Dr.

Vidya Sekhri
Professor IMS, Ghaziabad

Creating Competitive advantage in global economy thru knowledge Management – A

Resource- Based-View

Abstract

We are not only in a new millennium, but also in a new era, the knowledge era.In the 21st
century firms must compete in a complex and challenging context that is being
transformed by many factors like globalization, technological development, increasingly
rapid diffusion of new technology and development and use of knowledge. This new
landscape requires firms to do things differently in order to survive and prosper. They
must look to new sources of competitive advantage and engaging in new form of
competition. One popular approach to understanding competitive dynamics is the
resource-based-view of the firm. Which defines a strategic asset as one that is rare,
valuable, imperfectly imitable and non-substitutable. Knowledge is seen as a strategic
asset with the potential to be a source of competitive advantage for an organization. This
paper focuses a light on how and why Knowledge Management (KM) can be used to
create competitive advantage.

Introduction

We are living in an economy of Kaleidoscope change where the only element, which is
constant, is change. The industry environment is being influenced by unexpected,
multiple changes reducing the period for which organizations can hold on to a
competitive advantage. Quickness is crucial to the success of firms in the rapidly
changing setting of the knowledge era. The development and practice of KM is
continuously and dramatically increasing in organizations. Due to improvements in KM,
the race for seeking a competitive advantage through knowledge increases at even faster
rate. Businesses have recognized the importance of intangible assets long back. The
development of brands, IPRs, reputation, stakeholder relationships and the culture of
organization is readily viewed as providing sustainable sources of business advantage.

The ability to develop and leverage the value of these intangibles confesses a core
competency for organizations, particularly those providing services, where processing
knowledge is central to business success. The importance of focus of knowledge as a
source of competitive advantage is understood better when one looks at the ratio of
market value to book value of knowledge intensive firm – eg Infosys, which has got a
ratio of more than 10.

Success in today’s global interconnected economy comes from the fast and efficient
exchange of information. Sustainable competitive advantage is no longer rooted in
physical assets and financial capital but in effective channeling of intellectual capital.
Spender (1996) contended that firm’s knowledge and its capability to create exclusive
knowledge are at the center of the theory of the firm.

Knowledge Management

There is a general acceptance that sustainable competitive advantage in the 21st century
will be accomplished through KM. KM can be best understood in the terms of discipline
rather than a “silver butted” or a “technological solution” “Programmed” and “automatic”
business models built upon computational logic based on memories of the past are not
adequate any more. Large organizations are becoming progressively more alert to the
significance of knowledge for efficiency and competitiveness. The main cause for this
concern with KM is the idea that knowledge and its application are the means by which
creativity can be promoted, innovation facilitated and competencies pulled in such a way
as to advance overall organizational performance. Some of the KM drivers include
competition, customer focus, the challenge of a mobile workforce, equity in the
workplace & the global imperative.

Organizations, over the years have practiced many methods to create and sustain
competitive advantage. Some of the initiatives are TQM, BPR, SCM, CRM, Balanced
Score-card, Info-Mapping and Information Resource Management. These initiatives,
although have resulted in firms attaining some competitive advantage are replicable and
not sustainable over a longer period of time. Hence organizations are now focusing on
methods of creating new knowledge and harnessing existing knowledge to gain
sustainable competitive advantage.

Defining KM is difficult as it has multiple interpretations (chai – 2000) KM is a

conscious strategy of getting the right knowledge to the right people at the right time and
helping people share and pet information action in ways that will improve organizational
performance KM is to main objective –
(1) as to make the organization act as intelligently as possible in order to secure its
viability and overall success
(2) to realize the best value of its knowledge assets.

Thus to leverage an organization’s intellectual assets in sustaining competitive advantage

is the knowledge management’s purpose.

The Knowledge Process -

The knowledge process usually involves several stages or sub-processes. The key stages
in this process are; (1) generate knowledge, (2) represent and embed knowledge, (3) store
knowledge, (4) access knowledge and finally, (5) transfer knowledge. These are
illustrated in figure and examined in more detail below. In order to successfully manage
knowledge, enterprises should focus on these five activities.

GENERATE

TRANSFER REPRESENT

ACCESS STORE

Generate

Knowledge generation includes the creation of new ideas, the recognition of new
patterns, the synthesis of separate disciplines and the development of new products and
processes. It encompasses both creating new knowledge and acquiring existing
knowledge from somewhere else. According to Nonaka and Takeuchi [2] organisational
knowledge creation is a never ending, iterative process. They add that this process is not
confined within the organisation, but it also takes place between organisations.
Knowledge (or facts and information) can be obtained by activities such as; scanning the
external environment, capturing the voice of the customer, undertaking research and
development, etc. Often the most fruitful knowledge generation for product innovation
involves identifying problems and suggesting solutions to rectify them.

