Analysis of Strategic Management
As a Strategic Manager looking for the perfect strategy that will fit the company, it is important to consider which is more suitable for the company’s success when applying a strategy. Is it the Resource Based View of the Firm or the Knowledge Based View of the Firm.
It is essential for a strategic manager to study the differences in the firm’s performance under the two different theories.
In the mid-80’s they formulated what we call Resource Based View or RBV which evolved from the neo-classical theory and now to a more complex form, from a resource based to a so called- first competency and second competencies (flow) based. A resource to be an important factor in a company’s performance must be has value. According to Barney (1991) to conceive or implement strategies that improve its efficiency and effectiveness by meeting the needs of customers. The advantage of the company using this theory is the possible inability of the competitors to identify the reason behind a given firms success. The resource being inimitable, non-substitutable and non-mobility can help the company to be an effective and efficient company, contributing to the high quality performance of the whole organization.
In 1996, Grant introduces the knowledge view of the firm by putting a line between the Resource Based view and the knowledge theory. Actually, KBV was a part of RBV, but the proponent of this theory insisted the in a company to be on the best strategic move, the knowledge should be the primary. Under this theory, they acknowledge the importance of knowledge-based resources because it is very difficult to imitate because they are subtle and hard to understand as they involve talents that are elusive and whose connection with results is difficult to discern, (Lippman & Rumelt, 1982). In order for competitors to imitate or copy the company’s strategy it will take them a long time to study and train personnel and will cost a fortune for the company. This will be a big lost on the part of the competitor if they did this.
Resource Based View of the Firm
Chamberlin (1933) identified that some of the key capabilities of firms included technical know-how, reputation, brand awareness, the ability of managers to work together and particularly, patents and trademarks, many of which have been revisited in the recent strategy and marketing literature (Day 1994; Hall 1992).
The main dependent factor in a Resource Based View of the firm is the company’s sustainable competitive advantage and the main independent factor is the asset, capabilities and resources of the company. (see Figure 1)
The company should position themselves strategically based on their unique valuable and imitable resources and capabilities. It is therefore necessary to assess the firms’ strength and weaknesses as part a broader SWOT Analysis.
The Resource Based approach suggests that forms should position themselves strategically based on their unique, valuable and inimitable resources and capabilities rather than the product and services derived from those capabilities. Resources and capabilities can be thought of as a platform from which the firm derives various products for various markets. Capabilities are valuable to the company when they can use i
Figure 1. The Resource-Based View Over Time (Wade & Hulland, 2004)
A resource can lead to the competitive development & positioning of a firm. But it should be remembered that not all resources can help the company succeed and boost the company’s performance. The particular resource must meet four conditions (Barney, 1991) namely value, rareness, immutability and non-substitutability. These advantage-creating resources will lead to competitive advantage for the company especially when the resources of the company are is inimitable, immobile and non-substitutable.
Knowledge Based View of the Firm
Every theory of the firm is designed to address a certain set of characteristics is an abstraction of the real world business enterprise ( Machlup 1967 as cited in Enders, 2004); Grant 1996) . Scholars that believed in KBV have commented against the traditional transaction cost economics for its limitations in explaining heterogeneous firm performance (Liebeskind, 1996)
Knowledge based theory has been drawn directly from resource based theory of the firm. But this theory specifically concentrate on the interplay between action, cognition and a shared identity of organisational members. Its emphasis is on the emphasis on the interactions among individuals & groups for knowledge sharing and creation. They consider knowledge as the best asset of the company. If the Resource Based protect the resources from imitation by property right like patent, intellectual property right or contracts and resource barriers. The Knowledge Based View protect the company’s product and services from imitation using the knowledge barriers. According to Lippman & Rumelt (1982) competitors imitate them because they are subtle and hard to understand as they involve talents that are elusive and whose connection with results is difficult to discern. While the resources to became an advantage creating resources should meet four conditions like value, rareness, immutability and non-substitutability. The knowledge on the other hand to become an advantage to the company should integrate vast different knowledge bases on an immense organizational task. The knowledge base resources focuses on intangibles rather than tangibles (Figure 2)(Stewart, 1997; Edvinsson & Malone, 1997).
Figure 2. KVB of the Firm & Strategy Formulation
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 (Penrose, 1959, as cited in Malhotra, 2000) and later expanded by others (Wernerfelt 1984, Barney 1991, Conner 1991).
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).
In the present company that is in question, the best theory or approach that must be applied should be the Knowledge Based View. This is because the approach is very flexible and can be modified depending on the environment that the company is into. The key is the creativeness and skills of the people in the company.
Unlike resource based approach that gives more emphasis on the organization’s capabilities and core competences the knowledge based approach starts with the primary intangible resource like the competence of knowledge agents. It is also considered that the product and services that the company is rendering to the customers are all result of human action and depend ultimately on people for their continued existence. Therefore a skilled, creative, experienced and knowledgeable employees is a key factor in the firms performance.
