Knowledge ManagementKnowledge ManagementMIS 580MIS 580

Firm Resources and Sustained Competitive Firm Resources and Sustained Competitive AdvantageAdvantage

The eleven deadliest sins of knowledge managementThe eleven deadliest sins of knowledge management

What’s Your Strategy for Managing Knowledge?What’s Your Strategy for Managing Knowledge?

Pei Ju YangJaideep Vaze

Firm Resources and Firm Resources and Sustained Competitive Sustained Competitive

AdvantageAdvantage

By Jay BarneyBy Jay Barney

Texas A&M UniversityTexas A&M University

AgendaAgenda• Field of strategic management:

– SWOT– Competitive environment model (external analysis)– Resources based model (internal analysis)

• Defining key concepts

• Competition with homogeneous and perfectly mobile resources

• Firm resources and sustained competitive advantage

• Applying the framework

Importance of this topic Importance of this topic

• Understanding sources of sustained competitive advantage for firms has been the major area of research in the field of strategic management

SWOTSWOT• Organizational framework of the 1960’s

– Internal analysis– External analysis– Matching

Strength

Weakness

Opportunity

Threats

Internal analysis

External analysis

Environmental model of competitive advantage

Resource based model

Competitive environment modelCompetitive 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 modelResources based model

• Examine the link between a firms internal characteristics and performance

• 2 assumptions– Heterogeneous resources– Highly immobile resources

Defining of key conceptsDefining of key concepts

• Firm resources: strengths that firms can use to conceive of and implement their strategies. They include: – Physical capital resources– Human capital resources– Organizational capital resources

• Ps. Not all resources would lead a firm to conceive of and implement a value-creating strategy.

Defining of key Defining of key concepts( cont’l)concepts( cont’l)

• Competitive advantage: – implement a value-creating strategy not

simultaneously being implemented by any current or potential competitors.

• Sustained competitive advantage: – implement a value-creating strategy not

simultaneously being implemented by any current or potential competitors and when these other when these other firms firms are unable to duplicateare unable to duplicate the benefits the benefits of this strategy.of this strategy.

Competition with Competition with Homogeneous & Perfectly Mobile ResourcesHomogeneous & Perfectly Mobile Resources

• Key concept of this analysis:– If resources are homogeneous and mobile

(P), there is no competitive advantage (~Q).

– Therefore, to obtain the competitive advantage (Q), you must focus on resources heterogeneity and immobility (~P).

– P ~Q Q P

Resource Homogeneity and Mobility Resource Homogeneity and Mobility and First-Mover advantagesand First-Mover advantages

• An objection to the concept in slide 10

• The first firm in an industry to implement a strategy can obtain a sustained competitive advantage over other firms.

• However, homogeneous and highly mobile resources would not generate the first-mover.

Resource Homogeneity and Resource Homogeneity and Mobility and Entry/Mobility BarriersMobility and Entry/Mobility Barriers

• Another objection to the concept in slide 10

• Strong entry or mobility barriers would enable the firms to obtain a sustained competitive advantage vis-à-vis firms that are not in their group.

• However, barriers to entry and mobility only exist when resources are heterogeneous and immobile.

Firm resources &Firm resources &Sustained competitive advantageSustained competitive advantage

• Valuable

• Rare: – the number of firms that possess a particular valuable resources

< the number of firms needed to generate perfect competition dynamics

• Imperfectly Imitable: see the next slide

• Substitutability– Similar– Different but of the same effect

Imperfectly imitable resources: other firms Imperfectly imitable resources: other firms cannot obtain the resources.cannot obtain the resources.

• Unique historical condition– Firm’s ability to acquire and exploit some resources

depends on its place in time and space

• Casual ambiguity– The link between the resources controlled by a firm

and a firm’s sustained competitive advantage isn’t understood

• Social complexity – Beyond the ability of firms to systematically manage

and influence

Applying the frameworkApplying the framework

• Strategic Planning system

• Information processing systems

• Positive reputations

SummarySummary

Firm resources:

HeterogeneityImmobility

Valuable

Rare

Imperfect imitable-History dependent-Casual ambiguity-Social complexity

Substitutability

Sustained Competitiveadvantage

The eleven deadliest The eleven deadliest sins of knowledge sins of knowledge

managementmanagement

By, Liam Fahey and Laurence PrusakBy, Liam Fahey and Laurence Prusak

Error 1: Not Developing a Working Error 1: Not Developing a Working Definition on KnowledgeDefinition 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 Error 2: Emphasizing Knowledge Stock to the Detriment of Knowledge Flowto 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 trianed since grade school to learn

facts and regurgitate them as it tranlates to IT:

Capture Store Retrieve Transmit

Error 3: Viewing Knowledge as Existing Error 3: Viewing Knowledge as Existing Predominantly Outside the Heads of Predominantly Outside the Heads of

IndividualsIndividuals

• 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 stuff in between the ears in the form of a knowledge base or system

Error 4:Not Understanding that a Error 4:Not Understanding that a Fundamental Intermediate Purpose of Fundamental Intermediate Purpose of

Managing Knowledge Is to Create Managing Knowledge Is to Create Shared ContextShared 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 much like a folktale

Error 5: Paying Little Heed to the Error 5: Paying Little Heed to the Role and Importance of Tacit Role and Importance of Tacit

