Knowledge–Based View of the Firm

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KnowledgeBased View of the Firm

Knowledge-based view of the firm (KBV) is a management concept of organizational learning that provides firms with strategies for achieving competitive advantage. This is achieved through increased employee involvement in the formulation and administration of the operational goals and long-term transformational objectives of the firm. The continuous acquisition and transfer of knowledge within business organizations is necessitated by such factors as ever-changing competitive conditions in markets initiated by globalization, frequent deregulations, and technical advancements.

KBV is an important approach towards organizational learning that forms the basis for establishing human capital involvement in the structural and routine activities of the firm. KBV proposes the establishment of heterogeneous knowledge structures across the management hierarchies of a firm as a prerequisite condition for achieving sustainable knowledge-based competitive advantage. This is because knowledge-based resources are always characterized by difficulties of transmission, imitation, and social complexities.

As much as KBV is a relatively contemporary management concept, it draws much impetus and reference from classical theories of management such as the theory of the firm, the organizational theory, and the resource-based view of the firm. In fact, the fundamental assumptions of the knowledge-based theory of the firm are particularly believed to have stemmed from the resource-based view of the firm. However, the resource-based view of the firm does not give knowledge adequate recognition and, in fact, categorizes knowledge among the simple generic resources of the firm. Knowledge-based theory of the firm makes amends of these shortfalls by expounding on the strategic significance and distinctive characteristics of the different types of knowledge-based resources that portend competitive advantage for the firm, as demonstrated by the following assumptions:

  • Knowledge-based resources hold the most strategic significance in firms.
  • Production activities and processes in firms involve knowledge application.
  • Individuals rather than organizations are responsible for creating, holding, and sharing knowledge.
  • The incapability of markets to coordinate specialized knowledge necessitated the existence of firms, with management playing the coordination roles within the firms.
  • Knowledge-based resources are characterized by difficulty of imitation and social complexities.
  • Knowledge draws strategic significance from its appreciative value as opposed to other traditional factors of production, which depreciate.

The broad-based nature of knowledge can be analyzed through two major fronts: knowledge as an independent idiosyncratic characteristic of the firm and knowledge management as a determinant activity in the firm.


Knowledge is a strategic management resource that initiates competitive advantage in the firm through value addition to

business data, information processes, and system operations. Knowledge is an important tool for change management that managers can use to respond to issues of staff retention. Explicit knowledge and tacit knowledge are the two major types of knowledge that firms can observe when seeking to achieve competitive advantage.

Explicit knowledge is the generalized knowledge that can easily be expressed and identified within the organization's routines, records, and information systems. Explicit knowledge defines industry trends that are generally practiced by competing firms rather as response to market demands and requirements than specific strategies for achieving competitive advantage. As such, the market value of explicit knowledge within a firm is more or less equivalent to its market value.

Firms utilize tacit knowledge to draw competitive advantage from the individual or firm-specific capabilities that are difficult to transmit or encapsulate. In a journal article titled Knowledge-Based View of the Firm and Its Precursor, Carla Curado and Nick Bontis acknowledge that the intangible and dynamic nature of tacit knowledge creates the need for an idiosyncratic approach toward organizational learning and dependency. Firms apply tacit knowledge whenever responding to changes in market structures (such as the launch of new products by a competitor) or changes in market regulations that open up the market to competitors. Acquisition of tacit knowledge by individuals within the firm heavily depends on the ability of employees to share skills as well as the resolve to conduct education and research beyond the firm's boundaries.


Firms formulate knowledge management (KM) strategies so as to create and employ appropriate individual and collective knowledge resources in the pursuit of competitive advantage. Identifying, creating, storing, sharing, and applying knowledge are the main activities that define knowledge management.

Identifying Knowledge. The process of knowledge management begins with the review and appraisal of the existing resources as well as identifying any resource gaps that may need to be filled to increase the organizations competitive capacity.

Creating New Knowledge. This involves introducing new ways of conducting and managing business processes both at individual and team levels. The process of creating new knowledge may be achieved through training, brainstorming sessions, or internal and external consultancy. Training can be enhanced through job rotations, participation of employees in committee assignments, outdoor training, process simulations, lecture courses, and seminars.

Firms adopt knowledge creation strategies with the objective of fostering long-term innovative practices and developing strong performance foundation. Japanese companies are particularly known to apply the principles of Kaizen to motivate the creation of knowledge through organizational cultures that embolden vision of services and products alongside other strategies that promote transparency, sharing of information, and active utilization of knowledge. For example, Toyota has based its success through the Toyota Production System which focuses on the creation of idiosyncratic and tacit knowledge. The pervasiveness of the orientations of the different types of knowledge in the cultural contexts of organizations serves as the benchmark for companies that pursue knowledge creation and innovation. Companies can excel in knowledge creation by not only developing capabilities for collecting and organizing information about knowledge, but also by providing adequate channels for accessing and distributing knowledge across organizational structures.

Applying Knowledge. Applying knowledge is the stage where the organization emphasizes the continuous transformation of information into skills and knowledge with the objective of achieving competitive advantage. The value of knowledge-based resources can be realized only if relevant knowledge is applied purposefully to enhance business decisions and actions. Although many companies work diligently to acquire shelves of knowledge repositories, they fail to dedicate adequate attention to transformation of the repositories into information resources through which employees can apply the knowledge in running the current business activities and generating new ideas for future use. This is because the application of knowledge is a complex issue that encompasses different organizational dimensions such as organizational culture and process designs.

