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Purpose The purpose of this study is to empirically investigate the mediating role of knowledge management (KM) in the linkage between organizational factors, namely, organizational culture (OGCUL) and leadership and management support (LMS) and innovation in medium- and large-scale manufacturing firms in Ethiopia. Design/methodology/approach A sample of 200 firms has been used to gather data using simple random sampling and to test the proposed hypotheses. Structural equation modeling and cross-sectional design were used to analyze the data using LISREL 8.80 SIMPLIS program software tool. Findings Organizational factors (i.e. OGCUL and LMS) are positively associated with KM and innovation. KM constructs, namely, knowledge sharing, knowledge conversion and knowledge storage, have a significant positive influence on innovation. Knowledge sharing mediates the relationship between organizational factors and innovation. Research limitations/implications This study has three potential limitations: first, this study is based on a cross-sectional research design. Future research should include longitudinal design to get in-depth insights into the causal inferences. Second, only a few Ethiopian medium- and large-scale manufacturing firms were included in the sample. As a suggestion for future research, other researchers can include small-scale enterprises using large sample sizes and should examine the effects of organizational factors, KM and innovation across different industries. Finally, this study has only focused on investigating the mediating role of knowledge sharing between organizational factors and innovation. Future research should test the mediating role of the KM process and its constituents (knowledge acquisition, knowledge conversion, knowledge sharing and knowledge storage) between organizational factors and specific aspects of innovation to gain a full understanding of the critical role of KM in organizational innovation. Practical implications The findings of this study would serve as a guide for policy-makers and managers of manufacturing firms in developing countries in the formulation of policies and long-term strategies. It may also provide a better understanding of the causal relationship between organizational factors, KM and innovation, which in turn has value to directors and managers in manufacturing firms in developing countries as a reference for building a good OGCUL, serving as practical guidance for effective leadership and providing organizational or management support. Specifically, the findings would have the following practical implications: first, firms need to have a combination of KM processes (such as acquisition, storage, sharing and conversion). In practice, developing countries such as Ethiopia have based their innovation strategy on knowledge and technology acquisition through encouraging foreign direct investment. It is not in doubt that Ethiopia has been benefiting from the strategy as a lot of foreign companies have opened their subsidiaries in the country. However, in the authors’ view, more emphasis on knowledge acquisition strategy would not take a firm a long time to sustain its innovative activity because it is likely available to firms operating in the same industry, as well as it may hurt a firm’s competitive advantage. In addition, by its nature, knowledge may not be retained for future use; it may expire soon. Second, the current highly impulsive and rapid change in the business environment changes the way firms have to operate and deliver products or services. Knowledge (both tacit and explicit) is a resource that can provide a competitive advantage if used well for the intended purpose. In real practice, firms often face challenges in determining where to get knowledge from and how to value or manage it. Besides, knowledge can be obtained from three sources: knowledge can exist in individuals’ minds (skills, experience, ideas and insight); knowledge can dwell in a group, which we can call collective knowledge (a team of scientists or researchers); and knowledge can be embodied in an organization's systems, tools, procedures, policies, etc. Knowledge cannot be a valuable resource unless it is obtained and used in designing or producing a product or service. To integrate knowledge with business strategies, there should be a platform or framework that helps to manage it properly. Firm managers, policy-makers and other concerned bodies would consider the three sources of knowledge to foster innovative activities and obtain a competitive advantage. In addition, the authors recommend more emphasis be placed on firm-specific factors (such as OGCUL, leadership, management support and KM) to enhance the innovative capacity of a firm. Finally, the most critical issue to be raised while designing an innovation strategy would be employees’ willingness and passion to collaborate with others to develop new ideas, share ideas or implement policies. As knowledge resides in individuals’ minds, the knowledge holder should have a passion to share it with those working with him or her. In practice, knowledge sharing depends extremely on the passion and voluntariness of the two parts: knowledge provider and receiver. Therefore, firm managers would design a platform on how to motivate individuals to share their skills, experience and ideas with others through providing incentive packages, punishment and commitment. In this regard, the authors believe that the results would help individuals who are in the position to manage or regulate the manufacturing sector in designing innovation policies, KM policies or technology management policies and business strategies. Originality/value This study provides new empirical insight into the relationships between organizational factors (such as OGCUL and LMS), KM and innovation in a large sample of firms. To date, the empirical research on these relationships has been mainly limited to descriptive case studies (Chen and Huang, 2009; Zack et al., 2009; Donate and Guadaumillas, 2011), and there is thus a lack of empirical evidence with large samples of firms. Furthermore, there is a scarcity of studies investigating the relationship between organizational factors, KM and innovation in developing countries, especially in Ethiopia. This paper intends to fill this gap and nurture future research studies in the area.
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