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Research dealing with the nature of knowledge in organisations has to date been predicated on a taxonomy of knowledge properties along two dimensions: the epistemological and the ontological (Tywoniak, 2007). The epistemological dimension distinguishes between two types of knowledge; that is explicit and tacit knowledge (e.g., Nonaka & Takeuchi, 1995; Cowan, David, & Foray, 2000). The ontological dimension places emphasis on the locus of knowledge; that is the analytical level -individual or collective - in which knowledge resides (e.g., Brown & Duguid, 1998; Felin & Hesterly, 2007).
Explicit and Tacit Knowledge
The wider popularity of explicit and tacit Knowledge as concepts within the academic and business world has to a large extent been attributed to Ikuro Nonaka and colleagues' theory of organisational knowledge creation (Nonaka, 1991, 1994; Nonaka & Takeuchi, 1995; Nonaka & Konno, 1998; Nonaka, Toyama, & Nagata, 2000). At the heart of this theory lies the idea that knowledge in organisations is created as a result of a dynamic interaction process, termed knowledge conversion, between explicit and tacit knowledge. The influence of the distinction between explicit and tacit knowledge on KM studies has been extensive. As Tsoukas (2003, p. 412) comments: "it is nearly impossible to find a publication on organisational knowledge and knowledge management that does not make a reference to, or use the term 'tacit knowledge'".
The term 'tacit knowledge' was coined by Polanyi (1966) and refers to his frequently cited quotation "we can know more than we can tell" (Polanyi, 1966, p. 6). The notion of tacitness takes centre stage in Polanyi's integrative philosophy of thought. This, in turn, is underpinned by two core assumptions, according to which reality is personal and knowledge is constructed through tacit integration. Polanyi's theory of knowledge is rooted in Gestalt psychology, a basic premise of which is that perception is determined in the way that is integrated into an overall pattern or Gestalt. As Polanyi (1966, p. 6) states "Gestalt psychology has demonstrated that we may know a physiognomy by integrating our awareness of its particulars without being able to identify these particulars, and my analysis of knowledge is closely linked to this discovery in Gestalt psychology" The 'this' refers to the integration of parts into forming the 'whole' without being aware of the actual parts. Gestalt psychology holds that this integrating process is innate, whereas for Polanyi (1966, p. 6) the 'whole' is "an outcome of an active shaping of experience performed in the pursuit of knowledge". However, the term 'tacit knowledge' has been the biggest "export" from philosophy to the KM field. This is due to Nonaka & Takeuchi's (1995) landmark publication The Knowledge Creating Company, where Polanyi's idea of tacit knowledge is expanded 'in a more practical direction' (Nonaka & Takeuchi, p. 60). The next sub-section explores further the nature of tacit knowledge in relation to explicit knowledge.
Tacit Knowledge in Relation to Explicit Knowledge
Drawing on Polanyi's (1966) interpreting of knowledge, Nonaka & Takeuchi (1995, p. 59) distinguish between tacit and explicit knowledge as follows "Tacit knowledge is personal, context-specific, and therefore hard to formalise and communicate. Explicit knowledge or 'codified' knowledge, on the other hand, refers to knowledge that is transmittable in formal, systematic language".
There have been various attempts to define and classify knowledge along the tacit explicit typology. Nonaka & Takeuchi (1995) equate Polanyi's conception of tacit knowledge with subjective nature, and explicit knowledge with objective nature. They also draw an analogy between tacit knowledge and procedural knowledge, and explicit knowledge and declarative knowledge, based on Anderson's (1976, 1983) cognitive theory. Similarly, Ryle's (1949) distinction between know-how and know-what is employed by Nonaka & Takeuchi (1995) to highlight the contrast between the two types of knowledge. On the one hand, tacit knowledge refers to the processual character of knowledge: "as we are generating new knowledge in action, we are not necessarily attentive to the knowledge for we are attending to the action" (Tywoniak, 2007, p. 61). On the other hand, explicit knowledge refers to the "retrospective unfolding of the knowledge process: once skilful performance has been achieved, it is possible to reflect and theorise about it" (Tywoniak, 2007, p. 62).
A key characteristic of tacit knowledge that distinguishes it from explicit knowledge is argued to be its context-specificity. In this sense, it is "knowledge typically acquired on the job or in the situation where it is used" (Sternberg, 1994, p. 28). For Nonaka, it is "deeply rooted in action and in an individual's commitment to a specific context-a craft or a profession, a particular technology or product market, or the activities of a work group or team". Tacit knowledge, therefore, consists partly of "technical skills - the kind of informal, hard-to-pin down skills captured in the term 'know-how'" (Nonaka, 1991, p. 98).
