”The Role of Innovation in Achieving Competitive Advantage”

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Table of Contents

Introduction
Role of knowledge in innovation
Use of tacit and explicit knowledge in an organization
How does lack of tacit knowledge impact on an organization?
Capturing and transferring knowledge within an organization
A summary of the main body
Conclusion
Reference List

Introduction

As a result of the current economic crisis, most organizations have been forced to downsize their workforce in a bid to reduce their operational costs. One way through which organizations can reduce their operational costs is by downsizing. However, this might result in the risk of losing the knowledge possessed by employees (Martins & Martins 2011, p.50).

As organizations continue to grow, it becomes necessary to invest in both explicit and tacit knowledge (Cappellin & Wink 2009, 89; Delamothe & Foray 2001, p.189; Droege & Hoobler 2003; Johannessen, Olaisen & Olsen, B. 2001, p.4). Explicit knowledge is easily exchanged between two persons and it can also be stored for future use.

In contrast, tacit knowledge cannot be transferred from one individual to another due to its sticky nature. The only that it can be transferred to a third party is through interaction (Kazi 2004, p.115; Szulanski 2003, p.13-14).

Most organizations are faced with the problem of losing both tacit and sticky knowledge. Nowadays, companies find it very hard to conduct their business activities (Chon 2011, p. 189) and as such, many of them prefer tacit knowledge to give them a competitive edge in the market.

Downsizing results in loss of tacit knowledge and this means that on organization cannot be able to produce innovative products. Business innovation is a mandatory requirement for nay organization that wants to achieve a competitive advantage. However, some forms of innovation cannot be carried without specific technical knowhow which is embedded in the sticky knowledge.

While there is no doubt that this form of knowledge is crucial, nonetheless, companies have to restructure their organizations from time to time to accommodate changes brought about by the business environment. On the other hand, companies need to take into account the costs and benefits associated with downsizing of a particular segment of the workforce relative to innovation and the development of an organization.

The essay addresses how the loss of knowledge as a result of downsizing may impact on the specific organizational innovation and the possible ways in which this knowledge can be captured to enhance future innovative capacity, thereby promoting competitive advantage.

Some of the impacts include derailing of the innovation process and financial losses following the loss of tacit knowledge to competitors. However, the knowledge can be tapped through a well placed mechanism although it is not very effective because employees posses it.

This section shall attempt to explore the role of innovation in helping an organization achieve competitive advantage. Specifically, the section will explore knowledge as an essential aspect of innovation, and how organization loses innovation when it decides to downsize its workface.

It will also examine the need for organization to combine tacit knowledge with either explicit or technical knowledge in order to continue with innovation. Besides looking at how tacit knowledge is acquired, the section will also endeavor to examine how the application of wrong knowledge may result in poor innovation.

The application of tacit knowledge in difference organization shall also be explored, along with ways of capturing both tacit and explicit knowledge and storing it for future use.

Role of knowledge in innovation

Innovation is not only a process that involves the use of technical tools and knowledge, it also a process through which an organization develops and defines matters arising, before coming up with new knowledge that can be applied to solve these issues. This implies that knowledge is an essential aspect of innovation.

The loss of tacit knowledge (often referred to as sticky because of its hard and complex transferability nature) derails the process of innovation. For instance, the arising issues or problems in an organization are aligned to specific areas from where only the individual with the tacit and specific knowledge can be used to give the required information.

This is because this information has not been documentable in any way (Delamothe & Foray 2001, p.189; Datta 2010). Therefore, when a company decides to downsize, the loss of individuals possessing this knowledge means that the organization stands to lose a vital resource. For example, the knowledge on a particular market structure or product may only be known to the individual who was responsible on the ground.

If the company is in the process of acquiring a new innovation or upgrading existing products, it needs to combine tacit knowledge with either explicit or technical knowledge (Fallah& Ibrahim 2004, p.5). The absence of tacit knowledge derails the innovation process and sometimes, this can take a long time before the organization achieves the goal of developing a new product.

There is need for continuous dialogue between explicit knowledge and tacit knowledge in order to ensure the development of knowledge required for innovation (Fallah & Ibrahim 2004, p.5; Jakubik 2007, p.5-6). Through an interaction of implicit (tacit) knowledge, organizations are in a position to create essential knowledge needed to undertake innovations (Cappellin & Wink 2009, 89).

