6_KM Most Cited 1-3

Knowledge Management Most Knowledge Management Most Cited 1-3 Cited 1-3

Presented by: Lana Abu-ShaheenUndergraduate Senior in Management Information Systems

October 18, 2005

OverviewOverviewFirm Resources and Sustained Competitive Advantage

Jay BarneyPublished: March 1991

The eleven deadliest sins of knowledge Management

Liam Fahey, Laurence PrusakPublished: Spring 1998

What’s your Strategy for Managing Knowledge?

Morten T. Hansen, Nitin Nohria, Thomas TierneyPublished: March/April 1999

Cross Cutting ThemesCritiqueAdditional Information & Resources

Firm Resources and Sustained Firm Resources and Sustained Competitive AdvantageCompetitive Advantage

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Internal Analysis

Strengths

Weaknesses

Resource Based Model

Opportunities

Threats

External Analysis

Environmental Models of Competitive Advantage

Firms obtain sustained competitive advantage by:

Exploiting internal strengthsResponding to environmental

opportunitiesNeutralizing external threatsAvoiding internal weaknesses


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Recent research: analyze opportunities and threats in competitive environment

Porter’s “Five forces model” describes attributes of an

attractive industry and thus suggests that opportunities will be greater, and threats less, in these kinds of industries

Lesser emphasis on impact of idiosyncratic firm attributes on a firm’s competitive advantage

Two assumptionsFirms within industry are

identicalResource heterogeneity short

lived


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Resource based view of competitive advantage

Cannot rely on these assumptionsExamines link between firm’s internal characteristics and performance

New assumptionsFirms within industry heterogeneousResources not perfectly mobile across firms

Defining Key ConceptsDefining Key Concepts

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Firm Resources

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

Purpose of this paper:

To specify the conditions under which such firm resources can be a source of sustained competitive advantage for a firm

Defining Key ConceptsDefining Key Concepts

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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 AdvantageDefinitions:

1. Apply to both existing and potential competitors

2. 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

3. Sustained does not mean forever; only until duplicated

4. “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 Competition with Homogeneous and Perfectly Mobile Resourcesand Perfectly Mobile Resources

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Resources distributed evenly = not sustained CA

First mover advantageMay be a way to gain SCANot possible because resource homogeneityOnly possible: resources must heterogeneous

Entry/mobility barriersHelp existing firm against potential competitionOnly possible: resources must heterogeneous and perfectly mobile


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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.

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.

There must be no strategically equivalent valuable resources that are themselves either not rare or imitable.

Valuable

Rare

Imperfectly Imitable

Not substitutable

Applying the FrameworkApplying the Framework

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Firm Resource Heterogeneity

Firm Resource Immobility

ValueRarenessImperfect Immobility

History Dependent Casual Ambiguity Social Complexity

Substitutability

SustainedCompetitiveAdvantage

Strategic Planning and Strategic Planning and Sustained Competitive Sustained Competitive

AdvantageAdvantage

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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 Information Processing Systems and Positive Reputationsand Positive Reputations

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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 Social Welfare, Organization Theory and Behavior and Firm Theory and Behavior and Firm

EndowmentsEndowments

1

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 The Eleven Deadliest Sins of KMKM

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Without detecting and correcting errors in “what we know” and “how we learn” an organization deteriorates and can result in “bad” decisions.

Purpose of article: draw attention to a set of pervasive knowledge management errors Based on the authors’ observing or partaking in over 100

knowledge projects over the past five years

The Eleven Deadliest Sins of The Eleven Deadliest Sins of KMKM

2

1: Not developing a working definition of knowledge2: Emphasizing knowledge stock to the detriment of

knowledge flow3: Viewing knowledge as existing predominantly outside the

heads of individuals4: Not understanding that a fundamental intermediate

purpose of managing knowledge is to create shared context5: Paying little attention to the role and importance of tacit

knowledge6: Disentangling knowledge from its uses7: Downplaying thinking and reasoning8: Focusing on the past and the present and not the future9: Failing to recognize the importance of experimentation10: Substituting technological contact for human interface11: Seeking to develop direct measures of knowledge

What Can Be Done?What Can Be Done?

