LEVERAGING KNOWLEDGE FOR
COMPETITIVE ADVANTAGE
WASWA
BALUNYWA, PhD
MAKERERE
UNIVERSITY BUSINESS SCHOOL
2001
LEVERAGING KNOWLEDGE FOR
COMPETITIVE ADVANTAGE
The Changing World
Thousands
of products have come up to the market place over the last 20 years. Many products
have also got multiple uses. The new products, the new processes have led to
new patterns of behavior and created new values. This is taking place on a
continuous basis. Today reports, events are available live as they happen. The
instant availability of information to millions of people contrasts with a
situation a few years back where a big report would have been available,
probably in only several copies to a few people in a few countries in a period
of about 6 months. Things have changed. Change is said to be the only constant.
Change is the variation in what exists. Change is the status quo because it is
the only thing that is taking place and will take place.
What
is taking place in the market place is innovation. Innovation is something new
or innovations are something different arising
out of the fact that somebody in the organization perceives an
opportunity, collects data about it, turns it into information and then into
knowledge and develop a product or service. The data used is both internal and
external to the organization. Such information when turned into knowledge can
then be used to adopt or change behavior. This is innovation.
This
paper proposes that the only sustainable way to create competitive advantage is
to leverage knowledge. We argue that people and indeed organizations innovate
as a result of the knowledge that they acquire and their ability to apply that
knowledge to solve problems. This process of solving problems is innovation.
Competitive advantage
There
is debate on what competitiveness is and no agreed definition has come up.
There are also attempts to make a distinction between competitiveness and
competitive advantage.
Competitive
advantage is said to be the unique advantage an organization has over others.
The distinct competence, arising from knowledge that one organization has which
lacks a certain segment of the market to buy from it (Porter, 1998; Ghemawat,
1986). Competitiveness on the other hand is the ability to sell and survive in
the market in a profitable manner. This kind of definition is loaded with
meaning. Ability to sell means the company has the capacity to produce, where
applicable, a high quality product that is acceptable to consumers and which is
functional. It further assumes that having been able to produce the product,
you are able to sell it. Selling means the consumer accepts the product quality
and characteristics at the price given. The fact that the organization sells
continuously means if offers value to the consumer in form of a product or
service acceptable to the consumer which is mutually exclusive of existing or
competing products. This will entail continuous improvement or new products
being delivered to the market to sustain interest. The fact that an
organization survives means it has capacity to adopt to change that is taking
place in the environment and this through continuous innovation. Economists
have all along said that organizations that don’t make profit in the long run
die. Competitiveness is reflected in the survival of the organization which is
determined by the ability to make profits.
Competitive
advantage is therefore going to come from any of those processes or actions
that take place in the organization. Because of the availability of
information, organizations have access to new technology, to finance, to
resources and people. Consequently to a great extent, especially in the
developed countries, the ground is level. Companies can compete on a leveled
play ground. Competitive advantage can be sourced from any of these factors.
Organizations that sustain the advantage are competitive.
Organizations
therefore must have competitive advantage if they are to be competitive, match
or stay ahead of competition. Competitive advantage is built from the unique
strengths or skills an organization may have. Many strategy gurus suggest
different sources of competitive advantage (Porter, 1985; Stalk, 1988;
Ghemawat, 1986; Balunywa, 1986). The major sources are cost, price, time,
value, people, technology and innovation. Competitive advantage through cost is
created by organizations using the learning curve to reduce cost. This is
achieved through exploiting economies of scale, mass production which gradually
relies on volume to reduce cost. Leading strategy guru Porter (1985) actually
suggested that low cost was one of the two types of competitive advantage a
company could have. Of course there are many others but this serves to
highlight the importance of cost in creating the edge.
Building
competitive advantage using price is closely related to cost. Organization with
good cost structures are able to compete on the basis of price. With lower
costs of production, an organization can lower prices. There is a dark side in
building competitive advantage through price especially if the industry is in
the later stages of the life cycle. It eats into margins and finally reduces a
company’s competitive advantage. Competing on price can bankrupt organizations
and is not an ideal method of competing. But price needs not necessarily mean
low price. The producers of the luxury BMW motor vehicle use price to create
competitive advantage. They up the price and create the psychological
impression that high price is the unique advantage the product has.
