the influence of organizational attention on exploiting knowledge as

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THE INFLUENCE OF ORGANIZATIONAL ATTENTION ON EXPLOITING
KNOWLEDGE AS A STRATEGIC RESOURCE:
TOWARD A THEORETICAL BASIS
EYAL YANIV
Graduate School of Business
Bar-Ilan University
Ramat-Gan, 52900, ISRAEL
[email protected]
&
DAVID M. BROCK
Department of Business Administration
School of Management
Ben-Gurion University
Beer-Sheva 84105, ISRAEL
[email protected]
Paper accepted by the Academy of Management Conference, Seattle 2003
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THE INFLUENCE OF ORGANIZATIONAL ATTENTION ON EXPLOITING
KNOWLEDGE AS A STRATEGIC RESOURCE:
TOWARD A THEORETICAL BASIS
Knowledge flows and transfer processes are clearly of vital significance to
organizational strategy. However, the literature discusses several kinds of
filters--e.g. absorptive capacity, bounded rationality--that prevent the
exploitation of the knowledge resources available to the organization. In
this work we will discuss the term organizational attention as a
knowledge filter. This filter operates as a gateway and determines which
knowledge will be processed by the organization and in what way. The
research focuses on firms that pursue a replication strategy--i.e.
organizations that copy their own business model to create large number
of similar outlets that deliver a product or perform a service--like
McDonalds or Starbucks. These organizations are experienced in
extensive transfer of knowledge. The replicated business model as a
template of knowledge needs to be transferred to each outlet. The
proposed research will examine the influence of organizational attention
on exploiting knowledge as a strategic resource and specifically on three
indications of the success of the replication strategy, namely accuracy,
similarity, and distinctiveness. These three variables help us understand
the nature of templates and the processes involved in transferring the
explicit and tacit knowledge contained therein.
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Organizations are strategic information processing systems encompassing
information processing activities on both the individual and organizational
levels (Corner, Kinicki and Keats, 1994). Within competitive advantage
considerations, knowledge has emerged as the most strategically significant,
although invisible, resource of the firm (Grant, 1996; Eisenhardt & Santos,
2002; Decarolis & Deeds, 1999; Winter & Szulanski, 2001). However, part of
the knowledge that exists in the organization (in the individuals’ minds or in IT
systems) is not exploited, due to lack of attention to these sources. It means that
this knowledge has no influence on the organization’s actions. Since strategy is
a pattern of actions (Mintzberg, 1987), there is a “broken link” between relevant
available knowledge and the firm’s strategy. On the other hand knowledge
might have exaggerated influence, due to over attention to some focal points.
Attention is the ability to focus and maintain interest in a given task or idea,
including managing distractions (Sternberg, 1996). Organizational Attention is
defined as the socially structured pattern of attention by decision-makers within
the organization (Ocasio, 1997). Our research question thus concerns how
organizational attention affects the firm’s knowledge resource, and
consequently the firm’s strategy.
This question will be examined on organizations that employ a replication
strategy. These organizations are characterized by extensive knowledge transfer. They
replicate their successful business model, and create large number of similar outlets
that deliver a product or perform a service, like McDonalds or Starbucks. Since the
outlets have to acquire operational capabilities, the replication process comprises a
remarkable amount of knowledge transfer. We argue that the replication (or the
knowledge transfer) is affected by the organizational attention. In the following
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section, we will present the literature and theoretical backgrounds to organizational
knowledge, organizational attention, and the replication strategy.
Knowledge and Knowledge Transfer
Knowledge is considered to be the most strategically significant resource of
the firm (Grant, 1996). An emerging knowledge based view (KBV) of strategy refers
to knowledge resources as the main determinant of sustained competitive advantage
and superior corporate performance (Decaloris & Deeds, 1999; Winter & Szulanski,
2001). Eisenhardt and Santos (2002) argue that there is no agreement on whether the
KBV constitutes a theory of strategy, a theory of the firm, or both. There is even no
consensus on whether the KBV research supports the existing theory of strategy or
adds predictive power to other theories of strategy (Eisenhardt & Santos, 2002).
