Towards a Taxonomy of Knowledge Leakage: Literature and Framework

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Towards a Taxonomy of Knowledge Leakage: Literature and Framework



Raphael Kaplinsky
,

Andrew Grantham,

Paul Chan
, Rhoda Coles,
Kathryn Walsh
,
Diane Mynors
and
Souad

Moham
ed



Contact author, Raphael Kaplinsky

The Centre for Research in Innovation Manag
ing, The University of Brighton,
The Freeman Centre, Campus of the University of Sussex, Falmer, Brighton,
BN3 4QE

r.kaplinsky@ids.ac.uk; 01273
877963


Word count
5458



Paper presented to
Knowledge and Learning Track, BAM Conference,
September 2006.




Ra
phael Kaplinsky and Andrew Grantham are the Centre for Research in Innovation
Management,
University of
Brighton.

Paul
Chan is at
School of the Built Environment

Northumbria University
.


Rhoda
Coles and
Kathryn
Walsh are
at
the
Wolfson School of Mechanical

and
Manufacturing Engineering
,

Loughborough University
.


Souad Mohamed and Diane
Mynors
are a
t the

School of Engineering and Design
,

Brunel University
.



Acknowledgements

This paper reports on work undertaken as part of the research project
Understanding
and Assessing the Concept of Knowledge Leakage

(
EPSRC


EP/D505631/1
)
.

The
project

originates from
t
he

EPSRC’s

Ideas Factory
,


Closing the Gap, Crossing the
Levels: New Perspectives on Productivity


held in January 2005.

1





Towards a Taxonomy of Knowledg
e Leakage: Literature and Framework



Abstract


The concept of knowledge management has been a significant area of scholarly study
in recent years. It has been particularly embraced by large companies
often
with
resources to employ kn
owledge professional
s
or invest in information technology.
However, this body of work
has consistently demonstrated

that knowledge resources
for businesses

op
erating in a global economy in

extended value chains


are subject to
“leakage”. In this paper we report on

empirical

r
esearch

which
conceptualises
knowledge leakage
along a number of dimensions.
These dimensions


positive and
negative
impacts, intentionality


are the building blocks of
a framework

for
understanding knowledge leakage and its impact on
the

productivity an
d
competitiveness

of UK businesses
.

The research has isolated a series of vectors


conduits


upon which firms can operationalise the framework to maximise the
positive impacts and minimise the negative impacts of knowledge flows.

1

1.

KNOWLEDGE LEAKAGE


It w
as only in the latter part of the nineteenth century, with its origins in the German
chemical industry, that firms began to formalise the pursuit of knowledge as a
specialised activity
(Freeman, 1976)
. For much of the subsequent century,
knowledge
-
generation
in the corporate sector was located in
increasingly
divisionalised structures and was executed in
hierarchical R&D departments

(Teece,
1988)
.

With the completio
n of post
-
war reconstruction and the emergence of new
competitors and intensifying competition, the inherited structure of intra
-

and inter
-
corporate industrial organisation and the place of knowledge generation within this
was challenged
. It

was

supers
ede
d by new forms of organisation whi
ch
provided for
faster throughput and

improved capacities to innovate new and improved products
(Piore
and Sable, 1984; Stalk and Hout, 1990; Womack, Jones et al., 1990)
.

Enhanced
global
competition, particularly in
manufacturing
, has meant that sustainable and
profitable production requires the capacity to draw on knowledge pools, to generate
new knowledg
e and to utilise these sources of knowledge effectively.

There has been a revolution in the place and organisation of knowledge generation in
these new forms of industrial organisation. Four significant trends can be observed.
First, as a generalised pheno
menon, the knowledge content in both process and
product has become increasingly scientised and complex

(Tranfield and Denyer,
2004)
. Second, there has been a radical change in perspective as to what constitutes a

knowledge worker

. The white
-
coated PhDs in R&D departmen
ts continue to play a
role. But following the challenges created by new forms of industrial organisation in
Japan
from the late 1970s
(Monden, 1983)
, there has been a growing awareness that
knowledge challenges are pervasive and are to be found everywhere in the modern
firm. Consequently knowledge generation is not just a challenge to be confronted by
R&D
departments, but by detailed workers and middle and senior manage
ment
throughout the enterprise
(Bessant,
2003)
; pioneering OECD study in the 1970s on
knowledge workers

