Knowledge perspectives: a multi-level review

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Knowledge perspectives - a multi-level review ARTICLE · APRIL 2010

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1 AUTHOR: Silburn Clarke The University of the West Indies at Mona 18 PUBLICATIONS 1 CITATION SEE PROFILE

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Building a knowledge society one individual at a time: a multilevel review

Working Paper

Silburn St. Aubyn Clarke DBA Candidate University of the West Indies Faculty of Social Science Mona School of Business and Management Date:

Mar 31, 2010

Abstract This paper is a brief treatise on various knowledge perspectives based on a review of the literature. It begins by examining the epistemological foundations of knowledge. Paper then situates knowledge within the individual, examines theories that explain the socialization and collectivization of knowledge from the individual to the firm, review the role of knowledge in the firm’s search for competitive advantage and finally examine knowledge at the macro-economic level

1.

How we know what we know. The foundation of knowledge The Functionalist paradigm holds an objective view of reality, concerned with explaining how

organizations and society maintain order, Burrell and Morgan (1979). Positivism, which is one view as to how knowledge is created and which is highly favoured by researchers, theorizes that behaviour can be predicted and that cause-and-effect relationships are clear and pervasive Burrell and Morgan (1979). Functionalism strongly emphasises the pre-eminence of the social whole over the individual parts (human actors). This contrasts sharply with the Interpretivist paradigm which holds a subjective view of reality and its anti-positivist epistemology which is concerned with explaining individuals’ perception of organizations and society and which seeks to understand the subjective individual and organizational processes that shape and control behaviour. In the interpretivist paradigm, explanations of human behaviour and all aspects of organizational life, are socially constructed, also known as constructivism.

the perspective of

Consequently, to understand the processes that constructed an individual’s behaviour,

researchers must gather data that reveal an individual’s subjective experiences, the interpretive lenses that give meaning to that experience, as well as the organizational factors and contexts that create these expressions. Knowledge therefore flows from the objectivist or subjectivist metal frames of individuals. As illustrated n Exhibit 1, functionalists take an objective perspective and tend to have a realist ontology, a positivist epistemology, a deterministic vew of individuals, and a nomothetic methodology. Interpretivists on the other hand, take a subjective perspective and tend to have a nominalist ontology, an anti-positivist epistemology, a voluntarist view of individuals, and a ideograpic methodology, (Grant and Perrin, 2002). Individuals construct "small-scale models", in their minds, of the entities and relationships which they perceive to form the external reality in order to anticipate and explain events, Craik, (1943).

Exh 1: Adapted from Burrell and Morgan (1979) cited in Grant and Perrin (2002); Bernard (2000)

2.

The individual as knower The literature often makes a distinction between data, information and knowledge. In this review we

will make only two distinctions ; knowledge and data, with information being regarded as an attribute of both. Knowledge has been defined as “a mix of framed experience, values, contextual information and expert insight that provides a framework for

evaluating and incorporating new experiences and

information…” Davenport & Prusak (1997). Knowledge can be regarded as personalized information possessed in the mind of individuals: it may or may not be new, unique, useful, or accurate and it is related to facts, procedures, concepts, interpretations, ideas, observations, and judgments (Alavi & Leindner, 2001). Knowledge does not exist outside of an agent (a knower): it is indelibly shaped by one’s needs as well as one’s initial stock of knowledge (Fahey & Prusak 1998; Tuomi 1999).

On the other hand,

knowledge that is explicit and codified is transformed to data, becomes transmittable and ceases to be true knowledge (Soo, Devinney, Midgley & Deering 2002). The individual’s mental models are framed from their prior knowledge and experience, is dynamic and situational, is parsimonious and determine how they act in the world (Craik 1943; Senge, 1990).

3.

Translation of knowledge of individuals to the knowledge of the firm The literature is rich with theories to explain the transformation of individual knowledge into

organisational knowledge. We will explicate two; the theory of organisational learning and the theory of structuration.

