Why is Knowledge Important

1
Why is Knowledge Important?

• Disruption, Dynamic Capabilities, and Innovation

2
Quiz

• The competitive advantage of a firm lies with its
  _________, which in turn are shaped by its asset
  _________, and the _________available to it.
• The three types of innovations are incremental,
  architectural, and _________.
• The term _________inertia describes a company
  that persists on activities that contributed to
  its past success even when these activities are
  not adequate responses for the current situation.
• In the knowledge economy workers are no longer
  instruments, they are _________ and they are
  performance is measure by _________, not
  compliance.

3
Quiz Answers

• The competitive advantage of a firm lies with its
  processes, which in turn are shaped by its asset
  position, and the paths available to it.
• The three types of innovations are incremental,
  architectural, and discontinuous.
• The term active inertia describes a company
  that persists on activities that contributed to
  its past success even when these activities are
  not adequate responses for the current situation.
• In the knowledge economy workers are no longer
  instruments, they are agents and they are
  performance is measure by contribution, not
  compliance.

4
Resource-Based Perspective

• Competitive advantage rests on the firms
  idiosyncratic and difficult-to-imitate resources
• Superior systems and structures which yield lower
  costs and/or better targeted products

5
Resource-Based Perspective

• Thus what a firm can do is not just a function of
  the opportunities/threats it confronts it also
  depends on what resources the organization can
  muster.

6
Resource-Based Perspective

• Every organization has actual and potential
  strengths and weaknesses it is important to try
  to determine what they are.

Learned et al., 1969, Business Policy Text and
Cases
7
Source Beard and Sumner
8
Resources are Sticky

• Firms are heterogeneous
• They are stuck to their resources
• This enables them to see and do things others
  cant
• This also keeps them from looking at and doing
  things they can and should
• The capability trap and cognitive trap

9
Resource-Based

• Focuses on strategies for
• Exploiting existing firm-specific assets
• Horizontal and vertical integration
• Developing new capabilities
• Innovation
• Hence the key strategic concerns include
• Skill acquisition
• Knowledge management
• Learning

10
Dynamic Capabilities

• Winners in todays marketplace have been firms
  that can demonstrate
• Timely responsiveness,
• Rapid and flexible product innovation, and
• Managerial capacity to coordinate and redeploy
  internal and external competencies

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

11
Dynamic Capabilities

• Dynamic Capability is the ability to create new
  forms of competitive advantage.
• Dynamic Capability is ability to create new
  capabilities

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

12
How to Develop Dynamic Capabilities

• R. Hayes, S. Wheelwright, and K. Clark, 1988,
  Dynamic Manufacturing Creating the Learning
  Organization, Free Press, New York.
• C. K. Prahalad and G. Hamel, 1990, The core
  competencies of the corporation, Harvard
  Business Review, 68(3), pp. 79-91
• I. Dierickx and K. Cool, 1989, Asset stock
  accumulation and sustaining competitive
  advantage, Management Science, 35(12),
  pp.1504-1511
• A. D. Chandler Jr., 1990, Scale and Scope The
  Dynamics of Industrial Competition, Harvard
  University Press, Cambridge, MA
• D. J. Teece, 1993, The dynamics of industrial
  capitalism Perspectives on Alfred Chandlers
  Scale and Scope (1990), Journal of Economic
  Literature, 31(1), pp. 199-225

13
How do you evaluate an organizations dynamic
capabilities?

• The competitive advantage of a firm lies with its
  processes, shaped by its asset position, and the
  paths available to it.
• Processes coordinating, learning, transforming
• Positionsthe unique asset holdings of the firm
• Pathspath dependencies, technological
  opportunities

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

14
Processes -- coordinating

• A unique competency of a firm may be how it
  coordinates internal and external activities
• These processes have to be congruent and
  complementary i.e., the work together as a
  system thus they are sticky

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

15
Processes -- coordinating

• Radical organizational reengineering will usually
  be required to support new products or services
• Perhaps this is best done if embedded in a
  separate subsidiary where a new set of coherent
  processes can be developed.