The Knowledge-based view and strategic management
In their discussion on whether the KBV is a new theory of strategy, Eisenhardt
and Santos (2002) review different approaches to this question. Some refer to KBV as
an outgrowth of resource-based view while others see it as a useful extension of
organizational learning to strategy and organization theory. Other researchers argue
that knowledge should be treated as a process of ongoing social construction rather
than a resource (Spender, 1996). They conclude that, in their view, “KBV then
reduces to simply a special case of resource-based thinking, rather than a unique
theory of strategy. Further, it rests on the tenuous assumption that knowledge is the
firm’s most important resource. Therefore, knowledge-based thinking is enormously
important for understanding a number of central topics in strategy…” (Eisenhardt &
Santos, 2002).
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Explicit and tacit knowledge
Nonaka (1994) distinguishes between “explicit knowledge” and “tacit
knowledge”. Explicit knowledge is knowledge that can be transmitted into formal,
systematic language (thus, sometimes called codified knowledge). On the other hand,
tacit knowledge is based on action, commitment, and involvement in a specific
context (Nonaka, 1994). Tacit knowledge is not transmittable into formal language, as
Polanyi (1966:4) put it: “We can know more than we can tell”.
Since tacit knowledge is not transmittable into formal language, it is more
difficult to imitate. For example, the ability of the firm’s management to predict
customers’ reaction to price change is a knowledge which in many cases nobody can
express explicitly or articulate in a form of rules. This knowledge is based on the
experience of many individuals in the firm and on the interaction between them. It is
not only a specific experience of some individuals, it is the outcome of the
interactions between several sources of knowledge that yield this valuable and
difficult to imitate asset. Knowledge transfer within the firm, between people of
different disciplines, with different points of view constantly molds extremely
important tacit knowledge. Its basis on action and experience affects its relative value
and rareness. Therefore, tacit knowledge can be considered as a more strategically
important resource than explicit knowledge (Wiig, de Hoog & van der Spek, 1997).
Organizational learning
An inseparable part of the discussion on knowledge is learning, which is the
process of creating and accumulating new knowledge. “Learning can be defined as the
process by which new information is incorporated into the behavior of agents,
changing their patterns of behavior and possibly, but not always, leading to better
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outcomes” (Eisenhardt & Santos, 2002). The learning of new knowledge is related
significantly to the pre-existing knowledge held by the individual or the organizations.
This argument is central to the term of absorptive capacity (Cohen & Levinthal,
1990).
Cohen and Levinthal (1990) relate the ability of the firm to evaluate and utilize
new knowledge to the evolving knowledge base already accumulated by the firm.
They define absorptive capacity as the idea that prior related knowledge confers an
ability to recognize the value of new information, assimilate it, and apply it to
commercial ends. Cohen and Levinthal (1990) argue that when a firm wishes to
acquire knowledge that is unrelated to its ongoing activity, then the firm must
dedicate efforts to creating or increasing absorptive capacity.
The accumulation of organizational knowledge is influenced by the interactions
between individuals in the organization. Conner and Prahalad (1996) find the
organizational mode as a major factor in the organizational knowledge accumulation
process. Their thesis is that the organizational mode through which individuals
cooperate affects the knowledge they apply to business activity. We argue that the
knowledge flow structure of the firm is an intangible resource that can be defined as
“organizational tacit knowledge”, which embodies strategic advantage.
The knowledge flow structure, in our view, is a major factor in creating new
knowledge. We are interested in the origin of this structure, and the way this structure
creates differences between firms when they create new knowledge. Even more
interesting is how this structure prevents the exploitation of available knowledge.
Cognitive limits – knowledge filters
Strategic decisions are made by groups rather than by individuals (Vennix,
1996). The complexity and uncertainty that is involved in strategic decision making
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will overwhelm the cognitive ability of any individual’s who has to cope with them
alone (Vennix, 1996). Making decisions by groups is the way to overcome these
cognitive limits. However, the complexity and multidimensionality of the
organizational problems impose cognitive barriers, which limit the organization’s
ability to process all the relevant knowledge needed for decision making. The
strategic and knowledge literatures discusses several mechanisms that act as filters,
and limit the organization’s ability to process and exploit all the available relevant
knowledge (Simon, 1955; Nelson and Winter, 1982; Cohen and Levinthal, 1990).
