Importance of Innovation and Knowledge Management for Organizations - Research Paper Example

? Innovation and Knowledge Management Introduction It is almost impossible for modern organizations to survive in the heavily competitive and globalized market without innovation and knowledge management. Current market is extremely different from that in the past because of globalization and rapid advancements in science and technology. Modern organizations should promote innovation and knowledge management as a measure to increase their competitive power. According to Bordia, et al (2005, p.1), Innovation is the ability to develop new products and services. In his opinion, innovation helps companies in value creation and thereby increasing their competitive power. For example, Apple Inc was on the verge of destruction in the 80’s and 90’s because of the huge competition from arch rival Microsoft. However, the company was able to introduce some innovative products such as iPhone, iPad, iPod, etc at the beginning of 2000. The rest is history now. Apple Inc. is currently the most valuable technology company in the world and they are the second largest in terms of market capitalization. According to Rigby et al, (2009, p.2), “innovation is both a vaccine against market slowdowns and an elixir that rejuvenates growth”. On the other hand knowledge management (KM) is the process of discovering, developing, utilizing, delivering, and absorbing knowledge inside and outside the organization. The aim of KM is to meet current and future needs of an organization (Poorebrahimi et al., 2012). As in the case of innovation, the ultimate aim of KM is to improve the competitive power of an organization. If knowledge is the raw material, data will be the finished good for an organization. If data are the building blocks, then knowledge is the finished house. In short, knowledge management is extremely important for an organization. This paper analyses the importance of innovation and knowledge management in improving the competitive power of modern organizations. Innovation and Organizations Based on the nature and characteristics, innovations can be classified into two different categories; incremental and radical. Incremental innovations are the modifications of the existing products, services or strategies. For example, Samsung has recently introduced many touchscreen phones such as Galaxy S3 and Galaxy S4. These phones are modifications of Samsung’s previous smartphone; Galaxy S2. In other words, S3 and S4 can be described as examples for incremental innovation. On the other hand, Apple has introduced world’s first touchscreen phone (iPhone) at the beginning of 2000. No other phones available in the market had touchscreen technology at that time. Therefore, iPhone can be described as an example for radical innovation. “Incremental innovation modestly improves a firm’s products or processes or fine-tunes its business model. Radical innovation significantly improves existing products and services or replaces them with new ones” (Susman et al., 2006, p.16). Radical innovation occurs less frequently than incremental innovation since radical innovation is an expensive act compared to incremental innovation. There are two types of organizations in the market; leaders and followers. Leaders always develop innovative and new products whereas followers try to imitate those products. For example Apple was the first one who innovated the touchscreen phone. Samsung, Sony, Nokia and many other mobile manufacturers followed the path of Apple after watching the success of iPhone. According to Tellis et al (2009), radical innovation is crucial to the growth of firms and economies. Both radical and incremental innovations are necessary for an organization to sustain its competitive power. However, radical innovation seems to be more effective in improving the competitive power of an organization. According to Rubera, & Kirca (2012), radical innovation is more effective than incremental innovation. For example, Microsoft is one company which introduces many innovative products such as Windows XP, Windows 7 and Windows 8. However, all these products are modifications of the existing ones. In other words, Microsoft believes in incremental innovation. On the other hand, Apple has introduced a series of innovative products such as iPhone, iPad, iPod etc at the beginning of 2000. All these products were examples for radical innovation. At present Microsoft is far behind Apple in terms of market capitalization. In other words, Apple’s radical innovation strategies seem to be more effective than Microsoft’s incremental innovation strategies. “Missed opportunity is the primary effect of slow innovation processes. Companies that are fortunate enough to have robust idea creation capability may be unable to capitalize on the value of their innovation”(Bordia, et al, 2005, p.3). It should be noted that Microsoft was the first company which introduced tablet computers in the market a couple of decades before. However, at that time, tablets failed to catch the attraction of the people because of the less advancement of technology. On the other hand, Apple was able to conquer the tablet market even though they introduced their tablet products a decade later (in the beginning of 2000). “Once Apple's tablet hit the scene, there was a sharp drop-off in Windows tablets” (Ackerman, 2012). Apple was able to read the market pulses properly and they were able to introduce the right product at the right time. In short, innovation is not all about producing new products; but it is also about introducing the product at the right time in the market. Facebook is another company which showed smartness in introducing new products and services at the right time. It should be noted that there were plenty of social networks such as Orkut, before the introduction of facebook. However, the earlier companies failed to taste success as did by facebook. While most of the other social networks concentrated only on the socializing dimensions of social networks, facebook thought differently and unveiled the potentials of social networks to the business world. Now plenty of companies are using facebook for advertising and marketing purposes. In short identification of the opportunities and the implementation of right product and service at the right time are important things for a company as far as innovation and value creation are concerned. Knowledge Management and organizations According to Egbu & Botterill (2001, p.126), KM is all about how knowledge is created, acquired, communicated, shared, applied and effectively utilized and managed, in order to meet existing and emerging needs. There is no point in collecting all the knowledge and stay inactive. The purpose of collection of knowledge should be to make desired