Knowledge Management as a Strategic Tool in Achieving and Sustaining Competitive Advantage in the Retail Industry
Abstract: For the past few years, there have been many thorough discussions on the significance of knowledge management as a strategic tool. Nowadays, many organizations are becoming more creative and innovative. Organizations in the developing country are looking forward for techniques to enhance their capacity to generate new ideas. Knowledge management has been identified as the most important resource of a company. Knowledge in an organization must be managed due to the fact that it is a complex asset. In the rapidly changing business environment, knowledge management has been popularized as an important tool for the continuity of organizations as well as a support for the organization’s competitive strength. It has become the backbone for organizations in establishing and maintaining competitive advantage differentiation. This study is carried out to explore the IKEA company which has used knowledge management as a strategic approach in achieving and sustaining competitive advantage.
Keywords: knowledge management, IKEA, Nonaka and Takeuchi model, retail industry, competitive advantage
Knowledge Management (KM) has been increasingly recognized as a fundamental component of an organization’s strategy to achieve and sustain competitive advantage in the industry. Companies which are efficiently creating and sharing knowledge are constantly reporting improved organization success over competitors who do not practice this (Bloomfire, 2018). Thus, knowledge sharing initiatives in organizations are becoming vital with companies making a significant investment in order to implement KM solutions.
This study focuses on examining the KM approaches which are used as a strategic tool in achieving and sustaining competitive advantages in the retail industry. A case study of knowledge management at IKEA has been used in this research to analyze the approaches which have been taken into practice. Besides, the main objective of this study is to establish how KM approaches can add value to the business strategy of companies. Moreover, this study also aims to provide a source of information on the successful implementation of the KM strategies that can be useful to many organizations in order to achieve competitive advantage in their specific industry.
Knowledge Management (KM) is known as the management of knowledge assets systematically with the purpose of creating value as well as meeting the strategic goals of an organization (KMT, 2018). It includes the initiatives, processes, strategies as well as systems which endures and enhances the knowledge storage, sharing, and creation. Thus, KM denotes a strong connection with the organization’s aims and strategies. Besides, it also involves the management of knowledge to achieve and sustain competitive advantage which creates value for the organization.
Knowledge can be classified into two categories such as tacit and explicit knowledge as supported by Nonaka 1998, Tiwana 2000, Duffy 1999, and Zack 1999b. The tacit knowledge is known as the knowledge that will remain in the mind of a person developed from direct experience. It will not be in any written form. Whereas, explicit knowledge is known as the knowledge which is written types which can be utilized by other people. From the researcher’s understanding, KM is an approach an organization is strategically managed when it comprehends the value of its knowledge acquired, subsequently leading to competitive advantage.
According to Atwood C.G. (2009), KM is about identifying valuable knowledge which exists in an organization and making it accessible for others to use. Yet, Beveran (2002) defines KM as an approach to identify useful information and convert it into the essential knowledge critical to the decision-making processes. This explains KM as a supporting tool for performance and decision-making in an organization. Besides, Milton et al (1999) identify KM as a tool to create strategies to get the right knowledge to the right people at the right time and in the right format. However, at this point, it is sensible to point out the persuasive work done by Wiig (1996) in which they have principally shaped the new circumstance of KM.
According to Karl Wiig (1996), knowledge management in an organization must be measured from three viewpoints such as business, management, and hands-on operational. Thus, the definitions provided by different authors on KM will fall under one or more of the viewpoints mentioned by Wiig. While highlighting the business perspective, Gregory (1996) identified KM as in it includes focused activities which allows organizations to expand its knowledge from its own experience as well as from other’s experience to accomplish the organization’s mission.
