Purchasing & Supply Management Knowledge Key to Competitive Advantage William J. Christensen, Ph.D., C.P.M, Director MindFlow Technologies, Plano, TX 75093, 972/930-9988 ext. 119
[email protected] and Laura Birou, Ph.D., Associate Professor St. John’s University, Jamaica, NY 11439, 718/990-6391
[email protected] Abstract. Purchasing and supply management (PSM) knowledge has emerged as an important area of business knowledge. This workshop focuses on how PSM knowledge can create competitive advantage for individuals and organizations. The workshop also explores the major types of PSM knowledge and their relative importance in creating and maintaining competitive advantage. Introduction. Undoubtedly, we all recognize that knowledge plays a significant role in our businesses and our careers. Our bosses certainly think so, given that most CEO’s agree that knowledge management (KM) is, “absolutely critical to the success of my company,” (Havens and Knapp 1999). Knowledge effects us all, not only as the key to organizational competitiveness, but also as our personal key to competing in a world of change. Although the importance of this intangible asset has been recognized for some time, the vision of Ikujiro Nonaka maintains its poignancy in today’s environment. He wrote, “In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge,” (1991, p. 96). As PSM professionals we should be asking how knowledge affects us and what we do. For example, does our profession indeed create and embody a unique and valuable type of business knowledge (i.e., PSM knowledge)? If so, what is PSM knowledge? What kinds of PSM knowledge are most important and why? And, perhaps most importantly, how do we obtain and grow our PSM knowledge? The purpose of this presentation is to provide insight into these issues and answers to these questions. A New Kind of Knowledge. Despite the attention given to KM, it’s interesting that a clear definition of knowledge has been elusive even for epistemologists and there is no definition much clearer than ancient Confucius’, “When you know a thing, to recognize that you know it, and when you do not know a thing, to recognize that you do not know it. That is knowledge,” (Waley 1938, p. 91). Defining knowledge may be problematic, but it is well recognized that different kinds of knowledge exist (Hayek 1945). Indeed, recognition of distinct and important areas of knowledge is important to the advancement of the study of knowledge (Von Krogh and Roos 1995). The branching of knowledge into new areas is a natural result of the explosive growth of knowledge (Lawrence and Lorsch 1967). We don’t expect much argument when we propose there is an important and distinct area of knowledge that we could label knowledge of purchasing and supply management or “PSM knowledge”.
The geometric growth of knowledge was first observed around 1900 by Henry Adams, grandson of President John Quincy Adams (Bell 1973). Moore’s Law is a more recent example of this phenomenon. You may recall that Moore’s Law (named after Gordon Moore, one of the founders of Intel) predicts that microprocessor speeds will double every 18-24 months. Moore’s Law has remained intact from its initial presentation in 1965 to the present. Observation of the growth of knowledge and recognition of its irreversible effects inspired Daniel Bell to write, “…no longer will any child be able to live in the same kind of world – sociologically and intellectually – as their parents and grandparents inhabited,” (1973, p. 170). Tacit versus Explicit Knowledge. There are two major divisions within knowledge, which apply to any kind of knowledge including PSM knowledge. These are tacit knowledge (i.e., know-how) and explicit knowledge (i.e., know-what). Although these divisions of knowledge are not totally independent, their distinction is critical to a useful understanding of PSM knowledge. Explicit knowledge (know-what) can be generally described as knowledge that can be written down (e.g., knowledge contained in books, manuals, procedures, software, and documents). On the other hand, tacit knowledge (know-how) is knowledge in the form of skills, abilities and experience. As a general rule, tacit knowledge cannot be easily transmitted through writing (Grant 1996). Examples of important tacit knowledge include; various know-how or skills, process knowledge, and relationship knowledge. Between tacit knowledge (know-how) and explicit knowledge (know-what), which is more important? The answer can be illustrated in a simple parable. You are scheduled to take an airplane ride and must choose between two pilots. The first pilot has rich explicit knowledge (i.e., he/she has read all the books and taken all the courses), but has no tacit knowledge of flying (i.e., he/she has never actually flown an airplane). The second pilot is just the opposite. He/she has rich tacit knowledge (i.e., he/she has lots of flight experience), but no explicit knowledge (i.e., he/she has never read a book or taken a course on piloting). Which pilot would you choose for your flight? I think most of us would go with the pilot possessing the tacit knowledge (i.e., actual flight experience). Between explicit and tacit knowledge, it is tacit knowledge that is more readily converted into value (Edvinsson and Sullivan 1996). There are a couple of other important lessons from this parable. First, although it is not difficult to have lots of explicit knowledge without having much tacit knowledge, it is difficult to have rich tacit knowledge without having gained some explicit knowledge. For example, surely the pilot with flight experience gained some measure of explicit knowledge simply by virtue of their experience. Second, we can see that the ideal is to have a combination of explicit and tacit knowledge. Nevertheless, between the two, it seems apparent that tacit knowledge is the more valuable. Because tacit knowledge is difficult to codify (i.e., write down), it is also relatively difficult to acquire, imitate, fake or copy. This fact is even more relevant at an organizational level than at an individual level. It’s difficulty to acquire, imitate or fake; combined with its ability to create value makes tacit knowledge the source of opportunity and sustainable competitive advantage.
