Strategies for Knowledge Creation in Firms

Strategies for Knowledge Creationin Firms*

C. A. Un and Alvaro Cuervo-Cazurraw

Cornell University, Johnson Graduate School of Management, 370 Sage Hall, Ithaca, NY 14853, USA andwUniversity of Minnesota, Carlson School of Management, 321 19th Avenue South, 3-165, Minneapolis,

MN 55455, USA

Email: [email protected] [Un]; [email protected] [Cuervo-Cazurra]

We extend the knowledge-based view by providing an explanation of how firms develop

the capability to create knowledge. We take the view that firms are distributedknowledge systems composed of individuals who embody knowledge, and theoretically

identify and empirically test the existence and effectiveness of two strategies –

organization and project team – that promote their interactions to develop this

capability. On the one hand, building on what we call the organization-level innovationliterature, we identify the organization strategy, which suggests investment in

organization-level integrative management practices to facilitate interactions to create

knowledge among individuals situated in different parts of the system, independently of

when a knowledge-creation task is established and individuals are organized to createknowledge. On the other hand, building on what we call the team-level innovation

literature, we identify the project team strategy, which suggests investment in project

team-level integrative management practices to facilitate interactions to createknowledge among individuals once a knowledge-creation task is defined and individuals

are placed into teams to create knowledge. The two strategies are substitute approaches

for the development of the capability, although the organization strategy appears to

better predict outcomes of the capability. However, this approach might be more costly,so not all managers will choose to follow it.

Introduction

Knowledge creation and use are critical if firmsare to have a competitive advantage, but thedifferent strategies for creating them are still notwell understood. In the knowledge-based view ofthe firm, an organization’s ability to createknowledge is a source of competitive advantage(Conner and Prahalad, 1996; Grant, 1996; Kogutand Zander, 1992, 1996; Spender, 1996; Tsoukas,1996). However, despite the importance ofknowledge and the wealth of studies on theeffects of knowledge on competitive advantage, itis still not well understood how it is generated infirms (Eisenhardt and Santos, 2002). Part of thereason for this is that studies on knowledge tendto be theoretical (Grant, 1996; Helfat and

*The paper is derived from data collected for the firstauthor’s thesis at the Sloan School of Management,Massachusetts Institute of Technology. The detailedsuggestions of Eleanor Westney, Michael Beer, JohnCarroll, Deborah Ancona, the editors HaridimosTsoukas and Nico Mylonopoulos, and anonymousreviewers, and the comments of participants at theAcademy of Management Annual Meeting in Toronto,Canada, the DRUID Conference in Aalborg, Denmark,and the OKLC conference in Athens, Greece, helpedimprove previous versions of the paper. We would liketo thank the managers of the companies studied forsharing their experiences. The first author would alsolike to thank The MIT-Japan Program Starr Founda-tion, the CS Holding Fellowship in InternationalManagement, and the Massachusetts Institute of Tech-nology Doctoral Fellowship for the financial support forthis study. All errors remain ours.

British Journal of Management, Vol. 15, S27–S41 (2004)

r 2004 British Academy of Management

Raubitschek, 2000; Kogut and Zander, 1992;Spender, 1996; Tsoukas, 1996), while empiricaltests have focused on knowledge transfer orsharing (Hansen, 1999; Szulanski, 1996; Tsai,2002; Zander and Kogut, 1995) rather than onknowledge creation, with some exceptions basedon case studies (Leonard-Barton, 1995; Nonakaand Takeuchi, 1995).In this paper we take the view that firms are

distributed knowledge systems, which means thatthey are composed of knowledge embodied inindividuals and their social interactions (Tsou-kas, 1996). The creation of knowledge in such adistributed knowledge system requires the pro-motion of interactions among the individualssituated in its various parts. Therefore, in thispaper we answer the following question: what arethe strategies that managers can use to promoteinteractions among individuals, thereby develop-ing the capability to create knowledge?Although in the knowledge-based view we do

not have a good understanding of knowledgecreation (Eisenhardt and Santos, 2002), we canmake use of another body of literature that hasdiscussed it indirectly, the product innovationliterature. We view research on product innova-tion as being about knowledge creation in thesense that it explains some factors that facilitateit, although it focuses on the innovation ofproducts. Moreover, our analysis of this litera-ture suggests that it is divided into two differentcamps, which operate at different levels ofanalysis, thereby providing us with differentexplanations for the development of the cap-ability to create knowledge. Thus, we extend theknowledge-based view by linking it to existingproduct innovation literature to identify twostrategies – organization and project team – thatfacilitate interactions and understanding amongindividuals and thus allow them to create knowl-edge. On the one hand, building on what we termthe organization-level product innovation litera-ture (e.g. Brown and Eisenhardt, 1997; Dough-erty, 2001; Lawrence and Lorsch, 1967; Tushmanand Anderson, 1997), we identify the organiza-tion strategy. This suggests investment in orga-nization-level integrative management practicesin order to facilitate interactions to createknowledge among individuals situated in differ-ent parts of the system, independently of when aknowledge-creation task is established and in-dividuals are organized for creating knowledge.

