Knowledge-based view (KBV)

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 and later expanded by others. 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.

KBV View

Knowledge-based view of the firm (KBV) is a management concept of organizational learning that provides firms with strategies for achieving competitive advantage. This is achieved through increased employee involvement in the formulation and administration of the operational goals and long-term transformational objectives of the firm. The continuous acquisition and transfer of knowledge within business organizations is necessitated by such factors as ever-changing competitive conditions in markets initiated by globalization, frequent deregulations, and technical advancements.

KBV is an important approach towards organizational learning that forms the basis for establishing human capital involvement in the structural and routine activities of the firm. KBV proposes the establishment of heterogeneous knowledge structures across the management hierarchies of a firm as a prerequisite condition for achieving sustainable knowledge-based competitive advantage. This is because knowledge-based resources are always characterized by difficulties of transmission, imitation, and social complexities.

As much as KBV is a relatively contemporary management concept, it draws much impetus and reference from classical theories of management such as the theory of the firm, the organizational theory, and the resource-based view of the firm. In fact, the fundamental assumptions of the knowledge-based theory of the firm are particularly believed to have stemmed from the resource-based view of the firm. However, the resource-based view of the firm does not give knowledge adequate recognition and, in fact, categorizes knowledge among the simple generic resources of the firm. Knowledge-based theory of the firm makes amends of these shortfalls by expounding on the strategic significance and distinctive characteristics of the different types of knowledge-based resources that portend competitive advantage for the firm, as demonstrated by the following assumptions:

• Knowledge-based resources hold the most strategic significance in firms.
• Production activities and processes in firms involve knowledge application.
• Individuals rather than organizations are responsible for creating, holding, and sharing knowledge.
• The incapability of markets to coordinate specialized knowledge necessitated the existence of firms, with management playing the coordination roles within the firms.
• Knowledge-based resources are characterized by difficulty of imitation and social complexities.
• Knowledge draws strategic significance from its appreciative value as opposed to other traditional factors of production, which depreciate.

The broad-based nature of knowledge can be analyzed through two major fronts: knowledge as an independent idiosyncratic characteristic of the firm and knowledge management as a determinant activity in the firm.