A Critique of the Tacit/Explicit Dichotomy
The notion of tacit knowledge and its relation to explicit knowledge, as conceptualised in Nonaka and colleagues' theory of knowledge creation, has been subject to scrutiny and criticism (Tsoukas, 1996; Cook & Brown, 1999; Brown & Duguid, 2001; Tsoukas & Vladimirou. 2001; Castillo, 2002; Wilson, 2002; Tsoukas, 2003; Styhre, 2004; Gueldenberg & Helting, 2007). Much of this criticism focuses on the misinterpretation of Polanyi's original notion of tacit knowledge. For example, Tsoukas (2003, p. 412) argues that "popular as the term 'tacit knowledge' may have become in management studies, it has, on the whole, been misunderstood". Indeed, In Polanyi's epistemological account of knowledge a clear-cut distinction between tacit and explicit knowledge is explicitly denied "The ideal of a strictly explicit knowledge is indeed self contradictory; deprived of tacit coefficients (personal to the individual), all spoken words, all formulae, all maps and graphs, are strictly meaningless" (Polanyi, 1969, p. 195).
Polanyi advocates the inextricability rather than the dichotomisation of explicit and tacit knowledge. This is a philosophical position which goes well beyond Platonian and Cartesian dualisms. The subject area of Polanyi's philosophy is associated with the pursuit of knowledge in the context of scientific inquiry. In this context, problem identification and scientific discovery are viewed by Polanyi to be embedded in tacit knowing; therefore, scientific knowledge cannot be objective "The declared aim of modern science is to establish a strictly detached, objective knowledgeâ€¦ [yet if] tacit thought forms an indispensable part of all that knowledge, then the idea of eliminating all personal elements of knowledge would, in effect, aim at the destruction of knowledge" (Polanyi,1966, p. 20).
According to Tsoukas (2003), Nonaka's theory reflects a dualist approach to knowledge since it suggests that explicit knowledge is objective and characteristic of a rational mind, whereas tacit knowledge is subjective and derived from experience. Tsoukas (2003, p. 425) argues that "tacit and explicit knowledge are not the two ends of a continuum but the two sides of the same coin: even the most explicit kind of knowledge is underlain by tacit knowledge". Tsoukas (2003, p. 417) further argues that, according to Polanyi's account of tacit knowing, both tangible things and intangible constructions are "tools enabling a skilled user to get things done" (italics in the original). Tsoukas' critique, while acknowledging the duality of knowledge, rejects the dualism that is inherent in Nonaka's theoretical framework. The difference between dualism and duality is subtle but important for it underlines the inseparableness of knower and knowledge in that the person is an organic constituent of the knowing process. Möllering (2005, p. 205) explains the difference between dualism and duality in concrete terms as follows: "Take the two sides of a coin. The dualism perspective notes that there are two sides to every coin and one of the sides ('head') is different from the other ('tail'); we can describe them separately. The duality perspective now stresses that coins need to have a head side in order to have tail side and vice versa; when referring to head we imply a matching tail (e.g. in diameter, material) and the coin as such gains its meaning and value from head and tail together".
As Polanyi & Prosch (1975, p. 44) assert, "[a]ll knowing is personal knowing - participation through indwelling" (italics in the original). Therefore can be argued that Polanyi's (1966, p. 4) heavily quoted line "we can know more than we can tell" should not, therefore, be reduced to a simplistic divide between explicit and tacit knowledge as perfectly substitutable elements, nor should it be translated into the erroneous view of tacit knowledge as a tradable commodity that "needs to be converted into explicit form to circulate" (Brown & Duguid, 2001, p. 204). For Tsoukas (2003), a richer account of knowledge requires a shift away from the mechanistic notion of knowledge conversion towards acknowledging the importance of action or praxis in which knowledge, as conceptualised by Polanyi, manifests itself.
Operationalising Tacit and Explicit Knowledge
The philosophical basis for defining tacit knowledge that was posited by Polanyi is difficult to extend to a working definition. Tacit knowledge, in its pure Polanyian form, is pre-theoretical, inaccessible, inarticulable and, therefore, unmeasurable. Attempts have, however, been made by researchers to define operationally and subsequently measure tacit knowledge (e.g., Zander & Kogut, 1995; Szulanski, 1996; Hansen, 1999, 2002). These attempts have led to the problem of overlap and confusion in terminology. Much of this confusion stems from using the term 'tacit' interchangeably with other terms, and particularly with the term 'implicit' (Cleeremans, 1997).
Some theorists suggested that the implicit knowledge is subset of tacit knowledge, which can be articulated and, as a consequence, communicated and transformed into explicit knowledge (Sternberg et al., 2000; Wilson, 2002; Arena, Lazaric, & Lorenz, 2006). According to Wilson (2002), while implicit knowledge refers to something that a person knows but does not want to express, tacit knowledge is what a person knows but cannot express. Wilson, (2002) further argues that implicit knowledge is that which is taken for granted in human action, and which may be shared through common experience or culture. Although such knowledge may be difficult to be written down or codified, it may be capable of being communicated by people living and interacting with each other in the social environment.
