Knowledge-Based View

Summary of the Knowledge-Based View

The knowledge-based view has emerged from the resource-based view of the firm.

Distinguishing knowledge from other types of resources, this view of strategy considers knowledge as the strategically most significant resource of the firm (Grant 1996). Its proponents argue that heterogeneous knowledge bases and capabilities among firms are the main determinants of sustained competitive advantage and superior corporate performance (Decarolis & Deeds 1999, Kogut & Zander 1993). The knowledge-based view of the firm depicts firms as repositories of knowledge and competencies (Kogut &

Zander 1996, Spender 1996). According to this view, the “organizational advantage”

(Ghoshal & Moran 1996) of firms over markets arises from their superior capability in creating and transferring knowledge. Knowledge creation and innovation result from new combinations of knowledge and other resources (Cohen & Levinthal 1990, Kogut

& Zander 1992). The accumulation of knowledge through learning constitutes a driving force in the development and growth of young firms (Penrose 1959, Spender &

Grant 1996), because knowledge acquisition opens new “productive opportunities”

(Penrose 1959) and enhances the firm’s ability to exploit these opportunities.

Although a variety of definitions of organizational learning have been proposed, a common notion for various definitions is that learning involves acquisition and exploration of new knowledge by the organization (Kumar & Nti 1998). In this study, I follow Huber (1991:89) who assumed that “an organization learns if any of its units acquires knowledge that it recognizes as potentially useful to the organization.”

Similarly, Argote (1999) depicted organizational learning as a process consisting of knowledge acquisition, retention, and transfer. Relationships with other organizations are therefore an important source of new information for organizations (Argote 1999, Steensma 1996). Indeed, numerous studies have identified learning and knowledge acquisition as important motivations for entering interorganizational relationships (Badaracco 1991, Hamel et al. 1989, Hamel 1991, Inkpen 1996, Kogut 1988).

Factors influencing transfer of knowledge over organizational boundaries are important for the present study. The knowledge-based view argues that tacit knowledge (Polanyi 1958) is most valuable for organizations because it is difficult to transfer and thus can give a sustainable competitive advantage. Tacit knowledge is linked to individuals, and is very difficult to articulate. Polanyi (1966) defined tacit knowledge as

"knowing more than we can tell," and viewed this knowledge as largely inarticulable.

According to Polanyi (1958, 1966), tacit knowledge is primarily seen through an individual's actions rather than through specific explanations of what that individual knows. The knowledge-based view argues that because tacit knowledge is difficult to imitate and relatively immobile, it can constitute the basis of sustained competitive advantage (DeCarolis & Deeds 1999, Grant 1996, Gupta & Govindarajan 2000, Kogut

& Zander 1993). A stream of research building on the knowledge-based view has shown that strong ties and collaboration are positively related to the transfer of knowledge over organizational boundaries (Bresman et al. 1999, Kogut & Zander 1992, Mowery et al. 1996, Steensma 1996, Steensma & Lyles 2000).

Absorptive capacity is an important concept for interorganizational learning and thus for the present study (Cohen & Levinthal 1990, George et al. 2001, Lane &

Lubatkin 1998, Van den Bosch et al. 1999, Zahra & George 2001). Absorptive capacity has been first defined by Cohen and Levinthal (1990) as the firm’s “ability to recognize the value of new external information, assimilate it, and apply it to commercial ends.”

They argued that interorganizational learning is most effective when there is sufficient similarity in the basic knowledge of the firms (enabling effective communication) but simultaneously sufficient diversity in the special knowledge (non-redundancy makes knowledge valuable).

Related Empirical Applications of the Knowledge-Based View

Despite of the relative newness of the knowledge-based view as a theoretical perspective, it has already been applied in a large number of empirical studies. While a large share of the empirical research applying the knowledge-based view focuses on the characteristics of different types of knowledge and the use of knowledge within firms, the most relevant stream of research for the present study focuses on the role of interorganizational relationships in knowledge acquisition and learning.

The characteristics of the knowledge influencing the transfer of knowledge over organizational boundaries have also received empirical attention. For instance, Inkpen and Dinur (1998) reported that in their longitudinal analysis of five international joint

ventures in automotive industry knowledge transfer was negatively related to the tacitness of knowledge and the organizational level at which the transfer took place.

Similarly, Simonin (1999) found in his analysis of 147 alliances by U.S. multinationals that tacitness, complexity of knowledge, and cultural and organizational distance (mediated by knowledge ambiguity) were negatively related to knowledge transfer.

