Knowledge Based View

 Knowledge Based View 

Research into the resource-based view (see resource-based view) and dynamic capabilities perspective (see resource-based view) is increasingly seeing knowledge as a vital resource, so much so that a separate conceptualisation of the firm has emerged in the form of the knowledgebased view. It is argued that knowledge is a key reason for the existence of firms; “what firms do better than markets is the sharing and transfer of the knowledge of individuals and groups within an organization” (Kogut & Zander, 1992). This view is in complete contrast to the more traditional economics based perspectives which view the firm as an option "of last resort, to be employed when all else fails" (Williamson, 1991). This traditional argument is advanced despite the “ubiquity of organizations” (Simon, 1991), which prompted Simon to ask "[w]ouldn't 'organizational economy' be the more appropriate term?" Knowledge is seen as potentially the most strategically important resource, though also potentially the most difficult to define. What exactly is knowledge? As noted by Grant (1996) this is a question that has intrigued some of the greatest thinkers from Plato to Popper without the emergence of a clear consensus. Not wanting to enter this debate at this point, I’ll simply claim, somewhat tautologically, that knowledge is that which is known. What makes knowledge particularly interesting is that it can be explicit, that being the knowledge that can be articulated to others, and tacit, that being the knowledge that is embedded in people that they are not able to articulate. Polanyi (1966) famously characterised tacit knowledge when he said “we know more than we can say that we know”. In terms of strategy, both explicit and tacit knowledge can be very important. It is generally argued, however, that tacit knowledge is more strategically important as it is embedded in people and extremely difficult for competitors to replicate. In resource-based view terminology, it is inimitable. The valuable tacit knowledge of experts is also largely rare and non-movable therefore satisfying all the characteristics of a valuable resource in the resource-based view. If we take a cooking metaphor, a great chef can develop a recipe that when followed by an amateur cook produces a dish that is almost unrecognisable from the original dish that the recipe is based on. In developing the recipe the chef has included all the information that he was able to articulate about how to cook the dish, but the recipe lacks the tacit knowledge that is embedded in the chef. It is this knowledge that is difficult to copy and therefore strategically valuable. Additionally, when we look at the need for resources to change over time to maintain their market relevance (as is the case with the dynamic capabilities perspective), we are implicitly assuming a level of learning for this change to occur. This learning that facilitates the change relates to knowledge. Lastly, people and their knowledge are also one of the most flexible resources that a firm has access to (Miller & Shamsie, 1996). People can change their knowledge over time, this also tying strongly with the dynamic capabilities perspective. While tacit knowledge can pose challenges for competitors to replicate, it can equally pose challenges for the firm that possesses this knowledge to replicate it. Often firms only have a limited understanding of how they perform an activity, and what knowledge is embedded in this performance that makes it special. Encyclopaedic Dictionary of Strategic Management 2 30/06/2007 While there will always be tacit knowledge in a firm, this does not mean that all tacit knowledge cannot be made explicit. Indeed, organisations spend a large amount of time, effort and money to better understand their tacit knowledge, and in turn convert this tacit knowledge to explicit knowledge to share with other members of the firm. Nonaka (1994), one of the leading voices in the knowledge-based view of the firm, has popularised the focus of knowledge in the firm. He views converting between tacit and explicit knowledge as one of the key challenges for firms to remain competitive. He terms the four conversions in the table below. tacit explicit explicit tacit FROM Internalisation Socialisation Combination TO Externalisation Nonaka claims that organisational knowledge creation takes place when all four mode of knowledge creation are organizationally managed to form a continual cycle. This cycle is depicted in the following schematic. Encyclopaedic Dictionary of Strategic Management 3 30/06/2007 Tacit knowledge Explicit knowledge Individual Group Organisation Inter-organisation Knowledge level Socialisation Internalisation Externalisation Combination It is not argued that these knowledge conversions are easy, and indeed many organisations have been struggling with them in the form of knowledge management (see knowledge management) for a significant period of time. This difficulty, however, is one reason for the potential rewards that should accrue to those firms that are able to make positive steps in knowledge conversion. This is particularly the case for firms operating in dynamic markets where it is argued that sustainable competitive advantage is not achievable, and instead continuous temporary advantages should be targeted (Eisenhardt & Santos, 2002). In these situations, the ability to learn quickly and adapt to changing market conditions is vital to success. This, of course, depends heavily on knowledge. References Eisenhardt, K. M., & Santos, F. M. 2002. Knowledge-based view: A new theory of strategy? In A. Pettigrew, H. Thomas, & R. Whittington (Eds.), Handbook of strategy and management, First ed.: 139-164. London, UK: Sage. Grant, R. M. 1996. Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(Special Issue: Knowledge and the Firm): 109-122. Kogut, B., & Zander, U. 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3(3): 383-398. Miller, D., & Shamsie, J. 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): 519-544. Nonaka, I. 1994. A dynamic theory of organizational knowledge creation. Organization Science, 5(1): 14-37. Encyclopaedic Dictionary of Strategic Management 4 30/06/2007 Polanyi, M. 1966. The tacit dimension. New York: Anchor Day Books. 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