Knowledge management and involvement in innovations in MNC subsidiaries (1).
| Verfasser | Johnston, Stewart |
Abstract and Key Results
* This study investigates Penrose's analysis of the relationship between resources (especially knowledge), management of those resources and innovation in a sample of 313 Australian subsidiaries of foreign-owned multinational corporations (MNCs).
* The frequency of use of knowledge management (KM) techniques by subsidiaries tended to be associated with factors internal to the MNC/subsidiary such as MNC size, level of technology and extent of communications networks.
* The subsidiary's involvement in the MNC's innovations network tended to be associated with external factors such as the innovativeness of the industry and degree of involvement with local organizations.
* Nevertheless, in accordance with the expectations from the literature, there remained a significant association between frequency of use of KM techniques and involvement in the innovations network of the MNC.
Key Words
Edith Penrose, Knowledge Management, MNCs, Australian Subsidiaries, Innovation
Introduction
Theories of the firm have emerged to explain why firms differ in their performance (Chandler 1962, Donaldson 1995, Coase 1937, Williamson 1975, Penrose 1959, Wernerfelt 1984, Barney 1991) and these performance differentials appear essentially as a result of a firm's ability to create a sustained competitive advantage (SCA). Today, knowledge, learning and innovation are at the heart of our understanding of that SCA and Pitelis (2004, p. 524) encapsulates the standpoint by paraphrasing Penrose (1959), 'Her views point to long-term success through innovations'. The intricate web of relationships that links knowledge, learning and innovation is currently the dominant theoretical paradigm in the strategy and international business academic literatures. (Although cf., however, Priem/Butler 2001) To summarize this perspective, the firm is a collection of unique (Conner 1991, Amit/Schoemaker 1993), heterogeneous (Barney 1991), scarce (Barney 1991, Peteraf 1993, Amit/ Schoemaker 1993), embedded (Dierickx/Cool 1989, Szulanski 1996), inimitable (Black/Boal 1994, Teece/Pisano/Shuen 1997), valuable, appropriable (Amit/Schoemaker 1993), causally ambiguous (Foss/Knudsen 2003), tangible and intangible (Collis/Montgomery 1995, Peteraf 1993) resources that must be utilized to respond to market opportunities (Chakravarthy 1997, Grover/Davenport 2001, Janz/Prasarnphanich 2003) by generating innovations that culminate in performance. The primary resource is knowledge (Dzinkowski 2000, Fruin 1997, Nahapiet/Ghoshal 1998, Nonaka 1994, Nonaka/Takeuchi 1995, Nonaka/Reinmoeller 2003, Teece 1998). An accumulation of such resources impedes current and potential competitors from quickly replicating the firm's 'relatively impregnable bases' (Penrose 1959, p. 137).
This focus has seen the management of knowledge and learning and their relationship with innovation take center stage in the academic and professional management literature in recent years but the genesis of these concerns can be traced back to earlier decades (Argyris/Schon 1978, Bell 1973, Daft/Weick 1984, Dretske 1981, Fiol/Lyles 1985, Polanyi 1967, Teece 1987). While Foss (2002) was later to question the direct lineage, even earlier, Penrose (1959) envisaged the firm as a unique (p. 24) collection of heterogeneous (p. 74), indivisible (p. 68), specialized (p. 71) tangible and intangible (p. 24) productive resources.
This knowledge-based view (KBV) has expended much effort on types of knowledge, knowledge creation and the relationship between knowledge and individual and organizational learning and other issues but the specification of the connection to innovation is less well established. It is implicit or taken for granted rather than demonstrated. Penrose (1959, p. 26) made three important contributions to understanding the knowledge/innovation link. First, she argued that any resource (e.g. knowledge) should be considered as a bundle of potential services. Second, it was the (productive) services yielded by the resources that were the central analytical factor, since they were the inputs into the growth of the firm rather than the resources themselves. Third, she proposed that the productive services are the outcome of how the resources of the firm are managed. This is a key assertion because our empirical research examines the relationship between the management of the primary intangible resource, knowledge, and the innovation process.
Despite conceptual variety and richness, there remains a continuing need for studies that map the KBV domain and establish some associations between variables within the field of KM and innovation. The consequence of this conclusion is that the purpose of our paper is to examine the relationship between the KM process and innovation in order to illuminate Penrose's line of reasoning.
