KBV is considered an extension of the RBV since it singles out knowledge as the most relevant strategic resource (Grant 1996). Knowledge, or everything that is known, drives the company toward obtaining sustainable competitive advantages. As opposed to environmental models, RBV and KBV justify performance differences between companies with variations in internal assets. In both views, resources owned or managed by firms are major determinants of sustained competitive advantages. The main difference between them is that the KBV refines the RBV by focusing solely on knowledge and discarding other types of assets such as machinery, technology and capital. In fact, the focus on knowledge is the first assumption embraced by the KBV of the firm (Grant 1996). The second assumption refers to the idea that ‘experts are (almost)
VRIN
•Valuable
•Rare
•Imperfectly imitable
•Non-substitutable
VRIO
•Valuable
•Rare
•Imperfectly imitable
•Organisation
invariably specialists, while jacks-of-all-trades are masters-of-none’ (Grant 1996, p.112).
To create knowledge efficiently, people must have a deep understanding and high-quality management of specific knowledge domains (Grant 1996).
Knowledge has turned out to be ‘the most important or ‘strategic‘ factor of production, so managers must now focus on its production, acquisition, movement, retention and application’ (Spender 1996, p.48); however, defining knowledge is far from easy. Nonaka and Takeuchi (1995) considered knowledge as ‘justified true belief’, which is the
‘dynamic human process of justifying personal belief toward the ‘truth’’ (Nonaka &
Takeuchi 1995, p.58). This definition raises two important concerns related to knowledge and the KBV of the firm: (1) Defining knowledge as ‘justified true belief’ is open and inclusive. Since the KBV adopts knowledge as the unique essential asset, questions about the characteristics and types of knowledge should be addressed. (2) If knowledge involves the justification of personal belief, which is the role of the firm? Is there organisational knowledge? The following paragraphs address these concerns.
Starting with the characteristics of knowledge, Grant (1996) pointed out three features to consider carefully when using knowledge, i.e. appropriability, capacity for aggregation and transferability. Contrary to other tangible resources, it is difficult to appropriate the value generated by knowledge. In addition, the capacity for aggregation of knowledge entities affects its transferability. In other words, the easier it is to aggregate knowledge elements, the more efficient it will be to transfer those aggregated entities both between and within the firm. (Grant 1996). These three characteristics pose challenges to the use and management of knowledge.
As many researchers have defined several types of knowledge, the literature distinguishes between information and know-how, declarative and procedural knowledge, know-how and know-why, individual and social knowledge, and tacit and explicit knowledge.
Information and know-how are similar to declarative and procedural knowledge respectively; however, the latter is applied in the field of computer science (Kogut &
Zander 1992). Information refers to facts, propositions and symbols, while know-how involves experience and practical skills (Kogut & Zander 1992). Information, unlike know-how, can be fully passed on, i.e. it can be transferred without losing integrity (Kogut & Zander 1992). Know-how and know-why represent respectively the ability to use and create something (Kogut & Zander 1992). ‘Being taught the functional skills of how to do something how] is different than being taught how to create it [know-why]’ (Kogut & Zander 1992, p.391).
Finally, the distinction between tacit and explicit knowledge (under which individual and social knowledge will be described) deserves special attention. Tacit knowledge represents all that we know we cannot directly express: ‘we can know more than we can tell’ (Polanyi 1966, p.4), thus reflecting those apparently unexpressed aspects of knowledge. Tacit knowledge includes experience, intuitions and personal beliefs (Nonaka
& Takeuchi 1995, p.8) that are difficult to communicate and transmit (Nonaka &
Takeuchi 1995; Grant 1996). Explicit knowledge, on the contrary, ‘can be expressed in words and numbers, and easily communicated and shared in the form of hard data, scientific formulae, codified procedures, or universal principles’ (Nonaka & Takeuchi
1995, p.8). This form of knowledge is characterised by being easy to communicate (Grant 1996).
Therefore, knowledge of experience or tacit knowledge, and knowledge of rationality or explicit knowledge (Nonaka & Takeuchi 1995) represent two different modes through which knowledge can be created, shared, improved, communicated and applied. These two types of knowledge could also interact and complement each other to create new organisational knowledge. This interaction is the basis of the spiral of knowledge creation designed by Nonaka and Takeuchi (1995), which suggests four modes of knowledge conversion, i.e. socialisation (from tacit to tacit), externalisation (from tacit to explicit), internalisation (from explicit to tacit) and combination (from explicit to explicit). This knowledge spiral suggests two types of knowing entities: individual and social. Spender (1996) also defined four types of knowledge based on the implicit versus explicit dimension and the type of knowing entity. Therefore, automatic and conscious knowledge represent implicit and explicit knowledge at the individual level, and collective and objectified knowledge refer to implicit and explicit knowledge at the organisational level (Spender 1996).
Regarding the second issue, given that knowledge involves the justification of personal belief, it becomes challenging to define the role of the firm and to clarify the existence of organisational knowledge. A debate in the literature surrounds this issue: If knowledge is created by individuals and inextricably bound to human beings, then organisations are mere integrators of individuals and the knowledge they own. However, there might be knowledge elements such as organisational culture that go beyond the individual level and exist at the level of the firm. Therefore, what is the role of the firm in the creation and management of knowledge?
According to Grant (1996), the literature on the KBV of the firm conceives the company as an institution for knowledge acquisition and creation. Indeed, the knowledge spi ral developed by Nonaka and Takeuchi (1995) explains the creation of organisational knowledge. Nonetheless, Grant’s approach is different; he holds that companies ‘exist as institutions for producing goods and services because they can create conditions under which multiple individuals can integrate their specialist knowledge’ (Grant 1996, p.112).
This perspective conceives the firm as a mere stove used for cooking dishes. The stove does not produce those dishes by itself but is at the service of the individual s who use it.
A third standpoint acts as an intermediate perspective between the view of the company as a knowledge creator and as a knowledge integrator. This approach argues that
‘organizations learn and have knowledge only to the extent that their members are malleable beings whose sense of self is influenced by the organization’s evolving social identity’ (Spender 1996, p.53). As both individuals and organisations create knowledge, it is hard to determine ‘which is logically or temporally prior’ (Spender 1996, p.53).
Even though the KBV offers interesting insights about the relevance and usefulness of knowledge, it lacks specificity concerning the identification and measurement of knowledge entities. In this regard, the IC View (ICV) offers a more detailed understanding. The ICV is an outgrowth of the KBV and is fully embedded in the RBV.
Reed et al. (2006), who coined the term ‘Intellectual Capital View’, drew on pertinent literature in the field to discern that KBV and ICV ‘both seek to explain the hidden
knowledge-based dynamics that underlie a firm’s value’, but ‘differ in focus’ because
‘KBV is primarily interested in evaluating the effectiveness of a firm’s use of knowledge-management tools as knowledge-generating mechanisms’ while ‘ICV’s focus is on the stocks and flows of knowledge capital embedded in an organization’ (Reed et al. 2006, p.869). Therefore, ICV is an upgraded version of the resources and capabilities approach that takes advantage of all the positive aspects of the two preceding theories, i.e. RBV and KBV, and solves many of their handicaps.