Capturing Value from Knowledge and Competence

The thesis advanced here is that the competitive advantage of firms in today’s global economy stems not from market position, but from the ownership and/or employment of difficult-to-replicate knowledge assets, and the manner in which they are deployed. It is always useful to distinguish between the creation of new knowl- edge and its commercialization. The creation of new knowledge through autonomous (specialized) innovation is a critical function. In theory it can be the domain of the individual, or of the research laboratory, or of autonomous business units. In reality, the com- mercialization of new technology is increasingly the domain of complex organization.

New challenges require new organizational forms and the devel- opment and the astute exercise of dynamic capabilities. Dynamic capabilities reflect the firm’s ability to integrate, build, and recon- figure internal and external competences to address rapidly chang- ing environments.11 They require an understanding of the nature of knowledge and competence as strategic assets. The nature of knowledge and its  replicability  (or  lack  thereof)  is  thus  critical to business strategy and proper management in today’s global economy. Understanding the processes of imitation and/or repli- cation are very important to enterprise success.

Replication involves transferring or redeploying competences from one concrete economic setting to another. Since productive knowledge is typically embodied, this cannot be accomplished by simply transmitting information. Only in those instances where all relevant knowledge is fully codified and understood can replica- tion be collapsed into a simple problem of information transfer. Too often, the contextual dependence of original performance is poorly appreciated, so unless firms have replicated their systems of productive knowledge on many prior occasions, the act of repli- cation is likely to be difficult. Indeed, replication and transfer are often impossible absent  the  transfer  of  people,  though  this  can be minimized if investments are  made  to  convert  tacit  knowl- edge to codified knowledge. Often, however, this is simply not possible.

In short, knowledge assets are not always easy to replicate. Even understanding what all the relevant routines are that support a par- ticular competence may not be transparent. Indeed, some sources of competitive advantage are so complex that the firm itself, let alone its competitors, does not understand them. Furthermore, many organizational routines are quite tacit in nature, making both replication and imitation difficult. Imitation can also be hin- dered by the fact that few routines are stand-alone. Imitating a part of what a competitor does may not enhance performance at all. Understanding the overall logic of organization and superior performance is often critical to successful imitation.

Owning assets (physical or intangible) can be the source of com- petitive advantage only if such assets are supported by a regime of strong appropriability or are nontradable or what might be termed “sticky”. As discussed earlier, once an asset is readily tradable in a competitive market it can no longer be a source of firm-level com- petitive advantage. The main classes of assets that are not tradable today are locational assets, knowledge assets, and competences.

Were a perfect market for know-how to some day emerge, knowledge would no longer be the source of competitive advan- tage. This is unlikely to happen any time soon, but understanding the limits on the market for know-how is important to understand- ing how firms can capture value from knowledge assets. Were it to happen, privileged access to government largess and protection would possibly emerge as the main differentiator. Such a world would not be appealing.

Source: Teece David J. (2009), Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth, Oxford University Press; 1st edition.

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