1. Knowledge Management Most Cited 1-3 Presented by: Lana Abu-Shaheen Undergraduate Senior in Management Information Systems October 18, 2005

2. Overview Firm Resources and Sustained Competitive Advantage Jay Barney Published: March 1991 The eleven deadliest sins of knowledge Management Liam Fahey, Laurence Prusak Published: Spring 1998 What’s your Strategy for Managing Knowledge? Morten T. Hansen, Nitin Nohria, Thomas Tierney Published: March/April 1999 Cross Cutting Themes Critique Additional Information & Resources

3. Firm Resources and Sustained Competitive Advantage 1 Internal Analysis Strengths Weaknesses Resource Based Model Opportunities Threats External Analysis Environmental Models of Competitive Advantage Firms obtain sustained competitive advantage by: Exploiting internal strengths Responding to environmental opportunities Neutralizing external threats Avoiding internal weaknesses

4. Firm Resources and Sustained Competitive Advantage 1 Recent research: analyze opportunities and threats in competitive environment Porter’s “Five forces model” describes attributes of an attractive industry and thus suggests that opportunities will be greater, and threats less, in these kinds of industries Lesser emphasis on impact of idiosyncratic firm attributes on a firm’s competitive advantage Two assumptions Firms within industry are identical Resource heterogeneity short lived

5. Firm Resources and Sustained Competitive Advantage 1 Resource based view of competitive advantage Cannot rely on these assumptions Examines link between firm’s internal characteristics and performance New assumptions Firms within industry heterogeneous Resources not perfectly mobile across firms

6. Defining Key Concepts 1 Firm Resources Physical capitalHuman capitalOrganizational capital The physical technology used in a firm, a firm’s plant and equipment, its geographic location, and its access to raw materials. The training, experience, judgment, intelligence, relationships, and insight of individual managers and workers in a firm. A firm’s formal reporting structure, its formal and informal planning, controlling, and coordinating systems, as well as informal relations among groups within a firm and between the firm and those in its environment Purpose of this paper: To specify the conditions under which such firm resources can be a source of sustained competitive advantage for a firm

7. Defining Key Concepts 1 Competitive advantage A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy Sustained Competitive Advantage Definitions: 1.Apply to both existing and potential competitors 2.Sustained competitive advantage does not depend on calendar time, but on the possibility of competitive duplication Avoids problem of specifying how long to be sustained 3. Sustained does not mean forever; only until duplicated 4. “Schumpeterian Shocks” structural revolutions in an industry that can redefine which of a firm’s attributes are resources and which are not

8. Competition with Homogeneous and Perfectly Mobile Resources 2 Resources distributed evenly = not sustained CA First mover advantage May be a way to gain SCA Not possible because resource homogeneity Only possible: resources must heterogeneous Entry/mobility barriers Help existing firm against potential competition Only possible: resources must heterogeneous and perfectly mobile

9. Firm Resources and Sustained Competitive Advantage 1 To have potential of Sustained Competitive Advantage: Resources are valuable when they enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness. Attributes become resources only when they can exploit opportunities and neutralize threats in a firm’s environment. If a valuable firm resource is possessed by many firms, then each of these firms can exploit this resource, thereby implementing a common strategy that gives no one firm a competitive advantage. This, implicitly, means that the resource is not rare. Dependent upon: 1.Unique historical conditions, 2.Causal ambiguity 3.Social complexity. There must be no strategically equivalent valuable resources that are themselves either not rare or imitable. Valuable Rare Imperfectly Imitable Not substitutable

10. Applying the Framework 1 Firm Resource Heterogeneity Firm Resource Immobility Value Rareness Imperfect Immobility History Dependent Casual Ambiguity Social Complexity Substitutability Sustained Competitive Advantage

11. Strategic Planning and Sustained Competitive Advantage 1  Formal strategic planning  Wide array of literature available  Highly imitable  Not a source of sustained competitive advantage  Informal and autonomous processes  Potential evaluated by considering how rare, imperfectly imitable and substitutable they are If formal is a substitute for informal -> not a source of SCA If formal is not a substitute for informal -> may be a source of SCA

12. Information Processing Systems and Positive Reputations 1  Depends on type of information processing system analyzed  Machines highly imitable  Information processing system possible  Close manager-computer interface  Highly experienced  Socially complex, imperfectly imitable => SCA  Even if close substitute exists  Positive reputation  If only a few firms have it => rare  Duplication is complex and depends on historic conditions  Source of SCA