The Theory of Organisational Learning : The literature on organisational learning have included contributions from many researchers each varied in their focus from information processing, product innovation to managerial cognition, Cangelosi

& Dill (1965), Crossan & Guatto, (1996), Huber (1991), Nonaka & Takeuchi (1995). March & Olsen (1975). Argyris & Schön (1978) opined that the organization was an artifact of individual ways of representing organization and positions organisational learning as being concerned with the active process of organizing. Individual members are constantly engaged in a process of seeking to know themselves in the context of the organization as well as knowing the organization itself, Argyris & Schön (1978). Argyris et al (1978), differentiated between single-loop learning and double-lop learning based on how organizations detect and correct errors. Single-loop learning occurs when errors are detected and corrected thereby permitting the organization to carry on the execution of its present policies or achieve its present objectives while double-loop learning occurs when errors are detected and corrected in ways such that there is a modification of the organization’s underlying norms, policies and objectives. Argyris et al (1978). Single-loop learning enhances efficiency and resource exploitation, whereas double-loop learning enhances innovation and resource exploration, Kraaijenbrink Spender & Groen (2010). While new knowledge is created by individuals, the organization plays a critical role in articulating and amplifying that knowledge through a continuous dialogue between tacit and explicit knowledge, Nonaka (1994). A deficiency of many of the organisational learning theorists was a lack of linkage between individual, group and organisational levels (Crossan, Lane and White 1999). The 4I framework of organisational learning, Crossan et al (1999), offers an often cited explanation of the dynamic process of learning

- Exhibit 2.

The Theory of Structuration: The theory of structuration postulates that the basic domain of the study of social sciences is neither the experience of the individual actor nor the existence of any form of societal totality, but understanding and explaining how social practices are ordered over a time-space continuum. Giddens (1984) employs the concepts of duality of structuration to explain the dynamic relationship between human agency and the structure of social systems. Instead of agency and structure standing separate and opposed, they are brought together in a “duality of structure,” that is structures are reproduced and transformed only through agency,

and agents can come into existence only within a structured environment. Agency and structure are treated as distinct but thoroughly interdependent and cannot exist separately.

Giddens defines structures as

referring to “structuring properties” of social systems which allows for the “binding” of time-space in these social systems and so enable discernibly similar social practices to exist across varying spans of time and space.

Structuration as a second-order metatheory is situated in the transition zone between the

functionalism and interpretivism paradigms, Yang and Miller (2008)

Exh 2: after Crossan White and Lane(1999)

Knowledge plays a central role in the Theory of Structuration. Structures are codes of behaviour, implicit stores of knowledge that exist in human beings, that steer individual and collective organizational action (Giddens, 1979, 1984, 1987, 1993). In other words, structures are an individual’s mental blueprints for action within specific organizational contexts. Both the organizing patterns and the behaviours that result from them are changeable. Structures are either reinforced or modified, sometimes radically but more often than not incrementally, by individual actions and, in general, by the flow of ongoing organizational

behaviour. The actions of individuals produce and reproduce structures and are simultaneously formed by them. Human agents are characterised as having “knowledgeability”. “knowledgeability”

At its core, the concept of

refers to an awareness of social rules expressed primarily in the practical

consciousness. As social actors, all human beings are therefore highly learned in respect of the knowledge which they posses and apply in the production and reproduction of day-to-day social encounters; the vast bulk of such knowledge is practical rather than theoretical in character. The cycle of knowledge update by human action is said to occur as a “duree” ie a continuous flow of conduct. This human action involves reflexive monitoring, rationalisation and motivation of action as three embedded and interrelated processes. The continuity of social reproduction of organizations is based on the reflexive monitoring of social activity by the human agents. Reflexivity both enables the continuity of practices across the time-space continuum as well draws influences from those practices and in so doing modifies knowledge. Routinization of actions occurs when the actors reflexively monitor their actions and store these as into their practical consciousness or incorporate those actions for future use, Berends, Boersma and Weeggeman (2003); Heracleous and Hendry (2000). Encounters and episodes facilitates interaction from which, through reflexive monitoring, knowledge is routinely modified. The reflexive monitoring of activity is a chronic feature of everyday action and involves the conduct of not just the individual but also of others. The bulk of this knowledge from encounters, termed “mutual knowledge”, is practical, is not directly accessible to the consciousness of the actors, and helps with the routinisation of life.