Value
based competition is based on giving a specific value to customers. People who
travel business and first class on passenger airlines pay for a certain value.
They pay for comfort and services and don’t mind the price. Many up-market
products tend to be sold on the basis of value perceived by the buyers.
Stalk
(1988) argued that time was the cutting edge. The way in which organizations
managed their time gave them advantage, the edge over others. Competing on time
has spectacular advantages. Time strategy puts you in the market first. It
enables you to charge higher prices than others.
Using
people as a competitive advantage presents specific advantages. People are
unique resources because they are creative, supply talent and drive. It is not
common to find two people are alike. Those with specific skills use them to
give an organization an edge over others. People are the source of ideas and
innovations.
Technology
is another source of competitive advantage, when technology is introduced, it
has stages it goes through. Only those companies that commercialize technology
successfully can exploit the advantage that technology gives. Technology is a
form of innovation though not the only one. Technology gives better products,
new processes and lower costs of production. Technology has been a prime mover
of change. A very important tool in creating competitive advantage. The trouble
is, it is easily accessible.
Innovation
is probably the only long lasting source of competitive advantage. Innovation
orchestrates change. It enables an organization to continually come up with new
ideas, products and processes and thus make the organization stay ahead of
others.
KNOWLEDGE AND COMPETITIVENESS
Political
power comes out of the barrel of a gun. This is a famous and power quotation
from the works of Chairman Mao. We can draw analogy about competitiveness from
this definition. Economic power or competitiveness comes out of the barrel of
knowledge. Knowledge or intellectual property as an asset is what one knows,
the lack of which makes somebody unable to do certain things.
The
power that comes out of knowing something, knowing how to do something, knowing
how to serve customers, where to raise money, how to produce, how to repair,
how to move things, gives the possessor of knowledge the ability to outperform
those who don’t know. But mere knowledge is not by itself sufficient to create
advantage, it must be manipulated.
What is knowledge?
It
is difficult to explain what knowledge is in a management sense since this
subject is relatively new. Tobin (1998) defines knowledge as applied
information. In his explanation of the stages of learning, he says that
knowledge is applied information and information is data that has relevance and
purpose. He argues that when intuition is added to knowledge, the result is wisdom.
The
four stages of learning
Stage 1 Data + Relevance +
Purpose
Stage 11 Information + Application
Stage 111 Knowledge + Intuition
Stage 1V Wisdom
|
This
approach to knowledge starts off with the fact everywhere around us, we have
data about many things. We get exposed to it; we see it but never make use of
it. When as, Drucker says, you see relevance and purpose to data, it becomes
information. Data becomes information to somebody only if it has a purpose.
Otherwise the thousands of books, newspapers, reports that do not serve a
particular purpose are not information. In a work related environment where
information is applied to ones job, it becomes knowledge.
Victor
and Boynton (1998) define knowledge from the organizational point of view. They
look at knowledge as what members of the organization know and what the
organization itself knows.
Monaka
(1991) in this classification of type of knowledge brings out two important
meanings which are now being widely adopted. This is tacit and explicit
knowledge. Monaka suggests that “tacit knowledge is highly personal hard to
formalize and therefore difficult to communicate”. It is partly the technical
skills one has, somebody’s know how which is difficult to express or pin down.
It is formal. This is knowledge inside the individual. Assume two people who
grow up together and go to similar schools and acquire similar degrees. Their
management of situations is influenced by knowledge they learn as they grow up
but the difference in the knowledge they actually have is a result of their
tacit knowledge.
Monaka
and Boynton (1998) in their practical guide as to how to succeed in the market
using knowledge come up with four different types of knowledge, tacit,
articulated, practical and architectural knowledge. They define tacit knowledge
as has been defined by Monaka.