Arena et al., (2006) distinguish between 'tacit', 'articulable', 'articulated' and 'codified' knowledge. According to this distinction, part of the tacit knowledge of a person is articulable when it can be made explicit by means of language. In the same vein, articulated knowledge is knowledge that has been rendered explicit through language. Articulated knowledge is, in turn, distinct from codified knowledge since only parts of the knowledge that have been articulated will be encoded on a particular 'hard' medium (e.g., training manual, job description, software) (Zollo & Winter, 2002; Arena et al., 2006).
In the most of the previous empirical research on a knowledge sharing or a knowledge transfer in organisations, the distinction between explicit and tacit knowledge is based on the degree of knowledge codification (Zander & Kogut, 1995; Szulanski, 1996; Hansen, 1999, 2002; Haas & Hansen, 2005; Hansen, Mors & Løvås, 2005). Knowledge codification refers to the extent to which "knowledge is fully documented or expressed in writing at the time of the transfer", consequently, "knowledge with a low level of codification corresponds closely to the concept of tacit knowledge" (Hansen, 1999, p. 87). Non-codified knowledge that is 'mainly personal practical know-how' (Hansen, 1999, 2002) points to a proxy for tacit knowledge. On the other hand, codified knowledge that is knowledge contained in written (paper or electronic) format, which approximates the notion of explicit knowledge.
Individual and Collective Knowledge
A critical issue of the relationship between knowledge and organisation pertains to the analytical level at which knowledge is considered to be the primary source of value creation and sustained competitive advantage. The knowledge movement (Foss, 2007) is characterised by two research streams each of which is informed by a distinct theoretical perspective (i.e., individualist or collectivist) on the locus of knowledge in work organisations (e.g., De Graaf, 1957; Nelson & Winter, 1982; Simon, 1991). "The individualist perspective assumes the locus of knowledge is people who learn, and that knowledge cannot extend beyond the physical limits of human beings. The collectivist perspective assumes the locus of knowledge is collective. Collective entities accumulate knowledge through forms of social learning." (Krogh, 2009, p. 119). Table 2 shows quotes of some of organisational scholars, which illustrate the discrepancy between the two perspectives on the locus of knowledge.
Table 2 perspectives on the locus of knowledge
"The firm is in no sense a 'natural unit'. Only the individual members of the economy can lay claim to that distinctionâ€¦The ultimate repositories of technological knowledge are the men comprising itâ€¦in itself the firm possesses no knowledge" (De Graaf, 1957, p. 16)
"All organizational learning takes place inside human heads; an organization learns in only two ways: (a) by the learning of its members, or (b) by ingesting new members who have knowledge the organization didn't previously have" (Simon, 1991, P. 125)
"The possession of technical knowledge is an attribute of the firm as a whole, as an organized entity, and is not reducible to what any single individual knows, or even to any simple aggregation of competencies and capabilities of all the various individuals, equipments and installations of the firm" (Nelson &Winter, 1982, p. 63)
"Firms exist because they provide a social community of voluntaristic action structured by organizing principles that are not reducible to individuals" (Kogut &Zander, 1992, p. 384)
Felin & Hesterly (2007) build on Kaplan's (1964) definition of the 'locus problem' in order to contrast the philosophical assumptions underlying the individualist and collectivist perspectives on knowledge in organisations: "We roughly concur with Kaplan's [1964, p. 78] definition of the locus problem and apply this question to knowledge-based work: "The locus problem may be described as that of selecting the ultimate subject-matter for inquiry in behavioral science, the attribute space for its description, and the conceptual structure within which hypotheses about it are to be formulated"" (Felin & Hesterly, 2007, p. 195). The philosophical assumptions underlying individualist and collectivist perspectives on knowledge have received little attention in the organisation and management studies (Felin & Hesterly, 2007). However, Rosenberg (1995, p. 4) asserts that "being clear about a discipline's philosophy is essential because at the frontiers of disciplines, it is the philosophy of science that guides inquiry". Felin & Hesterly (2007, p. 195) emphasise that the theoretical and practical implications of the debate between an individualist and collectivist locus of knowledge "are far from pedantic" for enriching understanding of how knowledge contributes to new value creation in organisations. Table 3 offers a comparison between the two perspectives.
Table 3 Dimensions of Individual and Collective Knowledge Ideal Types
Individual Ideal Type
Collective Ideal Type
Locus of knowledge
Methodological tradition or epistemology
Micro-micro, micro-macro; upward causation
Macro-macro, macro-micro; downward
Explanansor independent variables
Social facts (e.g., community, collective, routines, culture, environment, organisingprinciples, capabilities, etc.)