Use of tacit and explicit knowledge in an organization

Organizations cannot use either tacit or explicit knowledge independently to achieve innovation (Busch 2006) since the success of an innovation process depends on both forms of knowledge (Cappellin & Wink 2009, 89). Therefore, the loss of such knowledge means that the plans by a company to innovate could be endangered or derailed.

Capturing this form of knowledge is hard because of its sticky nature, and this limits its formal transferability. Alwis, Hartmann and Gemünden (2004) note that “tacit knowledge is highly personal and hard to formalize and, therefore, difficult to communicate to others” (p. 4). The only way to retain this form of knowledge is by combining both cognitive and technical knowledge.

A safe way to keep tacit knowledge is by retaining employees who possess it within the organization.The loss of this vital and ‘unprogrammable’ knowledge means that an organization cannot borrow past experiences, a situation “which leads to reinvented wheels, unlearned lessons, a pattern of repeated mistakes, productivity shortfalls and a lack of continuous performance improvement” (Martins & Martins 2011, p.50).

The entire process is jeopardized as organizations have to undergo the processes of learning and reinventing to develop products that may not even match current products. Loss of both tacit and sticky knowledge leads to organizations incurring financial losses because a particular innovation is not effectively carried out.

How does lack of tacit knowledge impact on an organization?

Tacit knowledge is gained through different learning processes like copying, imitation, and interacting with members of staff and the external environment (Al-Hawamdeh 2002; Schreiber et al. 2000, p.70; Busch 2006). When an employee with specific knowledge is relieved of his/her duties, all the knowledge that they might have learned and which could be transferred to deal with innovation is lost.

The loss of such knowledge results in financial losses because the person who has been laid off is the center of that particular organization. Martins and Martins (2011, p.50) observed that the loss of tacit knowledge as a result of high employee turnover lead to organizational losses. Turnover as a result of the loss of an employee is one of the most expensive mistakes an organization can make.

Therefore, an organization cannot afford to lose expensively acquired experience and knowledge because there is no price tag that can be attached to it. Investing in technological innovation in the absence of experienced and skilled employees cannot result in sufficient innovation (O’Hara & Shadbolt n.d, p. 2; Hippel1994, p.3-6).

This is because it is extremely hard to document both sticky and tacit information when we are innovating new products. According to Nelson and McCann (n. d. p. 2), knowledge is usually embodied differently in different people. The creation, augmentation, improvisation, processing, and application of information are usually embodied in a single individual (Dinur 2011, p. 246-247).

In the case of a company in the process of innovation (say, in designing a particular product that requires explicit or technical knowledge), chances of applying the wrong knowledge are very high. The application of wrong knowledge leads to the innovation of wrong products, and this might lead to consumers shunning such a product when it is released into the market.

When this happens, a company incurs financial losses because it lacks the tacit knowledge required for perfecting the product. Product innovation can be carried out wholly or an existing product can have some of its components improvised, and this requires tacit knowledge which is sticky to move around. Both innovation and the acquisition of tacit knowledge are vital processes that organizations needs to take seriously.

Some processes of innovation require tacit knowledge more than explicit knowledge. This could be necessitated by the need for an organization to convert the available documented knowledge for use in developing a product with a competitive advantage in the market.

At this point, financial loss might occur because the organization is not in a position to penetrate through the sticky knowledge (Horvath n.d, p.4) and apply it in the product development process.

In another scenario, assuming that the downsized employees are employed by a rival organization, the rival company would have the capacity to utilize the tacit information in the development of a product that competes with the former employer (O’Hara & Shadbolt n.d, p.3). This increases competition in the market.

At the same time, the competitor might decide to apply tacit knowledge in order to improve existing practices and processes into a more efficient and effective forms (Horvath n.d, p.5). The transfer of the knowledge to another company makes the organization more vulnerable than before (Martin & Martins 2011, p.62).

This is because the company requires many years to invest in this kind of knowledge. Financial loss as a result of the departure of an employee who possesses this kind of knowledge and the resultant transfer to another company puts an organization at risk.

Sticky knowledge forms an integral part in ensuring that intellectual property is in achieved through innovative and creative process in an organization (McGrath & Remenyi 2003, p.187). Knowledge management (Arevuo 2006) can help an organization to prevent knowledge loss (Jost 2008, p.4).

