Knowledge-Based View (KBV)

Key Thought Leader: Robert Grant, 1996

Building upon RBV, the knowledge-based view of the firm highlights the strategic importance of a specific type of resource, knowledge. Whereas RBV treats a wide variety of resource types in a generic fashion, KBV recognizes that knowledge is maintained by individuals, not by organizations, and can take the form of either tacit or explicit knowledge. An individual develops tacit knowledge by action and experience. Tacit knowledge is implicit in nature and operates on a subconscious level within each individual, making it very difficult to articulate and disseminate across the organization. In contrast, explicit knowledge represents information that can be articulated, documented, formalized, and therefore systematically shared. Because all organizational knowledge originates as tacit knowledge at some point and because tacit knowledge is most inimitable and immobile, KBV recognizes tacit knowledge as the primary strategic resource of the firm.22

Knowledge-based competence can stay with the firm, and accordingly, a firm can create a competitive advantage by coordinating, aggregating, and integrating the specialized knowledge that its individual employees develop. This coordination of specialized knowledge can take place via rules and directives, sequencing, routines, and group problem solving and decision making.

Formalizing the sharing of individual expert knowledge in the form of written procedures can be an efficient approach. If production processes allow it, it can be effective to build individual expert knowledge into the process by sequencing and slotting each specialist's contribution to the production activities, eliminating the need for separate coordination and communication to share knowledge. Routinizing a coordinated system of multiple specialists performing complex individual tasks simultaneously can enable reliable, automated coordination of expert knowledge with minimal supplementary communication. Sometimes the coordination of specialized knowledge cannot be accomplished without high-interaction group communication processes.

KBV also reinforces the importance of having a common base of knowledge shared throughout the organization upon which the mechanisms for coordination of specialized knowledge described above can successfully operate. Because individual employee knowledge is increasingly mobile, the processes for knowledge integration (e.g., cross-training, job rotation) and associated attention to development of common knowledge domains and practices is increasingly important. The sustainability of a firm's knowledge-based competitive advantage is dependent on the inimitability and breadth of its knowledge integration across the organization

Limitations of the Knowledge-Based View

Eisenhardt and Santos23 summarize several challenges to the knowledge-based view of business strategy that have been issued by the research community. Recognizing that individual's learning processes are impacted by their sense of self as well as their organizational context, KBV could be strengthened by developing closer ties to organizational learning theory and social identity theory. It is also questionable whether knowledge can truly be a firm's most strategic resource without considering whether the knowledge is actually used or just retained within individuals. In today's highly dynamic environment, the organization's ability to manage change may be an even more important resource than knowledge.

Dynamic Capabilities

Key Thought Leaders: David Teece, Gary Pisano, Amy Shuen, 1997

Although not necessarily explicitly emphasized as such, the dynamic capabilities perspective is essentially an extension of the resource-based view. Although RBV recognizes the strategic advantages that the leverage of valuable, rare, inimitable, and nonsubstitutable resources can offer a firm, RBV does not directly address the competitive implications of market changes as they relate to an organization's ability to adapt their resources and competencies to a rapidly changing environment.24

Dynamic capabilities is proposed as a strategic framework to help explain the competitive advantages associated with firms' abilities to continually develop and adapt their competencies in anticipation of and response to environmental change.25 As the name implies, the focus is on the dynamic nature of the external environment, in contrast to RBV's more static view of resources. Capabilities are not synonymous with resources. Rather, capabilities represent a firm's unique ability or capacity to identify distinct internal and external competencies and subsequently coordinate, reorganize, and reshape them as environmental changes dictate or allow.

This adaptive capability is developed and refined within organizational processes and ways of working over periods of time. Therefore dynamic capabilities do not represent a type of resource that can be externally acquired and directly infused into an organization. Dynamic capabilities evolve uniquely within each firm and for that reason can become a source of a sustainable competitive advantage. Dynamic capabilities may also help the firm establish a series of temporary competitive advantages as firms respond to successive changes in a highly volatile environment.26

Limitations of the Dynamic Capabilities View

Since its introduction into the strategic literature, the dynamic capabilities concept has generated a steady stream of theoretical and empirical research attention that has served to continue its evolution resulting in a refined understanding of knowledge sourcing (how managers identify valuable knowledge needs and opportunities) and knowledge transfer (from both external and internal sources). However, a formal "theory" of dynamic capabilities is still forthcoming, as researchers grapple with clarifying the definitions (expanding and refining what we mean by "capability"), context (what kinds of environments are best suited to leveraging dynamic capabilities?), mechanisms (what processes are most effective for communicating and codifying relevant knowledge?), and expected outcomes (relationships to performance) associated with dynamic capabilities through further empirical testing.27

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