One of the basic knowledge filters is the Bounded Rationality. The bounded
rationality problem (Simon, 1955) is the inability of firms to maximize over the set of
all conceived alternatives, when dealing with real-life decision problems. These
problems are too complex to comprehend. Based on the bounded rationality problem,
Nelson and Winter (1982:35) focus on the evolution of simple stable routines that are
used to guide action. Because of the bounded rationality problem, these routines
cannot be too complicated and cannot be characterized as “optimal”, since they are
taking into account only partial information. However, Nelson and Winter (1982:35)
claim that “they may be quite satisfactory for the purposes of the firm given the
problems the firm faces”.
In our view, the organizational attention acts as a knowledge filter, as it
determines to which knowledge sources the organization will react and allocate time
and efforts and which sources will be ignored. In the next section we will thus discuss
the concept of “organizational attention”.
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Organizational Attention
"Attention" is a term commonly used in education, psychiatry and psychology.
Attention can be defined as an internal cognitive process by which one actively selects
environmental information (i.e. sensation) or actively processes information from
internal sources (i.e. visceral cues or other thought processes) (Sternberg, 1996). In
more general terms, attention can be defined as an ability to focus and maintain
interest in a given task or idea, including managing distractions.
Ocasio (1997) developed a framework for an attention-based view of the firm.
He defines corporate strategy as “a pattern of organizational attention, the distinct
focus of time and efforts by the firm on a particular set of issues, problems,
opportunities, and threats, and on a particular set of skills, routines, programs, projects
and procedures”. Simon (1947) describes organizational behavior as a complex
network of attentional processes. Ocasio (1997) argues that since the environment of a
firm’s decision is of infinite complexity and firms are bounded in their capacity to
attend to all environmental stimuli, decision makers are selective in those aspects of
the environment of decisions that they attend to. Different environmental stimuli are
noticed, interpreted, and brought into conscious consideration.
Discussing attention issues, we need to consider two dimensions: capacity and
selection. Capacity is the amount of subjects which can be processed at the same time.
Selection refers to the subjects that were selected and are being processed.
Organizations differ in both factors. They have different attention capacity and they
select different subjects to deal with.
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Organizational attention and knowledge creation
Gavetti and Levinthal (2000) describe an iterative process of knowledge
creation, illustrated in figure 1. The influence of the outcome on the knowledge is
mediated by reinforcement of routinized patterns of action. In our view, an important
component, namely attention, is missing in this description. Organizational attention
is a necessary mechanism that determines the creation of new knowledge. The new
knowledge is not only derived automatically from the outcomes, but filtered and
directed by the organizational attention.
-----------------------------Place figure 1 about here
-----------------------------Neisser (1976) describes the human perceptual cycle. He suggests that
perceptual processes produce a preliminary and temporary representation of input
features which act as cues to activate knowledge schema representations, which in
turn can direct attention to a more detailed analysis of cue features. The perceptual
process is depicted in figure 2. We suggest that the organizational processes of
acquiring and accumulating knowledge are characterized by similar cycle. These
knowledge transfer processes are cyclic; thereby the existing knowledge directs the
organizational attention to certain knowledge and ignores others.
-----------------------------Place figure 2 about here
------------------------------
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This research will investigate the influence of organizational attention on
knowledge transfer. Organizational attention enables processing some of the available
knowledge, while blocking other available knowledge; hence, some knowledge is
being lost in this process. We will examine the processes that prevent the exploitation
of part of the available organizational knowledge, and their influence on the firm’s
behavior and strategy.
We argue that the knowledge transfer structure of the organization, i.e. the
structure of the interactions between individuals within the firm, is of major
importance in determination of the knowledge that the organization is attended to. The
firm does not necessarily exploit the organization’s available knowledge, i.e. the
knowledge that is owned by individuals in the firm. We distinguish between available
knowledge and effective knowledge (the knowledge that is used by the firm and is
expressed in its actions). The available knowledge is held by individuals within the
firm or by outside agents that interact with the firm (customers, suppliers,
competitors, public knowledge, etc.). The effective knowledge is that portion of
knowledge to which the organization paid attention to, and therefore can be expressed
in its actions and strategy. The knowledge that is lost in this process might be of great
competitive value for the firm. The process that blocks this knowledge and prevents
its usage by the organization is not necessarily deliberate (and mostly unaware). It is
derived from the formal and informal structure of knowledge transfer between
individuals in the firm, and between outside agents and individuals in the firm.
