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Knowledge is the organisation's essential source of competetive advantage

A discussion

Essay 2009 18 Pages

Psychology - Work, Business, Organisational and Economic Psychology

Excerpt

Content

INTRODUCTION

A | SITUATION: ORGANISING KNOWLEDGE AND COMPETITIVENESS
KNOWLEDGE AS A WELL-KNOWN CONCEPT
ENTERING THE KNOWLEDGE ERA
INCREASING IMPORTANCE OF INNOVATION AS KEY TO COMPETITIVENESS

B | COMPLICATION: BURDENS FOR ORGANISING KNOWLEDGE EFFECTIVELY
BURDEN 1 - COMPLEX CHARACTERISTICS OF KNOWLEDGE
BURDEN 2 - LONG-TERM, UNCERTAIN AND INTRANSPARENT PAY-OFFS
BURDEN 3 - DISINCENTIVES

C | SOLUTION: IDEAS FOR FOSTERING KM IN PRACTICE
IDEA 1 - APPROACHING A COMMON GROUND
IDEA 2 - CONVINCING MANAGEMENT AND INVESTORS TO PRIORITIZE
IDEA 3 - APPROACHING NEW INCENTIVE STRUCTURES TO MAKE EVERYONE CONTRIBUTE

REFERENCES

Introduction

"The only thing that gives an organization a competitive edge – the only that is sustainable – is what it knows, how it uses what it knows and how fast it can know something knew" (Prusak 1996).

Organising knowledge effectively is often discussed as central element of successful organisations. The initial statement – or: hypothesis - emphasizes this perspective. Discussing this hypothesis raises three major questions: 1. Does literature support the perspective of knowledge as key factor for competitiveness? 2. Which role does knowledge actually play in organisational practices and how comes that – despite a general sense of importance and a broad academic discussion – handling knowledge appropriately is not ultimately implemented and cultivated in today's organisations? 3. What needs to be done in order to close this gap between theory and practice?

Consequently, this essay goes beyond just "testing" the initial hypothesis by discussing the above raised questions in a structured, three-part approach:

A. Situation: Organising knowledge and competitiveness
B. Complication: Burdens for organising knowledge effectively
C. Concluding solution: Ideas for fostering knowledge management in practice

Prior to starting the discussion, definitions of key terms stated in the essay's thesis might be valuable and are briefly provided below:

Firstly, according to Tsoukas and Vladimirou Organisational knowledge "is the capability members of an organisation have developed to draw distinctions in the process of carrying out their work, in particular concrete contexts, by enacting sets of generalizations whose application depends on historically evolved collective understanding" (2001:973). Secondly, to find out if knowledge is the organisation's source of competitive advantage a definition of the term might be valuable as well. According to Michael Porter - the "inventor" of the term - an organisation is to be said to possess a competitive advantage over its rivals, when the organisation sustains profits that exceed the average for its industry. The goal of many business strategies is to achieve a sustainable competitive advantage. Porter identified two basic types of competitive advantage: cost advantage and differentiation advantage (Porter 1998). This basic perspective can be applied to profit and non-profit as well as public and private organisations.

Although the essay's three chapters enable a broad discussion, some interesting aspects cannot be integrated and for the sake of necessary brevity must be left for further examination. Most important to mention are the function of knowledge as representation (e.g., Jovchelovitch 2007) and the resulting implications for learning (concept of the learning organisation) and further explanations of the resourced-based view of the firm (e.g., Zander and Kogut 1995).

A | Situation: Organising knowledge and competitiveness

"Today's economy is a knowledge-based economy where the ability to create, distribute and apply knowledge are the key drivers of worker productivity, company competitive advantage, and regional and industry growth" (DeFillippi, Arthur, Lindsay 2006).

Knowledge as a well-known concept

Emphasizing the importance of intangible assets - particularly knowledge - as a source of economic wealth does not seem to be a new idea (Quintas 2002). As the economist Alfred Marshall puts it nearly 120 years ago: "Capital consists in a great part of knowledge and organisation..." and therefore he is aligned with the initial hypothesis by saying "knowledge is our most powerful engine of production" (Marshall 1890 in Quintas 2002:1). His insight was not even really new at these times, since the close relationship between knowledge and economic as well as political power has been observed for centuries. For example, fishermen have long shared the knowledge of predicting the weather to their community and this knowledge got added to the community's intellectual capital.

Referring to Marshall we could conclude, that the importance of knowledge is not a new phenomenon and – accordingly – dealing with knowledge appropriately is and was ever an essential source of competitiveness. Although agreeing on that, two major developments have occurred that shed a new light on the well-known concepts of knowledge. Firstly, the transformation of our society into the so called "information age" and simultaneously the rise of the "quaternary sector", and secondly, the wide recognition of innovation as key to competitiveness.