13. Social Welfare, Organization Theory and Behavior and Firm Endowments 1  Firms exploiting resources => effective and efficient => maximize social welfare  Resource-based model suggests OT&B  Managers limited in their ability to manipulate all attributes and characteristics of their firms  Resources imperfectly imitable => source of SCA  Firms cannot “purchase” SCA on an open market  Obtained through rare, imperfectly imitable, non-substitutable resources

14. The Eleven Deadliest Sins of KM 2  Without detecting and correcting errors in “what we know” and “how we learn” an organization deteriorates and can result in “bad” decisions.  Purpose of article: draw attention to a set of pervasive knowledge management errors  Based on the authors’ observing or partaking in over 100 knowledge projects over the past five years

15. The Eleven Deadliest Sins of KM 2 1: Not developing a working definition of knowledge 2: Emphasizing knowledge stock to the detriment of knowledge flow 3: Viewing knowledge as existing predominantly outside the heads of individuals 4: Not understanding that a fundamental intermediate purpose of managing knowledge is to create shared context 5: Paying little attention to the role and importance of tacit knowledge 6: Disentangling knowledge from its uses 7: Downplaying thinking and reasoning 8: Focusing on the past and the present and not the future 9: Failing to recognize the importance of experimentation 10: Substituting technological contact for human interface 11: Seeking to develop direct measures of knowledge

16. What Can Be Done? 2 Three actions to avoid the errors: I. Continuously reflect on knowledge as organizational phenomenon 1. Develop shared understanding at local levels 2. Allow individuals frequent opportunities to discuss and debate what knowledge is 3. Help individuals identify current and desired knowledge roles 4. Ask individuals to identify knowledge implications for group behaviors and processes

17. What Can Be Done? 2 II. Managers must be obsessive about noting and correcting errors in their stock of knowledge III. Managers must be vigilant about detecting errors in their the generating, moving, and leveraging of knowledge throughout the firm. Conclusion: An organization must engage in critical, sustained, and honest self-reflection about the errors noted in this article. By doing this, it can avoid the pitfalls that are evident in the approaches of many organizations’ attempts to work with knowledge.

18. What’s your strategy for Managing Knowledge?   1990’s foundation of industrialized economy shifted from natural resources to intellectual assets   Rise of networked computers   Codify, store and share certain kinds of knowledge   Executives lacked successful models   Study knowledge management in different industries   Management Consulting   Health Care Industry   High Tech Industry 3

19. Management Consulting Firms 3 What’s Your Strategy for Managing Knowledge? Knowledge is the core asset of consultancies First to pay attention to and invest in KM Aggressively explore use of IT to capture and disseminate knowledge Experience relevant to companies that depend on smart people and flow of ideas However, consultants do not take uniform approaches to managing knowledge

20. Knowledge Management Strategies 3  Codification  The strategy centers on the computer  Knowledge carefully codified and stored in databases  Accessed and used easily by anyone in the company  Personalization  Knowledge closely tied to person who developed it  Shared mainly through person-to-person contacts  Purpose of computers: help communicate knowledge  Choice of strategy  The way the company serves its clients  Economies of the business  The people it hires What’s Your Strategy for Managing Knowledge?

21. Codification or Personalization? 3  Anderson Consulting and Ernst & Young  Codification strategy  “People-to-Documents” approach  Extracted from the person who developed it  Made independent of that person, reused  Bain, Boston Consulting Group and McKinsey  Personalization strategy  Dialogue between individuals  Brainstorming sessions and one-on-one conversations  Deeper insights going back and forth on problems to be solved What’s Your Strategy for Managing Knowledge?

22. Codification or Personalization? 3  Ernst & Young  250 people at the Center for Business Knowledge  The method  Randall Love and the industrial manufacturer bid  The process  The result  Bain  Marcia Blenko and the British financial institution  The process  The result  Invests heavily in building networks of people What’s Your Strategy for Managing Knowledge?

23. Health Care Industry 3  Access Health  “Clinical decision architecture”  Reuse structure leads to low prices  Captured 50% of call-center market. Growing at 40% a year  Memorial Sloan-Kettering Cancer Center  Highly developed personalized model  Higher prices  Consistently ranked as top cancer research and treatment institution in the country What’s Your Strategy for Managing Knowledge?

