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EDITORIAL Innovative research in management

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he ‘‘new’’ global/network/communication/knowledge/information economy has dramatically changed the conditions for business and management. At the same time the complex and dynamic economic, political and industrial context of a Europe in transition has created a fertile ground for innovations in management thinking. Eager to discuss contemporary research over 650 people gathered in Stockholm in early May 2002 to participate in the second annual European Academy of Management (EURAM) conference. * The conference was devoted to the exploration of ‘‘Innovative Research in Management’’, a theme that stems from the need to develop novel conceptions of management in business contexts. This theme is characterised by an increasing number of opportunities related to technological and business sector convergence as well as changes in markets and flows of capital. There is also a growing interest in developing concepts and methods that fit the rapidly changing European business and management context. This includes for example European multiculturalism and political pluralism, the historical and philosophical roots of European research traditions and the transformation of the European e-economy due to technological and institutional changes. EURAM was created in response to a growing insight among scholars in management, that European researchers have a need for a common academic platform for increased research co-operation across national boundaries as well as for the development of European research traditions. EURAM is an open, international and multicultural European Forum for networking and research in management. EURAM emphasizes multidisciplinary theoretical perspectives and methodological pluralism as well as critical examinations of the historical and philosophical roots of management theory and praxis. Scholars from all fields of management were invited to jointly participate in the exciting exploration of innovative and creative ways of theorizing, conceptualising and studying management and business. # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

Contents of this issue The complexity and dynamism of the Conference is reflected in the articles we present here. Rodriguez, Ricart and Sanchez investigate the proposition that the pursuit of sustainable development fosters the persistence of competitive advantages based on knowledge and innovation. They present a proposal for a dynamic and sustainable view of the firm. The theme of knowledge creation is continued by Breu and Hemingway, who challenge the convential wisdom that the ‘stickiness’ of knowledge might be caused by a lack of motivation to share information. Adopting a case study approach they examine the informal mechanisms for knowledge sharing within a Community of Practice (CoP) and conclude that the human need to share information can benefit the organisation that knows how to tap into this aspect of human behaviour. Royrvik and Wulff build on the knowledge-sharing theme by suggesting that the twin principles of organisational myths and rituals, as they put it, broaden the opportunity structures to share knowledge within work environments. A specialised form of knowledge sharing is new product development and in his article Laurent Borgeon draws attention to the importance of the perception of time within the product development process. He argues that two differing conceptions of time within a project will affect the realisation of collective learning during new product development projects. In their article Kate Hutchings and Georgina Murray address a different form of knowledge collection, that of the knowledge that exists within the guanxi or family networks within Chinese society. They argue that the network built during fifty years of state-owned enterprise may not fit the needs of the larger multinational corporate businesses in today’s China. Patrick Reinmoller and Li-Choy Chong return to the theme of the perception of time by examining the relationship between time and knowledge processes. Their article integrates the time lens and the literature on the knowledge based view to develop four different time contexts that can enable different

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organisational knowledge processes. Mona Skaret, Kjersit Bjorkeng and Katja Maria Hydle identify the efforts towards mobilising and recreating knowledge as an integral part of value increasing activities. They chart the activities of a large telecommunications company in their attempt to manage non-financial issues in the running of the company. In our final paper, Will Mitchell, Pierre Dussauge and Bernard Garrette carry out a comprehensive study in which they examine

the links between alliance creation and alliance governance across a wide range of companies in Asia, North America and Europe. They suggest that the governance mechanisms adopted will vary according to the type of alliance undertaken, with consequent implications for the way key resources can be protected and knowledge shared. Peter Svensson Susan Moger

* For details of EURAM visit the website www.sdabocconi.it/en/eventi/euram/

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Sustainable Development and the Sustainability of Competitive Advantage: A Dynamic and Sustainable View of the Firm Miguel A. Rodriguez, Joan E. Ricart and Pablo Sanchez Does the need for sustainable development hinder businesses’ ability to create value? Is a firm’s competitiveness negatively affected by considering that need? After quickly reviewing the main literature contributions on the relationship between business and society, and drawing from resource-based view of the firm and sustainable development literature, this paper presents a proposal for a dynamic and sustainable view of the firm. It shows how considering the changes introduced into the competitive landscape by sustainable development influences the way in which companies develop their resources, capabilities and activities, fostering the persistence of competitive advantages based on knowledge and innovation.

Introduction: views of the relationship between the firm and society

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he relationship between businesses and society has been extensively treated in management literature. From the efficiency view, the social responsibility of businesses is to increase their profits (Friedman, 1970) with no other limits than those established by law and common decency (Sternberg, 1999, working paper; Jensen, 2001). There are other strands of literature that consider that there is or should be a closer relationship between businesses and society. The most important of these refer to corporate social responsibility (CSR1), which basically states why corporations should be socially responsible or not; corporate social responsiveness (CSR2), the purpose of which is to describe firms’ responses to social demands; corporate social performance (CSP), which started as a way to embrace the main contributions of CSR1 and CSR2 and later focused on the outcome of corporate behavior; and stakeholder theory (ST), the aim # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

of which is to determine to whom firms are responsible and how and why companies should manage their relationships with them. As figure 1 shows, all the above theories take one or more of the following approaches: the normative approach states what firms should or should not do; the descriptive approach explores what firms in fact do; and, finally, the instrumental approach posits that companies will obtain specific outcomes if they adopt specific behaviors. There have also been fruitful attempts to blend these approaches into what we have called an integrative approach. Considering that the sustainable development concept involves economic, social and environmental factors (Gladwin et al., 1995), and how the dynamic view of the firm (Ghemawat, 1999) explains the sustainability of competitive advantages, the theory developed in this paper nicely fits into what could be labeled a dynamic and sustainable view of the firm. Before introducing our proposal of a dynamic and sustainable view of the firm, we will briefly review the main features of these two views of the firm in relation to this proposal.

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Approach Normative

Descriptive

Instrumental

Mixed

Firm view Efficiency

CSR1

Friedman (1962, 70) Bowen (1953) Frederick (1960) Davis (1967, 73) Preston & Post (1975)

Ackerman (1973, 75) Blacke (1974) Ackerman & Bauer (1976) Sethi (1979) Strand (1983)

CSR2

Wartick & Cochran (1985) Wood (1991) Clarkson (1995) Swanson (1995)

Sethi (1975) Carroll (1979) Swanson (1999)

CSP

Stakeholder theory

Jones (1980)

Carroll (1989)

Brenner & Cochran (1991) Mitchell, et al. (1997)

Freeman (1984, 99) Jones (1995)

Jones & Wicks (1999) Donaldson & Preston (1995)

Figure 1. Business and Society Relationship Views

The dynamic view of the firm It is well known that the purpose of all business strategies is to reveal how a business can persistently create more value. Achieving this goal largely depends on industry attractiveness and individual business positioning. A successful business position will, moreover, depend on the persistence of its supporting competitive advantages. Business management literature has analyzed the persistence of competitive advantages

mainly based on two theories: the resourcebased business theory (Wernefelt, 1984; Barney, 1991) and the activity-based business theory (Andrews, 1971; Porter, 1996). In general lines, the former emphasizes the resources and capabilities generated by the business and the latter, business activities themselves. Both lines of thought have been successfully inter-related beneath the value creation umbrella in the dynamic business view theory (Ghemawat, 1999). As shown in graph form on figure 2, resources, capabilities and activities enable the

Figure 2. The Dynamic View of the Firm and the Sustainability of Competitive Advantages (adapted from Ghemawat, 1999)

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creation of persistent competitive advantages in so much as they are difficult to imitate and substitute by current or potential competitors. As we will explain later, accepting the responsibilities associated to sustainable development furthers the persistence of competitive advantages.

The sustainable view of the firm The sustainable view of the firm is based on the need for companies to fully accept the fact that the business world is part of the natural (Shrivastava, 1994) and social (Eells and Walton, 1961; Davis and Blomstrom, 1966) system; this fact has two dramatic implications for the corporate world: acceptance of the scarcity of natural resources (Hart, 1995) and the notion of business and society’s co-responsibility related to the use and development of social resources (Eells, 1960; Frederick, 1987). The sustainable view of the firm is based on four pillars (see figure 3). All of them relate to each other and support the idea that firms should create sustainable value (that is to say, economic, social and environmental value) in the double sense of the word sustainable: in a persistent way and coherently with the principles of sustainable development. Also, the normative and instrumental approaches co-exist in them all.

Physical reasons Up to the middle of the 20th Century, industry and trade were able to grow as if there were no natural constraints. This was possible

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because the global consequences of these activities on the planet were quite limited, or even negligible. The magnitude of the pollution and use of natural resources derived from industry and trade was not sufficient to represent a threat to the biosphere. In the last few decades, the physical limits of our planet, both as a provider of resources and as a sink for waste disposal, have been well established in theories, studies or concepts such as ecosystems biodiversity (Constanza et al., 1992; Gladwin, 1993; Hawken, 1993), carrying capacity (Daly and Cobb, 1989), the limits to growth (Meadows et al., 1972; Meadows et al., 1992) or ecological footprint (Wackernagel and Rees, 1996). According to a systems approach to strategy, companies must broaden the environment that they take into account, including our natural environment. Physical reasons Examples Normative approach

Firms should consider this reality in order not to threaten the survival and development of present and future forms of life (Shrivastava, 1994).

Instrumental Companies should consider approach this reality because natural constraints are bound to be one of the most important drivers of new strategic resources and capabilities (Hart, 1995).

Figure 3. The Four Pillars of the Sustainable Firm

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Social reasons In the past, the social role of corporations was practically limited to creating employment, paying taxes and operating within legal limits. And indeed, for some scholars this is still the case. In any case, this was possible when firms’ playing fields were clearly delimited and society, while entrusting the satisfaction of others’ needs to governments and other institutions, did not expect much more from businesses than fair conduct as providers of employment and products. Nowadays, society’s expectations have changed. One of the primary reasons behind this change is the globalization process. This process has transferred power from society to businesses, and society is demanding a parallel increase in their social responsibilities. Also, more educated and well informed citizens tend to be more sophisticated and, as a result, more demanding with firms. As polls confirm both in first world (MORI, 2000) and less developed countries (Millenium Poll, 1999), citizens are increasingly demanding that corporations play a more active social role and take this into consideration in their purchase or investment decisions. In any event, social pressures can be powerful enough to turn demands into laws. Therefore, the systems view of strategy involves a further broadening of firms’ environments to include society. Social reasons Examples Normative approach

Corporations should act upon both formal (legal) and informal social demands (Sethi, 1979).

Instrumental Social awareness will be approach rewarded, for instance, through work force satisfaction, better R&D management or reputation enhancement (Pfeffer, 1998; Atkinson et al., 1997).

Ethical reasons Companies are systems the structure of which is fundamentally based on people and the relationships between them. From an ethical point of view, to be members of a company or any kind of organization should contribute to people’s overall betterment as individuals. And it is obvious that this is not possible if they have to abandon their personal values

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when at work. Therefore, if as citizens people are demanding an increase in companies’ social obligations, they should be allowed to behave accordingly as employees. In short, the enlargement of firms’ environments to include nature and society involves an increase in their ethical obligations. Another important consideration from an ethical point of view is that the whole architecture of the western paradigm is based on the fundamental right for every human being to enjoy equal opportunities to run his or her life. However (UN Human Development Report, 2001), one out of five human beings has to survive with under 1 dollar a day and has no access to potable water; more than fifty per cent of the developing world lacks the most basic sanitation; one out of every six children receives no schooling; differences between rich and poor countries keep growing; per capita income in fifty countries is lower now than ten years ago; dozens of countries suffer endemic armed conflicts; democracy and respect for human rights are still the exception. Since the fundamental right to equal opportunities is still a wish, firms must help to make it come true. Ethical reasons Examples Normative approach

Firms have a social role and an ethical obligation to improve people’s living conditions and fight the most evident types of injustice (Gladwin et al., 1995).

Instrumental Firms’ ethical conduct will approach improve their internal cohesion and help to build confidence in their relations with their internal and external stakeholders.

Business reasons Business reasons are a result of physical, social and ethical reasons. If we again consider the three statements above representing an instrumental approach, we can easily agree on their business lineage. However, business reasons are not purely instrumental. If companies act correctly only because it pays off, it does not work. People and society look for coherence. And this is only possible when firms’ conduct is the result of profound beliefs and shared values among all their members. Therefore, business reasons are also normative. Or, better still, it is

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a perfect integration of the normative and instrumental approaches. This is the message at the core of this article: as we will explain in detail, considering the need to point towards a more sustainable development model deeply and positively affects the sustainability of firms’ competitive advantages. Business reasons Normative- Considering sustainable instrumental development for the right approach reasons enhances the sustainability of companies’ competitive advantages.

A dynamic and sustainable view of the firm We will now examine how the development of resources, capabilities and activities, their possibilities of imitation or substitution and the persistence of competitive advantages, are influenced by the idea of sustainable development. Once we have been reminded of the changes introduced into the competitive landscape by sustainable development, we will analyze how sustainable development influences the dynamic view of companies, and therefore the way in which they develop their resources, capabilities and activities. We will then consider the impact of these changes on the strategic nature of resources, capabilities and activities and, therefore, on their possibilities of imitation and substitution. Finally, we will see how all this affects companies’

Persistent competitive advantage

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reputation and capacity for innovation, and consequently the possibility of them persistently creating value (see figure 4).

A new firm landscape The speed and significance of technological changes and discontinuities has not come to represent the end of the industrial era, but its acceleration and growth (Senge & Carstedt, 2001). To use the term post-industrial era implies, as proposed by sustainable development, fundamental changes referring to how the economic system affects and is related to the social and natural system in which it operates. In this respect, sustainable development introduces the notion of the scarcity of natural resources and the co-responsibility of companies and the societies in which they operate for the development and use of social resources.

Scarcity of natural resources1 The industrial era began, developed and continues to operate based on the implicit idea that natural resources are of an unlimited nature. This has led the industrial system to be of a linear configuration, in which the basic elements follow a sequence consisting of extraction-manufacture-sale-use-disposal, generating waste at every step. This impact of this type of operation on the maintenance of natural assets was not severe as long as the level of development remained within certain limits. However, the acceleration and growth

Innovation Distinct business model Reputation

Creation of economic, environmental and social value

New capabilities and activities: valuable and difficult to imitate and substitute

New stakeholder relationships Sustainable Development and changes in the competitive landscape

Contractual

Contextual

Natural capital scarcity Co-responsibility business-society in social resources development

Consubstantial

Figure 4. A Dynamic and Sustainable View of the Firm

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of the number of beneficiaries, plus the ethical need to benefit the world’s entire population, has clearly identified the intrinsically nonsustainable nature of this development model. In this respect, acknowledgement of the scarcity of natural resources and, therefore, the need to reduce the use of these resources and the waste generated by business activities, may be of primary significance for the development of new capabilities and activities, which could create persistent competitive advantages (Hart, 1995).

Co-responsibility between businesses and society for the development of social resources In practice, businesses operate independently from the social and natural systems that surround them. Sustainable development introduces the need to change this both in business operations in developed countries and, particularly, in under-developed and developing countries. There are two reasons for this: the increasing transfer of power, and therefore responsibility, from society to the business world, derived from the globalization process, and the possibility of creating economic value for shareholders.2

Development of new resources, capabilities and activities Companies have to develop new resources, capabilities and activities for the acceptance of the idea of the scarcity of natural resources and the co-responsibility between businesses and society for the development of social resources to give rise to persistent competitive advantages. Considering the specific characteristics and circumstances of each company, these resources, capabilities and activities will be the result of establishing new relationships with stakeholders. This is evidently nothing new (Freeman, 1984; Jones, 1995; Donaldson & Preston, 1995). Indeed, firms have a large number of varied experiences in this field. What is proposed is that they take on new forms, based on new values and new content, so that they give rise to persistent competitive advantages. In any case, not all stakeholders or firms have the same characteristics. Therefore, although we will now provide a generic view of a sustainable business and its stakeholders, each company will need to develop its own.

Sustainable businesses and their stakeholders The stakeholders who are more or less common to most companies are the following: share-

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holders and investors, public administration, customers, local communities, countries and societies, opinion leaders, employees, financial institutions, suppliers and sub-contractors, and strategic partners. As we mentioned earlier, the relations between firms and their stakeholders are evidently not all of the same kind. Depending on what they are like, and with no implications for the importance of each of the stakeholders for companies, we can classify these relations as three main types or levels: the consubstantial level, the contractual level and the contextual level. By consubstantial stakeholders we mean the stakeholders that are essential for the business itself to exist. Contractual stakeholders, as their name implies, have some kind of formal contract with the business. Finally, contextual stakeholders play a fundamental role in obtaining business credibility and, ultimately, the acceptance of their activities (business license). They represent, moreover, the firm defense of common assets such as the environment, peace, safety, freedom and justice. Ultimately, of course, these relations will depend on the specific circumstances in each case. For example, in some situations, the relationship between a firm and its clients, or one client in particular, may be more consubstantial than contractual. In any case, we consider that this classification may be of help for companies that acknowledge the importance of improving how they manage their relationships with stakeholders. Initially, in spite of its generic nature, it provides an initial approximation and structured perspective of a certainly complex issue. Secondly, although each company has to build its own ‘relations map’, they are all likely to have relationships with stakeholders that could in one way or another be defined using these three labels: some are essential for the business itself to exist, others are the subject of primarily contractual relationships, and others will be the legitimate representatives of the social and natural systems in which the business operates. As we said earlier, this classification is not intended to introduce value judgements on their relative importance. Indeed, it is intended to emphasize the different nature of stakeholders and, therefore, the need for firms to establish the types of relationships that are most appropriate in each case. Figure 5 shows stakeholders classified according to the type of relationship in question. It can be clearly seen that, in addition to the bi-directional relationships between the firm and each stakeholder, there are also crossover relations between stakeholders that have to be taken into consideration by the business concerned.

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Figure 5. The Dynamic and Sustainable Firm and its Stakeholders

New relations with consubstantial stakeholders This section makes particular reference to employees. The image of a machine as the organizational paradigm of the industrial era has led to impressive productivity figures. However, this process has also involved the de-humanization of labor relations and generated, therefore, a general lack of interest on behalf of employees in their firms. Although as W. Edwards Deming said, ‘people are born with intrinsic motivation, self-esteem, dignity and curiosity to learn, joy in learning’, it is nevertheless a fact that employees are not a part of their companies. All they do is hire them part of their time. In the so-called information society, this situation has to change and man’s natural desire to learn has to be reinforced. For the learning culture to be a fact, and therefore for creativity and imagination in general to increase, most companies’ current control orientation has to be replaced by a culture based on trust and self-control (Senge & Carstedt, 2001). As a large number of companies have discovered, considering the alignment with personal values involved, nothing is as powerful as sustainable development when it comes to attaining employee satisfaction and, consequently, commitment

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and global involvement (Senge & Carstedt, 2001; Smith & Yanowitz, 1998). The creation of a culture like this evidently requires, among other things, changes in management style, structure, policies on the transparency of information, selection and payment systems, occupational safety, etc., and . . . time (Pfeffer & Veiga, 1999; Mueller, 1996; Olalla, 1999; Greening & Turban, 2000 ; Hillman & Keim, 2001).3 But the results are well worth the effort (Huselid, 1995; Pfeffer, 1998).

New relations with contractual stakeholders We specifically refer to clients, suppliers and sub-contractors. Traditionally, relations with them have been primarily of a competitive nature. Special emphasis has even been placed on the bargaining power of the different parts of the value creation chain (Porter, 1985). In this respect, their capacity to demand value has been considered more important than their capacity to create, and therefore, deserve value. The new competitive landscape based on sustainable development implies that companies establish new relations with these stakeholders, in order to develop the products and services that the markets and society need, value and accept. These relations, for the same reasons as

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employee relations, should be based on trust instead of control. And emphasis will, moreover, be placed on the exchange of information, training, technologies, etc., in addition to long-term commitments. Although these relations may be formally of a contractual nature, the increasing lack of definition of where businesses end means that the most important, if not all, of them could ultimately be considered to be partners in the innovation process and in the creation and apprehension of value. These collaboratory relations, even considering that there will always be some degree of competitive tension, are fundamental in the corporate and business strategy of sustainable companies (Champy & Nohria, 1996).

New relations with contextual stakeholders Contextual stakeholders are the public administration, opinion leaders and creators of knowledge (the media, NGOs, universities, scientific community, etc.), and the communities, countries and societies where companies operate or on which they have an impact. The practical conviction that the business system is a part of the social and natural system has significant consequences on the characteristics of contextual stakeholder relations. It implies that business and society are not only independent, or merely inter-related, but that they are indeed interdependent (Chakravarthy, 1986; Freeman & Evan, 1990). It implies, therefore, that we must cease to consider that a company’s sole mission (and therefore its executives’ sole purpose) is to generate profit for shareholders. The mission of companies is, in fact, to identify opportunities that are beneficial both for itself and for society. In other words, since stakeholder relations are a vital source of diversity and involvement that provide businesses with a mission and valuable resources, managers have to cease to be mere shareholders’ agents to become builders of stakeholder relations (Kennelly, 1995). They will then be more capable of rapidly and easily foreseeing, understanding and responding to changes in their environment (Porter & Stern, 2001).

Strategic nature of the new resources, capabilities and activities For resources, capabilities and activities to have strategic value and, therefore, give rise to persistent competitive advantages, they must comply with the following conditions (Barney, 1991; Wernefelt, 1984; Rumelt, 1984): they have to be difficult to imitate by current

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competitors; they have to be difficult to substitute by current and new competitors; and they have to be valuable, i.e. positively valued on the market. We will now see how the resources, capabilities and activities the development of which depends on the previously defined stakeholder relations help us to comply with these conditions.4

Difficult to imitate Certain capabilities related to subjects such as location, technologies, products or production processes may be difficult to imitate. Nevertheless, they are all subject to the possibility of being copied, or even acquired, by our competitors to some extent and at some time. However, resources, capabilities and activities that are socially complex, because a large number of individuals are involved in their development and maintenance, for which history and experience are important factors, in the sense that their present status depends on their earlier status, and which are of a tacit nature, characterized in that they can not be verbalized or formalized, are in practice inimitable. The proposed types of relations and their results comply perfectly with these premises. It can be said that they are difficult to imitate because they depend on a large number of people or teams and because they are intangible assets based on practical learning derived from experience and perfected with practice. Because of their socially complex and tacit nature, our competitors will be unable to obtain them by hiring our employees.

Difficult to substitute All business models run the risk of being substituted sooner or later. Accepting the changes introduced by sustainable development on the competitive landscape and developing stakeholder relations does not totally protect companies against this risk, but it is considerably reduced. In the first place, because the information and knowhow involved will be considerably and constantly more complete. Secondly, because most of the risk of substitution of resources, capabilities and activities will be increasingly related to the new implications derived from the need for more sustainable development.

Valuable The resources, capabilities and activities proposed will be valuable if, in addition to distinguishing our business model from that of our competitors, they develop competitive

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advantages and increase their persistence. This partially depends on the evolution of society, and it is increasingly clear that society is advancing in its demands that business conduct should allow for more sustainable development.5 Moreover, stakeholder relations like those described earlier may not guarantee, but certainly increase the probability that the innovations that directly or indirectly result from them are those needed by the market and society in general, and therefore be positively valued.

Sustainable development and innovation as a source of persistent competitive advantage Acceptance of the changes in the competitive landscape derived from sustainable development and the development of the kind of resources, capabilities and activities defined above, primarily leads to the reinforcement of two clear sources of persistent competitive advantage: innovation and reputation. Both help us to establish a business model different from that of our competitors, and as we all know, this is a fundamental strategic element. They do, however, have radically different characteristics: reputation, since it is a scarce, valuable and inimitable resource, generates Ricardian rents, whereas innovation, since it implies the capacity to continuously develop new combinations of resources, produces Schumpterian rents. Although reputation is therefore of undeniable importance, particularly if we consider that it is one of the reasons for the often enormous difference between the book and market value of businesses (Kotha et al., 2001; Srivastava et al., 2000; Black & Carnes, 2000; Vergin & Qoronfleh, 1998), we will focus on innovation, since it is a source of competitive advantage that generates value not only for the company but for society on the whole.

Innovation Innovation, understood as the result of research and development (R&D&I) has become an essential condition for competitive success. In a discontinuous world, strategic innovation is the key to the creation of wealth. As Hamel (1998) says, ‘Strategy innovation is the capacity to conceive the existing industrial model in ways that create new value for customers, foil competitors and produce new wealth for stakeholders’. In this respect, a great deal has been said and written (Edvinsson & Sullivan, 1996; Riesenberg, 1998; Bouty, 2000), and to

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a smaller extent applied, on the importance of intellectual assets as the input to R&D&I processes. The challenges derived from the demands to advance towards sustainable development help companies to question usual ways of thinking and acting, and establish the need to develop new products, services and technologies. They are therefore a stimulant for organizational changes and an undeniable source of opportunities for innovation. Establishing new stakeholder relations leads firms to take hold of a wide range of current and future perspectives and visions of the world, to obtain information and knowledge of these opportunities, and to establish the collaborations required to make the most of them. Moreover, the process itself will help them to obtain the credibility required to attain social approval for their innovations.

Conclusions As we have seen throughout this paper, the dynamic and sustainable firm is a knowledge based-knowledge creating company. The creation of this knowledge and its use as a revenue generator depend, among other things, on the following connected factors: the enlargement of the firm’s environment to include the physical and social system; the broadening of the firm’s ethical obligations; and the establishment of new stakeholder relations based on open, smooth and honest dialogue. As a result of this, its ability to produce and obtain revenue in a persistent manner depends on and is inextricably entwined with its ability to produce social revenue. Our proposal for a dynamic and sustainable firm is, clearly, a matter of governance. It implies fundamental changes in our understanding of corporate governance, and in the values and objectives towards which it must aim. Figure 6 is a graphic representation of these changes. Since traditionally the core value guiding corporate governance has basically been of an economic nature, its goal has been to maximize stock value through investor satisfaction. In our proposal for a dynamic and sustainable firm, the core value is not economic growth but sustainable development. Because of this, the ultimate goal is to create value for firm shareholders and society as a whole in a persistent and sustainable fashion through stakeholder satisfaction and engagement. And this is only possible if firms not only do the right thing, but do so for the right reasons.

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Figure 6. From Traditional Corporate Governance to Dynamic and Sustainable Firm Governance

Notes 1. For an in-depth analysis of the subject, see, for example, the following articles: Senge, Peter, Innovating Our Way to the Next Industrial Revolution, MIT Sloan Management Review, Winter 2001; Hart, Stuart, A Natural-Resource-Based View of the Firm, Academy of Management Review, Vol. 20, 4, 1995; Hart, Stuart, Beyond Greening: Strategies for a Sustainable World, Harvard Business Review, January-February, 1997; Porter, Michael E. and Claas van der Linde, Green and Competitive: Ending the Stalemate, Harvard Business Review, September–October 1995; Shrivastava, Paul: 1995, The Role of Corporations in Achieving Ecological Sustainability’, Academy of Management Review, 20(4), 936–960; Shrivastava, Paul: 1994, Castrated Environment: Greening Organizational Studies, Organization Studies, 15(5), 705–726. 2. One basic article on this subject is by Prahalad, C.K. y S. Hart The Fortune at the Bottom of the Pyramid, Strategy + Business 26, 1–14. 3. See, for example, Pfeffer, J. and J. Veiga, Putting People First for Organizational Success, Academy of Management Executive, 1999, Vol. 13, No. 2. 4. For an integration of the natural environment in the resource-based view of the firm see Hart, S.L.: 1995, ‘A Natural-Resource-Based View of the Firm’, Academy of Management Review 20(4), 986–1014. 5. See, for example, the results of the following macro-surveys: ‘The Millenium Poll on Corporate Social Responsibility,’ Environics, The Prince of Wales Business Leaders Forum and The Conference Board, May 1999, or ‘Corporate Social Responsibility-Europe,’ Market and Opinion Research International, September 2000.

References Ackerman, R.W. (1973) How Companies Respond to Social Demands. Harvard Business Review 51, 88–98.

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Ackerman, R.W. (1975) The Social Challenge to Business. Harvard University Press, Cambridge, MA. Ackerman, R.W. and Bauer, R.A. (1976) Corporate Social Responsiveness. Reston Publishing, Reston, VA. Andrews, K.R. (1971) The Concept of Corporate Strategy. Richard D. Irwin, Homewood, IL. Atkinson, A.A., Waterhouse, J.H. & Wells, R.B. (1997) A Stakeholder Approach to Strategic Performance Measurement. Sloan Management Review 38, 25–37. Barney, J. (1991) Firm Resources and Sustained Competitive Advantage. Journal of Management 17, 99–121. Blake, David H. (1974) The Management of Corporate Social Policy. The Frederick Kappel Lecture, University of Minnesota. Bowen, H.R. (1953) Social Responsibilities of the Businessman. Harper & Row, New York. Bouty, I. 2000, Interpersonal and Interaction Influences on Informal Resources Exchanges between R&D Researches across Organizational Boundaries. Academy of Management Journal 43, 50–65. Brenner, S.N. and Cochran, P. (1991) The Stakeholder Theory of the Firm: Implications for Business and Society Theory and Research. In Mahon, J.F. (ed.), Proceedings of the International Association for Business and Society Sundance, UT, pp. 449–467. Black, E.L. and Carnes, T.A. (2000) The Market Valuation of Corporate Reputation. Corporate Repuation Review 3, 31–42. Carrol, A.B. (1979) A Three-Dimensional Conceptual Model of Corporate Social Performance. Academy of Management Review 4, 497–505. Carroll, A.B. (1989) Business and Society: Ethics and Stakeholder Management. South-Western, Cincinnati, OH. Chakravarthy, B.S. (1986) Measuring Strategic Performance Strategic Management Journal 7, 437–454. Champy, J. and Nohria, N. (1996) Fast Forward: The Best Ideas on Managing Business Change. Harvard Business School Press, Boston.

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Clarkson, M.B.E. (1995) A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. Academy of Management Review 20, 92–117. Costanza, R., Norton, B. and Haskell, B.J. (1992) Ecosystem Health: New Goals for Environmental Management. Island Press, Washington, DC. Daly, H.E. and Cobb, J.B. (1989) For the Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future. Beacon Press, Boston. Davis, K. and Blomstrom, Robert L. (1966) Business and its Environment. Harper & Row, New York. Davis, K. (1967) Understanding the Social Responsibility Puzzle: What Does the Businessman Owe to Society?. Business Horizons 10, 45–50. Davis, K. (1973) The Case for and against Business Assumption for Social Responsibilities. Academy of Management Journal 16, 312–322. Donaldson, T. and Preston, L. E. (1995) The Stakeholder Theory of the Corporation: Concepts, Evidences and Implications. Academy of Management Review 20, 65–91. Edvinsson, L. and Sullivan, P. (1996) Developing a Model for Managing Intellectual Capital. European Management Journal 14, 356–364. Eells, R. (1960) The Meaning of Modern Business. Columbia University Press, New York. Eells, R. and Walton, C. (1961). Conceptual Foundations of Business. Richard D. Irwin, Homewood, Ill Environics International Ltd. in cooperation with The Prince of Wales Business Leaders Forum and The Conference Board (1999) The Millennium Poll on Corporate Social Responsibility. Toronto, Canada. Frederick, W.C. (1960) The Growing Concern over Business Responsibility. California Management Review 2, 54–61. Frederick, W.C. (1967) Theories of Social Corporate Performance. In Sethi, S.P. and Falbe, C.M. (eds.), Business and Society: Dimensions of Conflict and Cooperation. Lexington Books, New York, pp. 142–161. Freeman, R.E. (1984) Strategic Management: A Stakeholder Approach. Pitman, Harper Collins, Boston. Freeman, R.E. and Evan, W.M. (1990) Corporate Governance: A Stakeholder Interpretation. Journal of Behavioral Economics 19, 337–359. Freeman, R.E. (1999) Divergent Stakeholder Theory. Academy of Management Review 24, 233–236. Friedman, M. (1962, Capitalism and Freedom (University of Chicago Press, Chicago). Friedman, M. (1970) The Social Responsibility of Business is to Increase its Profits. New York Times Magazine, September 13, 122–126. Ghemawat, P. (1999) Strategy and the Business Landscape. Addison-Wesley. Gladwin, T.N. (1993) The global environmental crisis and management education. Total Quality Environmental Management 3, 109–114. Gladwin, T.N., Kenelly, J.J. and Krause, T. (1995) Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research. Academy of Management Review 20, 874–907. Greening, D.W. and Turban, D.B. (2000) Corporate Social Performance as a Competitive Advantage

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in Attracting a Quality Workforce. Business and Society 39, 254–280. Hamel, G. (1998) Strategy Innovation and the Quest for Value. Sloan Management Review 39, 7–14. Hart, S. (1995) A Natural-Resource-Based View of the Firm. Academy of Management Review 20, 986– 1014. Hawken, P. (1993) The Ecology of Commerce: How Business Can Save the Planet. Weidenfeld & Nicolson, London. Hillman, A. and Keim, G.D. (2001) Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line?. Strategic Management Journal 22, 125–139. Huselid, M.A. (1995) The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance. Academy of Management Journal 38, 635–672. Jensen, M.C.: 2001) Value Maximization, Stakeholder Theory, and the Corporate Objective Function. European Financial Management 7, 297–317. Jones, T.M. (1980) Corporate Social Responsibility Revisited, Redefined. California Management Review 23, 59–67. Jones, T.M (1995) Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics. Academy of Management Review 20, 404–437. Jones, T.M. and A.C. Wicks (1999) Convergent Stakeholder Theory. Academy of Management Review 24, 206–221. Kennelly, J. (1995) Quantum Leaps and Small Surprises: Stakeholder Theory and the New Science. Proceedings of the Sixth Annual Conference of the International Association for Business and Society. Vienna. Kotha, S., Rajgopal, S. and Rindova, V. (2001) Reputation Building and Performance: An Empirical Analysis of the Top-50 Pure Internet Firms. European Management Journal 19, 571– 586. Market and Opinion Research International (MORI), and CSR Europe (2000) Stakeholder Dialogue: Consumer Attitudes. London, UK. Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972) The Limits to Growth. Universe Books, New York. Meadows, D.H., Meadows, D.L. and Randers, J. (1992) Beyond the Limits. Chelsea Green Publishing Company, White River Junction VT. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997) Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. Academy of Management Review 22, 853–886. Mueller, F. (1996) Human Resources as Strategic Assets: An Evolutionary Resource-Based Theory. Journal of Management Studies 33, 757–785. Olalla, M. (1999) The Resource-Based Theory and Human Resources. International Advances in Economic Research 5, 94–92. Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First. Harvard Business Scholl Press, Boston. Pfeffer, J. and Veiga J. (1999) Putting People First for Organizational Success. Academy of Management Executive 13, 37–48.

