Prospering in Dynamically-Competitive Environments

Fon Sundaravej
Prospering in Dynamically-Competitive Environments: Organizational Capability
as Knowledge Integration
By Robert M. Grant
This study examines determinants of competitive advantage in dynamically competitive
market environments by analyzing the role of knowledge in organizational capability.
The proposed model of organizational capability derives from several assumptions
regarding the characteristics of knowledge and its deployment. Grant (1996), similar to
Nonaka (1994), classifies knowledge into explicit and tacit knowledge. His study
emphasizes on tacit knowledge which is perceived as know-how or practical skills of
particular members of organizations. Advances in knowledge require combining
specializations of many individuals. The primary role of an organization is to integrate
specialized knowledge, which is defined as an organizational capability. Integration
across specialties is not feasible for an individual due to a cognitive limit. Grant (1996)
views the integration of knowledge into organizational capabilities as a hierarchy. The
base of the hierarchy is the specialized knowledge held by individual organizational
members. The upper levels keep broader integrated knowledge. The wider the span of
knowledge being integrated, the more complex is the hierarchy. Prior literature posits two
knowledge integration mechanisms: direction and organizational routine. The direction
method involves codifying tacit knowledge into explicit rules and instructions. On the
other hand, an organization routine accounts for the observation of any work team. These
two mechanisms present in the same fashion as knowledge defined by Nonaka (1994).
Knowledge integration is a critical strategy to sustain organizational competitive
advantage under dynamic market conditions. Grant (1996) identifies three characteristics
of knowledge integration pertinent to the competitive advantage: the efficiency, scope,
and flexibility of integration. Three factors are significant in determining the high
efficiency integration: the high level of common knowledge, low frequency and
variability of task performance, and high structure. Increased scope of integrated
knowledge allows increasing potential of establishing and sustaining competitive
advantages due to higher degree of difficulty faced by competitors in replicating that
capability. Lastly, the organization should be able to extend existing capabilities to cover
additional types of knowledge and reconfigure existing knowledge into new types of
At the end, the paper provides implication of firm networks under hyper-competition
based on the assumptions and propositions. There are three basic alternatives for
knowledge transfer and integration: internalization within the firm, market contracts, and
relational contacts. The paper focuses on the relational contacts. Firm networks based on
relational contacts are an effective way to access knowledge where knowledge can be
expressed in explicit form, where there is a lack of perfect correspondence between
domain and product domain of individual firms or uncertainty over the productknowledge linkages, and where speed in extending the knowledge base is critical in
creating competitive advantage. However, the definition and examples to determine and
illustrate relational contracts should be provided.
IS 7890: IS Research Seminar
Spring 2006
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