Impact of Knowledge Management Practices (KMPs) on Competitive Advantage in Pharmaceutical Firms

It has been noted that knowledge management (KM) is becoming the basic building block of organization. Organizations are realizing that KM is a valuable instrument in improving performance. Liang et. al. (2007) stated that managers implement KM programs to gain advantage, increase productivity, and remain competitive. Within this context, an organization's ability to effectively implement knowledge-based activities becomes increasingly important for the development and sustenance of a competitive advantage (De Carolis, 2003, Grant, 1996). A firm can develop a competitive advantage through either becoming a cost leader or by using differentiation (Porter 1985). The later is the focus of this study. Once a company possesses such sources and knows how to transfer them into a competitive advantage it can reasonably expect to be successful. While a cost leadership advantage is gained by performing most activities at a lower cost than competitors while still managing to offer a parity product, differentiation advantage is built by performing value-adding activities that lead to perceived superiority along dimensions that are valued by customers (Day/Wensley 1988). Differentiation advantage can further take many sub-forms, among which a superior product/service, the totality of supply, speed (fast delivery), flexibility and the positive image of a company (Kotha/Vadlamani 1995; Sashi/Stern 1995; Helms/Ettkin 2000) are most often mentioned in the literature. This study aimed to examine the relationship between knowledge management practices and a firm's differentiation strategy. Using questionnaire survey of 16 pharmaceutical companies the study collected a total of 121 useable questionnaires. Multiple regression analysis was used to examine the impact of KMPs on competitive advantage in these firms. The study found that communication to share knowledge has a positive relationship with a firm's differentiation strategy. The study also found that policies and strategies of knowledge management have a positive relationship with a form's differentiation strategy. The study also found that firm's size has appositive relationship with a firm's differentiation strategy.