Knowledge creation has generated a lot of research in recent times. Scholars have proposed different mechanisms and methods through which knowledge can be created within an organization. The mechanisms and methods proposed are mostly based on different theories of knowledge creation; the emerging knowledge governance approach (Foss, 2007, Foss et al., 2010); the organic approach (adhoc freelance knowledge creation)(Bartunek et al., 2001, Bathelt et al., 2004, Choo, 1996) and a combination of both approaches (Nonaka et al., 2000, Nonaka, 1994b).
New approaches are however emerging and gaining ground fast, proposing the role of outsiders; personal social networks; virtual teams and customers in the knowledge creation process of organizations. The emerging knowledge governance approach can be backed by research on the use of organizational controls in knowledge creation(Turner and Makhija, 2006). Henceforth referred to as KGA in this paper, the emerging knowledge governance approach highlights the role that formal mechanisms like organizational structure play in knowledge creation in firms(Foss, 2007). It is the aim of this paper to show specifically the role that structural components like reporting relationships and routines play in facilitating or inhibiting knowledge creation in multinational corporations.
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Knowledge an abstract term that captures the art of knowing and what is being known, is difficult to study (Davenport and Völpel, 2001). The application of knowledge in organizations known as knowledge management (Walczak, 2005), does not only involve the storing or codification of knowledge as many IT professionals like to think, it involves the creation and management of knowledge intensive work and can be broken down into knowledge creation, knowledge sharing and knowledge transfer (Alavi and Leidner, 2001, Alavi and Leidner, 1999, Nonaka, 1994b). These three elements are difficult to separate in practice(Argote et al., 2003), but this article will attempt to do so by focusing on knowledge creation.
This paper is organized as follows: first, using multinational corporations as context, I present a review of knowledge creation that includes a brief overview of existing knowledge creation theories, weaknesses and gaps discovered in literature. Secondly, I present propositions highlighting the role that organizational structure components: reporting relationships and routines play in inhibiting or enhancing knowledge creation through specific control mechanisms. Finally, based on the identified gaps and challenges and from a knowledge governance perspective, I make propositions and illustrate my propositions in a conceptual model.
2.0 Knowledge creation in multinational corporations
knowledge creation is endowed with many definitions as observed from review; defined as a major factor that allows an increase in value/cost ratio of a cooperative process; building new knowledge (Matusik and Hill, 1998); bringing innovative products and services into the market place(Ganesh, 2000); a process that allows insights of individuals to be converted into knowledge that can then be used to develop new products and improve performance (Choo, 1996); the difference between what is known and what must be known for success of a project (Johnson, 2002); use of complex and discontinuing phenomena and a set of components emerging from communication across interpersonal relationships(Styhre et al., 2002).
Many Authors discuss this subject without specifically pointing out the aspect of knowledge creation that is being studied. According to Mitchell and Boyle in their recently developed taxonomy of knowledge creation, there is a an input, output and outcome dimension to take into consideration when defining knowledge creation (Mitchell and Boyle, 2010). Figure 1 below presents a good illustration of this idea.
Figure 1: The knowledge creating activity chain
The knowledge creation input refers to the method or process used in knowledge creation, the output refers to the initial result of the knowledge creation activity (example; new product idea, prototypes, new suggestions etc.) while the outcome refers to the final result of the knowledge creation activity (new product in the market, new service, new procedures) (Mitchell and Boyle, 2010). The fact that there is new knowledge (output) adds a certain level of value in a multinational corporation but the highest value would be realized when the new knowledge is translated into routine knowledge (outcome) (Gooderham, 2007, Alavi and Leidner, 2001, Roth, 2003). A clear specification of the aspect of knowledge creation under study is highly important and would facilitate comparisons between different models and methods of knowledge creation(Mitchell and Boyle, 2010).
According to the knowledge based view of the firm, it is not enough that a firm's knowledge base is dynamic or difficult to imitate(Walczak, 2005, Nonaka et al., 2000), it must also be efficiently and quickly transferable within the organization to all the areas where it will be useful (Grant, 1996b, Roth, 2003, Nonaka et al., 2000); be of high quality(Walczak, 2005) (only highest quality options are to be selected) and it must be productive i.e. aligned with company policy, objectives and business model(Walczak, 2005, Claver-Cortés et al., 2007, Hong, 1999). Thus, emphasis is placed on allowing as many inputs as possible for the knowledge creation process, selecting high quality outputs and ensuring fast implementation and adaptation in order to obtain desired outcomes.
