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Handbook of Organizational Learning and Knowledge Management, Second Edition by MARJORIE A. LYLES, MARK EASTERBY-SMITH

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Knowledge Management: Organizational Economic Insights

In this section, we shall more concretely apply specific organizational economics insights to two clearly central aspects of knowledge management: knowledge creation and knowledge integration. The former category encompasses learning (by doing, using, being instructed, etc.) and innovation processes such as knowledge combination, while the latter refers to how to make best use of existing knowledge in the firm. We develop propositions based on organizational economics regarding how firms may stimulate investments by employees in firm specific knowledge, resolve incentive problems in knowledge-creating teams, and make choices between alternative means in the integration of knowledge, including knowledge sharing.

Knowledge creation

It is now almost an axiom that knowledge creation in firms lies at the heart of competitive advantage (Nonaka and Takeuchi, 1995; von Krogh et al., 2000; Nonaka and von Krogh, 2009). Expressions such as ‘firms learn’ and ‘firms know’ have become commonplace in much of the strategy and knowledge management literature.3 However, it is not firms as such that learn, and firms themselves do not possess knowledge. So-called ‘firm knowledge’ is composed of knowledge sets controlled by individual agents. We stress this admittedly basic methodological individualist point in order to emphasize the point that by focusing on the level of the individual agent, rather than the firm, organizational economics highlights ...

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