Toward-a-Knowledge-Based-Theory-of-the-Firm

StrategicManagementJournal,Vol.17(WinterSpecialIssue),109-122(1996)TOWARDAKNOWLEDGE-BASEDTHEORYOFTHEFIRMROBERTM.GRANTSchoolofBusiness,GeorgetownUniversity,Washington,DC,U.S.A.Givenassumptionsaboutthecharacteristicsofknowledgeandtheknowledgerequirementsofproduction,thefirmisconceptualizedasaninstitutionforintegratingknowledge.Theprimarycontributionofthepaperisinexploringthecoordinationmechanismsthroughwhichfirmsintegratethespecialistknowledgeoftheirmembers.Incontrasttoearlierliterature,knowledgeisviewedasresidingwithintheindividual,andtheprimaryroleoftheorganizationisknowledgeapplicationratherthanknowledgecreation.Theresultingtheoryhasimplicationsforthebasisoforganizationalcapability,theprinciplesoforganizationdesign(inparticular,theanalysisofhierarchyandthedistributionofdecision-makingauthority),andthedeterminantsofthehorizontalandverticalboundariesofthefirm.Moregenerally,theknowledge-basedapproachshedsnewlightuponcurrentorganizationalinnovationsandtrendsandhasfar-reachingimplicationsformanagementpractice.Theoriesofthefirmareconceptualizationsandmodelsofbusinessenterpriseswhichexplainandpredicttheirstructureandbehaviors.Althougheconomistsusetheterm'theoryofthefirm'initssingularform,thereisnosingle,multipurposetheoryofthefirm.Everytheoryofthefirmisanabstractionofthereal-worldbusinessenterprisewhichisdesignedtoaddressaparti-cularsetofitscharacteristicsandbehaviors(Machlup,1967).Asaresult,therearemanytheoriesofthefirmwhichbothcompeteinoffer-ingrivalexplanationsofthesamephenomena,andcomplementoneanotherinexplainingdiffer-entphenomena.Economictheoriesofthefirmareconcernedprimarilywithpredictingthebehavioroffirmsinexternalmarkets.Inparticular,theneoclassicaltheoryofthefirmusespartialequilibriumanalysistopredictthefirm'spurchasedecisionsininputmarketsandsupplydecisionsinoutputmarkets.OrganizationaltheoryaddressesaspectsoftheKeywords:nationknowledge;theoryofthefirm;coordi-firmignoredbyneoclassicaleconomics.Dispos-ingofthenotionofthefirmasasingulardecisiontakerandrecognizingthefirmasacomplexorganizationencompassingmultipleindividuals,organizationtheoryanalyzestheinternalstructureofthefirmandtherelationshipsbetweenitsconstituentunitsanddepartments.Interestbysocialscientistsinthefirmasaninstitutionhasbeenstimulatedbythequestionofwhyfirmsexistatall.DissatisfactionwithKnight'sexplanationofthefirmintermsofoptimalriskallocationinthefaceofindividuals'differentialriskpreferences(Knight,1921)encouragedtheemergenceofthetransactioncosttheoryofthefirmwhichfocusedupontherelativeefficiencyofauthority-basedorganization('hierarchies')withcontract-basedorganization('markets')(Coase,1937;Williamson,1975).Attemptsatintegratingeconomicsandorganiza-tionalapproachestothetheoryofthefirmhaveincludedthebehavioraltheoryofthefirm(CyertandMarch,1963)andtheevolutionarytheoryofthefirm(NelsonandWinter,1982).AlthoughstrategicmanagementhasdrawnitstheoriesofthefirmfrombotheconomicsandCCC0143-2095/96/S20109-14©1996byJohnWiley&Sons,Ltd.110R.M.Grantorganizationtheory,itsareaofinterestisdifferentfromboth.Itsprimarygoalsaretoexplainfirmperformanceandthedeterminantsofstrategicchoice.Theresulthasbeennewcontributionstothetheoryofthefirm.Theresource-basedviewofthefirmislessatheoryoffirmstructureandbehaviorasanattempttoexplainandpredictwhysomefirmsareabletoestablishpositionsofsustainablecompetitiveadvantageand,insodoing,earnsuperiorreturns.Theresource-basedviewperceivesthefirmasauniquebundleofidiosyncraticresourcesandcapabilitieswheretheprimarytaskofmanagementistomaximizevaluethroughtheoptimaldeploymentofexistingresourcesandcapabilities,whiledevelopingthefirm'sresourcebaseforthefuture.Theemerging'knowledge-basedview'isnot,asyet,atheoryofthefirm.Thereisinsufficientconsensusastoitspreceptsorpurpose,letaloneitsanalysisandpredictions,forittoberecognizedasa'theory.'Itrepresentsaconfiuenceoflong-establishedinterestsinuncertaintyandinfor-mationwithseveralstreamsofnewerthinkingaboutthefirm.Totheextentthatitfocusesuponknowledgeasthemoststrategicallyimportantofthefirm'sresources,itisanoutgrowthoftheresource-basedview.Atthesametime,knowl-edgeiscentraltoseveralquitedistinctresearchtraditions,notablyorganizationallearning,themanagementoftechnology,andmanagerialcog-nition.Theissueswithwhichtheknowledge-basedviewconcernsitselfextendbeyondthetraditionalconcernsofstrategicmanagement—strategicchoiceandcompetitiveadvantage—andaddresssomeotherfundamentalconcernsofthetheoryofthefirm,notablythenatureofcoordi-nationwithinthefirm,organizationalstructure,theroleofmanagementandtheallocationofdecision-makingrights,determinantsoffirmboundaries,andthetheoryofinnovation.Thepurposeofthisarticleistomakeprogressindevelopingsomekeyelementsofaknowledge-basedtheoryofthefirmbysynthesizingsomeoftheprincipalcontributionstothisemergingfield.ThepaperdevelopsandextendssomeoftheideasoutlinedinGrant(1996)intoamoregeneralknowledge-basedapproachtothefirmwhichseeksto:•explaintheexistenceofthefirmasaninsitutionfortheorganizationofproduction(thirdsection);•explorethenatureofcoordinationwithinthefirm(fourths