On the other hand, building on what we call theteam-level product innovation literature (e.g.Ancona and Caldwell, 1992; Clark and Wheel-wright, 1992; Griffin and Hauser, 1992; Keller,2001), we identify the project team strategy. Thissuggests investment in project team-level integra-tive management practices to facilitate interac-tions to create knowledge among individualsonce a knowledge-creation task is defined andindividuals are placed into teams to createknowledge.After theoretically identifying two strategies

for the development of the capability to createknowledge, we test their existence and effective-ness in terms of knowledge creation. We focushere on different aspects of knowledge creationfor product innovation (Helfat and Raubitschek,2000; Leonard-Barton, 1995; Nonaka and Ta-keuchi, 1995) as an outcome of the capability,because it is a tractable outcome that delimits thecomplexity of the knowledge construct (Alvessonand Karreman, 2001) and knowledge is bestobserved in practice (Leonard-Barton, 1995;Nonaka and Takeuchi, 1995). Moreover, thecapability to create knowledge, an intangible,cannot be measured directly, but only through itseffects (Godfrey and Hill, 1995).

Strategies for developing the capabilityto create knowledge in firms asknowledge systems

In order for the firm to become a knowledgesystem, the promotion of interactions among thecomponents of the system, that is, individualswho embody knowledge (Polanyi, 1962), isrequired (Tsoukas, 1996; Tsoukas and Vladimir-ou, 2001). Whereas single individuals can createknowledge, and technology can facilitate thetransfer of knowledge among individuals (Han-sen and Haas, 2001), the greater challenge is topromote the social interactions among indivi-duals that facilitate not only the transfer ofexplicit knowledge (Hansen, 1999; Szulanski,1996; Tsai, 2002; Zander and Kogut, 1995), butalso the creation of both explicit and tacitknowledge (Nonaka, 1994; Nonaka and Takeu-chi, 1995). It is the establishment of these socialinteractions among individuals that enables thecreation of knowledge that we analyse in thispaper. We therefore take a functionalist view, in

S28 C. A. Un and A. Cuervo-Cazurra

line with other researchers in the area of strategicmanagement (Grant, 1996; Helfat and Rau-bitschek, 2000; Kogut and Zander, 1992) whoview knowledge as an economic resource (Swanand Scarbrough, 2001), and identify strategies todevelop the capability to create knowledge.The creation of knowledge in a firm is better

accomplished through the interaction amongindividuals with different knowledge sets ratherthan individuals with similar knowledge sets. Thecomplexity of the environment and task, such asproduct innovation meeting the demands of theexternal markets, requires diverse knowledge sets(Leonard-Barton, 1995; Nonaka and Takeuchi,1995). In the case of the development of aparticular product, an individual might initiatean idea. However, in order for this idea to becomea product innovation that generates value for thefirm, it has to be combined with other types ofknowledge, such as design engineering, manufac-turing, marketing and customer services, in orderto ensure that it suits the demands of the externalmarkets. Therefore, the possibility of exchangingknowledge and recombining existing knowledgein order to create knowledge is greater when thepeople involved have diverse knowledge sets; inthis way a degree of economies of scale and scopein knowledge is achieved.Moreover, in contrast to knowledge transfer,

which can be performed unidirectionally fromsource to recipient, such as when diffusingpractices across sub-units of the firm (Szulanski,1996; Tsai, 2002; Zander and Kogut, 1995),knowledge creation requires multidirectionalinteraction among people with diverse knowledgesets, enabling people to become both sources andrecipients of knowledge. This multidirectionalinteraction is facilitated by the use of teams witha limited number of people, as it is not only thetransfer of explicit knowledge that is involved,but also that of tacit knowledge, which can onlybe acquired through personal interaction (Non-aka, 1994; Nonaka and Takeuchi, 1995).Interactions among individuals with different

knowledge sets that are shared and transformedto create new knowledge have two key prerequi-sites: the willingness of these individuals situatedin different parts of the distributed knowledgesystem to share their knowledge in order to createknowledge, and understanding among the indi-viduals who share knowledge. First, individualsneed to be willing to establish interactions and

share their knowledge sets to create knowledge;that is, they need to be provided with incentives,which can be economic (Holstrom and Melgrom,1994; Kerr, 1975; Milgrom and Roberts, 1992)and/or social (Hansen, 1999; Nahapiet andGhoshal, 1998; Tsai, 2002). Second, individualswith different knowledge sets need to be able tounderstand each other; that is, they need acommon code (Arrow, 1974), common knowl-edge (Grant, 1996), or overlapping knowledge(Leonard-Barton, 1995; Nonaka and Takeuchi,1995). Each of these factors is necessary butinsufficient on its own. Without willingness onthe part of the individuals to interact, there islittle sharing of knowledge among them. Withoutunderstanding among individuals, knowledgecannot be exchanged in a meaningful manner,because misunderstandings could arise. Onlywhen the two coexist is knowledge creationpossible. Therefore, the strategies that manage-ment can use need to act upon both drivers.

Two strategies for developing the capability tocreate knowledge

To expand the knowledge-based view and identi-fy strategies that firms can use to develop thecapability to create knowledge, we make use ofthe product innovation literature. This literaturedeals with knowledge creation, although focusingon the innovation of products, and offers someexplanation for management practices that facil-itate the achievement of innovation. Thus, welink the knowledge-based view and the productinnovation literature to propose two strategies –organization and project team – that managerscan potentially use to facilitate the developmentof the capability to create knowledge. The term‘strategy’ is defined as a set of integrativemanagement practices that facilitates interactionsfor knowledge creation among individuals byinfluencing the drivers of these interactions:willingness and understanding. These integrativemanagement practices are a subset of themanagement practices that firms use to organizetheir employees, such as recruiting, rewarding,training and developing them, but focus onfacilitating the integration of knowledge sets ofindividuals by promoting their interactions to-wards knowledge creation. The integrative man-agement practices that compose each strategyform a system of practices, as each influences

Strategies for Knowledge Creation in Firms S29

different dimensions of the requisites for knowl-edge creation, thus complementing and reinfor-cing each other (Holstrom and Melgrom, 1991;Melgrom and Roberts, 1990). Figure 1 illustratesthe relationships among the various constructsdiscussed. Each strategy will now be analysed inmore detail, reviewing what it entails in terms ofintegrative management practices and how itaffects the capability to create knowledge in thedistributed knowledge system.

