A Strategic Perspective to Knowledge Assets

The methodology of the knowledge-asset-centric framework should ensure the fusion of the product-centric KM approach with the process-centric KM approach. What is needed is a conceptual, theoretical foundation that will guarantee this fusion and that would be underlying every aspect of the solution (software tool, consulting methodology, measurement system, etc.).

Both the process- and the product-based approaches aim to support the identification, managing, and leveraging of knowledge, through better managing of the organization's knowledge assets. Knowledge assets are the resources that organizations wish to cultivate. In essence, knowledge management aims to better manage the content, quality, value, and transferability of knowledge assets.

The focus of our framework is on knowledge assets as the critical strategic resources of the firm. Such a focus is in line with the recent trend in the strategic management literature to leverage the internal resources of the firm in order to create value.

The resource-based perspective treats the firm as a portfolio of resources. What a firm can do to create competitive advantage is not simply a function of the opportunities in the environment (industry), but also of what resources the firm can assemble (see, e.g., Wernerfelt, 1984). The resource-based perspective is an "inside-out" approach to understanding the basis of competitive advantage.

The resource-based view (RBV) of the firm focuses attention on how firms achieve and sustain advantages, and contends that the answer to this question lies in the possession of certain key resources. Sustained competitive advantage can be obtained if the firm effectively deploys these resources in its product-markets. The list of resources in any given firm is likely to be a long one.

One of the principal insights of the resource-based view is that not all resources are of equal importance or possess the potential to be a source of sustainable competitive advantage. Much attention has focused, therefore, on the characteristics of advantage-creating resources, and various approaches have been followed in analyzing the characteristics of advantage-creating resources. For example, Barney (1991) proposes that advantage-creating resources must meet four conditions, namely, value, rareness, inimitability, and non-substitutability, while Grant (1991) argues that the levels of durability, transparency, transferability, and replicability are important determinants.

Strategic, advantage-generating resources comprise three distinct subgroups, namely tangible assets, intangible assets, and capabilities.

Tangible assets refer to the fixed and current assets of an organization, which have a fixed long-run capacity. Examples include plant, equipment, land, other capital goods and stocks, debtors, and bank deposits. Tangible assets have the properties of ownership, their value is relatively easy to measure, and they are relatively weak at resisting duplication efforts by competitors.

Intangible assets include intellectual property such as trademarks and patents as well as brand and company reputation, company networks, and databases. The presence of intangible assets accounts for the significant differences between the balance sheet valuation and stock market valuation of publicly quoted companies. Intangible assets have relatively unlimited capacity, and firms can exploit their value by using them in-house, renting them (e.g., a license), or selling them (e.g., selling a brand). They are relatively resistant to duplication efforts by competitors.

Capabilities have proved more difficult to delineate. Capabilities encompass the skills of individuals or groups, as well as the organizational routines and interactions through which all the firm's resources are coordinated (Grant, 1991). Typical of the latter, for example, are teamwork, organizational culture, and trust between management and workers. Capabilities have limited capacity in the short run due to learning and change difficulties, but have relatively unlimited capacity in the long run.

Although the resource-based view recognizes the importance and role of knowledge in firms achieving a competitive advantage, we argue that the RBV does not go far enough. Specifically, the RBV treats knowledge as a generic resource, rather than having special properties, and subsequently, does not make any distinction between different types of knowledge-based capabilities.

Knowledge assets, however, are different from other firm resources (see, e.g., Glazer, 1991; Day & Wendler, 1998).

Knowledge assets are not easily divisible or appropriable. This means that the same information and knowledge can be used by different economic entities at the same time. Moreover, knowledge assets are not inherently scarce (although they are often time sensitive). This implies that they are not depletable.

Knowledge assets are essentially regenerative. This means that new relevant knowledge may emerge from a knowledge-intensive business process as additional output besides products and services.

Knowledge assets may not exhibit decreasing returns to use, but will often increase in value the more they are used. This characteristic is of crucial importance for senior management (see, e.g., den Hartigh & Langerak, 2001). Most assets are subject to diminishing returns, but not knowledge. The bulk of the fixed cost in knowledge products usually lies in creation rather than in manufacturing or distribution. Once knowledge has been created, the initial development cost can be spread across rising volumes. Network effects can emerge as knowledge assets are used by more and more people. These knowledge-users can simultaneously benefit from knowledge and increase its value as they add to, adapt, and enrich the knowledge base. In traditional industrial economics, assets decline in value as more people use them. By contrast, knowledge assets can grow in value, as they become a standard on which others can build.

As knowledge assets grow, they tend to branch and fragment. Today's specialist skill becomes tomorrow's ticket to play, as fields of knowledge grow deeper and more complex; or as Drucker (1997) puts it: "Knowledge constantly makes itself obsolete, with the result that today's knowledge is tomorrow's ignorance." While knowledge assets that become standards can grow more and more valuable, others, like expiring patents or former trade secrets, can become less valuable as they are widely shared. A successful company must therefore continually refresh its knowledge base. The rapid and effective recreation of knowledge can represent a substantial source of competitive advantage.