Balancing Stability and Innovation in Knowledge-Intensive Firms: The Role of Management Control Mechanisms

Balancing Stability and Innovation in Knowledge-Intensive Firms: The Role of Management Control Mechanisms

Angelo Ditillo (Universita Bocconi, Italy)
Copyright: © 2009 |Pages: 16
DOI: 10.4018/978-1-60566-176-6.ch015
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Abstract

Knowledge-intensive firms are composed of various communities, each characterized by specialized knowledge. These communities operate as critical agents in the organizational action because the relevant processes and the variety/variability of environment and technology are too complex for a single individual to understand in their entirety. They generate new models for interpreting reality and responding to customer needs thanks to the integration of knowledge taking place within and between them. The objective of this chapter is to provide some criteria for evaluating the comparative effectiveness and efficiency of combinations of control mechanisms in the regulation of these knowledge integration processes. On the basis of the characteristics of knowledge (level of complexity and diversity), a different set of control mechanisms is proposed, with a variation in their specific features to guarantee that the resulting modes of communication and cognition can guarantee the required level innovation, without however preventing a certain level of stability.
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Existence And Organization Of Knowledge-Intensive Firms

A recent approach that helps to shed some light on the reasons for the existence and organization of knowledge-intensive firms, and to some extent for all firms in general, is represented by the knowledge-based theory of the firm (Zander and Kogut, 1995; Kogut and Zander, 1996; Conner and Prahalad, 1996; Grant, 1996a; 1996b; 1997). Even if this approach has been criticized (Foss, 1996a; 1996b), and refers to any kind of firm, it may help explain the emergence of knowledge-intensive firms and the way in which they are organized. Central to the knowledge-based theory of the firm is the argument that increasing turbulence in the external business environment has focused attention on resources and organizational capabilities as the principal sources of sustainable competitive advantage and the foundation for strategy formulation (Peteraf, 1993; Teece and Pisano, 1994; Kim and Mauborgne, 1999; Morris et al., 2006). As the markets for resources have become subject to the same dynamically competitive conditions that have afflicted product markets, so knowledge has emerged as the most strategically significant resource of the firm (Vicari, 1992; Drucker, 1993).

Key Terms in this Chapter

Control Mechanisms: They refer to a set of integrated tools for steering an organization toward the achievement of its objectives, by influencing managers’ behaviour.

Knowledge Complexity: It is the characteristic of knowledge that derives from the fact that either a high number of actors and activities are involved in a knowledge process or knowledge is differentiated among agents or, finally, neither inputs nor outputs of knowledge processes can be observed.

Innovation: It is the process through which new ideas, goods, services, processes and activities are created, developed or redefined.

Codification: It is the process of defining perceptual and conceptual categories that facilitate the classification of phenomena and of linking these phenomena to categories, once they have been developed.

Knowledge-Based Theory of the Firm: It is the theory of the firm that focuses attention on the resources and organizational capabilities as the principal sources of sustainable competitive advantage and the foundation for strategy formulation.

Communities of Practice: They are the teams that are linked to the environment and that aim at finding a match with it by means of interpretive sense-making and congruence finding.

Knowledge-Intensive Firms: They are the firms that employ mainly the knowledge of people to develop and trade immaterial solutions for customers.

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