Besides, in the context of management perspective, Beveran (2002) claims that the core emphasis of KM should be on the strategies for human resource management and intellectual capital which boosts creativity and innovation among and within employees. Whereas, in terms of operational perspective, KM typically refers to seizing organization’s skills via creation, gathering, storing, delivery and utilization (Miller, 1999)
Furthermore, Davenport et al. (1998), Tiwana (2000), and Sveiby (2000) argue that knowledge increases in value when it is shared and distributed throughout an organization. Likewise, Duffy (1999) describes KM as the identification, development and efficient application of an organization’s critical knowledge. Despite, Takeuchi introduces an antithetical view towards KM. This is where he defends decrease in control over company staffs to create and share knowledge will consecutively feed the organization’s innovative approach. Moreover, this viewpoint is also shared by Sveiby (2000) whereby he claims that the term “Knowledge Focused” is more favored compared to “Knowledge Management” as knowledge cannot be “managed”.
Apart from that, DiMattia and Oder (1997) contend that the advancements of KM have arisen from two important shifts such as technological growth and downsizing. In fact, KM helps to improve other organizational activities such as Business Process Reengineering (BPR) and Total Quality Management (TQM) in order to provide an innovative and imperative emphasis and a strategic approach to sustain competitive advantages. Hence, it is claimable that the application of organizational initiatives such as the BPR and TQM is a consequence of the arrival of KM in which it helps to improve an organization’s operation and performances. Authors such as Steele et al (2003) and Gooijer (2000) has also supported this statement by arguing that KM is an approach which improves an organization’s performances as well as competitive position.
Additionally, management academicians perceive knowledge as the crucial resource and KM as a significant tool to achieve and sustain competitive advantages (Pillania, 2007). KM is known to be a strategic management tool due to the reason that knowledge is identified as an important strategic resource. Besides, KM is also a unified approach whereby it brings together various areas like human resource management, operations management, as well as information systems. As claimed by Wiig (2007), there are two aims of KM such as to enable an organization to perform as smart as possible to protect its overall achievement and to comprehend the value of its intellectual capital to achieve and sustain competitive advantage.
The methodology in a research paper refers to the discussion of the selected company or industry for analysis as well as the specific method preferred to conduct the analysis on the research subject of the study (Expert Journals, 2018). Besides, it also describes the rationale for selecting the specific company and the application of the method used to identify and analyze information. This allows researchers as well as readers to critically evaluate the study’s overall efficacy and dependability. There are two types of research methods based on the nature of the study as shown in the table on the next page.
Table 1: The Two Types of Research Methods based on Nature of Study.
Type of Research Method Description
Descriptive The descriptive method normally includes studies and surveys which aims to identify the facts (Research Methodology, 2018).
Analytical The analytical method is different in a way that the researcher must use the existing facts or information and analyze these to come up with a critical evaluation of the material (Research Methodology, 2018).
3.1COMPANY CHOSEN FOR ANALYSIS
The researcher has chosen IKEA to analyze the KM approaches which adds value to the business strategy of an organization in order to achieve and sustain competitive advantage in the retail industry. IKEA is the world’s largest Sweden furniture retailer company which was founded in 1943. It sells stylish yet reasonable Scandinavian designed furniture (Bartleby Writing, 2018). Currently, IKEA has its outlets in 35 countries which also includes Singapore. Besides, the company is well known as the world’s most successful international retailing firms which operates as a global organization. IKEA’s success in the retail industry provides credits to its skills to assimilate both its product differentiation and cost leadership strategies as well as its enormous experience in the retail market (Bartleby Writing, 2018).
One of the reasons for selecting IKEA as the research organization is because the company has used KM as a strategic tool to succeed in its business. Moreover, IKEA has also achieved competitive advantage by exploiting locally created knowledge across intra-organizational boundaries. Apart from that, IKEA has also implemented knowledge sharing in which it provides uniqueness to their business that leads to sustained competitive advantage.
