Knowledge Management Most Cited 1-3

Presented by: Lana Abu-Shaheen Undergraduate Senior in Management Information Systems

October 18, 2005

Overview
Firm Resources and Sustained Competitive Advantage Jay Barney Published: March 1991 The eleven deadliest sins of knowledge Management Liam Fahey, Laurence Prusak Published: Spring 1998 Whats your Strategy for Managing Knowledge? Morten T. Hansen, Nitin Nohria, Thomas Tierney Published: March/April 1999 Cross Cutting Themes Critique Additional Information & Resources

Firm Resources and Sustained Competitive Advantage

Firms obtain sustained competitive advantage by: Exploiting internal strengths Responding to environmental opportunities Neutralizing external threats Avoiding internal weaknesses
Internal Analysis External Analysis
Opportunities

Strengths

Weaknesses

Threats

Resource Based Model

Environmental Models of Competitive Advantage

Firm Resources and Sustained Competitive Advantage

Recent research: analyze opportunities and threats in competitive environment Porters Five forces model describes attributes of an attractive industry and thus suggests that opportunities will be greater, and threats less, in these kinds of industries

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Lesser emphasis on impact of idiosyncratic firm attributes on a firms competitive advantage Two assumptions Firms within industry are identical Resource heterogeneity short lived

Firm Resources and Sustained Competitive Advantage

Resource based view of competitive advantage
Cannot rely on these assumptions Examines link between firms internal characteristics and performance

New assumptions Firms within industry heterogeneous Resources not perfectly mobile across firms

Defining Key Concepts

Firm Resources

Physical capital

Human capital

Organizational capital

A firms The The physical training, formal technology experience, reportingused judgment, structure, in a firm, its intelligence, formal a firms and plant relationships, informal and equipment, planning, and its geographic insight controlling, of individual location, and coordinating managers and its access systems, and to workers raw as well materials. in as a firm. informal relations among groups within a firm and between the firm and those in its environment Purpose of this paper: To specify the conditions under which such firm resources can be a source of sustained competitive advantage for a firm

Defining Key Concepts

Competitive advantage
Definitions: 1.

Sustained Competitive Advantage

Apply to both existing and potential competitors A firm is said to have a competitive advantage when it is implementing a value 2. Sustained competitive advantage does not depend on calendar time, but on creating strategy not simultaneously being the possibility of competitive duplication implemented by any current or potential Avoids problem of specifying how long to be sustained competitors. 3. Sustained does not mean forever; A only firm until is said duplicated to have a sustained competitive advantage when it is Schumpeterian Shocks structural implementing revolutions a value in an creating industry strategy that can not redefine which of a firms attributes simultaneously are resources being andimplemented which are not by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy

4.

Competition with Homogeneous and Perfectly Mobile Resources

Resources distributed evenly = not sustained CA
First mover advantage May be a way to gain SCA Not possible because resource homogeneity Only possible: resources must heterogeneous

Entry/mobility barriers Help existing firm against potential competition Only possible: resources must heterogeneous and perfectly mobile

Firm Resources and Sustained Competitive Advantage

To have potential of Sustained Competitive Advantage:

Valuable Rare Imperfectly Imitable

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Not substitutable

Resources are valuable when they enable a firm to conceive of or implement strategies that improve its If a valuable firm resource is efficiency effectiveness. possessed and by many firms, then each of Attributes resources only these firmsbecome can exploit this resource, Dependent upon: when they can exploit opportunities thereby implementing a common and neutralize threats in afirm firms strategy thathistorical gives no one a 1. Unique conditions, environment. competitive advantage. This, There must be no strategically 2. Causal ambiguity implicitly, that the resource is equivalent means valuable resources that are not rare. 3. Social complexity. themselves either not rare or imitable.