Spender wrote, “Since the origin of all tangible resources lies outside the firm, it follows that competitive advantage is more likely to arise from the intangible firm-specific knowledge which enables it to add value to the incoming factors of production in a relatively unique manner,” (1996, p. 46). Examples of tacit PSM knowledge which may provide competitive advantage include the skillful use of appropriate technical infrastructures (ERP, APS, eProcurement, Internet-based applications, etc.), skillful integration and coordination of other knowledge specialists, advanced negotiations skills, superior global sourcing abilities, effective management of valueadded relationships with supply partners, and effective leadership of internal sourcing teams. Indeed, from a knowledge perspective, PSM (or SCM) may be defined as, “The effective coordination and integration of specialist knowledge (wherever its source) for the purpose of maximizing the value delivered to the end user.” We not only propose that the future of our profession will be determined by the growth of relevant knowledge, but we also suggest that our success will be determined by our relative ability to obtain and exercise relevant tacit knowledge. Obtaining Tacit PSM Knowledge. Given the potential benefits to organizations and individuals of tacit PSM knowledge, we should be asking how to get this stuff. As already explained, tacit knowledge is relatively difficult to obtain (i.e., learn) as compared to explicit knowledge. Nevertheless, there are some old and some newer methods that work pretty well. These methods include mentoring, role-playing, and simulation. All methods for obtaining tacit knowledge necessarily share the common element of practice. The fact is, we only gain tacit knowledge (know-how) through practice, and practice is called “practice” because it isn’t perfect - mistakes will and must be made. Is it possible to learn to play a musical instrument without once making a mistake? This is a critical point - tacit learning environments require allowing the learner to make mistakes. For this reason, obtaining tacit knowledge of a critical or dangerous nature should employ some kind of simulation (e.g., computer simulators) to avoid the possibility of real damage. For example, pilots don’t learn how to handle engine fires by taking a plane up and lighting the engine on fire; they do it in a flight simulator. Mentoring is another excellent method for practicing and learning tacit knowledge while minimizing real-world risk. Given that most education and training is focused on know-what (including this workshop), there appears to be a great opportunity to better employ tacit learning methods and exploit the power of tacit knowledge to create and maintain individual and organizational competitive advantage. Show vs. Tell. Tacit learning methods all seem to have an element of “show,” whereas explicit learning methods are related to “tell.” It’s interesting that these same elements appear to be at the heart of the difference between leadership (based on “show”) and supervisory dictatorship (based on “tell”). This is not, however, to suggest that our “leaders” are better at leadership or “showing” than are our “supervisors.” Although both “show” and “tell” are necessary and important in the total context of any learning or business environment, leadership and “show” are more related to tacit knowledge and the competitive advantage it engenders.
We also find this comparison useful from a practical perspective. That is, organizations and individuals who tend to transmit knowledge by showing others how to do things are probably more effective leaders and cultivators of tacit knowledge than organizations and individuals who tend to transmit knowledge principally by telling others how to do things (or providing written information only). Summary. In this presentation we have proposed that PSM knowledge is a valid and important type of business knowledge. We have also discussed two important divisions within PSM knowledge, tacit knowledge (know-how) and explicit knowledge (know-what). We have illustrated the relative importance of tacit knowledge in creating and maintaining individual and organizational competitive advantage. Finally, we have suggested methods for obtaining tacit knowledge. BIBLIOGRAPHY Bell, Daniel (1973), The Coming of Post-Industrial Society, New York: Basic Books. Edvinsson, Leif and Patrick Sullivan (1996), "Developing a Model for Managing Intellectual Capital," European Management Journal, 14 (4), 356-64. Grant, Robert M. (1996), "Prospering in Dynamically-Competitive Environments: Organizational Capability as Knowledge Integration," Organization Science, 7 (July-August), 375-88. Havens, Charnell and Ellen Knapp (1999), "Easing Into Knowledge Management," Pricewaterhouse Coopers, http://www.pwcglobal.com/extweb/manissue.nsf/DocID/ 19578D9DB8858A9A85256762004CB610?OpenDocument. Hayek, F.A. (1945), "The Use of Knowledge in Society," American Economic Review, 35 (3), 519-30. Lawrence, Paul R. and Jay W. Lorsch (1967), Organization and Environment: Managing Differentiation and Integration, Boston: Harvard University. Nonaka, Ikujiro (1991), "The Knowledge-Creating Company," Harvard Business Review, 69 (November/December), 96-104. Spender, J.-C. (1996a), "Making Knowledge the Basis of a Dynamic Theory of the Firm," Strategic Management Journal, 17 (Winter Special Issue), 45-62. Von Krogh, Georg and Johan Roos (1995), Organizational Epistemology, New York: St. Martin's Press. Waley, Arthur (1938), The Analects of Confucius, New York, NY: Random House.