(Machlup, 1962)
. Third,
as a consequence of

the growing
compl
exity of process and product,
it became increasingly clear that firms could not
cover the full range
of
activities within their value chains

and compete effectively
.
They needed to refine their operations, to concentrate on their core competences, and
to o
utsource non
-
core activities
(Hamel and Pralahad, 1994)
. This was a challenge
which became increasingly pervasive from the
early 1990s. Fourth, the rapidly
deepening pace of globalisation during the 1990s, the growth of turnkey contractors in
Korea and Taiwan
(Sturgeon, 2002)

and the rise of new second
-
generation low cost
suppliers in the developing world such as China have meant that this outsourcing has
become increasingly complex and global in na
ture
(Kaplinsky, 2005)
.

Knowledge is
now generated throughout the global value chain and the coordination function


“chain governance”
(Gereffi, 1994)



has become one of the core differentiating
competences of the contemporary profitable firms.

Finding a sustainable position in
these increasingly go
verned global value chains has become problematic for SMEs.

This paper considers flows of knowledge between firms. These flows are both
intentional and unintentional. This raises the spectre of “knowledge leakage” and
generates challenges fo
r businesses se
eking to exploit

their knowledge resources for
sustainable competitive advantage.

A considerable danger

for individual firms is that
as the extent and complexity of their relationships with other firms deepens

and as

value chains become more extended and g
lobal, so they face the dual challenge of
2

ensuring that
(a) this inter
-
firm intercourse does not lead to the
disclosure

of
proprietary knowledge
, and (b) it takes maximum adv
antage of the opportunities t
h
at

are opened up for gaining
new
knowledge.

We refer

to this integrated
approach

to
knowledge loss and knowledge gain arising from inter
-
firm linkages

as a process of
knowledge
leakage
.

We use the metaphor of “leakage” for the
management and
control of
strategically
sensitive knowledge in two ways. First,
we draw on the idea of “leakage” in plumbing
systems


that is, the inadvertent loss of knowledge, as in a pipe

leaking and draining
the system.
S
econd, the word “leakage” as also used to describe the deliberate and
strategic broadcast of knowledge to sele
ctive audiences, as in the “leaking” of
politically
-
sensitive information by politicians to journalists. To this we add the
outcomes of these processes of leakage. They may be positive (augmenting the firm’s
competitiveness), or negative (diminishing its c
ompetitiveness).

Figure 1 provides an
overview of this approach to knowledge leakage.


Figure 1. Knowledge leaking


an integrated framework


Direction of leakage

Strategic awareness of
leakage

Impact on competitive advantage

Positive

Negative

Knowledg
e outflows

High


Intentional leakage



Low


Unintentional leakage



Knowledge in
flows

High


Intentional leakage



Low


Unintentional leakage




2.

KNOWLEDGE LEAKAGE: ANALYTICAL UNDERPINNING

This integrated approach to knowledge leakage is inform
ed by a number of sets of
related theoretical literature.

These include the discussions of Schumpeterian
innovation
(Schumpeter, 1961)
, knowledge inte
nsity
(Autio, Sapienza et al., 2000;
Smith, 2002)
, knowledge management
(Grover and Davenport, 2001)
,
innovation
management
(Tidd, Bessant et al., 2001)
,
core competences
(Prahalad and Hamel,
1990)
,

dynamic capabilities
(Teece, Pisano et al., 1997)
,
human resource

management

and development
(Storey and Quintas, 2001; Swart and Kinnie, 2003;

Harrison and
Kessels, 2004)
, global value chains
(Gereffi, 1994)
, knowledge transfer
(Sapsed,
Gann et al., 2005)
, su
pply chain management
(Lamming, 1993)
,

trust
(Farrell and
Knight, 2003)

and globalisation (Kaplinsky, 2005)
.

