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relational-embeddedness

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relational-embeddedness

    Knowledge Governance in Organizational Knowledge Creation:

    A Knowledge Governance Perspective

    Chi-Wei Liu Pei-Wen Huang

    Graduate School of Management

    I-Shou University

ABSTRACT

    This paper attempts to explore the relationship between knowledge governance and organizational knowledge creation from „Knowledge Governance Perspective‟ (KGP),

    a view of economic-social model of behavior. Conceptually, based on the assumption that an organization serves as a knowledge repository, we assert that knowledge governance will enhance the organization‟s knowledge depository. Theoretically, by integrating the essence of transaction cost theory, knowledge-based view, relational-embeddedness theory and cognition school, namely the theoretical underpinnings of KGP, the dual roles of knowledge governance and the content of knowledge governance mechanisms turn illuminated. A conceptual model on the relationship between knowledge governance mechanisms and organizational knowledge creation is proposed through arguments drawn from Knowledge Governance Perspective.

    Key words: knowledge creation, Knowledge Governance Perspective, knowledge

    governance, knowledge governance mechanisms,

INTRODUCTION

    As the dominant organization management paradigm moves to a knowledge-based one (Amin and Cohendet, 2000), frequent concerns are voiced surrounding the relationship between organization and knowledge, and the ensuing necessity of examining the content of „knowledge governance‟ in the New Economy (Grandori,

    2000; Grandori and Kogut, 2002; Foss, Husted, Michailova and Pedersen, 2003; Nooteboom, 2000; Zahra and Filatotchev, 2004). These concerns are echoed by some research (e.g., Foss, et al., 2003; Nooteboom, 2004; Zahra and Filatotchev, 2004; Foss and Pedersen, 2004) through inaugurating a new look to examine the issue of governance. Specifically, Nooteboom (2004) attempts to provide more explanatory power for this relationship by reconciling transaction cost economics (TCE) and competence view. Foss and Pedersen (2004) declares the importance of combining macro and micro views to examine the content of governance in international knowledge-based economics. Nonetheless, deficient in comprehensive understanding of the role, content and theoretical foundations of knowledge governance, we could not perceive why and how knowledge governance can arrange, cultivate or shape an environment to „govern‟ knowledge activities. Our concern echoes what Foss et al. (2003: 16) indicates: „it is fair to say the understanding of the link between

    organization and knowledge, and in particular how organizational controls may be used to foster knowledge sharing and creation, is very much in its infancy‟. „What is the content of „knowledge governance‟ in a knowledge-based organization?‟ This

    question evokes our interest to explore the answer.

    An organization serves as a knowledge repository (Kogut and Zander, 1993). Fundamentally, the task of building and renewing the organization‟s stock of knowledge involves two knowledge-based activities: first, the acquisition of knowledge, that is, absorbing diverse knowledge external to the firm (Zahra and Geroge, 2002); and second, the utilization of existing knowledge through organizational processes and practices (i.e., problem-solving and decision-making) to create new knowledge (Nickerson and Zenger, 2004) (the latter one is what we call the activity of organizational knowledge creation in this study.). Within this context, what governance oversees is how to motivate and coordinate organization members during the processes of these knowledge activities. To achieve the purpose, we address that knowledge governance has to play dual roles simultaneously: a „process-loss avoider‟ as well as a „process-gain facilitator‟. In light of the dual

    functions in organizational knowledge creation, to gain more comprehensive understanding about knowledge governance, it is imperative to examine the phenomenon from an interdisciplinary perspective (Grandori, 2002; Shapira, 2000;

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    Foss and Pedersen, 2004; Nooteboom, 2004). This view is what we call Knowledge Governance Perspective (KGP, hereafter), an approach synthesizing both models of economic and social behavior.

    To increase the conceptual clarity of the governance literature, the present research attempts to explore the content of knowledge governance by examining the relationship between knowledge creation and knowledge governance from KGP. This focus derives from three considerations. First, KGP, the theoretical „lens‟ we wear in this study, not only echoes the prevailing concern of extending our knowledge of governance from an interdisciplinary approach (e.g., Grandori, 1997, 2002; Barney and Hesterly, 1999; Shapira, 2000; Foss et al, 2003; Foss and Pedersen, 2004; Nooteboom, 2004) but satisfies the query of bridging the micro-macro gap in knowledge governance literature (Foss and Pedersen, 2004). Second, assuming an organization serves as a knowledge depository (Kogut and Zander, 1993), in line with Nonaka (1994), we affirm that the key issue for a firm to enhance and enrich its knowledge base is about how to efficiently generate knowledge. Third, in consistence with Nooteboom (2000), exploring the organizational knowledge creation phenomena could be justified from a knowledge governance view.