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Preston, L.E. and Post, J.E. (1975) Private Management and Public Policy: The Principle of Public Responsibility. Prentice Hall, Englewood Cliffs, NJ. Porter, M.E (1985) Competitive Advantage. Free Press, New York. Porter, M.E. (1996) What Is Strategy?. Harvard Business Review 74, 61–78. Porter, M.E. and Stern, S. (2001) Innovation: Location Matters. MIT Sloan Management Review 42, 28–36. Riesenberg, J.R. (1998) Executive Insights: Knowledge the Source of Sustainable Competitive Advantage. Journal of International Marketing 6, 94–107. Rumelt, R.P. (1984) Towards a Strategic Theory of the Firm. In Lamb, Robert B. (ed.), Competitive Strategic Management. Prentice Hall, Englewood Cliffs, NJ. Senge, P.M. and Carstedt, G. (2001) Innovating our Way to the Next Industrial Revolution. MIT Sloan Management Review 42, 24–38. Sethi, S.P. (1975) Dimensions of CSP: An Analytical Framework. California Management Review 17, 58–64. Sethi, S.P. (1979) A Conceptual Framework for Environmental Analysis of Social Issues and Evaluation of Business Response Patterns. Academy of Management Review 4, 63–74. Shrivastava, P. (1994) Castrated Environment: Greening Organizational Studies. Organizational Studies 15, 705–726. Smith, B. and Yanowitz, J. (1998) Sustainable Innovation and Change: The Learning-Based Path to Growth. Arthur D. Little Prism, pp. 35–45. Srivastava, R. K., Crosby, J.R., McInish, T.H., Wood, R.A. and Capraro, A.J. (2000) The value of Corporate Reputation: Evidence from the Equity Markets. Corporate Reputation Review, Summer/Fall, Special issue, How Do reputations affect corporate performance, Part IV, 62–68. Strand, R. (1983) A Systems Paradigm of Organizational Adaptations to the Social Environment. Academy of Management Review 8, 90–96.

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Swanson, D.L. (1995) Addressing a Theoretical Problem by Reorienting the Corporate Social Performance Model. Academy of Management Review 20, 43–64. Swanson, D.L. (1999) Toward an Integrative Theory of Business and Society : A Research Strategy for Corporate Social Performance. Academy of Management Review 24, 506–521. United Nations Development Programme (2001) Human Development Report 2001. Oxford University Press, New York. Vergin, R.C. and Qoronfleh, M.W. (1998) Corporate Reputation and the Stock Market. Business Horizons 41, 19–26. Wackernagel, M. and Rees, W. (1996) Our Ecological Footprint: Reducing Human Impact on the Earth. New Society, Gabriola Island, BC, Canada. Wartick, S.L. and Cochran, P.L. (1985) The Evolution of the Corporate Social Performance Model. Academy of Management Review 10, 758–769. Wernerfelt, B. (1984) A Resource-Based View of the Firm. Strategic Management Journal 5, 171–180. Wood, D.J. (1991) Corporate Social Performance Revisited. Academy of Management Review 16, 691–718.

Miguel A. Rodriguez is Lecturer at the General Management Department and Academic Director at the Center of Research for the Sustainable Business, IESE Business School, University of Navarra, Barcelona, Spain. Joan E. Ricart is Associate Dean for Research and the Doctoral Program Chairman at the General Management Department, IESE Business School, University of Navarra, Barcelona, Spain. Pablo Sanchez is a Research Assistant at the Division of Research, IESE Business School, University of Navarra, Barcelona, Spain.

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Collaborative Processes and Knowledge Creation in Communities-of-Practice Karin Breu and Christopher Hemingway This paper challenges the view of employees’ reluctance to share what they know, thus, attributing the ‘stickiness’ of knowledge to motivational factors. The study investigated informal mechanisms for knowledge sharing, taking a community-of-practice (CoP) perspective as a point of departure. A large-sized organisation in the utilities sector provided the context of the research. Existing CoP theory is advanced by surfacing the motivations for participation in CoPs, by eliciting the contributions informal, self-organising communities achieve in a commercial context and by documenting the process by which informal community activities become absorbed into the formal organisation.

Introduction

I

n recognition of the strategic importance of specialised knowledge (Drucker, 1993), organisations have widely embarked on knowledge management (KM). Explanations of unsuccessful initiatives point to the very nature of knowledge as defying technologydriven strategies (Zander & Kogut, 1995), peoples’ reluctance to share knowledge for fear of losing ownership (Porter, 1985), the arduous relationship between the source and the recipient of knowledge (Szulanski, 1996), dysfunctional cultures, or inadequate rewards. These factors are seen to turn individual motivation often into a barrier to collaboration and knowledge sharing. This paper challenges the attribution of the ‘stickiness’ of knowledge to motivational factors, insisting that it must be ‘managed’ through external intervention. This rational view of organisation reflects two misconceptions, of the nature of knowledge and humans, including their motives and willingness to collaborate. The rational view assumes that humans execute work according to the prescribed templates, while, in authentic practice, people engage continually in informal activities and interactions, and often ‘much work of companies happens despite the formal # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

organization’ (Krackhardt & Hanson, 1993, p. 104). CoP theory proposes that the very reason why people engage in communities is their desire to share experience and understanding and to solve problems collectively. Under this view, people value communal activities in their own right and not exclusively as a means for achieving individual goals.

Theoretical framework The Community-of-Practice Concept The concept of the CoP originated in the context of a social theory of learning, criticising conventional conceptions of human learning as an individual phenomenon (Brown et al., 1989). The view of learning as a complex social process (Brown & Duguid, 1991) challenges the widely held position that ‘all learning takes place inside individual human heads’ (Simon, 1991, p. 125) and that knowledge, therefore, resides in the heads of individuals alone (Grant, 1996; Liebeskind, 1996). Contrary to the idea that human learning occurs in isolation, a social theory of learning insists on the situated nature of human cognition and, thus, on learning as embedded in social practice (Brown et al., 1989).

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CoPs are informal, self-organising networks of people dedicated to sharing knowledge in an area of common interest or expertise (Brown & Duguid, 1991). CoPs tend to assemble practitioners who have worked together and, through extensive communication and interaction, have developed a common sense of purpose and a desire to share work-related knowledge and experience (Wenger, 1998).

The Significance of Practice in Communities Practice implies doing and, thereby, the situatedness of all human action (Suchman, 1987). Drawing on this conception, practice is defined in this paper to refer to ‘. . . the coordinated activities of individuals and groups in doing their ‘‘real work’’ as it is informed by a particular organizational or group context’ (Cook & Brown, 1999. p. 386f). A practice view of knowledge leads to the analysis not only of the way in which work is accomplished but also of the way in which knowledge is created and used (Brown & Duguid, 2001). Knowing and doing are inseparable (Brown et al., 1989). Knowledge is co-produced through situation and activity, and, therefore, contextdependent (Suchman, 1987). As the creation and deployment of knowledge is inseparable from activity, contexts of activity create knowledge boundaries (Blackler, 1993). Boundaries between CoPs are epistemic, i.e., what makes communities distinct are idiosyncratic knowledge bases and practices (Boland & Tenkasi, 1995). Empirical studies confirmed this view in finding that community members create, hold and share knowledge collectively because of their shared practice (Orr, 1987; Hutchins, 1991).

Communities-of-Practice in Knowledge Management The KM literature made Polanyi’s (1966) distinction between tacit and explicit knowledge well known. Humans can readily articulate explicit knowledge and, thus, share it with others. Tacit knowledge reflects a distinct aspect of human knowing in the fact that ‘. . . we know more than we can tell’ (Ibid.). Tacitness is also a property of collectively held knowledge, as knowledge also resides in interpersonal participation (Winter, 1987). While some believe that tacit knowledge can be externalised (Nonaka, 1994), others reject this argument owing to the epistemic nature of tacitness (Cook & Brown, 1999). The latter view recognises that it can, at best, be made accessible in environments of shared

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experiential background, where it flows tacitly between individuals (Lave & Wenger, 1991). From an organisation point of view, scant attention has been paid to identifying how CoPs can be fostered and, thus, purposefully deployed within a KM strategy. In light of this gap, the following research questions were devised: . What conditions and resources foster the

emergence and survival of a CoP? . How do CoPs organise themselves and

their practices? . What contribution do CoPs achieve both

for their members and their organisation?

Research Design and Method The study adopted an interpretive stance, reflecting the view that humans operate in self-created contexts of structures and meaning (Geertz, 1983). CoP members are connected by more than ostensible tasks, they are bound by intricate, socially constructed webs of belief that are essential to understanding what they do (Brown et al., 1989). Data collection used semi-structured individual and focus group interviews. The interview sessions, ranging from 90 minutes for individual to three hours for group interviews, were tape-recorded. Grounded theory methodology (Glaser & Strauss, 1967) was used for data analysis to gain in-depth understanding of the subject through the experiences of community members. Data were collected in June 2001 with 17 members of a CoP in a commercial organisation in the utility sector. Two focus group interviews, each with five community members, were undertaken. Four individual interviews were conducted with core and founding members. A further three interviews were undertaken with senior managers of the organisation in order to obtain an indication of the community’s external perception.

Study Context and Findings The CoP study reported in this paper was undertaken in a large-sized, recently privatised utilities group in the water supply sector (referred to as Utility Plc). Although there is no strategic-level responsibility for KM, it is still pursued in pockets of the organisation, from the bottom-up, by organisation members at middle management levels who have a personal interest in the improved appli-

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cation of knowledge to the business. The CoP studied referred to itself as ‘Intranet Steering Community-of-Practice’ (ISC).

ISC Membership and Access The ISC is a CoP with around 15 regular members, a core of five to six members, and a periphery of around 27 members. The core members have the greatest degree of commonality of interest, as they all work on Utility Plc’s intranet project. The ISC is open for new members to join. Access is solely tied to people’s willingness to contribute to ISC’s objectives. Naturally, there is a certain degree of churn, with existing members leaving and new members joining as the issues and objectives of the ISC change.

ISC Practices The ISC is an informal, self-managed, selforganising CoP without financial resources or powers. It has developed disciplined operating practices that members regard as crucial to sustaining its sense of focus and direction. Facilitator instead of leader Critical to the performance of the ISC is the sustained focus on its direction and self-set objectives, avoiding a drift into peripheral concerns. To this end, the community appointed a member to act as facilitator who manages its contacts and meetings. Whilst attendance of meetings is voluntary, once members agree to pursue actions, they are responsible for delivery. Bounded authority The community stresses the importance of recognising its boundaries of competence and authority. With no formal management authority, it cannot issue guidelines or instructions on any aspect of corporate activity. Interventions the community can undertake are limited to referring inquiries and making recommendations to decision-makers. Members recognise that with assuming increasing levels of formal responsibilities, the boundaries between the informal space of the community and the formal space of the organisation will shift. The transition of ISC activities from the informal to the formal space occurs when recommendations made by the community are specified in terms of projects, as these projects are then absorbed into the formal organisation. So, over time, formality increases

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as community objectives become specified as official organisational deliverables.

Conditions and Resources for Community Emergence From ISC’s founding experience, a number of conditions and resources were identified that helped the CoP to emerge. Networking opportunities Employees with an interest in a particular area need an opportunity to initially identify each other. This was regarded as crucial, especially in a large-sized, geographically dispersed organisation. In the case of ISC, the use of email distribution lists proved effective. At least in the early stages of formation, co-location of the members was seen as a clear facilitator, as co-location allows low/no cost face-to-face encounters. Individual motivation and community purpose Utility Plc’s Information Co-ordinator sought to promote the intranet as the platform for all information needs across the business. Mapping the intranet against all people involved in its management and design, a community, although dispersed across functions and locations, appeared to be linked by a single idea – the intranet and its information services. Awareness of organisational contribution In the early stages of formation, the members regarded it important to develop some clarity of the benefits the community was intending to achieve for the organisation, as this was seen to provide a sense of direction and establish its resonance with members’ interests and professional expertise. Management recognition The findings further suggest that forming CoPs requires external recognition from the organisation and confirmation of the community’s purpose, especially as the community expressed awareness that non-members could disregard ISC as an opportunity for socialising and voicing criticism.

Conditions and Resources for Community Survival From the ISC experience, a number of conditions and resources could be identified that CoPs appear to need in order to survive.

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Achieving credibility

Improved relevance of information services

ISC members passionately believed that the community’s objectives and activities could add significantly to the future of the organisation, a view externally confirmed through management. The community members regard the intranet as the foundation for information exchange within the business. The circumstance that the company is experiencing significant and fast growth at this time increased the need for KM to offset the potential for fragmentation of knowledge assets and people.

The development of a Skills Database was a trial project for the company’s engineering group. Through the work of ISC, it became apparent that the requirements of an organisation-wide skills database were far more diverse than reflected through the pilot group and that there were far wider areas of application. This enabled Information Services better to plan and, in anticipating user requirements and diversity of application contexts, to use the development resources of the Skills Database more effectively and, thus, ensure the benefits realised to Utility Plc were maximised.

Success and enthusiasm Success and members’ enthusiasm are key conditions for sustaining the community’s existence. Success concerns the recognition by senior management of the community’s contribution. The ISC regards itself to provide the next generation of the intranet, by that impacting the entire business community. This fosters members’ excitement about ISC’s activities. By helping employees do their job better, they add benefit to the business, even at the bottom line. Communications Since the members of the ISC are fairly colocated, they rely largely on the use of faceto-face meetings. In between meetings, coordination tasks are supported by e-mail. Recognising that communications media like telephone or email usefully support group activity, ISC members consider face-to-face interaction and informal discussion as the most effective form of communication when it comes to sharing and creating knowledge. Funding Funding for community activities, although initially not a primary necessity, becomes relevant to its survival once the community engages in on-going activities. In the early stages, ISC had no funding available, which, due to the co-location of the core members, was not felt an impediment for forming the community. However, funding became a requirement in the later stages as the community membership and activities expanded.

ISC Contribution to the Organisation From the analysis, a number of contributions were identified that ISC achieves for its organisation. The benefits in this case are examples of how the CoP helped improve the alignment of business objectives and Information Technology (IT) services.

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Realisation of unanticipated opportunities (innovation) An ISC member from the Pensions Department helped specifying information services for past and present employees. The member of the Pensions Department was not known for having an interest in the intranet and its information content. On learning about the ISC, this member joined a meeting where she discussed the need to publish pensionsrelated information not only to present but also to past employees. Ideas and requirements like this have thus been picked up by ISC from the wider business community. Through the environment that a community like the ISC provides, unanticipated opportunities are being discovered and ideas for improved services captured and realised that, otherwise, would have been lost. Improved outsourcing management Utility Plc employs an outsourcing company to provide IT services. Having discovered ISC, members of the outsourcing team attended ISC meetings to improve their understanding of Utility Plc’s IT services needs.

ISC Contribution to its Members There are a number of benefits that the ISC is seen to achieve for its members. Freedom of contribution ISC members described as especially valuable the opportunity to express and test ideas in an informal, risk-free environment. The community context encourages members to speak freely, without fear of compromising themselves or suffering negative consequences. Personal motivation The ISC is experienced as an environment with a positive influence on peoples’ moti-

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vation and sense of participation in the organisation. People reported to leave meetings with a positive sense of achievement, feeling that action to address their concerns is under way. Constructed around a very specific objective, the ISC is easily identifiable as a port of call for people who are motivated to take action but are unsure what action to take.

Interpretation and Discussion Conditions and Resources for Communities in a Knowledge Management Context The resource needs of the CoP studied appeared to be emergent, changing with its stages of evolution. The members explained that, beyond the role of an elected facilitator, there existed no greater need for formality. This resonates with the literature that asserts that CoPs can, at best, be fostered but not be mandated (Wenger & Snyder, 2000). For the community to evolve its knowledge sharing capabilities, it must be accepted in all its aspects of self-organisation and selfdetermination. Individual motivation was found to be a key condition for the formation of the CoP studied. In light of the circumstance that the community evolved bottom-up, with no senior management mandate, the argument that people are compelled to protect their knowledge in order to maintain influence and power, appears to define human motivation narrowly in terms of self-interest. Whilst it is conceivable that people will protect knowledge where financial rewards are designed to acknowledge individual rather than group effort, people are, by nature, motivated by a broader range of factors, such as the needs for achievement, affiliation, autonomy, power and learning (Maslow, 1943; Alderfer, 1972). Social conditions affect which of these needs become manifest in overt behaviour and which remain latent (Moorhead & Griffin, 1992). In the case studied, the structural conditions of an organisation in transformation (having recently undergone privatisation and experiencing significant business growth) had created a fragmentation of knowledge and people. The resulting sense of disconnectedness was found to engender a manifest need for the members of the CoP to seek mutual assistance in the shared desire better to integrate the organisation’s social and knowledge infrastructure. This shows that, where the organisation structure fails to satisfy individuals’ needs for affiliation, they appear to use informal mechanisms to compensate for a perceived lack of social co-

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hesion. Especially in conditions of structural change, informal social environments, such as the CoP studied in this research, appear to provide continuity in times of adversity.

Negotiated versus Received Community Practices The practices of the community studied were negotiated, as opposed to received practices that are generally assumed in the literature (Lave & Wenger, 1991; Kieser, 1989). In the long established trades and professions previously studied, practices are well formed and, hence, transferred from experts to nonexperts over generations. In newly evolving communities, in contrast, practices and modes of interaction need to be negotiated by their members in the course of evolution. This condition is important for organisations wishing to foster CoPs, in the sense that practices must not be externally determined but internally negotiated.

Knowledge-Based Contributions to Organisation and Members The evidence gathered in this research established that CoPs can achieve identifiable contributions both to the organisation and its members. The analysis elicited a set of tangible, yet not generic, benefits, as they are contingent upon a community’s focus and activities. However, at the abstract level, most of the benefits identified were derived from improved knowledge sharing capabilities between members of common professional focus and complementary expertise. This finds support in the literature that promotes the CoP as a key environment for sharing expert knowledge (Wenger & Snyder, 2000).

Boundary Crossing of Community Initiatives Although not an explicit objective of the study, the evidence suggests that informal CoP activities can cross boundaries of formality. This is an insight not yet reported in pertinent published research. As initiatives of the community were being specified in projects, the requirements of financial resources, deliverables, responsibilities, and deadlines instigated a shift of community activity from the informal to the formal space of organisation. Organisation theory tends to associate projects with the domain of formal organisation. The evidence gathered in this research suggests that projects can also emerge out of

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informal activities. Their legitimisation, however, still appears to necessitate formal mechanisms of organisation (Brown, 1983). This is in line with the dominant Western management model that is built on notions of financial accountability and justification of resource allocation. In this light, formal legitimisation can be interpreted as ultimate proof of the value of informal activity.

Conclusions and Further Research This research has shown that organisations that are prepared to accept the informal activities of its members can gain significant benefits. The findings support motivational theories that advocate the human desire to make social contributions, in this instance, sharing knowledge and understanding with other members of the organisational community. This research reported a case-based analysis of a single CoP, providing insufficient foundation for generalisation. Studies are required to reliably establish the understanding this work sought to address. There is also the opportunity to explore deeper the aspect of communication within a CoP and, more specifically, the opportunities and practices of electronic collaboration.

References Alderfer, C. P. (1972) Existence, Relatedness and Growth. Free Press, New York. Blackler, F. (1993) Knoweldge and the theory of organizations: organizations as activity systems and the reframing of management. Journal of Management Studies, 30, 863–885. Boland Jr, R.J. and Tenkasi, R.V. (1995) Perspective making and perspective taking in communities of knowing. Organization Science, 6, 350–372. Brown, J.S. and Duguid, P. (1991) Organizational learning and communities-of-practice: toward a unified view of working, learning, and innovation. Organization Science, 2, 40–57. Brown, J.S. and Duguid, P. (2001) Knowledge and organization: a social-practice perspective. Organization Science, 12, 198–213. Brown, J.S., Collins, A. and Duguid, P. (1989) Situated cognition and the culture of learning. Educational Researcher, 18, 32–42. Brown, L.D. (1983) Managing Conflict at Organizational Interfaces. Addison-Wesley, Reading. Cook, D.N. and Brown, J.S. (1999) Bridging epistemologies: the generative dance between organizational knowledge and organizational knowing. Organization Studies, 10, 381–400. Drucker, P. (1993) Post-Capitalist Society. Butterworth-Heinemann, Oxford, UK. Geertz, C. (1983) Local Knowledge. Basic Books, New York.

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Glaser, B. and Strauss, A.L. (1967) The Discovery of Grounded Theory. Aldine, Chicago. Grant, R.M. (1996) Prospering in dynamicallycompetitive environments: organizational capability as knowledge integration. Organization Science, 7, 375–387. Hutchins, E. (1991) Organizing work by adaptation. Organization Science, 2, 14–38. Kieser, A. (1989) Organizational, institutional, and societal evolution: Medieval craft guilds and the genesis of formal organizations. Administrative Science Quarterly, 34, 540–564. Kogut, B. and Zander, U. (1992) Knowledge of the firm, combinative capabilities and the replication of technology. Organization Science, 3, 383– 397. Krackhardt, D. and Hanson, J.R. (1993) Informal networks: the company behind the chart. Harvard Business Review, 71 (4), 104–111. Lave, J. and Wenger, E. (1991) Situated Learning: Legitimate Peripheral Participation. Cambridge University Press, Cambridge, UK. Liebeskind, J.P. (1996) Knowledge, strategy, and the theory of the firm. Strategic Management Journal, 17, 93–107. Maslow, A. H. (1943) A theory of human motivation. Psychological Review, 50, 374–396. Moorhead, G. and Griffin, R. W. (1992) Organizational Behavior, 3rd edn. Houghton Mifflin Company, Boston, MA. Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23, 242–266. Nonaka, I. (1994) A dynamic theory of organizational knowledge creation. Organization Science, 5, 14–37. Orr, J. (1987) Talking about Machines: An Ethnography of a Modern Job. SSL Report, Xerox Palo Alto Research Centre, Palo Alto, CA. Polanyi, M. (1966) The Tacit Dimension. Doubleday, New York. Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, New York. Simon, H.A. (1991) Bounded rationality and organizational learning. Organization Science, 2, 125–134. Suchman, L.A. (1987) Plans and Situated Actions. Cambridge University Press, Cambridge. Szulanski, G. (1996) Exploring internal stickiness: impediments to the transfer of best practice within the firm. Strategic Management Journal, 17, 27–43. Wenger, E.C. (1998) Communities of Practice: Learning, Meaning, and Identity. Cambridge University Press, Cambridge, UK. Wenger, E.C. and Snyder, W.M. 2000) Communities of practice: the organizational frontier. Harvard Business Review, 78, 139–145. Winter, S.G. (1987) Knowledge and competence as strategic assets. In D. Teece (ed.), The Competitive Challenge: Strategies for Industrial Innovation and Renewal. Ballinger, Cambridge, MA, 159–184. Zander, U. and Kogut, B. (1995) Knowledge and the speed of the transfer and imitation of organizational capabilities: an empirical test. Organization Science, 6, 76–92.

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COLLABORATIVE PROCESSES AND KNOWLEDGE CREATION

Karin Breu is Research Fellow in the Information Systems Research Centre at Cranfield School of Management. Her research activities are in knowledge management, e-communication, e-collaboration and virtual organisation. Karin’s current research includes a community-of-practice study and an intervention project implementing knowledge networks in a major organisa-

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tion. Christopher Hemingway is Research Fellow in the Information Systems Research Centre at the Cranfield School of Management. His research interests are in IT and strategy, knowledge management, e-collaboration and virtual organisation. Currently, he is participating in a community-of-practice study and an implementation project introducing knowledge networks.

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Mythmaking and Knowledge Sharing Living organizational myths and the broadening of opportunity structures for knowledge sharing in a Scandinavian engineering consultant company Emil Andre´ Røyrvik and Egil Wulff 1 With examples from Scandiaconsult, a Scandinavian engineering consultant company, this paper is an exploration of some of the constructive mythological aspects of living knowledge emerging in the symbolic interaction of organizational work life. Framed within the overall challenge of organizational knowledge sharing, and the approach of the communal resource as a (partial) solution to that, we more specifically look at ways of broadening the opportunity structures for knowledge sharing through the twin principles of organizational myths and rituals – as processes whereby people can identify and tap into the reservoir of living knowledge in the organization life, often in the realm of the informal or shadow organization. We explore in what ways the myths and rituals can leverage knowledge sharing especially in the face of distributed work environments inhabited by multiplex interested knowledge workers, and in our case with the additional challenge of mergers and acquisitions. We argue that active mythmaking is very far from manipulation or plain rhetoric, but rather a complex and interwoven processes of displaying cultural premises and transforming barriers and misbelieves into trustworthy relationships, and thus rendering possible conditions for lowering the costs of knowledge sharing. The mythmaking, of course, has to be deeply interwoven with the already existing mythic reservoir.

Introduction

T

he way knowledge has emerged as a central and vital conception in organizations since the cognitive revolution in the 1950s, as von Krogh (2002) writes, it ‘bridges the chasm between cognition and action . . . and integrates the individual and the collective levels of analysis . . .’ Knowledge is conceptualized in a number of different ways and here we adopt a definition from Barth (1994) that knowledge comprises the interfaces between worlds of meaning and the outer world, thus emphasizing the bridging of the above-mentioned dichotomies. As von Krogh (ibid) continues, to progress fruitfully with research in the domain of knowledge management, we need to ‘pay more attention to one of the core challenges that bridge the chasm between the individual and the collective level, namely why and under what conditions people in organizations share knowledge’.

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It is in the continuation of these lines of thought we hope to make a contribution. The paper is an exploration of a processual and relational conception of knowing in organizations, where the mainstream thinking of individual and collective forms of knowledge as two distinct phenomena is discarded. Through the empirical material we try to show how such a conception of knowing may be groomed through the use of narratives for and in knowledge. That is, we will try to show how narratives in the form of myths (and rituals) comprises enfolded or implicit ‘sign-posts’ that leads you on the track for knowledge, and once finding the track lets you explore and unfold (parts of) the interiors of the knowledge landscape. The myths are thus helping us into position to get a grip on the relational knowing processes. We believe myths and rituals already do play such a role, but that organizations may learn to more actively use them for organizational developments. # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

MYTHMAKING AND KNOWLEDGE SHARING

Because organization- and management theory is a true product of modernism, one of its central tenets is that knowledge is a property located in the heads of individuals. Through forms of representation some of this knowledge can be mirrored in real life and become collective phenomena, embedded in routines, practices, norms or values, or just in culture. With this mirror of nature representational paradigm the well-known splits between mind/body, cognition/action and individual/collective are still pervasive. The taken-for-granted values and frames of reference in mainstream organization theory are still more than knee-deep in the Enlightenment, modernistic modes of understanding (e.g. the rational vs. the irrational) and have been moderately able and interested to look at the non-scientific, non-rational, mythic sides of organizations. Of course, there are studies based on symbolic approaches (Pondy et al., 1983; Morgan, 1986), but most of these perspectives seem restrained by the lenses of the modernist mapping of the world focus on observable exteriors, as for example behaviors, institutions and techno-economic forms, to the neglect of interiors with no specific location, as meaning, emotion, and values. The aim here is to try to show the necessity, fruitfulness, and creative energy that can be expunged from an organizational epistemology that sees the exteriors and interiors, the rational/irrational and the non-rational/mythic sides as integrative and intersected forms of living knowing – especially in what we deploy as constructive myths (narrative knowing) and myths of construction (knowing narrative). In line with recent writings on knowledge management (von Krogh et al., 2000) we argue that knowledge management is a highly problematic conception, because you cannot manage (in a traditional sense) living processes and complex knowledge dynamics – not the least the mythological aspects. What you can do, however, is to groom propitious conditions for the nurturing of knowing. It is argued that narratives, and especially myths, are forms of communication that first and foremost relates people in knowing processes. Knowing has to be perpetually created and re-created in social, symbolic and interactive relationships. That established the paper argues further that knowing is a living entity which exists semi-independently of specific human beings. Not, however, in the traditional form of collective knowledge embedded in the group, or society, or culture. The individual and the collective we see as mutual dependent at the same phenomenological level. This living knowing with a form of (semi)independent

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existence we can label swarm knowing, and mythological knowing is a prototypical example of such swarm knowing. This exemplified in the two living myths from Scandiaconsult we will look at below. Thus, we argue, a person comes to knowing by entering into relationship with the processes of the swarm knowing. The myth sets you on track, create the connection (narratives for knowing), and then let you explore and learn in partly unknown territories (narratives in knowing). First we look at the setting of the study, the methods and processes of the Scandiaconsult project, faced with the challenge of accelerating cultural integration for improved knowledge sharing after mergers and acquisitions. Secondly we look more in-depth on the constructs of myths and rituals before entering the two case examples, first the ‘myth of project initiation’, then the ‘myth of the ideal organizational form’. The link between the different company communities and the myths are different in the two cases. In the first myth, focusing on two Scandiaconsult project cases, the link is grounded in the communities evolving around the two projects, which are also located at two different places in Norway, and the differentiating trait is their dissimilar focus on what is important in project initiations. In the latter myth, the link between the communities and the myth is grounded in the way different communities do different types of project, were, coarsely speaking the one community (dispersed around Norway) do national and most often mono-disciplinary projects while the other do local and often cross-disciplinary projects. The myth thus focuses on the different perspectives that these different project activity systems gives rise to when it comes to organizing and prioritizing collaborative work. On this background we conclude and discuss the relevance of a mythological approach for improving opportunity structures to facilitate knowledge sharing – and the value of the communal resource also in more adverse and distributed organizational environments.

The Setting: Cultural integration after M & A The material for this study has been conducted through a project SINTEF Industrial Management, dep. of Knowledge and Strategy, did in collaboration with the Scandinavian engineering consultant company Scandiaconsult during 2000 and 2001. The project was a part of Kunne2 2, running 1998–2002, a multidisciplinary action research project that

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aims at both substantially improving knowledge management in the participating knowledge intensive business firms, and developing new concepts and understandings in the field. Scandiaconsult was in a heavy growth period, after mergers and acquisitions of number of firms for the purpose of delivering complete solutions to large engineering projects getting increasingly higher shares of the total project marked. The challenges of creating and realizing practical synergies after mergers and acquisitions are familiar from the literature (von Krogh et al., 1994; Enkel et al., 2002). Since 1997 corporations have globally spent $5 trillion on mergers and acquisitions, yet in 83 percent of 700 large mergers the stock prize of the combined organization did not rise above those of the single entities3. Barriers to knowledge exchange focused on the literature are the difference in cultures (information is hidden), leadership behavior (the role of knowledge management is not stressed), lack of responsibilities (for knowledge repositories), lack of measurements (of reviews and numbers) and lack of structuring (no clear definitions). Different barriers are significant on the individual level, e.g. limited accommodation and threat to self-image, and at the organizational level, e. g., legitimate language, organizational stories, procedures and company paradigms (visions, mission statements, core values) (Von Krogh et al., 2000). Different facilitating conditions for knowledge sharing after mergers and acquisitions have been discussed: appropriate atmosphere, the nature of the knowledge (tacit versus explicit), time, size of the firm, frequency of communication (between individuals, in the social community, in direct work processes), and other modes of interaction (technical meetings, extended visits, joint training programs) (Enkel et al., 2002). On this background our project with Scandiaconsult focused on methods, concepts and approaches for accelerated cultural integration after and during the new company mergers and acquisitions. The underlying premise was that faster (than the natural cadence of time would have achieved left to its own evolution) cultural integration would enable conditions for improving and lowering the costs of knowledge sharing. A guiding principle in the project was that culture cannot be dictated through directives and decisions, but through communal practices of everyday work. The basic methods of the project was twofold; first, to facilitate processmeetings where top management and local project workers met in all the locations where Scandiaconsult have offices in Norway; and second, to follow closely through interviews

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two specific projects that Scandiaconsult were accomplishing at the time, and on the basis of them make two Learning Histories4 (Hatling (ed), 2001; Roth & Kleiner, 2000), with the two projects as contents and points of departure in the stories. We made about 15 processmeetings and 20 interviews with top management, middle management, project leaders and project members. Both in the real-life gatherings and in the learning histories we focused on what we called fruitful dilemmas that Scandiaconsult employees are facing in daily work activities. Through the dilemma doorway the process meeting provided arenas for people to meet, get to know each other and for displaying different perspectives on significant phenomena, and for discussing difficult themes. The learning histories, with its intimate project practice focus, provided a possibility to lay down traces and sedimentations in the company from the discussions, perspectives and practices that the processmeetings and the two project cases spurred. Through this work two very central sets of oppositional stories displaying core dilemmas of the company came up. In line with the definition of myths below, we viewed these sets of oppositional stories as two of the most important company myths. We will look at both of them. Derived from a solid tradition in the social sciences the role of communities in knowledge sharing has the last decade or so received much attention in organization studies, through concepts like ‘communities of practice’ (Lave, 1988; Brown & Duguid, 1991; Wenger, 1998) and ‘micro-communities for knowledge sharing and creation’ (von Krogh et al., 2000). As von Krogh (2002) notes, a number of characteristics makes communities particularly interesting for the problem of knowledge sharing. ‘They exist outside the formal organization . . . they are not regulated by formal structure and incentive mechanisms, control and sanctions . . . and they attract people around common tasks, work knowledge and experience, as well as affect and empathy . . . A community has stability of affiliation over time, it has multiplex and direct relations between the actors, and there is some level of common information (or cues) about the knowledge of the other members (2002).’ The argument is that the communal resource5 has the potential for lowering the knowledge sharing transaction costs both in terms of reducing the affiliates cost of searching for knowledgeable people (because they have access to information or cues about others capabilities), and in the sense that bargaining costs are lower in the community because of more or less shared

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beliefs and preferences. Von Krogh (ibid.) suggests that the communities as well can be liabilities and examines the conditions under which the community may be seen as a resource (rather than liability) for knowledge sharing from an intrinsic point of view, without the traditional agency or extrinsic approaches of management to organizational change initiatives. Basically changing the focus from you should do or we ought to do with extrinsic motivational incentives as for instance money, to the self-organizing capacities of social groups to want to do with motivation spurring form individual or social intrinsic rewards spurred from the collaborative activities with peers itself. Concerning knowledge sharing in the community von Krogh (ibid.) discerns at least three central factors: opportunity structures, care and authenticity. As mentioned above, we are in this paper concerned only with the potential for leveraging knowledge sharing associated with the opportunity structures, because through the myths and rituals that was the focus of our project with Scandiaconsult. Opportunity structures refer to the occasion and benefit of communal knowledge sharing. ‘Opportunities present themselves to affiliates in a manner that structures relationships for sharing within the community. These structures of relationships hinge on factors such as individual and collective benefits from knowledge sharing, the cost of knowledge sharing, the sequence of knowledge sharing activity, the history of sharing activities in the community, the search for sharing opportunities, the diverse and distributed interests among affiliates, the diverse knowledge and experience of affiliates, bargaining and helping behavior’ (von Krogh, 2002). He further argues that under different conditions, opportunity structures to sustain collective action rely on both systems of cues6 about what other affiliates are capable of, and of behavioral rituals such as weekly debriefing, departmental meetings, regular project meetings, discussion platforms and lunch-gatherings. We argue here that myths should be depicted as deep systems of cues that has the potential for enabling knowledge sharing in distributed communities, and as we will come back to below, the rituals and myths (deep systems of cues) should be depicted as Siamese twins that only can be properly conceptualized as intimately connected. The question is their ability to broaden the opportunity structures. Thus, we propose that the process-meetings of the Scandiaconsult project can be interpreted as providing ritualized contexts or settings for the

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possible broadening of the opportunity structures to enable better knowledge sharing, while the learning histories may be depicted as working with the cues, stories or myths for improvement in the same fields.

