CHAPTER 2
ACTIVITY 2.3
IS KNOWLEDGE THE ONLY SOURCE OF COMPETITIVE
ADVANTAGE TODAY?
Assignment submitted by Stefanie Reissner for module Strategic Issues,
MA International Business Administration
Newcastle Business School
University of Northumbria at Newcastle
Introduction
Since the last decades of the 20th century, there have been intensive discussions about
knowledge and its implications on organisations and business success. Knowledge is now
widely considered to be a source of competitive advantage, as, for example, Arie de Geus
states (quoted in Senge, 1990a, p. 4):
The ability to learn faster than our competitors may be the only
sustainable competitive advantage.
In the following article, the question if knowledge is the only source of competitive
advantage today is discussed on the basis of a literature review.
Competitive Advantage
The term of competitive advantage (CA) is often used to refer to the purpose of
management strategy. It can be defined as the ability of an organisation to out-perform
its competitors (Campbell, Stonehouse and Houston, 2000, p. 324). Measurement is
possible in terms of superior profitability, increase in market share, return on investment,
etc. (Stonehouse et al., 2000). However, it is an important aim of business strategy to
maintain competitive advantage over a certain period of time, which is called sustained
competitive
advantage
(SCA).
Johnson
and
Scholes
(1999)
suggest
low-price,
There are three main approaches in management strategy that build company
performance on competitive advantage. An introduction into these schools of thought is
provided in the following paragraphs.
CompetitivePositioning Approach
This school of thought is dominated by the work of Michael Porter (1980, 1985). Porter
suggests examining an organisations value-adding activities by his model of the value
chain in order to support the generic strategy of cost leadership or differentiation by
configuring the value-adding activities accordingly. Value chain analysis refers to the
activities within and around an organisation, and relates them to an analysis of the
competitive strength of the organisation (Johnson and Scholes, 1999, p. 156).
The value chain divides a companys value-adding activities into primary activities (e.g.
logistics, operations, sales) and support activities (e.g. R&D, HRM and infrastructure).
According to Porter (1985), an organisations value chain has to be analysed and
understood in the wider context of suppliers and customers in order to gain maximum
benefit. Moreover, Porter (1985) stresses the importance of managing the linkages
between the own value chain and those of suppliers and customers efficiently.
Porter (1990) furthermore argues that multinational companies have gained competitive
advantage by employing different strategies than their competitors. He contends that
companies achieve competitive advantage through acts of innovation, which can be
new technologies or new ways of doing things. Thus, innovation can be manifested in a
number of things, for example in new product design or new processes. However,
innovations require investments in skill and knowledge, physical assets and brand
reputations.
Resource-Based Approach
The resource-based school of thought focuses on core competencies, which are defined
as collective learning in the organization, especially how to coordinate diverse
production skills and integrate multiple streams of technologies (Prahalad and Hamel,
1990). Campbell, Stonehouse and Houston (2000, p. 324) argue that competences are
core when they become the cause of the businesss competitive advantage.
Prahalad and Hamel (1990) suggest that core competencies are about harmonising
streams of technology as well as organising work and delivery of value. This requires
communication, involvement and employee commitment to work across organisational
boundaries (crossfunctional teams). Moreover, successful companies do not see
themselves as a bundles of businesses making products (Prahalad and Hamel, 1990),
but know the importance of organisational learning.
Knowledge-Based Approach
This school of thought is the most recent approach to business strategy, which originates
in the resource-based view of strategy (Whitehill, 1997). It is dominated by various
authors in the fields of organisational learning, competencies, innovations, etc. and views
knowledge as the preeminent productive source (Grant, 1997). In addition, he stresses
the importance of the employees being the primary stakeholders. According to Gorman
and Thomas (1997), resources are relatively tangible, visible assets, whereas
What is Knowledge?
Knowledge can be defined in numerous different ways. Demarest (1997), for instance,
defines it as the actionable information embodied in the set of work practices, theoriesin-action, skills, equipment, processes and heuristics of the firms employees.
A common classification of knowledge in this context is that of explicit and tacit 1
knowledge. According to MacDonald (1999), explicit knowledge is precisely and clearly
expressed, with nothing left to implication, whereas tacit knowledge is understood but
not clearly expressed. It is often personal knowledge embedded in individual experience
and involves intangible factors, such as personal belief, perspective and values. This
distinction can be combined into four basic patterns of knowledge creation, which can be
visualised by the SECI-model (cf. Figure 2).
Figure 2: SECI-Model
adapted from Nonaka, Reinmoeller and Senoo (2000)
Knowledge Management
As for knowledge, there are also a variety of definitions for knowledge management
(KM). Scarbrough, Swan and Preston (1999), for example, define knowledge management
as any process or practice of creating, acquiring, capturing, sharing and using
knowledge, wherever it resides, to enhance learning and performance in organisations.
According to Pemberton and Stonehouse (2000), knowledge management has two
functions: first, it is about formalising and coordinating new knowledge assets. Second, it
stores, distributes and shares current knowledge assets. The latter is facilitated by the
recent developments in information and communication technology (ICT). They argue
that organisational knowledge is closely linked with core competencies, which is
considered to be increasingly important.
However, knowledge management can improve the ability to solve problems (Argyris,
1991) or help to solve problems in the human resource sector (Soliman and Spooner,
2000), but it does not happen automatically. The knowledge management programme,
like any other initiative has to fit into the organisational context (Storey and Barnett,
2000).
Conclusion
Regardless of which approach to strategy is applied, knowledge management can be a
powerful tool for improving internal processes, which facilitates building and sustaining
competitive advantage. It furthermore leads to better communication, knowledge sharing
and teamwork. The skilful exploitation and management of knowledge can help an
organisation to built up and sustain competitive advantage in the form of innovative
products or services, more
effective internal
and external
communication and
References
Argyris C. (1991), Teaching Smart People How to Learn, in Harvard Business Review on
Knowledge Management, pp. 81 108, Boston: Harvard Business School Press
Bartlett C. and Ghoshal S. (1989), Managing Across Boarders: The Transnational Solution,
Cambridge/MA: Harvard Business School Press
Campbell D., Stonehouse G. and Houston B. (2000), Business Strategy An Introduction,
Oxford: Butterworth Heinemann
Dawson R. (2000), Knowledge Capabilities as the Focus of Organisational Development
and Strategy, Journal of Knowledge Management, 4 (4), pp. 320 327
Demarest M. (1997), Understanding Knowledge Management, Long Range Planning, 30
(3), pp. 374 384
Garvin D. A. (1993), Building a Learning Organisation, in Harvard Business Review on
Knowledge Management, pp. 47 80, Boston: Harvard Business School Press
Exploring
Corporate
Strategy,
5th
Edition,
Stonehouse G., Hamill J., Campbell D. and Purdie T. (2000), Global and Transnational
Business Strategy and Management, Chichester/West Sussex: John Wiley & Sons Ltd.
Storey J. and Barnett E. (2000), Knowledge Management Initiatives: Learning from Failure,
Journal of Knowledge Management, Vol. 4, No. 2, pp. 145 156
Whitehill M. (1997), Knowledge-based Strategy to Deliver Sustained Competitive
Advantage, Long Range Planning, 30 (4), pp. 621 627
Windle I. (2001), Efficiency through knowledge, Financial Times, 21 February 2001, p. 17
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