The effect of tacit knowledge and organizational learning on financial performance in service industry

Knowledge is considered the most crucial component for an organization to attain competitiveness. A strong emphasis on explicit knowledge rather than on tacit knowledge (TK) has been observed in information and communication technologies. A change has placed TK in the forefront of the study of organizational learning (OL) and financial performance (FP). These establishments innovate through the transformation of learning, while creating appropriate methods that respond to shifting environments. On the other hand, FP is the target of any establishment; growth and profitability are measured as essential factors for a firm’s existence and survival. Several studies have already highlighted the importance of TK, but the impact of TK remains unclear. Moreover, there is no such study on developing countries, such as Saudi Arabia, that are striving to transform the economic structure into a knowledge-based economy. To fill these gaps, this study explores how TK and OL enhance FP. A sample of 168 questionnaires from Saudi’s service sector was analyzed using AMOS 26 to test the relation-ships among TK, OL, and FP using structural equation modelling (SEM). Also, confirmatory factor analysis (CFA) was used to confirm the validity of the measurement model, showing a reliable fit for the data collected in Saudi Arabia’s service sector. The SEM results confirmed that TK and OL are crucial elements of knowledge management (KM). TK and OL also generate new systems of continual change, leading to maximized organizational FP. This study develops TK as a quantifiable measure and connects this to organizational performance. The conclusion offers suggestions for management, limitations, and procedures for future research in this area.