By contributing author Phin Upham
The knowledge based view builds on the capabilities view and adds crucial and distinct elements. The resource based view emphasizesvaluable, rare, imperfectly imitable, and without common, imitable, or strategically equivalent substitutes (Barney 1991) and sees firms as a bundle of capabilities which can be explained or built up to gain competitive advantage. The knowledge based view can be seen to incorporate this idea of capabilities but adds to it the idea that a company is not only concerned with stores of resources but is also the owner of knowledge and knowledge-based resources (ability to transfer, handle, utilize and leverage knowledge to use old capabilities and generate new ones). Proponents of this view argue that what the firm really does better than markets is handle knowledge and a way for firms to expertise is transformed into useful goods and services. In one sense, the knowledge based view reinterprets the capabilities view by saying that a firms real job is in transferring and utilizing knowledge (including knowledge of capabilities) and in another it is appending the capabilities view by saying that the ability to use/invent/reorganize/and share knowledge in a firm are additional and important capabilities. In the first sense the two views are distinct, they reinterpreted the same arguments and come up with contradictory understandings of the role of the firm in society (capability building or knowledge generating) but in another they are complementary, the knowledge based view can be seen to build on and include the recourse based view.
I will describe the resource based view first, trying to point out the important and central arguments being used. I will then go on to describe what the knowledge based view adds before attempting to synthesize the two views in terms of what domains they are each most important in.
The resource based point of view, which conceives of a firms resource as its bundle of capabilities, begins with organizational routines, which are build up as a confluence of both the individual skills and the organizational physical memory and physical equipment configuration, allow for organizational capabilities.Capabilities, though, cannot be of the common garden variety if they are to be valuable. Jay Barney (1991) argues that if capabilities are to confer strategic advantage, they must be of a special type. They must do more than be useful, they must confer a sustained competitive advantage. Petraf (1993) lays out nicely the necessary conditions for sustained competitive advantage in a resource based view. She shows how the resource view resets in imperfect information and non-transferable assets. This implies that other firms are unable to duplicate (at least in the medium term) the advantages that the capabilities confer. In order for a resource (or capability, which can be seen as a sort of resource) to act as a source of competitive advantage, it must be valuable, rare, imperfectly imitable, and without common, imitable, or strategically equivalent substitutes. Further, as McGrath, MacMillian, Venkataraman (1995) point out, a capabilities is lodges in and rests on team work between members of a firm trying to accomplish specific goal, their work is lodged in turn in physical assets, informational assets, and structural attributes.
Diericks and Cool (1989) elaborate further on how these firm level capabilities might work. They describe how strategic asset stocks can be seen as flowing over time – either rising or falling. Thus, many capabilities grow over time, they cannot be acquired immediately. This is due to time compression diseconomies, asset mass efficiency, causal ambiguity, and a number of other factors elaborated on. Jan Rivkin (2001) describes how capabilities must not be too complex or they will be un-imitable within the company (the company cannot take full advantage for them) nor to simple, or every other competitor will copy them (a la White Castle in Winter and Szulanski (2000)).
Thus, we see capabilities as a potential source of competitive advantage. Capabilities are made up of a web of interconnecting routines, skills, bases of knowledge, firm-specific assets, and physical setups. They are based around tasks not products (Wernerfelt 1984) which are closely ties to the firm and its constituent parts which and reside at the firm level. Strategy at the capability level involves extracting rents from rare firm-specific resources. Competitive advantage in this view lies upstream from products in idiosyncratic and difficult to imitate resources. Thus, a firm in this view must be aware not only of its situation but also of its intra-firm advantages (strengths) and disadvantages (weaknesses) and attempt to take advantage of these factors.
The knowledge based view is built on the idea that what firms really better than markets is use knowledge. Nonanaka, in the Knowledge Creating Company (1991), for example, argues that knowledge in an organization is a knowledge intensive unit in which there exists tacit and codified information. This store of information acts as an “isolating mechanism” that gives the organization a competitive advantage. Knowledge in this view can be transferred, converted (from tacit to explicit), recombined to firm new knowledge, or internalized. The vision of knowledge creating company here is more flexible than in most RBV frameworks. It is one of an organization which can change directions or build new competencies, using its knowledge resources, and head in a different direction. Kogut and Zander (1992) (Knowledge of the Firm…) argue that firms are an efficient means to transform individual and social expertise into economically useful products and services. In short, firms are the stores of knowledge can be codified (separated from the individual) and used in a non-imitable (or hard to imitate way) since the thing that the firm has that other firms have is superior knowledge about capabilities and this is hard to copy. Further, this knowledge based view argues that knowledge confers advantages of new-capability creation and new ideas that are more dynamic than the capabilities view.