Reducible to individuals, i.e. whole is the sum of parts; only individuals are "real"
Not reducible to individuals, i.e. whole is greater than sum of parts or independent whole
Mereology-i.e., part-whole or individual-collective level relationship
Resultant whole (supervenience)
Emergent whole (multiple realizability)
Level of analysis assumptions
Individual heterogeneity, independence from higher-level interaction
Individual homogeneity, higher-level collective heterogeneity (e.g., firm,
Theory of knowledge
Source of knowledge
A priori or innate
Nurture, blank slate
Key variables and mechanisms
Individual mobility, personnel selection, appropriation, incentives, HR practices, self -selection
Routines, competencies, capability,
process, culture, community
Source: Felin & Hesterly (2007, p. 198)
Collective Knowledge Ideal Type
Building on the Durkheimian sociological tradition, a view of knowledge through the lens of the collective ideal type suggests that social phenomena should be treated as social facts extraneous to the individual. As Durkheim (1952, p. 39) says "Sociological method as we practice it rests wholly on the basic principle that social facts must be studied as things, that is, as realities external to the individual. There is no principle for which we have received more criticism; but none is more fundamental".
Durkheim (1952) postulates that social facts determine not only collective phenomena (i.e., macro-macro causation) but also individual human behaviour and action (i.e., macro-micro causation). By placing emphasis on external social factors "which act from "outside" the individual actor, regardless of his intentions', Durkheim concludes that an intentional act "is the outcome of social causes, as these operate in particular individuals" (Giddens, 1986, p. 118). Under the methodological tradition of collectivism, causal explanations are, thus, made in a downward fashion since it is assumed that human behaviour and action are an a priori function of collective-level variables including routines, norms, structures, and organising principles. The explanatory rationale of methodological collectivism for linking micro and macro constituents of social systems in general and work organisations in particular is shown in Figure 1.
Figure 1 Causal Directionality in Methodological Collectivism
A number of organisational scholars have placed emphasis on the role of "supraindividual structures" (Felin & Hesterly, 2007, p. 200) in which knowledge resides. For example, Levitt & March (1988, p. 320) claim that organisational routines are "independent of the individual actors who execute them". Similarly, Kogut & Zander (1992, p. 383) argue that the knowledge of the firm cannot be reduced to its members since "then firms could change simply by employee turnover", instead, according to the authors, "an analysis of what firms can do must understand knowledge as embedded in the organizing principles" (p. 383). Furthermore, research on communities of practice (CoPs) views the collective as the enabling structure for achieving knowledge outcomes (Brown & Duguid, 1991, 2001). For example, while Brown & Duguid's (2001, p. 210) social-practice perspective on knowledge "is in no way a dismissal of the individual" (p. 210), it nevertheless suggests that CoP is "ubiquitous sources of knowledge driving organizational change" (Brown & Duguid, 2001, p. 208). Taken together, a shared assumption within the collectivistic stream of the knowledge movement is that of individual homogeneity. By specifying the collective (e.g., organisation, business unit, community of practice) as the level of analysis at which most knowledge heterogeneity is assumed to occur, collectivist scholars automatically attribute homogeneity to lower levels (Klein, Dansereau, & Hall, 1994). In this sense, they posit that firm-level attributes, such as routines and dynamic capabilities, rather than individual differences, account for performance heterogeneity (Felin & Hesterly, 2007).
When collectivists make assumptions about the level of analysis they also reveal, explicitly or implicitly, their views on human nature. In The Rules of Sociological Method, Durkheim (1962, p. 106) takes a clear stance on human nature by stating that "individual natures are merely the indeterminate material that the social factor molds and transforms". Durkheim's view is shared by collectivist organisation scholars who place emphasis on "heterogeneous collective process, social construction, situation and experience" (Felin & Hesterly, 2007, p. 202). For example, Spender (1996, p. 53) argues that "organizations learn and have knowledge only to the extent that their members are malleable beings whose sense of self is influenced by the organization's evolving social identity". Under the collective ideal type, human nature is conceived as a "blank slate, which heterogeneous social facts (such as culture, social context, and environment) shape and determine" (Felin & Hesterly, 2007, pp. 201-202).
Individual Knowledge Ideal Type
A view of knowledge through the lens of the individual ideal type suggests that social phenomena are inadequately explained when the focus of inquiry is placed on collectives rather than individuals as the basic unit of analysis. In Conjectures and
Refutations, Popper (2002 : 459) argues" The belief in the empirical existence of social wholes or collectives, which may be described as naÃ¯ve collectivism, has to be replaced by the demand that social phenomena, including collectives, should be analyzed in terms of individuals and their actions (italics in the original)."
Methodological individualists object to the existence of the metaphysical and argue that only individuals exist in any real sense and, therefore, 'should provide the basis for all collective explanation' (Rosenberg, 1995: 159). In contrast to methodological collectivism, they assert that collectives are understood by the actions of their individual members. Explanations of social phenomena are, therefore, drawn from individual-level variables following a micro-macro or upward causation (Felin & Hesterly, 2007). The explanatory rationale of methodological individualism for linking micro and macro constituents of social systems in general and work organisations in particular is illustrated in Figure 2.2.