The organization strategy. The organizationstrategy is defined as a set of organization-levelintegrative management practices that encourageindividuals to interact with others to createknowledge, independently of when they areorganized to create knowledge. These organiza-tion-level integrative management practices areorganization-level integrative reward (Galbraith,1977; Katz and Allen, 1985; Lawrence andLorsch, 1967; Morrill, 1995), organization-levelintegrative socialization (Katz, 1997; Nohria andGhoshal, 1997; Nonaka and Takeuchi, 1995),and organization-level integrative routine com-munication (Lawrence and Lorsch, 1967; Morrill,1995; Nohria and Ghoshal, 1997).Organization-level integrative reward, specifi-

cally the assignment of responsibility for deter-mining individuals’ rewards, promotesknowledge creation by influencing the willingnessof individuals to interact and create knowledge.When the control of individuals’ rewards isshared between functional managers and man-agers outside the functional areas, individuals areencouraged to interact with others outside theirdisciplines to share knowledge, as they arecontrolled and rewarded by people in differentfunctions. This occurs because individuals arelikely to make the effort to interact with othersoutside the functional area in order to make a

good impression and thus influence their rewards(Katz and Allen, 1985; Milgrom and Roberts,1992; Morrill, 1995).Organization-level integrative socialization of

employees facilitates the development of thecapability to create knowledge by promotingunderstanding among individuals with differentknowledge sets. It does so by integrating differentfunctions in the firm through cross-functionalsocialization of new employees. By exposingemployees to different parts of the firm such asR&D, production, sales/marketing and customerservices, they build social ties with others in theseparts of the company, which encourages both thewillingness to interact in order to share knowl-edge (Hansen, 1999; Nahapiet and Ghoshal,1998; Nohria and Ghoshal, 1997) and theunderstanding among employees based in differ-ent parts of the knowledge system.Organization-level integrative routine commu-

nication, which we define as the formal andinformal communication patterns that occur on aregular basis among organizational membersbelonging to different functions, facilitatesknowledge creation by influencing willingnessand understanding among individuals. We departfrom previous organization-level innovation lit-erature in that, rather than arguing for cross-functional communication that occurs formallyamong employees in the management ranks(Brown and Eisenhardt, 1997; Lawrence andLorsch, 1967; Nohria and Ghoshal, 1997), weargue for the more comprehensive concept oforganization-level integrative routine communi-cation among individuals. This is composed ofinstitutionalized communication patterns (Mor-rill, 1995) or routines (Nelson and Winter, 1982)that include both formal and informal commu-nication between individuals at all levels of theorganization. These patterns may be vertical, that

Capability to create

knowledge

Individuals’understanding of

others’ knowledge sets

Individuals’willingness to share

knowledge with othersand create knowledge

Organizationstrategy

Project team strategy

Outcomes of the capability

to create knowledge

Observable

Unobservable

Figure 1. Theoretical framework for the development of the capability to create knowledge


is, between superior and subordinates within thesame part of the knowledge system, or lateral,that is, between employees in similar ranks indifferent parts of the knowledge system (Gal-braith, 1977; Morrill, 1995). Organization-levelintegrative routine communication improves will-ingness and understanding among individuals asthey become accustomed to interacting withpeople from these different parts of the firm,thus inducing them to develop the necessarycommon code to understand people with differ-ent knowledge sets. The establishment of routinesleads to automatic behaviours, which require lesssubsequent effort (Nelson and Winter, 1982).These three organization-level integrative man-

agement practices composing the organizationstrategy become a system of practices, as theyhave complementary influences on the willingnessand understanding among individuals to createknowledge. The practices reinforce each other byoperating at the same level and with the sameintention. They promote knowledge creation byestablishing interactions and interdependenciesamong individuals with different knowledge sets,that is, the components of the knowledge system.Hence, we formally hypothesize that:

H1: The organization strategy (organization-level integrative reward, organization-levelintegrative socialization and organization-levelintegrative routine communication) is posi-tively correlated with the capability to createknowledge.

The project team strategy. The project teamstrategy is defined as a set of integrative manage-ment practices that encourage individuals fromdifferent parts of the knowledge system tointeract with others to create knowledge oncethe knowledge-creation task has been established.These integrative management practices areproject team-level integrative reward (Anconaand Caldwell, 1999; Wageman, 1995; Wagemanand Baker, 1997), project team-level integrativesocialization (Roth and Kleiner, 1996; Thamhainand Wilemon, 1997) and project team-levelintegrative routine communication (Griffin andHauser, 1992; Keller, 2001; Subramaniam andVenkatraman, 2001; Takeishi, 2001).Specifically, project team-level integrative re-

ward, which is reward for team performance,impacts knowledge creation since it provides

individuals with the willingness to interact andshare knowledge. Research on teams in labora-tory settings and single-function teams suggeststhat team reward impacts team interaction(Ichniowski, Shaw, and Prennushi, 1997; Wage-man and Baker, 1997). Pinto, Pinto and Prescott(1993) suggest that rewards based on teamoutcomes, such as product innovation, place theemphasis on a common goal and nurturecooperation and the associated interaction. Simi-larly, Tjosvold (1986) finds that interaction isdeveloped by providing a common goal andinforming team members that their role is tointeract to share knowledge, rewarding them tothe extent that the group successfully accom-plishes its goal of creating knowledge.