     Our argument developed as follows. We begin with an introduction of knowledge governance in an organization and justify the legitimacy of KGP to examine the relationship between knowledge governance and organizational knowledge creation. Then, the content of organizational knowledge creation is briefly analyzed from two main research approaches. Two knowledge creation mechanisms for converting individual knowledge to organizational knowledge are generated from the contention. Next, with respect to dual knowledge governance roles in knowledge creation, we examine the content of KGMs by synthesizing the theoretical underpinnings that KGP deposits. Accordingly, five conclusive knowledge governance mechanisms affecting organizational knowledge creation are derived and a conceptual model is elaborated. In the following section, we propose some arguments and the paper ends up with a conclusion.

KNOWLEDGE GOVERNANCE IN AN ORGANIZATION

    Knowledge and organization

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With the change in the meaning of knowledge, from being to doing, knowledge

    becomes a resource and utility (Drucker, 1994), a strategic asset (Winter, 1987) and a source of competitive advantage (Teece and Pisano, 1994; Nonaka and Takeuchi, 1995). Thus, with the fact that organizations being knowledge repositories (Kogut and Zander, 1993) and with the existence of identity-building mechanisms within the organization (Kogut and Zander, 1996, Postrel, 2002), firms enjoy more firm-specific advantages in terms of organizing those shared or integrated knowledge (Grandori, 2001a) than other modes of governance structure, namely market, clans, etc. Though the field of knowledge management has become more established, there has been lingering, persistent concern about the legitimacy of a firm in terms of knowledge-based view. Some studies have maintained that the primary role of the firm is to coordinate knowledge workers to efficiently produce knowledge through mechanisms such as routines and group problem solving (Grant, 1996; Postrel, 2002; Nickerson and Zenger, 2004). Others have focused on that organizations serve to smooth the process of knowledge transfer (Kogut and Zander, 1992, 1996; Nahapiet and Ghoshal, 1998), stressing the firm‟s capacity to support the formation of shared language and identity. In contrast, some have focused on that organizations exist to avoid knowledge transfer (Conner, 1991; Conner and Prahalad, 1996), underlining the firm‟s capacity to exercise authority in directing others‟ actions. In short, since Conner and Prahalad (1996) urged the necessity of the knowledge-based theory of a firm, we have not seemed to reach a consensus yet.

    Concerning the above-mentioned issue, we hold that as collective entities of human beings, organizations are composed of experts in different fields working towards common tasks and thus can be defined as institutions with specialized tasks (Drucker, 1994). On the other hand, knowledge is of necessity highly specialized. Only when knowledge is inextricably interwoven with one another will it become more constructive and powerful. Under the circumstances, organization is a locus for individuals to search for required or complementary knowledge. As for the organization itself, the existence of an organization is to coordinate the specialized knowledge to reach optimal joint decisions by deploying some kind of organizing mechanisms. In brief, organizations and individuals complete each other. As Drucker (1994: 66) asserts: „ …The specialists had the „capital‟- their knowledge; they

    owned the means of production. The organization had the „tools‟ of production. The

    two needed each other. By itself, neither was capable of producing. Neither, in other words, is „dependent‟ or „independent.‟ They are interdependent‟. Likewise, Nooteboom (2004: 514) affirms that „the basic purpose of the firm is to serve as a

    „focusing device‟ to achieve a common purpose among people with different

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    knowledge and competence based on different experience‟. Hence, we claim that an organization, as a „system of shared meaning‟ (Smircich, 1983), exists to accomplish

    its task through making divergent knowledge resided in different carriers more generative by welding the variant knowledge into shared and unified one. Despite the different or even contradictory arguments about the knowledge-based theory of a firm, it is rather our focus here to propose a clarification for this issue. Alternatively, by introducing our assertion about the relationship between knowledge and organization, we try to uncover the mask blurring knowledge governance by querying why knowledge needs to be governed within the aforementioned context.

