Tapping into the knowledge-based economy: How to boost your organization’s innovation

by Elisa Operti , 12.01.17

Elisa Operti, Professor of Management at ESSEC Business School shares her research into how firms can gain a sustainable innovation advantage by learning from other companies’ publicly-available knowledge.

The age of sharing the cake

We all know that knowledge is out there. Not to be confused, of course, with information – also out there in juggernaut volumes though not necessarily beneficial in terms of hard added value. Popularized by Peter Drucker as long ago as 1966 in his book The Effective Executive and again, in 1969, with The Age of Discontinuity in which he describes the transition of the global economy to a knowledge economy (where knowledge resources such as trade secrets and expertise are just as critical as other resources), the importance from learning from other firms’ public knowledge is widely recognized.

Interested in the way organizations trawl and use this information, ESSEC Prof. Elisa Operti and Gianluca Carnabuci (ESMT) have introduced the concept of the “spillover network”. In other words, a network of firms whose public knowledge other firms pick up on, absorb and use as innovation input. As such, states Operti, we talk of “source firms” and “recipient firms”, the former providing information publically, the latter taking this information and using it to boost innovation.

Traditionally, firms have capitalized on knowledge by inter-organizational collaboration networks, wide research having shown that such face-to-face learning and joint problem-solving initiatives are important as a means to absorb technological knowledge and spark learning and innovation. Moreover, this has particularly been the case for companies endowed with dedicated teams and processes for managing partners’ tacit knowledge. But is this the only – or perhaps even the most important way – source of learning through which firms can gain an innovation advantage?

Spilling the beans – tacitly and explicitly

A key word here is tacit, asserts Prof. Operti. In terms of the tacit knowledge mentioned above, this refers to skills, ideas, know-how and experiences that people are often unaware they possess, that has not been formally written down or recorded, and which cannot easily be expressed. As such, in order to be transferred effectively to others, tacit knowledge requires lengthy personal contact, interaction and a state of trust to exist. By formally setting up a partnership, community or network to share knowledge, organizations therefore lay the foundations for making knowledge capture all that much easier. However, asserts Operti, the key distinguishing trait of the so-called knowledge-based economy is that a large share of the technological knowledge firms generate is not tacit. Rather, it is codified – that is, rendered explicit – and made publically accessible through scientific articles, patents, technical publications, and conference presentations, for example. This gives companies the potential opportunity to tap into a whole wealth of readily and easily available knowledge that they can use to benchmark ideas on, adapt, and development new innovations.

Generally acknowledged – there is no one truth to anything

But, there is a hitch. While economists have widely recognized the economy-wide benefits of firms’ public technical knowledge, academics in management have tended to belittle its firm-level strategic value on the grounds that it can be obtained by everyone at negligible cost – and therefore of short-lived and low competitive advantage especially when compared to tacit knowledge.

This seems at odds with well-established insights on the nature of knowledge at firm level: namely that the cost of capturing knowledge from spillover (networks of firms) is not in fact low, and that this cost can rise substantially when a firm has no previously related experience of fishing for knowledge. Indeed, the value of capturing knowledge does not so much depend on the how unique the knowledge is, but rather the extent to which the firm has the right organizational capabilities required to link and combine it with other knowledge in its existing resource base. As such, absorbing public knowledge into a firm will indeed lead to a sustainable innovation advantage with organizational and process capabilities perhaps contributing to explaining why certain firms are systematically more innovative than others. For example, AMD, Motorola, and Applied Materials — but not other semiconductor firms — were able to deal with a radical technological shift by scrupulously tracking, analyzing, and building on IBM’s patented innovations.

Strategies for tapping into knowledge and gaining in innovation

Focusing on patents as the key form of public technological knowledge in the knowledge-based economy, Prof. Operti’s research has led to several interesting conclusions for firms wishing to optimize their capacity to trawl for pertinent knowledge and use it as fuel for innovation:

People, tools, processes: Investing in teams, processes and resources within the organization is an essential basis for optimizing your firm’s capacity to successfully carry out knowledge capturing. To take full advantage of a munificent spillover network, a firm needs to efficiently screen and select from a large and fast-changing stream of knowledge those ideas, methods, and technologies that promise to be most useful for its current or future innovation projects. Too often, a company’s capability to manage knowledge that is represented in an abstract and general form, such as in patents, is impinged by the lack of investment in these factors.
A solid scientific base: having a solid scientific base helps firms efficiently select knowledge inputs in extensive, fast-growing spillover networks and guides them as they attempt to synthesize knowledge from previously unrelated innovation trajectories.
Scientific intensity: consistent with this, Prof. Operti’s research found that the advantage of being exposed to an extensive and abundant spillover network is greatest for firms whose scientists engage extensively in their academic communities.
Create bridges between networks: Research has shown that firms tend to be more innovative when their network is rich in structural holes – the move away from compact, organized and closed networks of knowledge sharers to loose clusters characterized by your firm’s capacity to act as a bridge between them. Firms with a network rich in structural holes have access to more diverse knowledge inputs compared to firms whose contacts are themselves mutually connected,and ultimately show a greater dynamic for innovative performance.
Take the time, gain in experience, focus: the more prior experience a “recipient” firm has accumulated about the innovation trajectory of a given “source” firm, the easier it should be to draw from the public knowledge it generates. In addition, the more a firm focuses on, and repeatedly draws knowledge from, a specific source firm, the more it will master the scientific and engineering knowledge from it, and the deeper it will understand its ideas, solutions, and processes described in its patents. Aim for the long term: accumulating experience with a pool of firms means that over time they innovate more, thus providing more knowledge for your firm to be able to capture for its own innovations.
Be vertical – integrate downstream: vertically integrated firms – that is, those who are active along the whole supply chain – are better at internally brokering knowledge. In addition, Elisa Operti’s research showed that downstream integration increases firms’ ability to seize the knowledge-diversity benefits inherent in hole-rich spillover networks.
But be flexible like a non-integrated firm: vertically integrated firms have a tendency to be too organizationally rigid and too reliant on unstructured and embedded knowledge to be able to fully exploit the fast growing stream of abstract and general knowledge characteristic of extensive spillover networks. Non-integrated firms are more likely to have the flexible organizational capabilities and skills needed to effectively manage fast-flowing and extensive public knowledge. So be flexible, be innovative.
Aim for one or the other – but not both: Being positioned within an extensive and abundant spillover network significantly enhances firms’ innovative performance. Moreover, being part of networks characterized by structural holes is also beneficial. However, Prof. Operti’s research demonstrated that being exposed to a spillover network that is both munificent and rich in structural holes is generally counterproductive. Firms should therefore either pursue a knowledge deepening strategy – repeatedly borrowing emergent knowledge from a few selected munificent sources – or a knowledge bridging strategy – innovate by bringing together established ideas from disconnected, remote sources.

Clearly, each of these strategies entails both risks and costs. How to strike a balance between them stands out as an interesting question for both practitioners and researchers.