Redundancy and Knowledge Sharing: Suggesting and Testing a New Empirical Construct By: Mette Præst Knudsen Department of Marketing University of Southern Denmark Campusvej 55, DK-5230 Odense M, Denmark E-mail: mpk@sam.sdu.dk Revision: 08-03-2016 23:40 Paper for presentation at: International Conference on Economics and Management of Networks EMNet 2005 – Budapest, September 2005 Keywords: knowledge sharing, complementary and supplementary knowledge, inter-organizational relationships, NPD Abstract This paper proposes a new measure of knowledge redundancy and tests it empirically using survey data. The degree of redundancy in knowledge between two independent firms may be used to study the knowledge sharing processes for instance in NPD-projects. The paper defines knowledge redundancy as the degree of complementarity in knowledge leading to increased breadth in the knowledge base, and the degree of supplementarity in knowledge leading to increased depth in the knowledge base. Once the concepts are defined the paper discusses the effects of sharing supplementary and complementary knowledge on NPD success. The paper then tests the propositions on a survey on Danish manufacturing firms. The empirical results support the theoretical expectations. The paper is concluded with a discussion on implications for both theoretical research and managerial action. 1 1. Motivation for the study The literature on knowledge sharing between and within organizations has rested intensively on the tacit-codified dichotomy for knowledge characterisation. This paper synthesises the scattered attempts to develop other approaches for knowledge sharing between units (e.g. individuals, teams, or organizations) by developing the distinction between supplementary and complementary knowledge bases of firms. The degree of overlap in knowledge bases explicitly reveals the degree of redundancy in knowledge; hence by verifying the relevance of supplementary and complementary knowledge to knowledge sharing between units, we add an important new approach to the causes of e.g. new product development success. The role of knowledge as both input into the creation of new products and as foundation for new product development activities stand undisputed in the literature (Cohen & Levinthal 1989; Subramaniam & Venkatraman 2001; Hong, Doll, Nahm, & Li 2004). Knowledge is argued to lead to shortened product development time, to ensure creativity sparks by combining existing knowledge, and to close the gap between customer wants and product development offers. Increasingly over the past years the role of external knowledge sources like inter-organizational collaborations has gained interest in the research community (Hagedoorn, Link, & Vonortas 2000). External partners offer both opportunities and threats in new product development processes. The opportunities are related to the role of knowledge in general contributing to NPD success, but also to the accelerated speed and quality of product development when knowledge comes from external knowledge sources. However, these potential advantages are closely related to and potentially neutralised by the threats from external partners, which are related to motivational problems, problems with communication and cooperation and especially challenges from utilisation of knowledge received from an external partner. However, much of the literature has failed to investigate the knowledge sharing process and the object of the knowledge sharing process, namely knowledge. Based on the following example1, this paper aims at providing an analytical tool and a measurement proposition that allows for a direct test of degree of the knowledge redundancy and NPD-success. The context is a NPD-collaboration between two distinct firms. These firms collaborate on a given problem that must be solved to provide a new product to the market. To solve the problem the engineers and technicians of the firms are forced to work closely together and in doing so they are heavily involved in knowledge sharing. The key problem facing these engineers is to identify, formulate and transfer the knowledge to the other partner with the purpose of providing at least some elements to a solution. If the transfer is successful and the knowledge transferred can be used to solve the problem, this particular process may assist in finalising the product and bringing it to the market. In terms of the present paper, one important condition for successful knowledge sharing is the overlap in the knowledge bases. The overlap in knowledge, which we equalise to the degree of redundancy, is broken down into the degree of complementarity leading to a broader knowledge base and the degree of supplementary knowledge leading to a deeper knowledge base. The paper first explores the arguments in the literature that underlines these aspects of the knowledge base and the expected results for NPD-success. Based on the literature review, section 3 outlines the analytical constructs and suggests an approach for empirical measurement. These suggestions are then The example illustrates just one potential context to which the proposed tool may be applied. One could also think of interactions between individuals in teams, individuals acting across functional areas etc. 1 2 tested in an empirical survey on Danish manufacturing firms that tests both the concepts themselves and the relevance for NPD-performance. Finally, the paper draws up the conclusions for both future theoretical research and for managers of new product development projects. 