Applying the Framework

Firm Resource Heterogeneity

Value Rareness Imperfect Immobility History Dependent Casual Ambiguity Social Complexity Substitutability Sustained Competitive Advantage

Firm Resource Immobility

Strategic Planning and Sustained Competitive Advantage

Formal strategic planning

Wide array of literature available Highly imitable Not a source of sustained competitive advantage

Informal and autonomous processes Potential evaluated by considering how rare, imperfectly imitable and substitutable they are

If formal is a substitute for informal -> not a source of SCA If formal is not a substitute for informal -> may be a source of SCA

Information Processing Systems and Positive Reputations

Depends on type of information processing system analyzed Machines highly imitable Information processing system possible Close manager-computer interface
Highly experienced Socially complex, imperfectly imitable => SCA Even if close substitute exists

Positive reputation
If only a few firms have it => rare Duplication is complex and depends on historic conditions Source of SCA

Social Welfare, Organization Theory and Behavior and Firm Endowments

Firms exploiting resources => effective and efficient => maximize social welfare Resource-based model suggests OT&B Managers limited in their ability to manipulate all attributes and characteristics of their firms
Resources imperfectly imitable => source of SCA

Firms cannot purchase SCA on an open market

Obtained through rare, imperfectly imitable, non-substitutable resources

The Eleven Deadliest Sins of KM

Without detecting and correcting errors in what we know and how we learn an organization deteriorates and can result in bad decisions.

Purpose of article: draw attention to a set of pervasive knowledge management errors

Based on the authors observing or partaking in over 100 knowledge projects over the past five years

The Eleven Deadliest Sins of KM

1: Not developing a working definition of knowledge 2: Emphasizing knowledge stock to the detriment of knowledge flow 3: Viewing knowledge as existing predominantly outside the heads of individuals 4: Not understanding that a fundamental intermediate purpose of managing knowledge is to create shared context 5: Paying little attention to the role and importance of tacit knowledge 6: Disentangling knowledge from its uses 7: Downplaying thinking and reasoning 8: Focusing on the past and the present and not the future 9: Failing to recognize the importance of experimentation 10: Substituting technological contact for human interface 11: Seeking to develop direct measures of knowledge

What Can Be Done?

Three actions to avoid the errors: I. Continuously reflect on knowledge as organizational phenomenon 1. Develop shared understanding at local levels 2. Allow individuals frequent opportunities to discuss and debate what knowledge is 3. Help individuals identify current and desired knowledge roles 4. Ask individuals to identify knowledge implications for group behaviors and processes

What Can Be Done?

II. Managers must be obsessive about noting and correcting errors in their stock of knowledge III. Managers must be vigilant about detecting errors in their the generating, moving, and leveraging of knowledge throughout the firm. Conclusion:

An organization must engage in critical, sustained, and honest self-reflection about the errors noted in this article. By doing this, it can avoid the pitfalls that are evident in the approaches of many organizations attempts to work with knowledge.

Whats your strategy for Managing Knowledge?

1990s foundation of industrialized economy shifted from natural resources to intellectual assets Rise of networked computers
Codify, store and share certain kinds of knowledge

Executives lacked successful models

Study knowledge management in different industries

Management Consulting Health Care Industry High Tech Industry

Management Consulting Firms

Knowledge is the core asset of consultancies
First to pay attention to and invest in KM Aggressively explore use of IT to capture and disseminate knowledge

Experience relevant to companies that depend on smart people and flow of ideas However, consultants do not take uniform approaches to managing knowledge

Whats Your Strategy for Managing Knowledge?

Knowledge Management Strategies

Codification The strategy centers on the computer Knowledge carefully codified and stored in databases Accessed and used easily by anyone in the company Personalization Knowledge closely tied to person who developed it Shared mainly through person-to-person contacts Purpose of computers: help communicate knowledge Choice of strategy The way the company serves its clients Economies of the business The people it hires
Whats Your Strategy for Managing Knowledge?

Codification or Personalization?

Anderson Consulting and Ernst & Young Codification strategy People-to-Documents approach

Extracted from the person who developed it Made independent of that person, reused

Bain, Boston Consulting Group and McKinsey Personalization strategy Dialogue between individuals

Brainstorming sessions and one-on-one conversations Deeper insights going back and forth on problems to be solved

Whats Your Strategy for Managing Knowledge?

Codification or Personalization?

Ernst & Young 250 people at the Center for Business Knowledge The method Randall Love and the industrial manufacturer bid

The process The result

Bain Marcia Blenko and the British financial institution

The process The result

Invests heavily in building networks of people

Whats Your Strategy for Managing Knowledge?

Health Care Industry

Access Health Clinical decision architecture Reuse structure leads to low prices Captured 50% of call-center market. Growing at 40% a year Memorial Sloan-Kettering Cancer Center Highly developed personalized model Higher prices Consistently ranked as top cancer research and treatment institution in the country

Whats Your Strategy for Managing Knowledge?