2

Three actions to avoid the errors:

I. Continuously reflect on knowledge as organizational phenomenon

1. Develop shared understanding at local levels2. Allow individuals frequent opportunities to

discuss and debate what knowledge is3. Help individuals identify current and desired

knowledge roles4. Ask individuals to identify knowledge

implications for group behaviors and processes

What Can Be Done?What Can Be Done?

2

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 What’s your strategy for Managing Knowledge?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

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Management Consulting Management Consulting FirmsFirms

3

What’s Your Strategy for Managing Knowledge?

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 Knowledge Management StrategiesStrategies

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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 Codification or Personalization?Personalization?

3

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


Codification or Codification or Personalization?Personalization?

3

Ernst & Young 250 people at the Center for Business Knowledge The method Randall Love and the industrial manufacturer bid

The process The result

Bain Marcia Blenko and the British financial institution

The process The result

Invests heavily in building networks of people


Health Care IndustryHealth Care Industry

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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 Strategies, Different DriversDifferent Drivers

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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 clear

Highly customized solutions

“Economics of reuse” “Expert economics”

Hires undergrads from top universities and train them

Hire top-tier MBA grads

Choosing the Right StrategyChoosing the Right Strategy

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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 StraddleDo Not Straddle

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Companies that use knowledge effectively: 80-20 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 Do Not Isolate Knowledge ManagementManagement

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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


Cross Cutting ThemesCross Cutting Themes

Management of essential resources

Importance of proper Knowledge Management What errors to avoid Which strategies to choose Which resources to exploit

CritiqueCritique Firm Resources and Sustained Competitive Advantage

Insightful, even if outdated (1991) Represents interesting, and logical, arguments Repetitive

The Eleven Deadliest Sins of Knowledge Management Easy to read, great layout Interesting information, but repetitive


Additional ResourcesAdditional Resources Codification, Personalization, Integration

A strategy for selecting and applying KM tools http://www.kmworld.com/publications/magazine/

index.cfm?action=readarticle&Article_ID=1224&Publication_ID=67

Insight on Morten Hansen http://www.insead.edu/facultyresearch/faculty/

profiles/mhansen/ http://66.102.7.104/search?

q=cache:nMdcVJX1KA4J:www.london.edu/assets/documents/PDF/MHansen_CV_February2003.pdf+morten+t.+hansen&hl=en

Additional ResourcesAdditional Resources Resource Based View of the Firm

More Jay Barney Forms of resources: patents, properties, proprietary

technologies or relationships Dynamic capability perspective Asymmetries: skills, processes or assets a firm’s competitors

do not and cannot copy at a cost that affords economic rents. Rare, inimitable and non-substitutable Often act as liabilities – not connected to any engine of creation Turn asymmetries into sustainable capabilities

http://www.valuebasedmanagement.net/methods_barney_resource_based_view_firm.html

Sharon A. Alvarez and Jay B. Barney, management and human resources, "Entrepreneurial Advantage: The Resource Based View," a chapter in Entrepreneurship as Strategy, G.D. Meyer and K. Heppard, eds., Thousand Oaks: Sage Publications, 2000.

Additional ResourcesAdditional Resources Insight into Laurence Prusak

Storytelling in Organizations: Why Storytelling Is Transforming 21st Century Organizations and ManagementJohn Seely Brown, Laurence Prusak, Stephen Denning, Katalina Groh : May 2005

In Good Company: How Social Capital Makes Organizations Work; Don Cohen, Laurence Prusak February 2001

Putting Ideas to Work: From Knowledge to Action: October 8, 2004

University of Pennsylvania

KM Asia 2005: October 27, 2004 Suntec Singapore

http://www.gurteen.com/gurteen/gurteen.nsf/id/larry-prusak

Additional ResourcesAdditional Resources

Insight into Liam Fahey Competitors: Outwitting, Outmaneuvering and Outperforming

(1999) The Portable MBA in Strategy (2nd ed., 2001) http://www.managementonly.com/author.php/133/Liam_Fahe

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