Our investigation makes a contribution because, notwithstanding the extensive conceptual and exhortative practitioner literatures, there is only limited empirical research and, in particular, large dataset based studies have not been much in evidence. Coff (2003a), Gupta and Govindarajan (2000) and Moorman and Miner (1997) are among a small number of examples.
It is a basic tenet of the international business literature that the internalization of its knowledge-based, firm specific advantage is the defining characteristic of the MNC (Hymer 1976, Buckley/Casson 1976). In particular, in many MNCs, the management of the knowledge resources that reside in the network of subsidiaries is conceived as the primary means of generating and disseminating innovations (Bartlett/Ghoshal 1989). In the introduction to the 'missing chapter' of the Theory of the Growth of the Firm, Penrose (1960, p. 1) stated "Growth is governed by a creative and dynamic interaction between a firm's resources and its market opportunities". For Penrose the MNC was nothing more than an extension of the national multi-plant, multi-activity enterprise (Dunning 2003) and, hence, this research sheds light upon that interaction by analyzing a large data-set obtained from CEOs of Australian subsidiaries of foreign-owned MNCs. We present some associations between the frequency of use of KM techniques by the subsidiaries and involvement in the innovation network of the MNC and a range of predictive and associative variables. In this way, we corroborate Penrose's claim of the importance of the role of managerial services and add to both the knowledge and international business literatures.
Knowledge Management in the Firm
Knowledge is incorporated in many facets of the firm and "knowledge management can be framed as the problem of creating an efficient and effective knowledge marketplace in the organization" (Grover/Davenport 2001, p. 15). The two processes of developing and managing knowledge are difficult to disconnect both practically and conceptually (Foss 2002) but structures must be implemented that encourage and support the exploitation of existing knowledge and the creation of new knowledge (Nonaka/Reinmoeller 2003). Gupta and Govindaraj an (1991) argue that flows of tacit and explicit knowledge are the lifeblood of innovation. Similarly, Penrose (1959, p. 86) cites unused services together with the 'changing knowledge of management' as providing opportunities to innovate, expand and attain a competitive advantage. Stocks of knowledge must be constantly replenished to ensure that the firm's resources remain valuable and do not erode over time (Barney 1991, Garcia/ Calantone/Levine 2003, Hult 2003). As Foss and Pederson (2004) point out, the research has tended to focus primarily on knowledge flows with consequently less concern for knowledge stocks. Knowledge stocks are fundamental to understanding innovation. In fact, the direction of innovation within firms (its path dependence) is not only closely aligned with existing resources of a firm but also with the potential services that they are able to provide (Penrose 1959, p. 84).
Information technology systems have received the main thrust of attention as effective mechanisms through which to trigger these developments. The emphasis on IT is reflected in the KM literature (Nonaka 1994, Nonaka/Reinmoeller 2003, Sabherwal/Becerra-Fernandez 2003) and Coff (2003b, p. 247), for example, asserted "real advances in productivity often arise from new technologies that enhance or assist knowledge creation and management".
While IT competence is undeniably important in assisting with the establishment of a strong market position (Penrose 1959), IT alone however does not take into account the context of knowledge and its embeddedness in social relationships. Human intervention is necessary to create and promote knowledge creation. Hence, while KM programs should encompass IT systems and technological proposals, they should be complemented by other "human" initiatives (Chiesa/Barbeschi 1994, Nonaka/Reinmoeller 2003). Kearns and Lederer (2003) argue that an integration of business knowledge and IT knowledge would be most beneficial to the firm and assist it in defending against competitive threats.
The broad purpose of KM, as conceived in this research, is to access the organizational knowledge stored within the firm in order to develop productive services and generate innovations, thus creating and sustaining the firm's competences and competitive advantage.
Our conception of the KM system of the MNC is that it consists of three sets of tools. The first of these is the system for facilitating the dissemination of organizational knowledge among the relevant community of users, in particular groupware technologies (Ramarapu/Simkin/Raisinghi 1999). Consistent with Enright (1997) groupware is anything that facilitates communication and coordination among people. Importantly, it also requires some facilitation and management by the organization. Collaborative teams are often geographically dispersed in MNCs. Groupware rapidly facilitates communication...
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