The Replication strategy
“Replication, a familiar phenomenon sometimes referred to as the ‘McDonalds
approach’, entails the creation and operation of a large number of similar outlets that
deliver a product or perform a service…. Although replicators are becoming one of
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the dominant organizational forms of our time, they have been neglected by scholars
interested in organizations” (Winter & Szulanski, 2001, p.730). Organizations that
pursue a replication strategy are experienced in extensive transfer of knowledge
(Winter & Szulanski, 2001); hence they can be excellent case studies for knowledge
transfer research. The current research will investigate the interaction between
knowledge transfer and organizational attention in a sample of replicators (i.e. firms
that employ replication strategy).
Winter and Szulanski (2001) present the key elements of a theory of replication.
They claim that replication is not simply a repeated application of a simple formula.
The formula or the business model is discovered by the replicator in an “exploration”
process (March, 1991). Only after the exploration of the business model, a template
can be exploited and replicated. They introduce the term “Arrow core” to depict the
ideal endowment for a replicator of particular business model. The Arrow core
(named after Nobel Prize winner, Kenneth Arrow) specifies the attributes that are
replicable and worth replicating and how these attributes are created. The elements of
the Arrow core are explored gradually in a learning process that in each step yields a
temporary template, as depicted in figure 3.
-----------------------------Place figure 3 about here
-----------------------------The process of discovering the Arrow core’s elements is evolutionary in its
nature. The known part is extended constantly. We believe that the Arrow core itself
is a subject for a change, due to changes in the environment and accumulated
experience of the outlets. We propose that the organizational attention is a dominant
factor that influences the development of the template and the Arrow core.
Investigating this influence is in fact investigating the affect of organizational
attention on knowledge transfer in this kind of organization.
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THE PROPOSED MODEL
In the current research we propose a model that emphasizes the role of attention
in the process of organizational knowledge accumulation. Organizational attention
can be considered as a gateway for new knowledge from inner sources (individuals or
teams in the organization) and outer sources (customers, competitors, etc.).
Organizational attention is affected by the current organization’s knowledge and the
position of individuals and units within the organization. Organizational attention, like
human attention, is a limited resource. “Attentional limits filter or screen incoming
information such that a great deal of data pertinent to strategic decision may never get
processed” (Corner et. al, 1994).
The model describes a cyclic process of knowledge transfer, where its control
mechanism is the organizational attention. Organizations can select between different
sources of knowledge, according to their attention capacity. In the following
paragraphs we present the model in four steps, all of which are illustrated in figure 4.
Step 1
The model proposes that:
1. Larger attention capacity will facilitate processing of larger amount of knowledge.
2. Selection depends on existing knowledge and attention capacity.
Thus organizational attention is studied in terms of attention capacity and selection.
Step 2
Organizational attention can be directed to several sources of knowledge. As
the organizational attention is limited, the organization has to choose among these
sources. The available sources are divided to internal sources (e.g. employees’
knowledge, inside documents, etc.) and external sources (e.g. customers, competitors,
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literature, etc.). The selection of the sources is a function of attention capacity and
existing knowledge.
Step 3
The selection of certain sources rather than others, affects knowledge
accumulation by the firm. The firm accumulates knowledge from the selected sources.
Hence, the selection affects the organizational knowledge. As discussed earlier,
organizational knowledge is one of the most important strategic assets of the firm.
The assets find expression in the firm’s outcomes (i.e. performance, image, activities,
etc.). It is quite clear that organizational knowledge is a dominant factor in the firm’s
outcomes. However, this is a cyclic process, where existing knowledge affects
organizational attention which determines the sources to be processed by the
organization and hence the creation of new knowledge. This new knowledge, which is
represented by the firm’s outcomes, is a new layer in the organizational knowledge.
Step 4
The existing knowledge affects mainly the “selection” of sources. The
capacity is determined by the organizational decision structure and knowledge
processing skills. We argue that, as opposed to human attention, organizations can
increase their attention capacity. The decision makers’ attention capacity is limited.
