Making Knowledge the Basis of a Dynamic Theory

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The article mainly focuses on the concept that knowledge can be said to be the basis of a dynamic theory of the firm. Nowadays, a knowledge-based theory is becoming common over the evolutionary and resource based view. A brief view about organizational knowledge and the relation with the elements which generates it is also explained. An investigation about knowledge that facilitates a relevant discourse regarding its production, storage and application is made which was later related to a firm's perspective. It is demonstrated that in the process of generation, application and storage of knowledge, multiple actor organizations show an impact and how sustain economic rents may arise.

Table of Contents:

1. Introduction

The author first discusses that knowledge based theory has become very common over the resource based view or the evolutionary view. He gave a brief view about knowledge, how people have different views relating to it and what are its types.The article also supports the theory that firms need some bounding process.A matrix was developed relating to organizational knowledge and a model was explained between implicit, explicit knowledge and individual and social groups.

The purpose here was to explain how knowledge is the most fundamental ingredient to build a powerful theory of the firm.


Here it was discussed that knowledge can be universal, but there is always a possibility that it may be proven false. Different people have different views of knowledge like realists definition of knowledge may differ from rationalists or philosophers. Later it was cited that organizational knowledge has two basic origins. The first being knowledge being distinguished from traditional factors like land, labor, capital. Relating to this context knowledge has become one of the most strategic factors of production, so there is a great focus on how to produce, apply, and retain it. Knowledge can be treated as a public good and can be infinitely expanded while factors like labor, land, capital are considered as private goods. But knowledge can also be private or privatized if its in the form like labor skills or patents respectively. So this does not explain the modern period's information and so knowledge must be defined more precisely for it to be the basis of the firm. The second differentiates between alternative types of knowledge. The basic types are the knowledge we get from experience and knowledge we analyze in a logical manner. He gives a brief summary of how tacit and explicit knowledge.

 Moving from the idea of knowledge to firms Nelson and Winter (1982) said that the firm is a body of rules which are embodied into routines which restrict the firms members and their theory was how these rules develop. But they failed to set boundaries to these rules. The author suggests that there must be some kind of bounding process in the firm cause when resources start crossing the boundaries and enter the firm the range of their services change(Penrose,1959,p 78).It was discussed that every firm is a mixture of conscious, objectified, automatic, collective types of knowledge's. Most of the firms are now dependent on their employee's explicit knowledge rather than tactic knowledge. Penrose (1959) cited that a theory about immobile collective knowledge evolved. This theory mainly focused on knowledge production than on  subsequent ownership(Teece,1987).

Possible Managerial Heuristics

 The author later discussed how the firms are using previous systems to overcome the difficulties which have the possibility to occur.He started of with the self regulating system of a firm is managed as Scope, Approach, Optic and Modality. The Scope gives previous systems identity and boundary, approach is the interaction with the system components where the types of knowledge are explained in the knowledge entities case, optic is the underlying philosophical theory of knowledge and Modality is sharpening the approach. Social constructionist which involves the interpretive flexibility and these product design, organizational structure, methods of production, distribution channels and market engagements leads the past results by strategic activities by the actors to the firm. Boundary establishment and stability to which the social systems evolves in the quasi object with the managerial interventions which are designed to overcome the old problems without generating the new problems. The firm also generate autonomy and self-regulating facility which define the boundaries and interactions. Here the markets are considered also as quasi object which evolve technological and historical trajectories. The complex interaction of social institutions, ideas of individual and household identity and process briefs the historical analysis that existed. The quasi objects interact with types of knowledge which is created, shared in the firm which are managable.