Different Strategies, Different Drivers

Knowledge management strategy reflect competitive strategy

Creating customer value for customers

Ernst & Young and Anderson Consulting

McKinsey, BCG and Bain

Always dealing with similar problems

Service offering is very clear

Problems dont have clear solutions

Highly customized solutions

Economics of reuse
Hires undergrads from top universities and train them

Expert economics
Hire top-tier MBA grads

Whats Your Strategy for Managing Knowledge?

Choosing the Right Strategy

1.

2. 3.

Why customers buy a companys products/services rather than those of its competitors What value do customers expect from the company? How does knowledge that resides in the company add value for customers? Assuming the answers to these questions are clear, ask the following questions:

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1. 2. 3.

Standardized or customized products? Mature or innovative products? People rely on explicit or tacit knowledge to solve problems?

Whats Your Strategy for Managing Knowledge?

Do Not Straddle

Companies that use knowledge effectively: 80-20 split

80% of knowledge sharing follows one strategy while 20% follows the other

Downfall of CSC Index in the early 1990s

Problem: mixing inventors with implementers Result: CSC Index unable to keep up with competition like Anderson Consulting and Ernst & Young Lesson: important to avoid straddling, but unwise to focus on one exclusive strategy

Whats Your Strategy for Managing Knowledge?

Do Not Isolate Knowledge Management

Companies that isolate KM risk losing its benefits

Do not isolate in departments like HR or IT Benefits higher if coordinated with HR, IT and competitive strategy

Responsibility of top management

actively a knowledge management approach that supports a clear competitive strategy Strong leadership = benefit of customers and company

Whats Your Strategy for Managing Knowledge?

Cross Cutting Themes

Management of essential resources Importance of proper Knowledge Management

What errors to avoid Which strategies to choose Which resources to exploit

Critique

Firm Resources and Sustained Competitive Advantage

Insightful, even if outdated (1991) Represents interesting, and logical, arguments Repetitive

The Eleven Deadliest Sins of Knowledge Management

Easy to read, great layout Interesting information, but repetitive

Whats Your Strategy for Managing Knowledge?

Additional Resources
Codification, Personalization, Integration

A strategy for selecting and applying KM tools http://www.kmworld.com/publications/magazine/index.cfm?ac tion=readarticle&Article_ID=1224&Publication_ID=67

Insight on Morten Hansen

http://www.insead.edu/facultyresearch/faculty/profiles/mhans en/ http://66.102.7.104/search?q=cache:nMdcVJX1KA4J:www.lon don.edu/assets/documents/PDF/MHansen_CV_February2003.p df+morten+t.+hansen&hl=en

Additional Resources
Resource Based View of the Firm

More Jay Barney Forms of resources: patents, properties, proprietary technologies or relationships Dynamic capability perspective Asymmetries: skills, processes or assets a firms competitors do not and cannot copy at a cost that affords economic rents.
Rare, inimitable and non-substitutable Often act as liabilities not connected to any engine of creation Turn asymmetries into sustainable capabilities http://www.valuebasedmanagement.net/methods_barney_resource_based_view _firm.html

Sharon A. Alvarez and Jay B. Barney, management and human resources, "Entrepreneurial Advantage: The Resource Based View," a chapter in Entrepreneurship as Strategy, G.D. Meyer and K. Heppard, eds., Thousand Oaks: Sage Publications, 2000.

Additional Resources
Insight into Laurence Prusak

Storytelling in Organizations: Why Storytelling Is Transforming 21st Century Organizations and Management
John Seely Brown, Laurence Prusak, Stephen Denning, Katalina Groh : May 2005

In Good Company: How Social Capital Makes Organizations Work; Don Cohen, Laurence Prusak February 2001 Putting Ideas to Work: From Knowledge to Action: October 8,
2004
University of Pennsylvania

KM Asia 2005: October 27, 2004

Suntec Singapore

http://www.gurteen.com/gurteen/gurteen.nsf/id/larry-prusak

Additional Resources
Insight into Liam Fahey

Competitors: Outwitting, Outmaneuvering and Outperforming (1999) The Portable MBA in Strategy (2nd ed., 2001) http://www.managementonly.com/author.php/133/Liam_Fahey