Knowledge Creation Processes

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1 Knowledge Creation Processes

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3 Knowledge Creation Processes Theory and Empirical Evidence from Knowledge-Intensive Firms Gregorio Martín de Castro, Pedro López Sáez, José Emilio Navas López and Raquel Galindo Dorado

4 Gregorio Martín de Castro, Pedro López Sáez, José Emilio Navas López and Raquel Galindo Dorado 2007 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Knowledge creation processes : theory and empirical evidence from knowledge-intensive firms / Gregorio Martín de Castro [et al.]. p. cm. Includes bibliographical references and index. 1. Knowledge management. 2. Organizational learning. 3. Knowledge management Mathematical models. I. Martín de Castro, Gregorio, HD30.2.K dc

5 Contents List of Tables List of Figures Introduction vii x xii 1 The Knowledge Society and Inter-Firm Competition The evolution of economic activity: towards the Knowledge Society Characteristics of the Knowledge Economy Inter-firm competition, learning, and knowledge 25 2 An Approach to Knowledge Creation and Transfer: The EO-SECI Model Towards the formulation of a model of knowledge creation and organizational learning General framework of analysis: the EO-SECI model Specific framework of analysis 61 3 Designing the Empirical Research Sampling procedures Measurement tools Stages for data gathering 96 4 Research Results Preliminary analysis Exploratory and confirmatory factor analysis: knowledge creation and transfer processes in knowledge-intensive firms Conclusions Preliminary conclusions Limitations of the work 167 v

6 vi Contents Annexes 169 References 189 Index 199

7 List of Tables 1.1 Industry classification according to the technological intensity Human Development Indicators Highly qualified workers (average annual increase of the employment level during ) Added value quotas (1999) according to qualification taxonomy Principal theoretical proposals about intellectual capital Organizational learning definitions Business activities included in the research population Questionnaire structure Measurement tools for intra-level organizational knowledge creation Measurement tools for knowledge transfer from the individual level Measurement tools for knowledge transfer from the group level Measurement tools for inter-level knowledge transfer from the inter-organizational level Research resumé Analysis for a representative sampling descriptive statistics Analysis for a representative sampling descriptive statistics Activities of intra-level organizational knowledge creation descriptive statistics Activities for knowledge transfer from the individual to the organizational level descriptive statistics Activities for knowledge transfer from the group to the organizational Level descriptive statistics Activities for knowledge transfer from the interorganizational level to the organization descriptive statistics 108 vii

8 viii List of Tables 4.7 Organizational knowledge creation processes KMO and Bartlett tests Organizational knowledge creation processes Communalities Organizational knowledge creation processes correlation matrix a Organizational knowledge creation processes total variance explained Organizational knowledge creation processes component matrix a Organizational knowledge creation processes rotated component matrix a Organizational knowledge creation processes component transformation matrix Organizational knowledge creation processes reliability test for the obtained scales Confirmatory factor analysis and fit measurements for knowledge creation processes Reliability Knowledge transfer processes from the individuals correlation matrix a Knowledge transfer processes from the individuals KMO and Bartlett tests Knowledge transfer processes from the individuals communalities Knowledge transfer processes from the individuals total variance explained Knowledge transfer processes from the individuals component matrix a Knowledge transfer processes from the individuals rotated component matrix a Knowledge transfer processes from the individuals component transformation matrix Knowledge transfer processes from the individuals reliability test for the obtained scales Confirmatory factor analysis and fit measurements for knowledge transfer processes from the individuals Reliability Knowledge transfer processes from groups correlation matrix a 139

9 List of Tables ix 4.28 Knowledge transfer processes from groups KMO and Bartlett tests Knowledge transfer processes from groups communalities Knowledge transfer processes from groups total variance explained Knowledge transfer processes from groups component matrix a Knowledge transfer processes from groups rotated component matrix a Knowledge transfer processes from groups component transformation matrix Knowledge transfer processes from groups reliability test for the obtained scales Confirmatory factor analysis and fit measurements for knowledge transfer processes from the groups Reliability Knowledge-capturing processes from outside the organization correlation matrix a Knowledge-capturing processes from outside the organization KMO and Bartlett tests Knowledge-capturing processes from outside the organization communalities Knowledge-capturing processes from outside the organization total variance explained Knowledge-capturing processes from outside the organization component matrix a Knowledge-capturing processes from outside the organization rotated component matrix a Knowledge-capturing processes from outside the organization component transformation matrix Knowledge-capturing processes from outside the organization reliability test for the obtained scales Confirmatory factor analysis and fit measurements for knowledge transfer processes from the environment Reliability Processes of knowledge creation and transference within the firm 164