Activity Systems Approach To Knowledge Based Theory:-

As redundancy is interpretive in most of the firms, this redundancy bears relationship to firm slack. It depends on the resources and the services here when considered the institutional identity will be redundant where the routines are satisfied. The organization takes ideas on underutilized resources and some times in the process the uncertainties may be conscious of the actor's tacit knowledge therefore the systemic and componential levels may differ, therefore the background knowledge is to be there for a bounded systems. The impact depends on the economic relationship between the public goods and the private goods    and culture is taken as collective knowledge as the background it might be an outcome of a systems activity. In this the knowledge will not only will be a public good but probably without a value like a private good. The redundancy, resources, the organizational slack, systemic and componential types of knowledge might be the key factors to operate the knowledge based theory within the firm, the extraordinary ability to attract i.e. the leadership succeeds by using the individual's skills into organizations and technology will be a tool to which it shapes the systemic aspect of the activity system and also helps the individual to present his back ground knowledge so that it gives the system its own identity, purpose and the meaning.

2. Actor Network Theory(ANT)

2.1. Introduction to Actor Network Theory

  Actor network theory (ANT) provides a fresh view regarding the relationship between human and physical objects, collectively known as actors or actants. The main concept of ANT is that no one is alone (Law, 1992). It gives equal importance and considers all the surrounding factors. Law (1992) in his works cited that society, organizations, technological artifacts are all effects generated in patterned networks of diverse materials. Goguen (1999) puts it, "Actor-network theory can be seen as a systematic way to bring out the infrastructure (network) that is usually left out of the "heroic" accounts of scientific and technological achievements". For example a construction company XYZ has achieved tremendous achievements over the last few years. The company's management can be praised for efficiently running the company. But according to the ANT theory all the social and technical things related to the company have to be considered for its progress. Like all the masons, employees, contractors, subcontractors, clients, regulating bodies, architects i.e. who are directly and indirectly related, the theories they used, the facilities they provide for better work environment etc. We often studied theories, relating to social or techniques, separately. But the active network theory (ANT) can be considered as a socio-technical theory. Tatnall (2003,p 268) cited that technological and social actors reciprocally affect each other. Here it can be considered that what seems to be social is partly technical and vice versa.


                       Figure 1: Actor Network Theory

There are three main principles of ANT which touch on ontology and epistemology namely agnosticism, generalized symmetry and free association (Callon, 1986).All these principles state that there is no differentiation between socio, natural and technological factors.Bruno(2005) mentioned that networks are unreliable and can fall apart any time.

2.2 Background theory

ANT was developed by Michel Callon ,Bruno Latour and Law at CSI(Law,1992). ANT was a theoretical contribution of STS (Science and Technological Studies)(Fallan,2009) which is a flourishing interdisciplinary field that examines the creation, development, and consequences of science and technology in their cultural, historical, and social contexts(Hackett,2008).Initially ANT was proposed in an attempt to understand processes of innovation and knowledge-creation in science and technology.Later,ANT became a popular tool for analysing various fields in a range of fields beyond STS. Authors started developing this theory in various fields like informatics, health studies, geography, sociology, anthropology, feminist studies and economics.

  But actor network theory was criticized for many factors(Howcroft et al,2004).It was criticised for its heterogeneous nature as both technical and non technical actors are linked together.It was also criticised for the complexity of the network as one actor from one network can influence another actor from another network thus increasing the whole complexity of network.This theory was considered to be amoral(Howcroft et al.2004;Walsham and Sahay 1999).

2.3 Review empirical(derived from experiment) evidence of the usefulness of theories

A simple example would be Newton discovered the gravitational theory. But according to ANT we need to consider also his past experience's, his colleagues, how he used theories like Kepler's astronomy, Euclidean geometry, Galileo's mechanics, his lab, tools and various elements have to be considered into his network.

3. Organization Knowledge(Theory)  

3.1 Introduction

The group knowledge from several subunits or groups is combined and used to create new knowledge, the resulting tacit and explicit knowledge can be called organizational knowledge. It is also defined as hypothetical knowledge trajectory.

It deals with the processes by which the organizations create, use, retain knowledge on day to day basis.

The past theories resulted in the progressive consolidation of a epistemology which reflected in increasing the knowledge management movement, the dominant discourse on organizational knowledge Hedlund(1994), sanchez and Heene(1997) as these were paying attention to the idea of the firm as a body of knowledge to create, manage, transfer as the determinant of competitive performance and intellectual assets can be valuated.