Represent

In order to reuse knowledge some form of representation of knowledge must take place.
Knowledge representation or codification is the process of putting knowledge into
various forms that can be accessed, leveraged and transferred. Representations can range
from strict and formal codification (such as policies and procedures) to an archive of tacit
elements (such as stories and lessons learned). Tools such as knowledge maps help
address where to find knowledge within and between organisations. They are designed to
help people to find what they need to know whether it is a person, place or thing.
Knowledge maps are also used to sketch the knowledge flows within a process, from
acquisition (including generation) through development, storage and transfer.

Store

Organisational memory incorporates both hard data such as numbers, facts, figures, and
rules as well as soft information such as tacit knowledge, expertise, experiences,
anecdotes, critical incidents, stories, artifacts, and details about strategic decisions. It is
important to have mechanisms, which can store and retrieve all kinds of data, information
and knowledge. Most organisations have various kinds of information systems such as
inventory control systems, budgetary systems, and administrative systems to store "hard"
data or facts, but do not have similar systems to capture "softer" information and
knowledge. Ideas generated by employees in the course of their work are rarely shared
beyond a small group of colleagues or team members. It seems that greater organisational
learning can occur if these experiences and narratives are stored electronically for future
reference.

Access

Knowledge and information are located in many different places in an organisation.

Knowledge such as best practice accounts, lessons learned and experience can be found
in the heads of professionals, managers and engineers while, customer information,
reports and procedures are often scattered across paper files and computer media. This is
particularly evident in the product development process. It is imperative to integrate these
systems, databases and applications to support knowledge management objectives.
Technology in the form of data dictionaries and online databases facilitate the integration
of systems knowledge and information. Organisational knowledge management uses
repositories and improved access to make critical knowledge available wherever and
whenever it is needed. Hypermedia-based information systems are highly beneficial in
areas that deal with large, complex, richly connected, and cross-referenced bodies of
information.

Transfer

Knowledge transfer is designed to enable the flow of knowledge among and between
individuals and groups. The cornerstone of management lies in being able to effectively
communicate policies, procedures, technical reference and quality standards, all of which
form an organisation's asset of knowledge based information. Knowledge transfer or
distribution refers to the process by which an organisation shares this knowledge and
information among members, thereby promoting learning and producing new knowledge
or understanding. Much learning and innovation takes place in informal networks, often
called "communities of practice". GroupWare or collaborative systems facilitate these
networks. They allow the joint construction and distribution of experiences and insights
and enable the creation of social networks. Thus, they not only support communication
but also collaboration.

Resource Based View of the Firm

One popular approach to understand competitive dynamics is the resource-based view of

the firm. According to this view, the explanation for why some firms ultimately succeed
and others fail can be found in understanding their resources and capabilities. A firm’s
resources and capabilities influence both the strategic choices that managers make and
the implementation of those chosen strategies.

To understand why certain competitive strategies are more effective than others, one
must consider the distribution of resources in competing firms. Although a given firm
may possess as more or less of any particular resource, only those resources that are rare,
valuable and difficult to imitate provide a sustainable competitive advantage. (Amit &
Schomaker 1993, Barney-1991) when the strategies employees are successful in
leveraging the firm’s rare, valuable and difficult-to-imitate resources that firm is likely to
gain an advantage over its competitors in the market place and thus earn higher returns.
Competitive advantage that are sustained over time lead to higher performance.
Competitive advantage is normally defined as the ability to earn ROI constantly above
the average for the industry (porter 1995), Barney (1991) indicates that a firm is said to
have a competitive advantage when it implements a value creating strategy not
simultaneously being implemented by any current potential competitors. Sustainable
competitive advantage results only from strategic assets (Mesco and Smith 2000)

Resource-based theory treats enterprises as potential creators of value added capabilities,

and the underlying organizational competence involves viewers the assets and resources
of the firm from a knowledge-based perspective it focuses on the idea of costly to copy
attributes of the firm as sources of business returns and the means of achieve superior
performance and competitive advantage.(Prien and Buffer 2001) Summarized the RBV
statements in the following two mathematical expressions:

• Prob (CA) = f* (v∩r)

• Prob (CS) = f* (CA∩in∩sn∩tn)

Where CA = Competitive Advantage

v = Resource Value
 r = Resource Varity
s = Sustainability

in = Non-imitability

sn = Non-substitutability

tn = Non-transferability

The first statement shows that the probability of achieving competitive advantage is a
positive function of the joint occurrence of resource value and rarity.

