Increasing Return

The phenomenon of increasing return (IR) refers to a virtuous cycle in which the output of a production system increases disproportionally than input does. For example, an already very innovative company can easily get even more innovative than a less innovative one. The more knowledgeable you are about a subject, the easier for you to learn a new knowledge. The four factors driving this phenomenon are (1) standards and network externalities, (2) customer lock-in, (3) large up-front costs, and (4) learning effect.

The importance of knowledge management for a company in pursuing sustainable competitive advantage can at least partly be explained by the concept of IR. Competitive advantage does not happen automatically. It takes commited and conscious effort to build.  The people in Nucor Steel, for example, are not complacent about their success. The social ecology already working within the entire company keeps pushing their standards higher and higher. Partners Healthcare, as another example, would find it easier to build another knowledge work-supporting system once they have had experience building one. IR usually is associated with learning, experience, capability, and skill.