Methodological individualism is based on the notion of supervenience. This is defined as 'higher-level dependence or determination on lower-level properties or facts' (ibid: 200). The notion of supervenience is reflected in Simon's (1991: 125) view that the organisation learns 'by the learning of its members'. In a similar vein, Grant (1996) argues that the effectiveness of knowledge processes and outcomes in organizations depends primarily on the individual employee. He further posits that emphasis should be placed upon the 'role of the individual as the primary actor in knowledge creation and the principal repository of knowledge' (ibid: 121).
The notion of supervenience challenges the underlying assumption of methodological collectivism regarding what Popper (1968: 60) calls 'initial conditions'. According to Popper (1968: 59), the causal explanation of an event 'means to deduce the statement which describes it, using as premises of the deduction one or more universal laws, together with certain singular statements, the initial conditions'. For organizational individualists, the initial conditions reflect and, hence, should focus on, a priori individual differences. In contrast, those differences are largely overlooked by collectivists who view organisational environments as 'strong situations' (Davis-Blake & Pfeffer, 1989) or emergent, collective environments (Nelson & Winter, 1982). However, Felin & Hesterly (2007: 204) argue emphatically that 'the initial conditions or a priori propensities of individuals within an organization of course have fundamental implications for performance heterogeneity and new value creation'.
Methodological individualism challenges the externalist and environmentally determined learning tradition which underpins collective-orientated approaches to the knowledge of the firm such as the notion of collective mind (Weick & Roberts, 1993), collective identity (Kogut & Zander, 1996), distributed knowledge system (Tsoukas, 1996), and CoP (Brown & Duguid, 2001). Felin & Hesterly (2007: 202) note that the above approaches have to a large extent been influenced by the work of externalist psychologists and philosophers, who argue 'that cognitive abilities and knowledge in general are context dependent and environmentally determined'. The collectivist learning tradition has been also criticised by the Chomskyan cognitive revolution in linguistics which shows empirically that 'external environmental input and socialization play only a minimal triggering role in language acquisition' (ibid.). According to Chomsky's '"I"- language' concept, 'human beings have a genetically determined "initial state", competence, or endowment, which is individual, intentional and internal' (ibid.).
Properties of Knowledge as Interrelated Dimensions
There are a number of frameworks which treat the epistemological and ontological properties of knowledge as interrelated dimensions with the aim of helping to understand the types of knowledge pertinent to processes of knowledge creation, transfer and utilisation in work organisations. Two salient frameworks are outlined below: Spender's (1996) fourfold framework and Blackler's (1995) fivefold framework.
In Spender's (1996) theoretical framework, the epistemological and ontological dimensions of knowledge give rise to four types of knowledge: conscious knowledge (individual-explicit), automatic knowledge (individual-implicit), objectified knowledge (social-explicit), and collective knowledge (social-implicit). The four types of knowledge are illustrated in Table 2.4.
According to Spender (1996: 51), the four different types of knowledge represent ideal types since 'every real firm will be a mixture of them all'. The distinction between individual and social knowledge reflects the distinction between the psychological, individual-focused type of knowledge proposed by Polanyi (1966), and the sociological, collective-oriented type of knowledge proposed by Durkheim (1962). In particular, individual knowledge comprises conscious and automatic knowledge. While the former type refers to knowledge that is available to the individual in the form of facts, concepts, and frameworks that can be stored in and retrieved from memory or personal records, the latter type concerns automatic knowledge, which can take the form of either theoretical or practical knowledge that enable the individual to perform a number of skilful activities. Both types of individual knowledge are considered particularly important 'in contexts where the performance of individual employees is crucial, as in specialist craft work' (Nahapiet & Ghoshal, 1998: 247).
Social knowledge comprises objectified and collective knowledge. The former type refers to 'the shared corpus of knowledge - epitomized, for example, by scientific communities, and often regarded as the most advanced form of knowledge' (ibid.). The latter type refers to what Nelson & Winter (1982) name as routines. Empirical evidence on the role of collective knowledge in organisations is found in Weick & Roberts' (1993) study of members of flight operation teams of aircraft carriers in the USA. Spender
(1996: 52) suggests that, from a strategic viewpoint, 'collective knowledge is the most secure and strategically significant kind of knowledge' in the sense that it is hard to be understood and imitated by competitors. Yet, one of the limitations of Spender's (1996) framework appears to be the lack of interaction between individual and social knowledge. The matrix tells little about 'how the firm becomes a context especially favourable to the interaction of knowledge creation and knowledge-application processes' (ibid: 51).
Blackler's (1995) framework identifies five types of knowledge in organisations: embrained, embodied, encoded, embedded, and encultured knowledge. A brief description of the five types of knowledge is provided in Table 2.5.
