Journal of Knowledge Management Practice, October 2003

How To Make Knowledge Management A Firm’s Core Capability

Abdelkader Daghfous, American University of Sharjah


If knowledge and its management are so important a determinant of firm performance and competitiveness, then making knowledge management a firm’s core capability is likely to give that firm a sustainable competitive advantage. This paper uses the capabilities approach to guide those aspects of general management that materially affect the creation of distinctive and difficult-to-imitate advantages. The framework proposed in this paper extends beyond isolated KM interventions, activities, and physical systems and proposes an integrative approach to KM. Although core capabilities are firm specific and developed over time, a framework that guides general managers in turning KM into a core capability is proposed. The framework is extensively based on Leonard-Barton’s (1995) four dimensions of a core capability and Davenport and Prusak’s (1998) comprehensive overview of KM.      

1.         Introduction

Companies are in an unending struggle to differentiate themselves from relentless competitors. As markets become saturated with innovative and ever more customized products, the uniqueness of the way these products are produced becomes an important differentiator. This differentiator is referred to as a “core capability” that takes a very long time to imitate successfully (Clarke & Rollo, 2001), because they are developed gradually through human exchange and dedicated investments in continuous learning. Hence, they grant the company a sustainable competitive advantage.

Core capabilities are not stagnant over time. A company needs to adjust or change its core capabilities in response to changing environments and market conditions. Meanwhile, literature shows a strong link between knowledge management and the creation of a sustainable competitive advantage, because of the tacit nature of an organization’s knowledge (e.g., see Gupta & McDaniel, 2002). Since knowledge management is concerned with building the necessary technological and organizational infrastructures required to fully facilitate the input of human response, decision-making, and experience sharing, one wonders why has there been so little literature about making KM itself a core capability.

Companies have been trying to differentiate themselves based on unique production processes, rare and distinct skills, creativity, and now on management initiatives such as Supply Chain Management, Customer Relationship Management, and Total Quality Management. In this race for core capability building, recent research point to KM as an effective way to support a company’s core capability (Gold, Malhotra & Segars, 2001). However, very few studies have focused on how companies can compete primarily on KM prowess. Based on Leonard-Barton’s (1995) four dimensions of core capabilities, this paper investigates the path companies could follow to implement KM as a core capability and, subsequently, a source of sustainable competitive advantage. The first section presents the four dimensions of core capabilities. The second section identifies the various benefits, implementation barriers, processes, and infrastructures required for successful implementation of knowledge management. The third section proposes a framework of turning KM into a firm’s core capability, rather than a mere improvement initiative. The last section outline what companies should have, know, and do to make knowledge management a core capability.

2.         Theoretical Background

2.1       Core Capabilities Defined

One of the basic propositions of the resource-based view of the firm is that firms differ as to their resource endowments (e.g. see Wernerfelt, 1984; Barney, 1991). Core capabilities are unique resources and constitute a high barrier to imitation, resulting in sustained superior performance and competitive advantage (Schoemaker, 1992; Rumelt, 1987). Core capabilities refer to the organizational resources, processes, or abilities that make a company different from competitors and achieve market success. However, not every skill or ability can be turned into a core capability. Consequently, a distinction needs to be drawn between a core capability and the two other kinds of capabilities that are not sufficiently strategic in nature to provide a sustainable competitive advantage (Leonard-Barton, 1995). Supplemental capabilities are those that add value to core capabilities that in turn gives a company its competitive edge. Rivals can easily imitate them. Examples include distribution channels and powerful packaging design skills. In contrast, enabling capabilities not only add value, but also are necessary to competitively distinguish a company. A clear example is World-class quality in manufacturing. It has become a necessity for entering the game, but not the road to superiority.

2.2       The Four Dimensions of a Core of Capability

2.2.1        Skills and Knowledge

Skills and Knowledge refer to both, the techniques specific to the firm as well as the scientific understanding. These skills can be public, industry-specific, or firm-specific. While public skills can be obtained from journals and public sources and industry specific skills can be obtained from consultants, firm-specific skills are generally tacit, hence less codifiable and imitated by competitors. These skills are specific to the firm and people who own them.