Case lines Myths and rituals are of primary interest in social and cultural anthropology. Let us just briefly, before we go more deeply into the case material, have a look at the main insights from these traditions. First of all, we have to remove the moral judgment we implicitly or explicitly adheres to the concept of myth as something untrue. It was Malinowski (1922) who first put myths into a wider context: They are not false stories, but living reality. He argued that the myths functions as charters for the institutions in the society concerned. Their main function was not their display of the past, but their treatment of the present, for their conveyance of what is basic and right for the society, for people’s relationships to themselves, each other and the rest of the world. That is not to say that myths are machinery for consensus production. Anthropologists have argued that myths also express disagreements and can contain oppositions and paradoxes (Leach 1964). Leach (1982) defines myths as a set of oppositional stories all regarded as true by the ones who creates, re-creates and sustain them. From this we have derived our working definition of organizational myths as sets of oppositional stories displaying company dilemmas. LeviStrauss (1978) has developed his analysis of the deep structures of myths, which conveys how the myths establish the basic cognitive premises of cultural forms, people’s classification schemas of reality. Thus, myths are first and foremost motors of meaning production and provide the meaningful ground-pillars in cultural life forms. In line with these traditions it is also possible to regard organizational myths. What is it that makes and legitimates activities in organizations? Some would say it is strategy plans, manuals, business plans, reporting routines, actions plans, management accounting systems and the like. It is not difficult to disagree and say that these texts and figures remains dry prose that are very far from lifting the thoughts and souls of knowledge workers above the captivities of everyday routine thralls, and severely fails in filling them with meaning and motivation, the way myths can. If myths may be seen as a window into the foundational principles of a society (Barth, 1984), they may as well be

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able to say something significant about the premises underlying organizational activities, and more specifically, on the conditions of the opportunity structures for knowledge sharing. Let us look at two central myths in Scandiaconsult, myths that should have relevance far beyond this specific firm.

Heart surgery – the cheaper the better? The myth of project initiation One of the most important activities in project-based companies like Scandiaconsult is without question the process of acquiring and initiating new projects. These companies live from project acquisitions, accomplishment and satisfactory deliverances, and stories of project creations have naturally a central place in the storytelling culture. The learning histories from Scandiaconsult focused to a large extent on what might be labeled the myth of project initiation. Basically the dilemma of project initiation as uncovered in the learning histories stretches out an axis from an understating of acquisitions as pure invitations for tenders on the one side, to an understanding of acquiring projects through a history of reputation and trust with good customers and other relationships. We have called this myth (set of dilemma stories) Heart surgery – the cheaper the better? On the importance of relationships, network and trust says one of the employees: ‘The project is based on my old network . . . so it was my relation and friendship with him that was the source for the realization of this project’. The leader of the department that was running one of the projects said about their contact, the project developer hired by the assignment owner who decides whom will get the project, ‘he didn’t want to invite for tenders, because then it will lower the prices and we will get smaller budgets’. The project developer himself commented, ‘I think it is wrong to choose consultants based on price per hour. It is such an important choice that you have to be certain that it will work out well. And that has a lot to do with trusting people, which you gain through a history of collaboration . . . With invitations for tenders, you risk a lot’. The leader of the department gave name to the myth of project initiation: ‘Also professional assignment owners live in a system were tenders are at the core. They can’t get out of it. They believe that tenders can be used for everything. It is doomed to be bad solutions only with the tenders approach. If I want to have a heart surgery, I don’t invite for tenders!’ He continues on the importance of long-term relationships: ‘The whole of our

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existence is based on trust. People who speak otherwise don’t understand it. And trust is based on personal ties and on rumors. Much of the growth in the firm is based on personal networks. Of course, we must have employees that are trusted around.’ The project leader says it like this: ‘It takes ten good projects to turn the impression after a bad one. The rumors spread. It’s bad to get your name tied to a scandal project.’ And the person who initiated the project through his personal network insists: ‘The most important of all is network. If my colleagues down the hall here destroy my network, they are in trouble! It has been created a network of trusted relationships through many years . . .’ These quotations, taken from the learning histories, convey mostly one side of the myth of project initiation, the side were trust, longterm relationships and personal networks dominates. Let us briefly look at the other side of the myth, the side were acquisitions are seen as mostly done trough invitations for tenders. This story focused on the internal process of making an offer for the construction of a highway. The story shows how difficult it was to estimate the correct cost budget in the tender. The one responsible for the offer says, ‘What they wanted was an offer for a preproject, and giving cost estimates on preprojects is pretty troublesome because everything is so open. There are no defined tasks but they want a fixed prize nonetheless.’ A project member says, ‘it is guessing all the time, how much we will spend on the different tasks’. The project leader continues, ‘I cannot understand how the assignment owner can choose the correct bid.’ Concerning the issue of squeezing the costs lower and lower, to be able to compete for the project, one of the employees notes, ‘You can’t just squeeze and squeeze, because we are supposed to live of these projects. Sometimes, if we don’t get the job at the cost we estimate, we just have to let it go, because we will loose money on the job.’ So, seen as a whole of more or less contradictory stories, the myth of project initiation, Heart surgery – the cheaper the better? raises the questions of the different practices and perspectives on project acquisitions, from the two oppositions of understanding initiations through pure relationships and through pure tenders. It questions the different practices through a comparison with heart surgery. Would you invite for tenders when having a heart surgery, and choose the cheapest offer? Maybe some tasks and projects in consultant engineering also needs to be treated more carefully than the principle of the cheaper the

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better? They display some of the important, difficult and sometimes fruitful dilemmas and ambiguities in the practical lifeworld of project initiations. Project initiation is displayed as at the same time, but in different contexts, both being about tenders and everything that that implies of formal offers, bureaucracy, internal bargaining and squeezing of prizes, and intuitions of what it takes of pushing the prize low enough to get the project; and at the same time it is all about networks and trust and long-term relationships to customers and others. The challenge becomes in determining in the daily realization of new projects, in new situations, which approaches to follow for a proper match between the new context of opportunity (to get a project) and the concrete tasks of initiating the project. All somewhere on the axis of relations – tenders. As employees in Scandiaconsult you are constantly facing such living dilemmas, which there are no final solutions to, but which you must deal with, make judgments and take actions on behalf of. They are the stuff that makes up the ambiguous premises behind project initiation work. It is to aid in these qualitative assessments that myths offer some help. Through conveying experiences from the whole axis the myth gives the people who participate in the communication ballast to meet new and unique situations better prepared, and without the need to live through all the primary experiences themselves. This background provides a repertoire that makes it possible to improvise in new situations. In this way the myth of project initiation helps in broadening the opportunity structures for knowledge sharing on the vital activity of acquiring projects. A nice side-effect is that it at the same time conveys important aspects of the values and premises that actors in the company adheres to in project work, and it thus gives a snapshot of what makes up the culture(s) of the company. These insights are discussed in the ritualized settings in the company, for instance in the project process-meetings. The learning histories may be seen as an effort to make constructed, virtually ritualized settings, (formalized way of displaying different perspectives) for displaying important knowledge – and are thus an active construction of mythological knowledge based on real mythological material. The ritual can be specified as the proper context for the discussion, display and conveyance, through interpretation, of complex knowledge packed in the form of sets of oppositional stories i.e. myths. They can jointly be seen as knowledge springboards that help us getting into position,

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coming to terms with and getting the grip of the difficult knowledge forms, the implicit, tacit and relational forms that, just as with the need to take continuous runs on the springboard to stay in the air, they need to be re-generated and re-created in the daily communicative interaction processes of the company. Myths and rituals are thus seen as two sides of the same coin, or as mentioned above, the Siamese twins making up the premises of organizational cultural life. These myths and ritualized practices should have relevance to all kinds of project-based companies. Let us now look at the other important myth we focused on in Scandiaconsult.

Scandiaconsult’s Flying Engineers: the myth of the ideal organizational form Recurring re-organizations are familiar to every employee in a company over a certain size. These re-organization efforts are of course intended for improving performance, and some of them are targeted at solving collective action problems through agency. In Scandiaconsult the main discussions of organizational form evolved around geographical versus disciplinary organization. That is, if administrative systems and formal departmental structures were to follow geography or disciplines. As von Krogh (2002) shows, the agency solutions to the challenge of knowledge sharing are in general done in two ways. First, through increasing the number of points of contacts between employees, for example through problem solving groups, task forces, knowledge and technology transfer units, a multi-layered organization structure (e.g. a business system layer, a project layer and knowledge base layer), or a matrix structure where people share knowledge both through a regional orientation and a functional (product/technology) or industry focus. Second, whatever structure of the organizational model, knowledge sharing is ensured by agency through a system for human resource management including incentive systems like alternative career paths. The agency approach to knowledge sharing has, however, some serious limitations. You can never force someone to share knowledge, and the more tacit the knowledge is the more costly, uncertain and time consuming is it’s sharing. If knowledge to be shared is tacit, the role of intrinsic motivation outweighs the role of extrinsic motivation . . . (von Krogh, 2002). Thus the focus on the communal resource in knowledge sharing, where intrinsic motivation is

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realized through the workers satisfaction by working together with others in order to solve complex tasks. As mentioned above, much of the focus in the Scandiaconsult project-meeting discussions (rituals), in the projects that were followed closely and made up the learning histories (myths) was centered on dilemmas and paradoxes. Given the challenges of knowledge sharing after M & A in a distributed environment comprising several large and small former companies, inhabited by engineering experts, a lot of the dilemmas evolved around aspects of the ideal organizational structure of the company, and practical consequences of the form chosen. For example, the leader of one of the divisions in Scandiaconsult has in several occasions when discussing priorities, strategies or challenges said that ‘we cannot make the flying of engineers a business idea!’ The contention has received mixed applause. Some groups and individuals consent to it, while others express their absolute disagreements. The reason for this is that the saying exaggerates and pin down the dilemma axis of the myth of the ideal organizational form, and at the same time poke into several of the underlying paradoxes and challenges that the myth has enfolded. As mentioned above, one of the solutions to the problem of collective action is the challenge of choosing between a disciplinary and a geographical main organizational form. In Scandiaconsult they have chosen a kind of geographical organization, but at the same time the departments to some extents follows the disciplines. So it is partly hybrid. The main discussions, as conveyed in interviews, the process-meetings and the learning histories is the confusions concerning the right configuration of the main variables in each project; geography, disciplines, market preferences and trends, type of project (e.g. cross-disciplinary versus disciplinary, national versus local) and different priorities and interests. More specifically does it convey the different practices and identification between members who work in projects for local markets versus employers with more national responsibilities. The groups working for the national market feel that the saying ‘we cannot make the flying of engineers into a business idea!’ is disparaging their work, and fears that such work will not be given priority and encouragement from management. The point we want to make on the basis of the Scandiaconsult material, is that no matter what organizational structure you choose you have to handle a set of different dilemmas, dependent upon your specific choice. With an ideal of geographical organization there are

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three main dilemmas, touching upon the problem of knowledge sharing (collective action); 1) The market orientation is local, thus, how can we get enough focus and attention to the mono-disciplinary consulting services, that often has a national or international orientation because of the market for such services. 2) With few employees from the same discipline colocated, how do you best sustain quality competence on each of the disciplinary areas the company is covering? In what ways can the disciplinary competence be developed across geographical and organizational (departmental) boundaries? 3) With the business unit tied to local, (cross)-disciplinary units, where would incentives to acquire large, national cross-disciplinary projects rise from? It was the marked trend in this direction, remember, that was the trigger for the Scandiaconsult acquisitions in the first place. With a disciplinary organization there also rises three fundamental dilemmas. 1) How can we satisfactorily serve the local market, where the majority of the projects are acquired, when the customers demand cross-disciplinary solutions at low prizes? 2) How do you develop trustworthy and innovative crossdisciplinary competence when the different disciplines are more or less distributed at several geographical locations and do not have daily contact across disciplinary boundaries? 3) With the business unit tied to (cross)geographical disciplinary units, from where do the incentives for working cross-disciplinary also locally come from? Graphically, the differences between the two ‘ideal forms’ can be displayed like this, focusing on downsides (–) and upsides (+) of the two models. These organizational dilemmas are further accentuated by the fact that Scandiaconsult has a core challenge concerning knowledge sharing because of its highly educated expert employees. As studies have shown, ‘people’s long-term investments in areas of expertise, for example in engineering disciplines, make them reluctant to share knowledge with representatives from other areas, and they tend to be very conscious of ‘‘boundaries’’ and diverse interests, which separate their work practices from those of other disciplines’ (von Krogh, 2002). This twofold challenge of at the one hand the disciplinary versus geographical organization, and at the other hand, the mono-disciplinary inclination of engineering experts, was metaphorically expressed in a wanted vision by the Norwegian CEO: ‘Scandiaconsult should be viewed as a competent mixed choir. In the really good choirs the sopranos, alts, tenors and bass’ are located in a mixture of four and four throughout the whole choir.’

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Geographical organization

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~

Disciplinary organization

–

~ ~

National disciplinary consulting

+

Development of disciplinary competence Development of cross-disciplinary competence

~

Incentives for acquiring large projects

~

Ability to serve the local market

~

Figure 1. Distribution of Different Dilemmas Depending on the Chosen Model of Organization The knowledge conveyed in ritualized contexts like the project process-meetings and the learning histories reveals the myth of the ideal organizational form, with its interpretative branches and consequences. After being challenged on the metaphor of not turning flying of engineers into a business idea the leader started to use it in a more elaborate and sophisticated way: ‘We shall not turn flying of engineers into a business idea, but if necessary we will fly them to the moon!’ This last version is better signaling the ambivalence and complexity of the subject matter, and also better tuned his original intention with the saying. Which was that it is dependent on a lot of context variables like size and type of the project, what resources available, what activity system in question, what part of the business involved, etc., to decide on the question of using local engineers or members throughout the whole of Norway. They didn’t want to fly engineers from town to town if local employees could do the job at the same quality level, but in areas were they are unique and have national responsibilities, the customers will pay the prize of the Scandiaconsult flying engineers. These issues were of significant concern for project members in their daily priorities. For example it was an issue when staffing a project with consultants from both the national, mono-disciplinary projects and the local cross-disciplinary projects. The consultants with the national responsibilities usually could charge higher cost per hour for their consulting. When working in the same project

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this differential cost per hour rates could turn into a troublesome status issue. The local consultants found it strange that the other (with the same years of experience) could get higher rates, and the national consultants found it strange to participate in projects were they got underpaid. The myth may thus reveal that one and the same consultant are at different times working within different activity systems with a different project premise logic. The myth thus displays the impossibility of a precedent and final solution to acquisition, staffing and accomplishment of projects, and of any dilemma-free organizational form. However, through the rituals/myths it is possible to exchange knowledge on the premises or cultural background of which specific projects have to be configured. The myths both differentiates and mediates the dilemmas, and thus makes them really real in the sense that they become perceivable and thus possible subjects for reflection and action. The employees are getting a better understanding of the premises for the activities they are themselves making and being made by. A consequence is the possibility for more meaningful and motivated collective actions and sense of being on top of, and more in control of, the project activities they are involved in. Consequentially it opens up for possibilities to tear down barriers to knowledge sharing, as for instance anxiety for loosing authority or status, the threat to selfimage, and a display, sharing and broadening of the legitimate language of the company.

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Conclusions The main question dealt with in this article is the potential for broadening opportunity structures through myths and rituals (and thus the importance of the communal resource for knowledge sharing) in larger and distributed communities, especially as a means for accelerated cultural integration after mergers and acquisitions. Von Krogh (2002) notes, ‘It should be expected that in the larger community, opportunity structures tend to be less robust, since social relationships become increasingly scattered, ephemeral, and interests become more diverse.’ This is certainly the case with Scandiaconsult in its period of rapid growth through mergers and acquisitions. The question that has been raised is thus whether the value of the communal social category as a resource decreases with the increasing company size. This understood in the sense that first; more people will have access to scarce resources, and second; the impact of any individual’s cooperation in knowledge sharing is negligible, and third; ‘As the community gets larger the monitoring costs outgrow the costs of sharing, and jointly they could outweigh the rewards from knowledge sharing. The expected outcome is that the opportunity structure will be underprovided and the value of the communal resource will decrease’ (von Krogh, 2002). The answer we have tried to give and show in the article is that by shedding light on organizational premises (living dilemmas) the company members exchange cultural understandings. More specifically, we argue that the ritualized settings and (partly) constructed or enhanced myths that were created through the project provide a (real-life and virtual) broadening of the opportunity structures in this distributed environment. This was done through highlighting the link between the different company communities and the two myths exposed. The link was different in the two myth examples. In the first case the link was grounded in the communities that evolved around two locally anchored Scandiaconsult projects, and the differentiating trait was their dissimilar focus on what to them seemed as the most important factors in project initiations. In the latter myth, the link between the communities and the myth was tailored to the way different communities in practice are doing various types of projects, were generally speaking the one community (dispersed around Norway) does national and most often mono-disciplinary projects while the other do local and often crossdisciplinary projects. The myth thus focuses on the different perspectives that these

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dissimilar project activity systems gives rise to when it comes to organizing and prioritizing collaborative work – and what happens when the same consultant need to operate in both systems. We tried to show that the myths and rituals in turn accelerates exchange of knowledge about what others are capable of and the premises the company practices are built upon. That is, through myths and rituals the opportunity structures were broadened and the communal resource could play a role for accelerating cultural integration also in between distributed communities. This in turn provided enabling conditions for the challenge of knowledge sharing after mergers and acquisitions, that is, in distributed environments with high levels of diversity in interests and preferences. Some of the agency results of the project in the company were actions taken by management, who have had strong ownership to the processes throughout the project, of increasing points of contacts between company members, of explicating principles that earlier were tacit and only a part of some cultures in the company, and through re-designing some of the lines of communication between projects and management. The most important contribution of the project, however, we believe is that through the constructed ritual arenas and enhanced company myths there was provided an appropriate background for the communal resources to potentially selforganize activities across boundaries (cultural, disciplinary, formal, hierarchical) held in shape by the engineering culture of monodisciplinary inclinations, and the inevitable dilemmas of project initiation and formal organization. Both in the terms that the employees were given voice to outside their already established communities, and in terms of being seen outside their already established communities. Thus, it may be depicted as at least a partial countering to the problems of the decreasing value of the communal resource as the company grows. In the combining of agency actions taken and the establishing of a distributed enabling background (focus and construction of company wide myths and rituals) we see the integrative approach (the interconnectedness of the rational exteriors and the non-rational interiors) that is argumented for in this article. An indication that this actually worked was in a post-summary project meeting with 40 Scandiaconsult consultants, mostly managers, were we observed a shift in substance in the communications, from being primarily focused on organizational forms to concentrating on future market and collaborative

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project possibilities. They claimed this shift also occurred in the daily internal discussions, and that their involvement in the Kunne research project had a substantial impact on this transformation. We thus see the Siamese twins of myths and rituals as practical potentials for broadening the opportunity structures for distributed cross-work and cultural integration of the newly acquired companies. This is of course a never-ending process that needs to be constantly re-created through use. We contend therefore that the agency approaches to knowledge sharing suffers from the modernist, rationalist bias of believing that you can properly manage all types of knowledge and therefore more or less enforce knowledge sharing. This is in our view valid only as far as it goes. While agency approaches no doubt are valuable for the sharing of exterior (e.g. rules, behavior, facts) forms of knowledge, to get at the problem of sharing interior forms (e.g. meaning, resonance, active empathy) additional and different approaches are needed. The focus on the broadening of the opportunity structures through myths and rituals is targeted at the latter effort. An approach focusing rather one the question what does it mean? (versus what does it do?) displayed by the myths and rituals and viewed as potentials and possibilities for enabling conditions, most importantly by illuminating the cultural premises for company activities, with the aim of facilitating knowledge sharing in and across company communities. The emphasized myths and rituals functions in our view thus as living entitites (swarms) of knowing with a semi-independent existence outside or beyond the individual/collective and cognition/action chasms of the representational, modernist paradigm. In the integrative efforts of continuous re-realizations of the connection between the company’s what does it do? (exteriors) and the what does it mean? (interiors), the Siamese myths and rituals function as differentiating and meditating vehicles or deep systems of cues for company members’ active, living and vibrating coming to knowing at the intersection of meaning and interaction.

Notes 1. We are grateful for comments from Mattheus Urwyler, University of St.Gallen and Kjersti Bjørkeng, SINTEF Industrial Management, and for inspiration from Georg von Krogh. 2. See http://www.kunne.no for more information 3. Mergerstat, www.mergerstat.com, 02.11.2001.

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4. Learning histories can briefly be defined as a formalized approach for capturing and sharing learning experiences within a distributed network of organizational actors, presented as multivoiced stories giving complementary and more or less oppositional perspectives on significant events and phenomena in the organization’s work life. 5. In partly opposition to the ‘tragedy of the commons’ focusing on the overexploitation of common resources (like fisheries or the rainforest) the conception of the communal resource highlights the difference of knowledge resources compared to other kinds of resources, in that they only get ‘better’ and more valuable the more they are used and the more people are using them. ‘They cannot be exploited enough’. 6. Cues as both stimulus to perception and hints on how to behave in certain circumstances, thus enabling both in terms of searching for knowledge and in terms of bargaining about when sharing it is suitable (von Krogh 2002).

References Barth, F. (1994) A personal view of present tasks and priorities in cultural and social anthropology. In Borofsky, R (ed). Assessing Cultural Anthropology. McGraw-Hill, Inc. Brown, J. S. and Duguid, P. (1991) Organizational learning and communities of practice. Organization Science, 2, 40–57. Enkel, E. et al. (2002) Perspectives for our partners: Knowledge Integration after Mergers and Acquisitions, Volume 5. Hatling, M. (ed.) (2001) Fortellingens Fortrylling. (The Enchantments of Storytelling). Fortuna Forlag, Norway. Lave, J. (1988) Cognition in practice. Cambridge University Press, Cambridge, UK. Lave, J. and Wenger, E. (1991) Situated learning: Legitimate peripheral participation. Cambridge University Press, Cambridge. Leach, E. (1982) Critical Introduction. Trykt i M. I. Steblin-Kamenskij, Myth. Karoma, Ann Arbor. Leach, E. (1964) Political systems of highland Burma. London School of Economics and Political Science, London. Levi-Strauss, C. (1978) Myth and meaning. Routledge & Kegan Paul, London. Malinowski, B. (1922) Argonauts of the Western Pacific. Routledge & Kegan Paul, London. Morgan, G. (1986) Images of Organization. Sage, Beverly Hills, CA. Pondy, L. R. et al. (ed.) (1983) Organizational symbolism. JAI Press INC, London. Pondy, L. R. (1983) The role of metaphors and myths in organization and in the facilitation of change. Trykt i L. R. Pondy et al. (ed), Organizational symbolism. JAI Press INC, London. Roth, G. and Kleiner, A. (1999) Car Launch, The Human Side of Managing Change. Oxford University Press, New York. Von Krogh, G., et al. (1994) The Management of Corporate Acquisitions. MacMillan Press, London.

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Von Krogh, G., Ichijo, K. and Nonaka, I. (2000) Enabling knowledge creation: how to unlock the mystery of tacit knowledge and release the power of innovation. Oxford University Press, Oxford. Von Krogh, G. (2002) The Communal Resource and Information Systems. Forthcoming. Wenger, E. (1998) Communities of practice: Learning, Meaning, and Identity. Cambridge University Press, Cambridge.

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Emil Røyrvik is a Research Scientist and Egil Wulff is a Senior Adviser. They are both at SINTEF Industrial Management, 7465 Trondheim, Norway.

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Managing the Knowledge-Creating Context: A Strategic Time Approach Patrick Reinmoeller and Li-Choy Chong Understanding the contexts of knowledge is necessary to manage knowledge processes successfully. The goal of this paper is to provide a theoretical framework for understanding and utilizing knowledge that is embedded in contexts, focusing on the relationship between time and knowledge processes. This paper integrates the time lens and the literature on the knowledge based view to develop four different time contexts that can enable different organizational knowledge processes. Propositions on how to utilize time to create enabling contexts for organizational knowledge creation and innovation are developed. Suggested intervention strategies help to create contexts for knowledge creation and exploitation.

Introduction

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reating knowledge is a source of innovation and renewable competitive advantage (Winter, 1988; Leonard-Barton, 1992; Drucker, 1994; Nonaka & Takeuchi, 1995; Teece, Pisano & Shuen, 1997). Information Technology (IT) systems and best practices (Davenport & Prusak, 1998; Davenport, 1998; O‘Dell & Grayson, 1998; Stewart, 1997; Gallupe, 2001). Knowledge management focuses on processes such as sharing or absorbing knowledge to increase the return on knowledge. Recently, behavioral research focuses on the social context factors that influence knowledge processes including place, social capital, networks or communities (Earl, 2001; Brown & Duguid, 1991; Lave & Wenger, 1991; Amabile et al., 1996; Wenger, 1998; Nonaka & Konno, 1998; Tsai & Ghoshal, 1998; Pennings, Lee & von Witteloostuijn, 1998; Dyer & Singh, 1998; von Krogh, Ichijo & Nonaka, 2000, von Hippel, 2001). Action, i.e. knowledge conversion is situated and socially constructed and embedded in social contexts including markets, hierarchies or communities. For many of these concepts time remains a residual factor; they spatialize time, which is ‘one way of not taking time seriously’ (Scruton, 1996, p. 372). In management practice the concept of clock time is used to achieve goals over the shortterm. In management science, time has recently become a research lens used to better understand how organizations function (Ancona et al., # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

2001; Marks, Mathieu & Zaccaro, 2001). The variables in this new lens include clock time, timing, pace, rhythm, and cultural meanings of time. Looking at organizations through the time lens provides many interesting views of specific phenomena such as the speed of processes, developments over time, cycles and temporal alignment or path dependence, social time perception, and personality disposition (Albert, 1995; Bluedorn & Denhardt, 1988). In this paper we integrate the time lens and a general model of knowledge processes (Nonaka & Takeuchi, 1995; Rynes, Bartunek & Daft, 2001; Nonaka & Reinmoeller, 1999) to better understand the context, i.e. antecedents and enabling conditions for successful knowledge management. The goal is to develop ideal types of temporal contexts that enable knowledge creation and utilization. Contexts are continuously changing over time (diachronic) and co-exist in parallel (synchronic); contexts are constructed through individual‘s interpretation and social interaction over time. Contexts define the meaning of actions, rationally, emotionally and socially, and simultaneously contexts are visualized through actions. Relevant time concepts for the study of processes that involve tacit and explicit knowledge include measured, forward moving clock time and subjective interpretations of experiences (Ancona et al., 2001; Das, 1991; Das, 1987). These time concepts provide the foundation for intervention strategies that influence knowledge processes. In short, management needs to explore time to promote

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defining, creating, sharing, exploiting and augmenting knowledge to renew the sources of competitive advantage. This paper applies the temporal lens to contribute to the resourcebased view, especially knowledge theories by developing concepts that help to better understand how contexts, in particular time contexts enable knowledge processes.

Knowledge Based View and Knowledge Management In line with the resource-based view (Wernerfeld, 1984; Peteraf, 1993), the competitive advantage of firms has been considered to stem from superior resources (Wernerfelt 1984; Prahalad & Hamel, 1990; Teece, Pisano, & Shuen, 1990), core competencies or capabilities. To lead to sustainable competitive advantage resources must be idiosyncratic and thus not easily transferable or imitable (Grant, 1991; Barney, 1986). Similarly, in line with knowledge-based views (Grant, 1996; Nonaka, 1994; Kogut & Zander, 1992; Hedlund, 1994) which focus on firms as entities with specific capabilities to create and use knowledge, the success of firms, has been attributed to superior capabilities in knowledge processing. The knowledge-based views of the firm consider knowledge to be ‘the most strategically-significant resource of the firm (Grant, 1996, p. 375).’ Both views, as they exist within the field of strategic management, seek to explain why firms exist and why certain firms reap supernormal returns. Because isolating mechanisms in the long run cannot completely deter imitation Teece, Pisano, and Shuen (1990) pointed out that firms must compete through dynamic capabilities: ‘the ability of an organization to learn, adapt, change, and renew over time (1990, p. 20).’ Firms that reap above normal returns do so because they possess superior (dynamic) capabilities that are difficult for others to imitate, i.e. processes that involve tacit knowledge. Competition can access and imitate capabilities easier if they are separated from contexts. Knowledge and capabilities that are embedded are difficult to copy and replicate (Nelson & Winter, 1982; Winter & Szulanski, 2001). Therefore creating contexts for knowledge processes is an important capability for firms to protect and develop its unique sources of competitive advantage. The theory of knowledge creation and utilization builds on the traditional definition of knowledge as ‘justified true belief’ or skills (Nonaka & Takeuchi, 1995; Rynes, Bartunek & Daft, 2001). There are two types of knowledge: explicit knowledge and tacit knowl-

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edge. Explicit knowledge can be expressed in formal and systematic language. It records past events, facts or objects in objective and abstract form that separate it from context. Thus explicit knowledge can transcend the ‘now’. On the other hand, tacit knowledge is highly personal and hard to formalize (Polanyi, 1966). Tacit knowledge is created ‘here’ and ‘now’ in a specific, practical context, that is, it occurs in time (Turetzky, 1998). Tacit knowledge lies at the core of sustainable competitive advantage. Organizations create knowledge through the interactions between explicit knowledge and tacit knowledge, the so-called four modes of knowledge conversion (Nonaka, 1994; Nonaka & Takeuchi, 1995); socialization (from tacit knowledge to tacit knowledge), externalization (from tacit knowledge to explicit knowledge), combination (from explicit knowledge to explicit knowledge), internalization (from explicit knowledge to tacit knowledge). Earl (2001) categorizes knowledge management approaches and tools as technocratic, economic and behavioral schools. Each of the schools supports the four knowledge conversion processes in different ways. The technocratic approach emphasizes the use of tools and defines the context in terms of information technology. Economic approaches focus on the efficiency of markets to satisfy knowledge demand and supply (Davenport & Prusak, 1998). Behavioral schools include attempts to use contexts such as space or communities to enable knowledge processes. Despite these schools merit to change behavior of people their emphasis on strategic design of technology, power of market partners or peer cultures to foster learning they miss some key temporal dimensions (Ancona et al., 2001). The temporal lens helps to better understand the diachronic and synchronic processes in organizations that inhibit or enable knowledge creation and utilization. Understanding time concepts provides new opportunities for efficient and effective knowledge creation and utilization. This paper uses the theory of knowledge creation as framework to conceptualize time as context for conversions of tacit and explicit knowledge. Strategic use of time contexts, i.e. timing of interventions (Albert, 1995) enables organizations to create and exploit knowledge effectively.

Time Concepts and the Time Lens Since Parmenide explained that being is essentially timeless and his contemporary Heraklitus argued that everything is in flux,

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numerous concepts of time were developed (Bergson, 1960; Turetzky, 1998; Yoshida, 1998). However, thinking about time is thinking in dichotomies, such as linear – circular, objective – subjective, continuous – discrete, absolute – relative, reversible – irreversible, or succession – duration, and commodity – instant etc. (e.g. Hassard, 2001; Mead, 1991; Davies, 1995). Understanding and use of time in management changed incrementally. During industrialization time began to be perceived as a scarce resource that had to be exploited efficiently. Later, Taylor’s scientific management introduced the notion of time as a linear constant to management methodology. The view of time as universal, uniform, homogeneous and quantifiable resource made it an essential, yet implicit, foundation of modern management. Since then, time has been analyzed and exploited to gain competitive advantage mostly by stressing speed and velocity to ultimately reduce costs; some authors see the new time standard in the post-industrial society as internet time or instantaneous time (Stalk & Hout, 1990; Fine, 1998; Hammer & Champy, 1993; Northey & Southway, 1994; Anderson, 1997). The broadening spectrum of research on temporal concepts, perceptions and processes in organization and management studies includes subjective time perceptions of team members or collective events and continuous change interventions in organizations (Ancona et al., 2001; Waller et al., 2001; Huy, 2001). We

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map the different temporal concepts with four characteristics: quantitative, homogeneous, heterogeneous and qualitative (Figure 1). The most diffused concept of time is that of quantitative, homogeneous time. This clock time concept (or digital time) dominates thinking about time also in management. The different concepts of time, including cyclical time, event time, subjective and social time need to be considered to understand timing norms, temporal relationships (time lags) and temporal leadership in organizational life (Ancona et al., 2001). Temporal leadership, relationships and routines are particularly important to unlock the innovative potential of embedded, tacit knowledge (von Krogh, Ichijo & Nonaka, 1999; Nonaka & Reinmoeller, 2002). So far, time contexts to enable knowledge processes have not been used because of the strong conventions in knowledge management regarding how to deal with time, i.e. aiming at reduction of hours of resources employed. Such a focus on clock time to minimize the use of time, for instance, can disembed knowledge from context and tacit knowledge such as values, experiences and insights cannot be processed.