Project team-level integrative socializationfacilitates knowledge creation by promotingunderstanding among individuals. Project team-level integrative socialization is a process bywhich teams receive training as an initial step intheir teamwork to better understand people thathave different knowledge sets based in differentparts of the knowledge system. For example,Roth and Kleiner (2000), analysing a newproduct development team in an automobilecompany, show that misunderstanding amongteam members based in manufacturing, finance,design engineering, is prevalent; however, it canbe minimized when the team receives sometraining on their differences and builds a commonlanguage and common view points specifically tocreate knowledge for that product innovation. Intheir study, experts on cross-functional projectteams external to the firm were hired to conductthis integrative socialization while in a study byUn (2002) team leader or experts within the firm,who are not members of the team, provided thisintegrative socialization. Through this processthe team members also learn about the organiza-tion of their work such as setting the agenda formeetings or task allocation that also influencestheir interactions. Teams that have a clearobjective and a schedule for meetings to workon the project meet more frequently than thosethat do not have these measures in place at thebeginning of the project (Roth and Kleiner, 2000;Thamhain and Wilemon, 1997; Un, 2002).

Lastly, project team-level integrative routinecommunication influences knowledge creation(Ancona and Caldwell, 1992; Griffin and Hauser,1992; Takeishi, 2001) by affecting understanding


among team members and their willingness toshare knowledge. In the study by Griffin andHauser (1992), for example, project teams thatexperienced a higher frequency of communica-tion outperformed project teams that commu-nicated less frequently. Moreover, Takeishi(2001) also found that product developmentteams that achieved a higher product qualitycommunicated more frequently than those pro-ject teams that did not perform as well. There-fore, routine communication at the project-teamlevel also promotes social interactions and a senseof interdependence among team members, whichencourages knowledge sharing. Moreover, itsimultaneously increases understanding amongindividuals as they gain a better comprehensionof each other’s knowledge sets.The project team strategy and its associated

integrative management practices facilitate thewillingness and understanding among individualsthat support knowledge creation. The practicesbecome a system whereby different practicesexercise complementary influences on the driversof knowledge creation. As such, they operatetogether and reinforce each other’s influence onthe willingness and understanding of individualsto create knowledge, enabling the establishmentof links among the components of the distributedknowledge system. Therefore, we formally hy-pothesize that:

H2: The project team strategy (project-teamintegrative reward, project-team integrativesocialization, and project-team integrative rou-tine communication) is positively correlatedwith the capability to create knowledge.

Selecting strategies. The extension of theknowledge-based view and its integration withstrands of the innovation literature enabled us topresent two strategies composed of integrativemanagement practices that facilitate the creationof knowledge in the firm. The two strategiesdiscussed are substitute approaches since weargued that both are valid avenues for creatingknowledge. However, firms might need to choosebetween implementing one strategy or the other.We now speculate on the costs and benefits thateach strategy entails, analysis that is necessaryproperly to establish a selection criterion.Both strategies have different costs and benefits

associated with them, which limit the straightfor-

ward dominance of one strategy over the other.On the one hand, the organization strategy has ahigher implementation cost associated with it.Organization-level integrative management prac-tices require the management of all employees inthe firm as they join the company and over timeto continuously reinforce their willingness andunderstanding. Additionally, the implementationof this strategy requires time to diffuse across thefirm. Moreover, for this strategy to work in acost-effective manner, the employment base ofthe firm needs to be relatively stable in order toavoid continuously applying the integrativemanagement practices to new employees whomight leave before the benefits in terms ofknowledge creation are realized. Nevertheless,although this strategy is, in principle, costly andrequires a long time to implement, these samecosts support its ability to create a sustainablecompetitive advantage, as they render imitationmore difficult. The promotion of interactions forknowledge creation among all employees in thefirm leads to the establishment of systemicinteractions that reduce the ability to pinpointthe sources of knowledge creation to one or a fewindividuals. Thus, the causal ambiguity of thesources of advantages is increased (Lippman andRumelt, 1982). Moreover, its time-consumingnature increases the time-compression dis-econo-mies and reduces its imitation (Dierickx andCool, 1989). Lastly, firms that choose to beleaders in knowledge creation will find thisstrategy more appropriate, since a predeterminedknowledge-creation task is not required beforepeople can be managed to create knowledge, as isthe case for the project team strategy.On the other hand, the project team strategy is

less costly in terms of the requirements for itsimplementation in the firm. It entails the applica-tion of integrative management practices on aselected group of employees organized in a teamto create knowledge, rather than involving all thefirm’s employees. It can be implemented morequickly as the practices need to be used only afterthe knowledge-creation task has been deter-mined. Additionally, it is more flexible, as thepractices can be adapted to the requirements ofthe specific knowledge-creation task at hand,rather than utilizing more generic integrativemanagement practices that are applied through-out the company. However, the strategy might bemore subject to imitation by other firms, thus


reducing the sustainability of the advantage it isbuilt upon, as the practices are less systemic andcan be applied in a short period of time.Therefore, this strategy might be more appro-priate for firms that choose to follow the actionsof other companies and thus have a model ordesign to follow. Alternatively, in situationswhere most work is done in projects and thecontent of each project is quite distinct, theproject team strategy would be more appropriate,as each project team would require differenttypes of integrative management practices de-pending on the nature of the knowledge-creationtask.Whereas the strategies are substitute ap-

proaches for knowledge creation, they could, inprinciple, complement each other and lead togreater knowledge creation. However, this pre-sents two challenges regarding the cost ofapplication. On the one hand, the use of bothstrategies would entail the additional cost ofimplementing two sets of integrative managementpractices, additional costs that might be difficultto justify when each strategy is valid individually.On the other hand, the two sets of integrativemanagement practices must be coherent sothat they do not create competing demands onthe individuals during their knowledge creation.For example, the organization strategy mightinduce employees to interact with people outsidethe task at hand, whereas the project teamstrategy might establish the basis for knowledgesharing only with those people relevant for thetask, therefore undermining the organizationstrategy.In summary, these practices are substitute

approaches for creating knowledge. Selectionbetween them requires taking into account theircost of implementation. Although the strategiescould, in principle, complement one another, thiswould entail additional costs that might not bejustified in terms of knowledge creation whenboth approaches are individually valid avenues toknowledge creation.