2.2.2        Physical Systems

Physical systems are systems that a company builds over time, such as databases, machinery, and software programs, where skills and knowledge are embedded. Tiwana (2002) refers to such physical systems, skills, and knowledge as dynamic knowledge reservoirs.

2.2.3        Managerial Systems

Managerial systems are defined as the organized routines that guide resource accumulation and deployment such as systems of innovation, rewards, and improvement (Leonard-Barton, 1995). These systems may facilitate or set barriers to activities undesired by management.

2.2.4        Values and Norms

Patterns of behavior and passionate beliefs define the level of acceptance of new initiatives and techniques, hence acting as screening mechanisms that filter out anything foreign to the existing culture (Davenport, Delong & Beers, 1998). Values and norms usually stem from the basic assumptions about human nature and personal values of the founders of the company (Leonard-Barton, 1995).

2.3.      Overview of Knowledge Management

2.3.1        Some Definitions

Knowledge is a complex and fluid concept. It can be either explicit or tacit in nature. Explicit knowledge can be easily articulated and transferred to others. In contrast, tacit knowledge, which is personal knowledge residing in individual’s heads, is very difficult to articulate, codify, and communicate (Gupta & McDaniel, 2002). Hence, it is equally difficult to imitate. Although KM has achieved a level of popularity among many firms worldwide, it has no unique or standardized definition. For the purpose of this paper, we view KM as a combination of processes that control and manage the creation, codification, dissemination, and leveraging of knowledge in organizations. A key objective of KM is to ensure that the right knowledge is available with the right person at the right time in a manner that enables timely decision-making (Hariharan, 2002).

2.3.2        Infrastructure Requirements

Organizational infrastructure comprises of corporate culture and values, high quality HR Department, organizational politics and employee skills. While, corporate culture and values guide channels of knowledge flow and define access privileges to knowledge (Sbarcea, 1998), KM driven human resource practices ensure that the recruitment process serves KM objectives such as enabling and encouraging knowledge sharing (Leonard-Barton, 1995). Politics are a major component of KM Organizational infrastructure, since they define whether status and power are with or against knowledge sharing. Employee skills and prior knowledge can also be considered as a key component of this infrastructure, given that there has to be minimum knowledge about KM before the initiative can be undertaken (Birkinshaw, 2001).  In comparison, IT infrastructure supports the process of codifying and storing knowledge, creation of knowledge maps (or corporate directories), sharing of best practices, and support for knowledge networks (Maryam & Leinder, 2001). A company considering KM should, at a minimum, have personal computers for all employees, phones, and videoconferencing technologies, combined with ample storage capacity for documents to accommodate knowledge growth (Davenport & Prusak, 1998).

2.3.3        Activities and Processes

The literature is replete with classifications of KM activities and processes. In this study, we limit these to three main activities: knowledge acquisition, knowledge sharing, and knowledge utilization. Acquisition refers to the process of creating insights, skills and relationships, capturing them, and codifying them to make them accessible to users (Collinson, 2001). Knowledge sharing refers to the process of transmitting company knowledge to everyone who needs it (Helmi, 2002). Knowledge utilization refers to the integration of acquired knowledge into the organization, which in turn is dependent on users’ absorptive capacity (e.g., see Cohen & Levinthal, 1990; and Zahra & George, 2002) and the recipient’s willingness to use the transmitted knowledge (e.g., see Pfeffer & Sutton, 2000).

2.3.4        Benefits

Tangible KM benefits, such as reduced cost and new product development, are quite difficult to quantify and impute to KM activities. Ming Yu (2002) found that most organizations seek four main benefits of KM. These benefits are capturing and sharing best practices, providing training or corporate learning, effectively managing customer relationships, and delivering competitive intelligence. Other advantages of successful KM implementation include fewer mistakes, less redundancy, quicker problem solving, better decision making, reduced R&D costs, increased worker independence, enhanced customer relations, and improved service (Fernandes & Usher, 1999).

KM also bring the company closer to the optimum use of employee knowledge in delivering value to customers, enhanced relationships and corporate coherence, and higher employee morale and retention. Indeed, KM also focuses on enabling, empowering, directing, and energizing employees (Wing, 1999).

