“Knowledge is power,” so the classic adage goes. According to the knowledge-based view (KBV) of strategic management, knowledge (otherwise known as intellectual capital) is also the most important resource in determining why some businesses outperform others. New research co-authored by Russell Crook, First Horizon Foundation Distinguished Professor, head of the Department of Management and Entrepreneurship and Cheryl Massingale Business Faculty Scholar at the University of Tennessee, Knoxville, Haslam College of Business, provides fresh evidence to back this claim.
The Power of Intellectual Capital
The KBV has long held that intellectual capital is a key driver of sustainable competitive advantage and overall organizational performance. Knowledge-based resources such as learning systems, general industry experience and experience in performing specialized tasks can help firms improve efficiency, cultivate innovation and reduce costs.
In their paper, Crook and co-authors Donald D. Bergh (University of Denver), Laura D’Oria (Iowa State University) and Ashley Roccapriore (Ph.D., ‘23) (Auburn University) assert that knowledge-based resources are positively associated with three crucial dimensions of firm success: stock market, financial performance and growth. The researchers’ findings support the KBV’s core prediction that knowledge-based resources are a strong — if not the strongest — determinant of a company’s success.
Combining evidence from 348 samples reporting more than 248,000 firm-level observations, the study compares knowledge resources to other types of resource investments: tangible resources such as property and equipment, intangible resources such as firm reputation and relational resources such as alliances. The research team finds that, relative to the other resource categories, knowledge-based resources have the highest positive association with the profit, stock market and growth returns.
From Research to Actionable Management Strategies
The research from Crook and his co-authors has practical implications for managers seeking to reap the benefits of strong and consistent firm performance. By understanding the superior value that knowledge-based resources offer, company leaders can plan their resource investment strategies accordingly.
“To acquire, integrate, retain and motivate knowledge-related resources, managers should hire star performers and bring in new talent, and retain and motivate them via effective compensation and other high-performance work practices,” Crook says.
Such tactics pay off in more ways than one, the researchers say. Not only does intellectual capital provide intrinsic benefits on its own, but it also can serve as an underpinning to bolster other strategic resources.
“As the field of strategy continues to build a ‘wall’ of understanding, knowledge resources appear to be both foundational bricks as well as the glue that binds other strategic resources together to help explain why firms have differences in their performance,” the study concludes.
The paper, “Is Knowledge Really the Most Important Strategic Resource? A Meta-Analytic Review,” was published in the Strategic Management Journal.
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