However, if the knowledge they need to attend to is processed they can handle more
knowledge. If they have to deal with knowledge of a higher degree (i.e. not the raw
information but processed information) they can attend to more sources. This is
possible if the top management, or the decision makers, empower lower levels to
make decisions, to process information and to filter knowledge. Therefore, the last
layer of the proposed model is the Organizational Decision Structure, which
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determines the Organizational Attention Capacity. The full model is exhibited in
figure 4.
-----------------------------Place figure 4 about here
-----------------------------Conceptual Framework and Propositions
Knowledge accumulation includes both acquisition of new knowledge from
outside the boundaries of the firm and the leverage of existing knowledge within the
firm (Teigland, 2000). The ability to transfer knowledge between levels of analysis
(e.g. from individual level to the group level or from the firm level to the business unit
level, etc.) is valuable, and indeed one of the major characteristics that make the firm
unique (Hedlund, 1994).
This research is concerned with two levels of analysis: the outlet and the firm
(the chain). The accumulated knowledge, based on the experience of the outlet’s staff,
can be of great value for the firm’s knowledge, if it comes to the attention of the
firm’s decision makers. On the other hand, the outlet actions can be built upon the
template provided by the firm and on other knowledge sources (e.g. customers,
competitors, fellow outlet). The firm’s knowledge will be examined by investigating
the template, as it is conceived from different points of view (firm’s management,
outlet’s staff, customers and competitors). The outlet’s knowledge will be represented
by the final outcome of the replication, as it is perceived by customers, competitors,
outlet’s staff and firm’s management. A comparison between firm’s knowledge about
the template and the actual replication is valuable. It can allude to tacit knowledge that
the replicator can’t articulate but is transferred to the replicated outlet. On the other
hand, it points to a lack of attention of the firm’s management (the center) to
knowledge owned by the outlets. This knowledge might be of great value, but as the
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firm’s management is not aware to its value they don’t accumulate it into the
knowledge encompass the business model or the template.
We will investigate two evolutionary processes: the evolution of the “Arrow core” or
the template and the evolution of the outlet (the replicating process). Both involve
knowledge transfer, which influenced by organizational attention.
The evolution of the Arrow core
Discovering the Arrow core and creating the template to be replicated is an
evolutionary process, where more and more knowledge is accumulated. We claim that
the organizational attention affects the way and the direction that the Arrow core is
discovered and developed. We will investigate the influence of selection between
different knowledge sources (outlets, competitors, customers, existing knowledge) on
the process of discovering and developing the Arrow core or the “template” to be
replicated. Figure 5 presents the knowledge sources that are available to the template
producer.
-----------------------------Place figure 5 about here
-----------------------------The evolution of the outlet (the replicating process)
The capability to replicate the business model is one of the main capabilities of
the replicating organization. However the replication depends on several factors in the
organization. We suggest that the template provided by the center (the firm’s
management) is only one input that determines the accuracy of the replication. The
replicated outlet can pay attention to other sources of knowledge, which might
influence the final outcome. We will investigate the attention selection of the outlet
and the influence of different sources of knowledge (the template, competitors,
customers, and other outlets) on the replication. Figure 6 presents the knowledge
sources that are available to the outlet.
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-----------------------------Place figure 6 about here
-----------------------------Proposition Development
As presented in the model, we argue that the organizational decision structure
or pattern influences the organizational attention capacity. We have claimed that,
unlike human attention, organizations can increase their attention capacity. The
decision makers’ attention capacity is limited. However, if the knowledge they need
to attend to is codified they can handle more knowledge. If they have to deal with
knowledge of a higher degree (i.e. processed not raw information) they can attend to
more sources. This is possible if the center empower the outlets to take decisions, to
process information and to filter knowledge.
P1: Attention capacity is related to organizational decisional structure.
The higher the level of the knowledge processing in the outlets, the
larger the attention capacity of the center.
Cohen and Levinthal (1990) relate the ability of the firm to evaluate and utilize
new knowledge to the evolving knowledge base already accumulated by the firm. We
claim that the existing knowledge of the firm directs its attention. Massive relevant
knowledge, already owned by the center, will dominate its decisions. In this case the
center will not be open for new directions coming from sources other than its own
knowledge base. The organizational attention will filter sources that reject existing
knowledge or considered as more expensive to acquire or have relatively less value.
