Business Accent

KM, business strategy and competitive advantage

Most companies understand knowledge management and are attempting to implement it. But one area that seems to be either lacking or that is not discussed much is the ability to link KM to strategy and competitive advantage. R Umamaheshwari attempts to explain the link

While we all believe that strategic advantage can come from knowing more than competitors, the link between knowledge and strategy is not explicitly articulated. Traditionally, strategic management models have defined the firm’s strategy in terms of its product/market positioning—the products it makes and the markets it serves. However, the resource-based approach suggests that firms should position themselves strategically based on their unique, valuable and inimitable resources and capabilities rather than the products and services derived from those capabilities.

While products and markets may come and go, resources and capabilities are more enduring. A resource-based strategy therefore seems to provide a more long-term view than the traditional approach, and works better in uncertain and dynamic competitive environments. Competitive advantage based on resources and capabilities is hence potentially more sustainable than that based solely on product and market positioning.

Nevertheless, it is not always possible to maintain unique resources and capabilities for competitors may imitate or develop a substitute for the resources. The only superior resource that is not easily imitable is the intellectual capability of the organisation. Typically, such capability is developed over years through experience, and it lies in the heads of people and organisational processes. For this reason companies with superior knowledge are able to adapt, combine and coordinate their traditional resources and capabilities in new and distinctive ways, and hence win over the competition.

Thus, knowledge can be considered the most important strategic resource, and the ability to acquire, integrate, store, share and apply it is the most important capability for building and sustaining competitive advantage. In short, managing knowledge effectively enhances the organisation’s fundamental ability to compete.

What is it about knowledge that makes the advantage sustainable? According to Zack, knowledge, especially context-specific tacit knowledge embedded in complex organisational routines and developed from experience, tends to be unique and difficult to imitate. Unlike many traditional resources, it is not easily purchased in the marketplace in a ready-to-use form. To acquire 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.

This is how Coca-Cola has been able to sustain its number one position. This is how Charles Schwab or Polaroid took the world by surprise and created new value for the customer. There are many such examples where companies have leveraged knowledge. One good example is how Xerox survived all these years—it was their knowledge of making copiers. Japanese companies overtook many American companies through their innovative products and knowledge. It took almost a decade for American companies to recover from the Japanese onslaught.

In one case I read about, a department of AT&T spent $79,449 to get information that could be found in a publicly-available AT&T technical information document priced at $13.

The importance of focus on knowledge as a source of competitive advantage is understood better when one looks at the ratio of market value to book value of a knowledge intensive firm; Microsoft, and in India Infosys, have got a ratio of more than 10.

In today’s environment it has become mandatory to manage knowledge effectively. The ever-mobile workforce needs instant access to know-how and interactive online support. Cost pressures force organisations to benefit from lessons learned in the past and reduce the re-invention of the wheel. Globalisation compels companies to create global best practices and support global collaboration.

The emphasis is on adapting to the changing environment through organisational learning and innovation, for which knowledge is the base. Effective KM will help an organisation increase its business benefits and hence enhance competitive advantage. At its simplest level KM helps in faster problem-solving, faster development times through learning networks, new innovative customer solutions, gaining new business, improved customer service, reduction of risk, and avoidance of costly mistakes that might occur by losing track of key knowledge.

The benefits of KM are three-fold:

• Strategic. A clear knowledge strategy helps the organisation to create unique value for customers and the organisation.
• Operational. KM improves operational efficiency by making available the right knowledge at the right time.
• Learning. It promotes organisational learning and makes learning a natural process.

While implementing KM, it should be kept in mind that the key goal of a KM initiative is to make available the right knowledge at the right time for each and every employee to perform successfully. This includes everything from complex knowledge required by the top management to simple process knowledge required by the front-end manager. It is up to the organisation to choose how right knowledge is made available at the right time. Content could be differently organised for easy retrieval by different organisations. Technology could also be different for different organisations, as could processes to disseminate knowledge.

Key elements of KM are business strategy/organisational goals, people, process, technology, content/knowledge, leadership/culture and metrics.

KM implementation should concentrate on all these elements for it to be successful. One must understand that all KM implementations should start with a clear goal of complementing business strategies and goals. KM initiatives taken independent of business goals and strategies are bound to fail or yield very little results. Also, all initiatives should be measured and improved. It is important to determine the metrics/performance parameters for each of the elements and to measure them for the initiative to be successful and continue to be successful. KM should be treated as a tool/enabler that helps in achieving business results. This approach helps an organisation to focus on what it needs to succeed in business and avoid spending money on flashy technologies.

Organisations should begin the implementation at the strategic level and work top-down to realise the benefits. Most organisations talk about implementing KM solution at the operational level. They work backward to justify how a successful KM implementation might create strategic advantage. Even at the operational level I wonder how many organisations have really reaped full benefits. At the operational level KM is done by typically implementing a KM portal where all process and other documents are collected and organised. This is made accessible to all and the needy. There are also mechanisms provided for collaboration over the Net. These efforts are definitely laudable. However, such mechanisms do not work well for all organisations. For example, consider a manufacturing organisation, where only a limited percentage of people work with computers while the core group of production employees work with machinery and hardly access the computer. Such organisations should come out with some innovative mechanisms to capture, share and aggregate knowledge. Buckman Labs, the first successful KM company, was a similar organisation. Their engineers were located at remote places and were travelling most of the time, so a solution was custom-designed to meet their needs.

At the strategic level, organisations can begin by doing a simple knowledge-based SWOT analysis or a diagnostic matrix.

• Strengths: Because the organisation possesses certain knowledge from its experiences or innovations which the competitors lack.
• Weaknesses: Because of the lack of knowledge in certain domains which makes the competitor strong and cripples the organisational capability.
• Opportunities: To leverage this special knowledge.
• Threats: Because of the lack of knowledge or threats, because the knowledge possessed is not difficult to copy.

Knowledge diagnostic matrix

This matrix is drawn with the organisation’s knowledge level on the y-axis and strategic knowledge requirement on the x-axis, both from low to high. Identify a few strategic knowledge requirements and map them in the matrix. For example, a pharma company might need knowledge about certain molecules to capture or sustain its position in the diabetics market. Or a food chain might need to understand local tastes to survive and compete in the market. This could be drawn separately for current and future requirements.

• Strategic requirement is low, the company’s knowledge level is high. This company could look at reducing focus on such an area and diverting resources from this area to a required area. This is like the cash-cow situation.
• Strategic requirement is high, the company’s knowledge level is also high. This is the best position to be in.
• Strategic requirement is low, the company’s knowledge level is also low. This quadrant could be ignored in the KM initiative.
• Strategic requirement is high, the company’s knowledge level is low. This quadrant requires immediate focus. The KM initiative should have a definite plan to ensure that this is taken to the next quadrant.

Such tools help in identifying the company’s knowledge needs that are immediate. Once the knowledge-needs are clear, detailed plans could be drawn for acquiring or developing the knowledge.

One of the reasons for the significant amount of investment in KM by the top management is to leverage its benefits strategically. Organisations must work at linking KM to strategy (and therefore competitive advantage) and gain significant strategic benefits. To put it in Dr Zack’s words, to increase the chances that KM will provide strategic advantage it should be tied to the competitive strategy. One should identify strategic points of knowledge leverage and use that to drive KM initiatives.

The author is Sr Consultant, Vidyatech Solutions Pvt Ltd, and is working in the area of KM, strategy and competitiveness. She can be reached at umaganeshraj@vsnl.net