Ideas Factory – Nottingham, 25 January, 2006

Andrew Grantham and Raphael Kaplinsky – Brighton

Diane Mynors and Souad Mohammed – Brunel

Kathryn Walsh and Rhoda Coles – Loughborough

Paul Chan – Northumbria

Understanding and Assessing the Concept of

Knowledge Leakage

Understanding and Assessing the Concept of

Knowledge Leakage

Overview

• Aims and objectives of project• Knowledge and knowledge leakage• Data scoping study• Initial findings and conclusion • Themes informing project

– Theory– The nature of knowledge– Measurement

• Summary of literature findings

Understanding and Assessing the Concept of

Knowledge Leakage

Aims and objectives

• The aims are met by achieving the following objectives:– exploration of companies’ appreciation of the

significance of knowledge leakage;– categorisation of knowledge leakage as a function of

firm and inter-firm activities;– development of an outline methodology for

companies to assess their knowledge leakage holistically and to understand the risks and benefits associated with the leaks;

– provision of an assessment as to the potential effect of knowledge leakage on productivity.

Understanding and Assessing the Concept of

Knowledge Leakage

What is knowledge?

• propositional (i.e. Gibbons’ (1994) Mode I – scientific knowledge);

• procedural (i.e. Gibbons’ (1994) Mode II – application-oriented which and contextually-bound);

• dispositional – i.e. learned values, attitudes and interests that predispose the acquisition and treatment of knowledge (Billett, 1997; Harrison and Kessels, 2004).

Understanding and Assessing the Concept of

Knowledge Leakage

What is knowledge leakage? (1)

• Premise:– The changes [in manufacturing philosophies] have

included the: • outsourcing of non-core activities• introduction of lean • increasing requirements on lower tier companies to provide

integrated solutions rather than mere components • movement of low-value adding activities to low cost base

regions.

– In these and other control-relinquishing activities, including staff retirement and other experience-loss mechanisms, knowledge leaks away from the origin.

Understanding and Assessing the Concept of

Knowledge Leakage

What the literature says about KL

• Developing concepts introduced in studies of outsourcing design work (Twigg, 1997). – Suppliers learn from their experiences and embody

these as improvements in their next client's product – Guest engineers (engineers from supplier firms who

permanently reside in the customer company)

• Tiers in the automotive industry (Lamming, 1993).

• International joint ventures (Tidd and Izumimoto, 2002)

• Digital media (Annansingh: http://isrg.shef.ac.uk/fenio/)

• Spill-overs (Vohinger et al., 2004)

Understanding and Assessing the Concept of

Knowledge Leakage

Data

• Scoping study– Key interviews with seven firms (in process

of coding)• 5 SMEs/1 Large/Huge

– Medical equipment design & manufacture– Food processing– Telecoms equipment & service– Design/construction – Defence equipment– Metal products

– Turnovers ranging from £500K – 20billion

Understanding and Assessing the Concept of

Knowledge Leakage

Data – key issues emerging

– Reliance on individuals with critical knowledge

– Insufficient knowledge capture procedures– Trust relationships evident in subcontracting– Information/knowledge as a public good– Importance of suppliers for industry

knowledge– Customer feedback feeding back to product

development– Knowledge capture – where seen – is

through inaccessible paper based systems

Understanding and Assessing the Concept of

Knowledge Leakage

Data – not in any order

– Where individuals leave/retire, poor processes for knowledge transfer to capture knowledge for organisation

– Back-end sharing but still the risk that they will just walk away (and take knowledge/ideas)

– Criticality of knowledge based on ‘gut feeling’– Reliance on experiential knowledge (know-how

rather than know-what)– Cultural/social factors increasingly significant for

knowledge sharing– Transfer rarely uni-directional– Awareness of certain types of knowledge leakage,

and its criticality – but in cases it is a fact of business life and has to be dealt with.

Understanding and Assessing the Concept of

Knowledge Leakage

Conclusions

• Knowledge leakage (flows) are under researched and conceptualised

• Diverse literatures are complementary

• Some useful typologies

• Good case studies

• Wide variety of indicators available for measurement purposes

• Challenge to produce taxonomy

• Operationalise it as a tool/methodology

Understanding and Assessing the Concept of

Knowledge Leakage

Foundational literature – first trawl

Dynamic capabilities

Core competences

Risk

Trust

StrategyKnowledge/productivity HRM

Supply chains

RBV

CMMs

Knowledge intensity

value chains

NPD/R&D

Lean production

Rents

Barriers to entry

Understanding and Assessing the Concept of

Knowledge Leakage

Dynamic Capabilities (1)

• Dynamic capabilities are the resources and capabilities that a firm draws upon to affect change. (Teece et al., 1997)– internal capabilities that are explicit and

homogeneous such as product development and strategic decision making which pool business, functional and personal expertise (Eisenhardt and Martin, 2000);

Understanding and Assessing the Concept of

Knowledge Leakage

Dynamic Capabilities (2)

– internal capabilities that are tacit and heterogeneous such as knowledge resources (Kogut, 1996; Grant, 1996); and

– inter-relationship capabilities including commercial alliances/inter-firm cooperation (Eisenhardt and Martin, 2000; Lorenzoni and Lipparini, 1999; Schmitz and Knorringa, 2000; Bessant et al., 2003)

Understanding and Assessing the Concept of

Knowledge Leakage

Global value chains – GVCs

• Value Chain Framework (Gereffi, 1994; Gereffi and Kaplinsky, 2001; Kaplinsky and Morris, 2001).– Schumpeterian rents (Schumpeter, 1961)

• entrepreneur super-profit exceeding the cost of the invention and the associated innovation as well as the returns to economic activity in other activities which are less well protected from competition.