The types of knowledge identified in Blackler's (1995) framework share similarities with Spender's (1996) framework as well as Nonaka & Takeuchi's (1995) distinction between explicit and tacit knowledge. For example, embrained knowledge equates with the notion of tacit knowledge and encoded knowledge with explicit knowledge. Encultured knowledge is similar to Spender's collective (social/implicit) knowledge. On the other hand, embedded knowledge can be either tacit or explicit knowledge since 'routines may be formal articulated policy and procedures or informal routines that are tacitly known by everyone in the firm' (Newell et al., 2002: 6). The distinguishable characteristic of Blackler's (1996) framework is, though, that it links different types of knowledge with different types of organisations. In particular, Blackler (1995) develops a two-by-two matrix in which four types of organisations are identified according to their relative dependence on embodied, embedded, embrained, and encultured knowledge.
The four types of organisations are further distinguished by (i) their emphasis on collective endeavour versus contribution of key individuals, and (ii) their focus on routine versus novel problems. The two-by-two matrix is illustrated in Figure 2.3. The arrows in Figure 2.3 indicate 'that a shift is occurring away from dependence on the embodied and embedded knowledge towards embrained and encultured knowledge' (Blackler, 1995: 1029). In summary, Blackler's (1995) framework is useful for it highlights that 'the type of knowledge that dominates within the firm should to some extent influence the way in which knowledge is managed in the firm' (Newell et al., 2002: 6-7).
II. KNOWLEDGE AND THE THEORY OF THE FIRM
While a great deal of research on strategy and organisation is inductive and empirical, an alternative and complementary approach is deductive and starts with a theoretical inquiry into why firms exist and what they do that could not be done otherwise. Grant (1996: 110) notes that 'the foundation of any theory of the firm is a set of initial premises which form the basis for the logical development of propositions concerning the structure, behavior, performance and, indeed the very existence of firms'. Seth & Thomas (1994) state that the theory of the firm provides a way of conceptualising the business organisation and helps address questions which are central to research in strategy and organisation design. Likewise, according to Tsoukas (1996: 11), there are two key questions scholars have traditionally addressed in their studies of organisations, each of which corresponds to strategy and organisation design respectively. The first question concerns the direction in which a firm should channel its activities, while the second question focuses on identifying the ways through which a firm be organised. It is generally expected that the answers to these questions will vary depending on the theoretical perspectives and epistemological assumptions on which those perspectives are informed.
This section provides an overview of knowledge approaches to organisation theory. The aim is to highlight how these approaches have changed understanding of the theory of the firm, and to identify their relative strengths and weaknesses. The first subsection outlines how the firm is viewed from an economics perspective, and particularly from a transaction cost economics (TCE) view (e.g., Williamson, 1975), the influence of which has been pervasive in a wide range of the organisation and management theory.
The second sub-section focuses on a key theoretical precursor of the knowledgebased view of the firm, namely the resource-based view. The third sub-section shifts attention to the notion of intellectual capital, while the fourth sub-section describes the firm as a knowledge-distributed system. The final two sub-sections are informed by a communitarian view of the firm. The notion of CoP is first outlined, followed by a more recent theoretical advancement in organisation design, in which the firm is construed as a collaborative community.
The Resource-based View of the Firm
The knowledge-based view of the firm can be seen as a natural evolution of the resource-based approach (e.g., Wernerfelt, 1984; Barney, 1991; Conner, 1991) which, in turn, is grounded in Penrose's (1959) theory of the growth of the firm. According to the resource-based approach, competitive advantage is contingent upon the extent to which the firm possesses bundles of valuable, rare, imperfectly imitable, and imperfectly substitutable resources including physical assets, human resources, and organisational processes (Barney, 1991).
While recognising the important role of knowledge and its transferability within the firm as a critical determinant of the firm's capacity to gain competitive advantage, the resource-based approach does not distinguish between types of knowledge, but instead it treats knowledge largely as a generic resource. The resource-based approach has also received criticism on other grounds. Accordingly, the resource based approach seems to adopt an all-encompassing definition of resources without, however, examining how resources are obtained or interact with each other towards contributing to the firm's competitive advantage (Priem & Butler, 2001). Teece, Pisano, & Shuen (1997: 516) propose an alternative to the resource-based approach according to which the firm's competitive advantage is dependent upon its dynamic capabilities.
These are defined as 'the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments'. Eisenhardt & Martin (2000: 1107) extend the concept of dynamic capabilities by considering 'the organizational and strategic routines by which firms achieve new resource configurations'. Spender (1994) has expressed the view that the resource-based approach may be too narrow in its scope by concentrating on the protection of key resources, and by overlooking though how those resources are coordinated, integrated, and applied. As Grant (2002) notes, coordination and integration become particularly salient when one considers knowledge as the most important asset that the firm possesses. Spender (1996: 59) further argues that 'a knowledge-based theory of the firm can yield insights beyond the production-function and resource-based theories of the firm'.
