holding, and sharing knowledge. Knowledge sharing (KS) is a culture of social interaction, which involves exchanging employee knowledge, experience, and skills through all departments or organizations (Teh & Sun, 2012). However, KS is not a two-way exchange of knowledge between knowledge providers and knowledge recipients, and KS is limited only to the behavior of knowledge pro- viders (Wickramasinghe & Widyaratne, 2012). Furthermore, Dalkir (2013) states that a conversion process is needed so that others in a company can use personal knowledge. There are four models of knowledge conversion, namely: 1. From tacit knowledge to explicit knowledge, the transfer, and sharing of personal experi- ences through actions with a socialization process. However, this conversion process has limitations because it does not produce Business and Finance Journal, Volume 6, No. 2, March 2022 28 New Public Management (NPM) New Pub- lic Management (NPM ) was never a homoge- neous theory. Different countries developed simi- lar approaches, often in collaboration with con- sultants. However, one fundamental commonal- ity of all approaches is to address the shortcom- ings of classical budgeting. Performance Man- agement is the primary tool for a management style that makes decisions not based on (finan- cial) inputs but results and outputs. improving, transferring, and generating knowl- edge and a fundamental process for organiza- tional knowledge management. There are two types of knowledge: tacit and explicit. It is not easy to codify, identify, extract, and communi- cate with others because tacit information is immersed in the action, contextualized in prac- tice, and susceptible to actor interpretation. While explicit knowledge sharing can directly enhance knowledge consumers’ codified knowl- edge and abilities, knowledge providers can also deepen their understanding of their expertise via feedback and debate (Wang et al. 2014). Information transfer (KS) is the transfer or dissemination of knowledge from one person or group to another. It is a critical component of improving, transferring, and generating knowl- edge and an essential process for organizational knowledge management. There are two types of knowledge: tacit and explicit. Because tacit information is im- mersed in the action, contextualized in prac- tice, and susceptible to actor interpretation, it is difficult to codify, identify, extract, and com- municate with others. While explicit knowledge sharing can directly enhance knowledge con- sumers’ codified knowledge and abilities, knowl- edge providers can also deepen their under- standing of their expertise via feedback and discussion (Boukamel and Emery 2017). Inno- vation arises when organizational members share knowledge. Based on the description above, the hypotheses of this research are: H1: Tacit knowledge sharing affects innovation capability H2: Explicit knowledge sharing affects innova- tion capability Innovative and creative in an organization is a source of competitive advantage, which ultimately leads to an increase in organizational Mission Strategy Outcomes Output Input P er fo rm an ce A p p ra is al Figure 1 Performance Appraisal Performance Appraisal Chart Performance Management needs to be based on strategy and a legal mission. Combining the five elements mentioned above allows for the delegation of operations management to the ad- ministration/bureaucracy (Buschor, 2013). Orga- nizational performance is a well-studied subject in management science, although there is no single definition due to its ambiguity. The efficiency, ef- fectiveness, and economy of a program conducted by an organization are all examples of perfor- mance. Furthermore, performance refers to an organization’s ability to meet its goals and objec- tive (Nisar, Jabeen, & Sheikh, 2020). Good per- formance of public sector organizations implies that public sector organizations are effective (in terms of volume and quality) and efficient in sup- plying public goods and services (Mimba, Helden, & Tillema, 2007). Information transfer (KS) is the transfer or dissemination of knowledge from one person or group to another. It is a critical component of Dwi Irawan, Mudrifah, Knowledge Sharing, Innovation Capability, and Public Sector Performance in Indonesia 29 performance regardless of the public or busi- ness sector (Nisar et al., 2020). Innovation capability is an organization’s ability to identify new ideas and turn them into new/improved products, services, or processes that benefit the organization. Public sector organizations can improve their innovation capabilities to support employee empowerment so that the performance of public sector organizations can continue to increase. Based on the description above, the hypotheses of this research are: H3: The innovation capability affects the perfor- mance of public sector organizations The data from statistical tests will be inter- preted as research findings in this study, which employs a quantitative descriptive method. This associative research aims to offer empirical data on the influence of knowledge sharing, innova- tion capability, and performance of public sec- tor organizations. This study’s population con- sisted of all Regional Work Units from various provinces in Indonesia. The sampling technique in this study used snowball sampling. This tech- nique was chosen because the population is large and scattered in various