Towards a Knowledge Theory of the Firm- Memo on Grant 1996 BY Attendants Toward a knowledge-based theory of the firm ROBERT M. GRANT , 1996, SMS Presentation of the article The different theories of the firm when applied to the field of strategic management help explain firm performance and the determinants of strategic choice from different perspectives. The knowledge-based view, through its focus upon knowledge as the most strategically important firm resource, is seen here as an extension of the resource-based view.
The issues with which the KGB concerns itself extend beyond he traditional concerns of strategic management and tap into the domain of the theory of the firm – the nature of coordination within the firm, organizational structure, the role of management, the allocation of decision-making rights, firm boundaries, and innovation. In this article, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members.
In contrast to earlier literature, knowledge is viewed as residing thin the individual, and the primary role of the organization is knowledge application. Grant avoids defining knowledge and concentrates on establishing those characteristics of knowledge which have critical implications for management. He looks at several features from the RUB with specific meaning when applied to the concept of knowledge. First, Transferability is used to make a distinction between tacit and explicit knowledge and the cost implications following.
This distinction on the nature of knowledge, in turn, affects the Aggregation of knowledge and hence the exults of the transfer of knowledge. Continuing with the concepts from RUB, Grant poses that Profitability – or the return received from a resource – is with small exceptions impossible in the case of knowledge due to unclear property rights. Furthermore, Specialization of knowledge is inevitable due to biological and cognitive constraints. Finally, for the sake off KGB theory of the firm, Grant takes the assumption that all human productivity is knowledge dependent – the critical inputs for production are embodied in knowledge.
From these precepts, it follows that firms exist, as an alternative to market transactions, in order to provide a necessary environment for the individuals to create knowledge and to apply that knowledge. In Grant’s view individual, but not firms create knowledge – the firms coordinate this activity from the individual to the product. While not denying that organizations can learn through embodying knowledge in routines (Levity and March, 1988), Grant chooses to concentrate on the organizational processes through which individuals create, store and specifically deploy knowledge.
Further he conceptualizes firms as integrators of individual knowledge and managers of team production. The conceptualization of a firm as a coordinating body of individuals brings up the issue of achieving cooperation for the sake of integration of knowledge and hence organizational design and managerial choice must be considered. Four mechanisms sequencing; routines; group problem solving and decision making. The focus is on structure and activity, while considering costs.
A further coordinating mechanism is common knowledge interwoven into language, symbolic communication, commonality f specialized terminology, shared meaning, awareness of others’ knowledge domains. Finally, organizational capability – the outcome of knowledge integration – defines the future ability of the firm to harness and integrate more knowledge. Grant sees this as a determinant of competitive advantage – integration of knowledge foments the sophistication of common knowledge and hence the maintainability of the knowledge as a critical firm resource.
The implications of these concepts for firm structure can be seen in the hierarchical organization of a firm and the location of session-making within it. Grant analyses hierarchy as a coordinating mechanism for knowledge – given the implications from the insights so far, the appropriate organizational structure does not match hierarchy, even though it is “an efficient mechanism for coordinating a complex system comprising multiple specialized units” (Simon, 1981, in Grant, 1996). The appropriate organizational design for the effective integration of knowledge, however not identified, seems to be team-based, fluid, matrix and participative.
The decision-making, hence, follows this design having idiosyncratic knowledge related decisions decentralized and quantifiable explicit knowledge decisions centralized. The boundaries of the firm, in the view of the KGB, should consider the knowledge dialogue between phases of production and constellation of products. That would suggest that efficient knowledge use might come from congruence between the knowledge domain of the firm (its individuals) and its product domain; and the trading of any incongruence through strategic alliances.
Grant concludes that KGB offers distinctive recommendations on organizational design and corporate management, insights on organizational innovations and trends, as well as on the nature of the firm. Its highest potential is seen in shedding light on coordination within the firm and issues of conflicting goals. Grant holds that concentrating on the role of the individual will allow the KGB to make significant progress. The direction he is suggesting is toward a theory on knowledge creation and knowledge application together.
Comments In this article, Grant makes the point of positioning KGB as an extension of RUB which sees distinctive and valuable insights looking at organizations through the prism of knowledge. Despite the ever-growing body of literature on knowledge, however, and the clarity regarding Kbps potential contribution to the study of organizations and strategic management there is still a frustrating lack of conceptual clarity. There is still need of a theory of knowledge and learning, even a theory of organization, that would enable understanding of organizational knowledge.
The distinct features here are the recognition of the individual as creator of knowledge and the emphasis on he organizational role as a manager of this knowledge. KGB would in this way offer a framework to study how learning processes emerge, how the learning behavior of experts is shaped, how knowledge management modes work, how they need to be configured in order to govern the organization’s development path, and how organizational design and social norms complement each other to facilitate strategic learning.
Furthermore, a focus on individuals as creators and the firm as coordinator, some aspects, whose role does not match fully Grant’s view. One is seeing the organization as a depository of learning, not only an accelerator/moderator/ coordinator of learning – the routines which at the same time manage the learning process and contain it independently from the individuals (for example: Gees, 1988).
Furthermore, the boundaries of the firm would indeed be affected by a consideration of knowledge flows, however that effect would hardly only reside in the firm selling incongruent knowledge through alliances. Moreover, the realist stream of research claims that knowledge creation is an incorrect concept and that research should peak rather of discovery or acquisition to avoid conceptual confusion about what knowledge is.
Grant’s avoidance of going into the nature of knowledge may pose challenges on how to find ways to segment, detect, represent, and make visible knowledge assets and their dimensions that, in turn will make ‘managing knowledge” possible. Finally, the knowledge – as individual’s property – is mostly seen as expert knowledge in Grant’s view. Does that exclude specific knowledge created only in the environment of the firm: the relationship knowledge with customers; the partnership ND alliance knowledge with our vendors and suppliers – the overall business knowledge creation?
It seems Grant’s article could benefit from further research into defining and refining the concepts behind the KGB in order to answer questions like Is it possible to create a work environment that nurtures and accelerates the expansion of knowledge? If so, what are the critical social, cultural, and technical attributes of such an environment? What is the collective knowledge in business processes that crosses functional and organizational boundaries?