Knowledge life cycles and entrepreneurial ventures
Andrew C. Inkpen
Knowledge is the lifeblood of all organizations and especially for entrepreneurs. All new ventures originally begin as an idea about an opportunity for new goods, services, managerial practices, or markets. For an entrepreneurial idea to be transformed into a real commercial venture, knowledge must be created. Increasingly, the creation of organizational knowledge is becoming a managerial priority for all organizations. New knowledge provides the basis for organizational renewal and sustainable competitive advantage and is at the heart of the creative process embodied in entrepreneurship. In this essay I examine knowledge, its life cycles, and its relationship with entrepreneurial ventures. I begin with a discussion of knowledge types and then consider how knowledge evolves in the firm and in a broader environmental context. I then discuss knowledge life cycles from two perspectives: (1) the transformation of know ledge from idea through product development and organizational knowledge sharing within an organization or new venture; and (2) the evolution of the individual idea from a single firm to a larger network and ultimately to commoditization as a public good. I conclude with several suggestions for future research.
Types of Organizational Knowledge
Knowledge can be defined as information that is laden with experience, judgment, intuition, and value (Nonaka and Takeuchi, 1995). Because the nature of knowledge will influence the volume and type of entrepreneurial opportunities (Eckhardt and Shane, 2003), a starting point in understanding knowledge life cycles is a consideration of knowledge types. I begin with the distinction between tacit and explicit knowledge. Polanyi (1962) defined tacit knowledge as know ledge that is non verbalizable, intuitive, and un articulated. Spender (1996a) suggested tacit knowledge could be understood best as know ledge that has not yet been abstracted from practice. It is knowledge that has been transformed into habit and made traditional in the sense that it becomes ‘‘the way things are done around here’’ (Spender, 1996b). Tacit knowledge is highly context specific and has a personal quality, which makes it difficult to formalize and communicate (Nonaka, 1994). Explicit know ledge can be transmitted in formal, systematic language and may include explicit facts, axiomatic propositions, and symbols (Kogut and Zander, 1992). It can be codified or articulated in manuals, computer programs, training tools, and so on.
The distinction between explicit and tacit should not be viewed as a dichotomy, but rather as a spectrum with the two knowledge types at either end. Winter (1987) identified other taxonomic dimensions of knowledge, including com plex vs. simple, not teachable vs. teachable, and not observable in use vs. observable in use. Similarly, although the distinction between tacit and explicit is important, it does not allow us to consider any gray areas between completely tacit and completely explicit knowledge. Know ledge types, therefore, must be classified on a continuum that ranges from explicit knowledge embodied in specific products and processes to tacit knowledge acquired through experience and use and embodied in individual cognition and organization routines.
Nonaka and Takeuchi (1995) suggested that a key challenge for organizations is the conversion of tacit knowledge to explicit knowledge. I would argue that the conversion of abstract tacit know ledge into commercial viability is the essence of entrepreneurial knowledge creation. Knowledge that is tacit and highly personal has little commercial value until it can be converted into explicit knowledge and embodied in real products and services that other organizational members can understand. However, such a conversion process exposes the knowledge to the hazard of imitation by other firms. Zander and Kogut (1995) discussed the trade off between the need to share and transfer knowledge internally and the risk of exposing the knowledge to imitation. For the entrepreneur to create a viable new venture, the conversion of new knowledge and its protection are dual and sometimes competing objectives.
Recognizing that firms’ idiosyncratic know ledge consists mostly of tacit, difficult to imitate knowledge, Spender (1996b) developed a more comprehensive typology of organizational know ledge, encompassing individual and social levels. Whereas individuals have knowledge that is practical, communities have knowledge that constitutes the socialization and social activities of the individuals within them. Individuals constantly acquire knowledge, share it with their organizational community and, thus, increase the collective store of knowledge while maintaining a common individual knowledge with their co workers.
In Spender’s (1996b) typology, explicit know ledge stored in databanks, standard operating procedures, manuals, and so on is referred to as objectified knowledge. Tacit knowledge is separated into three subtypes: conscious, automatic, and collective. Individual tacit knowledge can be either conscious or automatic. Automatic know ledge is implicit knowledge that ‘‘happens by itself’’ and is often taken for granted. Conscious knowledge may be codified, perhaps as a set of notes, and is potentially available to other people. Collective knowledge is tacit knowledge of a social or communal nature. For the entrepreneur, converting individual tacit knowledge to collective knowledge is a critical step because it means the knowledge then exists in more than the mind of the innovator.
Finally, knowledge can be viewed in terms of its content. Dess et al. (2003) identified three types of knowledge content: technical, integrative, and exploitative. Technical knowledge is specialized in nature and is concerned with the properties of specific activities. Integrative knowledge is a product of how a firm has learned to combine its unique resources and capabilities to create value. Exploitative knowledge expands as the firm learns how to creatively find value creating ways to exploit technical and integrative knowledge sets.
