Strategically Deploying Knowledge Assets to Enhance Firm Performance

Abstract

Many studies are emerging that focus on the relationships between knowledge assets and firm performance. However, despite this effort, there is not a comprehensive understanding of how to strategically manage them. Additionally, these relationships do not account for the real-world changes that have occurred in the firm’s knowledge assets due to the ubiquitous incorporation of AI that has turned property, plant and equipment (PP&E) into a knowledge asset. We fill these gaps by researching relationships between the knowledge assets of R&D, capital expenditures, selling, general and administrative expenses (SG&A) and PP&E to put them to the best use for achieving performance. The effect of knowledge assets on performance has been expanded to seven popular performance measures consisting of the cost of revenue, earnings before interest and taxes, profit, gross profit margin, cash flow, and the times interest earned ratio. The results we get are employed to build a structured graphical search method that uses strategy selection maps for picking a knowledge asset strategy to attain managerial recommendations for the targeted outcomes for enhancing performance. We apply our strategy selection process on the Computer and Data Processing Industry Group for empirically developing practical insights to strategically focus on any of the four knowledge assets, not just R&D or SG&A. We also recommend an industry-by-industry “safe” strategy to minimize the risk of picking a less-effective strategy, while maintaining the broader range of performance measures. Some directions for further research in this area are also provided.

Keywords: Financial PerformanceFirm PerformanceInformation TechnologyResearch and DevelopmentStrategic Decision Making