Research design and methods

Data were gathered through surveys of 182 cross-functional knowledge-creation teams in 38 USand Japanese firms located in the United States.We focus on the divisions responsible for the

manufacture of personal computer, photo ima-ging and automotive products. We selected firmsthat belong to these industries, because they facedifferent innovation cycles that affect the timepressure on gathering and processing differenttypes of knowledge for knowledge creation(Lawrence and Lorsch, 1967). For each com-pany, we randomly selected a set of project teamswhose main objective was to use specific marketknowledge to innovate their products. Theresponse rate was 88.4% at the firm level and95.8% at the project team level.Since we use cross-level analysis we collected

data from four different sources using fourseparate surveys, in order to avoid single-respondent bias and separate out levels ofanalysis (Klein, Tosi and Cannella, 1999; Rous-seau, 1985). Data on organization-level integra-tive routine communication were collected fromfour randomly selected employees based in R&D,sales/marketing, customer services and manufac-turing engineering respectively. Data on organi-zation-level reward and organization-levelsocialization were obtained from the personnelmanager of the division of each firm. Data onteam-level management practices were collectedfrom the project team-leaders. Data on projectoutcomes were collected from project managers.

Dependent variable

The capability to create knowledge. This cap-ability is represented by its outcomes, becausecapability is an intangible that is not directlymeasurable (Godfrey and Hill, 1995). Five out-comes of capability are analysed: product in-novation, technological innovativeness of theproduct, speed-to-market, customer satisfactionand efficiency. All measures are based on a five-point Likert scale. We use factor analysis for allvariables consisting of multiple measures andreport their reliability scores indicated by theirCronbach’s alpha. All of the scales have aCronbach’s alpha above 0.70, thus providing anadequate level of reliability for predictor tests andhypothesized measures of a construct (Nunnally,1978, pp. 245–246). Product innovation is mea-sured by the extent to which projects whosepurpose was to use market intelligence (customerfeedback about the product) led to (1) newproduct development and (2) product modifica-tion. The Cronbach’s alpha for this factor is 0.87.


Technological innovativeness is measured by theextent to which the project led to a high degree oftechnological innovativeness in the product(Ancona and Caldwell, 1992). Speed-to-marketis measured by the extent to which the innovationwas delivered to market according to schedule(Ancona and Caldwell, 1992). Customer satisfac-tion is measured by the extent to which theinnovation met customer expectation. Efficiencyis a factor analysis of two items, measured bythe extent to which the project met expecta-tions in terms of (1) the level of staff hoursand (2) financial resources (excluding staffhours) that would be necessary to complete theproject. The Cronbach’s alpha for this factoris 0.81.

Independent variables

Organization strategy. The integrative practicesthat compose the organization strategy areorganization-level integrative reward, organiza-tion-level integrative socialization and organiza-tion-level integrative routine communication. Allmeasures are based on a five-point Likert scale.Organization-level integrative reward is measuredby the extent to which managers other thanfunctional managers have influence over indivi-duals’ rewards in terms of promotion opportu-nities, salary increase, bonus payment, and jobassignment (Katz and Allen, 1985; Milgrom andRoberts, 1992; Morrill, 1995). Organization-levelintegrative socialization is measured by the extentto which new professional employees are pro-vided with cross-functional orientation (Nohriaand Ghoshal, 1997). Lastly, organization-levelintegrative routine communication is measuredby six items examining the frequency with whichindividuals interact with others outside theirfunctional areas (55 daily, 45more than oncea week, 35 once every 1–2 weeks, 25 once every2–3 weeks, 15 once every 3–4 weeks). Therespondents were asked about the frequency of:(1) meetings between management employeesfrom different functions to discuss work-relatedissues; (2) meetings between non-managementemployees from different functions to discusswork-related issues; (3) meetings between man-agement personnel from different functions dur-ing personal time to discuss work-related issues;(4) meetings between non-management personnelfrom different functions during personal time to

discuss work-related issues; (5) meetings betweenmanagement personnel from different functionsduring personal time to discuss non-work-relatedissues; and (6) meetings between non-manage-ment personnel from different functions duringpersonal time to discuss non-work-related issues.The Cronbach’s alpha of this factor is 0.81.