Knowledge Life Cycles
Birkinshaw and Sheehan (2002) proposed a knowledge life cycle with four stages: creation, mobilization, diffusion, and commoditization. Knowledge creation starts as an idea that is highly tacit, difficult to articulate to others, and often conceived to address a specific problem. As the creator of the knowledge further develops the idea, perhaps sharing it with colleagues, the knowledge begins the transition from tacit conscious to tacit collective. This transition represents the mobilization stage. Knowledge becomes known to others, who are then in a position to challenge, critique, and modify the ideas. As the knowledge gets supplemented with new ideas and becomes more explicit, diffusion beyond a small circle of individuals and organizations begins to occur. In the diffusion stage, the knowledge becomes widely known in the relevant marketplace. In the final commoditization stage, the knowledge becomes a public good, which means the organizational challenge is how to manage knowledge that is already well known and broadly diffused.
The Birkinshaw and Sheehan model conceptually overlaps with Nonaka and Takeuchi’s (1995) spiral of knowledge creation. The crucial difference is that Nonaka and Takeuchi focus on knowledge within the firm and how innovation occurs. Birkinshaw and Sheehan (2002) ad dressed the life cycle from creation, to innovation, to knowledge as a public good. In Nonaka and Takeuchi’s model, the key underlying process in knowledge creation and innovation is the interaction between tacit and explicit know ledge. As Nonaka and Takeuchi (1995) make clear, the tacit knowledge of individuals is the basis of organizational knowledge creation. Organizations cannot create knowledge without individuals, but unless individual knowledge is shared with other individuals and groups, the 164 knowledge life cycles and entrepreneurial ventures knowledge will have a limited impact on organizational effectiveness. Hence, organizational knowledge creation should be viewed as a process whereby the knowledge held by individuals is amplified and internalized as part of an organization’s knowledge base (Nonaka, 1994).
As knowledge is transformed from an individual to a collective state, organizational know ledge is created (Nonaka and Takeuchi, 1995). The transformation occurs in a dynamic process involving various organizational levels and carriers of knowledge. Specific learning processes are at work at each level. At the individual level, the critical process is interpreting and sense making; at the group level it is integrating; and at the organization level it is integrating and institutionalizing (Inkpen and Crossan, 1995). To capture the dynamic movement of know ledge across the levels, Nonaka (1994) developed the concept of a spiral of knowledge creation. In the spiral, knowledge moves upward in an organization, starting at the individual level, moving to the group level, and then up to the firm level. As the knowledge spirals upward in the organization, it may be enriched and amplified as individuals interact with each other and with their organizations.
The Organizational Knowledge Cycle
From the previous section, it can be seen that there are two distinct knowledge cycles of relevance for the entrepreneur. The first is that which occurs within a specific organization. In the organizational life cycle, knowledge starts as an idea within the mind of an innovator about an opportunity. For that opportunity to be exploited, the knowledge must spiral upward in an organization, which may result in a new in ternal venture or a form of corporate entrepreneurship. Regardless of the organizational outcome, the key process is that of the spiral from individual idea to a new venture and innovative outcome. In Nonaka and Takeuchi’s (1995) framework, various enabling conditions create the antecedents for the knowledge spiral. The antecedents include organizational intention, individual autonomy, fluctuation and creative chaos, redundancy, and requisite variety. When the conditions are present, organizational knowledge creation can occur.
Nonaka and Takeuchi’s (1995) theoretical model was a major advance in the knowledge management area because it incorporated novel theoretical ideas with valid examples of innovation, such as Matsushita’s Home Bakery. The interplay between tacit and explicit knowledge is the key underlying process in their model. Designing organizations to enhance creativity requires an appreciation for organizational knowledge evolution. Although heavily focused on Japanese firms, Nonaka and Takeuchi’s five phases of knowledge creation provide a template for understanding how knowledge moves from idea through product development and organizational knowledge sharing. The five phases are: sharing tacit knowledge, creating concepts, justifying concepts, building an archetype, and cross leveling of knowledge. It is not difficult to see that these phases conceptually overlap with organizing models of new venture activity, which involve stages such as entrepreneurial identification, discovery, and exploitation of entrepreneurial opportunities. Indeed, one could argue that the new venture creation process is essentially a process of knowledge creation. Until an original innovative idea is made explicit and transformed through a dynamic process into organizational knowledge that can be transmitted and articulated, the idea’s value will be limited. As the idea is transformed, a new venture may be created and exploitation becomes possible.
