The KBV has four ‘main’ assumptions which need to be considered (Grant 1996b). Hence, it is important that any strategic research fit environment will satisfy and share light into the following assumptions:
The first assumption is that ‘knowledge’ is considered to be the most strategically
important resource of the firm. This assumption is advocated by scholars like Spender (1996), who argue that organisations have two predominant goals, the generation and application of knowledge (Spender 1996). Knowledge-based capabilities are recognised to be one of the most strategically important capabilities for creating a sustainable competitive advantage (Ahmed et al. 2014; Weerawardena and O'Cass 2004; Camisón and Villar-López 2011; Simonin 2004; Nonaka 1994).
The second assumption is the differentiation between explicit and tacit knowledge
(Polanyi 1962), with tacit knowledge being essential to achieve sustainable competitive advantage due to its limited transferability and causal ambiguity. The view that knowledge provides organisations with the potential to create and sustain competitive advantage is also widely spread (Bryant 2005; Spender 1996; Boisot 1998).
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The third assumption is that tacit knowledge is acquired and stored in a ‘highly
specialised form’ within individuals (Nonaka 1994; Lam 2000; Nonaka and von Krogh 2009). This assumption will be further discussed in the theme: specialisation in knowledge acquisition (Section 2.4.4.4).
The final assumption is that production needs a widespread range of knowledge
(Grant 1996b). Grant links this assumption mainly to the imperfect imitability attribute and argues that a wider scope of integration creates greater causal ambiguity. However, this assumption will be further discussed within the organisational capability theme (Table 2 and section 2.4.4.8).
2.4.1.2 - Subsequent assumptions
Building on the four main assumptions, Grant (2002) introduced another assumption that knowledge is subject to economies of scale. Grant argues that decisions based on explicit knowledge should be centralised as it is transferred at low costs and achieves economies of scale in decisions (Grant 2002). Furthermore, Grant characterises that all knowledge has higher creation costs than subsequent replication. Economies of scale for knowledge and in particular explicit knowledge is ‘costly’ to produce and cheap to reproduce (Shapiro and Varian 1999). On the other hand, tacit knowledge tends to be costly to produce and costly to reproduce, but Winter (1995) argues that the replication cost will still be lower than those incurred in its original creation and therefore, all knowledge is subject to economies of scale.
The main aim of this thesis is to analyse, discuss and highlight, how and why the KBV can be used to generate SCA as an act of strategy formulation. To achieve this, the KBV has to be broken down into themes that describe aspects of a knowledge-based perspective which needs to be addressed. The KBV-themes are highlighted below, but it is important to recognise that these themes are interlinked.
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2.4.1.3 - Specific Theme Assumptions
The following are all the eleven KBV theme-specific assumptions. The purpose is to identify the KBV theme assumptions made by Grant (1996) to explain later how and why (if at all) the assumptions are in line with the findings. The following subchapter (section 2.4.4) ‘KBV: The Themes’ will critically discuss the themes in more detail. This subsection and is merely for the purpose of listing the KBV theme-specific assumptions.
Some of the following assumptions may be criticized as being true by definition and hence, tautological, since some assumption may be argued as a central assertion of the KBV and therefore, could be argued as not needing any special attention within a research study. However, this thesis will use Barney (2001) defence that, at this level of definition, most strategic management theories become tautological. For example, Porter’s (1980) assertions of firm performance and industry attractiveness can be reduced to tautology. By observing that firms will outperform firms in attractive industries compared to unattractive industries and by linking industry attractiveness with the ability of firms to perform well. Of course, Porter specifies certain conditions that make an industry more or less attractive independent of firms in that industry. Transferability theme assumption is:
Explicit knowledge has high transferability whereas tacit knowledge shows low transferability
Capacity of Aggregation theme assumption is:
Explicit knowledge can be more effectively aggregated to a single location than tacit knowledge
36 | P a g e Appropriability theme assumption is:
Tacit knowledge cannot be directly transferred which makes it in turn not directly appropriable
Specialisation in Knowledge Acquisition theme assumption is:
KBV requires individuals to specialise in particular areas of knowledge while considering their absorptive capacity to increase the success of knowledge integration
The Overall Coordination within the Firm theme assumption is:
Minimising knowledge transfer but emphasising on absorptive capacity and henceforth coordination of people’s specialised knowledge will increase efficiency and success
The Integration of Specialist Knowledge theme assumption is:
Problem-solving and decision-making in groups are reduced to unusual, complex and important tasks as the firm is maximising efficiency through the other formal integration mechanisms.