Creating Time Contexts for Knowledge Conversion Processes The goal of this paper is to develop ideal types of temporal contexts that enable knowledge

Heterogeneous

Experience time

Event time

Qualitative 3

" Quantitative

Life cycle time

Clock time

Homogeneous

Figure 1. Different Concepts of Time

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processes and thus provide a complementary framework to effectively manage knowledge in organizations. The proposed ideal types that support knowledge conversion processes (Reinmoeller & Chong, 2001) are linked as follows: 1) creative leisure enable socialization, 2) defining moments enable externalization; 3) velocity enables combination, and 4) seasonality (rhythm) enables internalization. To visualize the differences between the four time contexts two dimensions, tacitness and explicitness of knowledge can be used (Figure 2). Proposition 1: Providing organizational members with temporal contexts enables knowledge processes; it increases the output of tacit knowledge including mental models, skills, intuition and explicit knowledge including data, texts, verbal communication and other forms of codified communications. For each of the four types, strategic interventions are developed that allow to create or to end time contexts. Albert (1995) identified five components of strategic intervention; 1) action (what is to be done?); 2) values, beliefs and knowledge of the agents; 3) purpose; 4) macrocontext; 5) rules and routines that link 1–4 in a meaningful way. The five components help to develop the intervention strategy. Short cases are selected from a multiplecase study (Yin, 1984). They illustrate the temporal concepts and allow for better comparison. The case data is based on multiple-

sources, including secondary material, semistructured interviews. Creative Leisure offers a perspective on disciplined activity at leisure for rich experience in time (Seneca, 1996), i.e. effective experience of time as source of tacit knowledge. The refusal to engage in ‘how’ activities (being busy) creates time for truly experiencing and discovering ‘what’ activities that allow for innovative leaps (being creative). Productive leisure is counter-intuitive to the currently dominant use of time, i.e. increasing speed and minimization of time needed. Accumulating and sharing of tacit knowledge needs such occasions of being in time. In organizations productive leisure can be associated with organizational slack, redundancy, creative chaos, inertia or rigidities (Penrose, 1959; Nonaka & Reinmoeller 1999; Rumelt, 1995; Leonard-Barton, 1992); it can promote innovation indirectly through variety, relationships and chance discovery. Productive leisure is suggested as essential experience of time to deal with speed and complexity. The intervention strategy to start, use and end creative leisure can be developed according to Albert’s (1995) conditions. First, the aim is to enable socialization (sharing tacit knowledge). Second, the agents possess different tacit knowledge. Three, the purpose is to accumulate and share tacit knowledge. Four, in a macro-context of business organizations it may be difficult to gather support for developing creative leisure because slack and redun-

Tacit ~

Creative Leisure

Defining Moments

Tacit 3

" Explicit

Seasonality

Velocity ! Explicit

Figure 2. Temporal Multiplicity: Occasions for Knowledge Conversion

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dancies are often seen as counterproductive. Five, rules and routines akin to March’s exploration (1991) link the four prior conditions. The development team of Honda’s S2000 new sport coupe used creative leisure extensively (see also Table 1). The cross-functional team went several times for two to three weeks to Europe (Uehara, 1999). During the first trip the team cruised in different top class cars at leisure through European landscapes to create and share tacit knowledge regarding the pleasures of driving. A bus accompanied the development team to maintain the time context of creative leisure and intensify the focus on high quality experience. On later trips the team also brought prototypes to Europe to maximize the effectiveness of their experience of creative leisure. The chief engineer created these occasions providing the team members with relevant experience to share and accumulate contextual knowledge. Proposition 2: The time context of creative leisure (an antecedent of organizational slack, redundancy, creative chaos or inertia) is likely to be used when activities are of strategic

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importance, and it is likely to enable knowledge processes that involve tacit knowledge, particularly socialization (tacit to tacit) Defining moments are periods in time of particular importance. Leveraging defining moments can provide a strong source of competitive advantage because the importance of such moments is often intuited by few and recognized in hindsight by many. The idea of breakthrough is one important aspect of defining moments, such as articulating ideas, consensus, decisions or obvious solutions. Catching the spur of the moment by putting chaos to order (Kaufmann, 1995) refers to timing as essential for achieving higher levels of productivity. When different facts and intuition come together, and things seem due to be done (Abell, 1978; Miller, 1993; Mintzberg, 1998) definitive action is needed to seize the moment. Defining moments can result in the articulation of a concept, the sales start of a model or the beginning of rapid diffusion after the introduction of an innovation. Defining moments set the pace by revealing what was

Table 1. Time Contexts and Conditions for Intervention Applied to Case Examples Contexts

Defining Moments (Honda)

Velocity (NTT Kanto)

Seasonality (Shimano)

Interventions

Creative Leisure (Honda)

Aim (What is to be done)

Spending time together

Achieving a breakthrough

Increasing speed and connectivity

Learning from explicit knowledge

Agents (values, beliefs and knowledge)

Members with different expertise in a cross functional team

Members articulate their unique tacit knowledge

Members provide feedback and take responsibility for their explicit knowledge

Organizational knowledge is to be embodied by members to develop common values, beliefs and knowledge emerge

Purpose

Sharing tacit knowledge

Articulating knowledge

Interconnecting explicit knowledge

Absorbing explicit knowledge

Macrocontext

Honda supports creative ideas and new concepts

Honda uses symbolic activities to support articulation

The sales division of NTT Kanto is allowed to create a unique office

Recurrent sequences are used to provide lessons learned

Linking routines

Exploration routines

Idea generation, presentation and justification routines

Exploitation routines

Learning routines

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known tacitly. They become meaningful and memorable events for individuals and groups and can transcend the moment as stories, anecdotes, i.e. narratives that are then used again to define moments. The intervention strategy to build, use and end defining moments again follows Albert’s (1995) conditions for timing. First, the aim is to achieve a breakthrough through externalization (making tacit knowledge explicit). Second, the agent is able to verbalize or visualize unique tacit knowledge in a team. Three, the purpose is to articulate tacit knowledge in form of explicit knowledge. Four, in a macro-context of business organizations articulating new ideas is often associated with high risk because it may be difficult to gather support for novel ideas; in addition the potential of new ideas is difficult to convey because considerable knowledge and cognitive capabilities are needed for comprehension. Five, rules and routines of generation, presentation and justification of ideas link the four prior conditions. Defining moments need careful preparation, and commitment, to such seize opportunities actively and listening capabilities (Weick, 1993; Weick, 1998). Providing the occasion of defining moments does not mean an isolated point in time. Iteration of such occasions is common, as for example during the development process of the S2000 at Honda. The chief engineer prepared and seized several defining moments, including visits to Honda’s historical sites as symbols for the importance of the project to stimulate articulation (Uehara, 1999; Hirai, 1999). Proposition 3: The time context of defining moments (antecedents of punctuations, turning points, events, critical quantities and boundary situation) enable knowledge processes that involve tacit and explicit knowledge, particularly externalization (tacit to explicit) Velocity occasions are based on the digital concept of time. Occasions that evoke experiences of speed and acceleration are intended to minimize or eliminate time through organizational structure, efficient processes, and support systems or methods. The perception of occasions where time constraints are severe is largely influenced by the context of instruments, tasks, people and context (Nowotny, 1992). Research on cultural differences in time perception shows that industrialized countries create time experiences that require high levels of activity, as the time experiences of people in metropolises which differ markedly from experiences in rural locations (Levine, 1997). The concept of velocity is widely applied to prod-

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uctive situations such as cycle times, time to market and man hours at conveyor belts. The intervention strategy to begin, use and close velocity is developed as follows. First, the aim is to enable combination (connecting explicit knowledge). Second, the organization possesses different kinds of explicit knowledge. Three, the purpose is to combine explicit knowledge. Four, in a macro-context of business organizations it is in general easy to gather support to increase the organizations capability to increase efficiency and speed. It will be more difficult to select and combine only relevant explicit knowledge to avoid an information overload or data graveyards. Five, rules and routines akin to network effects link the four prior conditions. Creating velocity contexts emphasize the exploitation processes (how to) rather than the contents (what to); they facilitate the efficient combination of explicit knowledge (Nonaka & Reinmoeller, 2002). The use of digital time for speed offers a methodology that is compellingly simple and easy to use. Its modules can be acquired or it can be outsourced. Velocity is tied to mathematical and quantitative measurement of time and other performance metrics (Eisenhardt & Brown, 1998). Measuring of time and time keeping as practices themselves foster standardization and comparison that prepare occasions of highspeed experiences, such as simultaneous new product development projects that exploit different time zones. Information technology has increased the speed by linking action to time and automatically taking records of all actions, such as sending e-mails. The increasing importance of Internet technologies seems to promote a uniform digital Internet time. However the concept of speed has long been applied to a wide range of productive situations such as cycle times, time to market, man hours and multi-tasking at conveyor belts (Fujimoto, 1999). The sales division at NTT Kanto has become a best practice in increasing results and employee’s capabilities in multimedia technology by introducing a new office environment (Nonaka and Reinmoeller 1999). Three transformations of the office architecture created the context for velocity: 1) shift of all communication to e-mail and Intranet, 2) change of the work environment with no seat assignments and co-location for work processes, and 3) visualization of accountability and direct feedback. Each homepage on the Intranet, for instance, shows the name of the person in charge and is linked to this person’s homepages and e-mail. Thus the person in charge can be contacted immediately.

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Proposition 4: The time context of velocity (antecedent to speed and changes in speed) enables knowledge processes that involve explicit knowledge, particularly combination (explicit to explicit). Seasonality is grounded in the fact that experiences in time are not necessarily unique occasions. The chronological flow of time, as history is self-similar. Giddens (1995) points out that the duration of day-to-day being of individuals and the business cycles of organizations are recursive and repetitive. Everyday life in organizations represents recurrent micro-patterns nested in larger recurrent macro-patterns under the condition of minute changes. The continuous passing and repetition creates the experience of rhythmic duration, i.e. simultaneous change and flow. Such seasonality links individual behavior to organizational routines through basic recurrence and specific change. This complex rhythm of recurrence on the individual and organizational level is the fourth occasion that supports knowledge conversion. The intervention strategy to start, use and close seasonality is again based on Albert’s (1995) conditions. First, the aim is to enable internalization (learning from explicit knowledge). Second, the organization possesses explicit knowledge to be learned by the agents. Three, the purpose is to embody explicit knowledge. Four, in a macro-context of business organizations adequate training in house is seen as resource-intensive. Recently, the emphasis on human talent and competition for top people shows a growing reluctance to train people internally and the tendency to acquire top talent externally. Five, rules and routines akin to March’s exploitation (1991) link the first conditions. The workflow at assembly lines or the acquisition of routines in everyday practice on-the-job or in communities of practice (Brown & Duguid, 1991; Wenger, 1998) creates seasonality. Seasonality experiences facilitate the internalization of explicit knowledge through repetition, recurrence of action as the key issues in learning. Rhythmic experiences facilitate learning, memorization, refinement and the mastery of skills that are difficult to verbalize (Rosenbaum & Collyer, 1998). Seasonality integrates detail into meaningful epochs and thus supports apprehension. Shimano Inc. is a world leader in bicycle componentry located in the city of Sakai, close to Osaka, Japan. Shimano targets mainly the higher end markets North America and Europe. The fact that Shimano‘s product planning managers and relation managers spent much of their time in foreign markets

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makes them experts in local market trends. Shimano refines their knowledge on world bicycle markets and presents it to partners. The seasonality created through Shimano‘s presentations facilitates Japanese manufacturer’s adaptation to Western trends and helps to embody knowledge on remote markets. Further employees in South-East-Asian factories are invited to educational trips to the headquarters in Japan. The recursive pattern of training in Sakai helps to disseminate and transfer manufacturing skills as embodied knowledge to the subsidiaries. Proposition 5: The time context of seasonality (antecedent of rhythm, frequency, repetition, patterns, rigidities and routines) enables knowledge processes that involve tacit and explicit knowledge, particularly internalization (explicit to tacit)

Conclusions and Implications The paper uses the time lens to better understand how contexts influence knowledge processes. It provides a conceptual framework for understanding and creating contexts to promote knowledge conversion processes. A set of four time contexts is developed and linked to different knowledge processes. Intervention strategies suggest using time contexts to enable knowledge creation and utilization. Strategic use of time contexts seems to be a promising perspective contributing to existing knowledge theories. To unlock tacit knowledge for organizational purposes such as innovation the time perspective seems to be a missing link between knowledge and enabling context. This paper develops propositions on linkages between contexts and knowledge processes. Thereby the co-evolutionary processes between knowledge and contexts are conceptually disentangled. The framework suggests that the contexts are antecedents for knowledge processes acknowledging that processes can influence contexts. The propositions and concepts built and presented in this paper need empirical testing. Future research has to address the question how to quantitatively test the concepts including time experience and how to further measure the interdependence between knowledge and contexts. In particular, the influence of leaders and their action on the creation of contexts suggests interesting insights on knowledge activists and leadership. Conceptually, the following four issues appear to show the most promising avenues for future research. 1) Contingency of time and the relationship between knowledge, time

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and space. Synchronicity or entrainment are important concepts the need to be analyzed to understand how they contribute to knowledge management 2) The role of institutions and humans in the creation of temporal contexts needs to be better understood to fully use institutional or personal leadership in knowledge creation and utilization. 3) Productivity effects of multiple of time contexts in organizational architectures. 4) The emphasis of time as context variable begets answers to questions related to experiences of time-free contexts such as vision, core values but also flow or discontinuities. As this paper develops concepts and linkages between concepts (theory building) the implications for management are general. Based on recent research in organization and management studies related to knowledge management, time and timing the paper suggests using temporal contexts to enable knowledge creation and utilization. In order to capture value from knowledge assets or knowledge workers management needs to first develop a detailed analysis of past and present knowledge processes and knowledge assets. Second time contexts need to be prepared, created, closed or maintained to promote knowledge processes. Third different time contexts such as creative leisure, moment, velocity and seasonality promote different knowledge conversions. According to organizational knowledge needs, building time contexts can initiate knowledge processes to satisfy such needs. Four intervention strategies help to create and change time contexts. Intervention strategies influence time contexts by selecting, shifting, pacing, compressing, expanding, synchronizing and sequencing to continuously recreate the sources of competitive advantage.

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Hassard, J. (2001) Commodification, construction and compression: a review of time metaphors in organizational analysis. International Journal of Management Reviews, 3, 131–140. Hedlund, G. (1994) A Model of Knowledge Management and the N-Form Corporation. Strategic Management Journal, 15, 73–90. Hirai, K. (1999) Managing Director. Interview at Honda R&D Co. Ltd., Tochigi. Huy, N.Q. (2001) Time, temporal capability, and planned change. Academy of Management Review, 26, 4, 601–623. Kauffmann, S. (1995) At Home in the Universe: The Search for the Laws of Self-Organization and Complexity. Oxford University Press, New York. Kogut, B. and Zander, U. (1992) Knowledge of the Firm, Combinative capabilities, and the Replication of Technology. Organization Studies, 3, 383–397. Lave, J. and Wenger, E. (1991) Situated Learning – Legitimate Peripheral Participation. Cambridge: University Press. Leonard-Barton, D. (1992) Core Capabilities and Core Rigidities: A Paradox in Managing Product Development. Strategic Management Journal, 13, 111–125. Levine, R. (1997) A Geography of Time. Basic Books, New York. March, J. G. (1991) Exploration and Exploitation in Organizational Learning. Organization Science, 2, 1. Marks, M.A., Mathieu, J.E. and Zaccaro, S. J. (2001) A Temporally Based Framework and Taxonomy of Team Processes. Academy of Management Review, 26, 356–376. Mead, G.H. (1991) Mind, Self and Society. Chicago University Press. Miller, D. (1993) Political Time. Time & Society, 2, 179–198 Mintzberg, H. (1998) Covert Leadership: Notes on Managing Professionals. Harvard Business Review, Nov.–Dec., 140–147. Nelson, R. and Winter, S. (1982) An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, MA. Nonaka, I. (1994) A Dynamic Theory of Organizational Knowledge Creation. Organization Science, 5, 14–37. Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company. Oxford University Press, New York. Nonaka, I. and Konno (1998) The concept of ‘Ba’: Building a Foundation for Knowledge Creation. California Management Review, 40, 40–54. Nonaka, I., Reinmoeller, P. and Senoo, D. (1998) The ART of Knowledge: Systems to capitalize on market knowledge. European Management Journal, 16, 6, 673–684. Nonaka, I. and Reinmoeller, P. (1999) Dynamic Business Systems for Knowledge Creation and Utilizsation. In Despres, Ch. and Chauvel, D. (ed.) Knowledge Horizons: The Present and the Promise of Knowledge Management. ButterworthHeinemann, Boston, 89–112. Nonaka, I. and Reinmoeller, P. (2002) Knowlege Creation and Utilization: Promoting Dynamic Systems of Creative Routines. In Hitt, M.A. et al.

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(ed.) Creating Value: Winners in the New Business Environment. Blackwell, Oxford, 104–127. Northey, P. and Southway, N. (1994) Cycle Time Management. Productivity Press, New York. Nowotny, H. (1992) Time and Social Theory: Towards a Social Theory of Time. Time & Society, 1, 421–454. O‘Dell, C. and Grayson, C.J. (1998) If Only We Knew What We Know: Identification and Transfer of Internal Best Practices. California Management Review, 40, 154–174. Pennings, J.M., Lee, K. and van Witteloostuijn, A. (1998) Human Capital, Social Capital, and Firm Dissolution. Academy of Manament Journal, 41, 425–440. Penrose, E. (1959) The Theory of the growth of the firm. Basil Blackwell, London. Peteraf, M. (1993) The Cornerstones of Competitive Advantage: A Resource-Based View. Strategic Management Journal, 14, 179–191. Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation. Harvard Business Review, 68, 79–91. Polanyi, M. (1966) The Tacit Dimension. Routledge, Kegan Paul, London. Rheingold, H. (1991) Virtual Reality. Summit, New York. Reinmoeller, P. and Chong, L.-C. (2001) Strategic Time. Proceedings of European Academy of Management, Barcelona, April 19–21. Rosenbaum, D.A. and Collyer, C.E. (1998) Timing of Behaviour – Neural, Psychological and Computational Perspectives. MIT Press. Rumelt, R.P. (1995) Inertia and Transformation. In Montgomery, C. (ed.) Resource-based and Evolutionary Theories of the Firm: Towards a Synthesis. Kluwer, Boston, 101–132. Rynes, S.L., Bartunek, J. and Daft, R.L. (2001) Across the Great Divide: Knowledge Creation and Transfer Between Practitioners and Academics. Academy of Management Journal, 44, 340–355. Scruton, R. (1996) Modern Philosophy. Mandarin, London. Seneca, L.A. (1996) De otio: Ueber die Musse. Reclam, Stuttgart (in Latin and German). Stalk, T.M. and Hout, G. (1990) Competing against Time: How Time-Based Competition is Reshaping Global Markets. Free Press, New York. Stewart, T.A. (1997) Intellectual Capital: The New Wealth of Organizations. Doubleday, New York. Teece, D., Pisano, G. and Shuen, A. (1997) Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18, 509–533. Tsai, W. and Ghoshal, S. (1998) Social Capital and Value Creation: The role of intrafirm networks. Academy of Management Journal, 41, 464–476. Turetzky, P. (1998) Time. Routledge, New York. Uehara, S. (1999) Executive Chief Engineer. Interview at Honda R&D Co. Ltd. Waller, M.J., Conte, J.M., Gibson, C.B. and Carpenter, M.A. (2001) The effect of individual perceptions of deadlines on team performance. Academy of Management Review, 26, 586–600. Weick, K.E. (1993) Organizational redesign as improvisation. In Huber, G.P. and Glick, W.H. (eds), Organization Change and Redesign. Oxford University Press, New York, 346–379.

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Weick, K.E. (1998) Improvisation as a Mindset for Organizational Analysis. Organization Science, 9, 543–555. Wenger, E. (1998) Communities of Practice: Learning, Meaning and Identity. Cambridge University Press. Wernerfelt, B. (1984) A Resource-Based View of the Firm. Strategic Management Journal, 5, 171 –180. Winter, S.G. (1988) On Coase, Competence, and the Corporation. Journal of Law, Economics and Organization, 4–1, 163–180. Winter S.G. and Szulanski, G. (2001) Replication as strategy. Organization Science, 12, 730–743. Quinn, J.B. (1997) Innovation Explosion: Using Intellect and Software to Revolutionize Growth Strategies. Free Press, New York. Von Hippel, E. (2001) Innovation by User Communities: Learning from Open-Source Software. MIT Sloan Management Review, 42, 82–86. Von Krogh, G., Ichijo, K. and Nonaka, I., (2000) Enabling Knowledge Creation. Oxford University Press, New York Yin, R.K. (1984) Case Study Research: Design and Methods. Sage, Beverly Hills. Yoshida, K. (1998) Jikan. Kodansha, Tokyo.

Patrick Reinmoeller is Assistant Professor for Strategy and Business Environment at the Rotterdam School of Management, Erasmus University Rotterdam in the Netherlands. Dr. Reinmoeller has pre-

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viously served as faculty of the Graduate School of Knowledge Science, Japan Advanced Institute of Science and Technology after doing his post-doctoral research at the IIR at Hitotsubashi University in Tokyo. Patrick was educated in Germany, Italy and Japan and has worked in strategy consulting. His academic research focuses on how organizations and their managers can foster innovation by enabling knowledge processes. Dr. Li Choy Chong is currently Professor in International Management and Director of the Asia Research Centre at the University of St. Gallen in Switzerland. He is also teaching at the ETH Zu¨rich. Prior to this appointment, he was teaching at the National University of Singapore, and was also the Academic Advisor for Economics and Business Administration to the Open University in Singapore. His many appointments held in North America, Europe and Asia include: Research Fellow at the Wharton School of the University of Pennsylvania, Presidential Fellow at the American Graduate School of International Management (Thunderbird), Visiting Fellow at the University of North Carolina at Chapel Hill, Visiting Professor at the Helsinki School of Economics and Business Administration, and Visiting Professor at the Stockholm School of Economics.

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Temporal Context of Organizational Learning in New Product Development Projects Laurent Bourgeon Faced with the evolution of the competitive environment, firms have to find the delicate balance between two goals that are sometimes contradictory: accelerate the time spent on product development and leave time to the personnel implicated in these projects to develop collective learning. This research shows that the project ‘time’ has an important influence on the realization of collective learning during new product development projects. The commitment of the project team in activities like experimentation, detection and correction of errors, and research of new combinations which constitute organizational learning depends on the two conceptions of the project ‘time’. If the duration of the project and the time spent by the functional personnel on the project constitute the objective time of the project (first conception of time), the project ‘time’ is also a subjective time which corresponds to the project team’s shared vision of the project’s deadlines (second conception of time).

Introduction

T

he evolution of the competitive environment has meant that companies have devoted their ability to develop new products both quickly and under good economic conditions – products which not only seek to satisfy the needs of clients but also bring them increased value – as a key factor of their competitiveness (Gupta & Wilemon, 1990). This reactivity puts pressure on time as a real strategic variable (Stalk & Hout, 1990). It allows a firm to respond, within an acceptable time period, to the needs of their customers with specific products adapted to these needs. The specificity of products associated with brief time periods demanded by clients and imposed by competition forces the firm to prove its ability to adapt to the changing needs of its environment. This evolution also explains why this echoes back to the theme of organizational learning and returns to the necessity of the firm to implement quick and efficient organizational programming (Koenig, 1994). In a context where the changing environment results in accelerated development and where the launch of new products is an important competitive issue, it becomes crucial to master, promote # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

and keep the knowledge learnt through R&D projects (Meyers & Wilemon, 1989). So when managing its product development activity, the firm must strike a balance between two objectives which may sometimes seem contradictory: to reduce the time needed to develop new products and to ensure that the development team has time to develop ways of collective learning. The first part of this article retraces the evolution of the organizational structure of new product development projects, responding to the most important managerial criterion: the reduction of time needed to put the product on the market. The second part analyses the impact of temporal characteristics on new product development projects which determine the organizational learning that takes place.

The evolution of the organizational structure of new product development projects: The search for reactivity At the beginning of the 1990s, Rothwell (1992) noted that after more than three decades of empirical studies dedicated to identifying the

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characteristics of innovative companies and the factors influencing the success or failure of innovative procedures, there was still no magic recipe for successful innovation. Despite the heterogeneous approaches to and subjects of these studies, a certain number of common factors, which characterise successful innovation processes and innovative companies, have emerged from these studies. Thus, from the mass of research and the development of recent management models for new product development projects (Rothwell, 1992), two major managerial implications have come to the surface.

Horizontal management: Towards an improvement in indirect activities The first of these implications shows that horizontal management is a factor in improving the indirect activities of development. These activities, consisting of the control of the project, its administration and the general co-ordination of the activities of which is it composed, can, in effect, represent more than 50% of the total project time (A.D. Little, 1992). The adoption of a horizontal management style is one of the factors Rothwell (1992) lists as one that favours the reduction in the time required to develop new products. This type of management, by favouring decision making in the lower levels, significantly reduces the time necessary to develop new products while improving the efficiency of so-called indirect development activities (Rothwell, 1992).

The setting up of multifunctional teams: towards better integration Taking the market place and the client into greater consideration has resulted in multifunctional teams being put into place and in a better integration of new product development process. Thus, one of the key factors of success in the process of developing new products is effective communication between the members of different functional departments; this is optimised by the setting up of multifunctional project teams (Rothwell, 1992). Although the search for congruence between the developed product and the needs of the market and the final client has been a major concern for some time, the reduction in the time needed to develop new products has become a primary objective in the evolution of process models for the development of new products over the last ten years (Gupta & Wilemon, 1996). The search for greater flexibility by progressively abandoning sequential

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logic and breaking down barriers of time and organizational space by putting into place integrated processes are the principal traits of the changes that the organisation of new product development projects have undergone. These new models seek a delicate balance between, on the one hand, the need to regulate action and to obtain all information and, on the other hand, the necessity of the process to progress quickly (Cooper, 1994). Thus, the management of new product development projects has progressively seen the sequential process, consisting of a succession of stages carried out by the various different functions of the firm, give way to multifunctional teams which have been given increased autonomy and decision making power (Tarondeau & Wright, 1995). The areas of control and decision making, where, previously, information was exchanged between specialists belonging to different functions, have been replaced by simultaneous decisionmaking processes.

The emergence of the horizontal organization: Towards the primary importance of the ‘project’ aspect As well as reducing the time taken for new products to be put onto the market, which is still the principal preoccupation for R&D (Gupta & Wilemon, 1996), the firm must also control inherent project costs and give priority to assessing the value brought to the client in a competitive environment where competition occurs through a continually renewed range of available products. The dimensions (time, costs, and quality) of improving the performance of new product development projects echoes the three defining elements of horizontal logic: by exceeding the firm’s functional barriers this horizontal logic must, in effect, make it possible to lower costs concerning service given to the client and control the overall amount of time taken ‘as seen by the client’. In this new organizational context concerning the activity of developing new products, project teams centralise decision making at the project level and develop competencies in the various projects, rather than specialised knowledge in functions or activities (Tarondeau & Wright, 1995). However, when the firm decides that this second distinctive characteristic is lessening its functional competency, it would appear to limit the development of this new form of organization. Horizontal organization and its implied integration take precedence over functional organization, and its sequential approach of processes, when the needs of lateral co-

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ordination prevail over the benefits generated by the specialisation of functions and individuals. This breaking down of barriers between various activities involved in the process of developing new products by favouring an increase in information exchange right from the initial stages of the project allows for various stages, which were previously undertaken sequentially, to occur simultaneously (simultaneous development), and this would appear to be a factor in the reduction of development time (Clark & Fujimoto, 1991). This horizontality gives project members the opportunity to understand and measure their contribution to collective efforts (Tarondeau & Wright, 1995). It also allows them to be informed of the value received by the client, who is more concerned with the result than with individual involvement, not in terms of sum of the different successes in the areas of competence and influence of successive functional managers, but by the quality resulting from the integration of activities in a process. Functional territories, therefore, are no longer perceived as the only areas where performance can be improved. Rather, it is cooperation and coherent action between these territories that can create value. For companies that have embraced this new way of organising new product development, performance gains have been obtained in terms of cost and development, in the time taken get a product on the market and the quality of the products developed (Bourgeon, 1998). This established fact confirms the merits of the original motivations to implement a horizontal organization for new product development projects, which has resulted in an improvement in the performance of these projects. In a complex and dynamic competitive environment, the problematic evolution of organizational methods for new product development projects arises from the search for a delicate balance between the requirement to reduce development lead times for new products and the necessity to guarantee conditions which favour organizational learning during projects.

New product development projects: A critical learning area By its very nature, R&D is a learning system (Carlsson et al., 1976); a ‘learning system’ is defined by Shrivastava (1983, p. 14) as ‘the mechanisms by which learning is perpetuated and institutionalised in organizations’. So, in an R&D project, learning systems are the formal and informal mechanisms the project

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team will use in the process of developing knowledge. These mechanisms may include the methods required for detection, storage and extraction of knowledge gained (Meyers & Wilemon, 1989). The members of the project team also depend on learning systems for making decisions as well as for detecting and correcting errors (Duncan & Weiss, 1979). But knowing the cause of the problem (error detection) is only useful when preventative action is taken to prevent the problem from reoccurring (error correction). So, the ability to detect and correct errors in time would appear to be dependent on the efficiency of the learning system of the project team (Purser et al., 1992). The project manager must therefore ensure that all members of the team are involved in the realization of a participative learning system (Shrivastava, 1983). These elements make up the sociotechnical culture of the project and appear (once they have been tested) to be critical factors in the success of technical complex projects (Purser et al., 1992). Because R&D projects are by their very nature knowledge-intensive places, the competencies developed through such projects can be defined as the development of a knowledge base (Purser, Pasmore & Tenkasi, 1992). But the creation of new knowledge does not come about by disregarding already acquired competencies. The learning processes, like the projects, are the products of the firm’s combined capabilities; the emergence of new combinations of the firm’s capabilities produce knowledge. By ‘combined capabilities’, Kogut & Zander (1992) mean the intersection of the firm’s abilities to exploit its knowledge, with unexplored technological potential (technological opportunity). These new combinations are obtained through constituent trial and error sequences. The setting up of a learning system, or conditions favouring learning, in an R&D project would therefore appear to be a critical factor in the success of a project. The project, which by definition is voluntarily limited in both time and cost, and which has a defined organizational space appears to be a potential place for experiments on a reduced scale in terms of time, space and cost. At the same time it plays the part of a learning tool which enables the firm to test the validity of certain established hypotheses (Garvin, 1993). In effect, the project is precisely what modifies the setting, regenerates the system, and transforms the definition of activities (Koenig, 1994). It may be seen, then, as the ideal place for experimenting as defined by putting into practice new knowledge which does not conform to the rules of accepted

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usage (Midler, 1993). This beacon of change within organizational space limits risks and allows energy to be concentrated. And the existence of an evaluation process allows validation (or refusal) and generalization of new choices made during the project (Midler, 1993). From this perspective, the implementation of a horizontal organization for new product development projects promotes the project itself, the horizontal rather than the vertical dimension of the firm (functions), and gives preference to experimenting and learning. These projects constitute the real test of the firm’s capacity to succeed in crossing actions and can be used as tool to reinforce relations between functions at the same time as giving them the space necessary to improve their own expertise (Leonard-Barton et al., 1995).

The principal dimensions of learning through new product development projects The first stage of data analysis – data which results from a questionnaire completed for this research1 – allows the principal dimensions of learning in new product development projects to be put forward. The factor analysis carried out on the data that resulted from the measurement organizational learning during new product development projects leads to five principal dimensions (or factors); these are: (1) The unity of the project team, (2) the pertinence of the responses brought to problems encountered during the project, (3) the implementation of a participative style of management, (4) the efficient knowledge sharing among project members, (5) the manner in which problems inherent to the project are treated. During the second stage of data analysis (cluster analysis), the results of which are not presented here, the sample firms was classed and regrouped into homogenous groups according to their respective position on the principal dimensions of organizational learning during new product projects. These groups refer to the relative levels of organizational learning through new product development projects. Finally, in the third stage, an analysis of variance was conducted on: ‘the average length of the new product development projects undertaken by the firm’, ‘dedication of the project-members for the entire period of the project’, ‘turn-over of project members during the project’ and ‘stress related to the project-members’ perception of the time frame given to the project’ according to the groups formed on the basis of learning conditions which characterise the projects being under-

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taken. The results of these analyses, which are intended to validate the hypotheses underlying this research,2 are presented in the section that follows.

Project ‘time’: a brake on learning (?) According to Meyers and Wilemon (1989), at the beginning of a project the knowledge of the project team is said to be made up of the knowledge of its members and other available contributions. Learning by the detection and correction of errors, such errors understood as problems, challenges, crises and other events occurring during the development of the project will serve to enrich this knowledge by the end of the project. The R&D project is an area of learning by doing (Maidique & Zirger, 1985). The occurrence of non-routine tasks or critical incidents during the project are, in themselves, occasions for project-members to get involved in the processes of information research or discussions. Individuals seek to reduce the ambiguity confronting them by developing exchange and communication scheme according through which the problem is treated. Thus, discussion differs from the programmed decision point or review of the project in that it encompasses informal relations established between the members in the circulation of information relating to a given subject. During a project, non-routine tasks, characterised by a high level of complexity and uncertainty, lead the teams themselves to generate processes which can deal with these problems; problems which cannot be resolved by a single player or unique function (Purser et al., 1992). In this case, the emerging deliberation is a way of dealing with the complexity of non-routine tasks; it will involve various and sometimes temporary members and will transcend the organizational limits defining the project space. Project members, on assignment from different departments of the firm, acquire two types of knowledge: one resulting from the information gathered during the project by the members in their respective specialised domain and from the know-how developed, during the project, in order to resolve problems or accomplish tasks relevant to their area of expertise. The second type of knowledge is that relating to the retention or sharing of information by the members (i.e. ‘who knows what’) and to the relative know-how of the project management (Kogut & Zander, 1992). The organization of new product development projects is a result of the setting up of a

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multifunctional team in charge of managing projects that have been assigned certain objectives. The whole project is geared towards realising these delegated objectives through optimal use of allocated resources, especially human resources. Individuals are transferred from their original functional department for a determined period of time in order to take part in and bring their expertise to the project. The project’s success, that is the realization of the assigned objectives, depends on the ability of the project manager to manage the various forms of expertise available, to enable individuals who are not used to working in a team to work together, and thus to create the desired added value through the best possible integration, and, finally, to favour collective learning. But this success has a prerequisite: that the accumulated results of different forms of knowledge, sometimes stretching back to the very beginnings of the firm, are made available through the diverse functions of the firm’s high-potential employees.

Project length (objective time) and organizational learning The ‘time’ of a project refers to different definitions of time. The first is the objective time of the project, its duration or completion time measured in weeks, months or years. The project team focuses on completion of the objectives which have been assigned to it, especially as regards time, through optimal use of the allocated resources, and the development of new competencies is not a natural preoccupation in this form of action-oriented logic. The length of the project thus conditions the realization of collective learning during the project. The empirical study carried out in this research confirms the link between the measured time of the project, its duration, and the more or less favourable character of the collective learning conditions characterising the project (cf. Table 1).

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In effect, on average the duration of projects would appear to be a differentiating factor affecting favourable learning conditions throughout these projects. The average length of new product development projects associated with favourable learning conditions is relatively greater than projects that are characterised by unfavourable learning conditions. In other words, the objective time of the project tends to favour collective learning during the project. The longer the project time, the more favourable the learning conditions. On the other hand, however, the relative importance of the duration of the project contributes to the inertia of return on the experience and then acts as a brake regarding the transfer of learning carried out over the course of the project (Midler, 1993). In effect, the longer the project, the longer the time deemed necessary to judge the effects of changes introduced to general practice during a project, and thus the inter-project capitalisation of learning resulting from it is also slowed down, if not halted.

Duration and stability of the participation of functional actors in the project and organizational learning However, if the duration of projects appears to contribute to the emergence of favourable learning conditions, the permanent availability of the project members would also appear to play a critical role. Furthermore, an individual’s participation in the project is often measured by the objective time dedicated to the project and is calculated in terms of the number of individuals per day. From this perspective, it would appear to be of prime importance to devote members for the entire length of the project depending on availability in the departments involved in the project and, similarly, to avoid turnover of project members, paying special attention to this when enlisting their participation in the

Table 1. Organizational Learning and Duration of Projects

Mean Standard Deviation Duration of projects*

Conditions of Organizational Learning during New Product Development Projects Unfavarourable

Favourable

F

Significance

2,225 0,659

2,609 0,833

5,294

0,024

*(Value taken by the variable ‘Duration of projects’ 1:<1 year; 2: from 1 to 2 years; 3: 2 to 5 years; 4: 5 to 10 years; 5: > 10 years)

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project. These two requirements, which are inherent to the logical appointment of teams, contribute to the establishment of conditions which favour learning during projects. It would appear, then, that within a firm the logic governing the involvement of functional actors in projects developing new products differentiates to a significant extent (cf. Table 2) between companies in which these types of projects are characterised by favourable learning conditions and those where learning conditions are unfavourable. The commitment of the functional actors (i.e. their assignment for the entire duration of the project) which allows new product development projects to have their own particular organizational dimension, both spacial and temporal, contributes to the establishment of favourable learning conditions during the project. This form of approach, that is, the involvement of functional actors in projects developing new products, is, moreover, a characteristic of companies that have chosen to give priority to the ‘project’ dimension over the ‘functional’ dimension when organizing new product development projects by adopting a team-based organization (Bourgeon & Tarondeau, 2000). On the contrary, the approach in which functional project members are assigned ‘as needed’ to the project according to its specific requirements corresponds to sequential management of new product development projects, and would hardly appear to contribute to establishing favourable learning conditions. Nevertheless, it would appear that the characteristic which, to a greater or lesser extent, favour learning conditions that feature in projects undertaken by the firm, would not appear to be linked to the level of turnover affecting the project teams (partial renewal of the team during the project). It would seem then that, in addition to the stability (or instability) of the functional actors involved, it is the durable character of the involvement of functional departments as well as the commitment of their managers,

which is most important in establishing favourable conditions for learning during new product development projects.

Perception of time assigned to a project (subjective time) and organizational learning But the ‘time’ of a project is also subjective time, echoing back to the project members’ shared vision of time restrictions imposed upon them. This shared vision constitutes, by way of understanding the purpose of the project (the technical system to be realised), an integrating factor for the team and also conditions the capacity of the team to develop collective learning. By focusing on the realization of the objectives that have been set, especially in terms of time limits, through the optimal use of resources dedicated to it, the project team is totally dedicated towards action. In this climate, which, judging by appearances, one could consider as hardly conducive to learning, the capacity to develop new areas of competency is largely influenced by the team members’ perception of the time allowed for the project. In effect, this type of learning is time consuming, especially in the initial stages of the project (definition of the project and of the product itself). So, in a new product development project it is important to leave time earlier in the project for experimenting and for detecting and correcting errors. These activities are, in effect, necessary so that the process of exploring ‘new combinations’ and of acquiring information aimed at reducing incertitude and validating choices taken can occur. This latitude will guarantee rapid convergence of this process as well as of the process of decision-making whereby a product is progressively identified, which reduces the latitude given to project development (Midler, 1993). Thus, the differences in terms of time allotted between the stages of the project, reveal the levels of learning which have taken

Table 2. Learning and Participation of Functional Actors

Mean

Conditions of Organizational Learning during New Product Development Projects

Standard Deviation

Unfavarourable

Favourable

F

Significance

Participation of functional actors *

2,799 1,244

3,365 1,427

3,608

0,0611

*(1: as needed; 5: detachment for entire duration of the projects)

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place (Meyers & Wilemon, 1989). The excessive attention to possible delays is likely to discourage not only learning efforts that rise from activities in the initial stages of the project, but also the willingness to research and incorporate previously developed learning into the project. Myers and Wilemon (1989) note that these types of ‘voluntary’ delays, in the initial stages of a project, brought about by trying to learn more, especially regarding ratifying choices, are often perceived by exterior project observers as simply a waste of time. A ‘time limit’ on a project would therefore appear to be unfavourable for learning. An atmosphere of urgency, which is maintained by time restrictions on new product development projects, but which does not necessarily go against intellectual production, can very quickly prove to be an impediment to sequence types such as ‘experiment-thought-decision’ or ‘detection-correction’ of errors, which are characteristic of learning in new product development projects, if the feeling of stress becomes permanent. The perceptual frontier separating stress and urgency is a matter of how the project members perceive time restrictions: if they are judged to be unrealistic, they become a source of stress (Purser et al., 1992). A certain number of authors (Garvin, 1993; Meyers & Wilemon, 1989; Midler, 1995; Purser, Pasmore & Tenkasi, 1992) have observed a barrier to learning occurring within a climate of continued stress generated by time restrictions imposed on certain new product development projects. The empirical study carried out in the framework of this research confirms this (cf. Table 3). It would appear that, in effect, new product development projects undertaken by teams working under high stress, which is generated by the shared perception that the assigned time restrictions for the projects are generally regarded as being unrealistic, are significantly characterised by unfavourable conditions for

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collective learning. On the other hand, companies in which the allocated time restrictions for new product development projects are not seen as a source of stress for the teams appear to have favourable learning conditions during these projects. The perceptions of the team members (or the shared vision of the time objectives assigned to the project) is a source of collective stress which conditions collective learning during these projects. Beyond simply the duration of the project itself (objective time), it is both the permanence of the project members involved and their perceptions of the time restrictions applied (subjective time) that to varying degrees determine the favourable conditions for collective learning during a project. This research has made it possible to show that the project’s objective time (its duration and the length of time the functional actors are involved) and the project’s corresponding subjective time (the shared perception of the time restrictions applied to the project) have considerable influence over the realization of collective learning during new product development projects. The ‘time’ of a project in these two conceptions conditions the involvement of project actors in experimenting, detecting and correcting errors, and searching for new combinations, activities which make up organizational learning. Furthermore, new product development projects are an area in which new knowledge is created within a firm. This creative activity is time consuming; it requires ‘(. . .)resources and time. The time to sit down and think. The time to be alone. The time to carry out tests. The time to have ‘on and off’ discussions with others’ (Nordstro¨m & Ridderstrale, 2000, p. 155). It requires communication between the actors involved in the process, or what the Japanese call ‘nommunication.’ Nummunication is understood to mean ‘the time which employees spend in the bar after a day at work (and which) may be a determining factor in the

Table 3. Organizational Learning and Stress Related to Perceived Time Restrictions Assigned to the Project

Mean Standard Deviation Stress related to project time restrictions*

Conditions of Organizational Learning during New Product Development Projects Unfavarourable

Favourable

F

Significance

2,274 0,816

3,317 0,756

35,55

0,006 E-5

*(1: weakest level; 5: highest level)

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development of new ideas’ (‘nommu’ means drink) (Nordstro¨m & Ridderstrale, 2000, p. 156). The firm that seeks to conciliate the reduction in development time for products and the realization of favourable conditions for learning during projects may find a solution by adopting an horizontal organization structure. This form of organizational structure, which seems particularly adapted to research objectives measured in terms of time and quality of service (Tarandeau & Wright, 1995), also allows the realization of collective learning during new product development projects by giving autonomy and decisionmaking powers to the project teams (Bourgeon & Tarondeau, 2000). In addition, each time a project is begun, the firm using this new structure must undertake to ensure the following formula is followed: ‘Rather than treating each project as if it were the organization’s last, each project should be looked at as the first of many to follow’ (Purser, Pasmore & Tensaki, 1992, p. 23). This is because learning helps one acquire the knowledge to manage time – not the opposite.

Notes 1. For a detailed presentation of the methodology used cf. L Bourgeon and J C Tarondeau (2000) 2. The proposals tested within the framework of this research are as follows: Hyp 1: the length of the project conditions the realization of collective learning during its course. The greater the length of time given for the project, the more favourable the learning conditions; Hyp 2: the dedication of the project-members (detached from their orginal function department) for the entire duration of the the project favours the realization of collective learning during its course; Hyp 3: turn-over of project-members during the project acts as a break on collective learning during its course. Hyp 4: stress related to projectmembers’ perception of the time frame assigned to the project acts as a break on the realization of collective learning during its course.

References Bourgeon, L. (1998) Organisation transversale et capitalisation des apprentissages: le cas des projets de de´veloppement de nouveaux produits. Phd Thesis, University Aix-Marseille III, June 1998. Bourgeon, L. and Tarondeau, J.C. (2000) Organizational Learning in Horizontal Organzational Structures: The Case of New Product Development Projects’ Structure. Proceedings of Fifth International Conference on Competence-Based Management, Helsinki, June 2000.

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Carlsson, B., Kean, P. and Martin, J. (1976) R&D organizations as learning systems. Sloan Management Review, 17-3, 1–76. Clark, K.B. and Fujitomo, T. (1989) Lead Time in Automobile Product Development: Explaining the Japanese Advantage. Journal of Engineering and Technology Management, 6, 25–58. Clark, K.B. and Fujitomo, T. (1991) Product Development Performance. Harvard Business School Press, Boston. Cooper, R.G. (1983) A Process Model for Industrial New Product Development. IEEE Transactions on Engineering Management, 30-1, 2–11. Cooper, R.G. (1994) Third-Generation New Product Processes. Journal of Product Innovation Management, 11, 3–14. Duncan, R. and Weiss, A. (1979) Organizational Learning: Implications for Organizational Design. Research in Organizational Behavior, JAI Press, Greenwich, CT, 75–123. Garvin, D.A. (1993) Building a Learning Organization. Harvard Business Review, 71-4, 78–91. Graves, A. (1990) Globalization of the Automobile Industry: The Challenge for Europe. Introductory speech, Automotive Industry Conference, Melbourne, Australia, 26–27 Novenember. Gupta, A.K. and Wilemon, D. (1990) Accelerating the Development of Technology-Based New Products. California Management Review, 24–44. Gupta, A.K. and Wilemon, D. (1996) Changing Patterns in Industrial R&D Management. Journal of Product Innovation Management, 13, 497–511. Kogut, B. and Zander, U. (1992) Knowledge of the Firm: Combinative Capabilities and the Replication of Technology. Organization Science, 3-3, 383–397. Kolodny, H.K. (1980) Matrix Organization Design and New Product Success. Research Management, 23-5, 29–33. Leonard-Barton, D., Bower, K. Clark, K., Holloway, C. and Wheelwright, S. (1994) How to Integrate Work and Deepen Expertise. Harvard Business Review, 72-5, 121–130. Little, A.D. (1992) Raising Technology Development Productivity. The Conference proceedings Enterprise, Innovation and 1992, Luxembourg, October 1992. Maidique, M.A. and Zirger, B.J. (1985) The new product learning cycle. Research Policy, 14, 299– 313. Meyers, P.W. and Wilemon, D. (1989) Learning in New Technology Development Teams. Journal of Product Innovation Management, 6, 79–88. Midler, C. (1993) L’auto qui n’existait pas. Management des projets et transformation de l’entreprise. InterEditions, Paris. Midler, C. (1995) Une affaire d’apprentissage collectif. L’Expansion Management Review, 76, 71–79. Nordstro¨m, K. and Ridderstrale, J. (2000) Funky Business. Village Mondial, Paris. Purser, R.E., Pasmore, W.A. and Tenkasi, R.V. (1992) The influence of deliberations on learning in new product development teams. Journal of Engineering and Technology Management, 9, 1–28. Rothwell, R. (1992) Developments Towards the Fifth Generation Model of Innovation. Technology Analysis & Strategic Management, 1-4, 73–75.

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Shrivastava, P. (1983) A typology of organizational learning systems. Journal of Management Studies, 20, 1, 7–28. Stalk, G., Jr and Hout, T.M. (1990) Competing against time. The Free Press, New York. Tarondeau, J.C. and Wright, R.W. (1995) La transversalite´ dans les organisations ou le controˆle par les processus. Revue Franc¸aise de Gestion, 104, 112–121.

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Laurent Bourgeon is Adjunct Professor at ESSEC Business School, Avenue Bernard Hirsch, B.P.105, 95021 Cergy-Pontoise Cedex, France.

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Working with Guanxi: An Assessment of the Implications of Globalisation on Business Networking in China Kate Hutchings and Georgina Murray Cross cultural literature has suggested China has a business culture based on family networks or guanxi connections underpinned by strong Confucian ethics. We argue that Chinese business may have distinctly national cultural attributes (that international businesses ignore at their peril) but we reassess the continuing significance of these historical cultural concepts. We query whether a system of networks consolidated during fifty years of state-owned enterprises can still have application on the considerably larger scale of multinational corporate business of today’s China. Interview data collected from Australian expatriates in China in 2001 is used to assess the relevance of guanxi for effective international operations in China from the perspective of Australian expatriate managers.

Introduction

A

s the pace of internationalizing organisations has become unprecedented in world history, the need for cross-cultural awareness in international business has become more obvious. In both academic circles and the popular press much has been written about the need for individuals and organisations to be cross-culturally sensitive, adaptive and responsive when managing across national borders. Since the 1970s a plethora of literature in the field of international human resource management has highlighted the vital importance of organisations providing comprehensive, strategic, country-specific programs of preparation for expatriates managing abroad (for a thorough review of expatriation, see Black et al., 1999). Yet despite the noted need to be cross-culturally equipped, still few organisations do provide pre-departure preparation for intended expatriates (see, Garonzik, Brockner & Siegel, 2000) and few studies have undertaken to provide evidence of expatriates actual experiences with specific cultural concepts and business culture. This paper seeks to address this gap by focusing on the Australian business person’s assessment of what is significant in affecting

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business networking relationships in China. This paper highlights expatriates’ understanding of, and experiences with specific aspects of Chinese business culture, and their assessment of its significance in an increasingly globalised world. Existing literature examining business relationships in China suggests that China has a business culture based on strong family networks or guanxi connections that are underpinned by strong Confucian ethics (Bian & Ang, 1997; Cheng & Rosett, 1991; Fei, 1992; Fried, 1953). We argue that Chinese business may have distinctly national cultural attributes (that international businesses ignore at their peril) but we question the continuing significance of these historical cultural concepts. We query whether a system of networks that existed in China’s feudal years and in the state owned enterprises (SOEs) during fifty years of Communism can still have application on the dramatically larger scale of multinational corporate business that increasingly operates in the emergent capitalist system that is China of the 21st century (see Blackman, 2000; Chai, 1998). We use interview data collected from Australian1 expatriates to assess the relevance of guanxi, and associated Chinese cultural concepts. # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

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Literature Review 2 Chinese networks The major western perspectives on networks or interpretations of relationships have included transaction cost analysis, social exchange and interaction dimensions. Yet, other than economic and social dimensions have been used to explain relationships in the eastern perspective. Here there has been a synthesis of culturalist and institutionalist explanations ‘constituted by combinations of models from formal market and hierarchy perspectives and informal network perspectives . . . contain the multiple social, political, economic and other influences inherent in cultural investigation’ (Lowe, 1998, p.321). Where western research has examined the impact of interlocking directorates, political connections, and other interpersonal relations in market activities (Mizruchi, 1987; Scott, 1991; Zeitlin, 1989), studies of Asia have also focused on relationships – family networks, friendship, and other particularistic ties to gain an understanding of Chinese businesses (Blackman, 2000; Hamilton, 1991; Lever-Tracy, et al., 1996; Redding, 1990; Whitley, 1993). Buttery and Wong (1999, p.147) note that ‘relationships are often built on a cultural platform which means the route to developing a good relationship can be very different in Western to Eastern cultures’. In sum, the basis of networks in China and business dealings and decision making has been argued to be premised on Confucian principles and teaching that referent social organisations and relationships (Kienzle & Shadur, 1997, p.29). Bian and Ang (1997, p.3) argue that ‘unlike Christianity, which puts individuals in reference to God, Confucianism relates individuals to their significant others, such as father and uncle in the family, and teacher and master in one’s career developments. This lays both the abstract and the concrete foundations for guanxi to operate in Chinese societies, both in and outside China’ (Bian & Ang, 1997, p.3). At the core of understanding networks in China has been the focus on guanxi (literally relations, but refers a wider set of interpersonal connections between people (Bian & Ang, 1997; Cheng & Rosett, 1991; Fei, 1992). Guanxi is seen as a relationship of achieving status and moving from being an outsider to an insider (Buttery & Wong, 1999, pp.151–152). While guanxi may be organisational, at its heart it is a relationship between two people who are expected, more or less, to give as good as they get. A Chinese individual with a problem, personal or organisational, naturally

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turns to his or her guanxiwang, or ‘relationship network,’ for help. An individual is not limited to his or her own guanxiwang, but may tap into the networks of those with whom he or she has guanxi. Indeed, the expression ‘duo yige guanxi, duo yitiao lu’ – ‘one more connection offers one more road to take’ – really says it all (Seligman, 1999, pp.34–35). Several other characteristics reinforce the concept of guanxi and status, including mianzi (face), reciprocity, xinyong (trust) and renquing (favours) (for discussion on each of these, see Buttery & Wong, 1999; Wong & Tam, 2000).

Methods The findings of this study are based on information gathered in semi-structured interviews with expatriate Australians in Shanghai, China in November, 2001. From databases of Australian organisations operating in China maintained by the Australian Chamber of Commerce in China, and contacts the first author had from previous research projects conducted in Shanghai, 22 Australian expatriates (over 90 percent of whom were employed in Australian organisations) were selected for this research project. In order to minimise the potential for size, organisational, or industry bias, expatriates were selected who were employed in organisations which include small and large employers, publicly-listed MNCs and private, owneroperated firms, and companies from a wide range of industries. Of the 22 expatriates contacted, all 22 agreed to participate in the research. The high response rate was attributed to two factors. First, the authors’ belief that expatriates would benefit from later being informed about their fellow expatriates’ response to guanxi in China. Second, the first author having insider status with approximately half of the expatriates in this cohort (for a discussion of insider status and participant observation in Chinese culture, see Siu, 1996). Interviews were between one hour and two and a half hours in duration. The interviews were audio-recorded and noted during the interview and the notes from the interview and the transcription of the audio-recording were returned to the interviewees for clarification and further comment, where necessary. At all stages throughout the process, expatriates were assured that all information provided was given on a purely voluntary basis and that pseudonyms would be used in any published research. The ethnic background of the participants was primarily Anglo-Saxon, although two

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were of Chinese-descent, a factor which gave these individuals the ability to draw upon their understanding of both Australian and Chinese cultures and to suggest similarities and differences in business culture. The majority of respondents were male, reflecting the gender bias in the Australian expatriate community in Shanghai. All efforts were made by the researchers to seek interviews with female expatriates and three are included here in this cohort. For further biodata on the expatriates interviewed, see Table 1. The interview began with questions seeking clarification of the nature of the interviewee’s business and some basic biodata. The substantive interview content included questions on: the expatriates’ understanding of guanxi; the extent to which guanxi is part of their business operations in China; their usage of guanxiwang, and whether they consider guanxi to be as relevant in a globalised world.

Results 3 The findings from this cohort of individuals suggest that there are two factors at play when considering the importance of guanxi for Australian expatriates’ business dealings in China. The first is the size of the organisation in question and the second is the length of time and experience that the individual expatriate has had in China. The first factor of size is relevant in that expatriates in large organisations claimed that guanxi was of little consideration to them and that if there was such a thing that it differed little from the need to maintain relationships and network with business associates in the Australian context. Expatriates employed in smaller organisations or running their own businesses in China argued for the vital importance of guanxi and said that after-hours social involvement such as banqueting and attending hostess bars like KTV with their Chinese

Table 1. Biodata of Expatriates Interviewed Respondent Code

Company Type

1-Man-AM 2-Man-CF 3-Trad-AM 4-IX-AM 5-Ent-AM 6-IX-AM 7-Law-CF 8-Man-AM 9-BAC-AM 10-Elec-AM 11-Fin-AM 12-Trad-AM 13-Trad-AM 14-Bac-EM 15-Fin-AM 16-Educ-AM 17-Law-AM 18-Law-AM 19-Trad-AM 20-Bac-AM 21-IX-AF 22-Educ-AM

Private Private Private Owner MNC Private MNC MNC MNC MNC MNC Owner MNC MNC MNC MNC MNC MNC Private Owner Owner Private

Years in China

5 5 2.5 4 2.5 2 1.5 7 5 2 5.5 1.5 1.5 2.5 3 5 7 8 9 6 25 7

Mandarin Proficiency

Working Knowledge Fluent Working Knowledge None Fluent Fluent Fluent Fluent Basic Basic Fluent Basic Basic Fluent Fluent Fluent Fluent Fluent Fluent Fluent Fluent Fluent

Formal Chinese Study

Age

Marital Status

No No No No No Yes No No No No Yes No No No No Yes No No Yes No No Yes

40s 30s 32 50s 41 24 36 43 40s 39 26 34 31 36 50 30 35 39 42 45 50s 40s

Married Married Single Divorced Single Single Single Single Married Single Single Married Married Married Married Married Single Married Married Married Married Married

Children

Highest Qualification

Yes Yes No Yes No Yes No No Yes No No No Yes Yes Yes Yes No Yes Yes Yes Yes Yes

Degree Degree High School High School Degree Degree Degree PG Degree Degree Trade Degree Diploma Degree PG Degree Degree Degree Degree Degree Degree Degree Degree PG Degree

Industry type: Bac = building and construction, Educ = education and training, Elec = electron ics and components, Ent = entertainment, Fin= finance, Law = legal, IX = import and/or export, Man = manufacturing, Trad = trading and investment Ethnicity: A = Anglo-Saxon, E = European, C = Chinese Gender: M = Male, F= Female

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partners and associates was crucial to maintaining good working relationships. The essential aspect of this difference appears to be that smaller firms do not have guanxi and need to work hard to achieve it whereas larger, multinational firms automatically have guanxi as a result of their size and perceived international influence. The presence of these larger firms in China is seen as very positive of itself and hence the employees of these corporations need not exercise the same rituals to establish guanxi – it is a given. In respect to the second aspect of length of time in China, there was again a distinct difference noted in the observations of those expatriates who had been in China for more than/less than three years. Those expatriates who had been in China for three or more years (the majority of whom also spoke Mandarin) did not cite a need to develop guanxi and suggest that length of service in China consequentially gave one guanxi as did having made an effort to learn the language. Those expatriates who had been in China for a shorter time period highlighted the importance of working to build guanxi and viewed the process of building relationships as being much more time consuming and complex than they believed it to be in Western countries. Further, they cited the need to spend a lot of one’s private time in business-related socialising.

grasp guanxi (19-Trade-AM). All interviewees argued that it is harder to build guanxi as a Westerner than as a Chinese local or overseas born Chinese but that making a genuine effort to understand existent cultural practices was highly regarded by the Chinese. As respondent (9-Bac-AM) said

What do you understand by the term guanxi?

‘guanxi is access but this exists in all countries. It is, however, stronger in small companies. As the company size increases so to does accountability so the same practice that operates at the smaller level do not do so at the larger level’.

The majority of respondents gave a fairly textbook definition of guanxi referring to it as being about the forming of relationships and connections at both social and business levels to facilitate the smooth functioning of business operations. All interviewees cited the need to build relationships before doing business and that it was important for the Chinese to feel that they knew their potential business partner before any business discussions or negotiations may take place. As a respondent (5-Ent-AM) suggested ‘in the West people do business and then maybe people do become friends. In China, people need to feel that they have a relationship and know you, before they will progress to doing business’. All respondents cited the need to have guanxi, that it is a part of mainstream business and that some effort is required to establish it. One respondent suggested that guanxi should not be overestimated by foreigners but that nonetheless it is not as transparent a concept as relationship building in the West and that some exposure to the culture is required to

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‘it is important that the Chinese get to know you and you them. Westerners tend to rush in but the buyer need to beware. Chinese will think it morally okay to rip off foreigners – it is almost sport – so foreigners need to be aware of what they are dealing with’. Though all interviewees agreed that it was essential to have good guanxi to have effective business operations in China, they did disagree on the importance of it in respect to company size. That is, expatriates in smaller companies suggested that it was a painstaking process learning to develop guanxi whereas expatriates in larger organisations claimed to have good guanxi established automatically by virtue of the prestige of their organisation. Respondent (6-IX-AM) argued that ‘guanxi is really no different from the relationship in the West but it takes longer to achieve. It is a more involved process’. Respondent (14-Bac-EM), an expatriate in a large MNC commented, that

Or as respondent (8-Man-AM), also an expatriate in a very large MNC, said ‘guanxi is not a transaction – you cannot just get it straight away – you need to work at it – this is no different than somewhere else – but large companies have it already’.

Do you use guanxiwang (the networks of your friends/connections) for business activities in China? All respondents argued that guanxiwang is used to some extent, be it the connections they have with local Chinese or the relationships they have with other expatriates. Most interviewees suggested that these relationships were largely informal. The connections of which they spoke may have been economic, political or social and the blurring of lines

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between business and social connections was oft cited. As one interviewee said, ‘work and private life are not as separate as in Australia. We have business networks of local Chinese and expatriates’ (5-EntAM). The majority of respondents did claim political networks as being important. As one interviewee argued, ‘the networks are political – you need to go through the hoops to get approval (the chop)’ (5-Ent-AM). However, it was suggested that political connections per se are more important in large companies but not really of relevance in smaller companies. Those who run their own businesses say that when visiting their factories in rural areas they may be required to have banquets with the local mayor but that people at this level did not have any real influence and it is really about ‘showing off their Western friend’ (4-IX-AM). However, expatriates in larger companies did cite political entre´e as being part and parcel of being in China. For instance, the general manager of one of Australia’s largest companies said that while he personally had not met senior Communist party officials, ‘the general manager of the operations in Australia has met with the Chinese Prime Minister, Zhu Rongji’ (14-Bac-EM). Moreover, respondent (1-Man-AM) said that ‘politics is supremely important in building guanxi. They are the most important people to make contact with . . . In China it is said that there are ten classes. The first is political officials and the second is businessmen’. Consistently interviewees cited the difficulties that Australians (and indeed other Westerners) may have in establishing guanxiwang where they are either new to China or ignorant of the processes for establishing networks and connections. One respondent suggested that ‘Australians are pretty gullible – big talkers have problems’ (4-IX-AM), while another argued that, ‘local people are good at hoodwinking expats because expats are trying so hard to be polite and respectful’ (8-Man-AM). However, the consensus of opinion was that the idea of guanxiwang is not so very different than the importance placed on connections, networks and relationships on social and business levels in the West. One interviewee summed up the feelings of many in saying that, ‘how it is played out here differs – eating out, paybacks – this is more structured than in the West but the concept exists in the West’ (7-Law-CF).

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Face and Trust Interviewees were also asked to briefly comment on the importance of face (mianzi) and trust (xinyong). On the question of trust (xinyong) the responses of the interviewees were divided into two main views – those who believe that it was very difficult to be trusted by, and to feel trust in, the Chinese; and those who believed that while it took longer to build trust with the Chinese than with Westerners, that once established the Chinese were very loyal. While one expatriate suggested that ‘Chinese are not loyal – they will leave you for one RMB (approximately AUS$0.25)’ (3-Trad-AM) and another said that ‘The stupidity of these people is difficult. They are brought up as followers, not leaders’ (12-Trad-AM), a perhaps more insightful interviewee suggested that ‘Chinese actually do have huge respect for foreigners but as a Westerner you can be taken for a ride. That’s business. The Chinese will not cheat people but will bargain something out of someone . . . ‘How you interpret trust is different’ (7-Law-CF). In respect to the issue of face, the expatriates interviewed replied that this was one area in which they generally believed that this particular cultural characteristic was markedly different from anything practiced elsewhere in the world. They cited the need to give face, to save face, and above all, to avoid causing loss of face. They highlighted the fact that in causing loss of face to another, then they automatically lost face themselves, and thus they viewed the saving and maintaining of face of others as essential to their own ongoing success in China. One interviewee professed that: ‘once you have the guanxi, you can operate successfully and quickly. But face you must be terribly conscious of – it is a serious cultural issue. Westerners tend to overdo it to start with – after time you know how far you can go, push it – with the Chinese, you cannot gauge a reaction immediately to what you say’ (8-Man-AM). Another interviewee summed up the beliefs of many others in saying that: ‘guanxi is nor more important than anywhere else, but face is. In Australia, the number one priority is success. In China, the process as to be correct – the end is less important’ (6-IX-AM).

Is the importance of guanxi less relevant in an increasingly globalised world? In respect to whether guanxi is less relevant in an increasingly globalised world, opinion was

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divided depending largely on the variable of the size of the company. For those who are employed in large corporations the perception was that guanxi was a given and it came with their large economic clout. As the representatives of large corporations these individuals suggested that the Chinese needed them and they were subsequently treated with a great deal of respect. Economic power not networks or guanxi status was the most important thing here. Globalisation had therefore made a difference. Interviewees suggested that the growth of market capital has meant that guanxi was declining in response to the sheer size of investment growth. As one interviewee commented, ‘stock market investment has meant many have prospered so in these cases, guanxi is not so important’ (6-IX-AM). Individuals employed in smaller companies or running their own businesses suggested the opposite – that guanxi was still of greatest importance – an opinion which reflected the lack of guanxi with which they began, and often continued to struggle with in their need to build guanxi over the long term. Despite these changes on a business level, though, it was argued that at the political level guanxi is still crucial. One interviewee alluded to these changes to China’s political and social system that was accompanying economic transformation and maintained that these would have implications for the continued prevalence of guanxi. As he said, ‘They (the Chinese) are dragging their heels – once they move, they will move fast . . . half the population’s directly reliant on the land . . . they are still inefficient . . . there are problems with bureaucracy and infrastructure . . . there are calls for democracy . . . already economic restructuring and downsizing has meant outbreaks of violence in the Western provinces . . . there is a staggering gap between rich and poor . . . perhaps all these things will work against guanxi ’ (13-Trad-AM). Yet, one of those who maintained that guanxi is essentially no different from business networks in other countries said that, ‘guanxi will not decline with globalisation. It never really existed. Guanxi is crap – it always was. Everywhere in the world has networks/relationships. China is no different – never was, never will be’ (21-IX-AF). On the question of guanxi’s relevance for small and large corporations, opinion was also divided with large companies maintaining that while guanxi was needed, they

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already had it by virtue of being a large company (‘as a large company you carry more weight’ (19-Trad-AM) whereas expatriates employed in, or running their own small businesses said that considerable efforts were required to build and maintain guanxi. An expatriate employed in a large MNC suggested that, ‘the level is important. As a big MNC you need good relations with senior political figures – this does not get you guanxi as such, it just gets you an audience. You still need to be able to listen’ (8-Man-AM) while another made the linkage to mianzi in saying that, ‘titles give face’ (11-Fin-AM). Further it was said that, ‘spheres of influence are significant all over the world for large companies. As a large company we have access to high political members. Size of the company does mean opening of doors – size impresses the Chinese’ (14-Bac-EM). Moreover, it was argued that ‘self-preservation is still important to them (the Chinese) – they fear the powerful and influential’ (18-Law-AM). It was suggested by most that the acquisition of good guanxi certainly opened doors and helped to expand one’s business. As a expatriate in a small trading company said, ‘if you have good guanxi you will not remain a small company guanxi will help you expand’ (3-Trad-AM).

Conclusion – What does this mean for globalisation? This cohort of interviewees suggests that size of organisations has considerable bearing on the degree to which the need to develop guanxi (or even to believe that guanxi is essentially different from relationships and networking elsewhere) is appreciated. In terms of impacts of globalisation on guanxi, respondents argue along two lines. First, those who were employed in, or operate small businesses, suggest that guanxi is just as relevant in times of globalisation and that Chinese international integration in the world economy has had no impact on the importance of needing to establish social relationships in order to do business effectively. Expatriates employed in large organisations argued the opposite, suggesting that globalisation had indeed had a real impact in that the presence or influence of large corporations

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in China meant that guanxi was no longer as important as it had been in the past. The argument is that while developing guanxi had been important in the SOEs of the past, that family networks and institutional relationships are simply not so relevant in China today and that the sheer size of China demographically means that it is much more difficult for a few families to dominate as they do in the Chinese diaspora in Southeast Asia. While fifty per cent of Chinese are still employed in SOEs, the number of SOEs is diminishing by the day and the role that families can play in business interactions is declining with the demise of the SOEs. For those who are employed in the MNCs, guanxi never was, and still is not, of any more significant consideration than it would be in any other nation in which international businesses operate. From these research findings, it can be surmised that informal guanxi networks are at play in ways that are not reflected in more formal or higher level channels. On the grander scale guanxi is embedded in the larger structures of international economic power. To this end, it can be argued that China’s increasing internationalisation certainly has had an impact on how guanxi works in that multinational corporate influence may potentially transcend specifically national institutional and cultural traditions. China’s disappearance then reappearance in the international marketplace has wrought changes in the family (traditional) and guanxi (institutional) patterns of linkage. For larger organisations, family and extended guanxi is not nearly as significant as it is in the smaller, localised family business, the SOEs and the private, foreign companies. So, the questions is not just whether guanxi is still relevant in times of globalisation but indeed whether it ever was, or is now, relevant at the highest levels of organisations. While guanxi may still be of considerable importance at lower level decisionmaking and business associations, Confucian principles may not be so significant as international economics and company positioning. Yet, to fully appreciate western managers recognition of the importance of guanxi (and the differences between having and using it) further research needs to examine the variables of company market positioning, geographic location and industry regulations.

Notes 1. There are three aspects in which the Australian expatriate experience in China differs from that of other developed nations – their smallmedium size, their lack of long-term internation-

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alisation and their overwhelming self-selection into international postings. 2. Parts of this literature review appear in other publications presenting aspects of this research. 3. These and other interview data appear in other publications that detail aspects of this research project.

References Bian, Y. and Ang, S. (1997) Guanxi networks and job mobility in China and Singapore. Social Forces, 75, 981–1007. Black, J., Gregorsen, H., Mendenhall, M. and Stroh, L. (1999) Globalizing People through International Assignments. Addison-Wesley, Reading, Massachusetts. Blackman, C. (2000) China Business: The rules of the game. Allen & Unwin, St Leonards, N.S.W. Buttery, E.A. and Wong, Y.H. (1999) The development of a guanxi framework. Marketing Intelligence and Planning, 17, 147-154. Chai, J. (1998) China: Transition to a Market Economy. Clarendon Press, Oxford. Cheng, L. and Rosett, A. (1991) Contract with a Chinese Face: Socially Embedded Factors in the Transformation from Hierarchy to Market 1978– 1989. Journal of Chinese Law, 5, 143–244. Cui, G. and Liu, Q. (2000) Regional market segments of China: opportunities and barriers in a big emerging market. Journal of Consumer Marketing, 17, 55–72. Fei, X. [1949] (1992) From the Soil, the Foundations of Chinese Society: A Translation of Fei Xiatong!s Xiangtu Zhongguo (with an Introduction and Epilogue by Gary G. Hamilton and Wang Zheng). University of California Press, Berkley. Garonzik, R., Brockner, J. and Siegel, P.A. (2000) Identifying International Assignees at Risk for Premature Departure: The Interactive Effect of Outcome Favourability and Procedural Fairness. Journal of Applied Psychology, 85, 13-20. Hamilton, G. (1991) Business Networks and economic development in East and Southeast Asia. University of Hong Kong Press, Hong Kong. Kienzle, R. and Shadur, M. (1997) Developments in business networks in East Asia. Management Decision, 35, 23–32. Kiong, T.C. and Kee, Y.P. (1998) Guanxi bases, Xinyong and Chinese business networks. British Journal of Sociology, 49, 75–96. Lever-Tracy, C., Tracy, N. and Yi, D. (1996) The Chinese Diaspora and Mainland China. Macmillan, London. Li, J. and Wright, P. (2000) Guanxi and the realities of career development: a Chinese perspective. Career Development International, 5, 369–389. Lowe, S. (1998) Culture and Network Institutions in Hong Kong: A Hierarchy of Perspectives. A Response to Wilkinson: ‘Culture, Institutions and Business in East Asia. Organization Studies, 19, 321–343. Mizruchi, M. (1987) Why do corporations stick together. In Domhoff, G.W. and Dye, T.R. (eds.), Power Elites and Organizations. Sage, Newsbury Park, pp. 204-218.

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Olds, K. and Yeung, H.W-C. (1999) (Re)shaping ‘Chinese’ Business Networks in a Globalising Era. Environment and Planning, 17, 535–555. Redding, S.G. (1990) The Spirit of Chinese Capitalism. DeGruyter, New York. Scott, J. (1991) Networks of Corporate Power: A Comparative Assessment. Annual Review of Sociology, 17, 181–203. Seligman, S. (1999) Guanxi: Grease for the Wheels of China. The China Business Review, September– October, 34-38. Tan, C. and Yeung, H. (2000) The regionalisation of Chinese business networks: a study of Singaporean companies in Hainan, China. The Professional Geographer, 52, 437–455. Weidenbaum, M.L. and Hughes, S. (1996) The bamboo network: how expatriate Chinese entrepreneurs are creating a new economic superpower in Asia. Martin Kessler Books, New York. Whitley, R. (1993) East Asian enterprise structures and the comparative analysis of forms of business organization. In Blunt, P. and Richards, D. (eds.), Readings in management, organization and culture in East and South-East Asia. NTU Press, Darwin, pp. 46-72.

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Wong, Y.H. and Tam, J.L-M. (2000) Mapping relationships in China: guanxi dynamic approach. Journal of Business & Industrial Marketing, 15, 57–70. Siu, N. (1996) Getting In, Getting On, Getting Out: The Role of Participant Observation Research in a Professional Organisation, BRC Working Paper Series Number 960202, Hong Kong Baptist University, Hong Kong. Zeitlin, M. (1989) The large corporation and contemporary classes. Rutgers University Press, New Brunswick.

Dr Kate Hutchings is Senior Lecturer and HRM Coordinator at the School of Management, Queensland University of Technology, GPO Box 2434, Brisbane Q 4001, Australia. Dr Georgina Murray is Senior Lecturer at the School of Humanities, Griffith University, Nathan, Brisbane, Q 4111, Australia.

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Knowing Activity: Corporate Bridging of Knowledge and Value Creation Mona Skaret, Kjersti Bjørkeng and Katja Maria Hydle We argue that practical endeavours towards mobilising and recreating knowledge is an integral part of value increasing activities, and expose how this dependency can be utilised in ameliorating practice. This bridging of knowledge and value creation constitutes organisational activities as knowing. The paper exposes the efforts of Telenor, a large telecom firm, to create an enduring agenda for non-financial issues in management. We expose the development process and initial use of their new Integrated Management Business Model. This involves identifying financial and non-financial drivers of future performance within and across several business units, as well as negotiating on appropriate indicators of both status and change. The paper pays special attention to the iterative approach to development in order to highlight a shift from an attempt to enable knowledge in autonomous processes secluded from everyday activities, towards an understanding of knowledge and knowing as intrinsic to the value creating activities performed. By entering the issue of intangibles through the knowing activity perspective, it was evident that the purpose of the management system was not to determine the status of intangibles in the corporation, it was to improve it.

Painting a Landscape

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n this paper, we expose the endeavours of a large Scandinavian telecom firm, Telenor, to create an enduring agenda for non-financial issues in management. It was done by integrating measures of evaluation and improvements in knowledge based value creation in the primary corporate management system of the firm. The work was initiated by top management and was led by a development team consisting of people from economy, strategy and human relations1. Since the start in January 2000, a cross disciplinary research team2 has followed the process closely, asking questions and providing new ideas based on theoretical insights, as well empirical data collection and analysis. It is well established in part of the strategy literature that (knowledge) resources are important with respect to competitive force. Both contributions in the Resource Based Theory of the Firm (Wernerfelt, 1984; Peteraf, 1993) and in the field of Dynamic Capabilities (Teece et al., 1997) emphasis the need to address intangibles in strategic management. In addi-

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tion they expose characteristic features of these knowledge resources when they improve competitive advantage, by emphasising concepts like organisational routines (Nelson & Winther, 1982), organisational capability (Grant, 1996), etc. Given the start date of the development work, their efforts did not come out of the blue. It was inspired by more practically oriented writings on Intellectual Capital Management (e.g. Stewart, 1997; Brooking, 1996; Roos & Roos, 1997; Sveiby, 1997) and the Balanced Scorecard (Kaplan & Norton, 1996), as both fields provide models and methods developed to introduce, visualise and measure intangible assets of organisations. Intellectual Capital is originally a ‘tool’ to provide a visibilisation of intangibles for the sake of evaluating the financial prospects of a firm. However, moving from textbooks into the daily life of managers and knowledge workers, the concept is often used as a tool in organisational development and strategic change. While external disclosure of Intellectual Capital statements is still rare even in the Nordic countries, Intellectual Capital is used more as # Blackwell Publishers Ltd 2002. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

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an ‘agenda-setter for non-financial discussions in management. As such practical effectuation of Intellectual Capital has much in common with the intentions of a more widespread tool, the Balanced Scorecard. As opposed to Intellectual Capital, Balanced Scorecard was developed in the context of the industrial firm (capital and knowledge intensive), and the non-financial perspectives are legitimated in terms of its contribution to financial results (in a short and long-time perspective). In practitioners’ implementation of Intellectual Capital and Balanced Scorecard the resulting models, indicators and their visibilisation of value resemble each other. They have a strong focus on tangible carriers of knowledge and knowledge representations, e.g. individual employees, databases, internal guidelines and formal routines. Through our research cases we have experienced how this understanding often result in systems designed to stack knowledge representations in controllable, surveyable entities so that one can ‘know what one knows’. Despite innumerable contributions within strategic theory and books suggesting practical tools for the management of intangibles, the work in Telenor suffered from the lack of a theoretical and practical conceptualisation on the bridging of knowledge enabling and value creation. Important questions remain; are we able to mobilise the knowing actors and communities into the value creating activities within and across units? Are the databases and formal routines creating value for company stakeholders through actual use? Does the organisation offer circumstances, tools and incentives to encourage accelerated learning from daily work, colleagues and experiences? Real progress was first made as the development team (re-) discovered that the main purpose of their new management system was not to know the status of intangibles in the company, but to improve knowledge based value creation. In the academic life of Knowledge Management and Organisational Learning valuable contributions have been made to give an adequate understanding of knowledge from which to start the process of enabling it. It is stated that you cannot manage knowledge in the sense you manage physical resources (von Krogh, Ichijo & Nonaka, 2000). Their main entrance to the evolution of a new management practice involves attempts to expand the conceptions of what knowledge is and how to enhance knowledge creation. This involves saying that knowledge is already contextual and cultural (Gadamer, 1975), narrated (Crites, 1971), situated (Lave & Wenger, 1991), embedded in practice (Argyris & Scho¨n 1996), multi-dimensional (Nonaka & Takeuchi,

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1996), and a co-creation of social subjects in interaction (Stacey, 2001). We have joined these conceptions of knowledge in the metaphor ‘Living Knowledge’. For the last four years we have used this metaphor in collaboration with practitioners in order to enable organisational learning and knowledge management. Despite these efforts, the commonsensical understanding of knowledge, and thus the practitioners’ immediate view as well as our own when we take our academic hats of, are much less sophisticated. We know what we know and a spade is a spade. ‘I know this.’ Thus the practical connotations of knowledge is of ‘something’ that ‘someone possesses’. Unfortunately, knowing that you have a spade brings you nowhere, unless you know how to use the spade and have a hole to dig. In order to create an enduring agenda for non-financial issues in management we propose the enabling of knowing activities. This involves enabling employees and managers to know when they need a spade, where to find one, how to use it and possibly help them find another appropriate tool if no spade is available. To accomplish this task we have worked with activities as our main perspective. That is the digging of a hole. In this paper we present work in progress. After a brief introduction of the knowing activity perspective, we expose an empirical case where the knowing activity entrance is used in the design of new management control systems on a corporate level. In our empirical case, we start by introducing the company. Thereafter we outline the process of developing an Integrated Business Management Model. We continue through an exploration of the search for adequate Value Drivers with respect to knowing activities, in order to outline the resulting tools developed to visualize status, enable and monitor progress in knowing activities. We end by discussing the liability of an activity entrance as a means to enable enduring integration of financial and non-financial endeavors in Corporate Management.

Introducing a perspective Our methodological background is action research. Action research as epistemological orientation (Kemmins & McTaggart, 2000; Greenwood & Levin, 1998) presupposes active involvement in the research area. In KUNNE, a research portfolio consisting of more than twenty collaborating firms, entering the tasks of organisational learning and knowledge management through activities

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has repeatedly proven fertile (Hatling et al., 2001). We enter organisations with the purpose of enabling practice, while creating new research based insights (Klev & Levin, 1998). The knowledge workers, business managers and customers of the collaborating firm help identifying the activities to be ameliorated, choosing among several value increasing activities. Rather than alternating between (1) viewing knowledge as resources and (2) assessing knowledge based value creation, we postulate that the bridging between knowledge and increased value creation can only be done by addressing activities explicitly (Skaret & Bygda˚s, 1999). See Figure 1 below. Entering activities implies addressing the reciprocal relationship between three different units of analysis – value, activities and resources. Choosing value-increasing activities as starting point means merging the value box with the activity box (top of Figure 1), leaving out activities that lacks an explicit connection to customers or economic income. This is not to devalue so-called supporting activities conducted by for instance administrative personnel. Rather the choice is pragmatically based. Improving daily operations involves the primary responsibility areas of business managers and the daily work of knowledge workers. Thus our collaborative efforts towards improved knowledge based practice are less vulnerable to changes in management fads and economic decline. The conceptions of which activities are the main target of systematic enabling, depend on the contextual framework the organisation is understood within. Addressing the value increasing activities jointly from the perspectives of managers, units, knowledge workers, controllers, customers etc. frequently expose

Value Shaping precedence

Creating Activities

Recreating

Mobilising

Knowledge resources

Figure 1. Bridging Knowledge Resources and Value Creation

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inherent dilemmas in organisations, incommensurable conceptions of status quo and conflicting, apparently counterproductive practices. The complex nature of living organisations entails these kinds of dilemmas. (Røyrvik & Wulff, 2002). Enabling knowing activities involves exposing and wielding these dilemmas, partially by corrugating contextual frameworks and partially by introducing circumstantial change. Considering the interconnectedness of activities and knowledge (bottom of Figure 1), allocation of human resources is no longer just a question of a proper administrative structure. The ability of the organisation to mobilise the right knowledge resources is instead identified as one of the most crucial value creating processes of the knowledge based firm. Enabling of activities also implies recognising constant recreation of ‘knowledge resources’ as an integral part of getting the job done. By addressing learning practices integrated in daily work, the value increasing potential of learning is highlighted. Extending the conception of learning beyond secluded training efforts such as external courses and internal training efforts, clearly makes the picture more complicated, but is also creates an opportunity (and responsibility) for local managers and communities to reinforce learning practices without necessarily increasing corporate training budgets. Despite the increased complexity following an entrance through value creating activities, one advantage remains. An advantage we have not been able to achieve with other entrances to organisational learning and its management: That is the focus on doing in stead of possessing. The commonsensical understanding of activities as something one does, as opposed to an understanding of knowledge as something that one can possess. Thus allowing a Living conception of Knowing to be entailed in the value increasing endeavours of a company. There are obviously several obstacles considering knowing activities as an entrance when designing management systems on a corporate level. Acknowledging the local, contextual and informal nature of knowing activities, while designing a (more or less formal) system that cuts across several business units and operational tasks is not trivial. Earlier research with small companies has exposed how an entrance through activities and enabling of these, is made possible as managers on different levels transfer power and control to dialogue and distributed responsibility (Bjørkeng & Hydle, 2002). We have also tested and documented the usefulness of stories and rich representations in order to capture and make local insights

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_ _

_ _

_

‘transferable’ without the complete loss of meaning (Hatling et al., 2001, Carlsen & Gudmundsdottir, 2001). But adjustments are needed as insights and solutions from small companies and individual business units are introduced when developing an integrated management control system for a corporation of around 20 000 employees. Corporate efforts on management of intangibles are clearly more challenging than designing a ‘local’ knowledge management system.

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Entering the firm Telenor is an international telephony and communications group with its head office at Fornebu outside Oslo. Telenor is the leading telecommunications company in Norway and one of the largest companies listed on the Oslo Stock Exchange. It consists of four Business Units, and several daughter companies and joint ventures abroad. In the eighties Telenor went through major transformations going from a public monopoly to a publicly limited company open to competition. The process was later completed through stock-exchange introduction of the company. January 2000 Telenor started the process of redesigning their corporate systems for strategy and management control, later denoted the creation of an Integrated Management System (IMS). The word integrated refers to making intangibles, in addition to (financial) performance indicators, subject matters for systematic follow-up on the managerial level. It also addresses the need to reflect synergies across business units in the management system, thus highlighting potential conflicts between corporate performance and business unit performance. We will now outline specific features of the development process and the resulting management system. This illustrates how an entrance through knowing activity differs from similar initiatives described in the above-mentioned organisational literature. There are two main models, or icons, used in the development of the Integrated Management System (IMS), ‘The Process Chart’ and ‘The House of Value’. The Process Chart (see figure 2) is written in the language of traditional strategists and controllers, as they were the main initiators of the IMS development process. Although the model is cyclic, it is still clearly rooted within a traditional plan–act–control mode of thinking. Talking about intangibles in the language-of-practice of business and management control was crucial for top management recognition and approval. The decision to integrate several

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Figure 2. The Process Chart

specialist functions into one business management model was crucial. This point of departure ‘‘forced’’ staff from finance, strategy and human relations to co-ordinate different endeavours and thinking in order to come up with one common system. The resulting cross-disciplinary development team was probably one of the requisite conditions for taking the knowing activity entrance. The House of Value looks more or less like the Scandia Navigator (Edvinsson, 1997; Edvinsson & Malone, 1997) or the five boxes of the Balanced Scorecard (Kaplan & Norton, 1996). The financial standing of the company is visualised as a roof, depending on four non-financial pillars supporting it. These pillars consist of the Market, Knowledge & Learning, Process and Innovation perspectives (see Figure 3). The House of Value serves two functions in the IMS development work. It represents an expansion of the management perspectives in Telenor by explicitly including non-financial pillars in formal management control. In addition it is the model from which Value Drivers and Indicators are negotiated and

Financial Roof Customer Knowledge Market Learning Pillar Pillar

Process Pillar

Innovation Pillar

Figure 3. The House of Value

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selected. The Value Drivers are viewed as the brick stones of each pillar. The brick stones are chosen based on their expected ability to support the House of Value in the short and/ or the long run. They are usually limited activities or activity systems (Engestro¨m, 1993), by which concrete Indicators can be deduced. Initially the Value Drivers and Indicators were developed for and by each of the four business units. In order to highlight potential conflicts between business unit and overall corporate performance, the need for Value Drivers and Indicators across business units emerged. This resulted in a total of five versions of the House to monitor and discuss overall performance and development within each of the four business units on a corporate level. Having introduced the initial thinking we move to a description of the evolution in the collaborative project. As displayed in the introduction our primary focus is on enabling knowing activities, and we attempt to enter organisations through their perspective of value increasing activities. Telenor however defined Knowledge and Learning as a separate pillar of the House of Value. The next section will outline the evolvement from managing the Knowledge and Learning Pillar towards the enabling of knowing activities.

The Knowledge and Learning Pillar In this section we will expose how the development of the Integrated Management System involved a shift from viewing enabling of knowledge as autonomous processes secluded from everyday activities, towards an understanding of knowledge and knowing as intrinsic to the activities performed. Initially the development team addressed the literature and documentation from other companies to get a head start on indicators for the challenging Knowledge and Learning Pillar. See table below for a typical example of such indicators derived from a resource based view on knowledge.

The Telenor development team and researchers from KUNNE collaboratively opposed this view. Arguing for the importance evaluating the doing in the knowing instead of the having, the indicators were almost entirely abandoned, leaving only one resource based value driver: Inflow and retirement of critical competence. This is a very traditional indicator of attractiveness of a company, and of the potential access to competence. Questions of how attractiveness contribute to value creation, and how it can be improved, is not properly addressed. The attempts to intervene through exposing the Living Knowledge metaphor was not very fertile, and the researchers abandoned the fights over what knowledge is, and how it can be treated. Instead the team attempted discussions on which value drivers, or which activities that could represent the building bricks of the Knowledge and Learning Pillar of the House of Value. Searching for further Value Drivers to the Knowledge and Learning Pillar participants from several team members insisted on taking into account their experiences with knowledge mapping and organisational learning initiatives. They argued that the employees had expressed access to challenging and meaningful assignments integrated in the day-to-day work as far more important than secluded training activities with respect to knowledge creation and sharing as well as the attractiveness of the workplace. The participants in the development group jointly and intuitively recognised this as an important feature of their own work life, but expressed irresolution with respect to possible indicators on integrated learning practices and challenges at work. The participants from Human Resources knew that many of the business units performed annual Work Place Surveys, and argued that adjustments in these would provide fertile indicators. The discussions and renewed insights resulted in Internal Value Creation Index as one of the second value drivers of the Knowledge and Learning Pillar.

Example of Human Capital Indicators . . . . . . .

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% of employees with higher education, intermediate education and grammar school Total number of training hours received by management relative to total training hours Total training hours per key employee Average satisfaction with competence development Percentage of employees motivated to participate in training activities Average satisfaction with training activities Average satisfaction with leadership

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Forcing the question of activities and value creation, it was evident that the purpose of the survey was not to know the status of the company, it was to improve it. The question of how these scores could be improved brought the team down to concrete attempts to enable knowing activities, and the metaphor of the Open Corporate Work Market was introduced. We have exposed the evolution of the value drivers as a linear three-step process. Going from a Resource Based conception of knowledge, through a perspective on value creation, to the synthesis of these as the actual enabling of activities in the Open Corporate Work Marked. In real life this process was iterative and it is still evolving. In the two following sections we will expose, first the Internal Value Creation Index, a tool developed to visualise status of knowing activities. Second, we will describe the Open Company Work Market introduced to enable and monitor progress in knowing activities.

The Internal Value Creation Index (IVC-Index) The IMS development group contacted Human Resources staff from each business unit. Following a long Scandinavian tradition of work place democracy and work conditions, all units conducted work place surveys once a year. Thus the infrastructure and acceptance of such surveys, both from managers and knowledge workers were already present. The existing surveys carried an implicit heritage from industrial age, as most of the questions did not grasp the intuitive interconnectedness of knowledge workers, knowing and value creating activities. Instead the questions typically addressed issues such as: . Employee satisfaction with middle- and

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result and attempts to improve them in the day-to-day work practice. A team consisting of key personnel from each business unit and corporate staff was given the task of creating a survey more tailored to the type of work place Telenor represents; non-physical problem-solving and service production conducted by knowledge workers. The new questions had to reflect a radical change in the comprehension of learning practices and knowledge. It is no longer static, owned, individual and detached from the daily work. The task was measuring the access to meaningful and challenging activities, rather than the quality of secluded learning practices. Where human capital indicators (and traditional knowledge mapping systems) focus on the knowledge and skills of individual employees, the IVC Index should focus on their ability as a team to get the job done. Active development and use of knowledge in the best interest of the company should not be reduced to a question of individual motivation. The ability of the organisation to exert the (right) available people and communities should also be addressed through the IVC Index. These are examples of the resulting questions: Internal Value Creation Index of Telenor (examples of questions) . The activities I am involved in creates

value for our customers . We have sufficient competencies to

solve our daily tasks to the satisfaction of our customers . TeleCompany offers demanding and challenging tasks/projects . In my work I am able to learn from and teach colleagues

top management . Quality of the physical work environment . Employee satisfaction with the amount and

quality of training activities offered The development group suggested and got top management acceptance to develop a corporate Internal Value Creation Index to be conducted each year. An external specialist on quantitative surveys collects responses by e-mail and web, grants the employees full anonymity and provides systemisation of the data. It was stressed that the results should be used not only on corporate and business unit level, but also within each department to encourage informal discussions between the manager in charge, employees and colleagues. The intention was to integrate the act of responding to the IVC, the evaluation of the

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Without increasing the cost significantly, Telenor got potentially good indicators on the status of knowing activities as seen from employees in the context of their daily work situation. But the trick question still remained unsolved; how can the Corporation monitor and accelerate the change processes towards more knowing activities?

Towards an Open Company Work Market Resource allocation was identified as the crucial activity to provide employees with demanding and challenging tasks. The employees have traditionally worked within a line of command and their work assignments have depended on the tasks of their local

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departments. There is however a shift towards more project-oriented work, both within and across business units. Up till now, demanding and innovative projects were often assigned to external consultants, despite the fact that the skills and the will to perform these services were available in the internal resourcepool. Herein lies the possibility of improving overall performance through corporate intervention by the new IMS. The very simple idea behind the system developed is that the knowledge worker knows what skills and expertise she possesses and that she is aware of whether she wants to be part of innovative and demanding projects or stay within the activities of the unit. At the same time the project managers know what competence they need. The governing metaphor of the Project Exchange is that of a stock market. The employees are seen as the investors, investing (mobilising) their human capital (competence), expecting a return on their investment through increasing (recreating) it. Likewise the stock market the project managers offer their projects on the Exchange in order to get fresh capital to accomplish the projects, and by this attract other projects as well as investors (value creation). The resource allocation is based on personal motivation, providing integration of value creation and knowledge enabling in knowing activities. The Project Exchange is a software search agent available on Telenor’s Intranet. The user interface is such that project managers can insert projects and search for available or interesting resources. Employees within the organisation can register their profiles, and search and apply for interesting projects. The possibility of choosing exciting assignments available within the whole organisation should make their choices depend on their evaluation of own skills, not whether or not they belong to a specific unit. At the same time it provides possibilities of finding and assigning the best and most motivated available in-house expertise to projects. The system is designed as a mediator between the employees and the project managers, enhancing new action and new ways of completing the activity. Through the expected job-rotation, and introduction of new constellations of coworkers, Telenor also intends to create new relations across the traditional organisational boundaries of units and departments, thus enabling new ways of (informal) knowledge sharing. Using the Project Exchange the idea that the skills of the knowledge workers can be put into surveyable entities is abandoned, as there is no one central ‘allocator’ attempting to have an overview over all available resources ‘just in case’.

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Entering our collaborative inquiry through activities, we are able to ‘show not tell’ how enabling knowledge with respect to recreation and mobilisation is more a question of which activities to enable than who’s knowledge one needs. The Project Exchange highlights the value of integrated learning practices, or onthe-job-training for the employees, through the challenges offered in projects. A new understanding of knowing and learning as embedded in daily work emerges. Starting from the enabled resource allocation, the development team was able to find relevant and functional indicators in the Knowledge and Learning Pillar: Examples of potential indicators derived from the Corporate Open Work Market . Number of projects and people matched

in the Project Exchange . Reduced costs on consultants by using

Telenor employees in critical development projects . Number of people working on projects lead by other business units

These indicators monitor progress towards a more open work market, which is evaluated as crucial for future value creation. Indirectly, through the tools, it also improves local practices, collective competence and capability. These activities can be viewed as (more) knowing in that they represent distributed responsibility and that they (potentially) contribute to value creation.

(Re-) discovering Knowing Activities In the House of Value, the Innovation, Process and Market Pillars were contextualised and narrowed down to Value Drivers in concrete activities in the different Business Units. Previous efforts on process modelling customer satisfaction and quality improvement projects worked as vehicles for establishing Value Drivers that made sense to business units managers. The Value Drivers identified in the Knowledge and Learning Pillar and in the Financial Roof differ from the other pillars since they are relatively uniform across the different Business Units. This is also their only resemblance. Finance is traditionally tied to tangibles and the language and models for its management are well known, and the negotiation of Value Drivers involved discussing strategic

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issues like future customers vs. existing customers, and growth orientation vs. profitability focus. The conversion of academic insights on the nature of knowledge to a practical endeavour of enabling knowledge based value creation is still in its fragile beginning. There is still a substantial level of ambiguity surrounding the concepts of knowledge and learning in this practical context. In the cross-disciplinary development group the initial discussions suffered under disagreements concerning cause-effect-relationships between value creation and knowledge. Rather than attempting to force a conception of knowledge as living the researchers intervened in some of the Value Driver discussions through stories of value creation collected from knowledge workers in Telenor: ‘To increase future income of this new service, allowing the right people to spend time with customers is clearly the most appropriate thing to do. It is the only way to accelerate learning from first practice. This of course messes up the House of Value, as we’ll be discussing The Market Pillar and the Knowledge and Learning simultaneously. And allocation of personnel normally belongs to Internal Processes . . .’ 1st level business manager in Telenor Sept. 2001 Through these stories the knowing of the activities as an intrinsic aspect emerged. It became clear to the project participants that the enabling of knowledge actually was an integral part of the value increasing activities. The Knowledge and Learning Pillar could only be evaluated with respect to the knowing exposed in other activities. This eventually led to discussions of the suitability of the House as a functional model. Not by researchers pushing it, but by the practitioners (re-) discovery of knowing activities as the coupling interface between the three other pillars. The team decided not to change the House of Value as an icon, but yet stimulate a practical comprehension of the Knowledge and Learning Pillar as the soil upon which the other pillars of the House of Value rest. The endeavour of increasing (or sustaining) value creation is undertaken without the detour of attempting to stack the unstackable and control the uncontrollable, but through a direct attempt of enabling (knowing) activities. The practical comprehension of the IMS Process Chart has undergone a similar conversion. Management practices that evolved through the use of it are more sophisticated than the plan-act-control mode of exercise

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imposed by the formal IMS Process Chart. The evolved conversion is in line with recent contribution to strategy theory (Wernerfelt, 1984; Peteraf, 1993) and Dynamic Capabilities (Teece et al., 1997)

Outlook We realise that attempts to enable knowing activities might impose the same difficulties as a Resource Based entrance to Knowledge Management and value creation. That is the falling into stacking and counting of individuals and their skills. Activities can very well be understood as each individual’s actions, which will put you right back to the stacking of individual experiences. We hold that the practical differentiation of levels of activities proves more fruitful than the entrance through knowledge. Value-increasing activities exist as an already constituted level of analysis in organisations, and can be viewed as a potential half worked boundary object between the organisations and the researchers (Skaret, Sen & Roberts, 2001). This implies that you haven’t got to fight windmills of embodied knowledge on knowledge to talk the same language. Activity theory has given valuable insights in order to understand activities as dynamic and iterative processes (Engestro¨m, 1993), and an entrance through a collective level of activities is enabled through investigations of Communities of Practice (Lave & Wenger, 1991). An obvious weakness of our research is the lack of contribution to a conceptual framework that enables organisations to act on these insights themselves. Telenors’ focus on activities emerged through our intervention, and we are not yet able to contribute to enabling processes without close interaction with the organisations. The entrance through activities poses additional difficulties. The contextual framework the organisation is understood within often diverges between managers, units, knowledge workers, controllers etc. The discussions of and decisions on which activities are the true value drivers, and thus which activities are in need of enabling, depend on these contextual frameworks. This is clearly exposed in the use of the Project Exchange. The unit managers of the business areas have expressed dissatisfaction with the renewed resource allocation. Giving up an employee to a project can often create a vacuum in a business unit with respect to the tasks left behind when an employee leaves the unit to attend a project. The project managers on the other hand express the opposite frustration.

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Employees that they want on projects, and who want to attend projects are withheld from the opportunity of participating and contributing by their unit managers. These diverging interpretations of adequate levels of analysis by which to ameliorate value increasing activities undermine the utilisation of the Project Exchange. Thus this complexity poses a threat to the mutual enabling of resource allocation, value creation and organisational learning. On the backcloth of the dilemma between the market based and the administrative based resource allocation, the Corporate Management has decided to introduce the Project Exchange through out the whole organisation. By shaping precedence and indicating that value is primarily created in projects, Telenor attempts to enable the new resource allocating activity. They also try to ease the implementation and wield the dilemma through introducing incentives to unit managers hiring out employees. An important question rises; how does this affect the situation of knowledge worker? The enabling of knowing activities through the mobilisation of the knowing actors and the recreation of knowledge involves providing choice and distributing responsibility to the knowing actors. Large corporations have heaps of dilemmas like these and for now nothing is done in order to ease the knowledge workers choice of actions. How will the matching and lack of matching to projects change the employees’ relations to each other, to the projects and to Telenor? How will the emotional context change for people feeling attractive or unattractive on the project market place? Which myths and relational patterns will be generated both internally and externally? Will the distributed responsibility create necessary lojalty and trust between the corporation and the units, the units and the employees and vice versa? The Internal Value Creation Index is designed to measure these aspects, and we pose these questions for further research. As we have exposed many of the participants in the development team initially viewed the IMS development task as constructing an irreproachable new Corporate Management System. A system to be effectuated by the business units. As the activities in need of support appeared in the limelight, the development group got involved in a more systematic dialogue with individual business units. They searched for arenas, informal as well as formal, and activities where corporate level actually interacts with business units. Business managers were no longer reduced to future users of a new system designed by

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corporate staff. With business unit managers and supporting staff as co-developers innovative concepts from business units (i.e. the Project Exchange) were easily seized and integrated in the Corporate Management System. In addition, the goal of anchoring IMS management practices within existing interaction arenas (i.e. the Business Review) was facilitated. The IMS is used to monitor financial and non-financial results. Furthermore it encourages dialogues on necessary future improvements within- and across specialised business units, as well as changes in corporate strategy and management practice based in unique insights from business units. The goal of the project was increased integration across business units and thus better corporate control. This case implies that such goals need not result in rigid systems for top-down control. Rather the emerging management practices resulting from the efforts of Telenor enables distributed responsibility and improved interaction between the corporate and the business unit management. This represents a practical experimentation with the concept of MiddleUp-Down Management (Nonaka & Takeuchi, 1995). As an analogue to the enabling of Living Knowledge emerging through the focus on value increasing activities and knowing activities, Middle-Up-Down Management can be viewed as practical implication of the collaborative attempts to enable knowing activities.

Notes 1. Dialogues with personnel from the firm have been most helpful. In particular Grete Skeie and Gunnar Janssen facilitated co-generative learning by collaborating with the cross disciplinary research team on the accomplishment of their challenging task. Their openness granted access to knowledgeable people and interesting discussions throughout the corporation, allowing a rich and triangulated data collection, as well as several interpretations of empirical findings. 2. We would also like to thank members of the KUNNE research community in general (www.kunne.no) and particularly Jan Taug, Hanno Roberts, Reidar Gjersvik and Joachim Breunig who formed part of the research team along with Mona Skaret. They contributed with practical achievements and theoretical insights. In addition to this paper, a PhD Thesis (Taug, 2002) and several academic papers is (to be) written based partly on this joint research effort (Taug, 2001; Roberts, 2001; Chaminade and Roberts, 2002). 3. Katja Hydle and Kjersti Bjørkeng did not participate in this particular case, but concep-

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tualised the activity based approach to knowledge management emerging from several cases in the research portfolio.

References Argyris, C. and Scho¨n, D. A. (1996) Organizational Learning II. Theory, Method, and Practice. AddisonWesley Publishing Company, Reading, Mass. Bjørkeng, K. and Hydle, K.M. (2002) Knowing Action – Activity Based Management of Knowledge, Paper presented at The Third European Conference on Organizational Knowledge, Learning, and Capabilities (OKLC). April 4–6, Athens, Greece. Brooking, A. (1996) Intellectual Capital. International Thomson Business Press London. Carlsen, A. and Gudmundsdottir, S. (2001) Stories of What Could Be. Strategic Change and The Narrative Mode of Thought. Paper presented at the Annual EGOS Conference Lyon, France, 5–7th July 2001. Chaminade, C. and Roberts, H. (2002) Social Capital as a Mechanism – Connecting Knowledge within and across firms. Paper presented at The Third European Conference on Organizational Knowledge, Learning, and Capabilities (OKLC), April 4–6, Athens, Greece. Crites, S. (1971) The Narrative Quality of Experience. Journal of the American Academy of Religion, 39, 291–311. (Also reprinted in Hinchman, L.P. and Hichman, S. K. (Eds.), Memory, Identity, Community. The Idea of Narrative in the Human Sciences. State University of the New York Press. 1997.) Edvinsson L. (1997) Developing intellectual capital at Skandia. Long Range Planning, 30, 366–373. Edvinsson, L. and Malone, M.S. (1997) Intellectual Capital: Realizing Your Company’s True Value by Finding its Hidden Brainpower. HarperBusiness, New York. Engestro¨m, Y. (1993) Developmental studies of work as a testbench of activity theory: The case of primary care medical practice. In Lave, S.C.J., Understanding practice. Cambridge University Press, Cambridge, 64–104. Gadamer, H-G. (1975) Truth and Method. Sheed & Ward, London. Grant, R.M. (1996) Prospering in dynamicallycompetitive environments: Organizational capability as knowledge integration. Organization Science, 7, 375–387. Greenwood, D. J. and Levin, M. (1998) Introduction to Action Research. Social Research for Social Change. Sage Publication, Thousand Oaks. Hatling, M. (ed.) (2001) Fortellingens Fortrylling. (‘The enchantments of storytelling’). Fortuna Forlag, Norway. Kaplan, R.S. and Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy Into Action. Harward Business School Press, Boston. Kemmins, S. and McTaggart, R. (2000) Participatory Action Research. In Denzin, and Lincoln,

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Y. S. Handbook of qualitative reseach. Sage Publications Inc., Thousand Oaks, 567–606. Klev, R.and Levin, M. (1998) Aksjonsforskning pa˚ IFIM – ‘Den Grimme Elling’ i Forkledning. In Nilssen, T. (ed.), Mot et bedre arbeidsliv. En IFIM antologi. Fagbokforlaget, Bergen. Lave, J. and Wenger, E. (1991) Situated learning: Legitimate peripheral participation. Cambridge University Press, Cambridge. Nelson, R.R. and Winther, S.G. (1982) An evolutionary Theory of Economic Change. The Belknap Press of Harward University Press, Cambridge, Mass. Nonaka, I. and Takeuchi, H. (1995) The KnowledgeCreating Company. Oxford University Press, Oxford. Roberts, H. (2001) Management Accounting and Control in the Knowledge-Driven Firm, Symposium presented at the 24th Annual Congress of the Europan Accounting Association, Athens, Greece, May 2001. Roos, G. and Roos, J. (1997) Measuring your company’s intellectual performance. Long Range Planning, 30, 413–426. Røyrvik and Wulff (2002) Mythmaking and Knowledge Sharing, Paper to be presented at the EURAM 2002 11nd Annual Conference on Innovative Research in Management, May 9–11. Stockholm, Sweden Skaret, M. and Bygda˚s, A. (1999) Mobilizing Knowledge in a Knowledge Intensive Firm – Towards an activity system view of knowledge transition, Paper presented at CISTEMA, Copenhagen, Denmark. Skaret M., Sen, G. and Roberts, H. (2001) Diversity in Action Research, Paper presented at the 17th EGOS conference, Lyon, France. Stacey, R. (2001) The Emergence of Knowledge in Organisations. Complexity and Management Centre, University of Hertfordshire, Lecture in Trondheim, Norway. Stewart, T. A. (1997) Intellectual capital : the new wealth of organizations. Nicholas Brealey Publishing, London. Sveiby, K. E. (1997) The New Organizational Wealth: Managing & Measuring Knowledge-Based Assets. Berret-Koehler Pub, Berlin. Taug, J. (2001) A systems approach to knowledge creation in networked organisations – Article From the Knowing with experience at the Lighthouse September 5. to 10. 2001 http://www.taug.no/article/archive/1/ Taug, J. (2002) Knowing with . . . knowledge based value creation in networked knowledge intensive organizations operation in complex environments, Dissertation proposal of 20.02.2002. http://www. taug.no/article/articleview/48/1/11/. Teece, D. J., Pisano, G. and Shuen, A. (1997) Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18, 509–533. von Krogh, G., Ichijo, K. and Nonaka, I. (2000) Enabling Knowledge Creation. How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation. Oxford University Press, New York. Wernerfelt, B. (1984) A Resource-Based View of the Firm. Strategic Management Journal, 5, 171–180.

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The three authors are Research Scientists from SINTEF Industrial Management, Knowledge and Strategy. They have extensive experience from cross-disciplinary Action Research projects on Knowledge Management. Mona Skaret has her background in Industrial Economics from the Norwegian University of Science and Technology and her research fields include intellectual capital and the tying of knowledge and value creation. She is currently responsible for developing a National Competence Report for Norway at the Ministry of Education and Research.

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Kjersti Bjørkeng is a Philosopher educated at the University of Oslo specialised in Philosophy of Consciousness. Her main field of research is directed towards the emotional, relational and cultural aspects of knowledge in organisations, with a special focus on handling dilemmas. Katja Maria Hydle is a Political Scientist from College of Europe, Belgium, with experience from EU applied research projects within Telecom and e-business consultancy. Her current research interests include activity based knowledge support and learning in networks.

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Alliances With Competitors: How to Combine and Protect Key Resources? Will Mitchell, Pierre Dussauge and Bernard Garrette Our study addresses two main questions: First, what types of alliances do firms tend to create when combining different kinds of resources? Second, what governance mechanisms do firms set up to coordinate and protect resources when they use them for different alliances? We examine 227 alliances between competitors in Asia, North America, and Europe. We first identify two types of alliances: scale alliances in which the partner firms contribute similar resources, and link alliances in which the partners contribute complementary resources. We find that firms contributing R&D and production resources tend to form scale alliances, while firms contributing marketing resources tend to enter into link alliances. We also find that firms are more likely to choose stronger protection mechanisms for link alliances, which create greater appropriation risks, while they tend to seek higher levels of coordination in scale alliances.

Creating and Protecting Resources: Formation and Governance of Scale And Link Alliances Between Competitors

T

his study examines the formation of strategic alliances, with the goal of moving us toward a more general understanding of the relationship between two streams of strategy research. During the past two decades, two major themes concerning firm-specific resources have emerged within the field of strategy. First, since Nelson and Winter’s (1982) and Wernerfelt’s (1984) arguments revived and developed earlier insights from Edith Penrose (1959) and others, many strategy researchers have focused on the role of firm-specific resources in shaping a firm’s competence. Second, building on Williamson’s (1975, 1985) work concerning the appropriation risks associated with idiosyncratic resources, much research attention has focused on identifying mechanisms by which firms protect the value of their resources. Following Williamson (1999), we will refer to these themes as the governance and competence perspectives on strategy. The competence and governance themes have developed in parallel, with some attempts to integrate the arguments but, more often, with competence and governance researchers talking past each other. We

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attempt to bring together these themes by studying the types of resources and types of governance mechanisms that firms use when forming alliances with competitors in order to increase efficiency in their existing activities (scale alliances) or to expand into new activities or markets (link alliances). On two key dimensions, concerning conceptual systemization and units of analysis, the two strands of research have different strengths and weaknesses. First, the two strands have proceeded with different emphasis on conceptual systemization and generalizability. Governance research has been relatively systematic. Williamson and those who have drawn on his insights have developed a cohesive logic that underlies the identification and protection of idiosyncratic resources (e.g., Williamson, 1991b). Competence research tends to be somewhat more fragmented. At this point, there is at least a partial consensus in the strategy field that resources exist and that they influence what firms do (e.g., Barney, 1986; Conner, 1991; Amit & Shoemaker, 1993). Many studies now use competence arguments as research motivations, sometimes by inferring the existence of resources and other times by explicitly operationalizing dimensions of resources (e.g., Mitchell, 1991; Henderson & Cockburn, 1994; Karim & Mitchell, 2000). Despite the common usage, though, there is little consensus about

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how to generalize the concept of resources or how to identify general influences of resources on strategic action. On the systemization dimension, therefore, governance research has proceeded somewhat farther than competence research. Second, the two strands have emphasized different units of analysis. Governance research has emphasized individual transactions as units of analysis, emphasizing contractual and organizational modes by which firms can protect the value of transaction specific assets that relate to particular exchanges. While this approach has offered conceptual clarity, the approach has also tended to under-emphasize the intertwined nature of many transactions, in the sense that firms often must make decisions that affect many exchanges, involving many different assets. Competence research, by contrast with governance research, tends to address more aggregated units of analysis, involving intertwined sets of physical assets and organizational systems that together provide key influences on what firms do and how they perform. Competence research often stresses the role of the firm in coordinating the development and use of firm-specific resources. With respect to units of analysis, competence research may come closer than governance research to many of the inter-twined strategic issues that firms face. We attempt to bring together the competence and governance arguments to investigate how firms undertake a particular type of strategic action, alliances among competitors. We focus on two questions. First, what types of resources do firms tend to use for different types of alliances? Second, what governance mechanisms do firms use to create and protect resources when they use them for different alliances? We have three conceptual goals. First, we attempt to show that the nature of a firm’s resources influences its strategy choices; in doing so, we build on competence research that offers elements of a general framework for identifying resources. Second, we attempt to demonstrate how incentives to create and protect firm-specific resources tend to influence managerial action. Third, at a more specific level, the study helps describe the multiple roles that alliances between competitors play in modern economies, as firms attempt to reinforce their strategic positions in their existing markets and expand throughout the world. Studying alliances between competitors provides a suitable context for exploring issues that arise from competence and governance arguments. The competence view of the firm suggests that firms’ competitive

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advantages derive from their preferential access to idiosyncratic resources, especially resources that stem from tacit knowledgebased routines (Penrose, 1959; Wernerfelt, 1984; Conner, 1991; Amit & Shoemaker, 1993). Although firms gain advantages from possessing idiosyncratic resources, strategists and organizational theorists dating to Commons (1934), Coase (1937), Barnard (1938), Simon (1957), Richardson (1972), and others have long recognized that no one business can create all resources needed to prosper and grow. Authors in several research traditions argue that interfirm alliances provide a means of pooling resources held by different firms in order to exploit new business opportunities and to increase the efficiency of existing business activities. Collaboration is often an effective way of pooling resources that are subject to a high degree of knowledge-based market failure because interfirm collaboration helps facilitate ongoing interpersonal contact between the allied firms (Itami & Roehl, 1987; Mitchell & Singh, 1993, 1996; Gulati, 1998). Moreover, collaboration provides a means for firms to protect the value of their resources through financial and organizational safeguards against opportunistic behavior (Teece, 1986; Hennart, 1988; Bresser, 1988; Kogut, 1988; Jorde & Teece, 1990; Williamson, 1991a; Chi, 1994). At the same time, firms usually cannot fully protect their resources from appropriation by partners, because the same organizational and individual processes that help pool the firms’ resources also tend to expose the resources to the partners (Zajac & Olsen, 1993; Sobrero & Roberts, 1996). Although firms can attempt to create credible bilateral commitments that align the resource coordination, creation, and protection incentives of the partners (Oxley, 2001), complete alignment is often impossible owing to the multiplicity of organizational and personal interactions and incentives that arise during the course of an alliance. Thus, collaboration provides a variety of potential benefits that stem from the combination of partner resources, as well as potential risks that firms will attempt to minimize by choosing the best available governance mechanisms. Our empirical analysis examines 227 alliances between competitors in Asia, North America, and Europe between 1952 and 1996. The alliances include firms operating in the telecom-electronics, auto, aerospace, and other sectors. The industries in the sample tend to be oligopolistic, open to international trade, R&D intensive, subject to significant economies of scale, and globally competitive. Alliances in such industries offer a high potential for efficiency gains and expansion

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benefits, with few opportunities for limiting competition ( Jacquemin, Buigues & Ilzkovitz, 1989; Millington & Bayliss, 1995).

Background and Predictions Assumptions and implications for alliances Table 1 reviews our basic assumptions. Williamson (1999) argues that a theory of the firm must specify five conceptual elements, including behavioral assumptions, units of analysis, description of the firm, purpose of the firm, and efficiency criteria. Williamson also argues that conceptual arguments require empirical testing. We outline the assumptions and discuss their implications for alliances. We then attempt to test predictions that arise from the conceptual base in the empirical context of alliances between competitors.

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Our behavioural assumptions include potential self-interest plus bounded rationality with firm-specific foresight. The implication for alliances of potential self-interest and bounded rationality is that alliance contracts are not self-enforcing, so that firms must organize alliances in ways that protect their resources as well as use other firms’ resources and create new resources. We assume that economic actors have the capacity to look ahead and recognize opportunities and risks, but that a firm’s experience shapes its foresight. This assumption of firm-specific foresight suggests that firms commonly recognize potential opportunities to gain efficiencies or expansion via alliances with other organizations, but that different firms will have different expectations about the potential outcome of an alliance. Because of different expectations, the allies may create asymmetric governance mechanisms.

Table 1. Assumptions Elements of theory

Governance perspective

Competence perspective

Competence perspective: Alliance implications

1. Behavioral assumptions

Bounded rationality, with foresight; potential self-interest.

Bounded rationality, with firmspecific foresight; potential selfinterest.

Firms must organize alliances in ways that protect their resources as well as use other firms’ resources and create new resources. Partners may have different perspectives on alliance purposes and governance.

2. Units of analysis

Transactions

Routines (tacit, co-specialized, organizationally-embedded), which combine to form resources. Use of resources generates value. Production costs are outcomes of resources.

Routines and resources are imperfectly tradeable. Firms often need alliances to gain access to other organizations’ resources.

3. Description of the firm

Structure for governing transactions. Governance emphasizes protection.

Structure for governing routines and resources. Governance includes coordination, creation, and protection.

Firms require mechanisms to govern the use of routines and resources that they use in alliances.

4. Purposes served

Economizing on sum of production costs & transaction costs, where transaction costs stem from alignment between transaction attributes & governance structure of current and future transactions. Takes production costs as exogenous to firm.

Economizing on the sum of production costs and governance costs. Multi-faceted cost dimensions create substantial ambiguity concerning economizing choices and scope for self-interested choices.

A firm’s governance mechanisms for interorganizational resources must attempt to coordinate and protect the value of current resources, plus create and protect the value of new resources.

5. Efficiency criterion

Relative efficiency of overall set of current and future firm transactions, based on feasible alternatives.

Relative efficiency of current and future use of overall set of firm resources, based on feasible alternatives.

A firm seeks the best available mechanisms for jointly protecting and creating resources that fall within the activities of an alliance.

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Our fundamental unit of analysis is the routine, which closely relates to the concept of resources. Routines are identifiable patterns of activity embodied in human or capital assets (Nelson & Winter, 1982; Winter, 1990; Dosi, Marengo & Fagiolo, 1996) and contain much of the knowledge of what a firm can accomplish (Hannan & Freeman, 1989). Routines consist of multiple related transactions that take place over time either within a firm or via interaction with external parties. Routines are often tacit, either because they are intrinsically uncodifiable or because they require the interactive participation of multiple people. Routines also tend to be co-specialized with other routines and to be embedded in broader organizational contexts. Several routines combine together to create particular resources. Resources, which we view as synonymous with capabilities, are stocks of knowledge, skills, financial assets, physical assets, human capital, and other tangible and intangible factors (Wernerfelt, 1984; Grant, 1991; Amit & Schoemaker, 1993). Resources tend to be only semi-decomposable into their underlying routines, so that resources also provide relevant units of analysis, in addition to routines. In our discussion of alliances, we will emphasize the joint use of firms’ resources as the purpose of alliances. We will refer to a resource typology that includes R&D, production, and marketing resources (Capron, Dussauge & Mitchell, 1998). Firms create new resources by creating new routines and recombining existing routines in novel ways. Resources and their underlying routines are often firm-specific and imperfectly tradable, owing to their tacitness, cospecialization and organizational nature. The need for alliances arises from the imperfect tradability of routine and resources. Firms often need to ally with other organizations in order to extract value from underutilized resources they possess, either through more efficient use of existing resources or by creating new resources. Allying firms may pool similar resources in order to gain greater efficiency, so long as increased economies of scale more than outweigh the governance cost of alliances. In addition, allying firms may wish to combine the routines that underlie different types of resources in order to create valuable new resources, again accounting for governance costs. Our description of the firm and our view of the purpose of the firm involve assumptions concerning the role of the firm in governing resources. We describe a firm as a governance structure, where governance includes coordinating the use of existing resources, creating new resources, and protecting the value of

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resources. This view closely follows Coriat and Dosi (1998), who argue that a firm is a particular set of routines that result from the co-evolution between corporate patterns of knowledge distribution and mechanisms of governance. Governance mechanisms include formal and informal incentive and control systems, legal regimes, organizational structures, and corporate cultures (Argyres, 1996; Liebeskind, 1996). Governance mechanisms are often shaped by path dependency and local search, which arise from the tacitness, co-specialization, and organizational embeddedness of routines. In turn, the purpose of the firm is to economize on the combination of production and governance costs. Our approach implies that production costs are partly an endogenous outcome of firm-specific resources and governance mechanisms. That is, production costs vary with the nature of a firm’s resources and the effectiveness with which a firm governs the use and creation of resources. The alliance implication of our assumptions concerning the description and purpose of the firm is that a firm must create governance mechanisms for its inter-organizational activities. A firm’s inter-organizational governance mechanisms must attempt to increase and protect the value of the firm’s current resources, as well as create and protect the value of new resources (Child & Faulkner, 1998). Thus, the inter-organizational governance mechanisms need to address resource coordination to ensure efficient use of current resources and resource creation to support expansion, as well as protection of the value of the resources that fall within the coordination and creation activities of the alliance. Our efficiency criterion is of the best available value of current and future use of routines, by which we mean that a firm seeks the best available mechanisms to jointly protect and create resources. In this paper, our emphasis will be on factors that differentiate the types of resources that firms use for alliances that create either efficiency or expansion opportunities, along with the protection mechanisms that the firms use to protect the value of the resources. Overall, our conceptual approach combines the protection emphasis of governance research with the coordination emphasis of the competence research. The key difference between our approach and transaction cost economics, which is the core theory of the governance approach, is that we focus on routines rather than individual transactions. In turn, this leads us to emphasize coordination and creation roles for governance in addition to a protection role. This dual

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emphasis on protection and creation credits the firm with a critical coordination role in both enhancing the value of existing resources and creating new resources. Our focus on routines as the fundamental unit brings our approach close to that of evolutionary economics (Nelson & Winter, 1982), with the primary difference being that we focus on relationships among firms in the use of resources rather than on independent search activities by single firms. Our summary argument concerning alliances is that alliances provide opportunities for firms to pool imperfectly tradable resources in order to gain greater efficiency in the use of existing resources as well as opportunities to create new resources. The firms must create governance mechanisms that both combine the resources effectively and protect the value of the resources. The nature of the resources creates incentives to seek either efficiency or expansion benefits from the alliance. Some types of resources provide greater potential for efficiency gains, when a firm accounts for the governance costs of creating and protecting the resources as well as potential scale economies. Other types of resources provide greater opportunities for expansion gains, again accounting for governance costs. We will focus on two types of alliances (link and scale), two sets of resources (geographic and functional), and two sets of governance mechanisms (equity holdings and joint ventures). We first develop predictions concerning the types of resources that firms will tend to use for link and scale alliances. We then develop predictions concerning governance mechanisms that the firms will use to protect and create resources in the two types of alliances.

Formation of link and scale alliances Industry analysts and academic researchers report a growing incidence and importance of alliance activity among competitors for many purposes, including technology and product development, joint manufacturing, and market entry (Doz, 1996; Harbison and Pekar, 1998; Park & Russo, 1996; Sakakibara, 1997). Increasingly, researchers distinguish between two basic types of alliances between competitors, which we refer to as link alliances and scale alliances (Porter & Fuller, 1986; Hennart, 1988; Dussauge, Garrette & Mitchell, 2000). The distinction between link and scale alliances arises from the symmetry or asymmetry of the partners’ resource contributions to an alliance, which reflect different strategic purposes (Dussauge & Garrette, 1997). Scale alliances are partnerships to which partners contribute

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similar resources, while link alliances are partnerships to which partners contribute substantially different resources. Scale alliances allow firms to gain greater efficiency in their existing business activities, while link alliances allow firms to combine complementary resources in order to expand their business activities. This distinction is similar to Sakakibara (1997), who defines alliances in terms of cost-sharing and skill-sharing motivation. We define the concept of scale and link alliances on the basis of the similarity or difference in the resources that the partner firms contribute to the alliance. Empirically, we examine three types of resources, including R&D resources, production resources, and marketing resources. Although a substantial literature addresses alliance formation (e.g., Harrigan, 1985; Teece, 1986; Contractor & Lorange, 1988; Hennart, 1988; Kogut, 1988; Oliver, 1990; Williamson, 1991a), this literature has not fully explored the strategic factors that differentiate incentives to ally with competitors for expansion or efficiency. In particular, it is not clear which resources firms tend to use for efficiency and expansion purposes when they ally with competitors or, in turn, how the firms govern the use of resources in link and scale alliances. Although both scale and link alliances may create advantages for the allying firms, the nature of the advantages differ (Dussauge & Garrette, 1995). Because they are based on similar contributions from the partner firms, scale alliances produce significant economies of scale for collaborative activities, thereby allowing the firms to reduce excess capacity (Hennart, 1988). Such scale alliances can include joint R&D efforts, the joint production of a component or end product, or joint marketing of the allies’ goods. Such scale alliances provide a way of avoiding, or at least postponing, mergers in industries undergoing strong concentration processes. Link alliances, in contrast with scale alliances, combine complementary resources from the partners (Porter & Fuller, 1988). Link alliances include partnerships in which one partner provides market access to products that another firm developed, such that the two allies create a form of customersupplier relationship. Therefore, link alliances create opportunities for the partnering firms to undertake immediate expansion within the current markets of one or other of the partners. In addition, link alliances create opportunities for firms to learn from their partners and to use this learning as the basis for future expansion beyond the scope of the alliance (Hamel, 1991; Khanna, Gulati & Nohria, 1998; Dussauge, Garrette & Mitchell,

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2000). Link alliances sometimes involve joint manufacturing, as long as the other components of the value-chain remain distributed between the partners. A central proposition of this paper is that partners will tend to use different types of resources in alliances, depending on whether the firms seek efficiency or expansion benefits from the alliance. In order to predict the relationship between particular types of resources and alliance types, we distinguish several dimensions of geographic and functional resources. Tables 2a and 2b list the resources, along with several control variables. We first discuss geographic resources, next turn to functional resources, and then outline several other strategic factors that might underlie the formation of scale and link alliances. By geographic resources, we mean the resources that arise as a result of a firm’s activities in different geographic home markets. A literature that focuses on distinctions among national innovation infrastructures (Nelson, 1991) suggests that firms based in

different geographic contexts tend to develop differing resources. We use two aspects of geographic resources, including the parents’ geographic origins and the alliance’s geographic market. We expect expansion incentives to be particularly strong for alliances involving firms with disparate national origins. Firms based in different countries can often combine different complementary resources in link alliances that draw on their different national environments to create expansion opportunities. In order to explore the impact of increasingly divergent geographic origins, we will distinguish empirically between parents from the same country, parents from different countries within a single continent, and parents from different continents. Hypothesis 1a. Alliances between competitors with different geographic origins are more likely to be link alliances than scale alliances. By contrast, we expect that alliances covering broader geographic markets will offer

Table 2a. Alliance Formation Factors H

Alliance formation factors

Type

Resource combination opportunities

H1a

Different geographic origins of parents

Link

Combine resources that draw on different national environments to create new resources needed to expand activities.

H1b

Broader geographic market coverage

Scale

Combine similar resources to achieve scale needed for greater sales in more extensive markets.

H2a

R&D resources

Scale

Link alliances involving R&D resources create expansion opportunities, but also create appropriation risks. Firms are most likely to combine R&D with a competitor for greater scale, which has a longer term commercialization horizon, than to contribute their R&D resources to a competitor’s production or marketing resources, which would have immediate competitive risks.

H2b

Production resources

Scale

Combine production resources to achieve scale efficiency.

H2c

Marketing resources

Link

Multiple functional resources

?

Use one firm’s marketing resources to sell goods that use another firm’s development or production resources. The incentives of one type of resource may tend to dominate the other, or there may be substantial heterogeneity.

H3a

Competitive asymmetry

Link

In link alliances, relative size is not be an issue so long as a partner possesses needed resource. By contrast, it often is not worth while for a firm to engage in a scale alliance a smaller partner, because the cost of collaborating will exceed the expected scale benefits.

H3b

Number of partners

Scale

Year

?

Prior alliances among partners

?

Scale economies opportunities increase with multiple partners, while governance costs for disparate resources in link alliances increase with multiple partners. Expansion opportunities might have arisen more frequently in recent years, but firms have long had incentives to ally for expansion. Recent competitive pressure may have increased the incentives to undertake scale alliances for greater efficiency. Allies with prior experience might be more willing to undertake expansion opportunities together, but experience might also lead to independent competition for expansion opportunities rather than continued cooperation.

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greater opportunities for economies of scale and thus will tend to be scale alliances. Broader market coverage offers a greater potential for efficiency gains which, in turn, requires greater business scale; this creates incentives for partners to pool similar resources within scale alliances in order to achieve efficient size. For example, global markets offer particularly strong opportunities for firms to increase efficiency by pooling similar resources and therefore favor the formation of scale alliances. In contrast, fragmented markets require access to locallyspecific resources in order for firms to expand internationally, which, in turn, tends to lead to the formation of link alliances. We will distinguish empirically between alliances that sell goods within a single continent (few alliances in our sample limit their sales to a single country) and alliances that sell goods across multiple continents. Hypothesis 1b. Alliances between competitors that provide sales coverage for broader geographic markets are more likely to be scale alliances than link alliances. We now turn to functional resources. By functional resources, we mean resources that firms use for R&D, production, and marketing. Several typologies in the literature that has become known as the resource-based view of the firm suggest classes of functional resources. Amit and Schoemaker (1993) distinguish between R&D resources (technological resources, R&D resources, product development speed), manufacturing resources, and marketing resources (brand management, distribution channels, buyer-seller relationships, user base, customer service, business reputation). Similarly, Teece and Pisano (1994) and Teece, Pisano, and Shuen (1997) distinguish between technological resources, production resources, and customer-related resources. Chatterjee and Wernerfelt (1991) distinguish between R&D resources, production resources, and marketing resources. Three categories of functional resources stand out in these discussions, together encompassing the commercialization sequence of product development, production, and marketing. Capron, Dussauge, and Mitchell (1998) show that R&D, production, and marketing resources are particularly common targets for inter-business usage following business acquisitions, while Dussauge, Garrette, and Mitchell (2000) show that the three types of resources are important elements of alliance activity. In addition to functional R&D, production, and marketing resources, one might also investigate the complementary functions of general management and financial support (Barney, 1986; Teece, 1986; Chatterjee

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& Wernerfelt, 1991; Teece, Pisano & Shuen, 1997; Capron, Dussauge & Mitchell, 1998). For this paper, we will focus on the three-part functional sequence of R&D, production, and marketing resources. When competing firms ally, we expect scale efficiency incentives to be particularly strong for alliances that involve R&D or production resources. R&D resources may offer substantial opportunities for link alliances in order to expand, but such link alliances involving R&D resources would create appropriation risks when combined with a competitor’s production or marketing resources (Hamel, 1991; Hennart, Roehl & Zietlow, 1999). Therefore, we expect firms to be reluctant to combine their R&D resources in link alliances with competitors. Instead, when forming link alliances, firms will often exclude R&D resources from the activities of the alliance and will contribute only outputs of their proprietary R&D resources, such as existing designs and previously developed products. In contrast, firms are most likely to pool R&D resources with a competitor in order to achieve greater scale, which has a longer-term commercialization horizon and lesser immediate risks. In addition, because all partners contribute R&D resources in scale alliances, the mutual hostage situation thus created limits opportunism (Oxley, 2001). Hypothesis 2a. Competing firm alliances that involve R&D resources are more likely to be scale alliances than link alliances. Production resources often offer opportunities for two or more firms to pool resources in order to achieve efficient size. Because of the extent of scale economies and experience effects in production, firms possessing underutilized production resources will often form alliances with partners that contribute similar resources in order to achieve efficient size or reduce excess capacity. Therefore, we expect the efficiency potential created by alliances involving production activities to lead to the formation of scale alliances rather than link alliances. Hypothesis 2b. Competing firm alliances that involve production resources are more likely to be scale alliances than link alliances. We expect expansion incentives to be particularly strong for competing-firm alliances that involve marketing resources. Alliances involving marketing activities provide opportunities to expand by using one firm’s marketing resources in order to sell goods based on another firm’s development or

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production resources. Thus, marketing link alliances will often use one firm’s marketing systems to sell the other partner’s products, rather than combine one partner’s production or R&D resources with the other competitor’s marketing resources in order to produce and market a new product specifically developed within the scope of the alliance. Hypothesis 2c. Competing firm alliances that involve marketing resources are more likely to be link alliances than scale alliances. To test hypotheses 2a to 2c, we will compare alliances that involve only a single functional resource to alliances that involve combinations of different types of resources. We expect the prediction to hold for alliances that involve only one type of resource. That is, we expect alliances involving only R&D or production resources to tend to be scale alliances, while alliances involving only marketing resources to tend to be link alliances.1 We do not have uniform expectations concerning alliances that combine marketing resources with R&D and/or production resources. In such cases, it is possible that the market expansion incentives for link alliances may dominate or, conversely, that the R&D and production protection and efficiency incentives for scale alliances will dominate. We will consider four other firm-level factors that also might underlie competitors’ alliance formation. These four variables include asymmetric competitive strength, number of partners, year of formation, and prior alliance experience. Competitive asymmetry is likely to favor link alliances, in which the partners attempt to create expansion opportunities. In link alliances, the firms seek partners with complementary skills and capabilities. Provided a partner possesses the needed skills, its relative size should not arise as an issue in link alliances. By contrast, if partners seek economies of scale, each partner will only agree to engage in the collaboration if the increased volume that the other partner contributes is large enough to produce savings that will outweigh the costs of governing the collaboration. In other words, it often is not worth while for a firm to engage in a scale alliance with a smaller partner, because the governance cost of collaborating will exceed the expected scale benefits. This argument is consistent with Hennart’s (1988) transaction cost theory of joint ventures. The argument also corresponds to the view of Porter and Fuller (1986), who argue that partners that have dissimilar strengths and weaknesses tend to form X coalitions (link alliances).

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Hypothesis 3a: Alliances involving competitors with asymmetric competitive positions are more likely to be link alliances than scale alliances. Alliances with more than two partners are more likely to favor efficiency gains than to create expansion opportunities. Indeed, scale economies tend to increase with the number of partner firms involved in an alliance, thus creating incentives to form scale alliances. The very similarity in the partners’ contributions tends to keep governance costs relatively low. In contrast, combining complementary resources of multiple partner firms becomes increasingly complex and increases governance costs, while, at the same time, the incremental contribution of each additional partner to the expansion potential of the alliance tends to decrease. Moreover, appropriation risks are likely to increase with the number of partners involved in the alliance. Therefore, we expect most multiple partner alliances to be scale alliances. Hypothesis 3b: Alliances involving more than two partner firms are more likely to be scale alliances than link alliances. The influences of the other two firm-level factors that might tend to favor either link or scale alliances, formation year and prior alliance experience, are ambiguous. Alliances formed in more recent years might tend to involve expansion, if popular perceptions about changes in alliance objectives are correct, but, alternatively, alliances have long been important to firm expansion so that there is no clear prediction. Allies with prior experience in alliances together might be more willing to undertake expansion opportunities together. Alternatively, experience might also lead to independent competition for expansion opportunities, so that prior experience might be predict scale alliances rather than link relationships. It would be desirable also to control for differential industry growth and concentration as influences on alliance formation, but the multi-period and multi-national scope of this study makes such measurement impossible. The focus of our argument is on firm-level issues, however, rather than on industry-level trends. Moreover, the industry variables help address differences across economic sectors, while the alliance founding year and geographic variables help address inter-period and inter-region differences. In summary, the hypotheses address the tendency of competing firms to use geographic resources and functional resources for scale and link alliances. We expect that

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scale alliances among competitors will primarily involve R&D resources, production resources, broad geographic market coverage, competitors with similar competitive positions and multiple partners. We expect that link alliances will emphasize marketing resources, competitors with different geographic origins, and competitors with asymmetric competitive positions.

holdings in the case of link alliances, when they face greater uncertainty about the resources that alliance activities might create and about unwanted resource transfers. In scale alliances, by contrast, the ownership costs that equity holdings entail will often out-weigh protection value.

Governance mechanisms for protecting, coordinating, and creating resources

By contrast with equity holdings, the formation of a joint venture, rather than simply undertaking a contractual relationship, may provide coordination and creation roles, as well as a protection mechanism. A joint venture provides a protection mechanism by giving the partners’ direct influence over alliance activities via their financial stake in the joint venture (Williamson, 1983). A joint venture also provides coordination and creation roles by forming a focal entity to which the allies can direct their human resources and other assets for the alliance’s efforts to combine their existing resources and possibly create new resources (Killing, 1983; Geringer & Hebert, 1989; Oxley, 2001). The coordination and creation roles can include both management of the use of the allies’ resources and, in some cases, active functional use of the partners’ resources in a joint venture facility. It is not clear whether joint ventures will be more common for different types of alliances. Scale alliances require that the firms pool their similar resources and actively undertake coordinated use of the resources in order to achieve greater scale efficiencies. A joint venture organization provides a mechanism for coordinating this joint use. Some link

Scale and link alliances tend to require different governance mechanisms. We expect the mechanisms to reflect the need to coordinate the use of existing resources in scale alliances and create new resources in link alliances, while also protecting the value of resources in either case. As we noted earlier, we will focus on resources as the analytic unit, subsuming the concept of routines within that of resources. We will examine two sets of governance mechanisms, including parent equity holdings and joint venture structures. The two governance choices have different implications for resource coordination, creation, and protection. Table 2b summarizes the variables and predictions. Parent equity holdings arise as a means of protecting firms from opportunistic behavior by partners, because the firms either unilaterally or jointly can exercise a degree of ownership control over their partners (Geringer & Hebert, 1989; Gomes-Casseres, 1990; Harrigan, 1986; Hennart, 1991; Killing, 1983; Pisano, 1989). Firms have greatest need of such equity

Hypothesis 4. Parent equity holdings will be more common in link alliances than in scale alliances.

Table 2b. Alliance Governance Mechanisms H

Alliance governance mechanisms

Type

Resource governance roles: Protection, coordination, creation

H4

Parent equity holdings

Link

Protection: Protect the value of resources that alliance activities might create (less incentive to incur ownership costs in scale alliances).

H5a

Unbalanced joint ventures

Link

Protection & creation: Create and protect new resources that arise from complementary resources (may also coordinate use of similar resources but unbalanced structure is less necessary in such cases).

H5b

Balanced joint ventures

Scale

Coordination: Coordination while using similar resources in scale allliances, which incur fewer appropriation risks than link alliances.

H6

Sequential joint ventures

Scale

Coordination: Coordinate use of similar resources in scale alliances. Uncommon for link alliances, because sequential joint ventures raise appropriation risks without providing functional organization to create new resources.

Integrated joint ventures

Both

Coordination & creation: Coordination while using similar resources in scale alliances; creation while using complementary resources in link alliances.

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alliances, by contrast, may require less joint use of the allies’ resources than in the case of scale alliances. Instead, the allies may often be able to use contractual relationships to govern the complementary use of their resources that the firms draw upon at different stages in the production process. The resource creation activities of such link alliances may then tend to take place within the parent firms, rather than within a joint venture entity. Nonetheless, many link alliances will require interaction among the partners in order to create resources, so that joint ventures might well be equally common for link alliances as for scale alliances. Once one makes the first distinction between joint ventures versus contractual alliances, different forms of joint ventures provide insights concerning firms attempt to balance the protection, coordination, and creation incentives. Two variants of joint ventures are particularly interesting in this context. The first variant concerns balanced and unbalanced joint ventures. Unbalanced joint ventures, which are joint ventures in which one partner has greater share of equity than other partners, provide the leading shareholder with greater resource protection than balanced joint ventures because the greater ownership share allows some degree of unilateral control. We expect unbalanced joint ventures to be common in the case of link alliances, in which concerns about losing the value of key resources to a partner are particularly strong. By contrast, firms will tend to use balanced joint ventures for scale alliances, to which firms contribute similar resources and need have less concern about appropriation by a partner.

the establishment of legal and functional cooperation frameworks. Owing to the distinct organizational presence of integrative joint ventures, which blend personnel and other resources of the parents, such ventures provide greater opportunities than sequential joint ventures for the partners to combine their resources. We expect sequential joint ventures to be particularly uncommon in link alliances. Sequential joint ventures provide only a coordinating organization, without providing a functional organization for resource creation. Link alliances are likely to rely on either contractual relationships or integrative joint ventures, rather than sequential joint ventures. Integrative joint ventures will be appropriate for link alliances in which the partners require active ongoing coordination of the combination of their complementary resources. Contractual alliances will be appropriate for link alliances in which the partners are more interested in learning from each others’ resources than in undertaking joint combination, and can rely on individual-level coordination to achieve the desired learning. Moreover, sequential alliances involve the risk of creating a coordinating organization that may allow competitors to gain substantial access to resources that the competitors lack, and thereby risk appropriation of the value of the resources, without the benefit of providing a functional organization that can create new resources in which all partners will have an ownership share. Therefore, few link alliances will be sequential joint ventures.

Hypothesis 5a. Unbalanced joint ventures will be more common in link alliances than in scale alliances.

By contrast, integrative joint ventures may arise for both scale alliances and link alliances. Scale alliances may use integrative joint ventures in order to achieve functional coordination of their similar resources and thereby obtain scale economies. As we noted above, link alliances may use integrative joint ventures in order to combine dissimilar and complementary resources in order to create new resources. In summary, this section argues that different governance mechanisms address different elements of coordination, creation, and protection in the use of the resources that competing firms contribute to alliances. We argue that firms can at least partly achieve the joint needs of resource coordination, creation, and protection, counter to arguments that the goals tend to be opposed (e.g., Ghoshal & Moran, 1996; Sobrero & Roberts, 1996). Parent equity holdings emphasize protection mechanisms.

Hypothesis 5b. Balanced joint ventures will be more common in scale alliances than in link alliances. The second variant compares integrative and sequential joint ventures. Integrative joint ventures are joint ventures that create a standalone alliance organization, while sequential joint ventures are ventures in which each partner carries out part of the alliance activities within its own facility and then passes that part on to its partner for further activity (Park and Russo, 1996). In an integrative joint venture, the joint venture organization has the potential to provide hands-on coordination and creation roles in the joint use of the firms’ resources, while the joint venture organization for a sequential joint venture coordinates only

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Hypothesis 6. Sequential joint ventures will be more common in scale alliances than in link alliances.

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Joint ventures provide coordination and creation mechanism, but may also create appropriation risks, which will be particularly prevalent for link alliances. Balanced joint ventures and sequential joint ventures, which raise appropriation risks, will tend to be suited to coordination and pooling of similar resources in scale alliances. Unbalanced joint ventures, which provide protection mechanisms for one of the parents, will tend to be suited to the creation of new resources from recombination of complementary resources in link alliances. Integrative joint ventures provide opportunities to either coordinate the use of similar resources or create new resources from complementary resources. Empirically, we will also examine how combinations of the governance mechanisms align with scale and link alliances. It is possible that combinations of mechanisms that emphasize protection will tend to align with link alliances (e.g., parent equity holdings and unbalanced joint ventures), while combinations that emphasize coordination benefits for similar resources will tend to align with scale alliances (e.g., balance sequential joint ventures). Overall, this paper focuses on how the functional and geographic resource scope of the alliances and parent firms distinguish competitors’ strategic objectives to coordinate the use of existing resources and to create new resources. The predictions address the opportunities and risks that firms face when they form alliances with competitors. The study helps describe the multiple roles that alliances between competitors play in modern economies, as firms attempt to reinforce their strategic positions in their existing markets and expand throughout the world.

Data, Variables, And Statistical Methods We tested our hypotheses on a set of 227 alliances among competing firms in a range of manufacturing industries. We define strategic alliances as arrangements between two or more independent companies that choose to carry out a project or operate in a specific business area by coordinating the necessary skills and resources jointly rather than either operating on their own or merging their operations. The alliances in our sample include equity joint ventures as well as contractual partnerships that did not entail the formation of a separate legal entity. The alliances in this study involved partnerships between competitors, that is, firms that operated in the same industries. We based

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industry categorization on descriptions of the alliances’ business areas. The industry definitions approximate a three-digit to four-digit level in the U.S. Standard Industrial Categorization classification, although we did not use formal SIC-type classifications because of the international nature of the data and of inconsistencies and unavailability of different national classification systems. The most frequent industry in our analysis is telecomelectronics (35 percent), followed by automobiles (29 percent), aerospace (19 percent) and a mixture of other industries, such as pharmaceuticals, medical devices, chemicals, and foods (17 percent). Business areas in the telecom-electronics cases included public switching equipment, PBX, radiotelephone equipment, mainframe computers, personal computers, consumer electronics, and semiconductors. Business areas in the auto industry cases included cars, trucks, engines, and transmissions. Business areas in the aerospace cases included commercial airplanes, military airplanes, airplane engines, helicopters, helicopter engines, missiles, and spacecraft. For each alliance, we checked secondary sources, industry analysts, and executives to determine that each partner had prior activities in the alliance business area. The alliances in the sample involve partner firms from North America (U.S. and Canada), Western Europe (Sweden, Italy, Britain, Germany, France, the Netherlands, Spain, Switzerland, and Finland), or Asia ( Japan and Korea) and entail operations in one of these three continental zones. We included only agreements that operated within at least one of the partners’ home markets. Thus, we excluded agreements such as the General Motors-Toyota joint venture in Australia and the Autolatina alliance that Ford and Volkswagen formed in Brazil and Argentina. We also did not collect information on agreements concerning the supply of components and subassemblies from one manufacturer to another because such exchanges are closer to market transactions than to strategic alliances. In addition, we excluded government-sponsored research consortia, such as those sponsored by the European Commission and by MITI in Japan. The resulting data focus on strategic alliances that involve the partners’ core businesses and markets. Each data point in our sample corresponds to an agreement between two or more partners, covering a specific business area. For example, in aerospace we considered agreements involving commercial airplanes, military airplanes, airplane engines, helicopters, helicopter engines, missiles and

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spacecraft. Each alliance operates in one of the three above-mentioned geographic zones. To identify alliances in which reorganizations occurred, we categorized collaborative activities into four main functions, including R&D, manufacturing, assembly, and marketing. Each alliance corresponds to a specific allocation of R&D, manufacturing, assembly, and marketing activities among the partners. Thus, an alliance between an American and a European telecommunications equipment manufacturer by which they each agree to market one of the other’s products in their respective home markets would include two cases: one in which the European partner markets the American system in Europe, and a second in which the American partner markets the European system in North America. We gathered the data for the study from secondary sources such as industry reports, publications of manufacturers’ associations, and journals specializing in specific industries. Examples of the publications include Automotive News or Aviation Week and Space Technology. Reports of all the alliances in the sample occurred in published sources. Trade associations and private research institutes publish annual updates on alliances and collaborative ventures for the industries that account for a significant portion of our sample (automobile, aerospace, telecom-electronics), which makes it possible to trace alliance formation, reorganization, and termination on a yearly basis. In addition, when information necessary for our study was not available from these sources, we complemented the data by interviewing industry analysts and company executives. Park and Russo (1996) report using a similar supplementary interview approach to complement archival source data. To avoid perception biases, we relied on variables describing a factual event or situation, rather than using variables that reflected managers’ opinions.

Alliance formation variables and methods The dependent variable for the empirical analysis of alliance formation is the alliance type. We set a dummy variable equal to 1 for link alliances and 0 for scale alliances. To do this, we classified possible contributions to an alliance into three categories that distinguished between technical, production, and marketing activities: (i) research, technology development, and product design, (ii) manufacturing facilities and resources, and (iii) marketing and sales networks and resources. We then examined the respective contributions of each partner. When, based on the three categories,

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all the contributions of the partners overlapped, we considered a partnership to be a scale alliance. When, in at least one of the three categories, all contributions came from one partner, we considered a partnership to be of a link alliance. Two authors of this study each coded the variable independently. We then asked an industry expert to independently classify alliances in the automobile, aerospace, data processing, electronics, and telecom industries. After undertaking this process, we dropped eleven ambiguous cases because of conflicting coding. Table 3a reports summary statistics for the alliance formation variables. We recognize that the routines that comprise resources within a common category will differ across firms. For instance, the routines that make up the marketing resources of one firm will differ from the routines that make up the marketing resources of another firm. The differences among the routines thus provide an aspect of link alliance to all alliances among firms. However, an assumption concerning the alliance categorization is that the routines that comprise the resources within a common category are more alike than the routines that comprise resources in different categories. This assumption allows us to classify alliances that involve resources within common categories as scale alliances. We defined several variables to address the predictions concerning alliance formation. We defined three dummy variables to denote alliance activities, based on whether the alliance involved R&D, production, and/or marketing activities. We considered a function to be within the scope of the alliance if the firms performed the tasks pertaining to this function as a direct element of the alliance’s activities. For example, if firms formed an alliance to market an existing product in a new geographic zone, we considered the alliance to involve marketing but not R&D. If the alliance led to the development of a new product, then we considered its scope to encompass R&D. We defined several variables for geographic coverage of the alliance and the allies. We determined whether the market of the alliance covered Europe, Asia, North America, or a combination of these zones. Three variables denoted alliances, such as the Rover Honda and NUMMI alliances, that sold goods only within one continent. A comparison variable denoted alliances, such as Airbus, that also sold their output outside the continent in which the firms based the alliance. We defined four 0–1 dummy variables to denote partnerships involving parent firms from the same country, same continent, or different continents.

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1 Link alliances 2 Scale alliances 3 R&D activities 4 Production activities 5 Marketing activities 6 Multi-firm alliances 7 Year of formation 8 Competitive asymmetry 9 Prior alliances among partners 10 Zone, global 11 Single zone, Europe 12 Single zone, North America 13 Single zone, Asia 14 Parent same continent 15 Parent inter-continent 16 Parent inter-continent, Asia 17 Parent inter-continent, Eur-NAm 18 Industry telecom-electronics 19 Other industries

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Mean s.d. Minimum Maximum

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

1 71.00 70.61 70.16 0.41 70.27 0.05 0.21 0.06 70.51 0.04 0.30 0.32 70.13 70.44 0.42 0.14 0.01 70.01

71.00 1 0.61 0.16 70.41 0.27 70.05 70.21 70.06 0.51 70.04 70.30 70.32 0.13 0.44 70.42 70.14 70.01 0.01

70.61 0.61 1 0.24 70.12 0.18 70.05 70.18 70.19 0.40 0.04 70.21 70.39 0.02 0.33 70.41 0.05 0.16 70.16

70.16 0.16 0.24 1 0.30 0.02 70.31 0.11 70.27 0.19 0.10 70.18 70.21 70.12 0.18 70.18 0.08 70.07 0.07

0.41 70.41 70.12 0.30 1 70.17 70.08 0.21 0.05 70.13 70.08 0.12 0.15 70.29 70.01 0.14 0.09 70.23 0.23

70.27 0.27 0.18 0.02 70.17 1 70.15 70.09 0.04 0.25 70.10 70.14 70.06 0.00 0.17 70.13 70.06 70.04 0.04

0.05 70.05 70.05 70.31 70.08 70.15 1 70.05 0.10 70.28 0.18 0.03 0.11 0.07 70.13 0.01 0.07 0.11 70.11

0.21 70.21 70.18 0.11 0.21 70.09 70.05 1 0.08 0.00 70.02 0.02 0.02 70.04 70.16 0.07 0.14 0.02 70.02

0.06 70.06 70.19 70.27 0.05 0.04 0.10 0.08 1 70.10 70.03 0.04 0.13 70.07 0.07 0.08 70.11 70.10 0.10

70.51 0.51 0.40 0.19 70.13 0.25 70.28 0.00 70.10 1 70.55 70.28 70.28 0.08 0.22 70.25 70.03 70.23 0.23

0.04 70.04 0.04 0.10 70.08 70.10 0.18 70.02 70.03 70.55 1 70.33 70.33 70.11 0.13 70.15 0.11 0.38 70.38

0.30 70.30 70.21 70.18 0.12 70.14 0.03 0.02 0.04 70.28 70.33 1 70.17 0.10 70.25 0.07 0.12 70.07 0.07

0.32 70.32 70.39 70.21 0.15 70.06 0.11 0.02 0.13 70.28 70.33 70.17 1 70.05 70.22 0.48 70.23 70.15 0.15

70.13 0.13 0.02 70.12 70.29 0.00 0.07 70.04 70.07 0.08 70.11 0.10 70.05 1 70.28 70.25 70.21 70.06 0.06

70.44 0.44 0.33 0.18 70.01 0.17 70.13 70.16 0.07 0.22 0.13 70.25 70.22 70.28 1 70.46 70.40 70.03 0.03

0.42 70.42 70.41 70.18 0.14 70.13 0.01 0.07 0.08 70.25 70.15 0.07 0.48 70.25 70.46 1 70.36 70.05 0.05

0.14 70.14 0.05 0.08 0.09 70.06 0.07 0.14 70.11 70.03 0.11 0.12 70.23 70.21 70.40 70.36 1 0.13 70.13

0.01 70.01 0.16 70.07 70.23 70.04 0.11 0.02 70.10 70.23 0.38 70.07 70.15 70.06 70.03 70.05 0.13 1 71.00

70.01 0.01 70.16 0.07 0.23 0.04 70.11 70.02 0.10 0.23 70.38 0.07 0.15 0.06 0.03 0.05 70.13 71.00 1

0.52 0.50 0 1

0.48 0.50 0 1

0.53 0.50 0 1

0.63 0.48 0 1

0.79 0.41 0 1

0.11 0.31 0 1

0.74 0.44 0 1

0.21 0.41 0 1

0.32 0.47 0 1

0.39 0.49 0 1

0.15 0.35 0 1

0.15 0.35 0 1

0.13 0.33 0 1

0.34 0.48 0 1

0.29 0.46 0 1

0.24 0.43 0 1

0.35 0.48 0 1

0.65 0.48 0 1

82.8 8.3 52 96

ALLIANCES WITH COMPETITORS

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Table 3a. Summary Statistics for Link Formation Variables (N = 227)

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We defined several variables to address other formation factors, including multi-firm alliances, alliance founding year, competitive asymmetry, alliance experience, and industry identity. A 0–1 dummy variable denoted alliances that had more than two partners. We defined a variable to denote the calendar year in which the firms founded the alliance. We defined a variable to denote the competitive asymmetry of the partners. We operationalized the concept of asymmetry by comparing the sales of the partner firms in the industry in which the firms created the alliance. The asymmetry measure is appropriate because the alliance partners compete in the same industries and product lines, which we checked from secondary sources, industry analysts, and company executives. We considered a partnership to be asymmetric when, at the time the firms created the alliance, the sales in the focal industry of one of the partner firms were at least twice as large as the sales of the other partner. Franko (1971) and Ravenscraft and Scherer (1987) used similar factors. The alliance experience variable noted whether two or more of the partners in an alliance had formed an alliance with each other within the ten years before the formation of the focal alliance. Finally, to address industry differences and to investigate alliances in the telecom sector, which is the largest sector in our data and has been particularly dynamic (Garrette & Quelin, 1994), we defined two 0–1 dummy variables to distinguish alliances set up in the telecomelectronics industry and in other sectors. We used maximum likelihood binomial logistic regression to test the formation propositions. The logistic regression models took the form Ln Pi/(1-Pi) = bXi. In this equation, Pi is the probability that alliance i will be a link or scale alliances. A vector of covariates Xi with coefficient vector b, including an intercept, linearly affects the log odds of the probability. The effect of a one-unit change of covariate j on the probability that an alliance will be a particular type is bjPi(1-Pi). We used the logistic regression procedure of the SAS statistical package to obtain the estimates. Logistic regression provides a well-accepted technique for estimating the likelihood that discrete outcomes will occur.

Governance mechanism variables and methods To test the governance mechanism predictions, we defined several dummy variables for parent equity holdings and the various types of joint ventures. An equity variable took a value of 1 if an alliance partner held

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equity in the other parent. A joint venture variable denoted if the alliance took the form of an equity joint venture organization. We distinguished between balanced and unbalanced joint venture ownership where, in the case of two partner alliances, balanced ownership corresponds to 50—50 joint ventures. We distinguished between integrative and sequential joint ventures (Park & Russo, 1996). Integrative joint ventures assign alliance manufacturing activities to a jointly owned joint venture facility. In sequential joint ventures, the firms allocate all activities to individual partners in a sequential path, with no joint operations within a separate joint venture facility. We also created two-way interaction terms among the governance mechanisms that had consistent direction for their single variable predictions to test for augmenting joint relationships among governance modes. We then used the alliance type (link or scale) variable that we described earlier as the independent variable for the governance analysis. Table 3b reports summary statistics for the governance variables. We chose a correlation approach to test the governance mechanisms hypotheses. In this approach, we estimated correlation relationships between each governance mechanism and the alliance type variable. Each of the mechanisms represents a different outcome choice, so that a more complicated approach to the statistical analysis would require a large number of models. Moreover, we view link formation and governance as a two-stage process in which firms first chose an alliance type, depending on their strategic objectives, and then chose a governance mode that is appropriate for the type of alliance. That is, we view resource characteristics as the determinant of alliance type, with alliance type then determining governance mode. With this two-stage approach, the appropriate test of the governance hypotheses is to examine the simple relationships between alliance type and governance mode, rather than undertake a more complicated analysis in which alliance type and resource characteristics jointly determine governance mode. Indeed, such a multiple regression approach would entail endogeneity among the independent variables on the right hand side of the regression equations. In summary, we have gathered data that is highly relevant to testing the hypotheses that we develop in this paper. The data include more than 200 alliances among competing firms from Europe, North America, and Asia, in several industrial sectors. The data provide operational measures of alliance types, resource characteristics, and alliance governance

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20 21 22 23 24 25 26 27 28 29 30

Parent equity holding Joint venture (v. Contract alliance) Balanced joint venture Unbalanced joint venture Sequential JV (Coordination organization Integrative JV (Coordination & functional org.) Equity holding * Unbalanced joint venture Nonequity * Balanced joint venture Nonequity * Sequential joint venture Balanced sequential joint venture Nonequity * Balanced JV * Sequential JV Mean s.d. Minimum Maximum

20

21

22

23

24

25

26

27

28

29

30

1 70.19 70.17 70.03 70.05 70.15 0.39 70.33 70.17 70.09 70.15

70.19 1 0.65 0.49 0.34 0.79 0.19 0.60 0.31 0.30 0.28

70.17 0.65 1 70.35 0.35 0.43 70.14 0.92 0.35 0.46 0.43

70.03 0.49 70.35 1 0.02 0.48 0.40 70.32 70.02 70.16 70.15

70.05 0.34 0.35 0.02 1 70.30 0.07 0.33 0.91 0.86 0.82

70.15 0.79 0.43 0.48 70.30 1 0.15 0.39 70.27 70.26 70.24

0.39 0.19 70.14 0.40 0.07 0.15 1 70.13 70.07 70.06 70.06

70.33 0.60 0.92 70.32 0.33 0.39 70.13 1 0.39 0.43 0.47

70.17 0.31 0.35 70.02 0.91 70.27 70.07 0.39 1 0.84 0.90

70.09 0.30 0.46 70.16 0.86 70.26 70.06 0.43 0.84 1 0.94

70.15 0.28 0.43 70.15 0.82 70.24 70.06 0.47 0.90 0.94 1

0.22 0.41 0 1

0.52 0.50 0 1

0.32 0.47 0 1

0.21 0.41 0 1

0.11 0.32 0 1

0.41 0.49 0 1

0.04 0.20 0 1

0.28 0.45 0 1

0.10 0.30 0 1

0.09 0.28 0 1

0.08 0.27 0 1

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Table 3b. Summary Statistics for Governance Variables (N = 227)

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mechanisms. The sample supports the use of straightforward statistical techniques to test the hypotheses.

Results Alliance formation Table 4 reports the results of the alliance formation analysis. The results provide strong support for most formation hypotheses. The overall statistical fit of the models is reasonable, with pseudo R-square statistics (the proportion of the loglikelihood of a model with no covariates that the reported model explains) of 0.64.

The results in Table 4 are consistent with both geographic resource predictions. As hypothesis 1a predicted, allies with different geographic origins are most likely to form link alliances. The results apply to parents that have home bases on different continents, with similar results for intercontinental alliances involving Asian, European, and North American firms. The parent geographic dispersion result does not hold for parents from different countries within the same continent, likely because there has been substantial diffusion of resources among countries within Europe and within North America. As hypothesis 1b predicted, Table 4 shows that alliances with narrower geographic cover-

Table 4. Logistic Regression Estimates of Associations with Link and Scale Alliances Positive Coefficient means Association with Link Alliances

Parent geographic origin Parent same continent Parent inter-continent, Asia Parent inter-continent, Eur-NAm Alliance geographic market Single zone, Europe Single zone, North America Single zone, Asia Alliance functional resources R&D resources Production resources Marketing resources Production & marketing resources R&D, production, marketing

Intercept Loglikelihood ratio Cases (Link alliances) Pseudo R-square

Coef

s.e.

(a) (a) (a)

H1a H1a H1a

+ ++ ++

70.55 1.71 1.67

(b) (b) (b) (c)

H1b H1b H1b

++ ++ ++

2.18 3.39 2.02

H2a H2b H2c

– – +

73.12 71.93 3.79 2.50 71.24

0.85 0.72 1.06 0.79 0.48

H3a H3b

+ –

0.87 71.70

0.64 # 1.16 #

70.10 71.25 1.02

0.04 *** 0.91 0.60 *

Competitive asymmetry Multi-firm alliances Other factors Year of formation Prior alliances among partners Industry telecom-electronics

Link prediction

(d)

5.96 201.8 227 0.64

0.87 0.89 * 0.87 * 0.69 *** 1.06 *** 1.07 * *** *** *** *** ***

3.20 * *** (118)

(a) Compared to parents from the same country (b) Compared to market coverage that extends beyond a single continent (c) Resource variables are mutually-exclusive mean effects dummy variables (d) Compared to industries other than telecom-electronics (auto, aerospace, other) * p5.10, ** p5.05, *** p5.01 (two-tailed tests of coefficients; one tailed test of loglikelihood ratio chisquare); # p5.10 (one-tailed test)

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# Blackwell Publishers Ltd 2002

ALLIANCES WITH COMPETITORS

age tend to be link alliances. Alliances that limit coverage to only a single continent, whether the continent be Asia, Europe, or North America, are more likely to be link alliances, while alliances that provide market coverage beyond a single continent tend to be scale alliances. The results in Table 4 are also consistent with the functional resource predictions. As hypotheses 2a and 2b predicted, firms are unlikely to employ R&D or production resources in link alliances. As hypothesis 2c predicted, firms tend to employ marketing resources in link alliances. The table also examines cases in which alliances involve more than one type of resource. The results show that the marketing influence towards link alliances tends to drive alliances that combine production and marketing resources. By contrast, alliances that combine all three types of resources tend to be scale alliances, likely because of the concern about R&D appropriation that arises in link alliances among competitors. The results in Table 4 moderately support hypotheses 3a and 3b, concerning competitive asymmetry and number of partners. As expected, we find that alliances among partners with asymmetric competitive positions tend to be link alliances, although with only moderate significance. Similarly, alliances involving multiple partners tend to be scale alliances, with moderate significance. The other factors in column 1a also reveal influences on alliance formation. Link alliances are less common in more recent years. Link alliances are also moderately less common when the partners have previous experience with each other. The telecom-electronics industry variable shows that link alliances are more common in that sector than in the other industries. The recent technical, market, regulatory, and competitive dynamics of the telecom-electronics sector appears to have driven a greater need for expansion-oriented link alliances, which provide opportunities to recombine resources and create new resources that attempt to respond to the rapidly changing environment. Overall, the alliance formation results in Table 4 show that how firms apply geographic and functional resources has strong influences on the types of alliances that they form. Link alliances are most common with parents from different continents, with alliances that involve marketing resources, and with alliances among competitors with asymmetric competitive strength. Scale alliances are most common for alliances with multi-continental market coverage and for alliances involving R&D or production resources.

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Governance mechanisms Table 5 reports the governance mechanism results, showing the correlations between link alliances and the different governance mechanisms. The correlations provide support for most predictions, with some intriguing differences emerging across the industry subsamples. As hypothesis 4 predicted, link alliances tend to associate with parent equity holding. We also find that joint ventures are more common among scale alliances, which we posed as an empirical question. As hypothesis 5a predicted, unbalanced joint ventures are somewhat more common among link alliances, although this result is not statistically significant. As hypothesis 5b predicted, balanced joint ventures are more common among scale alliances. Consistent with hypothesis 6, sequential joint ventures are most common for scale alliances. Finally, consistent with our arguments, integrative joint ventures associate with both types of alliances. The analysis of interactions among governance mechanisms offers additional insights. Firms appear to use the basic protection mechanisms we discussed earlier predominantly as substitutes for one another rather than in a cumulative way. This implication emerges from the observation that the single variable correlations with link alliances tend to be about as strong as the interactions of two or more variables that have the same predicted relationship with link alliances. Indeed, we find that the combination of equity holdings and unbalanced joint ventures has no significant relationship with link alliances. Link alliances tend to include one form of protection, i.e., equity holdings or unbalanced joint ventures, but do not systematically combine the two forms of protection. Scale alliances, in which unwanted resource transfers are a less salient issue, are more likely to combine governance mechanisms that offer a low level of protection and also offer opportunities for coordination via joint ventures. Nonetheless, the strength of the statistical relationship is similar to those that we found with the individual coordination mechanisms of balanced joint ventures and sequential joint ventures. Overall, the correlations between alliance types and governance mechanisms are only moderately strong. A likely explanation is that firms address many of their concerns about resource protection when they undertake alliances with competitors through the choice of the most appropriate alliance type and through the nature of the resources they contribute to the alliance, as much as through specific safeguard mechanisms. For instance,

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Table 5. Correlations Between Alliance Type and Governance Mechanisms Variables (n = 227)

Governance mechanisms Parent equity holding Joint venture (v. Contract alliance) Unbalanced joint venture Balanced joint venture Sequential JV (Coordination organization) Integrative JV (Coordination & functional org.) Governance mechanism interactions Equity holding * Unbalanced jV Nonequity * Balanced JV Nonequity * Sequential JV Balanced JV * Sequential JV Nonequity * Balanced JV * Sequential JV

Hypothesis

Correlation with link alliance

H4

+

H5a H5b H6

+ – –

H4 & 5a H4 & 5b H4 & 6 H5b & 6 H4, 5b & 6

+,+ –,– –,– –,– –,–,–

0.18 70.12 0.08 70.20 70.13 70.04 0.01 70.16 70.13 70.20 70.17

p50.10 in bold typeface

to limit the risk of appropriation, firms avoid contributing R&D resources in the context of link alliances, as the results of hypothesis 2a in Table 4 show. If firms tend not to contribute sensitive resources to alliances that would encompass strong appropriation hazards, then the need for highly protective governance mechanisms is limited. This suggests that firms do not rely primarily on governance mechanisms to protect the value of the resources they own or of resources they create through collaboration with competitors. Our study of alliances between competing firms suggests that a fundamental choice firms make in alliances involves the resources they are willing to share with a partner rather than solely the organization they set up to protect the value of these resources. This result at first might appear to contradict the view that ‘the best strategy is to organize and operate efficiently’ (Williamson, 1991b). Our results, though, are consistent with Williamson’s (1975, 1985) arguments concerning incentives for internal organization versus external forms of organization. That is, firms appear to be more likely to retain internal control of resources that would be difficult to protect via contractual safeguards. Overall, the choice of alliance type and resource contributions suggests that firms make such decisions in anticipation of maneuvering and strategizing during interactions with competitors. The results suggest limits to the ability of contractual relationships such as equity hold-

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ings in partners and majority holdings in joint ventures to provide safeguards in interorganizational alliances. If firms anticipated that it would be possible to create strong protection mechanisms for most alliances with competitors, then they could choose to economize by contributing and combining any under-utilized resources with any relevant partner in any type of alliance. In such cases, the links between parent firm features and alliance type on the one hand, and between resources contributed and alliance type on the other hand would then be weak. In contrast, the link between resource appropriation hazards and governance mechanisms would be strong. Instead, we found results in support of both the formation and governance predictions, suggesting that firms both attempt to take appropriation risks into account when forming alliances and then attempt to choose governance mechanisms that address protection concerns, along with resource coordination and creation opportunities.2

Conclusion This study uses a competence perspective on firm strategy to develop hypotheses concerning alliance formation and governance. We start with the assumption of bounded rationality by potentially self-interested actors who face firm-specific limits on their foresight.

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We then focus on routines and resources as the fundamental units of analysis for firm strategy, while viewing firms as structures for governing routines and resources. We argue that resource governance has three aspects, including resource coordination, creation, and protection. We argue that the alliances firms form with their competitors will attempt to govern resource use in a way that economizes on resource coordination, creation, and protection. We find that firms tend to contribute different types of resources to link and scale alliances with competitors: firms primarily contribute R&D and production resources to scale alliances, and marketing resources to link alliances. This is consistent with the argument that different resources both offer different opportunities for resource coordination and creation and also create different appropriation risks. We also find that firms tend to use different governance mechanisms for link and scale alliances: firms are more likely to choose stronger protection mechanisms for link alliances which create greater appropriation risks, and tend to seek higher levels of coordination in scale alliances. This is consistent with the argument that the governance mechanisms provide differential opportunities to coordinate, create, and protect resources. We view this research as part of an emerging stream of work that is attempting to develop a more detailed conceptual basis for understanding the business organization. We believe that such work needs to grapple with the joint demands of conceptual clarity on the one hand and managerial ambiguity on the other. That is, a central challenge that faces researchers who are developing routine-based theories of the firm lies in defining a cumulative set of concepts and measures, while retaining key inter-connections among the factors that managers must address when they make decisions about what their firms will do.

Notes 1. Link alliances that involve only marketing resources are alliances in which one partner provides a marketing system and the other partner provides the alliance with an existing product that the firm produces itself. 2. We also tested for the cases in which links between alliance type and governance mechanisms on those alliances did not fit the dominant model (link alliances including R&D, multipartner link alliances or scale alliances including marketing), finding no relationship with governance mechanisms.

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Karim, S. and Mitchell, W. (2000) Reconfiguring business resources following acquisitions in the U.S. medical sector, 1978–1995. Strategic Management Journal, Special Issue on the Evolution of Business Capabilities, 21, 1061–1081. Khanna, T., Gulati, R. and Nohria, N. (1998) The Dynamics of Learning Alliances: Competition, Cooperation and Relative Scope. Strategic Management Journal, 19, 193–210. Killing, J.P. (1983) Strategies for Joint Venture Success. New York : Praeger. Kogut, B. (1988) Joint Ventures: Theoretical and Empirical Perspectives. Strategic Management Journal, 9, 319–332. Liebeskind, J. (1996) Knowledge, strategy, and the theory of the firm. Strategic Management Journal, 17, 93–107. Millington, A.I. and Bayliss, B.T. (1995) Transnational Joint Ventures between UK and EU Manufacturing Companies and the Structure of Competition. Journal of International Business Studies, 26, 239–254. Mitchell, W. (1991) Dual Clocks: Entry Order Influences on Industry Incumbent and Newcomer Market Share and Survival When Specialized Assets Retain Their Value. Strategic Management Journal, 12, 85–100. Mitchell, W. and Singh, K. (1993) Death of the Lethargic: Effects of Expansion into New Technical Subfields on Performance in a Firm’s Base Business. Organization Science, 4, 152–180. Mitchell, W. and Singh, K. (1996) Survival of Businesses using Collaborative Relationships to Commercialize Complex Goods. Strategic Management Journal, 17, 169–195. Nelson, R.R. (1991) Why Do Firms Differ and How Does it Matter? Strategic Management Journal, 12, 61–74. Nelson, R.R. and Winter, S.G. (1982) An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, MA. Oliver, C. (1990) Determinants of Interorganizational Relationships: Integration and Future Directions. Academy of Management Review, 15, 241–265. Oxley, J.E. (1999) Institutional Environment And The Mechanisms Of Governance: The Impact Of Intellectual Property Protection On The Structure Of Inter-Firm Alliances. Journal of Economic Behavior, 38, 283–310. Park, S.H. and Russo, M.V. (1996) When Competition Eclipses Cooperation: An Event History Analysis of Joint Venture Failure. Management Science, 42, 875–890. Penrose, E.T. (1959) The Theory of Growth of the Firm. Basil Blackwell, London. Pisano, G. (1989) Using Equity Participation To Support Exchange: Evidence From The Biotechnology Industry. Journal of Law, Economics and Organization, 5, 109–26. Porter, M.E. and Fuller, M.B. (1986) Coalitions and Global Strategy. In Porter, M.E., Competition in Global Industries. Harvard University Press, Cambridge, MA, 315–344, Ravenscraft, D.J. and Scherer, F.M. (1987) Life after Takeover. Journal of Industrial Economics, 36, 147– 156.

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ALLIANCES WITH COMPETITORS

Richardson, G.B. (1972) The Organization Of Industry. Economic Journal, 82, 883–896. Sakakibara, M. (1997) Heterogeneity Of Firm Capabilities And Cooperative Research And Development: An Empirical Examination Of Motives. Strategic Management Journal, 18, 143–164. Simon, H. A. (1957) Administrative Behavior. Macmillan, New York. Sobrero, M. and Roberts, E. B. (1996) The tradeoff between efficiency and learning in interorganizational relationships. Working Paper #3896, MIT Sloan School of Management. Teece, D. J. (1986) Profiting From Technological Innovation: Implications For Integration, Collaboration, Licensing, And Public Policy. Research Policy, 15, 285–305. Teece, D. J., Pisano, G. and Shuen, A. (1997) Dynamic capabilities and strategic management. Strategic Management Journal, 18, 509–533. Teece, D.J. and Pisano, G. (1994) The Dynamic Capabilities Of Firms: An Introduction. Industrial and Corporate Change, 3, 537–556. Wernerfelt, B. (1984) A Resource Based View Of The Firm. Strategic Management Journal, 5, 171–180. Williamson, O. E. (1975) Markets and Hierarchies. Free Press New York. Williamson, O. E. (1983) Credible Commitments: Using Hostages To Support Exchange. American Economic Review, 73, 519–540. Williamson, O. E. (1985) The Economic Institutions of Capitalism. The Free Press, New York, NY. Williamson, O.E. (1991a) Comparative Economic Organization: The Analysis of Discrete Structural

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Alternatives. Administrative Science Quarterly, 36, 269–296. Williamson, O.E. (1991b) Strategizing, Economizing, and Economic Organization. Strategic Management Journal, 12, 75–94. Williamson, O.E. (1999) Strategy research: Governance and competence perspectives. University of California at Berkeley working paper. Winter, S.G. (1990) Survival, selection, and inheritance in evolutionary theories of organization. In Singh, J. V. (ed.), Organizational Evolution: New Directions. Sage, Newbury Park, CA, 269–296. Zajac, E. J. and Olsen, C. P. (1993) From Transaction Cost To Transaction Value Analysis: Implications For The Study Of Interorganizational Strategies. Journal of Management Studies, 30, 131–145.

Will Mitchell is the J. Rex Fuqua Professor of International Management and Professor in Strategy at the Fuqua School of Business of Duke University, in Durham, North Carolina. Pierre Dussauge is Professor of Strategic Management at HEC School of Management and Visiting Professor at the University of Michigan Business School. Bernard Garrette is Associate Professor of Strategic Management at HEC School of Management, in Paris, France.

Volume 11

Number 3

September 2002