2.3.5        Implementation Barriers

Many barriers prevent the successful implementation of knowledge management. Over time, knowledge embedded in procedures becomes stagnant, a situation referred to as organizational blindness where people believe that current practices are the best (LaMonica, 2001). Political status is yet another barrier. Corporate culture that encourages knowledge hoarding rather than sharing, and ambiguous reward systems for knowledge sharing, contributes to such a political system (LaMonica, 2001). Other barriers are insufficient communication, lack of time for employee learning and interaction, lack of training, complex technological systems, and unclear pricing systems (Davenport and Prusak, 1998; Ming Yu, 2002).

3.         Knowledge Management As A Core Capability

3.1        General Discussion

Knowledge embedded in products and services has been recognized as a primary source of sustainable competitive advantage (Clarke & Rollo, 2001). Globalization, the growth of networked organizations, as well as the knowledge intensity of new products and services has added to the importance of managing knowledge. Knowledge, then, is becoming the most valuable strategic resource; and a firm’s ability to utilize knowledge to address problems and market opportunities is the most important capability. The more the firm knows about its customers, products, technologies and markets, the better it performs compared to its rivals (Empson, 1999). Therefore, various businesses can implement knowledge management as a core capability for a sustainable competitive advantage. For example, Table 1 below illustrates how KM can generate competitive advantages to businesses in various industries (Clarke & Rollo, 2001).

Type of Business   

Business Depends on

Why KM can be effective as a Core Capability



It would develop creative skills and business networks



It would enhance service quality and customer loyalty, hence profitability.


Complex Activities

It would increase key performance areas throughout the supply chain.


    Table 1. Advantage of KM as a Core Capability in Various Industries

Therefore, instead of developing a certain core capability and then implementing KM as an enabler, companies should devote their efforts to building KM itself as a core capability, which would enable other innovative capabilities. By superposing the literatures and models of KM and core capabilities, it can be shown how KM lends itself to the concept of core capability, and then outline the steps required to develop the KM core capability. 

Knowledge management can be viewed as the systematic management of intellectual capabilities in the organization and its organizational and technological infrastructures. Hence, managing knowledge is a time consuming and a comprehensive process that eventually creates a unique capability of supporting human creativity and the firm’s cycle of innovation embodied in firm’s processes and technologies (Zack, 1999). Consequently, knowledge activities, systems, and technologies establish the capacity to generate, integrate, transfer and import new knowledge. This core capability enables human creativity and management of intellectual assets, resulting in differentiated processes and products (Clarke & Rollo, 2001). Learning that takes place during the implementation of KM adds the element of uniqueness and competitiveness particular to any core capability (Empson, 1999). Learning that happens over time, guarantees that the company is in pace with environmental changes. However, the quality of learning is dependent on firm-specific factors and resources. 

3.2       KM Skills And Knowledge:

Since KM would eventually be integrated into everyone’s job, employees should have a common background about KM (Davenport & Prusak, 1998). Firm-specific skills include knowledge about KM. However, these skills evolve only in the place where they were born and in the minds of people who own them. This implies that, if competitors can imitate products or processes based on articulated explicit knowledge of another company, firm-specific skills and tacit knowledge are not imitable and separable from employees who perform them and their native environment. The imitating company would have to recreate such an environment and acquire all the key employees of the target company to map their expertise (Szulanski, 1996; Sbarcea, 1998).

Keeping these firm-specific skills up-to-date is, then, a critical activity. KM should involve offering continuous formal and informal educational programs for employees to keep the firm-specific skills and knowledge stock from becoming outdated and even counterproductive. On-the-job training is another option. Investment in knowledge workers is a major component of KM through activities such as “vicing”, where employees exchange positions to widen their areas of expertise and discover their own potential (Leonard-Barton, 1995). Equally important, an applicant’s educational background should be considered during the recruiting process. Although a poor indicator of knowledge sellers, educational background is a useful predictor of an employee’s ability to absorb and use the knowledge they receive. The next section sets out the types of skills that must be built to develop the KM core capability:

3.2       Types of KM Skills

3.2.1    Knowledge Management Specialists

In a KM initiative, they occupy the positions of knowledge integrators, librarians, reporters, or editors. They should be trained to extract knowledge from its sources, codify and structure it, and maintain and protect it over time (Davenport & Prusak, 1998). These worker need to develop hard skills such as in knowledge codification, specific industry or domain, and information technology, as well as soft skills such as the sense of the cultural, political, and personal dimensions of knowledge (Gupta & MacDaniel, 2002).