KnowledgeKnowledge

• 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 Error 6: Disentangling Knowledge from Its Usesfrom 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 Error 7: Downplaying Thinking and ReasoningReasoning

• 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 Error 8: Focusing on the Past and the Present and Not the Futurethe Present and Not the Future

• If the intent of knowledge is to inform and influence decision making, then its foces 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 Error 9: Failing to Recognize the Importance of ExperimentationImportance 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 Error 10: Substituting Technological Contact for Human InterfaceContact for Human Interface

• With the vast improvements in data and information transmission through technology, there is a widespread tendancy 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 Error 11: Seeking to Develop Direct Measures of KnowledgeMeasures 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

In ConclusionIn Conclusion

• Managers must be enthusiastic for knowledge

• Constantly correct errors in their stock of knowledge

• Correct errors in the generation, movement and leveraging of knowledge within the organization

What’s Your Strategy For What’s Your Strategy For Managing Knowledge?Managing Knowledge?

By Morten T. Hansen, Nitin Nohria and By Morten T. Hansen, Nitin Nohria and Thomas TierneyThomas Tierney

AgendaAgenda

• Knowledge Management

• Codification vs Personalization

• Management consulting firms

• The different strategies at play

• Other Industry perspectives

• Choosing a strategy

Other IndustriesOther Industries

• Health Care• Access Health

– Uses the codification and reuse model– Asses customers symptoms– “We are not inventing a new way to cure disease. We

are taking available knowledge and inventing processes to put it better to use.”

• Memorial Sloan-Kettering Cancer Center– Many experts collaborate on each patients case– “We coordinate intensive face-to-face communication in

order to that knowledge is transferred between researchers and clinicians”

Knowledge Management is nothing Knowledge Management is nothing newnew

• Owners of family businesses have passed their commercial wisdom on to their children for hundreds of years

• Master craftsmen have taught their trades to apprentices

• Only in the 1990’s have chief executives started talking about knowledge manament

Two Main Strategies for KMTwo Main Strategies for KM

• Codification Strategy: Knowledge is carefully codified and stored in databases, where it can be accessed and used easily by anyone in the company

• Personalization Strategy: Knowledge is closely tied to the person that developed it and it is shared mainly through direct person to person contacts

Management Consulting FirmsManagement Consulting Firms

• Knowledge is the core asset of consultancies

• Consulting firms were among the first businesses to pay attention to, and make heavy investments in the management of knowledge

• Also among the first to explore the use of information technology to capture and disseminate knowledge

• Studying these firms provides good insight into what works and what doesn’t

Andersen and E&YAndersen and E&Y

• Theses firms have pursued a codification strategy

• Randall Love at E&Y:– Preparing a bid for an industrial manufacturer to help install

ERP– Used electronic knowledge repository to gain industry

knowledge and previous solutions– Saved time, offered bid within 2 months rather than norm of 4-6

• This is not to say that these consultants don’t share knowledge through dialogue but the codification strategy is emphasized at these firms

Bain, Boston Consulting and Bain, Boston Consulting and McKinseyMcKinsey

• Here the personalization strategies are emphasized

• Marcia Blenko, a partner a Bain solved her problem by

– A financial firm in Britain wanted to expand by offering new products and services

– Blenko knew several partners with expertise in this area, she left voice mails for them and checked Bain’s “people finder” database for more contacts within the company

– She found many contacts and set up meetings to brainstorm and solve the financial firms problem

Technologies in useTechnologies in use

• Andersen and E&Y• Emphasis is on building knowledge databases that

have structured (codified) data that is accessible to all

• Bain, Boston Consulting and McKinsey• Invest heavily in buiding networks of people• Knowledge is shared not only face-to-face but also

over the telephone, by e-mail and via video conferences.

Strategies: Economic ModelStrategies: Economic Model

• Codification• Invest once in a Knowledge asset• Use teams with a high ratio of associates to

partners• Focus on generating large overall revenues

• Personalization• Charge high fees fro highly customized solutions to

unique problems• Small teams with low ratio of associate to partners• Maintain high profit margins

Strategies: Knowledge Strategies: Knowledge Management Management

• Codification• People-to-Documents

– Develop electronic document system that codifies, stores, disseminates, and allows reuse of knowledge

• Personalization• Person-to-Person

– Develop networks for linking people so that tacit knowledge can be shared

Strategies: Information TechnologyStrategies: Information Technology

• Codification• Invest heavily in IT; the goal is to connect people

with reusable codified knowledge

• Personalization• Invest moderately in IT; the goal is to facilitate

conversations and the exchange of tacit knowledge

Strategies: Human ResourcesStrategies: Human Resources

• Codification• Hire new college graduates who are well suited to

the reuse of knowledge and the implementation of solutions

• Reward people for using and contributing to document databases

• Personalization• Hire MBA’s who like problem solving and can

tolerate ambiguity• Reward people for directly sharing knowledge with

others

Choosing a StrategyChoosing a Strategy

• Do not Straddle• Companies that use knowledge effectively use one

strategy predominantly and use the second to support the first

• 80-20 split

• Things to consider• Standarized or customized products?• Mature or innovative products?• Explicit or tacit knowledge to solve problems?

Questions?Questions?

Pei Ju YangPei Ju Yang

Jaideep VazeJaideep Vaze