Tacit Knowledge, Idiosyncratic Knowledge, Path Dependence - Essay Example

Tacit Knowledge, Idiosyncratic Knowledge, Path Dependence Table of Contents Explanation of Concepts 3 (i) Explanation of Concepts 3 a. Tacit Knowledge 3 b. Idiosyncratic Knowledge 4 c. Path Dependence 5 (ii). Ways that Kaye and Penrose Combine the Three for the Creation of a Competitive Advantage Theory 5 2. Distinguishing Between the Experience Curve and the Learning Curve, How They May Be the Source of Competitive Advantage That is Sustainable 7 A. Experience Curve vs. Learning Curve 7 B. How They May Be a Source of Competitive Advantage that is Sustainable 9 3. Outline of System of Nonaka and Takeuchi, Consideration of Mode(s) that Are Likely Sources of Competitive Advantage 10 References 13 1. Explanation of Concepts (i) Explanation of Concepts a. Tacit Knowledge Tacit knowledge, as the term suggests, is knowledge that is inherent in a person or an organization, something that is not explicit, but hidden, and something that is embedded in the very way that organizations and people function in their line of work. This is opposed to coded or explicit knowledge, that can be had from the manuals, books and knowledge and data systems of an organization. This latter is to be differentiated meanwhile from the kind of knowledge that is suffused through the processes of the firm. In the literature tacit knowledge is classified as either that knowledge that is to be found as embodiments in the social networks of the people working for an organization, as well as the knowledge that is carried by the people themselves; and two, knowledge that is to be found in the products as well as the processes that are the creations of the people working in an organization. As an example, the artisan crafts are heavily invested in the tacit knowledge that people who practice the crafts. This knowledge is not something that is explicitly coded and hard to put into words, as they are possessed by the craftsmen and honed and developed through years of practicing the crafts. In other words, tacit knowledge is hidden knowledge, as opposed to explicit knowledge, which is its opposite, woven into the very processes that some organizations have developed through the years, and woven into the very fabric of the way people carry out their work. It can be surmised that the more knowledge intensive the work is, the greater the role that tacit knowledge plays in making the products and delivering the services tied to that work (Nonaka and von Krogh 2009; Horvath n.d.; Barbiero 2004). b. Idiosyncratic Knowledge As the name suggests, idiosyncratic knowledge is knowledge that is specific to one particular situation, organization, or group of people, and not available elsewhere. There are many kinds of idiosyncratic or specific knowledge for one kind of firm, and like tacit knowledge idiosyncratic knowledge is very much embedded into the very fabric of the organization and of the members of that organization, not easily surfaced and discovered, and very difficult to codify. As the name further suggests idiosyncratic knowledge is something very intimate, and something that cannot be had overnight, for one organization or firm. It is rather something that takes a long time to develop, and something that has to be born and bred in one organization from its daily operations, not easily ported and transferred to other organizations or groups. Moreover, the nature of the idiosyncratic knowledge and of its use has far-reaching implications for competitive advantage and the long-term viability and success of organizations. The idea is that because one organization is unique from other organizations, and because idiosyncratic knowledge is born out of the unique processes, people, products and circumstances of an organization, including the idiosyncrasies of the people and its management, idiosyncratic knowledge is something that is hard to copy from other firms and supplanted to the organization overnight. Moreover, it is also very difficult for other firms to be able to export their idiosyncratic knowledge to other firms and to other units within the same organization, without some pain, and definitely with the chances of success being very low. At the same time, documenting and surfacing the hidden and implicit idiosyncratic knowledge of a firm is also very difficult, much in the same way that tacit knowledge is (Andreu et al. 2008; Antonelli n.d.). c. Path Dependence Path dependence or path dependency centers on the notion that where organizations develop differing ways of developing products and services, for instance, there is the tendency in those firms to pursue the same paths of action as it did when it first developed those products, breeding processes that are dependent on certain paths, or certain ways of doing things. This notion of path dependency is tied to the earlier notions of tacit knowledge as well as of idiosyncratic knowledge, in that differing firms develop their own processes and paths, as well as practices, that become embedded into the way these organizations do things. In other words, path dependence manifests itself as the firm being dependent on certain ways of doing things. This can be either positive or negative depending on whether the established paths or ways of doing things result in considerable competitive advantage and long-term positive impact for the firm. Path dependencies that yield improvements in firm efficiency, for instance, or that yield outstanding results in terms of innovation, are positive path dependencies. From the point of view of knowledge management, on the other hand, path dependence is something that is inherent in a firm, and can be a source of long-term competitive advantage (Coombs and Hull 1997; Lo et al. 2010). (ii). Ways that Kaye and Penrose Combine the Three for the Creation of a Competitive Advantage Theory Kaye and Penrose introduced the notion of added value and from their theory can be deduced the notion that competitive advantage is something that is to be had from the very heart of what makes an organization unique and different from the others. Added value here is something that is internally generated, and comes from the knowledge that is to be had in the firm. Tacit knowledge, idiosyncratic knowledge, and path dependencies of the positive kind are all sources of internally-generated added value and of long-term competitive advantage for the firm (Lecture Notes, 2012; Coombs and Hull 1997; Lo et al. 2010; Andreu et al. 2008; Antonelli n.d.; Nonaka and von Krogh 2009; Horvath n.d.; Barbiero 2004). 