2. Identifying the distinction between complementarity and supplementarity in the literature The literature on knowledge sharing, transfer or exchange has been growing rapidly in the last couple of years. A prevailing problem is related to the definition of knowledge sharing. Becker and Knudsen (2003: 14) outlined the problems based on a literature review of definitions of knowledge sharing and pointed to one particularly important component in a definition, namely to explicitly include the outcome of the knowledge sharing process. One such outcome-based definition was suggested by Argote et. al. (2000: 151): knowledge transfer in organizations is the process through which one unit (e.g. group, department, or division) is affected by the experience of another. Even though the definition is suggested within the context of intra-organizational knowledge transfer, it is straight-forward to apply it to the context of inter-organizational knowledge transfer. Furthermore, the definition explicitly points to the affect made by the transfer on the receiving partner’s experience. If experience is equalised to knowledge, the affect on experience equals learning i.e. upgrading of the knowledge base. Cohen and Levinthal (1990: 129) discussed the potential for facilitation of learning based on the prior knowledge of the receiving firm. They forcefully argued that prior knowledge forms the foundation for mutual understanding between the partners and is therefore a pre-requisite for successful learning and knowledge absorption. Hence, an important condition for successful knowledge sharing is the overlap in the knowledge bases, which constitutes mutual understanding and prior knowledge. The degree of overlap in knowledge is described in Rindfleisch and Moorman (2001: 3) as the degree of similarity in the new product-related information, capabilities and skills among new product alliance participants. Focusing on the degree of similarity in information allows us to search for a deeper understanding of similar or supplementary knowledge and complementary knowledge. The notion of complementary and supplementary activities was first discussed by Richardson (1972) in his discussion of the organization of industries. An important limitation to the standard classical discussion of markets is the observation that firms are incorporated in a dense network of cooperation and affiliations (Richardson 1972: 883). Describing industries as carrying out an indefinitely large number of activities like estimation of wants, research, development, design, marketing etc. allows Richardson to introduce the notions of similar and complementary activities. Similar activities are defined as activities which require the same capability for their undertaking, whereas complementary activities are defined as representing different phases of a process of production and require in some ay or another to be coordinated (Richardson 1972: 888-889). Based on Richardson’s notion of activities and production processes, Dussauge et. al. (2000) apply the above notions to the context of inter-organisational relationships by defining a scale alliance as an alliance where the partners contribute similar resources, pertaining to the same stage or stages in the value chain. Similarly, link alliances are alliances, which aim at combining different and complementary skills and resources that each partner contributes (Dussauge et al. 2000: 102). Even though Dussauge et. al. provide a direct link between alliances and the associated exchanges between the partners, the notion of similarities and complementarity as pertaining to particular stages in the value chain fail to account for the fact that knowledge or resources within a stage in the value chain, like e.g. R&D, may lead to exchange of highly complementary contributions. Sarkar et. al. (2001) develop their notion of complementarity in resources based on Parkhe’s notion of interfirm diversity (1991). Sarkar et. al. define resource complementarity as the extent to which each partner brings in unique strengths and resources of value to the collaboration (2001: 360). Next to resolving the problem of similarities in the value chain this 3 definition also extends the resource exchange to bring value to the receiving firm. Resource compatibility is conversely defined as the congruence in organizational cultures and capabilities between partners (Sarkar et al. 2001: 361). The compatibility on the other hand broadly defines similarities, not only in terms of resources, but also cultures. Hence, a more precise definition must be found that both include the degree of performance or the utilization of the resources and the degree of similarity in resources. To that purpose, Das and Teng established the link by introducing the degree of performance directly into resource alignment (Das & Teng 2000). Resource alignment may according to Das and Teng be either similar or dissimilar. Similar resources that at the same time are utilized distinguish supplementary (performing) from surplus resources, whereas dissimilar resources distinguish complementary from wasteful resources (non-performing). Hence, Das and Teng combine the exchange of resources in two dimensions, namely based on the degree of similarity and the extent of performance in a two-by-two matrix (Das et al. 2000: 49). Since the interest in this paper by nature is on the performing resources, hence those utilized for achieving goals, we can define supplementary and complementary knowledge contributions based on the idea of performing resources. 