Knowledge as Resource Vs Resource Based Theory

If the acadmecians considers Knowledge as a key resource then why cant Resource based theory add one more resource in definition. Was it really necessary to develop a whole set of new theory to assure the Knowledge as key resource for the organisation to get a competitive advantage. In this blog, I have focussed more on the difference between RBT and KBT and how knowledge as resource is different from other resources metioned in RBT.

Concise Theory of Resource Based Theory
The resource-based view (RBV) argues that firms possess resources, a subset of which enable them to achieve competitive advantage, and a subset of those that lead to superior long-term performance. Resources that are valuable and rare can lead to the creation of competitive advantage. That advantage can be sustained over longer time periods to the extent that the firm is able to protect against resource imitation, transfer, or substitution.

(Barney, J. B. (1991a). “Firm resources and sustained competitive advantage.” Journal of Management, 17, pp. 99-120. )

Source : Wade and Hulland (2004)

Concise Theory of Knowledge Based Theory

The knowledge-based theory of the firm considers knowledge as the most strategically significant resource of the firm. Its proponents argue that because knowledge-based resources are usually difficult to imitate and socially complex, heterogeneous knowledge bases and capabilities among firms are the major determinants of sustained competitive advantage and superior corporate performance.

This knowledge is embedded and carried through multiple entities including organizational culture and identity, policies, routines, documents, systems, and employees. Originating from the strategic management literature, this perspective builds upon and extends the resource-based view of the firm (RBV) initially promoted by Penrose (1959) and later expanded by others (Wernerfelt 1984, Barney 1991, Conner 1991).

(Grant, R.M. “Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal (17), Winter Special Issue, 1996, pp. 109-122.)

Why Knowledge based theory???

Although the resource-based view of the firm recognizes the important role of knowledge in firms that achieve a competitive advantage, proponents of the knowledge-based view argue that the resource-based perspective does not go far enough. Specifically, the RBV treats knowledge as a generic resource, rather than having special characteristics. It therefore does not distinguish between different types of knowledge-based capabilities. Information technologies can play an important role in the knowledge-based view of the firm in that information systems can be used to synthesize, enhance, and expedite large-scale intra- and inter-firm knowledge management (Alavi and Leidner 2001).

How Knowledge is Different than other Resources ?

If knowledge based view and Resource based view both agrees towards achieving competitive advantage for a firm, there must be some dissimilarity in their approach and as mentioned in above statement by Alavi and Leidner , Information technology is one aspect but what I believe is the characterstics of these resource are major contributing factors in their differences.

As mentioned above, the resource of the firm must have the characterstics:

• Valuable
• Rare
• Less substituable
• Unimitability
• Low Mobility

These are the major characterstics of resource which helps organisation to attain a competitive advantage in a long term and seems quite justifiable too . For eg , one of the major factor ensuring sustainability of oil companies and economies is the scarcity of resource ie. crude oil which are valuable , rare, less subtituable, unimmitable and ofcourse less mobility. Certainly there are lots of entry barrier in this industry because of the nature of the resource expertise needed.

Let us analyse the characterstics of knowledge and compare with characterstics as resource. There are few questions which comes to my mind?

1. Can knowledge be rare in the long term to sustain competitive advantage?

2. Whether it is difficult to transfer knowledge?

3. Can Knolwedge be imitated?

4. Can knowledge be rare?

5. Can knowledge be substituted?

Well when I try to answer these questions, I personally feel it depends on the nature of organisation we are talking point keeping other factors constant. For eg: In auto mobile industries quality of raw materials, low cost high quality manufacturing unit, effecient supply chain management can be key to the competetive advantage. One of the key strategic advantage is its reach to global market with with manufacturing and assembling plant in strategically located places and quality units to produce low cost, fuel effecient and good design cars. Because of these resources they posses, they were able to gain the bigger pie of market share. No doubt , knowledge is key in this and is embedded in all the stages but clearly not as a key resource of the firm.

Now lets take another example of Management consulting company ? Just to start with why Mckinsey or Citi Finance group is considered as best management consultant group and organisations are willing to pay bigger fee to get thier serivces in respect to other firm available at their cheaper cost. what does make them so distinct? What is their key resource that other firms dont have or taking time to build up? The one thing comes to the mind is the knowledge base they have created with their long history behind them. But again Financial resource and corporate culture can be critical to ensure the long term sustainability. Certainly knowledge is a key resource for them with back stopping from other resources.

