Organizational Knowledge and Innovation in Business Services

WP 2003-23 July 2003This study builds a typology of organizational knowledge in business services and empirically examines the effects of knowledge on innovation performance. We suggest that firms differ with respect to their knowledge creation approaches and that these approaches have implications for firm performance in terms of innovation success. A conceptual framework of knowledge assets with degrees of tacitness and collectiveness as the principal axes is used to ground the empirical analysis. We find that innovation in business services is associated with both tacit and explicit collective knowledge, and with explicit individual knowledge. In contrast, relying solely on tacit knowledge held by individuals may hamper innovation. These empirical results shed new light on the debates in organization studies concerning the strategic effects of tacitness and collectiveness of knowledge: Innovation benefits may be gained from codifying knowledge and making it appropriable at the collective level, as opposed to the individual one. Additionally, our results indicate that tacit collective knowledge is more closely associated with new service introductions while explicit collective knowledge is associated with service improvements. In other words, tacit collective knowledge may be conducive to significant departures from existing capabilities and activities while explicit collective knowledge is conducive to incremental improvements. The firm’s knowledge creation approaches thus need to be aligned with its service strategy.This research was supported by the Innovation Networks research program of SITRA, the Finnish Foundation for R&D