3. Outlining and defining the concepts The notion of supplementary ‘things’ is defined as ‘things that are added to something in order to improve it’ (Cobuild 1997). Supplementary knowledge may therefore be defined as high degrees of redundancy in the form of similar product development knowledge and skills (Rindfleisch and Moorman, 2001: 2). Since redundancy equals overlap in knowledge, supplementary knowledge is easier to transfer given prior knowledge and mutual understanding between the receiving and the transmitting firm. When knowledge is added to an existing knowledge base as illustrated by the overlap in the left hand side of figure 1, we may deduct that the knowledge overlap leads to a deepening of the knowledge base. Figure 1: Dimensions of redundancy Suppl. know. Compl. know. Complementary knowledge Supplementary knowledge The notion of complementarity is defined as ‘things that are different from each other but make a good combination’ (Cobuild 1997). Complementary knowledge may therefore be defined as low degrees of redundancy in the form of dissimilar product development knowledge and skills. Based on the extreme illustration in the right hand side of figure 1 with almost no redundancy, we may deduct that sharing of complementary knowledge may increase the breadth of knowledge in the receiving firm. Moreover, sharing of complementary knowledge is harder than for supplementary knowledge, because the basis for mutual understanding is limited and the prior knowledge does not contribute to establish mutual understanding. 3.1 Effects of sharing supplementary and complementary knowledge on NPD success 4 Exchange of supplementary knowledge allows the partners to achieve scale economies and to reduce excess capacity (Dussauge et al. 2000: 102). Although redundancy enhances the chances of successful knowledge sharing and ultimate utilization to solve problems, it also limits the opportunities for learning, since most of the knowledge is known already. Redundant knowledge bases may ultimately lead the partners to become competitors since they possess very similar resources and knowledge and may therefore relatively easy satisfy the same market demands. Exchange of supplementary knowledge is therefore associated with the dangers of double jeopardy by on the one hand, underscoring the lack of learning potential, and on the other hand, by decreasing the knowledge gaps between the partners leading to potential competition. Since exchange of complementary knowledge results in a larger potential for learning through the combination of dissimilar skills and resources (Sarkar et al. 2001; Dussauge et. al., 2000: 102; Rothaermel, 2001), the relationship between the partners may potentially be longer-lived. The low degree of redundancy allows the partners to explore the differences and create new projects or develop new ideas over longer time spans. The potential outcomes of knowledge sharing can be divided into 3 groups: 1. Completion of present project: ultimately knowledge sharing is intended to solve a particular problem, as illustrated by the example above. If the exchanged knowledge serves the intended purpose, knowledge sharing may lead to a faster completion of the present NPD project than if the knowledge sharing process had not been initiated. 2. Creation of new projects: the process of sharing knowledge can spark new ideas once they are applied into the existing knowledge base of the recipient firm (Cohen et al. 1989). These new ideas may ultimately lead to the creation of new NPD projects for which new knowledge may be needed. 3. Utilisation for other purposes: besides explicit creative ideas the knowledge received from an external partner may be utilised for other purposes of a non-project specific nature. Hence, knowledge may be received and also used to solve problems in other projects; both smaller problems and more extensive problems. Since supplementary knowledge deepens the existing knowledge base, we expect it to provide quicker and more successful product development in the short term. Hence in terms of the three categories above we hypothesise that: H1: Supplementary knowledge is positively associated with (a) the completion of present projects and (b) with sparking new projects, but may not necessarily (c) be utilised for other purposes. As complementary knowledge may take longer to utilise depending on the level of absorptive capacity, but carries a higher learning potential, we hypothesise that: H2: Complementary knowledge is positively associated with (a) completion of present project, (b) creation of new projects and (c) utilisation for other purposes. 4. Data and methodology The data are drawn from a survey of 2527 business firms in the manufacturing industries with more than 10 employees (as of Feb. 2004)2. With the permission of the CEO’s in the firms 105 product development managers were approached, which resulted in 74 completed questionnaires (response rate of 70.5%). Due to the low number of total responses, another 381 firms were approached of which 202 The survey and the methodology is described in more detail in: Madsen, T. K. (2004). Market Strategy of Firms in Global Environments: Research Methodology, Working Papers in Marketing: 30. Odense. 