24. Different Strategies, Different Drivers 3 What’s Your Strategy for Managing Knowledge?  Knowledge management strategy reflect competitive strategy  Creating customer value for customers Ernst & Young and Anderson Consulting McKinsey, BCG and Bain Always dealing with similar problems Problems don’t have clear solutions Service offering is very clearHighly customized solutions “Economics of reuse”“Expert economics” Hires undergrads from top universities and train them Hire top-tier MBA grads

25. Choosing the Right Strategy 3 1. Why customers buy a company’s products/services rather than those of its competitors 2. What value do customers expect from the company? 3. How does knowledge that resides in the company add value for customers? Assuming the answers to these questions are clear, ask the following questions: 1. Standardized or customized products? 2. Mature or innovative products? 3. People rely on explicit or tacit knowledge to solve problems? What’s Your Strategy for Managing Knowledge?

26. Do Not Straddle 3  Companies that use knowledge effectively: 80-20 split  80% of knowledge sharing follows one strategy while 20% follows the other  Downfall of CSC Index in the early 1990s  Problem: mixing inventors with implementers  Result: CSC Index unable to keep up with competition like Anderson Consulting and Ernst & Young  Lesson: important to avoid straddling, but unwise to focus on one exclusive strategy What’s Your Strategy for Managing Knowledge?

27. Do Not Isolate Knowledge Management 3  Companies that isolate KM risk losing its benefits  Do not isolate in departments like HR or IT  Benefits higher if coordinated with HR, IT and competitive strategy  Responsibility of top management  actively a knowledge management approach that supports a clear competitive strategy  Strong leadership = benefit of customers and company What’s Your Strategy for Managing Knowledge?

28. Cross Cutting Themes  Management of essential resources  Importance of proper Knowledge Management  What errors to avoid  Which strategies to choose  Which resources to exploit

29. Critique  Firm Resources and Sustained Competitive Advantage  Insightful, even if outdated (1991)  Represents interesting, and logical, arguments  Repetitive  The Eleven Deadliest Sins of Knowledge Management  Easy to read, great layout  Interesting information, but repetitive  What’s Your Strategy for Managing Knowledge?

30. Additional Resources  Codification, Personalization, Integration  A strategy for selecting and applying KM tools  http://www.kmworld.com/publications/magazine/index.cfm?ac tion=readarticle&Article_ID=1224&Publication_ID=67  Insight on Morten Hansen  http://www.insead.edu/facultyresearch/faculty/profiles/mhans en/  http://66.102.7.104/search?q=cache:nMdcVJX1KA4J:www.lon don.edu/assets/documents/PDF/MHansen_CV_February2003.p df+morten+t.+hansen&hl=en

31. Additional Resources  Resource Based View of the Firm  More Jay Barney  Forms of resources: patents, properties, proprietary technologies or relationships  Dynamic capability perspective  Asymmetries: skills, processes or assets a firm’s competitors do not and cannot copy at a cost that affords economic rents.  Rare, inimitable and non-substitutable  Often act as liabilities – not connected to any engine of creation  Turn asymmetries into sustainable capabilities  http://www.valuebasedmanagement.net/methods_barney_resource_based_view _firm.html http://www.valuebasedmanagement.net/methods_barney_resource_based_view _firm.html  Sharon A. Alvarez and Jay B. Barney, management and human resources, "Entrepreneurial Advantage: The Resource Based View," a chapter in Entrepreneurship as Strategy, G.D. Meyer and K. Heppard, eds., Thousand Oaks: Sage Publications, 2000.

32. Additional Resources  Insight into Laurence Prusak  Storytelling in Organizations: Why Storytelling Is Transforming 21st Century Organizations and Management John Seely Brown, Laurence Prusak, Stephen Denning, Katalina Groh : May 2005  In Good Company: How Social Capital Makes Organizations Work; Don Cohen, Laurence Prusak February 2001  Putting Ideas to Work: From Knowledge to Action: October 8, 2004  University of Pennsylvania  KM Asia 2005: October 27, 2004  Suntec Singapore  http://www.gurteen.com/gurteen/gurteen.nsf/id/larry-prusak

33. Additional Resources  Insight into Liam Fahey  Competitors: Outwitting, Outmaneuvering and Outperforming (1999)  The Portable MBA in Strategy (2 nd ed., 2001)  http://www.managementonly.com/author.php/133/Liam_Fahey http://www.managementonly.com/author.php/133/Liam_Fahey