Innovation for Competitive Advantage
According to Dasgupta and Gupta “The increasing turbulence in the external business environment has focused attention on the resources and organisational capabilities as the principal source of competitive advantage.” (2009, p.204)
Discuss with reference to appropriate literature sources, the extent to which the creation, sharing and utilisation of knowledge is central to this resource based view of competitive advantage. Reference: Dasgupta, M. And Gupta, R.K. (2009) Innovation in Organizations: A Review of the Role of Organizational Learning and Knowledge Management. Global Business Review, vol 10, no. 2, pp. 203-224.
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Innovation for Competitive Advantage
The challenging business environment today demands that organizations must continually improve their processes, innovate new products and services, improve performance and constantly monitor their environment besides excelling in other areas that guarantee a competitive advantage, otherwise they would cease to exist. Unlike the past where organizations would cling on specific areas of competitive advantage such as geographical spread, size and financial capabilityetc, today’s businesses find themselves in unique challenges where customers are more discerning of their products and services and therefore demand more, competition is tight from conventional businesses as well as innovative startups such as online merchants, factors that demand of businesses to continually innovate in order to remain relevant and hold onto their market share.
To this end, competitive advantage is now derived from an organizations ability to manage resources and organizational capabilities, with innovation and knowledge management becoming key areas of concern. Modern organizations differentiate themselves in their ability to efficientlyintegrate their innovative pursuitswith their management of knowledge to achieve both product and services innovation. Despite the growing relevance of the role of knowledge management a, and the increasing relevance of innovation and knowledge management in the attainment of competitive advantage Dasgupta&Gupta (2009), note that there is little research that is focused on this area. This paper, therefore, focuses on this new frontier of research. It seeks to demonstrate how innovation and knowledge management in modern organizations are key to the attainment of organizational success in a turbulent business environment.
Research in this area identifies knowledge as a key component in an organization, regardless of how it’s acquired. There is a general consensus that despite its strategic relevance in organizational success, knowledge is not an easily manageable commodity. According to Dasguta and Gupta (2009), knowledge management in an organization is best achieved through the management of various intervening factors such as the organizational culture, technology, structure and leadership. This conceptual framework sees knowledge management and organizational learning are complementary in nature, stimulating an innovation process that leads to the improvement of the existing products, services, and processes or the development of new products and services.
Organizational learning and knowledge management lead to the creation of new knowledge, regardless of whether an existing innovative process is successful or not. Even a failed innovative process is expected to provide the necessary learning ground that should be useful for any future innovative efforts. The organizational culture, structure, leadership and technology are therefore the backbone upon which organizations learn and manage knowledge effectively, and subsequently, integrate these factors to produce new products and services. The conceptual model above indicates that culture, structure, leadership and technology complement each other creating a synergetic effect that promotes organizational learning and knowledge management and consequently innovation.
In a turbulent business environment, innovation represents not only a growth paradigm but also a means for survival. Innovation that leads to competitive advantage must be sustainable, and therefore requires a systemic approach to learning and knowledge management. Dasgupta& Gupta (2009) define innovation in business as the introduction and development of a new product, service, process or solution. This definition points to the fact that innovation is not an end-point, but rather a learning process in which important ideas are consequently transformed into new useful methods, products or services that add value to an organization and stakeholders. The process of innovation, therefore, comprises of individuals, learning and knowledge creation and finally innovation.
The above definitions point to the fact that innovation is a key pre-requisite for competitive advantage especially in today’s challenging business environment. The attainment of competitive advantage is anchored on product innovation- the creation of new products or process innovation- where new and efficient production processes are achieved as a result of the application of new and innovative ideas to the existing production processes.
To protect a particular innovation within an organization with the aim of attaining a competitive advantage over her peers, organizations must follow a specific process which includes creation, initial testing, and application, determination of feasibility and final application of the particular innovation. The key to this process is the fact that all useful innovations must align with the needs of the organization and by extension the market.
Nonaka (1991) described organizational learning in a four phase process. The initial stage involves the identification of information that is deemed as relevant to organizational learning and the attempts to generate new knowledge. This is followed by the exchange or diffusion of knowledge from either individual or collective level to other actors in the organization. Once the knowledge is diffused into the system, its further integrated into existing knowledge systems and organized into procedural rules and codes that can be integrated or adopted at the organizational level. Finally, this new knowledge is transformed into action and applied to organizational routines thereby affecting behavior and way in which things are done in an organization. As noted by Huber (1991), organizational learning process involves the acquisition of knowledge, distribution, interpretation and then memorization. Nonaka (1991) further postulates that proper channels of communication, which allow for idea generation and creativity as opposed to rigid knowledge structures is key to the encouragement of learning in an organization.