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Multinational Corporations hereafter referred to as MNCs in this paper are firms operating in more than one country. Some MNCs are very big and have operations in several countries with budgets exceeding the gross domestic product of some entire nations. The continuous creation of knowledge is a major source of global competitive advantage for firms in this category (Choi and Lee, 2002). The focus on MNCs in this study is highly interesting because knowledge creation for the MNC as a whole becomes more complex as the number of subsidiaries increase. From the knowledge based view, knowledge creation for an MNC does not only involve problem solving and knowledge acquisition in one or two subsidiaries, it involves ensuring that new knowledge realized benefits the firm as a whole (Turner and Makhija, 2006, Hong, 1999).
The complexity of the knowledge creation activity can be said to be somewhat dependent on size (Walczak, 2005), the nature of the organization as well as its organizational structure. Knowledge creation in structures that require high integration (formalized reporting relationships between subsidiaries and headquarters) of subsidiaries with the corporate headquarters and low responsiveness to local needs (also known as global structure (Harzing, 2000)) may be more complex than knowledge creation in structures with the direct opposite characteristics (multidomestic (Harzing, 2000)).
Theories of knowledge creation
The strong promotion of knowledge creation as a source of competitive advantage(Choi and Lee, 2002) has led to the generation of many knowledge creation theories. A look at the methods most frequently proposed by researchers for knowledge creation reveals that most authors adopt an organic approach to studying knowledge creation: adhoc freelance knowledge creation (Bartunek et al., 2001, Bathelt et al., 2004, Choo, 1996). The idea promoted here is that flexibility encourages creativity which facilitates knowledge creation (Lee and Cole, 2003).
The emerging knowledge governance approach somewhat argues the opposite. According to this approach, formalization is beneficial in facilitating the knowledge creating process and the knowledge creation process can be coordinated and better organized (Miner, 1990, Foss, 2007, Foss et al., 2010). Some Authors present arguments based on a combination of both approaches in their study i.e. flexibility and structure(Chua, 2001, Miner, 1990). While these theories are important in studying knowledge creation in MNCs(Nonaka et al., 2000, Spender, 1996), recent studies show that there is much more to knowledge creation.
The concept of lead users by Hippel and utilization of contingent work by Hill and Matusik illustrate how consumers directly and indirectly participate in the knowledge creating process (Hippel, 1986, Matusik and Hill, 1998). Furthermore, communities of practice, virtual networks, clusters as well as personal social networks have been found to play a huge role in facilitating knowledge creation by enhancing problem solving for firms.
3.1 Strengths and weaknesses of the theories
Some of the major theories of knowledge creation do not include the impact of external influence (personal social networks, social media etc). In addition, it is often not clear from which point of view the subject is being considered whether from the top management's perspective, middle manager's perspective or the employee's. Some other weaknesses observed include:
I. Lack of a clear distinction between micro and macro level knowledge creation:
Some studies take a macro level approach to knowledge creation, i.e. studying the process or phenomena at an aggregate level as against a micro level approach that would be focused on knowledge creating activities at the individual level(Argote et al., 2003). It is imperative to bear in mind that the sum of individual knowledge in an organization is not equal to the organizational knowledge of the firm (Grant, 1996a, Roth, 2003). I believe this is why Grant suggested that firms engage in knowledge application rather than knowledge creation. Knowledge application involves attempts by firms to extract useful knowledge from their employees and subsequently integrate the knowledge into the organization's knowledge repository (Grant, 1996a, Huang and Newell, 2003, Grant, 1996b). The framework in table 1 below is used to present the idea of micro and macro organizational knowledge creation:
Table : macro and micro level considerations
Systems: How do we create new knowledge
Games: Actions based on how actors and agents interpret the situations.
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Agents: individuals in organizations, what motivates them
Actors: How actors understand their role as interpreted by agents.
The use of expatriation is an indication that what an individual knows is often different from what the organization knows (Minbaeva and Michailova, 2004, Bonache et al., 2001). Intuiting and interpreting occur at the individual level while integrating and institutionalizing occur at the organizational level (Hong, 1999). An important challenge for organizations is therefore how to motivate employees to create, share and transfer useful knowledge within the organization for maximum benefit(Dixon, 2000, Swee, 2002).
