Knowledge creation strategy
Theory of the Firm and knowledge creation strategy
When devising a strategy for the future growth of a firm, it is initially necessary to decide how to view the current state of the firm. The Theory of the Firm provides various perspectives that firms can be analysed from.
For example, the Product Based View of the Firm states that the products that a company produces are its primary differentiator. In this case, strategy consists of dominating specific product markets.
The strategic objective in the PBV (product based view) is to dominate in a product or service market. Firms are able to dominate when they have the best understanding of the industry, particularly the opportunities and threats that are emerging.
… The PBV (product based view) of strategy asks what it is that the firm must do to dominate in its selected industry. Pursuit of these answers is expected to generate the most desirable internal configuration.
Governing Transformative Technological Innovation: Who’s in Charge?
On the other hand, the Resource Based View of the Firm states that a firm’s capabilities are its primary differentiator. Therefore strategy consists of applying the firm’s capabilities in the most effective manner possible.
Resource based theory sees the firm as a collection of assets, or capabilities… The success of corporations is based on those of their capabilities that are distinctive…
Business strategy involves identifying a firm’s capabilities: putting together a collection of complementary assets and capabilities, and maximising and defending the economic rents which result…
Knowledge Based View of the Firm
The Knowledge Based View of the Firm (KBV) is a specialisation of the Resource Based View, which posits that the primary competitive advantage of a company lies in its knowledge. This perspective is particularly relevant to companies that rely predominantly on human capital and know-how, such as financial services and high-tech companies.
The knowledge-based view of the firm argues that the products and services produced by tangible resources depend on how they are combined and applied, which is a function of the firm’s know-how. This knowledge is embedded in and carried through individual employees as well as entities such as organization culture and identity, routines, policies, systems, and documents.
The knowledge-based view of the firm posits that these knowledge assets may produce long-term sustainable competitive advantage for the organization because knowledge-based resources are socially complex to understand and difficult to imitate by another organization (Alavi & Leidner, 2001).
Strategic Knowledge Management Technology, page 55
However, assuming that knowledge is the primary differentiator of a company can make it difficult to identify a future growth strategy. There does not seem to be any way to guarantee the invention of commercially useful knowledge within a company and there is nothing to prevent the smallest company from making a discovery that is crucial to the entire industry.
In other words, how can a company position itself to be the repository of knowledge that does not yet exist?
Due to this problem, some researchers have come to the conclusion that it is not possible to create a strategic growth plan that is based specifically on the Knowledge Based View of the Firm.
Given the current theoretical perspectives on knowledge, KBV (knowledge based value) is not yet a theory of strategy (i.e., a theory that links independent variables to a specific conception of firm performance) that goes beyond the insights provided by the resource-based view and the related dynamic capabilities approach.
…Similarly, the empirical literature suggests that it is unlikely that we have a new theory of organization, given that internal and external knowledge transfer processes are not appreciably different (i.e. there is no way of localising knowledge creation within the firm).
Knowledge-Based View: A New Theory of Strategy?
Hence the question arises, is it possible to determine a company structure that is optimised for the creation and application of new knowledge?
The following are some ideas for encouraging creativity and retaining inventive talent.
Due to the need for social crystallisation and operational predictability, corporations often encourage an emotionally simple and homogenous environment.
Corporate homogeneity – All business verticals and functional components can achieve a homogeneous ambition and approach if their aspirations and perceptions are well guided. A vision document provides the required homogeneity. All stakeholders can perform with better zeal if they connect to a common purpose provided by the organization’s vision.
Strategic Planning, Execution, and Measurement (SPEM): A Powerful Tool for CEOs, page 8
However, predictability is the antithesis of innovation. People with a predictable work-habit are likely to think predictably as well. The passion of intellectual accomplishment can only be cultured in an emotionally complex environment that does not scale down diversity, variety and expressiveness.
Creation lies at the edge between order and chaos. Requisite variety helps a knowledge-creating organisation to maintain the balance between order and chaos. An organisation’s internal diversity has to match the variety and complexity of the environment in order to deal with challenges posed by that environment.
SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation, page 28
Foment an atmosphere of intellectual excitement that incorporates mind, body and spirit. All of these are required input for new knowledge creation.
Knowledge is created in the spiral that goes through two seemingly antithetical concepts such as order and chaos, micro and macro, part and whole, mind and body, tacit and explicit, self and other, deduction and induction, and creativity and control.
SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation
Encourage people to feel ownership of the outcome of their knowledge.
The Mac team had a complicated set of motivations, but the most unique ingredient was a strong dose of artistic values. First and foremost, Steve Jobs thought of himself as an artist, and he encouraged the design team to think of ourselves that way, too. The goal was never to beat the competition, or to make a lot of money; it was to do the greatest thing possible, or even a little greater…
Since the Macintosh team were artists, it was only appropriate that we sign our work. Steve came up with the awesome idea of having each team member’s signature engraved on the hard tool that molded the plastic case, so our signatures would appear inside the case of every Mac that rolled off the production line…
We held a special signing party after one of our weekly meetings on February 10, 1982. Jerry Mannock, the manager of the industrial design team, spread out a large piece of drafting paper on the table to capture our signatures. Steve gave a little speech about artists signing their work, and then cake and champagne were served as he called each team member to step forward and sign their name for posterity… Steve waited until last, when he picked a spot near the upper center and signed his name with a flourish.
The “I did something really great” feeling, can only be experienced if people realise that they are doing something which is genuinely useful for society.
It was no use appealing to the ‘organization’ to produce new products in a miracle time. Everything had to be done on a person-to-person basis and cutting across all the lines of red-tape…
I summarize the qualifications for this sort of operation:
1. Money capitalism has to give way to motives of human capitalism both as to public sentiment (‘fighting for our lives’) or the breaking of red tape (‘You can do the paper work later’). It is a sense of vital urgency.
2. One has to work with back-room boys who are both self-starters and ingenious and who enjoy the sense of vital urgency. For once, the back-room boys feel they are doing something useful.
Innovation and Employment, page 143
Creative minds are attracted to interesting environments. Compulsory homogeneity is the first warning sign that ingenuity and originality are on their way out. A true learning environment can only be led by someone who relishes the personal growth of constant learning themselves.