3.2THEORY CHOSEN FOR ANALYSIS
Besides, the researcher has chosen the Nonaka and Takeuchi Knowledge Management model to analyze how IKEA has successfully implemented knowledge creation and transfer as a strategic tool to achieve and sustain competitive advantage in the retail industry. The model describes the knowledge creation and conversion in an organization. There are four different types of tacit and explicit knowledge conversion derived by Nonaka and Takeuchi in their model such as socialization, externalization, combination, and internalization as shown in the figure below.
Figure 1: The Four Types of Knowledge Conversion.
One of the reasons for selecting Nonaka and Takeuchi’s model is because as mentioned by Michael Zack, knowledge strategies developed by an organization requires an examination of knowledge flow in the organization. The Nonaka’s model serves this purpose. Developing knowledge strategy is important in which it must match the business strategy of an organization in order to stay competitive among its competitors. This is one of the main reason the researcher has chosen the Nonaka’s model in this study. Besides, the model also helps to analyze and explain the different forms of knowledge creation and sharing used by IKEA to achieve and sustain competitive advantage in the retail industry.
The below section further analyzes and discusses how IKEA has used knowledge management as a strategic tool to achieve and sustain competitive advantage in the retail industry by using the Nonaka and Takeuchi’s model. Sharing knowledge within the IKEA group is one of the routines of the company. The human resource policy of IKEA clearly states that all employees of IKEA group must be willing to share their knowledge and experience with all other employees in the organization (J. Anna ; K. Thomas, 2006). The activity of sharing knowledge is one of the missions of the founder of IKEA, Ingvar Kamprad, in order to be cost efficient (J. Anna ; K. Thomas, 2006). Thus, the best solution to implement this is to have a routine where all the employees are mindful of what is anticipated from them like IKEA.
Socialization in N;T’s model is also known as tacit-to-tacit knowledge conversion. This is where an individual obtains tacit knowledge from another individual or group through observation, trainings, team meetings and discussions (A.G. Oskouei, 2013). In the case of IKEA, the company stresses the importance of working along with new employees to train them in the IKEA-way (J. Anna & K. Thomas, 2006). The IKEA-way refers to the teamwork and action learning based on open communication among staffs.
Besides, the IKEA corporate culture is apparently important in terms of tacit knowledge and as a technique to share knowledge. In this case, socialization also plays its part in IKEA through corporate knowledge sharing activity in which trainings are conducted by experienced people in IKEA (J. Anna & K. Thomas, 2006). Trainings are considered as a very important tool by the company as a way to run an IKEA store the IKEA way. Every new employee in the company would get an introduction session for a week to know about the organization, history, values, and procedures in working with IKEA (J. Anna & K. Thomas, 2006).
Moreover, the normal setup for new employees to grow rapidly is to run special training programs from two to six months. They will be educated in a store which is also called a learning center before they are being appointed to work in a new IKEA store (J. Anna & K. Thomas, 2006). This clearly shows the amount of stress the organization places upon the importance of knowledge sharing.
Furthermore, knowledge sharing in IKEA is supported by a matrix organization in which it allows knowledge to be shared throughout the organization. In order to carry out knowledge sharing across functions, IKEA conducts annual functional meetings as well as shares knowledge via a service office in each country to a global service office (J. Anna & K. Thomas, 2006). Besides, knowledge is also being shared line wise in each store and country respectively.
Besides, externalization is also known as tacit-to-explicit knowledge conversion. This is where an individual share his knowledge to others in the form of talks or conversation between group members in a way of having question and answer sessions (A.G. Oskouei, 2013) as well as writing a book to share his knowledge with others. In the case of IKEA, the company uses the codified knowledge management strategy. They come up with manuals by which the company attempts to function as a learning organization as well as often update and improve the manuals (Academia, 2018).
Besides, IKEA also acts responsibly in terms of sharing knowledge by conducting “commercial reviews”. It is basically an internal tool of the company to measure how the concept by IKEA is being followed in different countries and within different functions. As a result, the best practices obtained from the process of reviewing are then made available on the company’s intranet system or in the manuals. Moreover, IKEA’s corporate knowledge is also made available to employees through their intranet systems and manuals (Academia, 2018).