First conceptualized by Stene in 1940, organizational routines refers to how an organization chooses to run its affairs (Feldman and Pentland, 2003) for example, how an organization chooses to create knowledge; methods and approach used (macro or micro) as well as frequency of knowledge creation projects. An MNC that allows flexibility of routines in terms of knowledge creation techniques will perhaps benefit more in terms novel ideas than MNC that limits methods or frequency of knowledge creation projects (Turner and Makhija, 2006).
II. Failure to identify the processes and mechanisms involved in knowledge creation:
Figure 2: Knowledge creating activity chain
In practice, there are several processes involved in the knowledge creation phases but this has not been emphasized much in literature. Conceptualized as a dialectic and dynamic process (Nonaka et al., 2000), i.e. a process that runs continuously and interactively (Nonaka and Toyama, 2003), knowledge creation involves several intervening processes that may not all be entirely observable.
Input to output: this phase involves the knowledge creating process and methods which could include; Research and development (Roth, 2003); socialization (Nonaka et al., 2000, Nonaka, 1994b); open dialogue and discussions coupled with the use of facilitators skilled at extracting useful knowledge (Fong et al., 2007); care (Krogh, 1998); cooperation (Choo, 1996); mentorship, openness and use of teams (Mitchell et al., 2009); and use of clusters (Bathelt et al., 2004). By directly or indirectly specifying particular inputs (controls) for subsidiaries, MNCs can limit or enhance the effectiveness and productivity of their knowledge creation activities. They can directly specify inputs by explicitly stating the methods to be used by subsidiaries and headquarters to generate knowledge (for example R&D projects, special meeting sessions, virtual teams etc) and they can indirectly specify inputs by taking ideas generated through particular methods lightly.
Output to Outcome: processes that could occur in this phase between output and outcome include commercialization, implementation and adaptation. The outputs (ideas, prototypes etc) chosen by the organization as most in sync with business policy and objectives are then commercialized, implemented within the firm and adapted for maximum benefit of the firm. Adaptation involves the organization's ability to obtain successful implementation and commercialization (Miner, 1990).
The adaptation process often starts within the employees who will be in charge of the new product or technique as may be the case and typically involves the intervention of the Knowledge management system in the MNC, the system that supports knowledge management practices in an organization (Gallupe, 2001, Skuce, 1993). It normally includes but is not limited to a good expatriation strategy/mechanism, management information systems and transmission channels (Bonache et al., 2001, Minbaeva and Michailova, 2004) to ensure that all subsidiaries benefit from the new knowledge realized. Structural changes within the knowledge management system could become necessary in order to facilitate or improve the implementation and commercialization processes (Davenport and Prusak, 1997).
The ultimate goal of organizations is or should be to attain the outcome stage as fast as possible. It is at this stage that innovation is said to occur(Popadiuk and Choo, 2006), i.e., when the new knowledge starts to yield benefit for the MNC. Sometimes, attaining this stage is relatively easy in the case of an incremental innovation but maybe more challenging when the innovation or new knowledge is entirely new to the organization (Christensen, 1997). Depending on the structure of the MNC, attaining the outcome stage may take a long time as a result of existing output to outcome controls (how to implement, how to commercialize and adaptation decisions). Reporting relationships could affect the speed and efficiency of knowledge creation in cases where commercialization, implementation and adaptation decisions are to be agreed upon by corporate headquarters.
III. Failure to acknowledge the Challenges involved with knowledge Creation in Organizations
As some companies may have already realized, the translation from one phase to the other is not automatic especially in MNCs. Unfortunately, most scholars present very optimistic opinions about knowledge creation so much so that these challenges are not clearly emphasized in literature(Cummings and Teng, 2003). The output of some knowledge creation projects may not be accepted by the firm and some selected outputs might not make it to the outcome stage. Apart from factors that generally affect projects like funding and time constraints, there are factors that are exclusive to knowledge creation projects in MNCs. These include:
Market Factors: the output to outcome success of knowledge creating activities in MNCs depends on the market to a reasonably great extent since they have subsidiaries that operate in different regions. However, exerting control on the implementation, commercialization and adaptation process through reporting relationships between subsidiaries and headquarters contribute to reduce the speed and efficiency of the knowledge creation activity in the MNC. Marketing scholars claim that marketing activities can help to enhance or facilitate the output to outcome translation.