• Rents are protected by barriers to entry…

Understanding and Assessing the Concept of

Knowledge Leakage

GVCs – Barriers to entry (2)

• The most enduring barriers to entry are increasingly found in knowledge-intensive sectors and activities, such as design, chain coordination (Governorship). (Gereffi, 1994; Kaplinsky, 2000; Gereffi and Kaplinsky, 2001)

• Imitability’ of core technologies - when a firm’s key resources are imitable, the firm cannot realise its full rent potential

Understanding and Assessing the Concept of

Knowledge Leakage

Towards measurement – Knowledge intensity (1)

• Defined as “[The] extent to which a firm depends on the knowledge inherent in its activities and outputs as a source of competitive advantage” (Autio et al, 1999) – Rents are maintained at a high level if the KI

in production is high. Low KI leads to erosion.

– The ability to generate and command knowledge resources is a key component of dynamic capabilities and long term and sustainable profitability.

Understanding and Assessing the Concept of

Knowledge Leakage

Knowledge intensity (2)

• Indicators in the literature– R&D expenditure – No of patents– Stock of managerial and production

techniques– Audit of current knowledge and future

knowledge possibilities based on current knowledge

– Management assessment questionnaires(Autio, Sapienza and Almeida, 1999, Smith 2002, Shadbolt and Milton, 1999, Roper and Cronet, 2003, Ndofor and Levitas, 2004)

Understanding and Assessing the Concept of

Knowledge Leakage

Knowledge flows

Knowledge flows

Explicit flow/tacit

flow

Episodic flow/

continuous flow

Propriety flow/shared

flow

Pre-product flow/post-product

flow

Internal flow/external

flow

Highly non-linear, dynamic, complex adaptive systems that differ between supply chains and between entities

within supply chains. (A bit of brain work, 2005)

Understanding and Assessing the Concept of

Knowledge Leakage

Inter-firm data sharing – one study

Stefansson, 2002

Understanding and Assessing the Concept of

Knowledge Leakage

Nature of Knowledge – Risk

• Intentional– Increases time-to-market if poorly managed– Increased dependency on suppliers – Loss of centralised information control/

maintenance– Piracy of confidential knowledge– Loss of market share– Partial interpretations, forgetting, poor verbal

communication, Chinese whispers.

(Bovet, 2005; Yanow, 2004)

Understanding and Assessing the Concept of

Knowledge Leakage

Trust (1)

• Farrell and Knight (Farrell & Knight, 2003)– Defining trust as: ‘a set of expectations held by one

party that another party (or parties) will behave in an appropriate manner with regard to a specific issue.’

• Reducing transaction costs/risk management• Learning in collaboration depends on high

levels of trust between the partners (Buckley & Casson, 1988; 1996).

• High levels of trust enhances internal organisational effectiveness (Arrow and Phelps, 1975; Fox, 1974).

• Trust facilitates continuing relationships between firms (Macaulay, 1963).

Understanding and Assessing the Concept of

Knowledge Leakage

Trust (2)

• Saxenian's (1991) study of Silicon Valley firms – This involves “...relationships with suppliers as

involving personal and moral commitments which transcend the expectations of simple business relationships”

– Social interaction/living proximity.

• Freeman (1990) – cultural factors such as language, educational

background, regional loyalties, shared ideologies and experiences and even common leisure interests will continue to play an important role in collaboration.

Understanding and Assessing the Concept of

Knowledge Leakage

Knowledge and Productivity (1)

• Competitor imitation has been shown negatively to impact market and accounting performance (Ndofor and Levitas, 2004).

• A more efficient productivity strategy is to share knowledge about up-to-date activity including process, change in product and services (Baines, 1997)

Understanding and Assessing the Concept of

Knowledge Leakage

Knowledge and Productivity (2)

• Transferring knowledge for productivity (Lapre and Van Wassenhove, 2001)– Mukherjee et al. (1998) analyzed 62 quality

improvement projects undertaken in one factory over a decade.

– Processes in quality improvement projects exhibit considerable variation along two learning dimensions: conceptual (know-why) and operational learning (know-how).

– Only 25% of the projects, the ones that acquired both know-why and know-how, accelerated the factory's learning rate.

Understanding and Assessing the Concept of

Knowledge Leakage

Knowledge and Productivity (3)

• Three major factors determine knowledge-worker productivity– Knowledge-worker productivity demands

that we ask the question: "What is the task?”– It demands that we impose the responsibility

for their productivity on the individual knowledge workers themselves.

• Knowledge Workers have to manage themselves. They have to have autonomy.

– Continuing innovation has to be part of the work, the task and the responsibility of knowledge workers.