Organisational Knowledge and Learning Theory

The second perspective on IJV formation is offered by the organisational knowledge and learning theory. This paradigm views IJVs as a means by which firms can learn or seek to retain their capabilities by obtaining knowledge from a partner. An IJV mode is a propeller of learning to facilitate inter-firm knowledge transfer in the interests of the parent firms. Hennart (1988) sees the transference of knowledge as an area particularly at risk of market failure. Buyers are reluctant to pay for something so ill-defined, and sellers are anxious that buyers will renege on a contract once they are in possession of the knowledge they need. Kogut (1988) feels this is something which transaction cost theory also fails to account for. He suggests that the rationale behind IJV formation may be a firm’s desire to learn or to retain their capabilities. What is being sought in an IJV is a knowledge base or competency not easily transferred across the boundaries of a firm.

The IJV is a vehicle by which “tacit knowledge” is transferred. Other forms of transfer, such as licensing, are impossible, not because of market failure or high transaction costs, but because the very knowledge being transferred is organisationally embedded (Kogut, 1988).

Polanyi (1958) is clearly aware that individual knowledge, know-how and skills are not always easily communicated. He remarks that it is “a well-known fact that the aim of a skilful performance is achieved by observance of a set of rules which are not known as such to the person following them.” Polanyi (1958: 49) He continues that, in the exercise of individual skill, many of the actions involved are not the result of deliberate choices but automatic responses, much like those which enable a cyclist to stay on his bike.

Teece (1977) argues that much in the routine operation of a business firm is done automatically in response to signals coming from within the organisation or its environment. It is accordingly not more easily communicable, indeed probably less so, than individual capabilities. He sees this “routinisation” in an organisation as itself the most important store of its specific operational knowledge. Teece points out that organisational knowledge ensures not only that all the members know their routines, but also that they know when to perform them. The individual must be able to interpret incoming messages from other members of the organisation and from the environment, and then to utilise the information to select an appropriate routine from his own repertoire. To view organisational memory as merely the sum of the memories of individual members is accordingly to overlook the complex linking by shared past experiences which have established the highly specific communication system underlying routine performance.

Teece insists that while there is good reason to believe that remembering by doing may often be more cost effective than committing routines to paper, it makes it much more difficult to effect a market exchange of such knowledge in order to transfer it to a different organisation. Transferring key personnel can take the process part of the way, with the individuals becoming consultants or teachers of their routine knowledge, but more often what is needed is the transfer of organisational as well as individual knowledge. Teece concludes that, while an individual may understand a part of the company jigsaw

extremely well, and may indeed understand where the piece fits into the puzzle as a whole, removed from its organisational context that individual’s knowledge may be of little value.

Kogut (1988) points out that the market is best replaced by the IJV mode not where tacitness is a cost stemming from opportunism, but rather from the need to replicate experiential knowledge which is not well understood. More generally, tacitness is an aspect of the capital stock of knowledge within a firm. He argues that there is an important distinction between this “knowledge capital” embodied in particular individuals, which may be tradeable in the labour market, and knowledge capital embodied in organisations as skills and routines. The only way of obtaining the latter may be to replicate or take over the organisation itself.

To put it more simply, there are two types of knowledge: explicit knowledge and implicit knowledge. The first is relatively easily transferred between firms. A market transaction may function as an instrument to acquire and assimilate this kind of knowledge (Inkpen, 1998). Hence, knowledge can be transferred through whole industries and become accessible to most firms regardless of whether they form IJVs. The second type of knowledge is highly embedded in host firms and thus may be extremely difficult to access through a market transaction. There is, accordingly, a need to transfer such tacit knowledge by establishing a closer and more interactive relationship with the firms who possess it (Hamel, 1991; Lyles and Salk, 1996). From this standpoint, IJVs can be the means that makes it possible for knowledge and skills to be transferred from one partner to another.

The organisational knowledge and learning theory perspective, then, views IJVs primarily as a means by which firms may acquire organisational knowledge which it is otherwise difficult to obtain. Some forms of knowledge cannot be readily transferred by way of a market transaction, so the need arises to establish IJVs so that “tacit” knowledge and skills can be transferred from one partner to another. From the viewpoint of this theory, establishing an IJV will make good sense if either of two conditions are met: a) one or both firms desire to acquire the other’s organisational know-how, or b) one firm wishes to

maintain its existing organisational capabilities while benefiting from another firm’s more up-to-date knowledge.

The organisational knowledge and learning approach has been citicised for being excessively abstract, and probably more applicable to knowledge-intensive industries (Kogut, 1988). Furthermore, the applicability of the theory to analysing the strategic alliances which are IJVs is also seen as being limited by cursory analysis of the role of knowledge in alliance relationships and the presumption that the goal of alliances is to facilitate organisational learning. This emphasis on learning – the acquisition of knowledge fails to recognise the central attribute of the strategic alliance as an organisational mode which can reconcile the benefits of knowledge specialisation with those of flexible integration. The theory is said to lack “clear specification of the role of knowledge in alliance formation”(Grant and Baden-Fuller, 2004: 77).

Robson et al (2002) argue that learning is not a key factor for many firms engaged in IJVs; hence, learning outcomes may have little effect on IJV business performance. They add that, “quantitative study on the topic has not been able to elucidate how learning processes unfold over time” (Robson et al, 2002: 389). Also, Huber (1991) argues that this theoretical approach lacks the depth of cumulative work and fails to synthesise the work of different organisational learning research groups.