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

16
Processes -- learning

• Learning is a process that enables tasks to be
  performed better and quicker
• Learning requires common codes of communication
  and coordination
• Learning becomes embedded in routines and group
  behaviors

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

17
Processes -- transforming

• The ability to sense the need to reconfigure
• Surveillance
• Willingness to adapt best practices
• Benchmarking
• The ability to minimize the costs of
  reconfiguring and transforming

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

18
Positions

• Technological assets
• Complementary assetsThose assets need to take
  advantage of the technological assets
• Financial assetsWhile cash is fungible, it might
  not be available, thus cash can create
  differentiation

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

19
Positions

• Reputational assetsExternal actors must respond
  to what they know rather than what is knowable
  about the firm
• Structural assetsThe degree of hierarchy and
  rigidity has a bearing on an organizations
  ability to develop new competencies
• Institutional assetsThe regulatory environment
  (laws, regs, public policies, cultural mores,
  etc.) can be a basis of differentiation among
  firms . . . Geography matters! National culture
  matters!!

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

20
Positions

• Market assetsMarket share has traditionally been
  seen as an important differentiator its
  probably not that important in hypercompetitive
  markets
• Organizational boundariesThe degree of
  integration (vertical, lateral, horizontal) can
  impact the firms ability to access unique assets
  and processes

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

21
Paths

• Path dependencies
• Where a firm can go often depends on the firms
  current position
• Its current position is often shaped by the path
  it has traveled
• History matters!

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

22
Paths

• Path dependencies
• Companies with the best products and services
  will not always win chance events may cause
  lock-in
• However, in hypercompetitive arenas switching
  costs can be quickly over taken by switching
  benefits

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

23
Paths

• Technological opportunities
• A firms past experiences taints what they choose
  to see and what they choose to adopt
• Similar firms do not look at the same menu of
  technological choices
• and even if they have the same choices, they
  price them differently
• They are looking at menus with different choices
  and different prices

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

24
Copy Cats

• To sustain competitive advantage the firms
  competencies must be difficult to copy
• Replication
• Often even the firm, let alone its competitors,
  cannot fully understand the reasons for its
  distinctive advantage
• This makes it hard to expand operations,
  especially to other countries or product lines

25
Copy Cats

• Imitation
• If self-replication is difficult, imitation by
  others is definitely harder
• Factors that make replication difficult also make
  imitation difficult
• Reverse engineering can be used to assault a
  product processes are easier to protect
• A firm need not expose its processes in order to
  exploit them

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

26
Copy Cats

• Emulation
• Emulation occurs when firms discover alternative
  ways of achieving the same functionality
• In hypercompetitive markets there is little a
  firm can do to protect itself from emulators
  other than to expect and plan for their assault

• David J. Teece, Gary Pisano, and Amy Shuen, 1997,
  Dynamic Capabilities and Strategic Management,
• Strategic Management Journal, 18, pp. 509-533

27
Impact of Technology on OD

• SSIH (watches), Goodyear (tires), Polaroid
  (photography), and Oticon (hearing aids)
  prospered until new industry standards dominant
  designs rapidly destroyed their market
  positions
• Their organizational demise was rooted in
  organizational complacency and inertia
• Ironically, they all had the resources to drive
  innovation streams

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
28
Innovation Streams

• Shoring up core competencies and incrementally
  improving products lines, may not be enough . . .
  Innovation streams are needed
• Innovation streams either
• build on and extend existing products or
• destroy the very products that account for the
  firms historical success (e.g., analog to
  digital)

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
29
Innovation Streams

• Innovation streams focus attention away from
  isolated innovations and towards patterns of
  innovation over time
• Key Constructs
• Technology cycles
• Innovation streams
• Ambidextrous organizations
• Senior teams
• Discontinuous organizational change

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
30
Technology cycles
VariationTechnological discontinuity
Era of ferment
Era of incremental change

• Substitution
• Design competition
• Community-driven technical change

• Elaborate on dominant design
• Architectural innovation
• Market-based innovation

SelectionDominant design
Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
31
Innovation streams

• Innovations
• Incremental
• Architectural
• Discontinuous
• Markets
• New
• Existing

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
32
Ambidextrous organizations

• Ambidextrous organizations are complex
  organizational forms that are composed of
  multiple internally inconsistent architectures
  that are collectively capable of operating
  simultaneously for short-term efficiency and
  long-term innovation.
• Exploitation
• Continuous improvement
• Efficiency
• Elimination of variability
• Exploration
• Experimentation
• Improvisation
• Luck