4.

Knowledge: a source of a firm level competitive advantage

Modern firms in the knowledge economy compete on knowledge as their primary asset. In the modern world the factors of production best able to yield the highest Ricardian rents are founded on knowledge, with superior knowledge leading to superior product designs, production systems and labour force

(Liebeskind 1996). Knowledge can be tacit/explicit, codified/non-codified. The act of transformation makes codified knowledge subject to possible imitation. Despite legal protection mechanisms, codified knowledge can be imitated, bought, stolen and copied. Knowledge in and of itself is of little value to the firm unless the firm has a capacity to exploit knowledge as well as a capacity to protect that knowledge from imitation. Organizational knowledge at the “core competency” of the firm comprises both “knowwhat”, or explicit knowledge, and the more elusive “know-how” which represents an ability to put knowwhat into practice and while know-how is embedded in work practice and is consequently relatively easy to protect, in contrast the explicit know-what is harder to protect due to its ease of movement and transport, Brown & Dugiud (1998).

The key differentiator for sustainable competitive advantage are resources and capabilities which are valuable, rare, inimitable and for which there is an organisational capacity to exploit (Barney 1991). Intangible resources and capabilities provide the greatest potential for sustainable competitive advantage (Barney, 1991). These include

intangible assets such as organizational learning, brand equity, and

reputation , Penrose (1959); Rumelt (1984, 1987); Barney(1986) ; Spender (1994) ; Grant (1996). Simple assets that are easily imitated could not have formed the foundation of the resource based view of the firm, (Schendel 1996). Competitive advantage that is created from knowledge assets should offers an explanation as to how firm sustainability conditions arise and how they are maintained, (Schendel 1996). Know-how is the most difficult-to-imitate asset of the firm, Teece (2009)

For knowledge management systems, to contribute to the sustainable competitive advantages of the firm they must overcome the challenges associated with the management of the valuable non-imitable intangible tacit knowledge, or know-how as opposed to know-what, of the firm.

The knowledge-based theory of the firm (Grant 1996) attempts to provides an alternative theoretical framework by positioning knowledge as the pre-eminent resource of the firm and organisational capability

as the firm capacity for integrating the various strands of knowledge within the firm for competitive purposes. At its core, tacit knowledge is acquired by and stored within individuals in highly specialized form, (Grant 1996).

From the perspective of the Theory of Dynamic Capabilities, firm capabilities can be categorised as dynamic or operational. Both capabilities comprises routines of two types; routines to perform individual tasks and routines that coordinate individual tasks, Helfat & Peteraf (2003); where routines refer to a ‘repetitive pattern of activity’ (Nelson and Winter, 1982). The latter suggests that a capability involves coordinated effort by groups of individuals; or teams. Dynamic capability has been defined as “a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness”, (Zollo and Winter 2002). Dynamic capabilities can be further categorised into first-order and high-order (or second-order) capabilities with the latter driving the changes which occur both at the first-order dynamic capabilities level and at the operational routines level, Zollo and Winter (2002), Collis (1994) and therefore having the greatest impact on the organization’s trajectory, Guttel & Konlechner (2009).

The Theory of Entrepreneurship attempts to answer the question, ‘how do firms recombine and reconfigure knowledge to create and sustain the competitive advantage of the firm ?’

While the domain of

entrepreneurship theory is still unsettled, the Schumpeterian Theory of Entrepreneurship probably holds the best promise for creating a unified theory (Swedberg 2009) for answering this question. The innovating entrepreneur serves as the agent for combining and recombining knowledge in order to create a competitive advantage for the firm (Schumpeter 1912, 1934). Entrepreneurial intuition, which is identified as the key determinant for firm success (Schumpeter 1912), is primarily a decision-making concept linked to

knowledge, opportunity recognition and judgement by “entrepreneurs” who are distinguished from “caretakers”, Allinson, Chell & Hayes (2000).