10 List of Figures 1.1 Historical evolution of the economy key factors Net value added composition USA workforce distribution (in percentage) Knowledge management, intellectual capital, and organizational learning General framework of the EO-SECI model Intra-level knowledge creation processes Knowledge creation and transfer according to the EO-SECI An organizational learning model based on processes of knowledge creation, transfer, and capture Confirmatory factor analysis model: intra-level knowledge creation processes Observed model for organizational knowledge creation processes Confirmatory factor analysis model: inter-level knowledge transfer processes: amplification from the individual level Observed model for individual-organization knowledge transfer processes Confirmatory factor analysis model: inter-level knowledge transfer processes: amplification from the group level Observed model for group-organization knowledge transfer processes Confirmatory factor analysis model: inter-level knowledge transfer processes: feedback from the environment Observed model for knowledge-capturing processes from outside the organization 160 x

11 Acknowledgments The authors wish to acknowledge all of the people and institutions who have belief in this project and have made it possible in any way. First, to Professor Álvaro Cuervo García, the main instigator of this research, without whose support it would not have been possible. To the Rafael del Pino Foundation, and its director, Amadeo Petitbò Juan, for trusting in the work and financing the research. To the Real Colegio Complutense at Harvard University, and its director, Ángel Sáenz- Badillos, for his warm welcome, his enthusiasm, and his ongoing support in the USA. We also wish to thank the Al Massavar-Rahmasi Center for Business and Government, of the J. F. Kennedy School at Harvard University, for all their support in contacting the North American firms; Elizabeth Goldman, Lucía Pino, Paula Zubieta, Elsa Alama Salazar and Miriam Delgado Verde, for their valuable assistance in the data-gathering process, and for their commitment and efforts; and Professor Anita McGahan from Boston University, for her guidance, help, and advice. Finally, the authors express their gratitude to all the managers and organizations from Massachussets and Spain who have devoted their time and effort to this research, turning it into a reality. To all of them, thank you very much. xi

12 Introduction What has been labelled the Information or Knowledge Age has become a reality after an intense process of social and economic changes that have taken place over recent decades. Several phenomena have come together to generate this new socioeconomic environment: the globalization of economic activity; the advances that have come with the technological revolution, in which information and communication technologies have played a key role; the increasing importance of service industries in the economy, as well as their effects on wealth and employment creation in different countries; and the important transformation that labour markets are facing, as a consequence of the emergence of a new category of workers that can be labelled knowledge workers or intellectual workers, which nowadays represent one of the most critical factors in achieving business success. Business competition is affected by all these changes, and everything suggests that their impact will be even stronger in the years to come. Firms are economic agents that are embedded in a social and economic environment, so the new circumstances that can appear in this environment condition both their activities and their strategies. The traditional pattern of competition, based on owning tangible physical and financial factors of production, has evolved into another model of business competition. In this new way of competing, knowledge stocks and the capability to accumulate them, learning, creating and transferring different kinds of knowledge, are at the heart of the economic system that is based on the management of intangible resources. These new socioeconomic conditions present important challenges, mainly because of their complexity, which have determined the design and development of the research presented in this volume. Under the rules imposed by the Knowledge Society, knowledge holds an increasingly important role as a strategic resource in business competition. Nevertheless, the capability that organizations show when they manage knowledge (that which implies both creating knowledge and transferring the knowledge already available within the organization) becomes the ultimate key for building and reinforcing the competitive position of any business. xii

13 Introduction xiii Keeping in mind these arguments, this research constitutes an exploratory and confirmatory study for analysing the phenomenon of knowledge creation and transfer as a strategic capability of the firm. From this broad theme emerges the clearer and more defined one of identifying the processes or dynamics that drive knowledge creation and transfer, explaining a complex reality like organizational learning. Thus, this book tries to indicate which mechanisms are used by business firms in order to generate knowledge internally, employing only internal means, starting from the knowledge of the employees or workgroups, or through a process of capturing knowledge from outside the firm, taking part in complex and symbiotic relations with other companies, customers, suppliers and other agents from their environment. These theoretical assumptions are tested empirically on a wide sample of North American and Spanish firms that are involved in knowledge-intensive activities. In order to achieve this objective, the book has been structured in two main parts. The first of them introduces the general contents and context, which are mainly theoretical, and can be found in chapters 1 and 2. The first chapter provides a general overview of the social and economic evolution that the agricultural, manufacturing and service industries have experienced, undertaking an analysis of the main productive factors. The change that has led to the Knowledge Society or Knowledge Age is also explained in this chapter, showing how knowledge has today become the key production factor. Indeed, the main reason for undertaking our research efforts has been the overriding importance that the business arena grants to knowledge in the present day. Next, this chapter tries to analyse how this new social and economic environment affects business competition. In order to do this, we comment on some of the main aspects of the phenomena that characterize this new era. In this manner, the different perspectives for studying the role that knowledge plays in a company are outlined and related, addressing the streams of knowledge management, organizational learning, and intellectual capital. The connections between knowledge, the processes that create and transfer it, and the obtaining of sustained competitive advantages, are also addressed, so that readers can improve their understanding about the mechanisms that allow firms to obtain and sustain excellent performance.

