Competitive Advantage Through Knowledge Management

Competitive Advantage Through Knowledge Management

Knowledge Management for Competitive Advantage

Leveraging the Customer Base

Professional services firms (e.g. Consultants, Accounting Firms or Advertising Agencies) generate and sell business solutions to their customers. In doing so, they can leverage the cumulative experience from serving their customer base to either reduce their variable costs or increase the quality of their products/services. In other words, their 3production technology4 exhibitssome form of increasing returns to scale. Growth and globalization coupled with recent advances in information technology, have led many of these firms to introduce sophisticated Knowledge Management (KM) systems in order to create sustainable competitive advantage. In this paper, our goal is to analyze how KM is likely to affect competition among such professional services firms. In particular, first, we would like to understand what type (supply-side versus demand-side) economies of scale are likely to be exploited in KM systems. In the former case, KM2s role is to reduce the operating costs of the firm while in the latter case its role is to create added value to customers by significantly increasing product quality. Second, we would like to analyze the competitive dynamics and market structure that emerge as a result of firms competing with KM systems. Our results shed light on the current literature exploring the appropriate design of KM systems by suggesting that in a competitive setting, when firms2 ability to leverage their customer base is high, KM should lead to quality improvement ratherthan cost reductions.