This
is knowledge carried largely in workers heads and emerges from craft work. They
argue that if this knowledge can be formalized and passed on to others. It
becomes articulated knowledge. Tapping this knowledge is what leads to mass
production. The argument here is that in organizations, work is carried out as
a result of the knowledge one person has. That person has unique knowledge
called tacit knowledge. He/she has knowledge of the craft and does it well. If
this knowledge can be replicated so that many other people know it, it leads to
mass production. This is the stage of articulated knowledge. There is
standardization of processes and products. Victor and Boynton argue further
that mass production creates new knowledge, practical knowledge. Practical
knowledge is based on the learning that takes place under mass production. It
is under this stage that a very important process takes place. That of
innovation. When the organization studies the process of mass production and
acquires practical knowledge, there are possibilities of enhancing the process
through a deep understanding of what takes place and by being able to experiment
with new combinations. This creation of new processes or products out of change
in practical knowledge creates what Victor and Boynton call architectural
knowledge. At this stage, the cycle cans begin again. This stage is one of
innovation.
Knowledge and competencies
To
be able to perform certain tasks, individuals need competencies. Competencies
are based on knowledge and experience. Individuals need different skills
including technical, interpersonal and conceptual to enable them perform their
tasks.
Competencies
should not be static. Dynamism is important for the success of both the
individual and the organization. Engineers trained in the 60’s and even 70’s
are now obsolete unless if they have update. When technology changes,
competencies should be changed. People must update.
Excellence
of an individual, wisdom, knowledge accumulation depends on the conceptual
skills which are highly dependent on the educational background of the people
concerned and the acquired knowledge. Conceptual skill is the ability to think,
knowledge explosion takes place when a well educated person who is grounded in
a certain subject uses that knowledge in combination with the knowledge he is
able to source from the environment come up with new ideas products or
processes. This is innovation.
Organizations
therefore need to leverage knowledge for competitive advantage. The ability of
a person to scan the environment, source data, transform data into information
is a process by which itself is intuitious though with training, people can be
taught how to do it.
The
information will become knowledge only if it is useful. The process of doing
this is the creativity process. It is a process where people get immersed into
information and get an illumination. The illumination is an idea or product or
service or process. The creativity process involves many different ways of
coming up with new ideas. It may be through known methods like brain storming,
the Gordon technique, association and others. But this is central to the
success. The ability to use knowledge to create new products, new markets and
new processes is not common.
LEVERAGING KNOWLEDGE
Competitiveness
comes out of the barrel of knowledge. It is knowledge that will continuously
sustain competitive advantage. Knowledge can either be with an individual in
the organization or with the organization itself. It’s this knowledge that can
be used to cause change through innovation. It is knowledge that could give
rise to new products and services and processes. Leveraging knowledge means
applying knowledge to gain competitive advantage. To be able to leverage it,
there must be a combination of both individual knowledge and organizational
knowledge. For an individual to be able to innovate and cause change, the
individual must be creative. And in this context leveraging knowledge involves
getting people to be creative.
Conditions for individuals to
innovate
The
individual must be able to do the following things:
1. To
free their imaginations
Individuals
must allow themselves to dream, to romanticize with ideas, to develop a big
picture, to let their minds wander. It is through this imagination that ideas
are generated and availed in form of knowledge. This enables the individual to
use that knowledge to innovate. Of course this is subject to other
organizational factors.
2. Learning
how to associate
Knowledge
that is acquired and information that is seen or read is what meets to cause
the knowledge explosion. This explosion results into new ideas and probably
produces, services and or processes. These products and or services can emerge
from the individual associating what he sees with what he does. This is
learning from others.
3. Managing
the creativity kills
For
individuals to be creative, they must overcome the usual creativity killer.
These are statements like, “that is not the right answer”, “I am not creative”,
“that is not my job”, “follow procedure”, and other killers (Balunywa, 1995)
4. Willing
to learn
Individuals
will be able to leverage knowledge for competitive advantage only if they are willing
to learn. They are willing to listen. Individuals must be willing to abandon
what they know and acquire new knowledge. This is the learning individual. Such
an individual has knowledge that enables him to lever for competitive
advantage.