Why knowledge needs to be governed?

    Firm is conceived as „a processor of knowledge‟, a locus for setting up, selecting, using and developing knowledge (Amin and Cohendet, 2000). Supposedly, through processing knowledge, individual knowledge can be converted to organizational knowledge and then the organization task will be performed through applying the organizational knowledge. Yet, as we discussed above, each organization is composed of specialists, whose knowledge is not only specialized but also dispersed among themselves (Kogut and Zander, 1993, 1996; Grant, 1996; Lam, 1997). Taking the specialized and dispersed characteristics of knowledge into account, in order to accomplish organization‟s task collectively and successfully, the categories of thoughts of the people involved must be coordinated during this processing (Nooteboom, 2000). Strictly speaking, to achieve a specific joint goal, the specialized and dispersed knowledge can and should be directed by governing. In so doing, what knowledge governance interests is the coordination of communicating, re-combining and integrating the distributed pieces of knowledge rooted in individuals during the process of performing organizational knowledge activities.

    Traditionally, the term „governance‟ in organization studies has been associated with lowering transaction costs between contracting parties and arranging incentives in such a way that the employees work in the interest of the organization (Lindenberg, 2003). In this vein, governance has been approached in economics through agency theory and transaction cost (Shapira, 2000). Recently, with the transformation of the role of knowledge in an organization, the relevant research has moved to examine governance from cognitive approach (e.g., Shapira, 2000; Amin and Cohendet, 2000; Nooteboom, 2000, 2004) and knowledge-based view (e.g., Grandori, 1997, 2001; Foss et al., 2003).

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    Historically, the concept of knowledge governance could be traced back to Drucker‟s advocate of another inspiring management thought on „knowledge workers‟ in the 1960s. Drucker (1960) asserts that like other assets, knowledge should be properly governed and understood. It is claimed that when organization members execute knowledge activities collectively, it is „knowledge governance mechanisms‟ (Grandori, 2001a), „organizing principles‟ (Kogut and Zander, 1992, 1996) or

    „integrating mechanism‟ (Grant, 1996) that orchestra knowledge located in different divisions or individuals to proceed with organizational knowledge activities. Indeed, these organizing mechanisms mentioned above are, to some extent, the application of knowledge governance in an organization.

    Basically, a proper design of knowledge governance is a necessary condition for effective application of organizational knowledge (Nooteboom, 2001). It helps smooth the process of knowledge flow and sharing (Lam, 1997; Grandori, 2001a; Schulz, 2001; Madson et al., 2002; Postrel, 2002) and speeds up the creation and application of organizational knowledge (Schulz, 2001; Foote et al., 2002). In a nutshell, only through proper design of organization knowledge governance will the localized and specialized knowledge be facilitated to flow and be shared, and consequently the joint knowledge is applied to the execution of tasks. Within this context, knowledge governance, specifically, focuses not only on how to organize the existing knowledge, but also on how to efficiently compose the generated knowledge to execute tasks. Nonetheless, bearing in mind the knowledge to govern is generally characterized as context-specific, cognitive complexity, dynamic, tacit, etc., we realize that as Lindenberg (2003: 50) claims that „…what really matters in

    organizations is the management of motivation, especially in organizations which employees‟ intelligent effort is required for adaptive behavior‟. This note raises our

    interest about the interpretation of „governance‟ in the knowledge-based New

    Economics. We have been puzzled about if traditional governance stressing on “control” is able to govern knowledge issues well in a knowledge-based organization.

    Is it the time to put new insight into this aged concept?’ With curiosity, we propose

    this query.

Why a new perspective is in need?

     …Nothing is more fundamental in setting our

    research agenda and informing our research

    methods than our view of the nature of the

    human beings whose behavior we are

    studying (Simon, 1985: 303)

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Seeing that systemic change has moved an organization to a „knowledge-based‟ one