Entering the knowledge era

Although no consensus can be found how to name it (knowledge industry, information age, post-industrial society, etc.) one agrees that we have reached a new era, coming along with restructuring of work processes. From the primary importance of the utilization of land over emphasizing labour and capital in the industrial age, having left behind the tertiary service sector, "knowledge has become the most important factor in economic life. It is the chief ingredient of what we buy and sell, the raw material with which we work. According to Steward intellectual capital - not natural resources, machinery, or even financial capital - has become one of the indispensable assets of corporations" (1997:23).

In agreement with the following theorizers and concepts I argue even one step further and - referring to this work's title - call knowledgethemost important resource in our economy.

The foundation stones for this development were laid in the past, beginning in 1962 when Machlup introduced the concept of the knowledge industry. He divides the knowledge sector into five sub-sectors: education, research and development, mass media, information technologies and information services. Based on this categorization he calculated that already in 1959 29% of the GNP in the USA had been produced in knowledge industries and was then growing about 21/2 times faster than the industries that produce all other kinds of goods and services.

Porat (1977) distinguishes a primary (information goods and services that are directly used in the production, distribution or processing of information) and a secondary sector (information services produced for internal consumption by government and non-information firms) of the information economy. He uses the total value added by the primary and secondary information sector to the GNP as an indicator for the information economy.

Building on the concept of the information economy, an information society has been defined as a society where more than half of the GNP - based on Porat's indicators - is produced and additionally more than half of the employees are active in the information economy (Deutsch 1983). Bell emphasised the number of employees producing services and information as an indicator for the informational character of a society: “A post­industrial society is based on services. (...) What counts is not raw muscle power, or energy, but information. (...) A post industrial society is one in which the majority of those employed are not involved in the production of tangible goods“ (Bell 1976:127,348).

A decade later, Peter Drucker emphasizes the transition from an economy based on material goods to one based on knowledge. "In this society, knowledge istheprimary resource for individuals and for the economy overall. Land, labor, and capital-the economist's traditional factors of production- do not disappear, but they become secondary" (Drucker 1993:95).

To sum up, the agreement that "economic prosperity rests upon knowledge and its useful application" (Teece 1981:32) seems to persist for over five decades now. Consequently, the increase in useful knowledge and the extension of its application are the essence of economic growth in modern times.

Increasing importance of innovation as key to competitiveness

That innovation is the central feature of competition in capitalist economies is a widely-held view. Zander and Kogut claim that "[due] to the force of competition and changes in consumers' wants, the firm's long-run survival and growth depend on its ability to develop new products and new methods of organization" (1995:76).

Furthermore, in our current situation we have to face interdependent driving forces like globalization, developments in infrastructure and IT and other technological changes that are challenging the rules of business and national competitiveness and transforming organisational life. Globalization in general is responsible for narrower markets and more competitors in one market/industry. It is largely driven by developments in infrastructure/transport, modern information technology and connectivity developments such as the internet. A "global village" has developed with new and faster competition. For example, the innovation of remote X-ray diagnostic in European hospitals by Indian radiologists has wide influence; it enables participating hospitals to offer 24/7 radiology services at lower costs. Being able to implement and run such an innovation clearly means a competitive advantage.

Furthermore the rapid technological change and market requirements often reduce lifecycles of products/services and thus fosters organisations to adapt in shorter time than before. For example in former times the life-cycle of a car was about 7 to 8 years – implying that an equal time horizon was given for the development of a succeeding model. Today, cars' lifecycles have been reduced to approximately 5 years and – within these 5 years – a "facelift" is required. This means a dramatic reduction of the available development time and thus increased requirements for learning and innovation.

Concluding, "these trends are frequently mentioned as major reason for the increasing demands for innovation and therefore for the innovation in our current ways of organizing" (Garcia 2006:84). The increased necessity for innovation requires not only organizing organisational life differently but, also even more important, the knowledge connected to it. Consequently, Nonaka and Takeuchi (1995) claim that the key relationship between knowledge and competitive advantage lies in the potential for knowledge creation to lead to innovation, which in turn provides the basis for competitive advantage.

The general "omnipresence" of knowledge and its increasing importance due to accelerated societal change emphasise the increasing awareness for an effective utilization of knowledge and the emerging potentials. Concluding with Blackler's words: "Indeed, in recent years, the importance of expertise for competitive advantage has been emphasized again by economists and business strategists who have suggested that wealth creation is less dependent on the bureaucratic control of resources than it once was, and more dependent on the exercise of specialist knowledge and competencies, or the management of organizational competencies" (1995:1021). Since the impact of knowledge on competitiveness from a conceptual point of view is confirmed, a perspective on practical appliance seems to be coercive: Does the organisation of knowledge play the role in organisational reality that it plays in academic discussions?

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Details

Pages
18
Year
2009
ISBN (eBook)
9783640290307
ISBN (Book)
9783640290352
File size
468 KB
Language
English
Catalog Number
v124063
Institution / College
London School of Economics – Department of Social Psychology
Grade
1,3
Tags
Knowledge Social Organisational Psychology

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Title: Knowledge is the organisation's essential source of competetive advantage