3.2.2    Managers of Knowledge Management Projects

This position requires IT expertise to select among the various technological options available to the company, and soft skills to persuade employees to contribute to KM projects and optimize the use of human and electronic channels of knowledge transfer and knowledge sharing (Probst et al, 1999). Skills in financial analysis, change management, and project management are also very important (Leonard-Barton, 1995).

3.2.3   Chief Knowledge Officer

The CKO is required to possess knowledge about the various business operations, familiarity with the organizational and technological infrastructures, experience in knowledge creation, codification, dissemination, and application, and skill in financial analysis and human resource approaches (Davenport & Prusak, 1998).

3.3       Knowledge Management Physical Systems

Three kinds of physical systems are necessary for KM to be a core capability. These are Capture Tools, Communication Tools, and collaboration Tools. Figure 1 below illustrates how these three tools support the KM activities.











Figure 1. KM Physical Systems that Support KM Activities.

3.3.1        Capture Tools

These tools help in acquiring, codifying and storing structured and explicit knowledge. Examples of such technologies are intelligent databases, note-capture tools, electronic whiteboards, and the associated DBMS. Another set of technological tools that are extremely effective in acquiring knowledge, through importing external knowledge, or generating new knowledge out of existing knowledge, is Intelligence Tools (Tiwana, 2002). Case-Based-Reasoning, for instance, helps search a collection of previous cases and chooses the one closest to the case at hand. Viewing old cases may spark new ideas that can be applied to new cases. Collaborative Filtering generates new ideas and suggestions by drawing analogies between the case at hand and the case in question. Meanwhile, Data Webhouses aggregate data across multiple sources and give decision makers the ability to run complex queries for high quality information (Haag et al, 2000).

3.3.2        Communication Tools

One of the major responsibilities of communication tools is to enable viewing of documents irrespective of their formats, operating systems, or protocols. This is why Intranets, which are platform-independent, are extremely valuable for communicating knowledge in the organization (Tiwana, 2002). Within these intranets or other distributed networks, videoconferencing and multimedia capabilities should be implemented to capture the informal content of messages that could be lost forever or rendered ineffective. Knowledge maps, which are pointers to knowledge sellers, are also essential to establish effective communication. Knowledge maps are directories of knowledge sellers’ backgrounds, contact information, and expertise (Maryam & Leidner, 2001). This illustrates the importance of face-to-face communication necessary for people to trust one another when sharing tacit knowledge (Swoyer, 2000).

3.3.3        Collaboration Tools

Once communication tools have been set, places for actual sharing of knowledge need to be established. Collaboration tools promote knowledge creation and transfer through informal talk and discussions (Tiwana, 2002). For instance, Virtual Meetings, also referred to as web-conferencing, enable people in different locations to meet and share and view multimedia information, screens, files at the same time. Document Collaboration tools allow team members to instantly alter a document they are working on from different workstations. Alterations by any member are reflected in real-time. Informal Communication tools allow users to hear and see other users, in essence allow a real-time chat. Groupware allows users to share access to email, diaries, calendars, and so on. Internal messaging as well as communication with the outside world is also enabled. Reports and anecdotes can instantly be sent and shared by users. With interactive web pages, groupware also has a database environment that allows for version tracking and workflow. Lotus Notes, meanwhile, has the ability to replicate data between workstations and servers to enables remote work that needs to be conducted on the road (Edwards, 1998).

3.4       KM Focused Managerial Systems

KM initiatives and infrastructure development are heavily dependent on carefully designed systems and processes, such as organizational learning, reward systems, effective knowledge markets, and a meritocracy of ideas.