Knowledge and its Evolution from Idea to Public Good
The Birkinshaw and Sheehan (2002) life cycle traces the evolution of the individual idea from a single firm to a broader industry population and ultimately to commoditization as a public good. They use the example of quality management to illustrate the evolution of a body of knowledge over the life cycle. This broader life cycle mirrors the life cycle of entrepreneurial opportunities (Eckhardt and Shane, 2003). When entrepreneurs exploit opportunities, they trans fer knowledge to others about the opportunity, how it works, and how it can be implemented. In doing so, knowledge diffuses to potential imitators, which can erode the value of the opportunity. Alternatively, the entrepreneur may impose or create barriers to imitation, via patents, know ledge protection devices, or secrecy.
There are entrepreneurial opportunities at each stage of the broad knowledge life cycle. However, as Birkinshaw and Sheehan (2002) argued, companies cannot realistically expect to be active in all the stages. Thus, firms and entrepreneurs seeking new opportunities must under stand the knowledge life cycle associated with their innovative ideas. Conventional wisdom suggests that ideas grounded in public know ledge will have entered the commoditization stage, limiting opportunities for creating sustainable competitive advantage. On the contrary, although knowledge may have entered the commoditization stage, there will always be new opportunities associated with that knowledge. Commoditized knowledge offers opportunities to recombine and extend knowledge in new value creating activities. For example, in the international wine industry, the science of making wine is an ancient technology and one that would surely be classified as a commodity. While there have been a few technical innovations in recent years in the wine industry, the most valuable innovations have occurred in downstream areas such as branding, labeling, and advertising. Innovations in these areas have resulted in major new wine industry competitors emerging from countries such as Australia and Chile. Entrepreneurs have capitalized on the willingness of Old World wine producers to accept commoditization as the natural order of the industry.
Moreover, knowledge life cycles can be renewed, as the wine industry example illustrates. As wine industry knowledge became collectively known and commoditized, creative wine industry firms adapted to the environment and spawned a new knowledge life cycle around innovations in areas such as labeling, advertising, Internet sales, and so on. Thus, rather than viewing the knowledge life cycle as an evolution with an endpoint, it should be viewed as a series of stages that continues to spawn new entrepreneurial opportunities along the life cycle.
The Knowledge Life Cycle as an Evolutionary Perspective
Various scholars have called for an evolutionary approach to the study of entrepreneurship. The idea of evolution means that the concepts will evolve over time and in so doing impact other concepts. For example, Aldrich and Martinez (2001) argued that an evolutionary approach should study the creation of organizations, the way in which entrepreneurs adapt and use organizational resources, the circumstances under which new ventures survive and prosper, and the manner in which successful ventures are imitated and perpetuated by other entrepreneurs. Knowledge life cycles, both within the firm and within broader society, should be an integral element in such an evolutionary approach. Since entrepreneurs exploit opportunities and create knowledge, the origin and evolution of entrepreneurial knowledge should play a key role in entrepreneurship research and practice.
In addition, the network in which knowledge gets created has an important role in shaping how knowledge evolves. Networks also evolve and their evolution will be correlated with know ledge life cycles. The knowledge that entrepreneurs acquire and exploit often comes from within a network of existing and future producers, supporting organizations, and a labor market. The configuration of a network structure determines the pattern of linkages among network members. Elements of configuration such as hierarchy, density, and connectivity affect the flexibility and ease of knowledge ex change through their impact on the extent of contact and accessibility among network members (Krackhardt, 1992). The structural, cognitive, and relational dimensions of an in ternal firm network will influence the movement of knowledge from creation to diffusion within a firm. Once knowledge is diffused beyond the firm, in its path to eventual commoditization, various networks and the social context in which firms are embedded will impact the know ledge evolution.
Conclusion
Generating, capturing, and leveraging know ledge, as the key to competitive success, is a notion that is widely accepted. New know ledge, and especially knowledge from outside the firm, can be an important stimulus for change and organizational improvement. Since unique knowledge is the most valuable capital of entrepreneurs, understanding the link be tween knowledge life cycles and new ventures should be a primary area of study in the field of 166 knowledge life cycles and entrepreneurial ventures entrepreneurship. This short essay touches on some of the underlying conceptual issues involving knowledge life cycles, entrepreneurship, and new ventures. Future research could address a variety of interesting issues, such as: What is the life cycle of knowledge as it is transferred from one new venture to the next? At what stage in the organizational knowledge life cycle should a new venture transfer knowledge to potential customers and how does this transfer impact the ability of the entrepreneur to establish legitimacy? What are the managerial processes that support or hinder the movement of knowledge from tacit idea to explicit new product? Can the knowledge life cycle be effectively managed in a manner that supports new venture value creation? Do different knowledge life cycle stages play a greater or lesser role in contributing to new venture success? What role do organizational processes and control play in facilitating the spiral of knowledge from idea to exploited opportunity? How does knowledge move through regional knowledge networks and what are the key stages where the knowledge interacts with entrepreneurs and other network members?
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