So, what I conclude is both resource based theory and knowledge based theory operates together in all the firms irrespective of industry and only difference is based on the nature of the organisation, key resources can be different. Some companies phyical and financial resource can be dominant factor for the sustainability while for some knowldege can be dominant resource for sustainability in long term.

Move to a Knowledge Economy

One among the interesting topics discussed in our previous class was how the big economies like US, UK and EU is shifting towards being a knowledge economy. Knowledge has been addition to one of the resources in Land, Labor and Capital. Addition of this resources has brought a whole lot new meaning to the economics of supply and demand and added a new dimension to the world economy. Countries like India and China which is considered as one of the manufacturing hub is also making slow and stead progress to establish themselves as a knowledge economy. To understand this statements its essential to understands the basic of knowledge economy and current scenario of its advancement.

Defining Knowledge Economy
“The weakness or even complete absence of definition is actually pervasive in the literature…this is one of the many imprecisions that make the notion of “knowledge economy” so rhetorical that than analytically useful” (Keith Smith, What is the knowledge Economy? Knowledge Intensity and Distributed Knowledge bases, Institute for new technologies discussion paper 2002-6, The United Nations University, June 2002

During the 1960s the term " Knowledge Economy" was introduced in Drucker (1959) and Machlup ( 1962). The concept was central in much OECD -based research " being and economy in which the production factor labor and capital are aimed at the development and application of new technologies". ( Godin, 2004)

"production and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence. The key component of a knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources". ( Powell and Snellman, School of Education, Stanford University,2004)

Criticism:
There is an opposite view emerging questioning whether the notion of Knowledge economy really exists at all. It has been argued that economy has always been driven by Knowledge leading to innovation and technical change and knowledge based institution have helped to store and share knowledge for centuries. What we see today is essentially more of the same but operating on a bigger scale and at a faster pace.

OECD towards Knowledge Economy: In reference to UK Economy
" the role of knowledge ( as compared with natural resources , physcial capital and low skill labor has taken a greater importance. Although the pace may be differ all OECD economies are moving towards knowledge based economy" (OECD,1996)

UK exports of Knowledge based service ( 1995-2005)

Exports in Billions 1995 2005
1. Business Service 10.1 30.7
2. Financial Services 8.6 24.8
3. Computer Services 0.8 5.8
4. Communications 1.0 3.0
5. Culture/ Media 0.7 2.0
6. Government 1.4 2.0
7. Royalties/ License 3.9 7.3
Knowledge Services 27.3 75.6

Non- Knowledge services 23.3 35.5
Total 50.6 111.1

( Note: All figures in GBP, current prices balance of payment basis. Totals may not sum due to rounding . Source: Office for National Statistics , Knowledge Economy Programme report, Ian Brinkly, the work Foundation)

Based on the Factbook, 2006,published by OECD , all the oecd economies has increased the investement in knowledge marginally but it doesnt mean they have outstripped the investment in physical structures. The factbook shows that Sweden has ranked 1st and among the high investment economies are US, Finland, Korea , Denmark, Japan and Canada. The middle investment economies are Australia, Germany, Netherland, France, Belgium, UK and Austria . Low investment economies are Spain, New Zealand, Ireland, Greece, Italy and Portugal. Out of all the economies , Ireland is a single economy which has negative percentage of investment .

Note: Comparative figures of 1994 to 2002.

( Source: Factbook 2006, OECD)

Knowledge Economy: Is it Only for Knowledge Intensive Organisations?
My personal view stands with the following statement " the idea of knowledege economy is not just a description of high tech knowledge intensive organisation. It describes a set of new sources of competetive advantage which can apply to all sectors, all companies and all regions, from agriculutre and retail to software and biotechnology and manufacturing." ( New measure for the new economy report by Charles lcadbeater, June 1999).

David and forey paper publised in 2002 describe a move to the knowledge or knowledge based economy as sea change or "soft discontiniuty" rather than sharp break from the past.

Defining Knowledge management

It is really interesting to know that there is no standard definition of this concept and everyone has their own school of thoughts. The concept in itself is so much diversified that it might be improper to define it as a term. What I understand as a layman is "Knowledge management is strategy or technique used by the higer management to bring out the experience and expertise of the employees using different methods to make a right decision on a right time in a cost-effective way to meet the goals of the organisation." I am sure I still need to do a lots of research but this was the first thought came into my mind after attending single lecture. Knowledge management not only helps to bring out the solution to the problems but also bring the feeling of ownership among employees toward company they are working for. It motivates them which lead to their work effeciency and results into company effeciency. It will be more interesting to understand the investement -return ratio from the management point of view i.e what upto level the organisation effeciency increase after implementation of this strategy.