14 xiv Introduction Finally, the first chapter of the book also studies the notions of firm existence, development, boundaries and internal organization based on the new focus provided by the Knowledge-Based View of the Firm. According to this theory, firms act as knowledge systems, and the means that they can use for competing with their knowledge stocks are explained. This idea of firm behaviour implies that companies compete not only in the market for goods and services, but also in the market for production factors, in which knowledge plays a particularly important role. Once all of these preliminary issues have been considered, the second chapter introduces a descriptive theoretical model that drives the process of identifying those organizational processes of knowledge creation and transfer that can take place not only within the firm but also outside it. This theoretical framework represents an extension and improvement of the work carried out originally by Nonaka and Takeuchi (1995), based on the epistemological dimension of knowledge. Thus, the well-known SECI (Socialization Externalization Combination Internalization) model shows every possible way in which organizations can create and transfer knowledge from already available pieces of tacit or explicit knowledge. The theoretical proposal that is shown in this book has been labelled EO SECI (Epistemological and Ontological SECI), which suggests that the processes surrounding organizational knowledge management today can be articulated not only from the epistemological dimension, as is the case for the SECI model, but also using the other fundamental dimension of knowledge. The ontological dimension makes reference to the different social levels at which knowledge can be found, that is to say: individual, group, organizational and interorganizational. The model is completed taking into account the amplification and feedback mechanisms that allow knowledge to flow between the mentioned levels, increasing or reducing its degree of social complexity. This proposal provides a general and global descriptive pattern that is tried to be tested in an empirical way, taking some of their main components. Starting from this theoretical guidance, and bearing in mind the objective of identifying the processes of knowledge creation and transfer that can be observed in business practice, an empirical study was carried out among American and Spanish companies that operate in knowledge-intensive industries. Data gathering from American companies was focused on the so-called Route 128 of Massachussets.

15 Introduction xv For the Spanish case, high-technology firms were selected according to the same characteristic required from the American companies. The second part of this work (chapters 3, 4 and 5) is devoted to the empirical research that was carried out. They address the design of the fieldwork, the results and findings that were obtained from the data that were provided by the firms, and the main conclusions and lessons that can be drawn from these research efforts. Chapter 3 begins with a discussion of the method employed for selecting the firms that formed the population considered in our survey. It should be emphasized that the intrinsic complexity of the studied phenomenon, as well as the nonexistence of database that could provide data about issues directly linked with the research object, forced us to use primary sources of information to pick up the necessary data in order to proceed to their later statistical treatment. Hence, in this case, the survey, sending and receiving questionnaires was used as the basic tool for collecting the information. This allowed us to obtain data directly from the business reality that firms face day by day. All the measurement tools that were included in the questionnaire were specifically designed for the research object of the survey, and they represent an important contribution to this research field. Lastly, this third chapter also gives details about the different stages that were followed in the process of data gathering. The fieldwork lasted for eight months, from October 2004 until the end of May During the first five months, the research team moved to the Real Colegio Complutense at Harvard (Cambridge, Massachussets) in order to identify knowledge-intensive firms along Boston s Route 128 and to obtain data about them. Route 128 is one of the best known clusters of high-technology firms, so it is also a knowledge-intensive cluster. Therefore, this characteristic makes it especially appealing for our research. After selecting some industries to supply the population of the study, firms were contacted in order to obtain the required information about their knowledge creation processes. In the Spanish case we proceeded in an analogous way. In the first place the population to be studied was identified, demanding firms to operate in the same industries as the North American companies, trying to guarantee some homogeneity among all the studied organizations. Later on, these companies were contacted in order for us to obtain the necessary information. This task took place during the first months of In the fourth chapter the main results of the empirical investigation are shown, once the information had been obtained and statistically

16 xvi Introduction processed. The first part of the chapter provides descriptive and preliminary analyses. Later, these are complemented with exploratory and confirmatory factor analyses about the processes of knowledge creation and transfer that have been identified in the firms of the sample that finally collaborated after the fieldwork. These analyses allow readers to obtain a wide and detailed insight about how these phenomena take place in the business world, whereas a group of measurement tools are provided by the confirmatory factor analysis, corroborating that they are valid and reliable indicators for approaching the research subject. These sets of items entail a special interest not only for further research in this field, but also for those managers interested in promoting, activating and triggering in their organizations any of the processes of knowledge creation and transfer that are described in this book. Finally, there is a chapter reviewing the main contributions of this research work. Thus, both theoretical and empirical findings and contributions are discussed, as well as recommendations for the managerial practice that can be extracted from our results. This chapter also comments on the main limitations of this research, its results and the conclusions that are derived from them. As a result, academics can obtain a valuable guide to carrying out further research into any of the processes tied to knowledge management that have been already addressed in this work: knowledge creation at the organizational level; knowledge extraction from the individuals and groups in the firm; and capturing knowledge from beyond the boundaries of the organization.