Knowledge Management in Competitive Advantage

Knowledge Management in Competitive Advantage Introduction â€Å"A companys knowledge management strategy should reflect its competitive strategy: how it creates value for customers; how that value supports an economic model; and how the companys people deliver on the value and the economics. Also, competitive strategy must drive knowledge management strategy.† (Civi, 2000) Competitive strategy is described by Johnson et al (2008) as a firms focus on how to compete successfully in a market. The opening quote directs this essay to look at four areas: knowledge, knowledge management, innovation and acquisitions. The essay aims to display the interdependence of these issues, and demonstrate how they shape a firms competitive strategy. GlaxoSmithKline [GSK] is one of the leaders in the pharmaceutical industry, commanding a seven per cent share of the worlds pharmaceutical market (GlaxoSmithKline, 2009). GSKs mission is to develop innovative medicines and products that help millions of people around the world. As a company with a firm foundation in science, GSK have a flair for research and a track record of turning their research into powerful, marketable drugs. Every hour GSK spends more than  £300,000 on research and development (GlaxoSmithKline, 2009). Currently, a prevailing topic in the pharmaceutical industry is the acquisition of small biotechnology firms by the big pharmaceutical companies for their knowledge (The Economist, 2009). Innovation and acquisition are, therefore, fundamental to GSKs competitive strategy. For these reasons GSK is an ideal candidate as a reference to the discussion of this essay. Knowledge â€Å"At the strategic level the organization needs to be able to analyze and plan its business in terms of the knowledge it currently has and the knowledge it needs for future business processes.† (Civi, 2000). According to Civi (2000) the only sustainable advantage of an organization is what people know and what they do with it. The most crucial knowledge is that which is tacit. As Hamel (1991) states, tacit knowledge is highly personal, and hard to formalize. This makes it difficult to share with others and an elementary part of a firms competitive strategy, and complements Civis view that knowledge is needed for future business processes. Based on this, knowledge is the most important resource a company has. The Resource Based View [RBV] of the firm complements strategy, and is a determinant of competitive advantage (Porter, 1979). RBV assumes that the firm is a bundle of resources which are heterogeneously distributed. Researchers have theorized that when firms have resources that are valuable, rare, inimitable and non-substitutable, they can achieve sustained competitive advantage through implementing fresh value creating strategies which cannot be easily duplicated by competitors (Bar ney, 1991). This belief links directly back to our opening quote regarding value creation, and manifests how knowledge can be exploited and can shape the strategy of the firm. It allows managers and others to build new thinking in the firm, and is a particularly crucial capability in the pharmaceutical industry (Helfat, 1997). Knowledge management A goal of GSK is to build a learning organization by leveraging their knowledge. According to Chase (1997) GSK looks to achieve their goals by delivering innovative medicines to the market place and building core competences for the future through acquisition. This supports the argument that knowledge management plays a significant role in shaping the competitive strategy of GSK through innovation and acquisition. Unlike tangible assets, knowledge does not diminish in value, and through its role as architect shapes the competitive strategy and competencies of the firm, it therefore requires careful management. Knowledge management is a business and institutional process through which firms create knowledge, as (Daveport Prusak, 1998) articulate â€Å"knowledge management is a fluid mix of framed experience, values, and contextual information and expert insight that provides a framework for evaluating and incorporating new experiences and information†. Having come to recognition in the early 1990s, knowledge management was adopted by Glaxo Wellcome in 1997 when it launched a Senior Executive Programme whereby it united 300 of its executives. Its objectives were to share learning across boundaries, build new networks and to inspire entrepreneurial initiatives to stimulate business growth. As (Chase, 1997) stated â€Å"Glaxo Wellcome is rapidly building its knowledge infrastructure; lear ning from reflection and review; benchmarking internally and externally; and creating dynamic adaptive systems which respond to change.† This exemplifies the role of knowledge management in competitive strategy. It is further supported by Eisenhardt and Martin (2000) who describe strategic decision making as a dynamic capability in which managers pool their various functional, business and personal expertise to make the choices that shape the major strategic moves of the firm. As a resource, knowledge is considered as multi faceted, and is an essential starting point for the embodiment of knowledge within organizations, and their overall effective use of knowledge management (McAdam McCreedy, 1999). The ultimate objective of knowledge management is indeed its ‘use, wherein ‘use is the commercial value for the customer, and is easily attributable to innovation (Wilkinson Wilmott, 1994). Innovation â€Å"Innovation involves the conversion of new knowledge into a new product, process or service and the putting of this new product, process or service into use, either by the marketplace or other methods of delivery† (Johnson, Scholes, Whittington, 2008). In the context of intense global competition and the continuously increasing pace of technological development, innovation is considered as mandatory for survival in such a dynamic market environment (Nonaka Kenney, 1991). In this context, more than ever, companies are forced to renew their product portfolio. Only with new products can they sustain their competitive position, and linking back to knowledge management, many researchers believe that tacit knowledge forms the foundation for building a sustainable competitive advantage (Seidler-de Alwis Hartmann, 2008). Jean-Pierre Garnier realized that without huge innovation the company would be at risk from competition and be unable to sustain its market share. Garniers competitive strategy revolutionized GSKs drug discovery and innovation. He commissioned three new drug discovery factories in Madrid, the UK and Pennsylvania, costing $270 million. Each day these factories conduct over 300,000 tests, and have paved the way to speedier drug discovery, providing GSK with the ability to produce a drug in just 3 years half the industry average (Anon, 2004). As a result, in February 2009 GSK had 149 products in its pipeline, more than double the number of rival Merck who had just 74 (GlaxoSmithKline, 2009). This demonstrates the role of knowledge management in creating innovative capabilities, and highlights competitive advantage. Innovation is a key aspect of competitive strategy, and offers the direction for growth. One strategy used by GSK is open innovation. As (Johnson, Scholes, Whittington, 2008) confer â€Å"successful innovation is typically done through relationships.