Knowledge governance and the theory of the firm

This paper suggests a new synthesis of knowledge-based approaches to the theory of the firm. It employs a social-constructivist and contextual conceptualization of knowledge as residing in groups of practitioners, epistemic communities, arguing that the ease or difficulty of sharing knowledge is more dependent on the cognitive capabilities of the exchange partners than on the characteristics of the knowledge they exchange. On the basis of this conceptualization, a simple typology of four basic knowledge processes is proposed: articulation, replication, combination and integration. The latter requires exchange and reconciliation of knowledge across epistemic communities, whose members are often unfamiliar with one another’s specialized codes, theories and tools (Grant, 1996a, 1996b). Firms constitute epistemic communities in their own right, conferring on their members the means by which specialist knowledge can be effectively combined and integrated. Firms are superior to markets not only because of the enabling advantages of firm organization but firm governance is needed also to mitigate the moral hazards associated with the investments necessary to create them