Studies show that market research activities can be structured by corporate headquarters to ensure that the output of the knowledge creating process is compatible with existing systems and explicit enough to be easily assimilated by employees (Sorell, 1994). Also, consumer acceptance of a new product, compatibility with existing systems and explicitness are said to enhance the implementation and commercialization processes (Gruner and Homburg, 2000). In summary, market factors when ignored can render knowledge creating efforts slow and less productive (Gruner and Homburg, 2000) so MNCs will need to handle this stage carefully.
Institutional Factors: the new knowledge or output (new ideas; new techniques; problem solution and product prototypes) realized from knowledge creation efforts within the subsidiaries of an MNC or at its corporate headquarters are often faced with mixed feelings within the MNC as a whole. Institutionalization agents can be influential in determining not only the outcome of the knowledge creating process but also the output. Institutionalization is a mechanism that can create structure within an organization (Sewell, 1992, Greenwood and Hinings, 1996). It is also the coordination of a system of different kinds of behavior collectively seen as solutions to specific problems in an area of social life (Eisenstadt, 1964). Professions are examples of institutionalization agents that have the potential to impact the input to output and output to outcome translation (Royston et al., 2002, Lawrence et al., 2001, Scott, 2008).
Organizations like to think of themselves as entities of individuals working together with homogenous goals and objectives(Scott, 2004), but this in reality may not always be the case as there is often a lot of diversity and sub groups (Haveman and Rao, 1997) within single organization much less MNCs. Individuals or subsidiaries as a whole can have different goals, ideas and norms based on their cultural-cognitive orientation(Scott, 2008). Selection of particular outputs for commercialization is highly affected by institutional factors where some professions or subsidiaries are able to make decisions while others are not (Bouquet and Birkinshaw, 2008).
Organizations that acknowledge the role of institutions, establish managerial practices that elicit suggestions from subsidiaries and even individual employees in order to include everyone in knowledge creation projects (Milstein-Adler et al., 2010) while those that ignore institutional factors may do so at their own peril.
Employee and Organizational Factors: employees constitute a major factor that affects knowledge creation in organizations and reasonably so because they should typically embody the organization's knowledge stock. However, in order to create knowledge continuously, an organization must first create a knowledge mindset or knowledge culture (Hauschild et al., 2001, Long and Fahey, 2000, Smith et al., 2010). This becomes often necessary because there could be resistance in the acceptance of new knowledge as a result of some individuals in the organization being more prone to inertia than others based on their personal orientations, experiences or profession (Lippmann, 2005, Aldrich and Ruef, 2006b).
Organizational culture is derived from organizational schema; the way an organization sees itself(Aldrich and Ruef, 2006a). This is often imprinted from the founding of the organization, deeply rooted and difficult to change (Johnson, 2007). In the same way, individual employees in MNCs being from diverse backgrounds possess unique schemata imprinted by their professions and experiences and this affects how they interpret their position in the organization. MNCs may be able to influence their employees gradually over time through their organizational structure because the evolutionary processes; variation, selection, retention and struggle that they go through in their existence will ensure that individual and firm level inertia may not survive too long (Hannan and Freeman, 1984, Aldrich and Ruef, 2006a). By using reporting relationships to exert control on implementation, commercialization and adaptation, MNCs can influence the speed and efficiency of their knowledge creation efforts.
4.0 Knowledge creation and organizational structure
While it may not be completely novel to say that organizational structure plays a role in knowledge creation as I have done in the preceding paragraphs, it may be interesting and highly beneficial for MNCs to show how it does this. The remainder of this paper first sketches the contours of what an appropriate knowledge creation theory should be and proceeds to show how the speed; efficiency; quality and productivity of knowledge creation in MNCs is influenced by reporting relationships and routines when organizational controls exist and influence the input/output and the output/outcome phases of the knowledge creating activity chain.