3.4.1        Organizational Learning

A formal mentoring system for new employees and opportunities for continuous education would also send a similar message. However, the recruiting process must emphasize not only existing skills and knowledge but also a positive attitude towards learning (Gold et al, 2001). As firms develop KM as a core capability, they should take into consideration the absorptive capacity of employees. An organization’s absorptive capacity is its ability to recognize the value of new knowledge, combine it, and apply it productively (Cohen & Levinthal, 1990).  This capacity is an important determinant of knowledge transfer. It is a function of competency, which is the ability to evaluate valuable new knowledge and use it, and motivation, which is the drive to do so. If employees are to achieve high performance in KM activities, both ability and motivation should be present.

3.4.2        Reward System

The reward and incentive systems should communicate that company’s commitment to expanding employees skills and knowledge (Davenport et al, 1996). However, competencies and skills alone are useless if the employee is not sufficiently motivated. Therefore, human resource managers should design incentives that reinforce the knowledge-friendly behaviors, such as knowledge codification and sharing. That is, the reward system should reflect and contribute to the dynamics of an efficient knowledge market in the company by including employees contributions to knowledge activities in the performance evaluation criteria (Ming Yu, 2002).

3.4.3        Effective Knowledge Markets

Individuals searching for insights and answers to complex problems can be considered knowledge buyers, while those who are known to possess knowledge, willing to share, and able to articulate that knowledge, are knowledge sellers (Davenport & Prusak, 1998). Firms should make sure that there are employees who make connections between the buyers and sellers, known as knowledge brokers. Knowledge brokers are from different departments and are aware of the diverse sources of knowledge. They should not be undermined or eliminated. Instead, they should be rewarded and appreciated as the primary channel of tacit knowledge transfer.

In order for knowledge buyers, sellers, and brokers to interact, a clear price system should exist in the company. The reward can be either the potential of being paid back in the future in money form or in future favours, reputation and respect, or the pure sense of satisfaction at one’s assistance to others (Soliman & Spooner, 2000). In addition, to be effective, these markets should be carefully built. Marketplaces, formal and informal, should be established such as water coolers, talk rooms, knowledge fairs, and forums, besides information technology based channels (Davenport & Prusak, 1998). A firm’s level of investment in KM reflects its value as a resource and a source of competitive advantage. For instance, placing highly talented employees in KM positions and allocating slack time available to learn and share symbolizes a high commitment to KM (Mullin, 1996).

3.4.4        Establishing a Meritocracy of Ideas

A system of meritocracy of ideas should be established throughout these knowledge markets. Knowledge markets should refelect the networks of knowers, not the chain of command (Mullin, 1996). A firm should realize that knowledge exists at all levels of the organization, hence the importance of empowering those knowers. This would contribute to the company’s ability to generate timely and knowledge-based decisions to address problems and opportunities.

3.5       KM Culture and Values

Values in the company should create a learning environment in which all individuals are commitment to excellence, failures and risk taking are tolerated, and outside ideas are welcomed (Leonard-Barton, 1995). Distributed KM systems, such as knowledge maps, indicate that knowledge belongs to the company as a whole, so that people commit to contributing and using that knowledge to fulfill the company’s objectives (Connelly, 2002). In addition, as in most if not all organizational change initiatives, senior management commitment is vital to KM initiatives (Birkinshawm, 2003). The corporate mission should also emphasize such commitment (Gold et al, 2001).

Based on these values and norms, the political system in the company should also emphasize that power is not a product of knowledge hoarding, but rather a product of knowledge sharing (McDermott, 1999). Moreover, benefits of KM initiatives should be clarified to the employees through opinion leaders, who are respected and imitated by others. These individuals would act as knowledge evangelists.

4.         Conclusions

This study focused mainly on the steps that need to be taken for a company to implement KM as a core capability, with the greatest emphasis on building the four dimensions of core capabilities (Leonard-Barton, 1995). There has been little focus in the literature on how certain activities such as shared problem solving, experimentation, and knowledge acquisition, can contribute to the process of building each dimension of a core capability. This paper has presented a conceptual framework of what companies need to do, in order to implement KM as a firm’s core capability. Table 2 below illustrates, though succinctly, how to summarize and translate the framework into a practical guideline for managers. A similar table could be developed to outline what companies should have, do, and know along each KM activity, strategy, and infrastructure requirement. Such tables would serve guidelines or checklists to senior managers, KM initiators, and even CKOs.