2 5 agreed to participate. From these only 39 (response rate of 20%) returned the questionnaire. In total, the following analyses are based on the total of 113 responses. The context for researching the above proposition is ‘the most important completed NPD project within the last 3 years’ (the survey was carried out in 2004). Within the boundaries of the project, the respondent was asked whether external partners had been actively involved in the project and if so, which type of partner that was most important. The suggested categories were supplier, customer, university or other research institution, consultant or competitor. On the basis of this particular cooperation partnership, the respondent was then asked to evaluate the following questions on a Likert-based scale rating each question on a scale from 1 to 7: To what degree did this collaboration partner contribute to the most important product development project with knowledge that deepened and nuanced the existing expertise of your company? To what degree did this collaboration partner contribute to the most important product development project with knowledge that was new and unknown compared to the existing expertise of your company? The first question aims at measuring the extent to which the company received supplementary knowledge, and the second question at measuring reception of complementary knowledge. An important notice must be made, namely that we do not survey the process of knowledge sharing, but simply the overall evaluation of the received knowledge by the firm. Methodologically, we first test the expected correlations as discussed in section 3.1 and if these are identified as expected then we conclude that the measures are valid and reliable. Second, the measures are tested against NPD-performance to establish whether the types of knowledge are important for NPD-success as argued above. NPD performance may obviously be measured in a variety of ways. In the following, we test the following measures: 1. NPD project speed and costs: based on the scale from Rindfleisch and Moorman (2001: appendix) on product development speed and similar measures on product development cost. We expect supplementary knowledge to contribute positively to speed and low costs, whereas complementary knowledge should impose higher cost due to the lack of mutual understanding. 2. R&D project cost: compared to the total R&D expenditures, how much has the company spend on the particular project. We expect a higher share of total expenditures to be an indicator of commitment and therefore attention to ensuring successful knowledge sharing. We do not, however, expect this to be associated particularly to any of the two knowledge types. 3. NPD project performance: we expect a higher share of turnover that comes from the particular NPD-project to be an indicator of NPD-success. A better project results in higher turnover. 4. A composite measure of knowledge sharing performance is developed and tested. We expect exchange of supplementary knowledge to contribute positively to knowledge sharing performance, whereas complementary knowledge is not expected to make a significant contribution. 5. Partner redundancy: based on the scale from Rindfleisch and Moorman (2001: appendix) on what they label knowledge redundancy, the degree of similarity between the partners on their products, skills, engineering knowledge and resources. We expect the measure to be positively associated with supplementary knowledge since high numbers (rating 4-7) equals similarities. This measure is seen as a further confirmation of our measures in case the signs are as expected. 5. Verifying the nature of the concepts 6 The first step in verifying the measures includes a simple descriptive analysis. In the following, we first present the descriptives to each measure and then present the bivariate correlations. (N=77) Mean St. dev. Mode Supplementary knowledge Complementary knowledge 4,32 1,58 5 3,46 1,80 3 From the descriptives, we see that the firms tend to exchange supplementary knowledge to a higher extent than complementary knowledge. This result is likely, since supplementary knowledge is likely to lead to immediate short-term effects. To test hypothesis 1 and 2, we use correlation analysis. If the correlations are positive and significant we accept the hypotheses. Table 1 illustrates the relationship between supplementary knowledge and the three outcome based measures. Table 1: Correlations between extent of supplementary knowledge and project outcome Supplementary Completion of Creation of new knowledge NPD project projects Supplementary 1 0,750 0,530 knowledge (0,000) (0,000) Completion of 1 0,532 NPD project (0,000) Creation of new 1 projects Utilisation for other purposes Utilisation for other purposes 0,130 (0,279) 0,077 (0,521) 0,374 (0,001) 1 A test of the distribution for each variable shows that skewness is below the level of twice the standard deviation and therefore the Pearson correlation coefficient can be used. Numbers in parentheses represent the level of significance. The correlations are positive and significant for the first two project outcome variables; completion of NPD project and creation of new projects, but not significant for utilisation for other purposes (see table 1), which lead us to accept hypotheses 1a, 1b, and 1c. Similarly for the exchange of complementary knowledge we test the relationships using correlation analysis. Table 2 highlights the results, which are as hypothesised, namely positive and significant correlations for all three outcome variables. In general, our operationalisation of the reception of supplementary and complementary knowledge was verified using the project related outcomes, because we were able to find the expected results. 