Organization structure can be considered the skeletal system of an organization (Dalton et al., 1980) that provides the platform within which an organization performs its operations. Many scholars have presented arguments on structures shaping or being shaped by individuals (Sewell, 1992, Pugh et al., 1968). Organizational structure is said to have many dimensions: concentration of authority; line of control/workflow and size of supportive component (Pugh et al., 1968). Its dimensions could vary from one organization to the other and it has also been linked to several constructs as seen in literature review but before now, no attempt has been made to link it to knowledge creation in MNCs.
Theory of knowledge creation: a general perspective
It can be said that the organic approach has been the most common approach in studying knowledge creation in firms. However this approach alone dos not adequately accommodate the evolving knowledge creation methods mentioned in preceding paragraphs. The KGA on the other hand does not totally account for the informal knowledge creation activities that go on inside and outside the organization. According to the structural evolution theory, some degree of formalization in conjunction with variation i.e., flexibility and structure is needed to improve knowledge creation and learning within an organization (Miner, 1990).
But even the combined approach does not account for the role of customers and the external influence of social media on the knowledge creation activities of MNCs. Perhaps the only way to accommodate the new useful theories and approaches, incorporate macro and micro perspectives; monitor the knowledge creating processes and tackle the related challenges is by a customized organizational structure.
Control in organizational structure
Organizational structure enforces structure through the use of control mechanisms (Turner and Makhija, 2006, Pugh et al., 1968). Control involves the cognitive dimensions as well as norms that influence how organizations carry out their operations (Turner and Makhija, 2006). It could also be referred to as the invisible mechanism that the coordinates processes within an organization. Bringing the perspectives together, the role of organizational structure is seen in the ability of structure to influence individuals and vice versa(Sewell, 1992). Organizational structure components can be said to be able to influence knowledge creation when controls exist and influence the process used, the output and the process of realizing outcomes (Turner and Makhija, 2006). Furthermore, structural components like routines and reporting relationships can be used to incorporate aggregate and individual level perspectives thereby improving the knowledge creating activities of MNCs.
Using organizational controls; organizational norms(Turner and Makhija, 2006) or what is permissible in an organization, organizational structure is able to affect knowledge creation activity by influencing the input/output phase and the output/outcome phase. The model below illustrates this idea. The taxonomy by Mitchell and Brendan is used again to show distinctions between phases and the entire knowledge creation activity chain (from input until outcome).
Figure 3: Conceptual Model.
Routines; controls; input/output; quality and productivity
The input/output phase refers to the knowledge creation process itself i.e., how an organization decides to create knowledge and the process itself. This is often embedded in organizational routines(Feldman and Pentland, 2003). An MNC can impose input/output controls directly or indirectly by having specific routines (Claver-Cortés et al., 2007) and giving little opportunities for subsidiaries to determine how the process is to be conducted. On the other hand, an MNC may decide not to have specific routines as far as the knowledge creating process is concerned. It may also decide to allow subsidiaries the opportunity to conduct the process as they deem fit. By determining the approach of subsidiaries to the input/output phase (knowledge creation process) an MNC may be able to decrease or improve the quality and productivity of its entire knowledge creation activity.
When an MNC has a structure that allows its subsidiaries to use several kinds of inputs or knowledge creation methods, there will be an increase in its knowledge creating potential while an MNC that allows only limited knowledge creation methods will have a relatively lower knowledge creating potential(Turner and Makhija, 2006). This is because, more diverse approaches increases the chances of novel discoveries(Turner and Makhija, 2006) that are in line with company policy and objectives hence improving the overall quality and productivity of the knowledge realized.
Reporting relationships; controls; Output/outcome; speed and efficiency
Organizational structure can determine to a great extent, the speed and efficiency of commercialization, implementation and adaptation that characterize the output to outcome phase of knowledge creation activities. Firms that are characterized by hierarchy and bureaucracy (a lot of reporting relationships) undergo this stage slowly. The outcome of knowledge creating activity is the final result of a knowledge creating activity(Mitchell and Boyle, 2010). Outcomes can be new products, techniques and procedures that have successfully undergone implementation, commercialization and adaptation processes.
In MNCs with several reporting relationships, these three processes take more time because there has to be agreement between the corporate headquarters and subsidiaries on each of the processes. Although this enables the MNC achieve integration (Harzing, 2000), it reduces the speed and efficiency of the entire knowledge creation activity.
