Knowledge Management and Competitive Advantage - Essay Example

Knowledge Management and Competitive Advantage One of the developments in management theory is the belief that most firms have only a few “core competencies” where they possess exceptional skills and abilities, therefore in order to sustain a competitive advantage in an increasingly cut throat global economy, it is better to hire firms with their own core competencies to perform other tasks that are required as a part of organizational activity.(Prahalad and Hamel, 1990). Thus, in order to sustain a competitive advantage in the global marketplace, many organizations are focusing on knowledge management; for example, as Miller and Shamsie (1996) have shown in the case of the film industry, it is knowledge based resources in the form of production and financial knowledge which have boosted financial performance in an unpredictable global environment. The availability of specialized as possessed by a Company can help it to not only attain and sustain a competitive edge in the marketplace. According to Nonaka (1998), the uncertainty in the global environment means that the only aspect that is guaranteed to always provide a competitive advantage to a firm is knowledge; hence knowledge management through outsourcing is an organizational tool to achieve innovation and competitiveness. According to Quinn et al (1996), managing professional intellect is the key to value creation and profitability for most companies, especially within the framework of technology, which has created new rules and opportunities for organizational design. The traditional approach to knowledge is that it may be used freely by everyone without limitations. According to von Krohg et al (1994), knowledge is that which enables an individual to interpret and give meaning to the information he receives. However, they also argue that knowledge is subjective and is therefore linked to the group of individuals who are generating it. Therefore such information may be confined to a particular area or Company because of the inherent complexity of the information or because individuals are unwilling to codify the knowledge and present it in a format that can be shared with others. Nonaka and Takeuchi (1995:6) describe codified knowledge as something that is formal and systematic, which may be expressed in a number or words form and may be easily communicated because it is in the form of information – for example hard data or scientific formulae. Therefore, such information can easily be communicated to others. However, there may be certain kinds of knowledge which cannot be easily communicated, such as knowledge which may be known but cannot be told to another - such knowledge is classified as tacit knowledge. Tacit knowledge provides an advantage to the person holding such knowledge because it imbues him with superior skill in that informational area which may not be available to others. When such tacit knowledge is collectively owned, for example by a group of individuals within a firm, it becomes equivalent to the organizational memory of that Company or industry. Such collective knowledge is defined by Lam (2000) as the ways in which knowledge is shared and distributed among the members within an organization. As Nonaka and Takeuchi (1995) have explained, an organization may therefore be defined as an arena where intense socialization takes place among members through teamwork and common experiences, as a result of which a collective tacit knowledge develops among the members of that particular organization. This may lead to the development of production processes or technical skills that may be difficult for others to duplicate because they do not possess the same tacit knowledge that generates such expertise. When tacit and explicit knowledge interact, it results in the creation of new knowledge that may be specific to the firm in question (Nonaka, 2000) and place that company in a position superior to others, which cannot be easily replicated. Thus, while information may be freely available, it must be distinguished from knowledge where the degree of tacit and collective knowledge available to a select group may place them above others in terms of skill formation. Knowledge that exists in one social context may be difficult to replicate in other locations, because knowledge is often specific to the location (Lam 1997) and helps faster diffusion of skills. But in a different social context, diffusion of skills becomes a much slower and more painful process. In today’s global marketplace, creativity and innovation have assumed a great deal of importance and it is important for a Company to have a fresh and novel strategy if it is to succeed in the market place, as identified by Porter (1996: 68). “Competitive strategy is about being different.” Porter also states that “Strategy is the creation of a unique and valuable position, involving a different set of activities……different from rivals.” ( Porter 1996: 68). However, in an increasingly global, cut throat economy, it is becoming increasingly difficult for Companies to sustain a competitive advantage; but when a Company is able to develop new knowledge or through tacit knowledge, create a set of conditions which it is difficult for others to replicate, it attains a significant competitive advantage. Ofek and Savary (2001) have analyzed how knowledge management affects the competition among services firms. From the supply side, knowledge management reduces the operating costs in a firm while from the demand side, it significantly increases product quality and adds customers. Ofek and Sarvary (2001) have suggested that where a firm has a high ability to leverage its customer base, knowledge management should lead to quality improvement rather than merely to cost reductions. The effective leveraging of knowledge within the firm can therefore contribute to competitiveness of the firm, not only through a reduction of costs but in improving the quality of its services. Lubit (2000) also highlights the importance of knowledge management in allowing an organization to sustain a competitive advantage, especially in a global context. Sharing knowledge across company units and effective knowledge management helps a global company in the development of innovative products, allowing it to stay one step ahead of its competitors through the creation of knowledge that is not easy to replicate. Knowledge creation helps an organization to stay responsive to a rapidly changing global environment through the development of new and innovative solutions to emerging problems. Knowledge management helps a company to not only gain a competitive advantage but also to sustain it. References: * Lam, A, 1997. “Embedded Firms, embedded knowledge: problems of collaboration and knowledge transfer in global cooperative ventures.” Organization Studies, 18: 973-996 * Lubit, Roy, 2000. “Tacit knowledge and knowledge management: The Keys to sustainable competitive advantage”, Organizational Dynamics, 29(4): 164-178 * Miller, Danny and Shamsie, Jamal, 1996. “The resource based view of the firm in two environments: The Hollywood film studios from 1936 to 1965”, Academy of Management Journal¸39(3): 519 * Nonaka, I and Takeuchi, H, 1995. “The Knowledge Creating Company” New York: Oxford University Press * Nonaka, I, 1998. “The knowledge creating Company” Harvard Business Review, (July/Issue: Special issue on knowledge management):21-46 * Nonaka, I, 2000. “The knowledge-creating Company”, * Ofek, Elie and Sarvary, Miklos, 2001. “Leveraging the customer base: Creating competitive advantage through knowledge management”, Management Science, 47(11):1441-1456 * Quinn, James Brian, Andersen, Philip and Finkelstein, Sydney, 1996. “Leveraging Intellect”, The Academy of Management Executive, 10(3): 7. * Porter, M.E. (1996), What is Strategy? Harvard Business Review, Nov-Dec.: 61-78. * Prahalad, C.K. and Hamel, G. (1990). “The core competence of the Corporation” Harvard Business Review (May-June):79-91 * Von Krohg, G, Roos, J and Slocum, K, 1994. “An Essay on corporate epistemology” Strategic Management Journal, 15: 53-71 Read More