Knowledge and Competence as Strategic Assets

Goriola Dawodu Diomede Richard Hong Qi

Knowledge Competitive and strategic asset of a company

Firm Repository of knowledge embedded in business routine and business

process, technology competence, knowledge of customers and

suppliers

The knowledge outcome Reflects the maturity level of the firm and the competitive advantage

of the firm

Competitive advantage

Ability for a firm to combine knowledge asset with other asset to create

a value

“Economic prosperity rest upon knowledge and its useful application”

---------Teece, 1981

Advances in developed countries economy signify knowledge and its

management.

Growth of IT has amplified the meaning of IP to include

knowledge asset

Requires same protection and treatment as other IP

Knowledge asset are difficult to copy when compared to other

IP

Knowledge asset and Intellectual

property (IP)

Developed economies have undergone a transformation

from largely raw material processing and manufacturing

activities to the processing of information and

development, application and transfer of new knowledge.

Consequence of this includes replacement of diminishing

return with increasing returns this is usually paramount by

knowledge-based industries.

Growth importance

Positive feedback reinforced the winners and challenged the

looser

Market tilts in favor of provider that gets out in front. These

firms are not the pioneer and need not have the best product

Outcome

Capturing value from knowledge and competence

Introduction

Distinction between creation of new knowledge and its commercialization.

Creation of new knowledge as domain of individuals, or of research laboratory or of autonomous business units.(No complex organization needed- better designed for smaller organization.)

Capturing value from knowledge and competence Commercialization of new technology as domain of complex

organization.

Some requirements:

---challenges requiring new organization form and development of new dynamic capabilities.

--- understanding of the nature of knowledge and competence as strategic assets.

---The nature of knowledge is critical to the strategic nature of knowledge and competence.

Nature of knowledge Codified /Tacit Taxonomy

Relationship between codification of knowledge and the costs of its transfer

Good and relative economical result for a transfer of a codified item of knowledge or experience(technical property). The transfer of information has a meaning to those who received it due to the fact the info is codified.

Nature of knowledge

Uncodified knowledge is slow and costly: required face to face contact to eliminate the ambiguities surrounding that nature of knowledge.

Positive/negative knowledge Taxonomy.

Positive knowledge know as Discovery most focus on promising areas, tend to avoid blind alley(failures)

Nature of knowledgeNegative knowledge or knowledge of failure

Necessary to concentrate on negative knowledge to allocate better resources into promising sectors and projects

Autonomous/systematic knowledge

Autonomous knowledge: no major modification of the system to implement new knowledge.

Systematic Innovation: modification of the sub-system.

Replicability, Imitability, and appropriability

Replication: transfer or redeployment of competences from one concrete economic setting to another.(possible if knowledge is fully coded, or productive knowledge transfer has been prior tested)

Knowledge assets normally rather difficult to replicate

Imitation is a replication performed by competitor

Replicability, Imitability, and appropriability

Link between replication and imitation

---Factors that make replication difficult also make imitation difficult

---Ease of imitation determine the sustainability of competitive advantage

Two types of strategies to explain replication.

---Ability to support geographic and product line expansion to support customer where needed.

---ability to replicate using the foundations in place for learning and improvement

Replicability, Imitability, and Appropriability.

Appropriability: ease of imitation.

Appropriability is strong when a technology is inherent and difficult to imitate by competitor.

Appropriability is easy to replicate(weak) when intellectual property protection is unavailable or ineffectual

Intellectual Property Rights

Inherent Replicability

Easy Hard

Loose Weak Moderate

Tight Moderate Strong

Appropriability and Markets for know- how competenceStrong profitability support asset as source of competitive advantage

Competence can be embedded in other corporate assets (like complementary to knowledge asset)

Understanding the limits on the market for know-how help to understand how firms can capture value from knowledge assets

Challenges presented by the know-how and intellectual property

Inherent tradeability of Different Asset

---Recognition of trading Opportunities

---Disclosure of performance Features

---uncertain Legal rights

---Item of Sale.

---Variety

--- Unit of consumption

Sectoral differences in the market for Know-how

Challenge Chemical/Pharmaceuticals

Electronics

Recognition Manageable Extremely complex, often impossible

Disclosure Handled by NDA, patents common

More difficult

Interface issues Compatibility generally not an issue

Compatibility generally critical

Royalty stacking, royalty base dilemmas

Infrequent Frequent

Value context dependent

Strongly so Very strongly so

Patent strength Generally high Sometimes limited

Development cycle

Often long Generally short

Complementary Assets & Dynamic capabilitiesExternal Sensing

Profits from knowledge assets ($$$)

Inherent replicability of the product

Complementary Assets & Technologies

basic (operation

al) competenc

ies of the firm

price/performance characteristics of the product

timing

standards

Organizational actions Role of external resources and internal resources in working

together to seize and maximize opportunities

Complementary Assets & Dynamic capabilities

Implications for the Theory of the Firm

The firm is a repository for knowledge

The knowledge is embedded in business routines and process

The firm’s knowledge base includes its technological competences

as well as it knowledge of customer needs and supplier capabilities

Implications for the Theory of the Firm

The essence of the firm is its ability to create, transfer, assemble,

integrate and exploit knowledge assets

Knowledge assets underpin competences, and competences in turn

underpin the firm’s product and service offering to the market

Implications for the Theory of the

Firm

Dynamic capabilities

---The firm’s ability to sense and seize opportunitie

--- The firm’s ability to reconfigure its knowledge assets,

competencies, and complementary assets

----The firm’s ability to select appropriate organization forms,

---The firm’s ability to allocate resources astutely and

price strategically

Implications for the Theory of the Firm

Dynamic capabilities reflect the firm’s entrepreneurial side of

management. Comparative advantage flows from both management

and structure.

The emphasis on the development and exploitation of knowledge

assets shifts the focus of attention from cost minimization to value

maximization.

ConclusionKnowledge, competence and related intangibles have emerged as the

key drivers of competitive advantage in developed nation

The value-enhancing challenges facing management are gravitating

away from the administrative and towards the entrepreneurial. This is

not to deny the importance of administration, but merely to indicate that

better administration is unlikely to be where the superior profits reside

It is no longer in product markets but in intangible assets where

advantage is built and defended.