Project team strategy. The integrative manage-ment practices that compose the project teamstrategy are project team-level integrative reward,project team-level integrative socialization andproject team-level integrative routine communi-cation. We also used a five-point Likert scale forall of these measures, except for project team-level integrative reward. Project team-level inte-grative reward is measured by a factor analysis offour items, evaluating the extent to which projectteam outcome affects team members’ (1) salaryincreases, (2) bonus payments, (3) promotionsand (4) job assignment. A value of 1 is given foreach component affected. The Cronbach’s alphafor this composite is 0.78. Project team-levelintegrative socialization is measured by evaluat-ing the extent to which the team agreed that theyreceived specific training to work on the projectas an initial step in their teamwork. Project team-level integrative routine communication is mea-sured using a factor analysis of four items toassess communication frequency among teammembers (55 daily, 45more than once a week,35 once every 1–2 weeks, 25 once every 2–3weeks, 15 once every 3–4 weeks). Respondentswere asked about the frequency of: (1) formalface-to-face meetings with all the core teammembers, (2) informal face-to-face meetings withonly certain team members, (3) phone conversa-tions and (4) e-mail. Measures are based onprevious team-level product innovation studies(Griffin and Hauser, 1992; Subramaniam andVenkatraman, 2001). The Cronbach’s alpha forthis composite is 0.83.

Control variables. We control for industry andcountry of origin of the firm using dummyvariables. Additionally, at the project team-level,we control for tenure diversity and functionaldiversity. Consistent with previous research(Ancona and Caldwell, 1992; Keller, 2001; Smithet al., 1994), we measure tenure diversity usingthe standard deviation of team members’ tenure


divided by its mean. The same procedure isfollowed to measure functional diversity.

Analysis

Before testing the hypotheses, we conducted acluster analysis based on the integrative manage-ment practices to identify whether the practicesform a system of practices that we term knowl-edge-creation strategies, and whether firms can beclassified as following one of the strategiessuggested by the theoretical discussion. Wechoose the hierarchical cluster analysis, a statis-tical technique that sorts observations intosimilar sets or groups, rather than a non-hierarchical analysis such as the K-means usedby Slater and Olson (2001), because the former isnot predetermined by the researcher (Ketchenand Shook, 1996). Therefore, the cluster analysisserves to classify firms according to the similarityin practices that they use in managing theiremployees to create knowledge. Hierarchicalalgorithms progress through a series of steps thatbuild a tree-like structure by either addingindividual cases to or deleting them from clustersbased on the similarities or differences betweenthe practices in the model.After identifying these strategies, because this

study has a set of independent and dependentvariables, we also used a canonical analysis toestablish that the strategies as a set are able toexplain a significant amount of variation inthese outcomes of capability simultaneously(Bolch and Huang, 1974; Glisson and Durick,1988; Lambert and Durand, 1975; Wherry, 1984).If the two strategies are unable to explain asignificant amount of variation in these depen-dent variables as a set, subsequent analyses ofeach dependent variable are not permitted. Thisprotects against repeated explanation of thesame variation shared by correlated dependentvariables.We use the ordinary least-squares regression

analyses to test the effect of each strategy onknowledge creation and related outcomes. Ourdecision rule to test the hypotheses regardingwhether a strategy is valid for the development ofthe capability to create knowledge is that, first,the overall model is statistically significant, andthus explains the variance in the outcomes of thecapability; and second, that the integrative mana-gement practices that compose each of the strate-

gies have positive coefficients that are statisticallysignificant.

Results

Following Ketchen and Shook (1996), resultsfrom the cluster analysis presented in Figure 2indicate that 45% of the firms sampled follow theorganization strategy, while the other 55% followthe project team strategy. Thus, both strategies arevalid avenues for knowledge-creation, and theyare selected by a similar number of firms. More-over, in analysing the nature of the companiesthat choose one strategy or the other, we find thatfirms with the same country of origin or operatingin the same industry choose different strategies.Thus, it is managers rather than the characteristicsof the industry or the country of origin that leadfirms to select knowledge-creation strategies.Table 1 presents the descriptive statistics and

correlation matrix. The variables from bothcategories of predictors correlate significantlywith outcomes of the capability. The variablesthat correlate most highly with product innova-tion are organization-level integrative socializa-tion (0.51) and project team-level integrativeroutine communication (0.58), suggesting thatthere is a strong relationship.Table 2 presents the results from a canonical

analysis. The two strategies explain 65.6% (thecanonical correlation squared) of the variation inthe combined set of dependent variables. Theslightly larger canonical weight for productinnovation than for the other outcomes indicatesthat a somewhat stronger relationship existsbetween the two strategies and product innova-tion. The strength and significance of therelationship between the two strategies and therelatively equal canonical coefficients for theoutcomes of capability indicate that the twostrategies are able to explain variation in eachdependent variable unrelated to the other, andthat ordinary least-squares regression analysesare appropriate.The results of the empirical test of the existence

and effectiveness of the organization strategy(Table 3) support H1, that is, that the organizationstrategy facilitates the development of the cap-ability to create knowledge. The models arestatistically significant and the explanatory poweris over one-third of the variance of the different


outcomes of the capability to create knowledge.Moreover, the three integrative managementpractices that compose this strategy have positiveand statistically significant coefficients across alloutcomes of the capability.The results of the empirical analysis of the

existence and effectiveness of the project teamstrategy (Table 4) provide support for H2,indicating that the project team strategy facil-itates the development of the capability to createknowledge. The models are statistically signifi-cant and their explanatory power is also over onethird of the variance of the different outcomes ofthe capability to create knowledge. Additionally,

the three project-team level integrative manage-ment practices that are part of this strategy havepositive and statistically significant coefficients inall outcomes of the capability.A comparison of strategies seems to indicate

that the organization strategy has a slightlyhigher explanatory power of the different out-comes of the capability to create knowledge, butthis finding needs to be qualified. The results ofthe analysis reveal only the benefits of using thestrategies in terms of knowledge creation. How-ever, the strategies entail costs in implementingthe set of integrative management practices, coststhat, as we argued before, are likely to be higher

Organization ID Number (N=38) 0 5 10 15 20 25 +---------+---------+---------+---------+---------+