Conditions for organizations to
innovate
Organizations
are made up of individuals and its individuals who get things done. Its
individuals who transform data into information, into knowledge. The knowledge
of an individual depends on the knowledge acquired through the various means
and the knowledge of the organization is in a way a summation of the knowledge
of individuals. For organizations therefore to leverage knowledge, the
individuals must have the knowledge and must be willing to use it. This can be
achieved in the following ways.
1. Creating
new knowledge
Organizations
must continuously create new knowledge through acquiring data and transforming
that data into information and knowledge. This involves acquiring products,
services, from the environment. This knowledge is the explicit knowledge which
must be available for users.
2. Disseminating
knowledge
Once
knowledge has been acquired by the organization it should be disseminated
within the organization. Those with knowledge must be ready and willing to
share it. This makes people know and enables them to act with knowledge. This
is leveraging knowledge.
3. Embrace
new knowledge quickly
Organizations
must embrace all the new knowledge that is pertinent to its activities as
quickly as possible. If they don’t, competition will.
4. Create
an enabling environment
Knowledge
is learning and people can only learn if the environment to learn exists.
Organizations therefore must be able to facilitate learning to be able to
leverage knowledge. If people learn, they acquire knowledge and in the process
they generate new ideas and products. This way they can keep on top of things.
Refer
to the Balunywa Leveraging Knowledge Model (next page)
A KNOWLEDGE BASED COMPANY
Drucker
has been instrumental in talking about the knowledge based company. Many other
people have come to support his thesis that the organization of the future is a
knowledge based one. While Drucker and other people’s views are based on the
fact that these organizations are information organizations, they do not really
mean knowledge based. The information based organization is one that is based
on information technology which is just part of knowledge.
It
is a learning organization.
The
learning organization is one that is capable of learning and also encourages
its people to learn. Senge (1990) called it an organization that continuously
expands its capacity to create its future. He described five disciplines which
he says enable a company to become a learning organization. These include
personal mastery, mental models, shared vision, team learning and systems
thinking. The learning organization provides an environment in which people
with tacit knowledge avail it to others to make it explicit knowledge. The
leadership in such organizations encourages learning through structures,
persuasion and sharing vision. It facilitates creation of knowledge and sharing
of the knowledge.
Has
a flat structure
The
knowledge based organization recognizes that knowledge is not anybody’s
monopoly and that the output of the organization depends on the input and
knowledge of the people who work for it. The hierarchy consequently is no
longer important. The reporting structures typical of old organizations with
one direction flow of information, is long gone. Organizations must have flat
structures to be able to respond to the demands of the market place.
It
is IT based
Information
is organized data that is intended to serve a particular purpose. Technology
has enabled information to be available to organizations in large numbers.
Continuous
improvement
Competencies/skills
1. Human
2. Technical
3. Conceptual
Usual
Adopt
Search
Institution
i)
Ability to associate
ii)
Ability to think
References
1. Balunywa
Waswa (1997); Managing the Wisdom of Opportunity through Innovation
2. Drucker,
Porter (1998); The coming of the NEW Organization on Knowledge Management,
Harvard Business Review.
3. Ghemwat,
Pankaj (1986); Sustainable Advantage, Harvard Business Review.
4. Nonaka,
Ikujiiro (1998); The Knowledge Creating Company on Knowledge Management, Harvard
Business Review.
5. Porter,
E. Michael (1990); How Competitive Forces Shape Strategy
6. Porter,
E. Michael (1990); The Competitive advantage of Nations, Free Press
7. Roos,
Johan et al (1997); Intellectual Capital; Navigating the new business
landscape, Macmillan Business, London
8. Stalk,
George Jr. (1998); Time, the next source of Competitive Advantage, Harvard
Business Review
9. Tobin,
Daniel (1998); the Knowledge enabled organization, American Management
Association, New York
10. Victor,
Bart (1998); Invented Here, Harvard Business School Press, Boston.
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