As the saying goes, ‘The only way to cope with a changing world is to keep learning,’ organizations must continually learn and evolve so as to overcome the challenges of the current dynamic business environment. Understandably, organizations must have a very broad spectrum of competence and knowledge acquisition. This is only possible through learning, which enables organizations to increase their diversity and depth of knowledge. Consequently, the higher the ability of a firm to learn, the higher the capacity to innovate and also the higher the competitiveness. The need for learning is amplified by uncertainties in the business environment, coupled with the need to increase productivity and innovativeness and therefore, the greater the level of business uncertainties, the higher the need for learning. Businesses operating in highly competitive and uncertain markets tend to be most innovative to maintain and retain their market share in a turbulent operating environment.
Further to organizational learning and acquisition of knowledge in an organization, organizations must effectively manage knowledge to attain competitive advantage. According to Gorelick and Monsou(2006), knowledge management is an integrated system that encourages the sharing of existing knowledge, the creation, and generation of new knowledge and assists the organization in determining the best methods of applying such knowledge to meet the organizations goals and objectives. By definition, knowledge is what the people know about the products, processes, customers, challenges, mistakes and successes in an organization. It’s gathered through various means, either within or without the organization, and is stored within people in the organization or databases.
Of importance to note is that it’s not the existing knowledge that results in competitive advantage, but rather the organization’s ability to effectively apply such knowledge in the creation of new knowledge. Albino, Garavelli, and Schiuma (2001) noted that the management of organizational knowledge is linked to organizational learning and innovation. Learning in an organization is not only dependent on the internal efforts, but is also linked to activities outside the firm.
Through a proper knowledge management strategy, leadership in an organization can query and find up-to-date information, consider available alternatives in decision making and stimulate innovative models. Knowledge management also allows organizations to be able to anticipate problems, experiment and innovate. The end product of a good knowledge management strategy is improved processes, products, and services. Alavi and Leidner (2001) explain that an organization’s innovative capability is anchored on various aspects of an organization such as culture, leadership, and technology.
Martins and Terblanche(2003) define organizational culture as the deep-seated values, beliefs, and behaviors that are shared amongst members of a particular organization. It’s normally manifested in the typical and easily noticeable characteristics such as behaviors, philosophies, values and norms that define an organization.
Nonaka (1994) opines that one aspect of organizational culture that best helps in attainment of competitive advantage is the management and development of intellectual capital. Accordingly, organizations that intellectually stimulate and consequently improve their human capital are often best placed to overcome challenges occasioned by rapid changes in their operating environment. This is because by creating an environment that encourages the development of human capital; employees are more innovative and creative, thereby assisting the organization to be competitive in their niche areas. This is because the ability of knowledge workers to solve problems lies in their professional training and educational background, motivation and creativity. Knowledge workers that are properly trained and motivated help in the generation of new knowledge, innovation and a more strategic management of change, a key component of survival in a turbulent business environment.
An organizational culture that encourages open communication is strongly associated with employee’s willingness to share knowledge with others. A culture characterized by a supportive and nurturing environment encourages employees to openly communicate and share knowledge with each other. (Rezgui, 2007), note that incentive schemes that encourage the sharing of knowledge should be promoted as they lead to easier diffusion of important knowledge in the organization from one source to another. This not only encourages knowledge sharing, enhancing an organizations knowledge base but also enhances teamwork in the organization. (Egbu, 2006) Encourages organizations to provide adequate time and an appropriate environment to employees to enable them to reflect and generate new knowledge that is needed for appropriate innovations. He notes that this reflective practice and a combination of the existing knowledge base are fundamental in the generation of new knowledge.
Mullen and Lyles (1993) opines that organizations must develop a learning and participative climate, which encourages a continuous learning, a pre-requisite for and efficient and effective innovative process. A culture of learning enables an organization to question existing knowledge, processes and procedures, and evaluates new knowledge regarding whether it applies to an organization’s innovative agenda. To this end, Rezgui (2007) encourages job rotations, the delegation of responsibility, and teamwork as some of the adaptive organizational characteristics that promote innovation. He notes that a participatory culture with open channels of communication encourages employees to participate and actively contribute to decision making thereby enhancing the sharing of information which promotes innovation.
Inculcation of trust in an organization is a key component of a progressive organizational culture. According toDasgupta& Gupta (2009), the main functions of culture are coordination and internal integration. Integration is the feeling of identity among employees and the resultant commitment to an organization while the coordination function of culture relates to the creation of a competitive advantage, which is highly promoted when there is trust among employees. Employees that trust one another are more likely to interact and share knowledge which leads to organizational innovation.
Aspects of culture are more difficult to manage in a global environment. Global collaborations are often characterized by cultural and language differences where employees from different cultures have different approaches to organizational processes which enhance learning and transfer of knowledge. Multinational organizations, in a bid to reduce cultural and linguistic differences of their cross-cultural employees, often group employees in cross-functional tasks, multifunctional projects and managerial teams that integrate ethnic, technical and demographic differences.