17 -+---------+ 35 -+ +---------+ 6 -----------+ +---------------+ 2 -----------+---------+ I 9 -----------+ I 14 ---------------------+---+ +---+ 36 ---------------------+ +---------+ I I 15 ---------------------+---+ I I I 28 ---------------------+ I I I 19 -----------+-------------+ +-+ I 29 -----------+ +-----+ I I 10 ---------------------+---+ I I I 27 ---------------------+ +---+ +-------+ 32 -----------+---------+ I I I 33 -----------+ +---+ I I I 12 -----------+---------+ +-----+ I I 22 -----------+ I I I 8 -------------------------+ I I 11 -----------+-------------+ I I 13 -----------+ +---------------+ I 38 -------------------------+ I 25 -----------+-----------------------+ I 26 -----------+ +---------+ I 30 ---------------------+-------------+ I I 34 ---------------------+ I I 7 -----------+---------+ I I 31 -----------+ +---------+ I I 18 -----------+---+ I I +---+ 37 -----------+ +-----+ I I 5 ---------------+ I I 21 -+---------+ +-----+ I 24 -+ +-+ I I I 1 -----------+ +-+ I I I 20 -------------+ +-----------+ I +-------+ 4 ---------------+ +-+ I I 3 ---------------------------+ +-+ I 23 -----------------------------+ I 16 -------------------------------------+

1. Project team strategy

2. Organization strategy

Figure 2. Hierarchical cluster analysis of organization-level and project team-level practices: Cluster 1 contains companies following the

project team strategy and Cluster 2 contains companies following the organization strategy

Dendrogram using average linkage (between groups) rescaled distance cluster combine.


Table1.Descriptive

statisticsandcorrelationmatrix

MeanStd

Dev

12

34

56

78

910

11

12

Outcomes

ofthecapability

tocreate

knowledge

1.Product

innovation

3.72

3.05

1

2.Technological

innovativeness

3.83

3.07

0.42**

1

3.Speed-to-m

arket

3.24

2.90

0.27

0.25

1

4.Customer

satisfaction

4.05

2.85

0.28

0.17

0.36*

1

5.Efficiency

1.79

1.85

0.17

0.28

0.04

0.18

1

Organizationstrategy

6.Organization-level

integrativereward

1.12

3.69

0.42**

0.38*

0.36**

0.31*

0.34*

1


integrativesocialization

1.37

3.02

0.51***0.43**

0.48***

0.39**

0.43**

0.22

1


integrativeroutine

communication

2.63

2.65

0.49***0.37**

0.39**

0.42**

0.44***

0.38**

0.48***

1

Project

team

strategy

9.Project

team-level

integrativereward

2.12

1.56

0.34*

0.25

0.37**

0.38**

0.39**

�0.06

�0.26

0.33*

1

10.Project

team-level

integrativesocialization

2.91

3.70

0.32*

0.43**

0.46***

0.41**

�0.23

�0.19

0.17

0.46***

0.121

11.Project

team-level

integrativeroutine

communication

2.78

2.10

0.58***0.38*

0.48***

0.47***

0.35*

0.21

0.36**

0.53***

0.270.38*

1

Controlsforproject

team

strategy

12.Project

team-level

tenure

diversity

3.40

1.26

0.22

0.19

�0.17

�0.19

�0.13

�0.23

�0.22

�0.56***�0.210.02

�0.47**1

13.Project

team-level

functionaldiversity

3.63

1.55

0.27

0.21

0.01

�0.05

0.50***�0.25

�0.18

�0.19

�0.280.07

�0.19

0.11

*po0.05,**po0.01,***po0.001


for the organization strategy. Unfortunately wedo not have measures of cost of implementationto fully establish this claim.Overall, the results of the analyses reveal that

the strategies are substitute approaches for thecreation of knowledge, since both yield statisti-cally significant models with similar explanatorypower and the set of integrative managementpractices that compose each have statisticallysignificant coefficients. Although we have arguedfor and presented the two strategies as substi-tutes, they could be thought of as complemen-tary. Additional analyses, not presented here,where we studied the interaction among practicesdo not yield statistically significant effects forthe cross products of the integrative managementpractices that compose each strategy, except inthe case of the cross product of organization-level and project team-level integrative routinecommunication. Thus, although using bothapproaches can reinforce integrative routinecommunication, the cost of implementingtwo sets of integrative management practicesmight not be warranted by the additionalbenefit.

Table 2. Canonical analysis

Variable Standardized canonical

coefficients

Outcomes of the capability to

create knowledge

Product innovation 0.52

Technological innovativeness 0.46

Speed-to-market 0.39

Customer satisfaction 0.44

Efficiency 0.42

Organization strategy

Organization-level integrative

reward

0.37


socialization

0.39


routine communication

0.42

Project team strategy

Project team-level integrative

reward

0.39


socialization

0.41


routine communication

0.35

Canonical correlation 0.81

df 12/336

F-ratio 16.99***

*po0.05, **po0.01, ***po0.001

Table 3. Results of the regression analysis for testing whether the organization strategy supports the development of the capability to

create knowledge

Outcomes of the capability to create knowledge

Model 1

Product

Innovation

Model 2

Technological

Innovativeness

Model 3

Speed-to-

market

Model 4

Customer

satisfaction

Model 5

Efficiency

Organization

strategy

Organization-level

integrative reward

0.47** 0.84** 0.55*** 0.61** 0.39**

(0.11) (0.19) (0.17) (0.21) (0.11)

Organization-level

integrative socialization

0.92*** 0.71** 0.88*** 0.93*** 0.66**

(0.23) (0.32) (0.30) (0.21) (0.25)

