Strategy, and the Theory of the Firm|
J.P. Liebeskind (Strategic Managment Journal, v. 17, Winter 1996,
Importance of Knowledge
is a main source of most firmsí competitive advantage. This includes
both codified knowledge such as written documents and blueprints
as well as tacit knowledge such as routines.
- Firms that
do a better job of protecting their unique knowledge from being
stolen, observed, and imitated, will have an advantage over those
- While there
are some legal protections of knowledge, such as patents and trademarks,
they are weak and costly to write and enforce. Therefore, firms
also use the following organizational methods to protect their
Ways Firms Protect Knowledge
of incentives - a firm's existence can protect knowledge,
e.g. two scientists creating a patentable substance will be better
able to share their knowledge without worrying about the other
stealing their ideas if they form a jointly owned firm.
incentive plans such as stock options, pensions with delayed
vesting, and promotions impose exit costs on employees.
conduct rules such as exclusivity, confidentiality and
non-disclosure, location of work, and non-compete clauses
help to keep knowledge inside the firm.
design - desegregation of tasks through job specialization
makes it unlikely that one person will know enough to reproduce
an entire product, hierarchies in which knowledge is restricted
to upper level managers serve a similar purpose.
Costs of Knowledge Protection
sunk and administrative costs - most important sunk cost is
the commitment to employ knowledge workers for long periods of
time (versus short-term contractors, for instance). Administrative
costs may go up because monitoring employee conduct may require
increased technology and may demotivate employees, making hiring
and retention more difficult.
- Loss of
communication within firm and between firm and outside sources.
of internal communication decreases productivity and speed-to-market,
of willingness to share firm information decreases access
to new knowledge that may come from outside sources such
as University research labs, small R&D firms, or individual
experts since getting information usually requires sharing
value of some of firmís knowledge may depend on whether it
is communicated to outsiders. For instance, not sharing early
stage designs with potential customers could inhibit product
Moral: While knowledge protection is becoming increasingly
important, there is a trade- off between protection and innovation;
thus, firms need to figure out how to do both.