† At GSK, ten of their eleven top consumer healthcare brands began as collaborations with outside innovators (GlaxoSmithKline, 2009), Panadol is the number one over-the counter consumer healthcare product internationally, whilst Sensodyne ranks number two internationally in oral care (Wright James, 2009). GSKs consumer healthcare innovation portal appeals to external innovators and provides access to technology experts who nurture ideas into innovations that align with the companys competitive strategy. It is achieved through legal partnerships, which create mutually beneficial relationships, bringing new ideas to life (GlaxoSmithKline, 2009). A further example of such open innovation was GSKs announcement to share research and p atent portfolios for HIV drugs with its rival Pfizer in a hope of accelerating drug development in this area and create value for customers in less developed countries (The Economist, 2009). This merged business created revenue of $1.6 billion last year, and further exhibits how knowledge management and the pursuit of new knowledge can shape competitive strategy. Acquisition Acquisition routines bring new resources, and are a source of much sought after external linkages, which distribute knowledge and technology into the firm (Gulati, 1999). Two important acquisition incentives are those of market expansion and extending product portfolios (Atuahene-Gima Patterson, 1993). These incentives are today shaping GSKs competitive strategy under the guidance of Andrew Witty. In early 2009 GSK acquired Bristol-Myers Squibb Pakistan for $36.5 million. The deal meant that GSK acquired a portfolio of over 30 well established pharmaceutical brands and bolstered its position as the top selling pharmaceutical company in emerging markets. The portfolio is complementary to GSK, and provides a wealth of new opportunities in fast growing market areas to create value for both the firm and its customers (Bicknell, 2008). This once more exemplifies the role that knowledge management can have in acquisition, and therefore competitive strategy of GSK. â€Å"Strategies are both plans for the future and patterns from the past† (Mintzberg, 1987). This statement recognizes the need for knowledge management due to its inherent experience, values, and contextual information in crafting strategy. It also recognizes the need to identify current knowledge and that knowledge which it needs for future business growth. Powell et al (1996) found that knowledge creation processes that included external linkages in the form of alliances and acquisitions led to superior RD performance. As (Eisenhardt Martin, 2000) also found, external linkages were crucial to effective knowledge creation in their extensive study of the pharmaceutical industry. Glaxos  £9.1 billion acquisition of Burroughs Wellcome in 1995 was driven by expectations of cost savings , a strengthened product pipeline and improved market position as well as the challenges presented by the expiry of the patent of Zantac; Glaxos and the industrys first blockbuster drug (James , 2002). Thus, RBV emphasizes that successful strategy is based on a firms ability to identify, accumulate and deploy resources that match market opportunities and are difficult for competitors to imitate (Amit Schoemaker, 1993). Acquisitions can further help firms reconfigure their resources, allowing adjustment to a changing business environment; in GSKs case it strengthened their ability to deliver their mission, and ultimately the values behind their strategy. This further attests the role of knowledge management in crafting competitive strategy, and supports the need for acquisitions to maintain a competitive advantage. Conclusion Knowledge management should reflect the competitive strategy of the firm, and a firms competitive strategy must drive knowledge management. By exploring knowledge, knowledge management, innovation and acquisitions this work has evaluated knowledge as an asset integral to the firms competitive strategy. In the case of GSK, they have formed their own knowledge management strategy, and identified the importance of knowledge in guiding their innovation and acquisitions. Knowledge management, therefore, plays a major role in GSKs strategy. President John F. Kennedy once said: â€Å"In a time of turbulence and change, it is truer than ever that knowledge is power†. This essay has emanated Kennedys quote by identifying knowledge as the crux of new thinking and value creation, and therefore, economic power. As discussed, knowledge not only complements a firms strategy but also provides competitive advantage. At GSK this knowledge is transformed into powerful, marketable drugs. Shepard (2000) further supports this point by stating that knowledge, while difficult to quantify, and even more difficult to manage is a strategic corporate asset. Having recognized the importance of knowledge to the firm, this work then directed towards knowledge management. As was displayed, GSK adopted their own knowledge management strategy in a bid to encourage entrepreneurial initiatives and stimulate business growth through the release of knowledge. As (Halawi, McCarthy, Aronson, 2006) comment, â€Å"an organization managing knowledge well has the potential to create significant value, but only if it is linked to its overall strategy.† This reinforces the opening quote, and also provides the foundation not only to GSKs knowledge management, but also to their innovation and acquisition. The role of knowledge management is to find, understand and use knowledge to create value, thereby guiding a firms competitive strategy. Innovation is an encapsulation of the ‘use of knowledge management. It can be seen that knowledge management is the formulation of and access to knowledge, experience and expertise that encourage innovation. At GSK this is pursued both in-house and through open innovative relationships. As Halawi et al (2006) support â€Å"knowledge management pleads you to gaze at the informal networks and protocols, sharing experiences and know-how, in addition to cultural and technological elements that drive creativity and innovation.† The discussion finally examined acquisition as a strategy for creating external linkages and delivering new resources and that would not only improve the firms competitiveness but also RD and innovation. Glaxos acquisition of Burroughs Wellcome and Bristol-Myers Squibb Pakistan clearly illustrate this and show knowledge managements role as a driver behind GSKs acquisitions. Through detailing the four areas in this essay, and linking knowledge management and competitive strategy this work has shown that knowledge management can and does play an integral role in shaping the competitive strategy of the firm. It creates competitive advantage and develops core competences. 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