Organization-level

integrative routine

communication

0.85*** 0.66*** 0.83*** 0.77*** 0.59**

(0.16) (0.27) (0.32) (0.26) (0.22)

Controls Industry1 -0.18 0.32 0.41 0.38** 0.68**

(0.18) (0.19) (0.61) (0.11) (0.19)

Industry2 0.21 0.11 0.63** 0.75** 0.61**

(0.14) (0.09) (0.16) (0.27) (0.22)

Country of origin 0.18 0.17 0.22 0.28 0.43

(0.23) (0.19) (0.18) (0.31) (0.26)

Intercept 4.97*** 4.67*** 3.24*** 2.55*** 3.76***

(0.63) (0.37) (0.53) (0.16) (0.59)

F 4.99*** 4.97*** 4.77*** 4.82*** 3.89***

R2 0.42 0.43 0.46 0.43 0.39

Adjusted R2 0.37 0.39 0.32 0.29 0.33

White’s heteroskedastic-consistent standard errors in parentheses. N5 182.*po0.05, **po0.01, ***po0.001


Conclusions

In this study we take the view that firms aredistributed knowledge systems. We identified twostrategies that enable the development of thecapability to create knowledge by promotinginteractions among the individuals composingthe system: the organization strategy and theproject team strategy. The two strategies, whichare composed of different sets of integrativemanagement practices, are both valid approachesfor developing the capability to create knowl-edge. Although the organization strategy appearsto better predict outcomes of the capability, itmight be a more costly approach that not allmanagers would choose to follow.Before we discuss the contributions of this

research, we acknowledge several limitations.First, like all cross-sectional studies, the paper islimited in its ability to establish causality. It couldbe that high-performing firms are the only oneswith high levels of knowledge creation and alsothe only ones that can afford to make extensive

use of the strategies. However, since the firms inthe study are all large companies, they would all,in principle, have the necessary resources toimplement one strategy or the other. Thus, theapplicability of the results of the study might belimited to large firms, since smaller firms mightlack the resources to use these strategies, parti-cularly the organization strategy. Second,although the organization strategy appears tobe a better predictor of the outcomes of thecapability to create knowledge, we have data onthe benefits of using the strategies but not on thecost of implementing them, which limits theestablishment of the superiority of one strategyover the other.Despite the limitations, the study makes an

important contribution to the knowledge-basedview by being among the first to empiricallyidentify and test the effectiveness of differentstrategies that firms use to develop the capabilityto create knowledge. It provides both a theore-tical explanation and empirical evidence of twostrategies to manage individuals in the firm. As

Table 4. Results of the regression analysis for testing whether the project team strategy supports the development of the capability to

create knowledge

Outcomes of the capability to create knowledge

Model 1

Product

Innovation

Model 2

Technological

innovativeness

Model 3

Speed-to-

market

Model 4

Customer

satisfaction

Model 5

Efficiency

Project team

strategy

Project team-level

integrative reward

0.39** 0.64** 0.38*** 0.39*** 0.53***

(0.13) (0.26) (0.09) (0.10) (0.21)

Project team-level

integrative socialization

0.83*** 0.89*** 0.63*** 0.48** 0.47*

(0.21) (0.29) (0.14) (0.14) (0.21)

Project team-level

integrative routine

communication

0.72** 0.95** 0.49** 0.90*** 0.49**

(0.29) (0.27) (0.15) (0.26) (0.21)

Controls Project team-level

tenure diversity

0.29** 0.27** 0.52** 0.58*** 0.71***

(0.09) (0.11) (0.19) (0.14) (0.32)

Project team-level

functional diversity

� 0.23 0.78*** 0.27 0.44* 0.42

(0.19) (0.24) (0.14) (0.17) (0.73)

Industry1 0.12 0.48 0.17 0.36 0.46

(0.42) (0.27) (0.31) (0.17) (0.42)

Industry2 0.25 0.62 0.53** 0.81* 0.22

(0.19) (0.38) (0.22) (0.37) (0.17)

Country of origin 0.41 0.49 0.19 0.52 0.69

(0.35) (0.37) (0.18) (0.81) (0.34)

Intercept 2.17** 4.19*** 4.67*** 2.77*** 4.11***

(0.89) (0.89) (0.99) (0.32) (0.63)

F 4.32*** 3.97** 3.63** 3.89** 4.52**

R2 0.36 0.42 0.37 0.32 0.38

Adjusted R2 0.35 0.37 0.28 0.26 0.31

White’s heteroskedastic-consistent standard errors in parentheses. N5 182.*po0.05, **po0.01, ***po0.001


such, it provides a first step towards under-standing knowledge creation. Future researchwould need to tackle not only the benefits butalso the cost of the strategies for knowledgecreation in firms.Although the study is academic in nature, it

can help guide managerial practice. It suggeststhat managers have a choice of two strategies forthe development of the capability to createknowledge. It presents the specific integrativemanagement practices (integrative reward, inte-grative socialisation and integrative routine com-munication) that each strategy entails and onwhich managers can base the creation of theknowledge system, highlighting the equifinality ofthe strategies and indicating the limitations ofeach strategy in terms of its costs, applicabilityand sustainability of the associated competitiveadvantage. For firms to be able to compete on thebasis of knowledge, managers have to be able tomanage employees not only to interact in orderto share knowledge, but also to use that knowl-edge to create new knowledge. This paper assiststhem in understanding how to do this byproviding an explanation grounded in the knowl-edge-based view.

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Strategies for Knowledge Creation in Firms