This idea that firms use knowledge to be more flexible is crucial to the knowledge based view. Teece, Pisano and Shuen (1997) discuss the firm’s ability to achieve success by being responsive to change, build organizational mechanisms to encourage rapid and flexible product innovation, as well as management’s ability to “effectively coordinate and redeploy internal and external competencies.” This focuses on how organizations renew their competencies, about the management and reconfiguration of competencies to achieve new and innovative forms of competitive advantage as it is about exploiting existing competencies.Competitive advantage, thus, lies not only in the specific assets embedded in the form but also in knowledge managing abilities.
Another way of putting this is that knowledge allows a firm to recombine and renew capabilities. Henderson and Cockburn (1994) attempt to tease apart some aspects of this view. They differentiate between component competence, or the competence embedded in local areas of the firm and architectural competence which they see as the competence that allows for the integration and flexible use of component competencies. They uses pharmaceutical firms in particular arguing that drug discovery and firm success depend on both the depth of expertise in a specific area and also the firms ability to transfer knowledge and information across the company in such a way that the scientific disciplines and the therapeutic classes have some significant integration. This study tests the hypothesis about architectural and component competence and finds significant support for the idea that integration a firm yields better results in terms of drug discovery. This integration is a kind of knowledge capability because it is the source of new and unknowable capabilities that the firm can generate. While this is a powerful study, it has its problems. For example, using information flow as the measure for a knowledge capability is not completely accurate. It is the way this information flows, the mechanisms that allow and encourage this flow, and the way this flow is handled within the company that construe the real competitive advantage.Information flow is a proxy for this. This is a good description of what Teece, Pisano and Shuen were talking about when they discussed their coordination and integration of internal activities component of knowledge capabilities.
Pisano’s (2000) detailed study of how organizations manage their learned knowledge is a good example of the complex but vital thrust of knowledge -type capabilities. Pisano revisits some of the themes form the 1997 paper and argues that organizations received two benefits from doing an action – that of the product or result of the action, and also the knowledge that this production generated. If an organization only focuses on exploiting its resources, this second sort of knowledge is not fully utilized. Thus, Pisano argues for the strategic use of action such that it will allow one to build knowledge bases and generate more capabilities that did not originally exist.He uses the biotech industry as well in his essay – showing that path dependency alone does not explain success or failure but hat specific organizational process in taking that knowledge and using it are also important. He discusses the framing of the problem, the approach to experimental and analytical methods, the organizational structure, and the integration of manufacturing and process development. While no single formula for success, this essay shown how there is no “rule for riches” or ‘rule for success,”this is a good example of using knowledge resources to “reconfigure and transform” while traveling a path.
Henderson and Clark (1990) use the photolithographic alignment equipment industry to try to show that there is a difference between component and architectural competency (which can be seen as a knowledge capability) – that the dominance in competency is often not enough, a firm must able be able to change and be flexible if a firm hopes to survive in the long term. This introduces a theme I will discuss later in the paper, that the knowledge based view is particularly valuable in changing and uncertain environments.Teece, Pisano and Shuen would have agreed with this analysis pointing out that more abstracted capabilities are most important in times of change and uncertainty when the old ways of doing things must be modified using knowledge resources.
Ingram and Baum (1997) use a long term study of the hotel industry to show that knowledge (past experience) can be harmful or helpful depending on the circumstances. A firm which ignores its knowledge capabilities (including learning from past experience) can be harmed for its oversight. This study’s methods are in line with organizational ecology in that they serves an entire population and attempt to draw inferences based on birth/death rates.
Due to the nature of capabilities (both knowledge capabilities and resource based capabilities), that they are imbedded in combination of physical, informational, and human assets, they are hard to measure and quantify. Knowledge based capabilities are especially hard to measure since they usually exist between other capabilities and in less tangible habits and frames of mind. As the field progresses and finds better ways to study capabilities, perhaps through using technology to chart inter-organizational interaction and communications and using technology to decode and interpret conversations and documents at a fast rate, our understanding of these two sorts of capabilities and their nature will improve. The variety of approached we saw in the above descriptions, from Ingram and Baum’s ecology approach to Henderson and Clarks more specific skill based approach, are a testaments to the difficulty of capturing capabilities and the ingenuity and intelligence with which researches try.
The primary advantage, it seems to me, of the knowledge based approach over the RBV approach is that the knowledge-based approach is more useful during times of instability and change, where uncertainty is more prevalent. This is because the knowledge based approach explicitly separates itself from any specific product and focuses on the means of generating ideas and on the handling of resources for multiple purposes. Thus a company which is skilled in knowledge based capabilities will perhaps be better able to adopt to uncertain environments. The capabilities approach’s advantage lies in its more concrete nature. This makes it easier to study and more intuitively graspable. In stable times, further, it seems the capabilities approach captures much of the action in a firm. It is when things are changing or new inventions are needed that the knowledge based approach, with its emphasis on interconnections between divisions, on organization, and on new knowledge generation becomes more important.
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