Should Have
Should Do
Should Know


Skills & Knowledge


     Knowledge and skills about KM processes, infrastructures, and principles. 

     Solid educational background and training that enhances its absorptive capacity

      Invest in recruiting individuals with high absorptive capacity and willingness to share knowledge.

      Institute training, job rotation, and learning opportunities.


  Where the knowledge resides

  What skills to promote 

  How to evaluate, recruit, and retain knowledge workers

  Design learning programs


Managerial Systems


     Organizational Infrastructures

     Fluid channels for KM activities

     Appropriate reward system

     Learning systems

      Develop KM driven reward systems.

      Build efficient knowledge markets 

      Create a meritocracy of ideas

      Build mechanisms for knowledge creation

   The barriers and facilitators for each KM activity

  Dynamics of its knowledge markets and price systems

  How to manage KM projects and initiatives



Physical Systems


     Necessary IT infrastructures

     Knowledge map

     Capturing tools

     Communication tools

     Collaboration tools

      Implement the IT tools or acquire new ones

     Build space and places for face-to-face transfer of tacit knowledge

     Train employees to use KM technologies

  How to implement and encourage the use of  KM technologies

   How to select appropriate KM technologies

  Potential barriers to IT implementation



Values & Norms


     A learning environment that encourages knowledge activities, and values knowledge

     Employees who are willing to contribute to and use KM systems

      Tolerate risk taking

      Be open to external ideas

      Show commitment and support to KM initiatives


  How existing values affect knowledge activities

  What should be done to build a KM-friendly culture.  


Table 2. What Companies Need to Have, Do, and Know to Build Each Dimension of KM as a Core Capability.

Once a system is set up to deliver a certain core capability, it becomes very resistant to change. Companies that spend a long period of time doing things in a particular way that proved successful are unlikely to switch. This tendency to resist change is referred to as core rigidity (Leonard-Barton, 1995), or the dark side of core capabilities. Core rigidities are more likely to appear due to external factors such as changing customer needs, technologies and business processes, or social and political climates. Eliminating core rigidities can be a daunting task, since it means a admission on the part of the company that their skills, technologies, or processes have become obsolete. Altering core capabilities in this way may also lead to a loss of power on the part of individuals, who would be expected to be even more resistant to change. For instance, as individuals attempt to solve problems, they tend to select the familiar path to a solution. When it comes to new tools and methods, comfort and success with existing technologies prevents the company from considering new unproven tools. Moreover, experimentation becomes limited to the areas the company is familiar with, rather than looking for new knowledge in new fields to expand the scope of company knowledge.

Although knowledge is critical to the development of new products and processes, it usually comes from outside the company. The company might be trapped in the not-invented-here syndrome, a general bias in favor of existing forms of knowledge. We argue that such rigidities would not occur if KM were the core capability of the company. This is because one of the KM activities is knowledge generation, which includes adaptation (Davenport and Prusak, 1998). A sense of crisis would be instilled to ensure a continuous generation of knowledge. It would also ensure that the most important adaptive resources, namely employees, are readily capable of acquiring new knowledge and skills, and coping in a changing environment.

This study introduced only a theoretical foundation that should be further supported by empirical evidence and case studies. Moreover, no negative aspects of implementing KM as a core capability were explored. The emphasis was on a generic framework of implementing KM as a core capability. However, considering the extent of KM success as a core capability in each business domain, separately needs to be considered. Moreover, measures of success of KM as a core capability as compared to other kinds of core capability such as CRM, SCM, and TQM would strengthen the proposition in this paper. A more important question would be to examine if KM should constitute core capability or would organizational learning be a better core capability, since it is the learning component of KM that constitutes the competitive edge.

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Contact the author:

Abdelkader Daghfous, Ph.D., American University of Sharjah, School of Business and Management, P.O BOX 26666

Sharjah, U.A.E; Tel: (971) 6   515 2335; Fax: (971) 6   558 5065; Email: