KNOWLEDGE TRANSFER WITHIN INTERORGANIZATIONAL NETWORKS

Jennifer Lewis Priestley, Ph.D. Kennesaw State University INTRODUCTION Increasingly, knowledge is recognized as a critical asset, where a firm or an individuals competitive advantage flows from a unique knowledge base. The subsequent degree to which knowledge is then recognized and valued as a resource, has been the theme of many papers on competitive advantage (Prahalad and Hamel, 1990; Barney, 1991; DAveni, 1994; Teece and Pisano, 1994; Spender, 1996; Nonaka and Teece, 2001). As a result, the ability to value and leverage external knowledge has become recognized as the basis of competitive advantage. Gulati and Gargiulo (1999), suggest that membership in a networked community satisfies the need for knowledge as a way to help cope with environmental uncertainty. Consequently, inter-organizational networks or communities of practice represent a significant conduit for knowledge transfer to help manage this environmental uncertainty (Madhavan et al., 1998)1. Researchers in organizational learning have effectively concluded that organizations participating in a networked community will realize superior economic

For the remainder of this chapter, the term network will be used to designate an inter-organizational community of practice consisting of more than two organizations. Most of the logic used to develop arguments in this chapter are common to both inter-organizational as well as inter-personal communities of practice. Where specific logic or research applies to one or the other, these differences will be highlighted.

gains from their increased access to knowledge relative to independent or non-aligned firms (Argote, 1999; Baum and Ingram, 1998; Carlsson, 2002; Darr et al., 1995). Although the implications of membership in a network having any structure versus no membership (and therefore no structure) are generally accepted, the implications of the different structural types that these networks can assume are less understood. Networks can accommodate, for example, different levels of competition, different degrees of centralization, and different operational objectives. Knowledge may or may not transfer within different types of networked communities, raising an important question Given that network membership is accepted as preferable for knowledge transfer relative to non-membership, does the specific network type in question have an effect on the degree to which knowledge will or will not transfer? This is the guiding research question of this chapter.

Prior to an exploration of this question, it should be noted that a multi-entity network (or community of practice) is very different from a dyad, and therefore represents unique challenges with respect to research. Unlike a dyadic relationship, networked communities can take on a life of their own that supersedes the presence of any individual member. Simmel (1950), who studied social relationships, found that social triads (and relationships involving more than three entities) had fundamentally different characteristics than did dyads. First there is no majority in a dyadic relationship there is no peer pressure to conform. In any group of 3 or more, an individual can be pressured by the others to suppress their individual interests for the interests of the larger group. Second, individuals

have more bargaining power in a dyad. This is not only true because of percentages, but if one member withdraws from a dyad the dyad disappears this is not true in a networked community. Finally, third parties represent alternative and moderating perspectives when disagreements arise. As a result of these differences, multi-entity networks are more complex to study and less understood than dyads. FACTORS OF KNOWLEDGE TRANSFER A foundational concept from the Knowledge Based View of the Firm is that within the context of knowledge management, knowledge is viewed as moving unencumbered by and transferring without cost within and among organizations (Grant, 1997; Kogut and Zander, 1992, 1996); although knowledge is recognized as an asset, unlike other assets its transferability has no associated costs. As von Hippel described (1994), this may not be the case. Knowledge has been described as a sticky asset that is costly to acquire and difficult to transfer between locations, even within the boundaries of a single firm. This stickiness is caused by, among other factors, the form of knowledge being transferred (Is the knowledge in question explicit? Or is it tacit?), as well as different attributes of the source(s) and the recipient(s), such as their situational absorptive capacity, their respective levels of causal ambiguity and the degree of trust or motivation to share between the source and the recipient (von Hippel, 1994; Szulanski, 1996). I will refer to this last attribute as the sourcerecipient relationship. In this section, these three established factors of knowledge transfer absorptive capacity, causal ambiguity and the source-recipient relationship are examined in terms of their affects on inter-organizational knowledge transfer.

Absorptive Capacity Organizations must possess some degree of absorptive capacity to first recognize and then realize any value from the external knowledge to which it is exposed as a member of a network. The concept of absorptive capacity has received a significant amount of research attention since Cohen and Levinthals seminal work on the topic (1990). Their definition of the concept is the most widely cited, the ability of a firm to recognize the value of new, external information, assimilate it and apply it to commercial ends is critical to its innovative capabilities. We label this capability as a firms absorptive capacity(p. 128)

In a networked context, the absorptive capacity of the recipient organization is integral to the success of the knowledge transfer process. In his work examining the effectiveness of inter-organizational alliances, Walker argues that firms that emphasize their relationships with other firms will be more successful, in large part because of their ability to recognize and apply new knowledge (1995). The ability to sense new external knowledge and have the processes in place to then bring it internal to the organization quickly becomes a competitive advantage when translated into economic rents. This sensemaking is a critical function, which enables an organization to more effectively connect with its operating environment and allocate resources efficiently (Teece, 1998). Cohen and Levinthal (1990) and others (e.g., Lane and Lubatkin, 1998) suggested four types of commonalities, which represent the contributors to a recipients overall level of absorptive capacity. These commonalities include - language, knowledge base, process, and problem solving. If these commonalities are not present, absorptive capacity is considered to be low and knowledge transfer is less likely to occur.

Causal Ambiguity The concept of causal ambiguity centers around knowability (the extent to which something can be known) and knowness (the extent to which something is known) of two sets of elements (i) the organizational inputs and (ii) the causal factors that are used in combination to generate outcomes. Organizational inputs can be understood, for instance, as the raw materials used to manufacture a product, and the causal factors can be viewed as the processes used. When an organization does not know what combination of inputs and process factors cause the final outcome, its knowledge is, at best, causally ambiguous. For example, in the 1890s, Procter and Gamble had been manufacturing Ivory Soap (outcome) utilizing the same ingredients (inputs) and the same processes (causal factors). When an employee had inadvertently left one of the soap making machines on during his lunch break, he returned to a frothy mixture unlike any soap mixture ever seen. Because none of the inputs had changed, P&G elected to package and distribute the soap as normal. Several months later, they were inundated with orders for the floating soap. At this point, they were operating under causal ambiguity having forgotten about the frothy accident several months before, they were unclear as to what input or causal factor could have generated the outcome of floating soap. Eventually the connection to the extra air in the soap making process was discovered and It Floats became an advertising slogan for Ivory Soap. Causal ambiguity has been recognized as a factor in knowledge transfer difficulty across much of the research in organizational learning and knowledge management. For example, Wilcox-King and Zeithaml examined, in part, the tacitness of the knowledge in question as an indicator of causal ambiguity (2001). Mosakowski developed a useful typology through which to examine the effects of causal ambiguity on the transfer of knowledge and decision-

making (1997). Extending the work of Lippman and Rumelt (1982), Mosakowski determined that although increased causal ambiguity has the potential to increase competitive advantage by increasing the difficulties associated with imitation by competitors, increased causal ambiguity has the impact of decreasing knowledge transferability, and by association its application. In the inter-personal context, Szulanski found causal ambiguity to be an important contributor to knowledge transfer difficulty (1996). Specifically, Szulanski identified fundamentally irreducible (or high) causal ambiguity as a factor in knowledge transfer failure. Extending the logic of these findings, it can be stated that as causal ambiguity increases, the difficulty associated with knowledge transfer is also expected to increase.

Source-Recipient Relationship There is uncertainty that exists within the context of the relationship between a knowledge source and a knowledge recipient. The basic premise here is that the knowledge recipient can put the received knowledge to more than one use. That is, the recipient can choose from multiple possible actions to follow once the knowledge has been received. Where the knowledge source can effectively reduce the potential action set of the recipient, uncertainty can be reduced. This reduction in uncertainty may occur as a result of contractual or legal obligations or through a mutually beneficial outcome. The alternative is also true if the actions of the knowledge recipient cannot be known either because of lack of experience or threat of opportunistic behavior, the recipient action set is considered to be unbounded. In addition, the issue of network size is

paradoxical as the size of the network increases, the potential base of accessible knowledge increases. However, the decision to share knowledge becomes more complex because the knowledge source must consider multiple recipient action sets, translating into greater uncertainty and greater knowledge transfer difficulty. However, inter-organizational networks can mitigate the uncertainties related to initially unbounded action sets through governance policies and controls. As will be seen below, some network forms can effectuate trust or eliminate the need of trust and, thus can help reduce uncertainties and reduce knowledge transfer difficulty. The greater the uncertainty associated within this

relationship, the greater the negative impact to inter-organizational knowledge transfer (Szulanski, 1996).

To briefly summarize this section, three established factors of knowledge transfer have been explored - absorptive capacity is considered to have a negative relationship with knowledge transfer difficulty, while causal ambiguity and the uncertainty embedded within the sourcerecipient relationship are considered to have a positive relationship with knowledge transfer difficulty.

TYPES OF INTER-ORGANIZATIONAL NETWORKS The basic concept of an inter-organizational network is generally understood and has received significant research attention. A simple network can be defined as nothing more (or less) than a systemconsisting of objects and connections (Casti, 1995) generally referred to as nodes and linkages in Social Network Theory. When addressing the concepts of inter-organizational communities of practice, a fundamental distinction should

be made between durable, permanent networks and temporary networks (Westlund, 1999). My concern is with the former case and conceptually I am more aligned with the description put forth by Johnson (1995) that networks represent a form of infrastructure and can thus, be considered to be a relatively static backcloth which supports and constrains a relatively dynamic traffic of system activity. (emphasis in the original) Researchers have studied inter-organizational networked communities from different vantage points. Thorelli (1986) and Almeida et al. (2002) studied membership in a network from the perspective of Transaction Cost Economics as a strategy occupying the space between complete organizational self-sufficiency with no inter-organizational transactions and a complete outsourcing strategy with exclusively market-based transactions. Allee (2002) proposed the concept of a value network as the basis for understanding the activities related to the creation of intangibles such as knowledge. Carlsson developed a generalized framework of networks organized for the purposes of strategic knowledge management (2002).

Although these studies developed and defined networks, they did not examine the transfer of knowledge transfer within different types of networked communities. Therefore, the question regarding how knowledge transfer difficulty, and its associated factors, varies with inter-organizational network type remains unanswered.

I approached the study of inter-organizational network communities from a slightly different perspective. Using the established foundational theories of Transaction Cost Economics, the Knowledge Based View of the Firm and Social Network Theory, I differentiate network

types using three established characteristics centrality of authority, scope of operations and intensity of competition. I use these characteristics to create an abstract model of interorganizational networks and then explain different inter-organizational networks that exist in practice.

Centrality of Authority In an intra-organizational (and inter-personal) context, the two basic structures of centralization and decentralization have been studied extensively (e.g., Galbraith and Merrill, 1991; Adler, 2001; Van den Bosch, 1991; Volberda et al., 1998). Researchers have then looked to inter-organizational networks as an organizing principle residing between pure market transactions and complete organizational self-sufficiency. However, once within the community, the question of centralization remainsspecifically to what extent governance and decision-making authority is centralized or decentralized.

Williamson (1973, 1975) describes a centralized structure as providing the authority to address issues related to opportunistic behavior, information impactedness and bounded rationality. A (formal or informal) centralized authority would also have the ability to mandate standardization of operations, language, policies, etc. Alternatively, a decentralized structure is described as one of peer group associations, without subordination, involving collective and usually co-operative activities. This type of structure is deficient in its ability to address opportunism and free-rider abuses. However, recent researchers have found a decentralized structure to be particularly well-adapted to facilitate innovation and new knowledge creation, without the encumbrance of the weight of a formal centralized hierarchy. Alternatively, the former structure has been found to better

facilitate the diffusion and implementation of existing knowledge (Galbraith and Merrill, 1991; Adler, 2001; Van den Bosch, 1991; Volberda et al., 1998).

Scope of Operations In this chapter, scope is defined as the degree of operational differentiation among the members of a community. Members of narrow scope networks engage in similar processes and exhibit some commonalities of knowledge base, process, language, problem solving, etc. On the other end of the continuum, the participating organizations within broad scope networks generally engage in very different types of business processes and often have different knowledge bases, use very different descriptive languages, and experience different types of problem solving environments.

Intensity of Competition Within the context of Social Network Theory, an important component of network structure that has been found to have significant impact on how well knowledge does or does not transfer is the ties or linkages among participants (Uzzi and Lancaster, 2003; Dacin et al., 1999; Granovetter, 1985). The linkages that exist among participants have been described as being either embedded (integrated) or at arms length (Dacin et al. 1999). Integrated ties are considered to create behavioral expectations thatshift the logic of opportunism to a logic of trustful co-operative behavior in a way that creates abasis for knowledge transfer (Uzzi and Lancaster, 2003; p. 384) By contrast, linkages at arms length are cool, impersonal, atomisticmotivated by instrumental profit seeking (Uzzi and Lancaster, 2003; p.384)

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Although it may initially appear counterintuitive that organizations voluntarily join networks while maintaining arms length ties, consider VISA. Individual banks are fierce competitors, yet collectively benefit from the functionality of global payment card acceptance afforded by VISA their relationships are cool and impersonal, with linkages created for the purposes of decreased transaction costs. In addition, Powell et al. (1996) found that as the technological sophistication of an industry increases, the intensity and number of competitive alliances also increases although relationships are again, cool and impersonal, they come together to reduce the costs associated with R&D When there is a regime of rapid technological development, research breakthroughs are so broadly distributed that no single firm has all the internal capabilities necessary for successFirms thus turn to collaboration to acquire resources and skills they cannot produce internally, when the hazards of cooperation can be held to a tolerable level. (1996; p.117) Using a more commonly accepted description of these integrated and arms length linkages, I will refer to this characteristic as intensity of competition among the participants with low intensity of competition equating to integrated linkages and high intensity of competition equating to arms length linkages.

A graphical representation of these three network characteristics and the unique space occupied by four types of networks, can be seen in Figure 1. These four types are explored below2.

The author acknowledges that while other configurations of inter-organizational networks may exist, these networks are common in practice and three configurations have already received significant research attention.

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Three of the types identified in Figure 1 have already received some degree of research attention. These types include, the franchise network (Argote, 1999;Darr, et al., 1995;Thorelli, 1986) the value chain network (Thorelli, 1986; Li, 2002; Dyer, 1997) and the innovation network (Harris et al., 2000; Harrison and Laberge, 2002). The value chain network type has been studied in three configurations, including dyadic (e.g., the manufacturer/supplier relationship), one-to-many relationships (e.g., the manufacturer with multiple suppliers) and N-to-N relationships (e.g., multiple manufacturers and multiple suppliers). A fourth type of inter-organizational network, the co-opetive network, has had the least amount of formal treatment in the literature. The term co-opetive has been used to describe a situation where traditional competitors have agreed to cooperate to achieve a

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common objective (Loebecke, et al., 1999; Shapiro and Varian, 1999; Brandenburger and Nalebuff, 1996). Using this accepted notion of co-opetive, I extend this concept to define a co-opetive network as some formalized arrangement of N competitors, collaborating to achieve some common objective.

A FRAMEWORK FOR CONSIDERATION Based upon the discussion of knowledge transfer factors and the different types of networked communities above, I now put forth a framework to address the research question posed in the beginning of this chapter.

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The model depicted in Figure 2 represents a framework to investigate how each of the four network types (franchise, innovation, value-chain and co-opetive) affects the three factors of knowledge transfer difficulty (absorptive capacity, causal ambiguity, source-recipient relationship). As explored above, the respective relationships of each factor and knowledge transfer difficulty (the right side of the model) are relatively well established: an increase in absorptive capacity would be expected to lead to a decrease in knowledge transfer difficulty, an increase in causal ambiguity would be expected to lead to an increase in knowledge transfer difficulty, and a more uncertainty in the source-recipient relationship, would be expected to lead to an increase in knowledge transfer difficulty. It is the left side of the model or the relationships among the different network types and the factors of knowledge transfer that represent the greatest opportunity for further exploration.

Given the differences in the attributes of the networks - centralization, scope of operations and intensity of competition - it would be reasonable to expect that each type would, in fact, experience each factor of knowledge transfer differently. For example, two of the characteristics of the franchise network are narrow operational scope and a hierarchical centralized structure. It could be argued that narrow scope provides a fertile environment for the four commonalities identified as necessary for absorptive capacity language, knowledge base, process, and problem solving while a strong hierarchical centralized structure has the ability to mandate standards governing, for example, service and quality. These standards would logically lead to the commonalities of process, knowledge and language identified above and therefore a high state of absorptive capacity. Similarly, the common processes which exist in a franchise community of practice would be expected to

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support a common knowledge of inputs and causal factors, both before and after outcomes associated with their use are known thereby creating a low state of causal ambiguity. A related characteristic of causal ambiguity identified by Mosakowski (1997) is task complexity - the more complex tasks become, the more difficult it becomes to identify the specific cause and effect that each input or factor has on related outcomes. Where this complexity can be mitigated, causal ambiguity is reduced. Simon (1962) determined that a strong, centralized/hierarchical structure can mitigate task complexity through specialization of labor and standardization. Given the expected hierarchical centralized structure of the franchise community of practice, complexity of task is expected to be low and again, thereby contributing to low causal ambiguity. Finally, the franchise network is characterized by a low intensity of competition amongst the network members. Franchisees are generally stakeholders within a larger entity they are economically interdependent. Adler (2001) and Kogut and Zander (1996) refer to this interdependence as shared destiny. Shared destiny would help to mitigate actions related to opportunistic behavior, and contribute to a bounded recipient action set. Another characteristic of a franchise community of practice is limited organizational scope, evidenced in part by a commonality of operational processes, again, decreasing the uncertainty related to the knowledge in question. In addition, the franchise community of practice is generally considered to have strong central governance. A hierarchical centralized structure would include an authority for punishment associated with opportunistic behavior amongst the franchises. Assuming this threat of punishment is severe enough to prevent defection, trust (or at least trust-like behaviors) could be mandated. As a result, the recipient action set would again, be considered to be bounded.