P2: Existing knowledge of the top management about the replicated
template affects their selection of knowledge sources.
The purpose of the replication is to create similar outlets. We claim that
organizational attention affects the knowledge transfer and therefore the level of the
similarity or proximity. The similarity of the outlets, then, is a dependant variable.
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The research will examine the similarity from several points of view. It will measure
what the similarity level as it is perceived by customers, staff, management and
competitors. What characteristics each group find similar in the chain.
P3: Outlet’s attention directed to the template and/or other outlets
enhances the level of outlets similarity as it is expressed by customers
and competitors.
We define the accuracy of the replication as the level of identity between the
template and the outlet. The accuracy depends on the dominance of the template in the
outlet’s attention. Paying less attention to the template will result in influence of other
knowledge sources on the final form of the outlet.
P4: Outlet’s attention directed to the template enhances the level of the
replication accuracy as it is expressed by customers and competitors.
The successful business model is built on competitive advantages. Hence, the
template includes items to be replicated that give the firm its advantage. In order to
discriminate itself from the competition, the firm must pay attention to the
competitors.
P5: Firm’s attention directed to the competitors enhances the level of
distinctiveness as it noticed by the customers and the competitors
The items found in the Arrow core as specified by the central organization reflect
its attention. As these items assumed to have competitive advantage, the sources
chosen by the organization, affect their decision about the content of the template.
P6: The knowledge sources selected by the center find expression in
the template as it is specified by the chain’s management (the center).
We believe that the firm’s management will identify fewer items in their
template than do outsiders--like outlet’s staff, customers and competitors. For
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example, the managers of a coffee chain may focus on the quality of the coffee and
underestimate the role of variables like décor, price and accessibility. As exhibited in
figure 3, the exploration of the Arrow core is an evolutionary process. In successive
time period the management tends to identify only a certain portion of the Arrow
core—e.g., the coffee quality but not the decor. We argue that, some items of the
Arrow core are replicated unintentionally. They identify only the items that, in their
view are valuable and can contribute to their strategic advantage, while other items
they consider peripheral are replicated in a taken-for-granted manner. We might refer
to these items as a tacit knowledge.
P7: Firm’s management will specify fewer items in the
template than will outlet’s staff, customers and
competitors. (Unintended tacit knowledge transfer)
Finally, this research investigates organizational attention, as it is
demonstrated in two related processes. The outcome of these processes is the success
of implementing a strategy of replication. We conceptualize replication success—and
intend to measure it—in terms of three variables: similarity, accuracy, and
distinctiveness. Figure 7 is a visual summary of the propositions, using the visual
representation of the proposed model. The results should give managers and
researchers concerned with the replication strategy several insights into the
development of replication templates and the role of stakeholders other than
management therein. And our introduction of the concept attention into the arena of
knowledge and learning should be a useful theoretical lens for future research into the
vital area of intra-organizational knowledge transfer.
-----------------------------Place figure 7 about here
------------------------------
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knowledge
action
outcome
Figure 1: Knowledge Creation (Gavetti & Levithal, 2000)
cues
Inputs from
environment
Perceptual
processes
Schemas in
long-term
memory
Expectations
Search for more cues
Figure 2: The Perceptual Cycle (Neisser, 1976)
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Arrow core
Arrow core
Arrow core
Known
Known
Known
?
?
?
Template i+1
Template i
time
Figure 3: Learning to Replicate (Winter and Szulanski, 2001).
Organizational
Decision Structure
Organizational Attention
Attention
Capacity
Firm’s
Selection
Existing
Knowledge
Knowledge Sources
Employees, customers,
competitors, internal knowledge
Figure 4: The Proposed Model
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Outcomes
competitors
The center’s
knowledge
about the
template
customers
Template
producer
(the center)
outlets
Figure 5: Template Producer’s Attention
competitors
customers
other outlets
The outlet
The template
Figure 6: Outlet’s Attention
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Organizational
Decision Structure
Organizational Attention
Accuracy
Replication Success
Attention
Capacity
Selection
Existing
Knowledge
Ti
Similarity
Distinctiveness
Ti+1
Knowledge Sources
customers
Firm’s knowledge
competitors
outlets
Figure 7: Propositions Summary
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