Learning to Grow: The Evolution of Business Knowledge MMUBS HRM&OB Seminar Series 18 October 2006

Theoretical Antecedents Penrose (1959) Theory of the Growth of the Firm Barney (1986, 1991) Resource-based View of the Firm Capability-based view of the Firm Teece, Pisano and Sheun (1997) Eisenhardt and Martin (2000) Spender (1996) Knowledge-based theory of the firm Emerging Concerns of Knowledge as Situated and Contextual Communities of Practice (Lave and Wenger 1991; Brown and Duguid, 1991) Activity Theory (Engeström, 1990; Blackler, 1995) Resource-based view notes that it is the unique and difficult to copy configuration of resources that provide the CA. Implied here is a notion that knowledge is configured as resources – although there is also an acknowledgment that success is dependent on difficult to copy processes and systems that are unique and embedded in practice. ‘A dynamic capability is a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness’ (Zollo and Winter, 2002:340). Dynamic capabilities (Teece et al, 1997; Zollo and Winter: 2002) Experience Accumulation Knowledge Articulation Knowledge Codification Cof P – Identity and activity shaped by interactions and participation thorugh shared practices and interactions. Activity Theory - , knowledge is seen as sustaining structures and routines that guide activity. The theory also suggests that knowledge work is a contested domain of action and interaction. During this process knowledge is reconfigured and reworked. The theory focuses on ‘creative aspects of learning and its [learning’s] dependence upon a culturally provided infrastructure’

Penrose on knowledge She distinguishes between resources (e.g. knowledge/materials & services (processes and systems) (entrepreneurial and managerial capabilities) Use and configuration of resources provides services Variety of options Important for productivity Bounded rationality/perception limits resource application by managers As knowledge changes, creates new possibilities of resource configuration. Change through experience and/or access to new knowledge resources

Knowledge and Opportunity Knowledge limits the growth of the firm Resources limit productive possibilities Resources limit the recognition of productive opportunities Organization essentially bundles knowledge in processes Cumulative and evolutionary growth of collective knowledge Routines – current state of state of collective knowledge evident in organizational activity (Nelson and Winter, 1982)

Understanding Growth : Stage Models Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Crisis of red tape Crisis of? Growth through collaboration Crisis of control Crisis of autonomy size Growth through co-ordination Crisis of leadership Growth through delegation Major influence of resource and stage models over the years: Here we can see that Griener suggests that a set of specific internal routines are necessary to transition between stages of growth – and knowledge required to create new appropriate routines Increasingly under criticism Levie and Hay (1999) Bessant et al (2005) note that despite the long tradition of these type of stage models that rely on particular knowledge capabilities and resources to manage transition points, there is little empirical evidence to suggest that is indeed the case! My own research published in 2005 suggests that all of these crises are ongoing and continually being managed in growing firms – both internally and in relation to customers, suppliers and institutional environment Managing all of these ‘knowledge routines’ depends on the available skill, competences and ability of the management team to act in specific situations in order to manage the unique aspects of their particular context. Growth thorough direction Growth through creativity age Revolution Evolution Greiner (1972, 1998)

Research Review on Knowledge and Growth in SMEs – AIM Reports Research of knowledge within an SME context can be broken down into three distinct fields: The knowledgeable SME manager or entrepreneur; The knowledge systems and routines embedded within the context of the firm and their immediate networks; The institutional and policy framework that is intended to support knowledge production within SMEs. These fields are not discrete and inevitably overlap but they provide a useful heuristic through which research can be examined. It is noteworthy that, apart from a handful of studies which address entrepreneurial knowledge construction through narrative analysis, knowledge is considered to exist as a configurable resource. (IJMR, Thorpe et al, 2005; Research Policy, Macpherson and Holt, forthcoming)

Knowledge, Learning and Growth This seems to be much more of a dynamic relationship, where these elements are much more interdependent and in tension. Generally the variability of each element throws up the possibility of a multitude of organizational possibilities and what might be more important than ‘certain knowledge resources’ is how these dimensions interact to support learning processes by which knowledge evolves

Conceptualizing Learning There are four key areas to consider: The principle agent(s) in the firm—their education and approach The structural properties of human capital available—internally and externally The social architecture of the firm—the routines and devices that mediate interaction and work in organizations The normative context—powerful market and institutional relations From the research review and analysis it is possible to conceptualize four key areas that contribute to the learning process that support the evolution of business knowledge:

Understanding Entrepreneurial Action Entrepreneur is a significant influence on learning activity since, as principle agent in the firm, they have power and legitimacy to influence practices Entrepreneurial action is directly related to the embeddedness of activities and experiences within specific communities. Entrepreneurial Capabilities are: Path dependent and situated (unique) Continually Emergent – through practice Dependent on individual motivations and capabilities to seek out opportunities – new communities of interaction Dependent on recourse to others (isomorphic influences) This resonates strongly with Lave and Wenger’s (1991) concept of ‘communities of practice’ where an individual’s identity and knowledgeable practice develops through the interactions within a specific domain of activity. Communities of Practice – shape identity and experiences and limit repertories of action Past and current interactions provide the entrepreneur or manager with unique experiences through which their knowledge is developed and negotiated. It has historicity, it is inevitably incomplete, and it is an ongoing project the more active entrepreneurs and managers are in seeking out different communities, the more likely such interactions are to provide resources for reflecting on, and innovating, current activities. so Creating situations in order to stretch existing human capital, or to enable access to new experiences, may encourage the reflection necessary to avoid rigidity and encourage innovation But we should note that Entrepreneurs cannot act without recourse to others; the institutional and social context in which they are active will influence the range of their potentially legitimate actions