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Using this logic, the franchise network type would be expected to demonstrate a high level of absorptive capacity, a low level of causal ambiguity and limited uncertainty, leading to a bounded recipient action set. Given the expected relationships between each of these factors and knowledge transfer difficulty, the franchise network would be expected to exhibit limited knowledge transfer difficulty. Using similar logic, the relationships between each network type and each factor of knowledge transfer difficulty could be reasoned. These proposed relationships are shown in Table 13. TABLE 1: Proposed Factor/Network Relationships Factor/Network Absorptive Capacity Franchise Innovation Value Chain Co-Opetive High Low Low High Causal Ambiguity Low High Low High SourceRecipient Relationship Uncertainty Low High Low High Knowledge Transfer Difficulty Low High Low-Med Med-High

CONCLUSIONS Researchers have determined the primary factors that affect knowledge transfer within and among firms, include absorptive capacity, causal ambiguity and the relationship between the source and the recipient (e.g., Szulanski, 1996; Mosakowski, 1997; Cohen and Levinthal,
3

A complete development of these propositions is included in Priestley, 2004.

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1990). In addition, membership in some type of structured network has been generally accepted as superior to non-membership for the purposes of knowledge transfer (e.g., Argote, 1999; Darr et al., 1995; Powell et al., 1996). However, prior to this chapter, no researcher has attempted to frame or address the issues regarding how different network types affect these factors of knowledge transfer, and ultimately the transfer of knowledge itself, differently.

The theory developed in this chapter provides a framework through which to consider the differences that might exist among different network types regarding the transfer of knowledge. Understanding these differences, if they exist, would have implications for both practitioners as well as for researchers.

For practitioners currently operating within a networked community, this research study has several implications, including both descriptions of the phenomena as well as prescriptions for improvement. For example, if the states of the established factors of knowledge transfer provided in Table 1 are proven to be true, then the strengths and weaknesses of different network types could be considered and addressed in terms of their ability to facilitate the transfer of knowledge. Those individuals or organizations currently operating within a particular network type would be better prepared to anticipate potential challenges to the transfer of knowledge among network members, and proactively allocate resources appropriately. For those engaged in knowledge management research, this chapter provides two potential contributions. First, although each of the three factors of knowledge transfer identified in

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Figure 2 are well-established as unilateral contributors to the transfer of knowledge, this chapter provides a framework through which to investigate the relative effects of all three factors on knowledge transfer difficulty simultaneously. Through this framework, it may be determined that causal ambiguity strongly influences the transfer of knowledge within one network type, but is dominated by absorptive capacity within the context of a second network type. Second, Grant (1997) explains the role of strategic alliances in the Knowledge Based View of the Firm, from the perspective of resource (knowledge) acquisition and utilization efficiencies within the boundaries of the firm versus outside of the firm analogous to the foundations of Transaction Cost Economics. However, the Knowledge Based View of the Firm is currently void of any specificity regarding the general forms that these alliances assume and how these forms then affect knowledge transfer. This work may provide a basis to frame this specificity, thereby contributing to, and possibly extending, this foundational theory of knowledge management.

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TERMS AND DEFINITIONS Absorptive Capacity: The ability of a firm to recognize the value of new, external information, assimilate it and apply it to commercial ends. Causal Ambiguity: The knowability (the extent to which something can be known) and knowness (the extent to which something is known) of two sets of elements (i) the organizational inputs and (ii) the causal factors that are used in combination to generate outcomes. Co-opetive Network: A structured network of N organizations that are in simultaneous competition and co-operation (e.g. the VISA network). This network type is characterized by a decentralized structure, high competition and a common scope of operations among members. Franchise Network: A structured network of N organizations sharing a common brand or public identity (e.g. Holiday Inns hotels). This network type is characterized by a centralized structure, low competition and a common scope of operations among members. Innovation Network: A structured network of N organizations sharing common goals related to Research and/or Development of new products/technologies (e.g. The Human Genome Project). This network type is characterized by a decentralized structure, low medium competition and uncommon scope of operations among members. Network: A community of practice of N organizations, where N is more than 2. In this chapter, network types are defined through three primary characteristics the degree of centralization of authority, competition and commonality of operations. An interorganizational network is considered to be analogous to an inter-organizational community of practice. Value Chain Network: A structured network of N organizations engaged in the manufacture/distribution/retail sales of a product (e.g. GM and its suppliers). This network type is characterized by a centralized structure, limited (vertical) competition and uncommon scope of operations among members.

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