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

Internal Analysis Strengths Weaknesses Resource Based Model Opportunities Threats External Analysis Environmental Models of Competitive Advantage Firms obtain sustained competitive advantage by: Exploiting internal strengths Responding to environmental opportunities Neutralizing external threats Avoiding internal weaknesses

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 Physical capital: Human capital: Organizational capital: The physical technology used in a firm, a firm’s plant and equipment, its geographic location, and its access to raw materials. The training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm. 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

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. 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 Sustained Competitive Advantage

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: 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. Valuable Not substitutable

Firm Resources and Sustained Competitive Advantage 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: 1.Unique historical conditions 2.Causal ambiguity 3.Social complexity Rare Imperfectly Imitable

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-in- progress 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 face- to-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. Allow individuals frequent opportunities to discuss and debate what knowledge is 3. Help individuals identify current and desired knowledge roles 4. 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  The strategy centers on the computer  Knowledge carefully codified and stored in databases  Accessed and used easily by anyone in the company  Personalization  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 clearHighly 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. Why customers buy a company’s products/services rather than those of its competitors 2. What value do customers expect from the company? 3. 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. Standardized or customized products? 2. Mature or innovative products? 3. People rely on explicit or tacit knowledge to solve problems?

Do Not Straddle  Companies that use knowledge effectively: 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

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