Differences in incentives, systems, culture,
capabilities, and structure
Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
33
Senior teams

• Integration
• Engaging vision
• Consistent, credible behavior
• Homogeneity in age and tenure, heterogeneity in
  abilities and expertise
• Formal roles, links, and incentives

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
34
Discontinuous organizational change

• Technology cycles dictate the appropriate
  organization form
• As strategic innovation requirements shift, so,
  too, must the dominant capabilities
• Organizational architectures that were
  appropriate during eras of incremental change are
  no longer appropriate during eras of ferment.
• Innovation streams are rooted in both
  technological prowess and reconfigured
  organizational architecture

Tushman and Smith, 2002, Innovation Streams,
Organizational Designs, and Organizational
Evolution.
35
The Dynamics of Standing Still

• Firestone responded not by doing nothing
  (complacency), but by reacting the wrong way
  (doing more of what it was used to doing)
• Goodyear was the only survivor from among the big
  five (Firestone, Uniroyal, B. F. Goodrich,
  General Tire, and Goodyear).
• Ironically, Goodrich introduced the dominant
  design (radial tires) that disrupted the industry

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
36
The Dynamics of Standing Still

• Firestone seemed to be doing all the right
  things
• stuck to their knitting (strategic frames)
• bias for action(processes)
• stay close to your customer(relationships)
• family values and employee loyalty(values)

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
37
The Dynamics of Standing Still

• Belted bias tires
• Usual competitive challenge, and Firestone meet
  it well and quickly using traditional strategic
  framework
• However, records of board meetings demonstrated
  no systematic evaluation of the decision to
  invest in in the belted bias transition, but
  rather reveal a pattern of incremental
  improvements approved individually.
• Business as usual.

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
38
The Dynamics of Standing Still

• Radial revolution
• Firestone saw it and responded to it as Business
  as usual
• Used existing capacity
• Led to shoddy quality, triggering the largest
  consumer recall in US History
• Radials last twice as long
• Led to overcapacity of belted bias tires
• Cognitive TrapInsisted on seeing the tire
  industry as a growth industry

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
39
The Dynamics of Standing Still

• John Nevin
• Radical surgery
• A bunch of clones who all viewed the world in
  the same way only executive officers five
  survived
• Even sold the Firestone Country Club
• Failed in the market place, The hard part
• Launched stores, not products (cognitive trap
  from having worked at Zenith)
• Hostile Takeover, Bridgestone takes over
• Niven saved the patient, but the radical surgery
  impaired the patient

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
40
The Dynamics of Standing Still

• Typical Pattern of Firm Failure
• Successful companies respond to major changes in
  their competitive environment using well-worn
  behaviors until deteriorating performance
  triggers a crisis and an outsider come in who
  changes all elements of the firms winning
  formula simultaneously.
• Deep structures
• Small organizational change is difficult because
  architectural elements are interlocked
• A small change changes other elements

Donald Sull, 1999, The Dynamics of Standing
Still Firestone Tire Rubber and the Radial
Revolution.
41
What is

• In the new schema of things brought about by the
  shift from manual work to knowledge work, the
  role of the worker becomes one of agent, not
  instrument.

Fred Nickols, 1999, What is in the World of
Work and Working.
42
What is

• Shift in the locus of control
• Before, Knowledge held by the few, plus iron
  control over the many
• Now, knowledge is widely distributed
• Shift in the focus of control
• Before, control the worker
• Now, control the work

Fred Nickols, 1999, What is in the World of
Work and Working.
43
What is

• Shift in the balance of power
• Politics
• Position
• Profession

Fred Nickols, 1999, What is in the World of
Work and Working.
44
What is
Characteristics
Manual work
Knowledge work
Information-based
Work
Materials-based
Covert
Behavior
Overt
Low
Visibility
High
Indirect, delayed
Results
Direct, immediate
Distributed
Knowledge
Concentrated
Profession Politics
Power
Position Politics
Work
Focus of Control
Worker
Worker
Locus of Control
Management
Contribution
Performance
Compliance
Agent
Worker
Instrument
Fred Nickols, 1999, What is in the World of
Work and Working.