Purpose: This study examines the effects of human and structural capital on competitive advantage and the mediating role of Knowledge Management in public sector organizations undergoing digital transformation and bureaucratic reform.
Research Methodology: Using a quantitative explanatory design, data were collected through a 1–5 Likert-scale online questionnaire from all 103 public sector employees in Tangerang City using the census technique. The data were analyzed using Structural Equation Modeling (SEM).
Results: The findings show that Human Capital and Knowledge Management positively and significantly influence Competitive Advantage, indicating that employee competence and effective knowledge management enhance service quality, efficiency, and innovation. Although Structural Capital has no significant direct effect on Competitive Advantage, it exerts a significant indirect effect through Knowledge Management. Furthermore, Knowledge Management mediates the relationship between Human Capital and Structural Capital and Competitive Advantage.
Conclusions: This study concludes that knowledge management is a key driver of competitive advantage in public-sector organizations. Competitiveness depends not only on the quality of human resources and organizational systems but also on effective management, integration, and sharing of knowledge.
Limitations: This study was limited to a single local government agency with a relatively small sample size, restricting the generalizability of its findings. Additionally, its quantitative approach does not fully capture the behavioral and organizational culture aspects that influence knowledge management.
Contributions: This research extends the Resource-Based View (RBV) and Knowledge-Based View (KBV) by positioning knowledge management as a strategic capability that transforms human and structural capital into competitive advantage.