The following are the basic concepts or the models to create organization knowledge

The interaction between the individuals i.e communities of interaction contribute to amplification and developement of new knowledge.

According to Machlup(1983) information is a flow of messages or meanings which might add to, restructure or change knowledge.

Information is that commodity of yielding knowledge, what information a signal carries is what we can learn from it (Dretske 1981, p.44). Knowledge is identified with information- produced (or sustained) belief, but the information a person receives is relative to what he or she already knows about possibilities at the source (ibid, p.86).


Dependent Independent



Purpose Culture

Participants Artifacts

Strategy Infrastructure Knowledge

Figure 2 Framework of Organization Knowledge Resource

3.2 Background theory

Two dimensions of knowledge creation:-

As Michael Polanyi(1966, p.4) put for tacit knowledge as "We can know more than we can tell" and the explicit or codified knowledge that is transmitted in the form of formal, systematic languages. As Polanyi says the content of tacit knowledge in a philosophical context, as the mental models for the cognitive elements by Johnson Laird(1983) by creating, manipulating analogies which include schemata, beliefs, paradigms, viewpoints that helps individuals to perceive. By this "Know-how" the tacit knowledge covers the technical content.

The distinction between objective and tacit knowledge is a restatement of James's (1950, pp. 1-221) distinction between "knowledge about" and "knowledge of acquaintance", i.e. that of which an actor has personal acquaintance.

These are the modes of knowledge creation:-

Socialization (Tacit knowledge to tacit knowledge) which It allows sharing tacit knowledge between individuals Where the socialization is connected with theories of organizational culture which is the partial analogs of organizational theory.

Combination (Explicit knowledge to explicit knowledge) It allows conversion of explicit knowledge into more complex explicit forms, combination is for information processing and internalization which is associated with organizational learning.

Externalization (Tacit knowledge to explicit knowledge) It involves the articulation of tacit knowledge into understandable forms that can be understood by others.

Internalization (Explicit knowledge to tacit knowledge) It allows individuals to increase their knowledge base and create knowledge by converting explicit knowledge to tacit knowledge

As Penrose (1959, p. 78) notes, as soon as resources cross the boundary and come into the firm the range of services they are capable of yielding starts to change.

3.3 Review empirical evidence of the usefulness of theories

The philosophical theory of knowledge has been adopted and the firms are been bounded with rules.

The Nelson and Winter have explained how these set of rules evolves in this theory.

Failed to discuss the capital, land and labor use before the product release, the genetic material or organizational routines to the viable firm.

In this the interplay of James's and Durkheim's dichotomies leads to a multitype epistemology with a matrix of knowledge types.

Firms use explicit objectified knowledge the most.

Conscious knowledge

Automatic knowledge which depends on solving the agency problems

Objectified knowledge:- Which is more effective in use of institutional mechanism which enables granting the rights will be miss used where the public knowledge to be privatised temporarily.



Explicit Knowledge



Implicit Knowledge



Table 1. Different Types of Organizational Knowledge

(Strategic Management Journal, Journal, Vol. 17,1996, pg. 52)

For example a company which has intranet facility or a similar knowledge networks wanted to make the flow of organizational knowledge better, therefore the company provided the employees a portable computer or laptop which allows the employee to tap into expertise in their company network irrespective of the place they are present, every employee can get access to the best available information, so that they can give customers a good customer solutions much quicker.

4. Discussions of the paper from a general perspective of the course

Change Management Perspective

Managers are treated as rule makers and employees as rule followers and firms as bundles of tangible resources we need a different theory where organizations act as a allie between knowledge creating entities i.e. individuals,  teams and tangible resources.

Knowledge Management Perspective

Discuss how the contributions of the paper can be used in basic challenges in change and knowledge management, as discussed in during the course. Relate to the problems and issues in the knowledge management cycle. Also the connections to development of IS/IT support is possible.

5. Summary

Short summary of the key learning points from the texts. And the