The Firm as a Distributed Knowledge System
Nahapiet & Ghoshal's (1998) theoretical model of intellectual capital builds upon Spender's (1996) four-fold classification of organisational knowledge. However,
Spender (1996) acknowledges the limitations of his proposed matrix to be the lack of interaction between individual and social knowledge.
In relation to this, Tsoukas' (1996: 22-23) view of the firm as a distributed knowledge system provides some hints worth of further theoretical development and empirical investigation" Given the distributed character of organizational knowledge, the key to achieving coordinated action does not so much depend on those 'higher up' collecting more and more knowledge, as on those 'lower down' finding more and more ways of getting connected and interrelating the knowledge each one has. A necessary condition for this to happen is to appreciate the character of a firm as a discursive practice: a form of life, a community, in which individuals come to share an unarticulated background of common understandings."
Tsoukas' (1996) argument shifts attention to the important issue of organisation design or, in other words, to the question posed in the beginning of this section on how a firm should be organized (ibid: 11). Clearly, Tsoukas (1996) points to the inability of hierarchical structures to deal efficiently with the coordination of knowledge processes as the knowledge of the firm is asymmetrically dispersed across its members. Hierarchical structures cannot exercise control over individuals' predispositions 'within particular interactive situations, whose features cannot be fully known ex ante, but are actively shaped by practitioners as they confront local circumstances' (ibid: 22). Likewise, Grant (1996) argues that a view of the firm as a knowledge integrating institution is incompatible with organisational modes built on bureaucratic control. In brief, a view of the firm as a distributed knowledge system calls into question the effectiveness of hierarchical structures for integrating the knowledge of its members through rules and directives: 'When managers know only a fraction of what their subordinates know [â€¦] then coordination by hierarchy is inefficient' (ibid: 118). If markets and hierarchies appear to be inefficient modes of social organising within a knowledge-intensive context, what, if any, are the alternatives?
Communities of Practice
The CoP approach shifts attention to the role of knowledge as social practice in an attempt to understand the intricacies of work and its role in engendering knowledgerelated outcomes, and subsequently, the learning and innovative capability of the firm.
Drawing on Orr's (1987, 1990) ethnographic studies of service technicians, Brown & Duguid (1991) distinguish between canonical (i.e., espoused) and non-canonical (i.e., actual) practice to highlight the respective gulf between 'if, then' rules and daily practice. They describe three central aspects of (non-canonical) practice, namely narration, collaboration, and social construction, which 'have no place in the organization's abstracted, canonical accounts of work' (Brown & Duguid, 1991: 44).
These aspects, in turn, feature prominently in their conceptualisation of work organisations as 'communities-of-communities' of practice (ibid: 53). In a later work on the role of CoP in knowledge transfer and organisational learning, Brown & Duguid (2001: 203) define practice as 'undertaking or engaging fully in a task, job or profession' (italics added). The precepts-practice gulf re-appears here, but this time the parallel is drawn in relation to Ryle's (1949) distinction between know-what and knowhow, and Polanyi's (1966) distinction between explicit and tacit knowledge respectively (ibid: 204). Essentially, for Brown & Duguid (2001: 204-205) CoP is the social catalyst for the transfer and sharing of both tacit and explicit knowledge" It seems reasonable to argue that if people share a practice, then they will share know how, or tacit knowledge. So, as communities of practice are defined by their communal practice, they are likely to have communal know how developed from that practice. If shared know how or tacit knowledge make it possible to share know that or explicit knowledge effectively, then such communities, sharing common embedded circumstances, will also be effective at circulating explicit knowledge (italics in the original)."
Brown & Duguid (2001) base their argument on ethnographic studies of occupational communities, including technicians and service representatives (e.g., Barley, 1996; Orr, 1996) academic communities (e.g., Strauss, 1984) as well as scientific groups (e.g., Knorr Cetina, 1999). Cumulatively, these studies indicate that members of 'networks of practice' (Brown & Duguid, 2001: 205) can share knowledge, including know-that, 'because of their common base of tacit knowledge, or know how' (ibid.). This echoes Ryle's (1949) view of the 'retrospective unfolding of the knowledge process: once skilful performance has been achieved, it is possible to reflect and theorize about it' (Tywoniak, 2007: 62). While philosophically this reflection is possible and even necessary, empirical evidence drawn from cognitive psychology indicates the considerable difficulties involved in individuals' efforts to articulate clearly their know that (e.g., Bedard & Graham, 1994; Nisbett & Wilson, 1977). Brown & Duguid's 'social-practice' perspective is rigorous and sophisticated. It sheds valuable light into the inextricable links between knowledge and practice by explicating the importance of intra- and inter-communal dynamics for explaining how coordination and collaboration may simultaneously be achieved in organisations. For Brown & Duguid (2001) the somewhat puzzled phrase 'sharing common embedded circumstances' takes meaning in the context of 'epistemic cultures' or 'social worlds' (ibid.). In this sense, it points to the salience of shared identities that lubricate the sharing of knowledge through the interpretation and re-interpretation of stories and narratives (Patriotta, 2003). This is essentially the basis on which they develop a 'sociocultural view of learning and knowledgeâ€¦that challenges conventional views of the internal homogeneity of the firm' (Brown & Duguid, 2001: 209).