The Role of Common Knowledge theme assumption is:
There is increased organisational gain in knowledge production if integration mechanisms involve common knowledge between individuals
The Role of Organisational Capability theme assumption is:
The more individuals are used to broaden the integration of knowledge scope within each capability the more difficult imitation becomes.
37 | P a g e The Role of Organisational structure and design theme assumption is:
Knowledge production, integration and decision-making put emphasis on efficiency, and therefore organisational structure and design will be determinant of success
The Role of Hierarchy in Decision-making theme assumption is:
If a firm is integrating knowledge which is possessed by individuals in tacit form, then hierarchical coordination will fail
Location of Decision-making theme assumption is:
Co-location of decision-making will produce better decisions if the nature of the knowledge is in tacit form
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2.4.2 - KBV: A View of Strategy
As mentioned earlier, there is a continuing debate, whether the KBV can actually be used as a theory of the firm. However, by shifting the focus from institutions to internal context and knowledge elements, much of the debates in the introduction chapter over the nature of the firm and the KBV contribution to the firm theory lose critical strength.
“Whether the firm is viewed as a solution to transaction costs, a nexus of contracts, a bundle of property rights, or a device for reallocating risk, is of secondary import” (Grant 2011, p. 547)
Grant himself argued, in one of his later publications, that the KBV is a set of ideas about the existence and nature of the firm.
“The emerging knowledge based view of the firm is not a theory of the firm in any formal sense” (Grant 2002, p. 135)
Furthermore, the debate around placing the KBV as a theory of the firm does not impact the research question. On the other hand, the view as an act of strategy does. Eisenhardt and Santos (2002) argued that a ‘knowledge focus’ and its impact on the field of strategy has yet to emerge. There is a vast amount of empirical research based on the knowledge perspective reaching from knowledge sharing, knowledge leaking and relative innovation performance (Ritala et al. 2015) to the impact of profound knowledge on leadership and strategy (Watson 2017). This scattered approach of the literature has resulted in the lack of empirical research of a holistic KBV-theme perspective to shed light into knowledge processes and possible connections between those two to strengthen the KBV as an act of strategy formulation.
An early attempt to integrate a knowledge perspective to the theory of strategy contextualised knowledge of firms through accumulated knowledge assets, called stocks, and knowledge streams within and across the firm, called flows, whereby
39 | P a g e superior stocks and streams are understood as sources of SCA (Dierickx and Cool 1989). Continuing on this emphasis of strategic importance of knowledge as an advantage, Kogut and Zander (1992) claimed that firms are better than markets in the creation and transfer of knowledge within the organisation. The notion is that knowledge is held within individuals and is embedded in organising principles in which knowledge actors voluntarily cooperate within an organisational context. Knowledge is considered as a strategic resource (Storey and Barnett, 2000). However, the question remains on why KM has only limited use as a strategic tool and is underutilised (Dayan et al. 2017).
The earlier ‘types of knowledge’ discussion already defined knowledge as a justifiable personal belief whereby the emphasis is on the conscious act of creating meaning. The creation of knowledge depends on the absorptive capacity of the individual and their existing knowledge and organising principles and hence, the firm evolves in a path-dependent way, through recombination of existing knowledge into new knowledge and wider integration of that knowledge.
In what could form the basis for a theory of strategy, this thesis argues that the ability to create and coordinate strategically important knowledge, based on specific knowledge-based themes, will determine the firm’s ability to make superior decisions compared to competing firms. Therefore, a firm’s ability to deter competitive imitation maybe based on a breadth versus depth trade-off between:
(1) Continuous specialisation of knowledge holders to improve tacitness of the knowledge domain and therefore hinder imitation
(2) Replicate and transfer knowledge within the firm to accelerate the rate of growth with the subsequent danger of imitation
In competitive environments, SCA is only achieved through continuous innovation (Kanagal 2015, Eisenghardt and Santos 2002). Grant (1996) articulated in his original
40 | P a g e paper that tacit individual knowledge is the source of sustained competitive advantage as it is both unique and immobile.
To be able to advance and contribute to the KBV as an act of strategy formulation, fundamental insight is needed to unveil how SCA is achieved through the firm ability to produce, transfer and integrate the specialist and tacit knowledge of individuals since, that knowledge lies within individuals and not the organisation. Until scholars can unveil and understand knowledge elements and their theoretical and practical interlink with one and another, this view cannot form a theory of strategy.