KNOWLEDGE MANAGEMENT

Knowledge Management

Knowledge Management

Introduction

Newell, et al (2009) mentions knowledge management has recently emerged as a new discipline in its own right and, given its newness, is probably still developing its theoretical home. In this paper, an enhanced understanding of knowledge management will be provided by revisiting the works of Penrose (1959) and Nelson and Winter (1982). In doing so, this paper will argue that although knowledge in itself is a resource, the effective management of knowledge enables those within the firm to extract more from all resources available to it. Further, knowledge management plays an important supporting function by providing a coordinating mechanism to enhance the conversion of resources into capabilities. The remainder of this section explains this perspective.

An understanding of why firms exist and how resource allocation decisions are made within firms has been a central theme in economic theory (Penrose, 1959). However, the treatment of resources in economic theory has, at times, been problematic. For example, in general equilibrium theory (a mainstay of neo-classical microeconomic theory) resources were considered to be homogeneous, information perfectly available and evenly distributed, profit maximization central and an equilibrium level of output guided production decisions (Penrose, 1959). Clearly, general equilibrium theory was deficient in that it failed to properly consider what went on inside firms (Nelson, 1991). There were several early and notable attempts to break away from the general equilibrium model. Of particular relevance here is Penrose's (1959) book, The Theory of the Growth of the Firm. Penrose (1959) argues that although markets set price signals that influence resource allocation, those within the firm make decisions on what activities the firm will be involved in, how those activities will be performed, what resources are required, which resources are allocated to different activities and, ultimately, which resources are used. As a consequence, internal processes and insights rather than external market prices and cost signals will greatly influence a firm's growth. However, decisions about internal processes are burdened with a considerable degree of uncertainty since decision makers often do not have full information upon which to act. This may be because either full information is unavailable or the information is asymmetrically distributed (Clarke and McGuiness, 1987; Coase, 1937). Therefore, in order to understand the internal operations of a firm, it is important to understand not only the types of resource decisions but also to acknowledge the affect of information on those resource decisions.

Hypothesis Development/Research Objectives

This paper examines the role of effective knowledge management in two ways. First, the paper examines the suggestion that effective knowledge management supports the conversion of all other resources into capabilities. Since capabilities underpin the long run survival of a firm, firms with effective knowledge management behaviours and practices are likely to make better use of resources and so will exhibit superior outcomes such as more innovation and superior financial performance. Therefore:H1a. Firms that effectively manage knowledge are likely to be more innovative. H1b. Firms that effectively manage knowledge are likely to perform ...