Jul 23, 2009
The Importance of Knowledge Management (notes)
The Importance of Knowledge Management
The current business environment is characterised by mobility, freedom of information, reverse engineering and availability of technology (Davenport and Prusak, 2005). The same technology is available to everyone in the medium to long-run, and it is difficult, if not impossible to prevent competitors from copying and improving on new products and processes: technology, efficiency or costs (for example) cannot any longer be considered as the bases for a lasting competitive advantage (Davenport and Prusak, 2005; Romer, 1986).
For organisations to thrive, they must be able to make their own products, services and practices obsolete before anyone else does: a “knowledge-rich, knowledge managing company will have moved on to a new level of quality, creativity or efficiency” by the time competitors match it in the market (Davenport and Prusak, 2005: 315).
Organisations can move onto this ‘new level’ due to the appreciative nature of knowledge (through accumulation and use), and the processes that transform it (Romer, 1986). Knowledge is constantly being created, transformed and shared and in doing so is reliant on steps, processes and interaction between individuals and groups. The interaction and combination of such processes, individual values, experiences and beliefs suggests that as knowledge is utilised (appropriately), it appreciates (Davenport and Prusak, 2005; Hedlund, 1994; Nonaka and Takeuchi, 1995; Prahalad and Hamel, 1990; Romer, 1986).
The almost limitless permutations of knowledge transformation, creation and transfer result in knowledge that is a unique and inimitable asset, and,efficient, effective and appropriate knowledge management can play a positive role in the foundation of sustainable competitive advantage, and ultimately (through growth and externalities) benefit society as a whole (Romer, 1986).
A resource utilisation perspective holds that the differences in knowledge that firms possess and cultivate results in differences in how resources are regarded and used: successful firms being ones that invent more ways of using their resources (human or otherwise) in order to derive potentially limitless ‘services’ (Tsoukas, 1996) from them in terms of redefined vision and processes generating new and improved products and service offerings (Nonaka and Toyama, 2005).
Furthermore, according to Leonard and Sensiper (1998), knowledge (in particular tacit knowledge) is essential in producing new perspectives and ideas, and thus is critical to sustained innovation. They posit that problem solving, problem finding and prediction and anticipation rely on tacit knowledge in order to function effectively and support innovation. In this context, the ability to create knowledge and innovate is an important asset for the organisation (Nonaka and Toyama, 2005). This view is expressed in Nonaka and Takeuchi’s (1995) model of KM as an important component (and antecedent) of continuous innovation and sustained competitive advantage.
KM fuels innovation. Hedlund (1994) presents a complementary view that it is at the level of small (perhaps temporary) groups within the innovation and product process that much of the organisation’s knowledge transfer and learning takes place. Similarly, Nonaka (1994) notes that innovation is one of the core forms of knowledge creation within organisations, resulting in changes to the firm’s knowledge systems, and knowledge creation and transformation processes.
In short, as opposed to capital goods, the importance of knowledge management is centered on its ability to enable knowledge to ‘grow without bound’ (Romer, 1986: 1003) by facilitating the creation and transformation of knowledge so that the organisation can redefine itself and sustain (or achieve) competitive advantage. A primary way that this occurs is in interaction with the innovative process.
References:
Davenport, T.H. and Prusak, L. (2005). What do we talk about when we talk about knowledge? In I. Nonaka (ed.) Knowledge management: critical perspectives on business and management, 301-321. New York: Routledge.
Hedlund, G. (1994). A model of knowledge management and the N-form corporation. Strategic Management Journal, 15, 73-90
Leonard, D. and Sensiper, S. (1998). The role of tacit knowledge in group innovation. California Management Review, 40(3), 112-132.
Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 14-37
Nonaka, I. and Toyama, R. (2005). The theory of the knowledge creating firm: subjectivity, objectivity and synthesis. Industrial and Corporate Change, 14(3), 419-436.
Nonaka, I. and Takeuchi, H. (1995). The knowledge creating company. New York: Oxford University Press.
Prahalad, C.K. and Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91.
Romer, P.M. (1986). Increasing returns and long-run growth. The Journal of Political Economy, 94(5), 1002-1037.
Tsoukas, H. (1996). The firm as a distributed knowledge system: a constructionist approach. Strategic Management Journal, 17(Winter Special Issue), 11-25.