5.

Knowledge: the engine for modern macro-growth and wealth The Schumpeterian definition of entrepreneurship placed an emphasis on innovation, such as new

products, new production methods , new markets and new forms of organization.

Wealth

is

created when such innovation results in new demand. Entrepreneurship converts the creativity founded in knowledge into economic expression. Innovating entrepreneurs challenge the incumbent firms with their new innovations thereby making inefficient products and services obsolete. Schumpeter (1912) termed this process “creative destruction” and posited that the function of the entrepreneur was to innovatively combine the various input factors so as to generate value to the customer such that this value exceeds the cost of the input factors, resulting in the creation of both personal and national wealth.

The theory of economic development that the young 29 year-old Austrian Joseph Schumpeter advanced in 1912 was revolutionary at the time and continues to resonate today, nearly a century later. This theory was founded on the innovating entrepreneur at its centre and being critically supported by financial intermediaries enabling technological innovation and economic development. Schumpeter’s developed theories of economic development and of entrepreneurship. His theory of entrepreneurship did not gain traction. In that era entrepreneurship was rarely acknowledged as having a role in economics. Finance was not considered to be an important factor for development and, indeed, was thought to follow economic growth, Robinson (1952).

Our review of the theories for economic growth therefore revealed an emphasis by early theorists on capital formation and unskilled labour supply.

Nobel Scholar Solow (1956) developed a model of

economic growth based on the neo-classical production function. In this model he identified two key factors of production ; physical capital and unskilled labour. These were econometrically linked to explain economic growth. The Solow theoretical growth model was generally adopted by policy makers, in the mid to late 20th century, who devised various instruments to induce investments in physical capital as the key to generating economic growth and advances in worker productivity.

The main mechanism for

inducing higher growth rates was generally viewed as investments in physical capital. The economy characterized by the Solow model was capital-driven. Increasing labor could increase the level of economic output, but not the rate of economic growth. In the Solow model, technical change was acknowledged to have an influence on the production function, but it was treated as exogenous. In the context of emerging economies, Lewis (1954) writing in the same period, developed a theory of economic growth for developing tropical economies based on their relationships with the developed world. Lewis was a Caribbean man. His contribution reinforced the classical underpinnings of Solow’s theory that in many economies an unlimited supply of labour was available at a subsistence wage and that in these economies, employment expands as capital formation occurs. He established two requirements for a developing nation to become the desired recipient of capital investment, whether that investment was domestically or internationally based, and hence to achieve economic growth. The first was that wage levels, which reflect that a surplus pool of labor, existed and can be exploited profitably. The second requirement related to living standard. The labor force must possess enough physical energy to work”. Houseman & Maung (1992). Lewis (1954) indicated that the main sources from which workers came into the economy as development proceeded was from subsistence agriculture, casual labour, petty trade, domestic service, wives and daughters in the household, and the increase of population. In economic expansion, lack of skilled labour would only create a temporary or “quasi-bottleneck,” as the bottleneck would be quickly removed (in the environment where capital was available for development), by the

capitalists or their government quickly providing the facilities for training more skilled people. Lewis posited that the real bottlenecks to economic expansion was therefore primarily capital and to a lesser extent, natural resources. He also summarily dismissed the Schumpeter 1912 work as “very much narrower in scope than its title implies” In the late 20th century a shift began to be detected. A study of employment data of 19 European countries detected that the share of employment by small firms began to show increases commencing around 1988 and persisted with continuing increases since then, EIM (2002). This shift was also detected by Blomstrom, Lipsey & Zejan (1996) who found that while the previous conventional view was that the empirical data generally supported the classical economic growth models that fixed capital formation was associated with economic growth, a deeper causal analysis suggested that growth induced subsequent capital formation even more than capital formation induced growth as Solow and Lewis suggested in the 1950’s , confirming that the drivers for growth was no longer capital. Carree & Thurik (2005), analyzing business ownership data from 23 OECD economies, pointed to the detection of a distinctive U-shaped curve, reflecting the transition from large, capital-intensive firms to smaller, knowledge-based entrepreneurial firms in those developed countries. This they interpreted as evidence of a structural shift in these economies from a traditional to, what they termed, an entrepreneurial economy. The main attributes differentiating the managed and entrepreneurial economies are outlined in the Exhibit 3 below.