As such, organizations should ensure that they do not suffer from such losses whenever possible. To forfeit tacit or sticky knowledge (Fuchs & Shapira 2005, p.28) is akin to forfeiting intellectual capital necessary for current and future and current processes of innovation (McGrath & Remenyi 2003; p.189; O’Hara &Nigel Shadbolt n.d, p.3).

Capturing and transferring knowledge within an organization

The process used to capture expertise and experience from individuals and avail it to others in an organization is referred to as tacit knowledge management (Dalkir 2005, p.80). However, the capture or the transfer of both tacit and the sticky knowledge is one of the hardest challenges facing organizations (Al-Shammari 2009, p.258).

This is because of the nature of the information contained in tacit knowledge makes it hard to express, share, and formalize (Grant 2007, p.174). Consequently, it becomes hard to put it in writing or in a document which can then be transferred from the original holder to a third party (Nissen 2006, p.5).

The information contained in tacit knowledge can only be passed from its bearer to a third party through learning or practical application in the field (Dalkir 2005, p.80). The stickiness of the tacit knowledge (McMaster 2007, p.155) makes it hard to transfer and use in innovations.

Consequently, companies find it hard to use tacit knowledge in forming their competitive advantage (Rebernik & Sirec 2007). However, organizations can put into place mechanisms for tapping the sticky tacit knowledge and use it for future innovative capacity (Grant 2007, p.174).

The only strength of tacit knowledge is that it is hard to copy, duplicate, or imitate by competitors, making its transferability hard (Alwis, Hartmann & Gemünden 2004, p.8). “Much tacit knowledge is generated and transferred through body language or physical demonstrations of skills” (Alwis, Hartmann & Gemünden 2004, p.8) making the use of ICT partly possible.

Observers have noted that it is hard to transfer tacit information fully to formal language or save it in electronic devices (Alwis, Hartmann & Gemünden 2004, p.8). They have noted that if this happens then the information stored will not be effective as would be the case when posed by the individual.

However, a more systematic way can be used to capture the information held by others (Grant 2007, p. 174-175; King 2009, p.89). The barriers to this transfer are based on the reluctance by organizations to allow the holders of the tacit knowledge to fully participate in the innovation process (Kelleher 2009, p.2).

The knowledge can be captured if the bearers of the knowledge are allowed to fully participate in the innovation process. Sharing knowledge is shared and encourage during this process. For example, employees who possess this knowledge can be given adequate time to participate in the production process (Fergus, Mingkhwan, Merabti & Hanneghan2003).

Through the participation of employees, skills and experiences are passed on to other individuals in the organization. The participation ensures that tacit and sticky knowledge is not possessed by a single individual (Bush & Tiwana 2005, p.67; Von Stamm 2008, p.253) or remains unused (McMaster 2007, p.243)

Personal interaction is one of the informal ways through which tacit knowledge can be transferred from the bearer to the organization (Anumba Egbu, Carrillo & Carrillo 2005, p.177; Shavinina 2003, p.904). The management of the organization should be in a position to develop a working environment that supports the different thinking styles of individuals.

This prevents employees with tacit knowledge from withholding it from the organization. The organization should also allow for experimentation to tap tacit knowledge without instilling penalties in case of failure (Alwis, Hartmann & Gemünden 2004, p.9). This can be experienced if an organization develops a culture of openness which is less hierarchical (Schwartz 2006, p.438) and gives room for personal expansion.

This mode of tacit knowledge transfer has been practically proven and put into practice by different companies. For example, Toyota, a leading manufacturer of motor vehicles, uses informal interaction to transfer and capture tacit knowledge and disseminate it to other employees.

For instance, when a new plant is being opened, Toyota sent its new employees to an already existing and operative Toyota plants (Sanchez n.d p.5; Botten 2006, p.254). At all its plants, employees are able to interact with the older employees in different departments of the production plants and factories where knowledge is passed on from the bearer to a new generation of employees.

This has been acknowledged by Schwartz (2006, p.438) who notes that the idea is to provide processes whereby experiences and expertise is converted to asset for future innovation. After training for several months and interacting with other employees, new employees are usually transferred to the new factories (Sanchez n.d p.5).

