Tacit Knowledge and Knowledge Management: The Keys to Sustainable Competitive Advantage

B competitive advantage is increasingly found in knowing how to do things, rather than in having special access to resources and markets, knowledge and intellectual capital have become both the primary bases of core competencies and the key to superior performance. This article explores how companies can best grow their knowledge resources to create not simply competitive advantage, but sustainable competitive advantage. In recent years, the development of “hypercompetition” and shortened product lifecycles have reduced the degree to which much special knowledge can provide companies with sustained competitive advantage. Shrinking logistical and communication costs, along with new organizational designs, have enabled multinational corporations (MNCs) to function as truly global companies, rather than as conglomerations of national ones. Global companies introduce their newest products worldwide and effectively share knowledge across country units. Fueling hypercompetition, many industries now have several MNCs competing against each other on a worldwide basis, rather than a few local companies and only one MNC competing in each market. New product innovation has become the key to competing successfully. MNCs use their deep pockets to fund research and development (R&D), and they reverse engineer each other’s products and turn to consultants to learn about best practices in their industry. Companies develop or acquire new knowledge so rapidly that having special knowledge is no longer a basis for sustainable competitive advantage. To provide sustained competitive advantage, one needs knowledge that is difficult for outsiders to copy as well as the ability to rapidly develop new knowledge. In a graphic demonstration of the transient value of much knowledge, Michael Tushman began his courses at Columbia Business School by asking what the following list of products had in common: watches, cars, cameras, color TVs, hand tools, radial tires, industrial robots, machine tools, electric motors, financial services, food processors, microwave ovens, stereo equipment, athletic equipment, computer chips, optical equipment, medical equipment, and consulting services. The answer: each of these industries was initially dominated by a company with specialized knowledge, but that company rapidly lost its lead as other companies acquired the knowledge required to compete. Also illustrating the situation, fewer than 40% of the Fortune 500 companies of 1970 still existed in their original form by 1991. In today’s environment, much of the Organizational Dynamics, Vol. 29, No. 4, pp. 164–178, 2001 ISSN 0090-2616/01/$–see frontmatter © 2001 Elsevier Science, Inc. PII S0090-2616(01)00026-2