regions, so the questionnaire is sent through the respondent’s network. The data used in this study is primary data. Primary data was obtained directly through a questionnaire through a google form which was distributed to the respondents. The variables in this study consisted of independent variables and dependent variables. The independent variable in this study is knowl- edge sharing, where knowledge sharing is di- vided into two, namely tacit knowledge sharing and explicit knowledge sharing. While the de- pendent variable in this study is the innovation capability of public sector organizations, spe- cifically the operationalization of the variables can be seen in Table 1 below. Table 1 Operationalization and Measurement of Variables Variable Indicator Tacit knowledge sharing The Tacit Knowledge sharing indicator uses indicators developed by Wang et al., (2004), which consists of: 1.�Employees in my organization often share knowledge based on their experiences. 2.�Employees in my organization often gather knowledge from others based on their experiences. 3.�Employees in my organization often share knowledge of knowing where or knowing who with others. 4.�Employees in my organization often gather knowledge about knowing where or knowing who with other people. 5.�Employees in my organization often share knowledge based on their expertise. 6.�Employees in my organization often gather knowledge from others based on their expertise. 7.�Employees in my organization will share lessons from past failures if they feel the need. Explicit knowledge sharing Explicit Knowledge sharing indicators use indicators developed by Wang et al., (2004) which consists of: 1.� Employees in my organization often share existing official reports and documents with members of my organization. 2.� Employees in my organization often share reports and official documents that they prepare themselves with members of my organization. 3.� Employees in my organization often collect official reports and documents from others in their work. 4.� Knowledge-sharing mechanisms often drive employees in my organization. 5.� Employees in my organization are often offered various training and development programs. Innovation capability Indicators of innovation capability use indicators developed by Ahmad et al. (2017) which consist of: 1.� Our organization often tries out new ideas 2.� Our organization is creative in operating methods, innovating new products and services 3.� The introduction of our organization's products and services has increased over the past three years. Public sector organizational performance Performance indicators of public sector organizations use indicators developed by Caruana, Ewing & Ramaseshan (2002) which consist of: Business and Finance Journal, Volume 6, No. 2, March 2022 30 In this research, data is analyzed using Structural Equation Modelling (SEM). SEM is a multivariate analytic approach equation that allows researchers to investigate the interaction between complicated variables, both recursive and non-recursive, to gain a fuller understand- ing of the whole model (Ghozali, 2008). The Partial Least Squares (PLS) 3.0 was used in this investigation. There are two steps to take in the PLS analysis: 1. Assessing the Outer Model or Measurement Model This test was conducted to test the validity and reliability of the research instrument. The research instrument is valid if the value of the loading factor is > 0.5. Furthermore, the research instrument is reliable if it has a composite value > 0.7, and has average variance extracted (AVE) > 0.5. 2. Assessing the Inner Model or Structural Model This test is carried out to see the r-square and test the hypothesis by looking at the path coefficient to determine whether the hypothesis is accepted or statistically total. RESULTS AND DISCUSSION Based on the data in Table 2, it can be seen that the majority of respondents in the study were in the age range of 31–35 years, namely as many as 26 people or 45.61% of the total respondents. Furthermore, in terms of gender, most respondents were male, as many as 33 people or 57.89 % of the total respondents. Meanwhile, when viewed from the educational background, most respondents have a bachelor’s education background (S1) as many as 41 people or 71.92 % of the total respondents. Testing the Outer Model or Measurement Model is used to assess the validity and reliabil- ity of the research construct and its indicators. The minimum limit value of outer loading fac- tor is an accurate indicator used to reflect a variable at 0.5. Reliability test in this study by looking at the value of composite reliability. A construct is said reliable if the value of compos- ite reliability > 0.70 and having average vari- ance extracted (AVE)> 0.5 (Ghozali, 2008). The TKS 4, EKS 1, KO 1, and KO 4 indicators are not meet the validity and reliabil- ity tests. As a result, the four indications must be released as research tools. According to Table 3, the loading factor value of each indica- tor is more significant than 0.5, the AVE value is greater than 0.5, and the composite reliability value is more significant than 0.7, indicating ( ) 1.� The overall performance of our organization in the last three years is relatively excellent compared to other government organizations. 2.� Regarding the commitment of resources, the increase achieved by this organization in the last three years is meager. 3.