There is also a limited, but in our view a partial, literature on k
nowledge leakage
itself. The recognition of the importance of knowledge loss is reflected in the
literatures on knowledge seepage

(DiRomualdo, 2004; Kingston, 2004; MacDougall
and Hurst, 2005)
, knowledge loss (
(Huang, 2004; MacDougall and Hurst, 2005)

and

knowledge disclosure (
(Bhattacharya and Guriev, 2004)
. But these
literatures
fail to
address either the importance of knowledge gain or the degre
e of intentionality of
knowledge loss. For example,
Annansingh,
recognises the issue of intentionality,
defining k
nowledge leakage as “the possibility of information or knowledge that is
critical to the organisation being lost or leaked


whether deliberat
ely or
unintentionally


to a competitor or unauthorised personnel”

(Annansingh, 2005)
.

But
she

only considers this as an issue of
knowledge
loss (rather than gain) and as one
having negative impacts (rather than, as in supply chain management, also involvin
g
positive impacts). Similarly,
Vohinger et al.,
(Vohringer, Kuosmanen et al., 2004)

define

knowledge leakage
as a positive outcome of unintentional and positive
3

externalities, occurring in
the form of information spillovers between pro
ject partners.
Th
ey fail to address both intentionality, and negative externality spillovers. Similarly,
the literature on
knowledge transfer
only addresses one side of the gain
-
loss equation
(in this case gain), and largely ignores the transfers arising o
ut of unintentional actions
(Bhattachar
ya and Guriev, 2004; Huang, 2004; Kingston, 2004; MacDougall and
Hurst, 2005; Marti and Fallery, 2005)
.

Each of these sets of literature provides us with important insights into the issue of
knowledge leakage as we have defined it. However, and important
ly
, none of these
literatures provides an
integrated and holistic
approach to the management of
knowledge flows in the context of globalising value chains.
In developing this
integrated approach,
we draw on five
overlapping
analytical
building
-
blocks
.

The
first is the distinction to be found in the economics literature between embodied
and disembodied knowledge. Embodied knowle
dge resides in material objects

-

devices, equipment, machinery, and materials
.
In contrast, disembodied knowledge is
immaterial,
lo
cated

in people (ideas, expertise, skills
)
,

routines

and structures
. From
the perspective of knowledge leakage, this distinction is important since there are
different challenges involved in gaining and losing knowledge as physical items and
people pass up

and down the value chain
, particularly with respect to the distinction
between public and private goods (see below)
.

The second, and related concept
,

is the distinction between tacit and codified
knowledge and is specifically relevant to disembodied knowl
edge. Tacit
knowledge
refers to ideas, procedures and routines which are lodged in the minds of individual
people, groups of people and organisations and which function through unconscious
processes and informal interactions rather than as rules
-
based beha
viour, procedures
and systems

(Grover and Dave
nport, 2001)
.

Codified knowledge
is recorded and
easily transferable, and
includes rules
-
based procedures, written descriptions of
process and product knowledge, and intellectual property rights such as patents and
c
opyrights.

I
t

is generally argued that
the
management of
tacit and explicit knowledge

to achieve
competitive advantage

requires that
tacit knowledge can be
made

explicit and hence
shared and extensively utilised
(Marshall and Sapsed, 2000)
.

This is reflected in
various
d
evelopments,
such as the growing importance of process and product
standards in production in relation

to convention theory
(Boltanski and Thévenot,
1989)
,
TQM, Lean and
continuous improvement
(Smeds, 1994; Caffyn and Bessant,
1995; McAdam and Henderson, 2004)
,
team
-
based organ
i
s
at
i
on
(Sapsed, Bessant et
al., 2002)
, learning networks
(Tsekouras, McGovern et al., 2006)
, supply chain
mana
gement
(Bessant, Kaplinsky et al., 2003)

and customer routines

(Gebert, Geib et
al., 2003)
.

The relevance
for knowledge leakage
of this distinction between tacit and
codified knowledge is that both knowledge loss and knowledge gain are more like
ly
to occur when knowledge is codified.