Exhibit 3: New Economy versus Old Economy (adapted from Audretsch and Thurik, 2001a)

CATEGORY

ENTREPRENEURIAL

Underlying forces

Localisation

Globalisation

Change

Continuity

Jobs with high wages

Jobs with low wages

Turbulence

Stability

Environmental

How firms function

Government Policy

Economic Factor

MANAGED

Diversity

Specialisation

Heterogeneity

Homogeneity

Motivation

Control

Market exchange

Firm Transaction

Competition and cooperation

Competition or cooperation

Flexibility

Scale

Enabling

Constraining

Input targeting

Output targeting

Local locus

National locus

Entrepreneurial

Incumbent

Knowledge

Land, Labour, Capital

An earlier study by Audretsch and Thurik (2001a) established the framework of two broad concepts of organising economies, viz the managed economy and the entrepreneurial, or knowledge, economy. The

managed economy as characterized by Chandler (1977,1990) thrived for nearly three-quarters of a century when the environment was relatively certain, in outputs, manufactured products and in inputs land, labour and capital. The knowledge economy emerged beginning in the 1990’s as a response to the global events of that period. The main drivers were;

• Globalization / ICT revolution shortening economic distance • Routinized tasks shifting from high-cost zones to low cost zones

• High-cost zones re-aligning to leverage comparative advantage in high-value knowledge industries and services.

The maintenance of high wages requires knowledge-based economic activity that cannot be costlessly diffused across geographic space. This dynamic and sustainable response of societies to the trend establishing knowledge as the main source of comparative advantage was defined variously as the

knowledge economy and the entrepreneurial economy.

Writing in an OECD research paper Audretsch and Thurik (2001b) positively associated changes towards entrepreneurship to an acceleration in economic growth and sought to move away from a macroeconomic explanation of growth to one based on industrial organisation. They posited that growth could be explained by the increasing efficiencies in scarce resource allocation based on more efficient industry structures. They identified the growth in the OECD to be fed by the creation of new ideas based on tacit knowledge that could not easily be transferred across distance. Thus, the comparative advantage of the high-cost countries in the OECD was increasingly based on knowledge-driven innovative activity whose “spillover” was restricted spatially. As a result of this spatial restriction, third-party entities were required to be in close proximity to centres of knowledge thereby triggering an increased need and importance of small entrepreneurial firms as the locomotive for competitiveness and growth. As knowledge increases in

importance as a source of international competitiveness, so does the role of small entrepreneurial firms. Their work was supported by (van Stel, 2003). Work by GEM over the recent past has created a growing body of data that track and monitor the transformation across the globe of nation states into entrepreneurial societies and economies led by an acceptance, based on growing empirical evidence, of the importance of entrepreneurship to economic growth and development, Bosma, Jones, Auito & Levie (2007).

More

recent studies of 140 countries and using 83 structural and qualitative variables by the World Bank has found a strong correlation (87%) between knowledge economies and economic growth WBI (2008) . At the country level, the World Bank has developed an assessment method for measuring what it terms as the “readiness” of nation states to develop knowledge economies. Knowledge economies are founded on four key pillars, the first of which is the “economic and institutional regime for providing incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship” WBI (2008). Other elements of the knowledge assessment method (KAM), includes variables on human development, ICT and the innovation system. Knowledge is not the same as Total Factor Productivity (TFP), and although it is sometimes used interchangeably, TFP is a broader concept applied to the endogenization of technical progress in economic growth models. It is difficult to single out the contribution of knowledge to TFP (WBI, 2008). Lipsey and Carlaw, 2004 posits a definition of technological knowledge as “the idea set that specifies all activities that create economic value” and comprising knowledge on process, product and organizational technologies. They contend however that TFP measures only the super normal gains associated with such technological changes and not the technological change itself.

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