changes in the strategies and behaviors, as far as an organization is concerned. For example, it would be illogical for a real estate company to invest more in Dubai construction industry after watching the 2008 recession problems in Dubai. The company should wait until the real estate sector picks up in Dubai, before making further investment. In short, the purpose of knowledge is to take sound business decisions. In fact knowledge or information is the blood of an organization. Without that, an organization can be considered as a dead body. “Knowledge is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information”(Kim & Lee, 2004, p.2). Knowledge is bursting from all corners, virtually in every second. It is often said that knowledge explosion is taking place now. Because of knowledge explosion, many of the traditional principles of business have given way for new business principles. For example, outsourcing is one of the newest business principle entered the corporate world in recent times. The core of this principle is to exploit the external knowledge and skills. Companies in the past were utilizing inly the internal manpower. They had no option to exploit the external manpower. The introduction of computers and internet and the subsequent introduction of globalization have opened a way for companies to exploit the cheap labor in overseas countries. According to Borghoff & Pareschi (1997), Knowledge has been recognized as one of the most important assets of organizations. In their opinion, Information technology can help the growth and the sustainment of organizational knowledge. American and European companies are currently outsourcing a lot of jobs to India like foreign countries. In other words, these companies are exploiting the skill and knowledge of Indians with the help of internet and computers. Nurach, et al. (2012, p.359) conducted a survey by a sample of Thailand SME(s) from a cross-section of industries to know more about the importance of knowledge management for organizations. After analyzing the results, they concluded that the most important factors in improving a business' quality are accuracy and timeliness of information, followed by the availability of information analysis, the usage of information technology in storing day-to-day operations and use it for performance management, the effectiveness of knowledge sharing and management system, the effectiveness of acquiring and using external information and, last but not least, the effectiveness of acquiring and using internal information. Earlier, it was impossible for companies to share knowledge instantly. For example, companies in the past used business letters and fax messages to communicate with its stakeholders. At present, instant communication is possible with the help of computers, internet and mobile phones. As a result of that decision making is taking place quickly. Quick decisions enable companies to improve their efficiency and competitive power. Mithas et al. (2011, p.137) also pointed out the importance of KM in organizations. In their opinion, information management capability plays an important role in developing firm capabilities for customer management, process management, and performance management. Modern companies are getting plenty of important information from various corners. The ability to manage those information effectively, decides the success and failures of a company. For example, Google forced to withdraw from China recently. The reason cited by Google was the censoring of information by the Chinese government. Companies which are planning to invest in China should take this information seriously before going ahead with their plans. In short, information or knowledge helps a company to take wise business decision. Knowledge management is essential for companies to stay competitive in the market. For example, Apple Inc. is one company which is keen in keeping all its company secrets intact. Even the employees of the company know little about the development of new products by Apple Inc. Only after the introduction of new products, they will be able to know about such products. Until then the new product development information is conserved only for the top executives. In other words, Apple knows the importance of protection of company secrets. They know very well that the spreading of news about their new product during developmental stage would encourage competitors to develop similar products quickly and introduce them prior to the introduction of Apple’s new product. “Despite the amazing improvements of information technology in recent decades, and its omnipresence in organizations, the improvements in the field of knowledge sharing were insignificant” (Paghaleh, et al., 2011, p.192) Mvungi and Jay (n.d., p.354) also supported the findings of Paghaleh, et al. That is why Apple Inc. is keen in protecting its knowledge base. They do not want to share knowledge with others since they know very well that such strategies would cause problems to the company in the long run. Conclusions Innovation and knowledge management are extremely important for modern organizations to keep their competitive power intact. Innovation is of two types; radical and incremental. The modification of existing product or service can be labelled as incremental innovation whereas the development of an entirely new product or service can be labelled as radical innovation. Radical innovation is more important than incremental innovation. However, the expenses needed for radical innovation are more than that required for incremental innovation. Therefore, radical innovation takes place occasionally whereas incremental innovation takes place frequently. Proper knowledge management is necessary for companies to take sound decisions all the time. The major objective of knowledge management in organizations is to improve the company performances in the heavily competitive business world. Since companies are getting the large volumes of knowledge from various sources, it is necessary for them to manage this knowledge in a proper manner so that the competitive power of the company can be increased. In short, innovation and knowledge management have the ability to make or break an organization. All organizations which are trying to improve competitive power should give more importance to innovation and knowledge management. References Ackerman, D. 2012. A brief history of failed Windows tablets. [Online] Available at: http://reviews.cnet.com/8301-3121_7-57456088-220/a-brief-history-of-failed-windows-tablets/[Accessed 07 December 2013] Borghoff, U.M. & Pareschi, R. 1997. Information Technology for Knowledge Management. Journal of Universal Computer Science 3:8, August 1997 Bordia, R., Kronenberg, E & Neely, D. 2005. 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