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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
1
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
Firm Resources and Sustained Firm Resources and Sustained Competitive AdvantageCompetitive Advantage
1
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
Firm Resources and Sustained Firm Resources and Sustained Competitive AdvantageCompetitive Advantage
1
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
1
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
1
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
2
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
Firm Resources and Sustained Firm Resources and Sustained Competitive AdvantageCompetitive Advantage
1
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
1
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
1
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
1
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
2
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
3
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
3
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
What’s Your Strategy for Managing Knowledge?
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
What’s Your Strategy for Managing Knowledge?
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
What’s Your Strategy for Managing Knowledge?
Health Care IndustryHealth Care Industry
3
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
What’s Your Strategy for Managing Knowledge?
Different Strategies, Different Strategies, Different DriversDifferent Drivers
3
What’s Your Strategy for Managing Knowledge?
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
3
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?
What’s Your Strategy for Managing Knowledge?
Do Not StraddleDo Not Straddle
3
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
What’s Your Strategy for Managing Knowledge?
Do Not Isolate Knowledge Do Not Isolate Knowledge ManagementManagement
3
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
What’s Your Strategy for Managing Knowledge?
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
What’s Your Strategy for Managing Knowledge?
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