There is need for knowledge agents and employees that will be classified as the primary factor that will lead the company to success in the future plus all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. (Sveiby, 1997) suggests that people in organizations must create structures in order to express themselves. Structures are not objects. These structures should be seen as constructed in a constant process by people interacting with each other (social communities of practice), (Weick 1977, 1983). Knowledge agents can use their competence to create value in two directions: by transferring and converting knowledge externally or internally to the organisation they belong to.
The over-all strategy in the firm using the knowledge as a primary factor can be better illustrated by the figure below:
The Internal Structure, External Structure and Individual Competence in the company is the key strategic plan. The knowledge transfer and knowledge conversion is can be transferred among the employees inside the company to boost their individual competence. Sharing of this knowledge to other co-employees thru training, seminar or workshop gives a company a competitive edge because it doubled or tripled the number of skilled and knowledged employees.
Knowledge transfer and conversion can also be done by the internal structure or external structure and maximize the value creation. Activities like the following will enhance individual competence of employees in the company
1. Activities focused on trust building, enabling team activities, induction programs, job rotation, master/apprentice schemes, etc.
2. Activities focused on empowering the employees to help the customers learn about the products, getting rid of red tape, doing job rotation with customers, holding product seminars, providing customer education, etc.
3. Activities focused on creating and maintaining good personal relationships between the organization’s own people and the people outside the organization
Activities focused tools, templates, process and systems so they can be shared more easily and efficiently.
Activities focused on improving the human-computer interface of systems, action-based learning processes, simulations and interactive e-learning environments
Activities focused on streamlining databases, building integrated IT systems, improving the office layout, etc.
What is good about the knowledge-based view of the firm is the value to create strategy, which is very important in differentiating knowledge transfers from tangible good transfer. It must be remembered that tangible goods tends to depreciate when they are used, while knowledge grows when used developing competence in the company that requires huge investment in training and managerial competence takes a long time on the job to learn. If we see the organisation as creating value from transfers and conversions of knowledge together with its customers the Value Chain collapses and the relationship should better be seen as a Value Network (Allee, 2000); an interaction between people in different roles and relationships who create both intangible value (knowledge, ideas, feedback, etc) and tangible value. Knowledge, context-specific, tacit knowledge embedded in complex organizational routines and developed from experience, tends to be unique and difficult to imitate. Considering many traditional resources, it is not easily purchased in the marketplace in a ready-to-use form. To acquire some type of perceivable similar knowledge, competitors have to engage in similar experiences. However, acquiring knowledge through experience takes time, and competitors are limited in how much they can accelerate their learning merely through greater investment. Firms can realise a double benefit over its competitors –
by investing in its strategic knowledge platform
by learning enough about the particular client to competitively and profitably price leases for future opportunities with the same client.
The traditional SWOT framework, updated to reflect today’s knowledge-intensive environment, provides a basis for describing a knowledge strategy. Firms need to perform a knowledge-based SWOT analysis, mapping their knowledge resources and capabilities against their strategic opportunities and threats to better understand their points of advantage and weakness.
The knowledge-based SWOT analysis built upon the two dimensions of Business and Knowledge, adding the value of identifying different strategic strengths and weaknesses based on knowledge development as well as business needs. The analysis also considered the effects of external contingency (conditions of the business and competitive environment) as well as internal factors (organizational, management, overall business strategy). This approach enabled a rapid analysis of the relationships between business goals and knowledge management. The knowledge related SWOT issues provided a significant indication of current knowledge management issues within the organization (KM issues are not necessarily related to the business strategy of the enterprise, but often with the current situation). Resulting from these analyses, KM issues were surfaced, allowing the team to address some of them immediately. The specific SWOT analyses are not shown in this paper, as they continue to hold strategic value to the organization.
We found that the team easily identified a large number of weaknesses. The business SWOT analysis was quite balanced, with the team identifying about 20 Strengths and Weaknesses, and 16 each of Opportunities and Threats. However, the Knowledge SWOT was very lopsided. Knowledge Strengths numbered only 7, with Weaknesses counting 20. The Opportunities were more balanced with Threats, with each at about 12. The strategy team easily counted a large number of knowledge weaknesses, demonstrating an awareness of critical knowledge requirements. We concluded our organizational vocabulary for identifying knowledge strengths may not have been well developed at that time, so the strengths may have been underspecified. The ease in identifying knowledge weaknesses, however, led to consideration the SWOT approach was useful in assessing organizational needs in developing knowledge strategy.
SWOT evaluation of the knowledge issues and weaknesses showed some typical knowledge-related business problems. We noted how our current culture did not effectively reward knowledge sharing, and few realistic incentives were made to encourage sharing, creation, and reuse of key knowledge resources. In addition, we found managers had difficulty determining the skill sets and the desired learning programs for staff. An independent effort was initiated to resolve these issues as knowledge management solutions.
The SWOT analysis established a foundation from which to draw priorities and develop further strategy. The Origin research continued with scenario planning and other methods, extending the strategy process using a series of half-day workshops with cross-functional participation from across the consulting organization. The crucial outcome, regardless of method, was in developing a consensus model for organizational alignment and validation, as well as creating a vision for future action.
If knowledge management is to take hold rather than become merely a passing fad, it will have to be solidly linked the creation of economic value and competitive advantage. This can be accomplished by grounding knowledge management within the context of business strategy.
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