The paper deals with the context in which the basis of competitive advantage and the functions of management have been fundamentally altered. These changes include a decrease in the cost of information flows, an increase in the number of markets and deregulation of international financial flows. Now, the new core business is development and deployment of intangible assets (knowledge). The traditional bases for competitive advantage, such as access to natural resources, access to skilled labor and ownership of plants and equipment, are being stripped away and superseded by the science and art of making the most from the organizational knowledge capital, seen as a strategic resource.knowledge, competitive advantage.

Adrian Curaj

Marin Apetroae

English

Research Papers in Economics

 
 
DIMENSIONS OF KNOWLEDGE CAPITAL  
 
Cercet. ştiinţific gr. II, drd. Marin Apetroae, 
Prof. univ. dr. Adrian Curaj 
Executive Agency for Higher Education and Research Funding, Romania 
„POLITEHNICA” University of Bucharest, Center for Strategic  Management  
 
 
Abstract : The paper deals with the context in which the basis of competitive advantage and the 
functions of management have been fundamentally altered. These changes include a decrease 
in the cost of information flows, an increase in the number of markets and deregulation of 
international financial flows. Now, the new core business is development and deployment of 
intangible assets (knowledge). The traditional bases for competitive advantage, such as access 
to natural resources, access to skilled labor and ownership of plants and equipment, are being 
stripped away and superseded by the science and art of making the most from the 
organizational knowledge capital, seen as a strategic resource. 
 
Keywords: knowledge; competitive advantage. 
 
 
 1.  Introduction 
 
The need of orientation and coherent perception in the complex web of events, 
from which we could eventually identify and assess courses of development leading 
into the future, seems now more stringent than ever. It is related to the understanding 
of the nature of change and the urge to develop prevailing entrepreneurial innovation 
strategies having the appropriate dynamics and capacities to cope with change. 
The transition from the industrial to the knowledge society turns out to be a 
radical change with far reaching qualitative and quantitative effects (Drucker, 1993). 
In the course of this transition wealth and employment of an economy are becoming 
more and more dependent on its knowledge and capacity to innovate, while the 
performance of the industrial society was predominantly built on the use of capital and 
the productivity in manufacturing goods. 
In a traditional industrial economy, the roots for the development of 
productivity, value creation and wealth are set in the division of labor bringing about 
specialized work. In the case of a knowledge-based economy, the development of the 
capacity to innovate, value creation and wealth are based on the division of knowledge 
(Sveiby, 1997). 
Knowledge, in contrast to goods and services, diffuses through interaction. 
Moreover, competence and knowledge grow in the process of using them, whereas 
goods and services are being consumed. The knowledge-based economy, therefore, 
needs a different and new institutional framework in order to fully develop to its 
potential. Many of the problems European economies are facing in the present have 
their origins in the difficulties, misconceptions and obstructions encountered in the Management & marketing 
 
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transition process to the knowledge-based economy rather than the intensely discussed 
process of globalization. 
The dynamics of knowledge division and transformation enhances the 
capacity of organizations to build sustainable comparative advantages in international 
competition. The more specialized competencies and knowledge are developed, the 
more far reaching become the potentials for problem solving and linking to competent 
partners, and the more difficult it is for competitors to appropriate knowledge at the 
same level. Specialization, thus, creates advantages for competition and economic 
development. 
We are living in an economy of kaleidoscopic change where the only element, 
which is constant, is change. The industry environment is being influenced by 
unexpected, multiple changes reducing the period for which organizations can hold on 
to a competitive advantage. Every sector of industry in every corner of the globe has 
been affected by this change. 
One of the catalyst of this change has been the market which has also changed 
from a seller’s market to a buyer’s market. The buyers are more informed, thanks to 
the growth of Internet and consequently, information dissemination. 
Organisations, over the years, have practiced many methods to create and 
sustain competitive advantage. These initiatives, although have resulted in firms 
attaining some competitive advantage, are replicable and not sustainable over a longer 
period of time. Hence, organisations are now focusing on methods of creating new 
knowledge and harnessing existing knowledge to gain sustainable competitive 
advantage. 
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 (e.g. Microsoft, Infosys etc.). 
 