Cultivation of effective communication channels is key to the sharing of knowledge in an organization. Effective communication channels enable employees to freely share information at any given time without restrictions. This enables an organization to promptly respond to changes in the operating environment. A cross-functional communication framework encourages the involvement of people in all aspects of the organization and increases the utility of innovative efforts to all stakeholders. Open and effective communication channels also encourage creativity and innovation among employees.
It’s no secret that information technology drives business innovations today. Embracing and properly utilizing information technology can increase process efficiency, improve the quality of products and services, enhance communication with clients and ultimately enable organizations to promptly address customer concerns and queries.
Additionally, the use of technology has become a key ingredient of knowledge management and organizational learning. There is massive information within the internet that can be harnessed to assist an organization in coming up with innovative products and new ways of doing things. The beauty of technology is that it’s cheap and easily accessible even to small-time players, which enables them to effectively compete with larger industry players. According to
Ettlie and Bridges (1983), an organization’s information technology policy is a reflection of an organization’s attitude and commitment to innovation. Such commitment is seen in salient areas such as the recruitment of technical teams, financing of technological advancements, and being a leader in technology and innovation in an organization’s niche industry. Ettlie and Bridges (1983) identifies tech tools such as databases, the internet, and intranet as well as non-tech tools such as research and brainstorming as some of the enabling factors that a firm can exploit to increase chances of innovation. Strategic management of information enhances organizational innovation by promoting the ability of innovators to collaborate with one another and obtain the relevant knowledge and information. While technology is a key ingredient in organizational innovation, it may also stifle innovation through automation and standardization of processes and must, therefore, be well integrated with the right competency to promote innovation.
The process of organizational innovation and improvement with the aim of attaining competitive advantage may not be a success without a strong layer of leadership at every level of the organization. To this end, the organization must recruit and retain leaders that demonstrate innovative thinking, promote learning and knowledge management, and have the capability to execute organizational strategies successfully. Jong and Hartog(2007), note that leadership is probably the most important aspect that differentiates an organization from its peers. Good leadership means that an organization can manage the available resources both capital and human, harness the synergetic power of all available resources to create a forward-looking and innovative organization.
Research shows that a great relationship between a leader and their subordinates determines the strategic direction of the organization. A good leader influences behavior in an organization through assigning tasks and responsibility and supporting employees to execute such tasks, recognizing and motivation employees to reach their full potential. This encourages employees to be innovative, supportive and enhances working relationships within the organization. An effective leader encourages innovation and employee commitment by creating a conducive working environment, acting as a role model, communicating effectively the vision of innovation, motivating and providing feedback to employees. Besides the above role, managerial and leadership support is deemed an important aspect that encourages employees to share knowledge within the organization. Organizational leadership should therefore not only encourage and motivates employees to be effective, but also encourages learning and knowledge sharing in an organization as a pre-requisite for innovation.
Organizational capabilities and competitive advantage
The 21st-century business challenges cannot effectively be overcome by conventional business strategies that focus on attaining competitive advantage through first mover advantage, geographical reach, financial capacity, etc. Virtually, all modern businesses can access cheaper credit as a result of more liberal financial markets, and most businesses can sell their products to global markets through online merchandising. With this background in mind, modern day researchers agree that for an organization to truly attain competitive advantage, both implicit and explicit factors must be well managed.
Increased global competition leaves businesses with little options for survival, which brings to the fore, the relevance of knowledge acquisition, management, and innovation. The only businesses that survive challenges brought about by turbulent business environments are those that can innovate regarding new products, services and efficiency of processes thus remaining relevant in the face of stiff competition. Successful innovation is a product of a strong and accommodative organizational culture, strategic adoption of appropriate technology and visionary managerial and leadership capability. These pillars support innovation through the promotion of organizational learning, knowledge acquisition and management.
Since it’s not easy to manage knowledge that’s in the mind of individuals, organizations need to manage structures, processes, and cultures which promote an environment suitable for learning, knowledge sharing and creativity. To promote innovation, an organization must not only manage knowledge within employees but also its culture, processes, and organizational structure. Creating an internal system that encourages and rewards continuous learning and knowledge sharing is an important aspect of management that promotes innovation regarding new products, services, and processes and ultimately creates a competitive edge for an organization.
From the above discussion, it can be concluded that organizational learning and the management of knowledge gained within and without the organization are critical in ensuring that the organization is not only adaptive but also responsive to turbulent business environments. Dasguta& Gupta (2009), note that an organization that effectively manages its acquired knowledge is a learning organization. Organizational learning and knowledge management is a key component of enhancing the depth and knowledge diversity. For an organization to attain a sustainable competitive advantage, it must adopt a knowledge management strategy that aligns with its structure, culture, leadership and technology.
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