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.