    (Amin and Cohendet, 2000; Besseyre des Horts, 2002), could the attribution of economic or administrative model of behavior increase our knowledge about the phenomena in knowledge-based organization? With the absence of learning, expression of distrust, assumption of opportunism, and static-efficiency focus, TCE has been criticized for failing to provide comprehensive understanding about the content of knowledge governance (Grandori, 2001a; Nooteboom, 2004). As an alternative, if we look at governance from „growth‟ perspective (competence-based

    organization approach), it appears to provide more powerful explanation to this issue. Nevertheless, governance focusing on „growth‟ does not mean the traditional governance concerns, such as problems resulting from individual‟s seeking

    self-interest with guile and deceit (Ghoshal and Moran, 1996), can be ignored. Accordingly, to get a wide-ranging picture of governance, some governance research brings both perspectives to examine knowledge-based organizations (Foss and Pedersen, 2004). Yet, if we further consider the dimensions of „cognitive complexity‟, „cognitive distance‟, „contextual dependence‟ and „social embeddedness‟ of

    knowledge, the content of governance is to look different (Grandori, 2000a). To explore the phenomena of the socially-constructed knowledge (Cannella and Paetzold, 1994), we doubt that if the approach simply incorporating concept of „control‟ and „growth‟ could depict a whole picture of organizational knowledge activities? Recently, Nooteboom (2004) attempts to explore the content of governance by combining different approaches. From cognition standpoints, he adds the consideration of competence to TCE to examine the phenomena of governance. Yet, the impact of social interaction on the socially-constructed knowledge in a knowledge-based organization seems to be less emphasized. This deficiency in exploring the root of governance in knowledge-based organizations re-confirms the necessity of the prevailing concern that a multidisciplinary effort could be exerted to clarify the phenomenon of governance (Grandori and Kogut, 2002; Foss and Pedersen, 2004; Nooteboom, 2004). This calls upon us to consider what theoretical „lens‟ we are to wear if we attempt to gain a comprehensive picture about the „knowledge

    governance‟.

    Davis and Thompson (1994) suppose that with negligence of social influence, efficiency-oriented approaches are limited to their power of explanation for delineating the relationship between governance and behavior. The core content of social model of behavior lies in that „organizations are embedded in networks of social relationships, which means one‟s behavior is rarely explicable without reference to previous and persisting effects of interaction with others and the overall

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    pattern of such interactions in groups‟ (Granovetter, 1986: 31). In Pfeffer and Salanick‟s (1978: 1) words: „to [better] understand the behavior of an organization,

    you must understand the context of that behavior‟, because organizational behavior is

    „embedded in concrete, ongoing systems of social relations‟ (Granovetter, 1985: 487). Hence, to explain the socially-embedded knowledge, we hold that by supplementing social model of behavior into Nooteboom‟s approach, the theory of governance in knowledge-based organizations, conceptually and theoretically, would gain more comprehension. To be sure, it is time to cast new insight on the old concept of governance from the viewpoint of human behavior. The view combining „economic‟ and „social model‟ of behavior is what we call Knowledge Governance Perspective (KGP).

What is ‘Knowledge Governance Perspective’ (KGP)?

    We argue that while the targets of being governed are „knowledge‟ and „the process of the knowledge activity itself‟, KGP could provide more understanding about the

    phenomena of governing knowledge activities.

     With the dimensions of „intangibility‟, „embeddedness‟, „tacitness‟, „social

    construction‟, and „cognitive distance‟, the developmental process of knowledge is like what Nooteboom (2004:513) claims: „[knowledge] is path dependent: they build upon preceding firm-specific assets and organizational learning‟. To gain more

    comprehensive understanding about governing path-dependent knowledge, we cannot neglect the interaction between knowledge and the physical and social world (Nooteboom, 1992). In this vein, the nature of governance focuses on governing this process from knowledge being to knowledge doing resulting from the interaction of

    members in an organization.

    To gain more explanatory power about this knowledge resource and its process of being productive, KGP, a economic-social behavior model, is inductive from the doctrines of transaction cost theory, knowledge-based view, relational-embeddedness theory and cognition school. From the economic side, KGP provides explanation to how to minimize the loss in the process of knowledge activities by satisfying organizational member‟s self-interest. On the other side, it provides more

    understanding about how to maximize the gain during the process with respect to social considerations. To be specific, with the consideration of the impact of identity, social influence and bounded rationality on the process of knowledge activities, KGP broadens our view in terms of how to motivate and coordinate this

    socially-constructed asset. In a nutshell, KGP provides explanatory power about the

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    process of making organizational knowledge productive with competence through the deployment of KGMs. From a strategic perspective, we claim that KGP could explain why firm A outperforms firm B when both firms possess same knowledge assets. To great extent, regarding the „how‟ question in corporate strategy research (Priem and Butler, 2001), KGP discloses the black box of how knowledge could become productive with competence and further embodied in the competitive advantages of organizations. In brief, this KGP approach reflects what Barson and Kreps (1999: vii) declare: „ We initially expected that „the Economic way of thinking‟ and the „Organizational Behavior way of thinking‟ would be substitutes for one another… We‟ve found instead that the disciplines are complementary, each helps to fill in holes left open by the other, thereby sharpening and clarifying what the other has to say‟.