4.7 Organizational Structure of MNCs and knowledge creation
MNCs have been classified in terms of their business strategies and operational structures to a reasonably great extent. Several classifications have been developed by scholars. I chose to adopt the classification by Harzing. This classification has been used by many other scholars; Peng, Gooderham among many others, perhaps as a result of its clarity and simplicity.
The classification is based on the business strategies followed by corporate headquarters and groups MNCs into transnational, global and multidomestic. Multidomestic firms are characterized by a decentralized structure and are meant to adapt to national differences. MNC routines in this category of firms are relatively flexible and allow for autonomy. However, flexibility lowers integration which is supposed to ensure that the process is in sync with company policies, goals and objectives.
Reporting relationships (exchanges between headquarters and subsidiaries) are also very low. This therefore results in faster knowledge creation. Reporting relationships coupled with controls reduce knowledge creation outcomes in the MNC as a whole and strengthen the bureaucracies involved in the output to outcome phases. The absence of this in multidomestic MNCs improves the speed and efficiency of the knowledge creation activity chain but lowers its quality and productivity because knowledge created at the subsidiary is not necessarily available at corporate headquarters. So in the knowledge creation activity chain of these MNCs productivity and quality is low.
Proposition 1: Knowledge creation in multidomestic firms is fast, efficient but has low quality and productivity.
In global firms, emphasis is laid on integration between the subsidiaries and corporate headquarters. Subsidiaries are seen as custodians of headquarter policies. Reporting relationships coupled with controls increase the bureaucracies involved in both input to output (creation process) and output and outcome phases (implementation, commercialization and adaptation processes) phases. Although the resulting knowledge creation activity is of high quality and productivity due to alignment with company goals and policies MNC wide, the speed and efficiency of the entire process is significantly reduced.
Proposition 2: Knowledge creation in global firms is slow and inefficient but productive and of high quality.
Transnational firms are able to combine the advantages and disadvantages of the two above categories of MNCs. The knowledge creation performance of this class of firms depends on how they are able to emphasize and de-emphasize their advantages and disadvantages respectively. With a relatively high level of autonomy; low reporting relationships compared to global MNCs, they are able to go through the output to outcome phase faster but the still significant emphasis on conforming to headquarter standards places a restriction on routines which reduces the flexibility of the knowledge creating process (input to output phase) in comparison to multidomestic MNCs. Conforming to headquarter standards thereby ensures that these categories of firms are able to achieve a higher level of productivity and quality in their knowledge creation activities in comparison to multidomestic MNCs.
Proposition 3: Knowledge creation in transnational firms in terms of speed, efficiency productivity and quality is medium compared to global and multidomestic firms.
The above propositions of the knowledge creation potential of MNCs based on their organizational structure is summarized and illustrated below in table 2.
MNC Organizational Structure
Reporting relationships: subsidiaries/ Headquarters
and Low exchanges
High Integration and High exchanges
Medium integration and medium exchanges
Table 2: Proposed relationships
5.0 Conclusion, limitations and suggestions for further research
This study has attempted to show how organizational structure influences knowledge creation in organizations using MNCs as context. By using the gaps in existing literature to construct a conceptual model, this paper hopes to trigger new insight and generate a spiral of new ideas along its path. MNCs can structure their organization taking into account, individual and aggregate level objectives (macro and micro level perspectives); challenges associated with knowledge creation (market, institutional and employee factors) and the different phases in the knowledge creation activity or chain shown in figure 2. It is interesting to see that the entire knowledge creation activity or chain (input-output-outcome) is separable both theoretically and practically.
It must however be mentioned that the impact of reporting relationships and routines may not be easily separable in practice as I have done theoretically in this paper. In practice, reporting relationships may be classifiable as part of organizational routines. It is also worthy of note that organizational controls can sometimes be indirect or unobvious. There may be invisible controls that determine how subsidiaries or individuals in a firm act the way they do sometimes. An implicit objective of this paper has been to highlight some of the critical structural components that organizations are to be concerned with in other to achieve knowledge creation success.
This study will like to suggest that in future studies involving the organizational structures of MNCs, the unique attributes of transnational firms should be studied uniquely not just in comparison with global and multidomestic firms. It is also possible to develop original classifications based on different combinations of diverse categories. In addition, it would be interesting to link the different stages of the knowledge creation activity or chain to other constructs in order to further illuminate the issues affecting or being affected by knowledge creation in organizations.