2. Distinguishing Between the Experience Curve and the Learning Curve, How They May Be the Source of Competitive Advantage That is Sustainable A. Experience Curve vs. Learning Curve In the most basic conception, the theory is that as workers get more in tune with the work that they do, and become more adept at what they do, the time that it takes them to do a certain work goes down, and that translates into higher productivity over time. The more that they do, the more that they can do, and this means that for the same amount of time spent in a day, workers produce more and more products as they take fewer and fewer time to finish a piece of work. This is the basic idea behind the learning curve (Gilbert 2013; NetMBA.com 2010): As additional transactions occur in a service, or more products are produced by a manufacturer, the per-unit cost often decreases at a decreasing rate. This phenomenon follows an exponential curve. The organization thus gains competitive advantage by converting this cost reduction into productivity gains. This learning competitive advantage is known as the experience curve, the learning curve, or the progress curve (Gilbert 2013). Another way to look at the notion of the learning curve and the experience curve is that of considering how, as the production quantities increase, the per unit production costs of the product goes down, as a result of the improvements in efficiencies born out of the improvements in the way and manner by which workers produce goods (NetMBA.com 2010): …management consultants at The Boston Consulting Group observed a consistent relationship between the cost of production and the cumulative production quantity (total quantity produced from the first unit to the last). Data revealed that the real value-added production cost declined by 20 to 30 percent for each doubling of cumulative production quantity (NetMBA.com 2010). In yet another conception, either the time it takes to finish a product goes down, or the cost it takes to finish a product goes down, as the output on a cumulative basis goes up by a factor of two, even as the rate by which the costs or the time inputs go down slows down as the output also increases. These improvements are what makes up the learning or the experience curves (Martin 2013): The theory of the learning curve or experience1 curve is based on the simple idea that the time required to perform a task decreases as a worker gains experience. The basic concept is that the time, or cost, of performing a task (e.g., producing a unit of output) decreases at a constant rate as cumulative output doubles. Learning curves are useful for preparing cost estimates, bidding on special orders, setting labor standards, scheduling labor requirements, evaluating labor performance, and setting incentive wage rates (Martin 2013). While the notions underlying the two curves are the same, both involving the improvements in the time and costs of producing a product, there are differences between the learning curve and the experience curve. The experience curve is said to be of broader scope and application in comparison to the learning curve, which is tied to products. The learning curve, on the other hand, has application not only for production scenarios that are intensive in terms of time, but also for scenarios that are oriented towards processes (NetMBA.com 2010). B. How They May Be a Source of Competitive Advantage that is Sustainable Sustainable competitive advantage can be had from radical improvements in the costs and the time it takes for an organization to produce the products and services that are its reason for being. In a broader conception of the experience curve, as it applies to knowledge intensive and innovation intensive industries, knowledge workers who are able to produce more innovation, for instance, at smaller amounts of time, and with innovation that has far greater impact for the long term, are able to radically change the dynamics of the game for their organizations. To put it another way, where an organization competes in industries that live or die on the strength of their innovations, the organization that is able to cull improvements in the way workers successfully innovate can leverage that strength and parlay it towards long-term competitive advantage. To be sure this is not easy, given that the learning curve and the experience curve for innovation-intensive and knowledge-intensive industries are much steeper and more difficult to navigate in comparison to more traditional industries such as manufacturing, but the fruits are also sweeter and more plentiful. On the other hand, traditional firms who rely on improvements in efficiency to improve margins, such as contract manufacturers, can also benefit from radical improvements in the experience curve in order to bring down costs and improve profit margins (NetMBA.com 2010; Martin 2013; Gilbert 2013). 