The third
germane

issue which is relevant to the understanding of knowledge leakage
is the
concept of t
rust
, defined by
Farrell and Knight


as

a set of expectations held by
one party that another party (or parties)
will behave in an appropriate manner
with
regard to a specific issue


(Farrell and Knight, 2003
:
p
541).
Inherent within the nature
of the concept lies an element of ambiguity and complexity
(Kidd, Richter et al.,
2003)

and several commentators have suggested that trust is multi
-
dimensional and
multifaceted
(Sako, 1992; Ganesan, 1994; Fukuyama, 1995)
.

Trust can be understood
as operating at
two levels. Game theoretic approaches focus on interactions between
4

individuals. For example, Coleman
(Coleman, 1990)

conceptualises trust in terms of
relationships between ‘trustors’ and trustees whose decisions about whether to trust
another are mediated by knowledg
e, probability of future gain from action of the
‘trustor’ towards the trustee, and calculations on loss associated with making an
incorrect decision as to whether to trust another
.

By contrast, macro/meso level
studies
on trust
focus on institutions and r
ituals; for example, Putnam

defines social
capital as the
‘features of social organisation, such as trust, norms and networks, that
can improve the efficiency of society by facilitating co
-
ordinated actions’
(Putnam,
1991
:
p
167).
From the perspective of knowledge leakage, particularly across national
boundaries, trust is an important issue since it
regulates

the extent of possible
k
nowledge loss through opportunistic behaviour
.


A fourth relevant concept is that of externalities
. Externalities occur as a set of
unintended consequences, affecting parties other than those instituting the action



“unpaid side
-
effects of one producer’s
output or inputs on other producers”
, and
particularly in its earlier formulations addressing the issue of technological spillovers

(Bohm, 1986
:
p
261
)
.
They may be posi
tive


for
example, workers trained by one
firm may be employed by another; or buyers
and suppliers
drawn to a district by a
single firm or group of firms may
purchase from or supply a new set of firms who are
coincidentally located in the same area. But e
xternalities may also be negative. The
costs of a firm which pollutes its environment will be borne by the surrounding
communities. Externalities are relevant to knowledge leakage in that firms may lose
competitive advantage as a consequence of the uninten
ded leakage of tacit
knowledge; they may also gain from the unintended spillovers gained from other
firms.

These knowledge leakages may be located in direct firm
-
to
-
firm spillovers, or
in the “knowledge milieu” of an industrial cluster
(Regional
Studies,
1999; Keeble
and Williamson, 2000)
.

A final relevant concept which informs our understanding of knowledge l
ea
kage is the
distinction
between pub
lic and private goods

(Arrow, 1962)
.
A p
rivate
good can
be
appropriated/owned,
that is,
only one party can use it at a given time
.

By contrast,
public good
s are characterised by externalities and are non
-
excludable
(it is difficult
to

limit access) and non
-
competitive

(they are n
ot used
-
up in their consumption,

that
is, more than one party can use t
hem

at a given time)
. They also
lend themselves to
common action (although the domain of this cooperation may vary
)

(Arrow, 1962)
.
Knowledge is a classic public g
ood and this is indeed one of the major characteristics
which affects processes of knowledge leakage



that is, some knowledge leakages
allow the same knowledge to be used by many parties.

Yet not all knowledge is a
public good, notably that which is disem
bodied and tacit in nature, and which is held
in the minds of particular individuals. As we will see below, one of the major conduits
for knowledge leakage is the flow of people, within and between firms. Other forms
of private good knowledge are a result
of deliberate actions, such as registering
innovations
(a public good)
through intellectual property rights, which limits their use
by others

(and makes it a private good)
.

This distinction is important since the firm needs to
differentiate

betwee
n the
con
sequences of knowledge
sharing (both parties have access to it) and absolute
knowledge loss (that is, one firm’s gain is another’s loss, as in the flow of people).
Knowledge may be a private or a public good, but this does not necessarily mean that
it has
a negative or positive impact on productivity and competitiveness.

In some
cases, the sharing or loss of knowledge may harm a firm, in other cases it may be
beneficial
.
Similarly, the flow of people may either close off opportunities, or open up
5

new ones.
However, whatever the case, it is important that the firm should be aware
of this in their positioning towards knowledge leakage.


3.
METHOD


In this section we describe the method used to construct the framework for
investigating knowledge leakage within
and between businesses. The themes explored
in the opening literature review are summarised in Figure 2 below.