� This organization's level of customer service in the last three years is more than that offered by any other public organization. 4.� The level of cost-effectiveness achieved by this organization in the last three years is deficient. Table 2 Research Respondent Characteristics Criteria Number of Respondents Percentage Age 25–30 7 12.28% 31–35 26 45.61% 36–40 11 19.30 % 41–45 7 12.28% 46–50 1 1.75% >50 5 8.77% Gender Man 33 57.89% Woman 24 42.11% Level of education Bachelor degree) 41 71.92% Masters (S2) 16 28.08% Source: Primary Data processed 2020 Dwi Irawan, Mudrifah, Knowledge Sharing, Innovation Capability, and Public Sector Performance in Indonesia 31 that the indicators stated above meet the valid- ity and reliability standards. Table 4 R – Square Value tion capability variable by 54.4%. The organi- zational performance variable has an r-square value of 0.448, which means that the innovation capability variable can explain the organiza- tional performance variable of 44.8%. In table 4 it can be seen that the results of the research hypothesis test indicate that tacit knowledge sharing does not affect the innovation capability of public sector organizations. In contrast, ex- plicit knowledge sharing has a significant effect on the innovation capabilities of public sector organizations in Indonesia. Table 5 also shows that the innovation capability of public sector organizations affects organizational performance. Tacit knowledge sharing in public sector organizations does not affect innovation capa- bility, while explicit knowledge sharing has a positive effect. It shows that there is not much individual knowledge in public sector organiza- tions that can increase the organization’s inno- vation capability. The knowledge-based view of the enterprise (KBV) is an organizational learn- ing management concept that provides firms with strategies to achieve competitive advan- tage. This is achieved through increased em- ployee interaction in the formulation and trans- formation of the company’s operational and long-term transformational goals. The continu- ous acquisition and transfer of knowledge in business organizations are required by factors such as the ever-changing competitive condi- tions in the market initiated by globalization, frequent deregulation, and technical advances. However, in the public sector, each employee has a specific rules and a binding code of ethics. This causes not much information to be shared. In terms of work, human resources in public sector organizations tend to follow standard operating procedures (SOPs) that have been standardized and are set based on the work Table 3 Loading Factor, Composite Reliability, and AVE values Variable Indicators Nilai Outer Loading Factor AVE Composite Reliability Tacit knowledge sharing TKS 1 0,694 0,595 0,897 TKS 2 0,689 TKS 3 0,752 TKS 5 0,750 TKS 6 0,927 TKS 7 0,792 Explicit knowledge sharing EKS 2 0,768 0,677 0,893 EKS 3 0,781 EKS 4 0,934 EKS 5 0,797 Kemampuan inovasi KI 1 0,931 0,799 0,922 KI 2 0,901 KI 3 0,847 Organization performance KO 2 0,963 0,924 0,961 KO 3 0,960 Sumber: data primer diolah 2020 Variable R-Square Tacit knowledge sharing Explicit knowledge sharing Innovation capability 0.561 Organizational performance 0.448 Source: primary data processed 2020 Table 5 Path Coefficients and Significance Test Source: primary data processed 2020 Original Sample T- Statistics Information TKS ÆKI 0.098 0.367 Rejected EKS ÆKI 0.751 14,534* Accepted KI ÆKO 0.677 8,061* Accepted The inner model testing looks at the r- square and path coefficients between variables. R-square is used to see how strong the determi- nation of the independent variable is on the dependent variable . Based on Table 4, it can be seen that the innovation capability variable has an r-square value of 0.561, which means that the tacit knowledge sharing and explicit knowl- edge sharing variables can explain the innova- Business and Finance Journal, Volume 6, No. 2, March 2022 32 plan that was determined at the beginning. Although the new public management (NPM) has revolutionized public sector organizations in terms of performance appraisal made closer to private organizations, most of the activities of public sector organizations are service activi- ties that already have standard and clear stan- dards so that explicit knowledge sharing is more dominant in problem-solving. In addition, public sector organizations are also organiza- tions that are demanded transparency and ac- countability. The ability of public sector enterprises to innovate has a beneficial impact on organiza- tional performance. It demonstrates that the organization’s innovations, including new ideas or initiatives, new services, and increasing ser- vice quality, have improved organizational per- formance. The public sector’s innovation capa- bility has undoubtedly adjusted to the estab- lished programs and is based on the community’s requirements. In commercial businesses and public sector enterprises, the innovation capa- bility has improved performance. CONCLUSIONS Since public services are the critical perfor- mance measure, public sector organizations must always prioritize service quality. The success of public sector organizations cannot be separated from the quality of their human resources. An organization’s innovation capability is the spear- head of the progress of public sector organiza- tions. 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