5: Knowledge-Based Theory of the Firm Flashcards
Knowledge and the firm
1 famous prediction
1 example
1 context (symptom?)
“The basic economic resource - the means of production - is no longer capital, nor natural resources, nor labour. It is and will be knowledge.” Peter Drucker
e.g. Boing went from being a plane producer to a systems integrator
from 50’s to 2010’s same-firm inter-year ROIC variance of firms has almost doubled = consistent returns have become more difficult to generate!
Taxonomy of knowledge
in 1+1+1=2x2 types w examples
+ 1 general property of knowledge
+ 1 trend n example
Relevant Data
= basic building blocks for information, e.g. Sales-, industry-, consumer-, and financial data
Relevant Information
= data arranged into meaningful patterns
e.g. sentences, policies models, or tools
Relevant Knowledge = “justified true belief”, i.e. supported by info, which Gives the potential to decide and act Can be: § individual or social § explicit or tacit in nature
+ “You can‘t manage knowledge. Knowledge is between two ears and only between two ears” Drucker
…But you can enable knowledge creation by providing the right context
+ historical trend from tacit to explicit, e.g. in cooking!
3 Core knowledge process to achieve business objectives
- Capturing n Locating existing knowledge
- Sharing = Transferring or exchanging explicit and tacit knowledge
- Creating = Generating new explicit and tacit knowledge by individual or groups
SECI model of knowledge creation (conversion)
essence + 4 phases
It is a spiral, w phases resuming at a higher level!
Socialization: tacit to tacit
Externalization: tacit to explicit
Combination: explicit to explicit
Internalization: explicit to tacit
4 considerations on value, around firms n tacit/explicit knowledge
§ Firms outperform markets and in creating and transferring knowledge
§ The recurrent patterns in creating, transferring, or otherwise “managing” knowledge are referred to as capabilities
§ Technology and knowledge is often costly to replicate
§ The codification of knowledge to make transfer less costly and more speedy, enhances the risk of imitation and spillover
The 3 types of capabilities leading to economic performance,
+ outcome, explained
combinative capabilities
> value
= production happens through combination
development is to find new combinations.
integrative
> cost
= “… production requires the coordinated efforts of individual specialists who possess many different types of knowledge.” Grant
protective
> return appropriation
= The protection of the firm’s knowledge
Several mechanisms are available for knowledge protection, but all are costly to implement
Model of combinative capabilities, in 5 elements
info/knowledge
such as costs, divisional org.;
combinative capabilities <= in- n external learning
organizing or tech. opportunities
market opportunities
What is and is NOT efficient integration
If production requires the integration of specialists’ knowledge, efficiency is achieved by effective integration while minimizing knowledge transfer through cross-learning by organizational members
=> apply different knowledge at every production step, as required
The 5 principles of firm knowledge,
defined
Transferability
§ Explicit knowledge is revealed by its communication, tacit knowledge is revealed through its application. Transfer of tacit knowledge is slow, costly, and uncertain
Aggregation
§ The efficiency with which knowledge can be transferred, depends on its aggregation
Appropriability
§ The ability of the owner of knowledge to receive a return equal to the value created by the knowledge
Specialization
§ Because humans have limited capacity to acquire, store, and process knowledge, efficient production of knowledge requires specialization
Requirements of production
§ Knowledge is the most important input-factor to production
4 Integration mechanisms,
explained
Rules and directives (plans, various names…)
=> regulating communication between experts
Sequencing
=> simplest case: Transformation steps ordered in a time-patterned sequence such that each specialist’s input occur independently through being assigned a separate time slot
Routines
=> patterns of (maybe simple) behavior triggered by small BUT VARYING number of initiating signals or choices, but with complex simultaneous interaction among individuals in the absence of rules, directives, or even verbal communication
Group problem solving and decision making
=> used for a few isolated complex, unusual n highly important transformation steps
How protection capabilities support innovation,
in 4 steps
protection capabilities > building barriers (resource-position, other types) > uniqueness of firm in terms of resource heterogeneity > appropriability of investment returns > incentive to invest into innovation!
The 2 reasons why it is difficult to protect knowledge
§ Property rights in knowledge are narrowly defined under the law
§ Detection of knowledge expropriation, or illegal imitation of knowledge is costly
3 Protective mechanisms for knowledge,
explained
Incentive alignment
= gain-sharing knowledge-based transactions within the firm
Employment
= limit employees’ conduct or mobility; or disaggregate their knowledge
Reordering rewards
= exit costs on employees by pushing incentives into the future (golden handcuffs)