A notable limitation of the CoP perspective is that it overlooks how individual knowledge is intermingled with collective knowledge. Specifically, it pays little attention to explaining the mechanisms through which knowledge acquired on the basis of the experience of another member of the CoP is actually enacted in purposeful work tasks.
This is not to deny the value of a CoP perspective on knowledge processes in organisations. Yet, as Tywoniak (2007: 66) comments" In this perspective, it is worth remembering that communities embody only one level of knowledge processes: the work of community needs to be coordinated with that of the other units within the firm. Communities are embedded in a wider context and their contributions cannot always be understood in isolation."
The Firm as a Collaborative Community
A commonly held view among knowledge-based views of the firm is that organizations are better suited than markets for gathering and disseminating knowledge (Staples et
al., 2001) since they 'create and transfer knowledge efficiently within an organizational context' (Kogut & Zander, 1992: 384). The underlying argument is that, in a knowledgebased economy, the core advantage of corporate organisations over markets does not lie in their ability to reduce transaction costs through hierarchical coordination (e.g., Williamson, 1975, 1985). Instead, they rely on the possession of 'unique advantages for governing certain kinds of economic activities through a logic that is very different from that of a market' (Ghoshal & Moran, 1996: 13). This logic is reflected in an emerging theorising of the firm as a social, collaborative community (e.g., Kogut & Zander, 1992, 1996; Adler, 2001; Brown & Duguid, 2001; Inagami & Whittaker, 2005; Adler & Heckscher, 2006). The notion of collaborative community appears to appeal to contemporary firms. For example, the motto "Uniting Communities" has been the underlying philosophy of the recent merger between telecommunication giants Siemens and Nokia.
Collaborative community refers to a distinct principle of social organisation that contrasts radically with that of markets or hierarchies in regard to its fundamental coordination mechanism. In particular, markets rely on prices to coordinate competing economic actors, whereas hierarchies rely on authority and control to coordinate dependent activities among employees whose roles are prescribed based on a detailed division of labour. Distinctively, collaborative community relies on trust, and, more widely, on the quality of social relations among its members to create, transfer and utilise knowledge (Adler, 2001; Inagami & Whittaker, 2005; Adler & Heckscher, 2006). The contrasts between the three principles of social organisation are summarised in Table 2.6.
In reality, the three principles of social organisation are likely to be combined in a wide spectrum of hybrid institutional forms such as 'internal labour markets' (e.g., Benson, 1995; Jacoby, 2004), 'relational contracting' (e.g., Jeffries, 2000; Adler, 2001), 'keiretsu-type' configurations (e.g., Dyer, 1996), or 'soft bureaucracies' (e.g., Robertson & Swan, 2004). However, as knowledge generation and sharing become increasingly the main sources of value creation for the contemporary firm (e.g., Kang et al., 2007), and KM emerges as its key performance determinant, organising forms that rely primarily either on hierarchies (i.e., Gemeinschaft) or markets (i.e., Gesellschaft) 'are not the answer' for the effective coordination of complex, highly interdependent, and non-routine knowledge work (Adler & Heckscher, 2006: 30). Instead, collaborative corporate community represents an alternative organising template, which serves as an essential precondition for the effective management of knowledge (Adler, 2001), and consequently for organisational learning (March, 1991). This is due to the axiom that a collaborative corporate community is governed by an ethic of interdependent contribution to a shared purpose and the success of others; yet, it is driven by pragmatic business considerations which, in a knowledge-intensive context, focus on value creation through the generation, sharing and application of knowledge (Adler & Heckscher, 2006). In this sense, value creation is, to a large extent, contingent upon the extent to which employees 'believe that others have contributions to make towards this shared creation' (ibid: 21). Essentially, a view of the firm as collaborative community acknowledges the social embeddedness of work organisations, and therefore, the role of social relations in shaping their exchange activities (Granovetter, 1985, 1992b). As such, collaborative corporate communities are 'constructed by individuals whose action is both facilitated and constrained by the structure and resources available in social networks in which they are embedded' (Granovetter, 1992b: 7). Thus, one of the key challenges for contemporary firms is argued to be their capability to develop and sustain ongoing, mutually beneficial relations among their members. That is, to develop and sustain their social capital which, subsequently, can facilitate the effective transfer of knowledge through the engagement of their members in purposeful and highly interdependent work tasks (Adler & Heckscher, 2006).