TopIntroduction
As Burgelman and Grove (2007) have clearly explained, ‘nonlinear strategic dynamics come about as industry participants – sometimes incumbents, but probably more frequently new entrants – change the rules of the game’ (p. 966). These rules span normative rules based on laws, customs, and administrative principles; technological rules based on available technical solutions; economic rules reflecting existing bargaining power relationships among the industry players (often captured in contracts); and cognitive rules that are widely shared judgments about key success factors. The authors contend that whether implicit or explicit, the rules of the game usually remain unchallenged for extended periods of time (Grove, 2003), thereby engendering a strong tendency toward strategic inertia among the industry incumbents (Burgelman & Grove, 2007).
Institutions are the sources of such rules that are imposed to the organization and its competitive field. They have the power, as it will be illustrated with a case study, to induce innovations and make use of their strong institutional impetus. In the attempt by governments to stimulate the economy, solving this issue of disconnect between institutional systems legitimized in routine on the one hand and innovation striving on change on the other hand, promises to lead to a newfound virtuous cycle of growth.
The importance of knowledge management (KM) lies in the fact that it has been recognized as a source of competitive advantage and has become a necessary practice for innovation, in which ‘the central competitive dimension of what firms know how to do is to create and transfer knowledge efficiently within an organizational context’ (Kogut & Zander, 1992, p. 384). Moreover, when institutions are viewed as ‘the humanly devised constraints that structure human interaction’ (North, 1994, p. 6), institutions can be seen as shaping much of the knowledge of our societies, both as inputs and outputs. And because technology for instance, has long been established as embodying a type of knowledge – ‘technology is the knowledge of the manipulation of nature for human purposes’ (Betz, 1993, p. 374) – or as being the output of a unique knowledge utilization – ‘technology is the application of scientific and engineering knowledge to achieve practical results’ (Roussel et al., 1991, p. 22) – innovation turns out to be an outcome of institutions. Therefore, institutions, which ‘can be powerful sources of both stability and change’ (Jepperson, 1991, p. 159) shape the environment where innovations have the potential to flourish (or perish), and these successful (or failed) innovations provide in return a justification for the aforementioned institutions. This dialectic between institutions and technology brings KM to the foreground in exploring the institutional factors influencing innovation.