A company’s capabilities represent its capacity to integrate individual company resources to achieve a desired objective. However, this ability does not emerge overnight. Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a company’s tangible and intangible resources that are based on the development, transmission, and exchange or sharing of information and knowledge as carried out by the company’s employees (its human capital).
A company’s ability to achieve a competitive advantage is thus reflected in its knowledge base and the ability of its human capital to successfully exploit company capabilities. Thus, human capital is of significant value in the company’s ability to develop capabilities and core competencies to achieve strategic competitiveness.
The knowledge possessed by the company’s human capital may be one of the most significant sources of a company’s competitive advantage. This is because it represents everything that the company has learned, and thus everything that it knows about successfully linking or bundling sets of individual resources to develop capabilities as a foundation for developing core competencies and, ultimately, to achieve a competitive advantage.
Establishing and nurturing the skills and abilities of the workforce is of critical importance to a company’s ability. Important not only to establish, but to sustain a competitive advantage by acquiring new knowledge and developing new skills that will both enhance existing capabilities and core competencies, as well as aid in the development of new ones.
Companies are using a variety of methods to nurture the value of their human capital. Infosys and Microsoft believe that their best asset is the “intellectual horsepower” of their employees. To continue the trend, the companies are striving continuously to hire people who are more talented than the current set of employees in hopes of defending and extending the domain of their intellectual property.
Many companies are hiring Chief Learning Officers (CLO) to find ways for the company to acquire, internalize, and share knowledge in competitively relevant ways. Managing knowledge is critical since enterprises view this as their primary source of competitive advantage and believe it should be used in ways that will create value for customers. Before we talk more about knowledge, it would be useful to differentiate between data, information and knowledge. Data are simple facts without interpretation, Information is data that have been processed, manipulated, categorized, or classified in some manner and Knowledge is information interpreted with experience, values, judgment, or intuition.
Knowledge management is the process of cataloguing and distributing the knowledge that resides in the organisational intellect so that its full value is leveraged across multiple activities. Siemens tries to infuse its store of customer knowledge into its manufacturing, development, logistics, and sales systems / processes.
Current research suggests four methods by which knowledge is transferred within a company:
- Socialization: common with apprentice and mentors, this occurs by observation and practice.
- Externalization: this is the process used to convert tacit knowledge into explicit terms, a type of metaphorical model building.
- Combination: this considers knowledge stores in different groups within the company to try to meld the knowledge and distribute it to other groups.
- Internalization: the process by which knowledge generated by the other three methods gets embedded into the employees of the company newly internalized knowledge becomes a base upon which the cycle of knowledge creation, transfer, and embedding repeats itself.
Apart from knowledge, companies also have functional area capabilities that have been nurtured and are now considered as core competencies. As a result, these core competencies provide the foundation for the company’s competitive advantage.
