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 eyal@nonstop.net.il & DAVID M. BROCK Department of Business Administration School of Management Ben-Gurion University Beer-Sheva 84105, ISRAEL dmb@bgumail.bgu.ac.il Paper accepted by the Academy of Management Conference, Seattle 2003 17/02/16 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. 17/02/16 1 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 17/02/16 2 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). 17/02/16 3 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 17/02/16 4 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 17/02/16 5 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”. 17/02/16 6 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. 17/02/16 7 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 ------------------------------ 17/02/16 8 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 17/02/16 9 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. 17/02/16 10 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, 17/02/16 11 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 17/02/16 12 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 17/02/16 13 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. 17/02/16 14 -----------------------------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. 17/02/16 15 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 17/02/16 16 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. 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Organizational Decision Structure Organizational Attention Attention Capacity Firm’s Selection Existing Knowledge Knowledge Sources Employees, customers, competitors, internal knowledge Figure 4: The Proposed Model 17/02/16 21 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 17/02/16 22 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 17/02/16 23