 
  2. The  strategy context 
 
Strategy can be best conceived as a method/plan adopted by a firm to balance 
it’s external environment (opportunities and threats) and the internal capabilities 
(strengths and weaknesses). Various management consultants and thinkers have 
defined the process of strategy in various ways. Porter’s model focused on defining a 
firm’s strategy in terms of it’s product/ market positioning. Building on Porter’s notion 
of competitive advantage, the resource based view of strategy argues that the resources 
and capabilities of an organisation can be a source of competitive advantage if they 
processes certain characteristics of being rare, durable and difficult to imitate, flexible 
and durable. If firms have resources with these characteristics, they can position 
themselves strategically on the basis of these resources and capabilities. Most of the 
tangible resources may not have these characteristics and hence organisations have to 
focus on intangible assets to be a source of competitive advantage. Many authors have  Dimensions of knowledge capital 
 
85
stressed on the strategic importance of intangible assets for firms to achieve 
competitive advantage. 
Two issues are worth mentioning in this context: a) the shifting character of 
the environment; certain strategic responses are required when time-to-market and 
timing is critical, the pace of innovation is accelerating and the nature of future 
competition and markets is difficult to determine and b) the key role of strategic 
management in appropriately adapting, integrating, and re-configuring internal and 
external organizational skills, resources and functional competencies toward changing 
environment. 
The main emphasis is on how to adapt to the changing environment, through 
organizational learning and innovation, for which knowledge is the base. This 
knowledge based view of strategy, which emphasizes building, and sustaining 
competitive advantage on the basis of the knowledge resources and capabilities of a 
firm has gained acceptance due to the following reasons: 
•  market is in a state of flux and going through a string of realignments; 
•  resources and capabilities are easily replicable; 
•  the unprecedented growth of information superhighway has accelerated the 
spread of explicit knowledge and consequently the speed of replicability; 
•  tacit knowledge gained through years of experience is not easily replicable. 
and hence any strategy based on market and product mix or resources and 
capabilities may not provide the firm with a sustainable competitive 
advantage. 
The importance of integration of knowledge available in the organisation is 
also stressed upon by authors like Huff, who, argue that managers look upon collective 
knowledge and experience in constructing mental models of strategic issues and terms 
this as ‘strategic frames’ and any strategic decision is a combination of multiple 
strategic frames. 
 
 
3. The knowledge management shift 
 
Knowledge management refers to the way in which knowledge is gathered, 
stored, and applied. One of the central aspects of Knowledge Management is how one 
generates value from knowledge based assets, which can be classified into either 
explicit  or  tacit. Explicit knowledge refers to knowledge that is documented; for 
example, books, manuals, and other documents. Tacit knowledge refers to knowledge 
that cannot be documents and is only gained through personal experience which is 
often referred to as „know-how”; for example, wisdom and experience. The 
importance for such types of knowledge is largely due to the fact that organizations 
operate in a „knowledge society” characterized by economical, social, and cultural 
aspects being driven by information. As Albert Einstein once said „information is not 
knowledge” therefore we must highlight the significance of transforming our Management & marketing 
 