    Being aware of the impact of knowledge on an organizational design, Grandori (2002) points out that the contribution of knowledge approaches to organization theories lies in providing a new „contingency‟ factor for understanding organizational arrangements. In terms of empirical studies, Birkinshaw, Nobel and Ridderstrale (2002) also support for the notion that the characteristics of a firm‟s knowledge base do have important influences on its choice of organizational structure. Based on these contentions, we intend to unfold the content of knowledge governance by studying the contextual variables within an organization. Specifically, we propose that well-designed contextual governance mechanisms will have more prevalent effect on the organization during knowledge management processes (all else being equal). Moreover, another significant phenomenon we have to bear in mind is that organizations are multilevel systems by their very nature (Klein, Dansereau and Hall, 1994). Indeed, when we examine organizational phenomena, neither micro nor macro approach can be neglected for either one alone cannot describe the whole picture of organizations. Having assumed that „organizations do not create knowledge; people do‟, we affirm that organizational knowledge cannot be regarded as simply the collection of individual knowledge, but rather the conversion of individual knowledge. Nonaka (1994) suggests that organization knowledge is evolved under the interaction of different levels an SECI process occurring among individuals, groups and

    organization. To sum up, what interests us to look into in this study is a multilevel phenomenon. Hopefully, to build a science with rich theory and relevant applications (Klein and Kozlowski, 2000), the theoretical lens we are putting on not only suite the needs of this line of research (Grandori and Kogut, 2002; Barney and Hesterly, 1999; Shapira, 2000; Foss et al, 2003; Foss and Pedersen, 2004; Nooteboom, 2004), but also echo the query of bridging the micro-macro gap in knowledge governance research and theory (Foss and Pedersen, 2004).

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    To explore the content of knowledge governance, our argument at the present study is framed under the context of organizational knowledge creation. Assuming an organization serves as a knowledge repository (Kogut and Zander, 1993), knowledge creation is the fundamental activity to amplify this depository (Nonaka, 1994). Within this context, to „govern‟, as defined in this study, is to motivate and coordinate the

    process of organizational knowledge creation by constructing beneficial context in the organization. With no doubt, to enrich this knowledge base by means of knowledge creation, certain queries need to be raised, such as „what is the content of knowledge governance in organizational knowledge creation?‟, „what is the role of „governance‟ during the process of knowledge creation?‟ and more importantly, „what governs organizational knowledge creation?‟. In order to search for the answers, first we need to explore what the content of organizational knowledge creation is.

ORGANIZATIONAL KNOWLEDGE CREATION

    Knowledge in this study is defined as „information effective in action, information focused on results‟ (Drucker, 1994). The study takes the premise that an organization

    is a social community with divisions of knowledge (Kogut and Zander, 1996; Postrel, 2002). To collectively accomplish the assigned tasks, the organization has to coordinate the specialized knowledge. Through collectively executing the assigned tasks, knowledge is to be created during the process of „problem-solving‟ and

    „decision-making‟ (Nickerson and Aenger, 2004). Therefore, research on

    organizational knowledge creation asserts that existing knowledge will become more productive and new knowledge will emerge when organization members engage in the activities of problem-solving or decision-making during the process of achieving organizational tasks (Teece, Pisano and Shuen, 1997; Hansen, 1999; Postrel, 2002; Argote et al., 2003). Nonetheless, regarding this assertion, what makes the individual specialized knowledge upgraded to an organizational level and then unified as productive knowledge? The answers are yet unknown. While solving this puzzle, we have to bear in mind that organizational knowledge creation is positively a multi-level phenomenon, which depicts the process of converting individual knowledge to organizational one.

    Based on the foregoing assertion, to get more knowledge about the content of knowledge governance in organizational knowledge creation, two issues are in

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