Sharing Knowledge. Relevant knowledge should always be made available and accessible at all times to all interested parties within the organization. In the book titled Human Resource Management for Tourism, Hospitality and Leisure: An International Perspective, Tom Baum identifies two methods of distributing knowledge: the stock method that involves distributing knowledge through information databases, and the flow method which involves direct knowledge distribution through individual and group collaborations and mentoring.

Managers can employ various strategies to incorporate knowledge distribution in work processes. Creation of specific roles for importing and exporting knowledge is one such strategy. This practice is evident in consulting firms such as Deloitte & Touche and PricewaterhouseCoopers, which allocate specialized responsibilities of managing knowledge transfer within both the organizations and client organizations. Another strategy involves

designing knowledge-oriented analytical procedures within work processes or projects. For example, the Japanese Toyota manufacturers rely on the Toyota Production System to insert reviews of knowledge already gained and knowledge that is still required among the key points of the quality improvement processes.

Storing Knowledge. Organizations store knowledge either in the form of tacit or explicit knowledge. Managers can overcome the challenges of storing knowledge by adopting the strategy of integrating knowledge use into the IT systems that support processes among knowledgeable workers. For example, General Motors designs new motor vehicle models using a knowledge-based engineering system that embeds a set of design rules into the computer-aided design system. The main objective of systematic knowledge integration is to provide continuous access to the organization's knowledge structures while providing room for individual creativity and innovation. Managers can further perfect the storing of knowledge by implementing continuous improvement programs that allow frequent revision of core organizational processes that constitute team routines and procedures.


Leading proponents of KBV such as R.M. Grant acknowledge that hurdles that usually emerge from divergence of interests between employee conditions and owner expectations can hamper smooth coordination of specialized knowledge. As such, firms that seek to entrench uniformity of interests should pursue coordination of specialized knowledge by encouraging cooperation among all employees in the organization. However, the pursuit of cooperation may lead to bureaucratic imposition of coordination objectives through hierarchical structures, a situation that can be avoided through incorporation of other administrative and enforcement tools such as recognition of organizational culture and process designs.

Organizational culture. Organizational culture basically involves the unique norms, shared values, and assumptions that define an organization alongside the practices that all groups and individuals share within the organization. KBV perceives the organizational culture in terms of the organization's reward structures for the decisions and actions of employees in regard to utilization and sharing of knowledge. Firms hire employees with expectations that employees will apply knowledge in their actions and decisions regarding their assigned responsibilities, an objective that should never be taken for granted and should always be highlighted and emphasized during hiring processes in organizations because it would be a difficult task for the firm to inculcate basic intellectual curiosity among new employees. KM thrives in organizational cultures that portray flexible orientations such as the human relations orientation.

Firms that observe a human relations cultural orientation operate more or less like family, with a flat internal structure that emphasizes employee empowerment, interpersonal relations, and staff development (as opposed to hierarchical structures and reporting channels). As much as hierarchies provide the convenience of processing knowledge, they present challenges to knowledge integration, especially in situations where decision making on the higher levels depends on the knowledge of employees in the lower levels of hierarchical structures. It is for this reason that KBV emphasizes organizational structures that are not only participative in nature, but also motivational, so as to create appropriate conditions for decentralization, spreading, and sharing of both idiosyncratic and tacit knowledge throughout the firm.

Process designs. Knowledge determines the key processes in the firm such as administration, marketing, product development and design, planning, and resource allocation. Therefore, knowledgeable workers should practice their skills in the course of their duties and experience the convenience of doing so, for they are the best knowledge repositories to be utilized in organizations. Firms can achieve this through creation of adequate links between work processes and knowledge, as well as through continuous evaluation of all key processes in the firm to ascertain the acquisition of knowledge by human brains and information sources.

Greater value-addition can be achieved through knowledge if managers explore ways of exporting and sharing knowledge acquired by employees in the course of their duties in the firm. Appropriate process designs emphasize adherence to routines, slotting of responsibilities, communication of new policies, issuance of directives, use of systems and documentations, and a consultative approach when seeking solutions to problems.


Technological business applications play an important role in advancing knowledge capabilities in organizations. Organizations are increasingly adopting IT applications to execute transactions, customer relations management, asset management, and total quality management, as well as to enhance competency and innovation among the workforce. Organizations can use IT applications to create a collaborative work environment by empowering employees with the capacity to share knowledge through publishing tools that are interactive in nature such as chats, e-mails, discussion groups, intranets, and video conferencing.

SEE ALSO Knowledge Management


Andreu, Rafael, Joan Baiget, and Agusti Canals. Firm-Specific Knowledge and Competitive Advantage: Evidence and KM Practices. Knowledge and Process Management, 15, No. 2, (2008):97-106. Available from:

Baum, Tom. Human Resource Management for Tourism, Hospitality and Leisure: An International Perspective. Thomson Learning, 2006.

Carysforth, Carol, and Mike Neild. Administration, 3rd ed. Heinmann, 2006.

Curado, Carla, and Nick Bontis. The Knowledge-Based View of the Firm and Its Theoretical Precursor. International Journal of Learning and Intellectual Capital, 3, No. 4 (2006): 367-381. Available from:

DeCenco, David, A., and Stephen P. Rubbins. Fundamentals of Human Resource Management, 8th ed. John Wiley & Sons Inc., 2006.

Ghemawat, P. Strategy and Business Landscape, 2nd ed. Upper Saddle River, New Jersey: Prentice-Hall 2006.

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Knowledge–Based View of the Firm

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