However, although tacit and ambiguous knowledge have been shown to be more difficult to transfer over organizational boundaries, empirical research has identified social capital and frequent communications as factors facilitating the knowledge transfer. For instance, Simonin (1999) found that collaborative know-how from past alliances was positively related to transfer of ambiguous knowledge. Mowery et al.

(1996) found in their analysis of 792 alliances that strong ties (i.e., equity joint ventures) were more likely to be used to transfer complex capabilities than weak ties (i.e., contract-based alliances). They also found that strong ties (i.e., bilateral contracts) were more effective than weaker ties (i.e., unilateral contracts) for knowledge transfer.

Further, alliances between two domestic partners and between partners with experience in related technological areas (i.e. greater sender-recipient similarity) resulted in greater knowledge transfer. Similarly, Kale et al. (2000) found in their research on alliances of 278 U.S. companies that relational capital was positively related to learning from the alliance partner. Examining knowledge acquisition in key customer relationships of 180 technology-based new firms, Yli-Renko et al. (2001a) found that social capital embedded in the key customer relationship greatly facilitated the knowledge acquisition from key customers.

Besides social capital and frequent communication, absorptive capacity has been shown to be among the most important things influencing interorganizational learning. Demonstrating the important role of absorptive capacity, Lane and Lubatkin (1998) analyzed 69 R&D alliances between pharmaceutical and biotech companies and found that learning tacit and embedded knowledge required absorptive capacity in the recipient firm. They found that similarity of the basic knowledge between the alliance partners was positively correlated and similarity of the special knowledge was negatively correlated with learning from the alliance partners.

Learning through interorganizational relationships has been shown to be important for the performance of technology-based new firms. For instance, the research by Powell et al. (1996) examining panel data on alliances of dedicated biotechnology firms demonstrated that when the knowledge base of an industry is complex, expanding, and widely dispersed, the locus of innovation will be found in networks of learning, rather than in individual firms. They found that in those situations, building external collaborations was central to updating the knowledge base of the firm. R&D collaborations became admission tickets to the knowledge network, and vehicles for the rapid communication of new knowledge. Providing more evidence on the important role of interorganizational knowledge acquisition for the performance of technology-based new firms, Yli-Renko et al. (2001a) demonstrated that knowledge acquisition was

positively related to product development and technological distinctiveness. Also arguing for the value of interorganizational learning for the performance of start-up companies, DeCarolis and Deeds (1999) analyzed 98 initial public offerings of biotechnology firms and found weak support for the positive relationship between alliance count (as a measure of knowledge flows) and IPO market valuation.

There is also some empirical research examining the learning by entrepreneurs from their venture capital investors. Barney et al. (1996) analyzed a sample of 205 venture capital backed firms and found systematic differences among new venture teams in their evaluation of learning assistance from their venture capital investors.

They found that new venture teams with more industry experience and longer team tenure in the current venture were negatively related to both business management advice and operational assistance offered by their venture capital investors. When a new venture team had previously worked together, and its primary experience was from another industry, the new venture team tended to welcome business management advice from its venture capital investors. However, business management advice was not highly valued by new venture teams that pursued more technical innovations, and the researchers could not find a relationship between the current performance and the new venture team’s evaluation of the assistance. Barney et al. (1996) concluded that an optimal level of involvement by venture capitalists was contingent on the new venture team's openness to learning.

Critique of the Knowledge-Based View

The knowledge-based view has also faced some criticism. One of the criticisms is that research on the knowledge-based view is highly abstract (Argote 1999). The concepts are hard to measure and learning is often treated as a ‘black box’.

Perhaps because of the abstractness of the concepts and difficulty of operationalizing them, research on the knowledge-based view has become highly fragmented. While there is agreement within the research on the knowledge-based view on the basic assumption that knowledge is the source of competitive advantage, there is less agreement on the terminology and levels of analysis. Because of this fragmented nature of research, the knowledge-based view has not been seen as a coherent theory (Grant 1996), but rather as an umbrella covering a variety of processes (Argote 1999). Recently, it has also been pointed out that there seems to be little research providing strong empirical support for the basic assumption of the knowledge-based view that knowledge is the firm’s most important resource (Eisenhardt & Santos 2000).

It has also been argued that when the knowledge-based view is used as a theory of strategy, knowledge is typically conceptualized as a resource that can be acquired, transferred, or integrated to achieve sustained competitive advantage (Eisenhardt &

Santos 2000). Because of this, the knowledge-based view is thereby reduced to simply a special case of the resource-based view, rather than a unique theory of strategy.