3. Outline of System of Nonaka and Takeuchi, Consideration of Mode(s) that Are Likely Sources of Competitive Advantage Nonaka and Takeuchi proposed a theory for the generation or creation of knowledge in an organization that came to evolve into what is known as the SECI model, with the SECI model being also an engine for the creation of knowledge within that organization. The SECI model stands for Socialization, Externalization, Combination, and Internalization (AllKM 2011; Gourlay n.d.): The process works by different linking process of these two types of knowledge [explicit and implicit] in the organization. Knowledge creating process is a continuous, self-transcending process. As knowledge is created between individuals or between individuals and the environment, individuals transcends the boundary between self and others. (AllKM 2011). To be more specific, the four modes in the conversion or processing of knowledge under the SECI model/engine are as follows (Gourlay n.d.): Four modes of knowledge conversion were identified): tacit to tacit (Socialization); tacit to explicit (Externalization); explicit to explicit (Combination), and explicit to tacit (Internalization). After Internalization the process continues at a new ‘level’, hence the metaphor of a “spiral” of knowledge creation often referred to as the SECI model (Gourlay n.d.). The basic outline of the SECI model in graphic form is as follows (AllKM 2011): Graphic Source: AllKM 2011 In the socialization stage, the linking is from tacit knowledge to tacit knowledge, as illustrated above. New knowledge generation becomes possible with the spillover of tacit knowledge outside of its bounds. The socialization stage is marked by the interactions and the hanging out together that breeds joint observations, discussions, and analysis, all leading to the generation of new knowledge making use of the tacit knowledge. In the externalization stage, the tacit knowledge is linked to explicit knowledge. Tacit knowledge graduates to the level of knowledge that is shared within the group, and becomes part of the collective experience of the entire group. This is when the crystallization of knowledge is said to occur. Models are generated. In manufacturing, this stage is marked for instance by the formation of what is known as Quality Circles. In the Combination stage, the linking is from explicit knowledge to explicit knowledge. In this stage, the explicit knowledge of the entire organization is linked and combined for business benefit, to give rise to even more synergies and efficiencies, making use of the explicit knowledge to build on existing processes and systems for greater business and organizational benefit. In the internalization stage, the linking is between explicit knowledge and tacit knowledge. In this stage, tacit knowledge is leveraged for the generation of more explicit knowledge, and that knowledge is disseminated throughout the whole organization. This broader dissemination of tacit knowledge is said to result in the acceleration of the learning cycle or spiral, and leads to the generation of even more knowledge moving forward. Training programs, for instance, result in trainees being able to internalize the explicit and tacit knowledge of the firm, resulting in those trainees in turn making use of the new infusion to create more knowledge as they perform their work (AllKM 2011; Gourlay n.d.). It is easy to see that viewing the SECI model as an iterative process, with every step along the way feeding off each other and being opportunities to create knowledge, that the four modes in the SECI model are potential sources of competitive advantage on a sustainable basis for the firm. In the internalization stage, there is an opportunity to leverage knowledge that is imbibed by the organization members to improve the way they do their work, as well as to generate new knowledge that is then fed into the loop. The rapid iteration through this spiral, together with the introduction of useful, quality knowledge along each step, is a surefire strategy for generating competitive advantage for an organization (Gourlay n.d.; AllKM 2011). References AllKM 2011. Knowledge Creating Process, SECI Model. All Knowledge Management [Online] Available at: http://www.allkm.com/km-basics/knowledge-process.php [Accessed 7 January 2013] Andreu, Rafael et al. 2008. Firm-Specific Knowledge and Competitive Advantage: Evidence and KM Practices. Knowledge and Process Management 15 (2). [Online] Available at: http://www.joanbaiget.com/documents/professionals/Firm-Specific%20Knowledge%20AU.pdf [Accessed 7 January 2013] Antonelli, Cristiano n.d. The Embedded Generation of Knowledge Contextual Spillovers and Localized Appropriability. Universita Di Torino. [Online] Available at: http://www.fondazionerosselli.it/DocumentFolder/The%20embedded%20generation%20of%20Knowledge.pdf [Accessed 7 January 2013] Barbiero, Daniel, 2004. Tacit Knowledge. University of Waterloo. [Online] Available at: http://philosophy.uwaterloo.ca/MindDict/tacitknowledge.html [Accessed 7 January 2013] Coombs, Rod and Hull, Richard 1997. Knowledge Management Practices and Path-Dependency in Innovation. CRIC, The University of Manchester. [Online] Available at: http://www.cric.ac.uk/cric/Pdfs/dp2.pdf [Accessed 7 January 2013] Gilbert, James 2013. Experience and Learning Curves. Reference for Business Encyclopedia of Business. [Online] Available at: http://www.referenceforbusiness.com/management/Em-Exp/Experience-and-Learning-Curves.html [Accessed 7 January 2013] Gourlay, Stephen n.d. The SECI model of knowledge creation: some empirical shortcomings. Kingston Business School. [Online] Available at: http://eprints.kingston.ac.uk/2291/1/Gourlay%202004%20SECI.pdf [Accessed 7 January 2013] Horvath, Joseph, n.d. Working with Tacit Knowledge. IBM Institute of Knowledge Management. [Online] Available at: http://polaris.umuc.edu/mts/TMAN/TMAN_636/articles/tacitk.pdf [Accessed 7 January 2013] Lecture Notes, 2012. Lo, Hsuan et al, 2010. Knowledge Breadth, Path Dependence and New Technology Investment. Web Journal of Chinese Management Review 13 (3). [Online] Available at: http://cmr.ba.ouhk.edu.hk/cmr/webjournal/v13n3/CMR237E09.pdf [Accessed 7 January 2013] Martin, James 2013. The Learning Curve or Experience Curve. Management and Accounting Web. [Online] Available at: http://maaw.info/LearningCurveSummary.htm [Accessed 7 January 2013] NetMBA.com 2010. The Experience Curve. NetMBA. [Online] Available at: http://www.netmba.com/strategy/experience-curve/ [Accessed 7 January 2013] Nonaka, Ikujiro and von Krogh, Georg, 2009. Perspective- Tacit Knowledge and Knowledge Conversion: Controversy and Advancement in Organizational Knowledge Creation Theory. Organization Science. [Online] Available at: http://orgsci.journal.informs.org/content/20/3/635.abstract [Accessed 7 January 2013] Read More