Knowledge-Based View of the Firm

Fundamentals

At the risk of oversimplification, the firm is assumed for the purposes of this entry to consist of two basic elements: (1) resources that encompass any tangible or intangible assets maintained and relatively easily exploitable by the firm and (2) inarticulable or “tacit” capabilities (knowledge) that guide a firm’s unique development, maintenance, and exploitation of resources. Learning is viewed somewhat pedantically as the acquisition and development of new and useful types of knowledge. KBV perspectives attempt to describe how capabilities guide a firm’s unique positioning—building, acquiring, and dispensing of firm resources—and how learning from experience promotes the modification and evolution of these capabilities. Note that although some disagreement exists about the appropriate level of analysis (i.e., knowledge exists within the individual vs. knowledge exists within the firm), here the focus is on the firm level because of its preponderance of support. Capabilities define a firm’s collective consciousness through which employees view the firm’s internal and external environments, and thereby bind and unify various firm entities. More than a mere collection of individuals or transactions, the firm as viewed by KBV theorists is a complex set of social interactions and unwritten rules that form its collective consciousness. These capabilities emerge from the familiarity employees have with one another and evolve from repeated employee interaction as well as attempts at resource positioning. Much like a hockey team whose play is refined and enhanced through continual practice, a firm builds cognizance of, and dexterity with, its resources through recurring exploitation efforts. Capabilities are self-reinforcing as the firm’s facility in using and adapting resources to current and future (i.e., expected) environments increases with continued use. Actions (e.g., takeovers, research and development, manufacturing) that first required contemplation at every step become more reflexive or “routinized” as experience mounts and, therefore, require the mobilization of fewer and fewer cognitive resources in subsequent use.

Capabilities also allow for parochial languages and interests (e.g., those of divisions, individual employees, etc.) to be integrated into the firm mind-set. However, KBV perspectives generally do not assume uniformity of knowledge across units or individuals but only that various within-firm knowledge bases are partly composed of firm-wide capabilities. This allows various units or individuals to specialize in specific tasks (thereby encouraging focus and refinement at the employee or unit level) while simultaneously promoting integration of idiosyncratic abilities and efforts with the rest of the firm. In essence, capabilities provide the common knowledge by which local specialized knowledge can be combined into the greater knowledge base. Accordingly, some have pointed to the distinction between “component” and “architectural” capabilities, where the former refers to local (e.g., division, function) task-related skills and the latter refers to the ability to effectively combine and integrate the component tasks and capabilities into a coherent package.

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