The second statement shares that the probability of sustainability of an existing

competitive advantage is a positive function of the joint occurrence of competitive
advantage non-imitability non-substitutability and non-transferability.

Resource and Competitive Advantage

To enjoy a competitive advantage, a firm must do what its rivals can not do; or if
it does what its rivals can do, than its must do it better.

The resource-based of the firm suggest that the source of sustained competitive
advantage is firm-specific resource that are valuable, lack substitutes and are hard
to imitate.

Resources are increasing becoming global because they can be located anywhere
and can be deployed anywhere in the world.

Global Resource Arbitrage

Resource arbitrage is the exploitation of differentials in resource availability costs

and productivity across geographical brandaries and across firm to achieve
competitive advantage.

Reasons for resource arbitrage opportunities:
* Non-financial resources and assets are not liquid
* Transaction costs are significant in non-financial markets.
* Non-financial assets are acquired for strategic reasons that go beyond trading or
investment profits.

How Global is Global

Outbound – Selling Globally

Emphasis on creating international sales present

Subsidiaries serve as sales or marketing arms

“world as your market”
Inbound and outbound – making globally

Emphasis shifts to manufacturing and procurement

Marketing emphasizes low cost locations

“World as your factory”

End-to-End Operating Globally

Emphasis shifts to knowledge intensive processes

Geographical entities become centers for excellence

“World as your source for talent of resources”

The Resource-Based Model of KM for Competitive Advantage

Knowledge Management is clearly a key approach to solving current problems such as

competitiveness and the need to innovate. This paper aims to answer the following
questions:

1. Do knowledge management system yield competitive advantage?

2. If so, what is the nature of relationship between knowledge management and
competitive advantage?

Competitive advantage can be created in numerous ways eg by size, location, access to

resources, or even by plain luck. Lastly advantage comes from using knowledge
management systems to support. What be do well and to add value to resources we
possess that are not readily available to competitors.

A pre-requisite of implementation of knowledge management is – to understand and

develop infrastructure elements required to support the acquisition management and
transfer of tacit & explicit organizational knowledge. Emphasis on people, process &
technology innovations adds the value to these resources and the competitive advantage
that results is likely to be sustainable.

Experience & New ways of combining

Knowledge existing resources
Sustainable
Competitive
Advantage
Creativity & Develop New
Innovation Capabilities
Conclusion

Knowledge can be viewed as a socio – technical system of explicit business practices &
policies. It is enabled by the integration of IT tools, business processes, human or social
capital, continuous learning and innovations. Previous implementations of enterprise
wide efforts like ERP, CRM, have exhibited similar properties. Finally RBV indicate that
competitive advantages can be created & sustained via knowledge use.

References:
• Amit RH & Schoe maker PJH (1993) “Strategic Assets & Organizational Rent”
• Barney JB (1986) “Strategic Factor markets, Expectations, Luck & Business
Strategy Management Science. Vol 32
• Barney JB (1991) “Firm Resource & Sustainable Competitive Advantage”
Journal of Management Vol 17
• Mohan Sawhney – exl service off share BPO event, (June 24, 2005)
• Eliezer Geiser – Harnessing the value of experience in a knowledge-driven-firm
Business Horizons may/june 1999.
• Michael Zack – Competing on knowledge – www.knowledge.com
• Monaka & RT Takeuchi, The knowledge creating company, Harward Business
press, Boston (1995)
• Business Management – Asia September 2003 3/4 . Is knowledge the ultimate
competitive advantages.
• Brown J.S. and Duguid P (1998) “Organising knowledge” California
Management Review Vol 5
• Cornner KR and Prahalad C.K (1996) “A resource based theories of the firm.
Knowledge vs opportunism organizational science Vol 7 no.5
• Coyne K.P (1986) sustainable competitive advantage - what it is and what it is
not” Business Harizons, January/February
• Drucker P.F (1988) “Management and the world’s Work” HBR –
September/October
• Haggie K and Kingston J (2003) “Choosing your knowledge management
strategies journal of KM practice, June
• Porter ME (1985) Competitive advantage, The free Press, New York.
• Prahalad CK and Hamet G (1990) “The Core competence of the corpn” HBR Vol
68 No 3
• Halvai L. Aranson J and Mccarthy R (2005) Resource Based view of knowledge
management for competitive advantage. The electronic, journal of knowledge
management vol. 3 issue 2.