The Relevance of the Knowledge-Based School of Thought on the Sources of a Firm's Competitive Advantage

By Cater, Tomaz | Management : Journal of Contemporary Management Issues, January 1, 2004 | Go to article overview

The Relevance of the Knowledge-Based School of Thought on the Sources of a Firm's Competitive Advantage


Cater, Tomaz, Management : Journal of Contemporary Management Issues


A basic characteristic of the knowledge-based school is that it follows the 'inside out' approach of explaining the sources of a firm's competitive advantage. This means the competitive advantage primarily arises from the firm and its knowledge. There are at least two important classifications of knowledge in the related literature. The first one divides knowledge into its explicit and tacit component, while the second one discusses human and structural capital. Besides knowledge, its adequate management is also necessary to ensure greater competitiveness and performance. Empirical research, based on the sample of 225 Slovenian firms, shows that the firms see the most relevant sources of their competitive advantage in structural capital, tacit knowledge and in the imperfect imitability of knowledge. The more relevant knowledge a firm possesses and the better its management is, the greater the firm performance and competitiveness is, which means our empirical support of the knowledge-based school is quite unequivocal. Among the studied sources of competitive advantage within the knowledge-based school performing the knowledge management tasks and the imperfect imitability of knowledge seem to be the most relevant factors of a firm's competitiveness and performance.

1. INTRODUCTION

Firms whose primary strategic goal is long-term progress, development and success must build up some kind of competitive advantage, which means that certain sources of competitive advantage must exist. The scientific literature usually discusses four basic schools concerning the sources of competitive advantage, i.e. the industrial organization school, the resource-based school, the capability-based school, and the knowledge-based school. The purpose of this paper is to analyze the sources of competitive advantage as seen by the knowledge-based school, examine the relationship between these sources and a firm's competitiveness and performance and, based thereon, offer a judgement on the relevance of the knowledge-based school. After briefly reviewing the relevant theory on the knowledge-related sources of competitive advantage, the paper mainly involved a presentation of the empirical findings of a study of 225 Slovenian firms. By comparing the empirical evidence with theoretical findings drawn from the literature, we believe some new insights can be offered to scholars and researchers in the area of competitiveness.

2. KNOWLEDGE-BASED SCHOOL ON THE SOURCES OF A FIRM'S COMPETITIVE ADVANTAGE

2.1. Explaining the origins of competitive advantage through the knowledge-based school

Advocates of the knowledge-based school on the sources of competitive advantage argue that a firm can win a competitive battle only if it possesses more relevant knowledge than its competitors. Competitive advantage, therefore, finds its source in knowledge (Pucko, 1998; Cater, 2001c). Knowledge is said to be a good source of competitive advantage because it is subject to the effects of the economies of scale and scope. This means that a firm, once it possesses the relevant knowledge, can use this knowledge at many fronts with negligible marginal costs (Grant, 1997).

One of the first modern notes about knowledge as a source of competitive advantage goes back to the 1890s, when Alfred Marshall, in his 'Principles of Economics', compared knowledge with the most powerful machine of the business (Truch, 2001). In spite of this, the knowledge-based school became an equally important approach for explaining a firm's competitive advantage as late as the 1990s, when several papers were published on: the knowledge-based theory of the firm (Grant, 1996; Grant, 1997; Nonaka, Toyama, Nagata, 2000), knowledge as an important factor of firm performance (Zack, 1999a; Martin, 2000) and competitiveness (Pucko, 1998; Riesenberger, 1998; Cater, 2000). Although the knowledge-based school derives from the resource-based school (Hoskisson et al., 1999), there is an important distinction between them, namely at the organizational level, where the sources of competitive advantage are discussed. …

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