7 Table 2: Correlations between extent of complementary knowledge and project outcome Complementary Completion of Creation of new knowledge NPD project projects Complementary 1 0,738 0,388 knowledge (0,000) (0,001) Completion of 1 0,407 NPD project (0,000) Creation of new 1 projects Utilisation for other purposes Utilisation for other purposes 0,392 (0,001) 0,401 (0,001) 0,625 (0,000) 1 6. Verifying the relevance for NPD-performance Having verified the relevance and appropriateness of the suggested measures of redundancy, we now wish to test the relevance of knowledge types, i.e. redundancy, for product development performance in general. Table 3 checks the relationship between the knowledge types and 4 performance variables using bi-variate Pearson correlations. The project cost and speed variable is a semantic scale where the respondent assesses the performance of the own project compared to the industry as a whole. Project cost and project speed are each assessed using 3 items indicating that the scale as a whole is comprised of 6 items. Following upon the aggregated analysis, project cost and speed are tested separately. Second, the R&D expenditures associated with the particular project is measured up against the overall R&D expenditures in the firm. The expectation is that a higher share indicates that the firm has more focus on the particular project and therefore will make efforts to limit the experienced problems in knowledge sharing. Third, we expect a higher share of turnover coming from this particular project to be positively related to knowledge sharing. If a product contributes positively to turnover, we expect knowledge sharing efforts to be successful. To test our measure of redundancy, we match it up against a measure of redundancy coming from Rindfleish and Moorman (2001: appendix). We expect our redundancy measure to be positively associated with the more general measure of redundancy suggested by Rindfleish and Moorman. Finally, a composite variable reflecting knowledge sharing performance is tested. The measure is developed exploratively using factor analysis followed by a test of reliability using Cronbach Alpha. The composite measure includes the following 6 items: 1. The collaboration partner contributed to an achievement of a cost reduction 2. The collaboration partner contributed to a reduction of technical defects and an increase in the overall quality of our product 3. We shared confidential information with the collaboration partner 4. There was a positive overlap between the goals of the company and the collaboration partner for development of the new product 5. The product development process became much faster because we included this collaboration partner 6. The product development process became much cheaper because we included this collaboration partner In total, the reliability is 0,773, which is above the level of 0,6 that is recommended in the literature. The composite variable is calculated as the sum of the items divided by the number of items. The composite variable for knowledge sharing performance is therefore accepted for further testing. 8 Table 3: Correlations between knowledge types and performance Supplementary knowledge Redundancy 0,226 3 measure (0,077) Project cost and 0,169 speed4 (0,165) Project cost5 -0,089 (0,463) Project speed6 0,207 (0,088) R&D project cost 0,351 (0,004) Turnover share 0,142 (0,345) Knowledge sharing 0,424 performance (0,001) Complementary knowledge 0,143 (0,268) 0,162 (0,184) 0,003 (0,978) 0,180 (0,140) 0,279 (0,025) 0,092 (0,544) 0,190 (0,142) The check variable for partner redundancy has the expected positive result for supplementary knowledge, but is only marginally significant. However, since the measures are quite different in terms of the focus, where the check variable includes very diverse factors, we also contribute part of the lack of significance to variable content. For the aggregated project cost and speed measure, the correlation has the expected sign, but is insignificant. To investigate the role of speed and cost separately we split the items into two new variables. The results of the two new variables show a negative and very small relationship between cost and supplementary knowledge and a positive but almost indifferent relationship with complementary knowledge. For project speed, we see as expected that speed is positively associated with the exchange of supplementary knowledge and this relationship is tentatively significant. No significant effect can be seen for complementary knowledge, which is as expected. The R&D project cost yielded the expected correlation and is significant for both supplementary and complementary knowledge. Hence our expectation; higher R&D project cost compared to the total expenditures are followed by appropriate measures to stimulate knowledge sharing processes. The turnover share yielded the expected positive sign, but a very low correlation resulting in nonsignificant results. For complementary knowledge, the relationship is almost neutral. The Cronbach alpha for the measure is 0,728, with no possibilities of raising the level by excluding items. The alphas coefficient is high enough to be considered reliable and is therefore included in the analysis. In the original article the Cronbach alpha = 0,85. 