Furthermore, learning by observation and on the job training is also considered as an important element and part of the IKEA culture as well as knowledge sharing activity. This is where some of the employees in the company understand and learns on new knowledge and problem-solving techniques via observation (J. Anna, 2007). These employees then share the knowledge obtained to other staffs in the organization or within the departments via the intranet systems.
Moreover, combination is also known as explicit-to-explicit knowledge conversion. It is a process of combining explicit knowledge from different sources and creating a new form of explicit knowledge. This is where individuals will be able to combine or exchange knowledge with others by using tools such as documents, emails, telephone conversations, as well as communication via computer networks (A.G. Oskouei, 2013). In the case of IKEA, the company has provided books to its employees whereby it is called as the “Basic Knowledge” books in order to provide fundamental explicit knowledge about IKEA (J. Anna, 2007).
These books are known as a more practical version compared to the manuals provided. Besides, information gathered from various sources within the company about vacancies, new projects, and sales performances are shared through company wallpapers as well as corporate newsletters (J. Anna & K. Thomas, 2006). However, apart from this, it is found that IKEA stresses more on open communication among its employees rather than having to communicate via emails or computer-based communication network (J. Anna, 2007). The IKEA people prefer more meetings and discussions in which they believe it is a better choice to obtain knowledge in a better form.
Lastly, internalization is also known as explicit-to-tacit knowledge conversion. This is where the knowledge is converted from a written statement to a tacit knowledge in which the knowledge obtained from tangible materials by an individual spread to another individual or group. In the case of IKEA, internalization is a vital process to share knowledge among the stores. Learning by practical work and on the job training takes place everyday in the IKEA stores. Most of the employees learn about IKEA and the work routines by working in the stores. This was especially important for employees at IKEA to explain and share their ideas about the proven solutions which are found in the company manuals as well as on the intranet systems (J. Anna, 2007).
Moreover, as mentioned earlier, IKEA conducts knowledge sharing activity by providing training sessions for its new employees about corporate knowledge. Employees are given training manuals and documents in which reading these materials as well as attending the training sessions allows the employees to adopt the tacit knowledge and subsequently form new knowledge after the process of internalization.
Furthermore, another way IKEA carry out the internalization process is by rewarding its employees with different career opportunities within the IKEA group. The company encourages its employees to step aside and try new functions rather than to do a linear career. They consider this way as important to understand the IKEA concept and business idea as well as a motivation for employees to share knowledge with colleagues in different functions and stores (J. Anna & K. Thomas, 2006).
5.0CONCLUSION AND FUTURE DIRECTION
In conclusion, knowledge management (KM) is considered as a strategic tool to achieve and sustain competitive advantage in today’s organizations. Knowledge is converted into information in which the process involves the participation of employees in an organization. Thus, companies should have a culture which encourages employee’s active involvement. Besides, the development of KM should be along side the environmental changes that take place. The pressure of competitiveness in the industry is causing organizations to reassess their knowledge resources. However, KM has a huge advantage in which it aids companies to cope with market changes, reduce costs, and eventually creating competitive advantage.
At the moment, organizations are keen in trying to develop and support KM in their business. They are converting themselves to become more knowledge oriented. As for IKEA, the organization applies great emphasis towards knowledge sharing culture within the company around the world consequently allowing its business to achieve and sustain competitive position in the retail industry.
Apart from that, the limitation of this study is that it involves only the use of two case studies of IKEA. Finally, this study also opens possibilities for additional research to be carried out to further explain the KM approaches which can be taken in order to achieve and sustain competitive advantages in the retail industry. Besides, an exciting direction that this research leads to would be to apply the components from Michael Zack’s framework. This will allow to obtain a comprehensive understanding of the KM approaches which can be taken as a strategic tool to achieve competitive advantage in different industries.
(Total word count excluding citations, tables, and figures: 2,767 words)