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information into knowledge. The importance on information is revealed in the fact that 
companies today are not so much differentiated by physical assets as they are by 
intellectual differences.  
Various sources of knowledge as an asset exist. Among others, these sources 
range from books to company training to participation in communities of practice. The 
value of such knowledge can be seen in such examples as the learning organization 
where synergies are created within the company and the group produces exceptional 
results. Other benefits of utilizing knowledge as an asset are organizational innovation 
and learning that allows individual knowledge to be transferred, enlarged, and shared 
upwardly to the organizational level.  
In today’s fast paced global work environment, increasing an organizations 
level of efficiency means increased knowledge and profit. Efficiency can be defined as 
“a measure of effectiveness; specifically, the useful work output divided by the energy 
input in any system” and can be applied to any organization to maximize their 
advantage.  
The need to focus on managing knowledge within the enterprise results from: 
•  economic and market-driven requirements created by customer demands and 
international competition; 
•  increase in customer demands for products and services that fulfil their 
particular needs more precisely and to a greater advantage; 
•  loss of knowledge to the organisation due to increased personnel turnover; 
•  it helps organisations to be able to repeat the processes followed in past 
successful projects; 
•  effective knowledge management practices helps organisations avoid 
repeating mistakes of past projects, thereby reducing the time span required 
for completing current projects. 
The importance of knowledge is illustrated by the problem raised from the 
existence of the so-called ‘strategic knowledge gap’, i.e. the gap between what the 
organisation needs to know and what it does now and knowledge management is the 
process by which organisations could bridge this gap. 
We are reaching the end of the second generation of knowledge management, 
with its focus on tacit-explicit knowledge conversion.  Triggered by the SECI model 
of Nonaka (Nonaka, 1994; Nonaka and Takeuchi, 1995), it replaced a first generation 
focus on timely information provision for decision support which has substantially 
failed to deliver on its promised benefits. 
The third generation requires the clear separation of context, narrative and 
content management and challenges the orthodoxy of scientific management.   
Complex adaptive systems theory is used to create a sense-making model that utilises 
self-organising capabilities of the informal communities and identifies a natural flow 
model of knowledge creation, disruption and utilisation. However the argument from 
nature of many complexity thinkers is rejected given the human capability to create 
order and predictability through collective and individual acts of freewill.  Knowledge  Dimensions of knowledge capital 
 
87
is seen paradoxically, as both a thing and a flow requiring diverse management 
approaches. 
 
4. Knowledge creation and dissemination 
 
There are many ways in which knowledge can be created and disseminated 
across organisation. Any organisation that aims to create a knowledge management 
system should have to follow these general knowledge management initiatives: 
 
•  Creation of knowledge teams; 
•  Sharing of best practice; 
•  Development of knowledge pools; 
•  Creation of knowledge centres; 
•  Selection and use of collaborative technologies; 
•  Creation of intellectual capital teams. 
 
 
5. Creativity, innovation and knowledge strategy 
 
Creativity and innovation play a very important in designing and driving the 
business strategy of any present day organisation. In the present industry scenario, an 
organisation does not enjoy sustainable competitive advantage, merely by possessing 
resources and capabilities. They should be able to combine these resources in new and 
different ways or develop new capabilities to gain sustainable competitive advantage. 
This is possible through creative thinking and innovation and an appropriate alignment 
of KM strategy with their business strategy. 
Organisations pursue different strategies to align their KM strategies with the 
business strategies. Some of examples of these strategies are: 
•  Use of automation and intensive application of ITC (codification); 
•  Building of a learning strategy (personalisation); 
•  Building, leveraging and exploiting knowledge-related assets (strategic 
management of intellectual capital). 
 
 
6. Conclusions 
 
In the current industry scenario of flux and uncertainty, organisations cannot 
achieve sustainable competitive advantage, by pursuing just a product-market based 
strategy or a resource based strategy. They need to appreciate the importance of the 
knowledge existing in the organisation and harness the knowledge through appropriate Management & marketing 
 
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knowledge management strategies and align this strategy with the business strategy. 
Moreover, they also need to create new knowledge through creative methods and build 
new capabilities to achieve sustainable competitive advantage. 
 
 
  References 
 
Drucker, P.F. (1993). Post-Capitalist Society, New York: Harper & Row 
Sveiby, K.E. (1997) The New Organizational Wealth: Managing and Measuring 
    Knowledge-Based Assets, San Francisco: Berrett-Koehler 
Nonaka I. (1994). A Dynamic Theory of Organizational Knowledge Creation,  Organization 
Science, vol 5, n°1, pp. 4-37 
Nonaka I., P. Byosiere, C. Borucki et N. Konno (1994). Organizational Knowledge Creation 
Theory: A First Comprehensive Test, International Business Review, n°3, vol. 4, pp. 337-
351 
Nonaka I. & N. Konno (1998). The Concept of Ba: Building for Knowledge Creation, 
California Management Review, vol. 40, n°3, Spring. 
Nonaka I. & H. Takeuchi (1995). The Knowledge Creating Company, Oxford University Press, 
Oxford 
 
Note: This paper has been presented at the International Conference on Business Excellence, 
27-28 October, 2006, Brasov, Romania 
 
 

The Knowledge Creating Company,

The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets, San Francisco: Berrett-Koehler Nonaka I.

Dimensions of knowledge capital

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