4 The Cronbach alpha for the measure is 0,774, with no possibilities of raising the level by excluding items. The alphas coefficient is high enough to be considered reliable and is therefore included in the analysis. 5 The Cronbach alpha for the measure is 0,777, when item 4 is excluded. Cronbach alpha before we removed the item is 0,713. The scale is used exclusive of item 4. The alphas coefficient is high enough to be considered reliable and is therefore included in the analysis. 6 The Cronbach alpha for the measure is 0,790, with no possibilities of raising the level by excluding items. The alphas coefficient is high enough to be considered reliable and is therefore included in the analysis. 3 9 Finally, for the composite variable of knowledge sharing performance the correlations are positive for both knowledge types, but highly significant for supplementary knowledge, whereas for complementary knowledge the correlation is only tentatively significant. Conclusions and Managerial Implications The paper has argued for a new conceptual and empirical measure of knowledge redundancy as defined by the degree of complementarity and supplementarity in the knowledge bases between the transferor and the recipient of knowledge in knowledge sharing processes. The paper used the existing literature to define supplementary knowledge as high degrees of redundancy in the form of similar product development knowledge and skills, whereas complementary knowledge is defined as low degrees of redundancy in the form of dissimilar product development knowledge and skills. These measures were expected to contribute to the completion of the NPD-project, the creation of new projects and for complementary knowledge to the utilisation for other purposes. The test on empirical data on Danish manufacturing firms yielded the expected positive and significant correlations. Having established these results empirically, we can conclude that these measures may contribute significantly to our understanding of knowledge sharing processes between firms and organizations in future research. The second aim of the paper was to establish a relationship between knowledge transfer and NPDsuccess. For the measures that were not directly reflected knowledge sharing processes the results were only tentatively significant. However, the results indicated that commitment to the NPD project in terms of financial investments was significant and positive for both knowledge types, indicating that more investments are indicative of commitment and related to successful transfer of knowledge. Third, project cost and speed in a combined variable was close to significant and with the expected positive correlation. Once the variable was split in two, we saw that the positive relationship was attached to project speed. Finally, knowledge sharing performance was highly correlated with supplementary knowledge, also positively related to complementary knowledge but less significant as was also expected at the outset. The study has important implications for both theoretical research and managerial action. For theoretical research, the measures of redundancy need to be tested further based on a more comprehensive literature review. However, the idea seems potentially to provide a lifting pole for studies of knowledge development. It is obvious from the literature that knowledge is created through use and application, but so far we have been unable to address questions like, what are the implications of increased depth (i.e. reception of supplementary knowledge) for future NPD-activities? How is learning in one period based on reception of supplementary knowledge related to future learning and knowledge sharing processes? These questions may now be studied using the above propositions and deducted implications for NPD-success as discussed in section 3. For managers of NPD projects the study illustrates the potential dangers associated with partner choice and knowledge redundancy. If a partner is chosen, who is closely related to the company in terms of knowledge overlap, the process of sharing knowledge is not expected to give problems in terms of mutual understanding, motivational problems and utilisation challenges. On the other hand, these seemingly unproblematic processes may easily be followed by an intensified competitive pressure at the product market, as the exchange of supplementary knowledge may lead to increasing similarities in product features. Hence, the problem or challenge posed by double jeopardy should be carefully managed and monitored by the management. 10 On the other hand, too much complementarity has potential large learning effects through the dissimilar knowledge bases. However, before these learning effects may be utilised the firm needs to overcome the problems of the dissimilarities. The problems may relate to low mutual understanding, motivational problems and insurance of incentive schemes. 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