Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology

Explores the theory of firm knowledge and how firms create new knowledge. Knowledge is considered to be in one of two categories: information or know-how. Firms exist, it is argued, because they are better than markets at sharing and transfer of knowledge. Information, which is often proprietary, includes facts, axiomatic propositions, and symbols. Information is the knowledge to know what something means, while know-how is the knowledge to know how to do something. A further characteristic of knowledge that must be considered is the persisting difference in capabilities, i.e. the difficulty in their transfer and imitation. New learning within a firm results from the combinative capabilities of that firm. Combinative capabilities are a firm's ability to exploit its knowledge and the unknown potential of its technology through both internal and external learning. Firms must consider the tradeoffs between short-term survival and long-term development of capabilities. To illustrate the proposed theory, the make-buy question faced by many firms is analyzed. This decision is dependent on how good the firm is currently doing something, how good it is at learning specific capabilities, and the value of these capabilities as platforms into new markets. As a result, firms will make the product if it requires a production knowledge similar to their current organizing principles and information. Firms will develop internally products that build on existing capabilities and that will push them into new markets. Firms will seek joint ventures when the capabilities are not closely related to those already possessed. The existing capabilities of the firm will likely dictate the direction in which the firm moves. (SRD)