Knowledge-based theory of the firm
Encyclopedia
The knowledge-based theory of the firm considers knowledge
as the most strategically significant resource
of a firm. Its proponents argue that because knowledge-based resources are usually difficult to imitate and socially complex, heterogeneous knowledge bases and capabilities among firms are the major determinants of sustained competitive advantage and superior corporate
performance.
This knowledge is embedded and carried through multiple entities including organizational culture and identity, policies, routines, documents, systems, and employees. Originating from the strategic management
literature, this perspective builds upon and extends the resource-based view
of the firm (RBV) initially promoted by Penrose
(1959) and later expanded by others (Wernerfelt
1984, Barney 1991, Conner 1991).
Although the resource-based view of the firm recognizes the important role of knowledge in firms that achieve a competitive advantage, proponents of the knowledge-based view argue that the resource-based perspective does not go far enough. Specifically, the RBV treats knowledge as a generic resource, rather than having special characteristics. It therefore does not distinguish between different types of knowledge-based capabilities. Information technologies can play an important role in the knowledge-based view of the firm in that information systems can be used to synthesize, enhance, and expedite large-scale intra- and inter-firm knowledge management (Alavi and Leidner 2001).
Whether or not the Knowledge-based theory of the firm actually constitutes a theory has been the subject of considerable debate. See for example, Foss (1996) and Phelan & Lewin (2000). According to one notable proponent of the Knowledge-Based View of the firm (KBV), “The emerging knowledge-based view of the firm is not a theory of the firm in any formal sense” (Grant, 2002, p. 135).
Knowledge
Knowledge is a familiarity with someone or something unknown, which can include information, facts, descriptions, or skills acquired through experience or education. It can refer to the theoretical or practical understanding of a subject...
as the most strategically significant resource
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
of a firm. Its proponents argue that because knowledge-based resources are usually difficult to imitate and socially complex, heterogeneous knowledge bases and capabilities among firms are the major determinants of sustained competitive advantage and superior corporate
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
performance.
This knowledge is embedded and carried through multiple entities including organizational culture and identity, policies, routines, documents, systems, and employees. Originating from the strategic management
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
literature, this perspective builds upon and extends the resource-based view
Resource-Based View
The resource-based view is a business management tool used to determine the strategic resources available to a company. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's...
of the firm (RBV) initially promoted by Penrose
Edith Penrose
Edith Elura Tilton Penrose was an American-born British economist whose best known work is The Theory of the Growth of the Firm, which describes the ways which firms grow and how fast they do. Writing in The Independent the economist Sir Alec Cairncross, stated that the book brought Dr...
(1959) and later expanded by others (Wernerfelt
Birger Wernerfelt
Birger Wernerfelt is an economist and management theorist. He is the JC Penney Professor of Management and head of the Ph.D. program at the MIT Sloan School of Management.- Biography :...
1984, Barney 1991, Conner 1991).
Although the resource-based view of the firm recognizes the important role of knowledge in firms that achieve a competitive advantage, proponents of the knowledge-based view argue that the resource-based perspective does not go far enough. Specifically, the RBV treats knowledge as a generic resource, rather than having special characteristics. It therefore does not distinguish between different types of knowledge-based capabilities. Information technologies can play an important role in the knowledge-based view of the firm in that information systems can be used to synthesize, enhance, and expedite large-scale intra- and inter-firm knowledge management (Alavi and Leidner 2001).
Whether or not the Knowledge-based theory of the firm actually constitutes a theory has been the subject of considerable debate. See for example, Foss (1996) and Phelan & Lewin (2000). According to one notable proponent of the Knowledge-Based View of the firm (KBV), “The emerging knowledge-based view of the firm is not a theory of the firm in any formal sense” (Grant, 2002, p. 135).