Structural Properties of Human Capital Internal: Management Team Staff Capabilities Staff involvement (e.g. delegation and empowerment) External: Social Technical and Business Networks Professional Advisors Structural properties of available endogenous and exogenous sources of human capital is important Processes, routines create interactions with these, and are perhaps more important:

Organizing Routines Systems of Exploitation are essential for realizing efficiency and profit from existing knowledge Systems of Exploration (Learning) are important for organizational renewal Systems of ‘Absorptive Capacity Recognition and embedding of ‘new’ knowledge in organizational routines Entrepreneur’s knowledge is best embodied in configurations of organized routines organizational systems, processes and routines are the structures and that support interactions and exchanges within and external to the firm - exploitation - exploration includes: creating ‘space’ for activity that enables problem solving; - e.g. delegation the capacity for knowledge acquisition (via external knowledge networks); and the capacity for internal knowledge dissemination and sharing. (involvement) the concept of ‘absorptive capacity’ encourages scrutiny of both the formal and informal systems and relationships at the firm level. But it is how these relationships are negotiated that are important for understanding their influence on knowledge evolution and growth.

Relational and Cognitive Social Capital Depth of relations (strong/weak) Trust, reciprocity, loyalty, collaboration Transactional, contractual, fleeting Discursive Resources The ability to persuade and leverage the support of others (inside and out) Social and Discursive Skills Political will and power The influence, ability and desire to challenge accepted practice in the firm It is the interactions that support the potential to learn within the ambit of the firm. Activities that sustain and create complex relational interactions (Bogenrieder, 2002), and discursive structures that shape communicative actions (Oswick et al., 2000) are the social processes that sustain the transfer of knowledge and knowing essential for learning and growth. The types of interactional dimensions that might influence this process include: Depth of relations: These can vary between strong and weak ties – the former support complex knowledge and learning relations, but they can limit acces to new ides and can stifle change in the long term., Discourse: This can include rhetorical skill, narrative construction and other communication skills. The ability to network, make friends and engender support is a key part of developing relations that support learning. Politics: Ability and willingness to put the everyday accepted routines under review, and engage in genuine dialogue about whether they are appropriate. and also More powerful members of a social group (e.g. customer) may significantly influence the accepted discourse and frames of reference, and shared assumptions about the correct way to ‘act’ Resolving tensions is a fundamental part of genuine collective learning that is often hidden in any understanding of community based social analysis

Context of Institutional and Market Conditions Owner-managers are subject to institutionalizing pressures when responding to uncertainty. Vary depending on geography, markets, politics Competition can create a crisis that stimulates learning and change Potential role for a variety of institutional support activities: Business clubs Supply chain development initiatives Knowledge Transfer Partnerships Education Some firms more willing and able to respond than others Understanding of learning orientation important Specific geographic, industry, political or market contexts will have a role to play in the learning processes in small firms market of customer relations create crises that stimulate the owner-director into action, which can speed-up the process of learning (Clarysse and Moray, 2004). However, what is more interesting is that there is a potential role for the institutional infrastructure in supporting or directing the learning process.

Conceptualizing Learning in Small Firms Owner Director experience education ‘learning orientation’ Internal Human Capital management team staff capabilities staff involvement External Human Capital social, technical & business networks professional advisors Relational & Cognitive Social Capital depth of relations discursive resources power and political will Structures and Systems of Organizing systems of absorptive capacity systems of exploitation systems of exploration Social Architectures of Mediating Means Structures of Human and Social Capital Context of Institutional and Market Conditions Structural properties refer to the existing state of affairs in terms of abilities, attitudes and approaches to managing relationships and routines are the social architectures of mediating means, and they are both the expression of the state of knowing present in the firm, and they are also the learning mechanisms, or ‘objects of activity’, through which learning occurs and absorptive capacity is created. The institutional framework refers to the context in which these relations are negotiated. They may also provide mechanisms and support through which learning and growth can be driven (for example institutional support mechanism). Policy support needs to be more flexible and responsive to the unique relationships experienced by all firms along these dimensions But they also constitute leverage points through which policy support can be driven. (e.g. in context this would include business agencies, universities, professional advisors – all useful, but in different situations and dependent on existing states of affairs in terms of social architecture and available human capital)

Directions of Research Recognition of the political nature of learning activity and the complexity of growth processes. Specific areas of interest: ‘Objects of Activity’ that can facilitate interactions and leverage learning. Mediating devices that support learning relationships (e.g. business analysis tools, soft process technologies etc) Shift from knowledge resources to learning processes Fundamental shift towards research into actions/practices as opposed to assets of knowledge (different research methods and philosophies) Particularly a shift in focus to ‘communicative actions’ - the everyday structuring of relations that are the means by which knowledge evolves and is made ‘real’ Discursive strategies and devices used to influence others Issues of human capital, the owner-director’s important leadership role, the variety of potential systems of interaction, the influence of outside agencies and also the political nature of learning activity combine to create degrees of complexity not discussed in stage models of growth. In order to understand the important relationship between knowledge, learning and growth ther are some areas that are worth investigating.

Knowledge, Learning and Growth Any Questions?