However, they are deployed back in a company with highly experienced Toyota employees to work with them for a period of time (Sanchez n.d p.5). The process goes on to facilitate informal interaction and sharing of opinions and knowledge until tacit knowledge is implanted in new employees (Holden & Glisby 2010, p.49). This practice has been used by the company to capture and disseminate tacit knowledge.

This mechanism has assisted in knowledge spillover (Chon 2011, p.200) which according to Al-Hawamdeh (2002) is captured in the minds of the next generation of employees. Although some of it can be captured in writings and documents, the skills, competences and experiences are hard to capture as they are learned, imitated, and internalized over a period of a time.

This internal capturing of knowledge has necessitated the Toyota Company to continue being productive by way of tapping tacit knowledge (Smith 2007, p.214). Because of the stickiness of the information, it requires a lot of time to capture tacit knowledge and to transfer it as well. Tacit knowledge is not explicit, meaning that it takes time and effort for it to spillover for future use (Schwartz 2006, p.438, Fallah& Ibrahim 2004, p.3).

Through the facilitation process, tacit knowledge can be captured and stored for future use (O’Hara & Shadbolt n.d, p.2). In addition, tacit knowledge can also give a company a competitive advantage through innovative designs and productions. Knowledge management can be used to capture the tacit knowledge for its subsequent use by others.

Tacit knowledge can be transformed from its implicit form to explicit form and used for future innovations (Sanchez n.d, p.6; Awad & Ghaziri 2007, p.466).

For example, Motorola saw the need to manage and capture tacit knowledge and devised an approach whereby a project team would be issued with manuals and booklets containing what the previous teams had been doing and expected to design new generation of pagers (Sanchez n.d, p.7).

To ensure that the knowledge was captured, the research development team was required to issue manuals containing the new innovation process, tools, and the procedures for use. Through this process, Motorola acknowledged the capture of tacit knowledge and converted it to explicit knowledge, in effect allowing for its use in future project developments (Sanchez n.d, p.7).

A similar approach is applied at the Toyota Company where each employee in the manufacturing company is expected to document the processes applied at each stage (Rooney, Hearn & Ninan 2005, p.194). At the end of the process, the company gets the complete development and procedure processes.

The documented processes are stored and used when developing new models where the initial models are improved using the captured tacit to explicit knowledge.

Other organizations known to capture knowledge inlcude Chrysler which selects a team of the most skilled, experienced and innovative employees and put them into a team, from where they develop a catalog of the next generation of the car in advance based on the prior captured knowledge (Sanchez n.d, p.8).

This process of capturing tacit information and other implicit knowledge can be applied by other organizations to enhance future use to achieve a competitive advantage (Anumba Egbu, Carrillo & Carrillo p. 2005, 177). Lastly, knowledge management increases competitive capability and production in an organization (Lam & Chua 2005, p.724; Nissen 2006, p.5). Organization should invest heavily in knowledge management.

A summary of the main body

Both tacit and explicit knowledge are an asset to an organization. This is because the possession of knowledge translates into innovative organization. As such, any organization that decides to downsize its workforce end up reducing its innovative capacity.

On the other hand, an organization can still ensure that it captures and transfers this knowledge in the case of a downsizing exercise. One way of doing this is through personal interactions with the individuals who possess the knowledge in question.

Conclusion

Innovation is finding its way into the organization, and this has forced many of them to adapt it in order to gain competitive advantage. However, the loss of tacit and sticky information as a result of downsizing in the face of the current financial crisis threatens the future competitive advantage as it hinders innovation.

Tacit knowledge is an informal knowledge implicit in nature and cannot be explained as it is learned and held by individuals. Organizations that loose this kind of knowledge risk derailing the innovation process as well as exposing the knowledge to competitors. It may lead to manufacture of competitive products jeopardizing the competitive advantage of the initial investor in the knowledge.

Organizations invest a lot in employees who over the years learn the process, concepts, and procedures that cannot be documented. However, organizations can reduce the chances of losing the knowledge through tacit knowledge management.

Through apprenticeship and open working environment as well as allowing employees to express themselves in the workplace allows the organization to tap the knowledge. Although it is hard to document, organizations afford to lose all that knowledge. This is because explicit knowledge cannot function without tacit or sticky information in achieving innovation.

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