Knowledge Management
Most Cited (1-3)
Prepared by: Francisco J. Gonzalez Jr.
March 19, 2007
MIS 580
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
What’s your Strategy for Managing Knowledge?
Morten T. Hansen, Nitin Nohria, Thomas Tierney
Published: March/April 1999
Firm Resources and
Sustained Competitive
Advantage
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
Strengths
Opportunities
Weaknesses
Threats
Resource Based
Model
Environmental Models of
Competitive Advantage
Competitive environment model
 Analyze a firm’s opportunities and threats in
its competitive environment. (Recent
research focus--1984, Lamb )
 2 assumptions:


Homogeneous resources
Highly mobile resources
Resources based model
 Examine the link between a firms internal
characteristics and performance
 2 assumptions


Heterogeneous resources
Highly immobile resources
Defining Key Concepts
Organizational capital:
A firm’s formal reporting structure, its formal and informal planning,
controlling, and coordinating systems, as well as informal relations
among groups within a firm and between the firm and those in its
environment
Physical capital:
The physical technology used in a firm, a firm’s plant and equipment, its
geographic location, and its access to raw materials.
Human capital:
The training, experience, judgment, intelligence, relationships, and
insight of individual managers and workers in a firm.
Defining Key Concepts
Competitive advantage
A firm is said to have a competitive
advantage when it is implementing a value
creating strategy not simultaneously being
implemented by any current or potential
competitors.
Sustained Competitive Advantage
A firm is said to have a sustained
competitive advantage when it is
implementing a value creating strategy not
simultaneously being implemented by any
current or potential competitors and when
these other firms are unable to duplicate the
benefits of this strategy
Defining Key Concepts
Definitions:


Apply to both existing and potential competitors
Sustained competitive advantage does not depend on calendar
time, but on the possibility of competitive duplication



Avoids problem of specifying how long to be sustained
Sustained does not mean forever; only until duplicated
“Schumpeterian Shocks”: structural revolutions in an
industry that can redefine which of a firm’s attributes are
resources and which are not
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
Not substitutable
Resources are valuable when they
enable a firm to conceive of or
implement strategies that improve its
efficiency and effectiveness.
Attributes become resources only
when they can exploit opportunities
and neutralize threats in a firm’s
environment.
There must be no strategically
equivalent valuable resources that are
themselves either not rare or
imitable.
Firm Resources and Sustained Competitive
Advantage
Rare
If a valuable firm resource is
possessed by many firms, then each of
these firms can exploit this resource,
thereby implementing a common
strategy that gives no one firm a
competitive advantage. This,
implicitly, means that the resource is
not rare.
Dependent upon:
Imperfectly Imitable
1.
Unique historical conditions
2.
Causal ambiguity
3.
Social complexity
Applying the Framework
Firm Resource
Heterogeneity
Firm Resource
Immobility
Value
Rareness
Imperfect Immobility
History
Dependent
Casual Ambiguity
Social
Complexity
Substitutability
Sustained
Competitive
Advantage
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 Knowledge
Management
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
Error 1: Not Developing a Working
Definition on Knowledge
 Knowledge must be different from data and
information

It is important for management to make the
distinction between these data elements so that
their employees support knowledge efforts
 Historically Managers have steered clear of
the “Knowledge word”

The argument against knowledge is that it
distracts managers from the necessary task of
managing
Error 2: Emphasizing Knowledge Stock to
the Detriment of Knowledge Flow
 Knowledge is a flow, not a stock item


It is developed, transmitted and leveraged by
individuals
It is central to day-to-day doing and being
 Ingrained in a Knowledge is a stock world

We have been trained since grade school to learn
facts and regurgitate them as it translates to IT:
Capture
Store
Retrieve
Transmit
Error 3: Viewing Knowledge as Existing
Predominantly Outside the Heads of
Individuals
 Knowledge originates between the ears

Organizations seem to fall in to the trap that
knowledge has a life of its own
 The struggle then becomes how to emulate
the “know-how” in between the ears in the
form of a knowledge base or system
Error 4:Not Understanding that a
Fundamental Intermediate Purpose of
Managing Knowledge Is to Create Shared
Context
 Knowledge can be leveraged and evolve over
time


Therefore a shared forum must be developed to
track the changes and keep current the
knowledge stores
Knowledge must be transferred from generation
to generation, i.e. a master teaching an
apprentice
Error 5: Paying Little Heed to the Role
and Importance of Tacit Knowledge
 Tacit Knowledge is the means by which explicit
knowledge is captured, assimilated, created and
disseminated

The reason is that managers simply do not understand
the nature of tacit knowledge, its attributes, or its
consequences
 e.g. Organization that thought its service was the
reason customers continued to do business with
them
Error 6: Disentangling Knowledge
from Its Uses
 Information about customers becomes
knowledge when decision makers determine
how to take advantage of the information

Most companies keep data warehouses with
terabytes of data, but it then must be acted upon
to develop knowledge
 Collecting, refining and perfecting data
information is not beneficial…
Error 7: Downplaying Thinking and
Reasoning
 Knowledge generation and use at the level of
individuals and groups is a never-ending work-inprogress

Organizations should allow for knowledge workers to
think and reason through business processes to
continually evolve knowledge
 Organizations need to attack problems from many
angles and with many knowledge workers rather than
standardizing solutions
Error 8: Focusing on the Past and the
Present and Not the Future
 If the intent of knowledge is to inform and
influence decision making, then its focus must
be on the future

Yet in most organizations knowledge is used for
understanding the past and present change
 Reasons for this include the ease of
collecting data about the past and present as
apposed to the future
Error 9: Failing to Recognize the
Importance of Experimentation
 Experiments are a crucial source of data and
information necessary for the invigoration of
knowledge

There are many different forms of experiments an
organization can initiate, but the culture must be one
that accepts new ideas and is open to changed
processes
 Once technology is in place, it tends to standardize
approaches and processes within an organization
which limits experimentation
Error 10: Substituting Technological
Contact for Human Interface
 With the vast improvements in data and
information transmission through technology,
there is a widespread tendency look at these
new IT tools as Knowledge developers

Technological contact is being equated with faceto-face dialogue
 Remember Knowledge is developed between
the ears
Error 11: Seeking to Develop Direct
Measures of Knowledge
 Where is the pay-off to knowledge projects?

Metrics do not provide any sense of an
organization’s stock or flow of knowledge or its
contribution to decision making and
organizational performance.
 Some firms are measuring number of
patents, new products developed, customer
retention and process innovation
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.
3.
4.
Allow individuals frequent opportunities to discuss
and debate what knowledge is
Help individuals identify current and desired
knowledge roles
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.
What’s Your Strategy
For Managing
Knowledge?
What’s your strategy for Managing
Knowledge?

1990’s 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
Knowledge Management Strategies

Codification




Personalization




The strategy centers on the computer
Knowledge carefully codified and stored in databases
Accessed and used easily by anyone in the company
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
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
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
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
Problems don’t have clear solutions
Service offering is very clear
Highly customized solutions
“Economics of reuse”
“Expert economics”
Hires undergrads from top
universities and train them
Hire top-tier MBA grads
Choosing the Right Strategy
1.
2.
3.
Why customers buy a company’s 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:
1.
2.
3.
Standardized or customized products?
Mature or innovative products?
People rely on explicit or tacit knowledge to solve problems?
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
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
Questions and
Comments?