Figure 2: Knowledge leakage contributory themes



The research group heralds from the
EPSRC
‘productivity’

Ideas F
actory (see
acknowledgements)
. Consequently it is

multi
-
disciplinary

and

dr
a
w
s

on a range of
disciplines including economics, civil engineering, industrial design, ma
nufacturing,
operations management,
political science
,

psychology and information systems
,

amongst others
.

The
group brainstormed the
complementary literatures and
,

in the first
,

instance
prioritised an
emphasis

on dynamic capabilities, value chains, trust, knowledge
intensity and new product development

(the review was subsequently extended)
.

The
learning from the literature was augmen
ted by data from a series of eight

scoping
interviews with senior managers in a range of companies differentiated by size and
sector.

These were, food manufacturing, telecoms services, metal forming, medical
inst
ruments,
construction
and
design
, and defence.

The ‘vectors’



or primary
relations which function as knowledge conduits


were isolated in project meetings
1

and used to guide the semi
-
structured interviews. The interviews were transcri
bed and
then subject

to

coding by the four researchers who had been involved in conducting
the on
-
site interviews. These data were then used to populate the
grid presented as
Figure 3

and to prioritise themes for further investigation by case study and postal
survey.








1


The whole consortium me
e
t
s

physically every six weeks.
Ad

hoc virtual meetings punctuate

these more formal meetings and

a
re used to discuss issues a
mongst researchers using

online
conferencing via the DTI

Electronic
s

E
nabled
P
roducts

KTN
.

6

4
.
VECTORS OF
KNOWLEDG
E LEAKAGE


As we observed in the opening section of this paper, one of the defining
characteristics of the contemporary era is that firms increasingly specialise in core
competences, either outsourcing non
-
core activities to other firms
in a chain, or
insourcing activities from other outsourcing firms.
This fra
gmentation of value chains
is occurring on a global basis.

In developing the capability for firms to manage their knowledge leakage effectively

in these extended value chains
,
we
i
dentify
six

major vectors of the firm’s interaction
with the external world
.
The process by which these vectors were identified is

described in Section 3 above. This was
preparatory to a wider study which utilises the
analytical constructs developed in thi
s paper.

The six

vectors

identified as being primarily relevant to knowledge leakage are:



Relationships with suppliers



Relationships with customers



Relationships with competitors



Relationship with National/Local System of Innovation




H
uman resources

o

Inflo
ws of

people

o

O
ut
flows of

people



The purchase, sale and registration of IP
Rs and other forms of knowledge.

In each vector, the

firm

will have multiple forms of

intercourse with other firms
(and
indeed with RTOs

and other institutions in the National and Lo
cal System of
Innovation
). This
may involve intentional acts (for example, passing manuals to
cust
omers or aiding suppliers in supply chain management

programmes) or
unintentional (
for example,
losing

core design advantage through subcontracting
mould manu
facture, or
ongoing
relationships through “alumni” who have left and are
working with a customer). Similarly, as the examples in the previous sentence show,
the impacts of these leaka
ges may be positive or negative

(
see
Figure 3
)
.

There is a danger in homo
genising the parties in each of these vectors, and in
assessing the possibility of knowledge leakage with inadequate nuance. For example,
the danger of inadvertent knowledge loss via links with suppliers are greater when
subcontracting mould manufacture th
an when purchasing undifferentiated commodity
items such as industrial fasteners. How this cake is cut


that is, what categories of
suppliers/customers/competitors, etc. the firm chooses to differentiate


is contextual,
and will depend on the nature of t
he sector, the firm and managerial perspectives.
From our vantage point, and with a focus on knowledge leakage, we identify the
following key subcomponents of the individual vectors (Figure 3).





7

Figure

3
. Vectors of knowledge leakage


Vectors


Positive

Negative

Suppliers

Intentional



Unintentional




Competitors


Positive

Negative

Intentional



Unintentional




Customers


Positive

Negative

Intentional



Unintentional



National/
Regional
System of
Innovation


Positive

Negative

Intentional



Unintentional



Human resources:
people

in
flow


Positive

Negative

Intentional



Unintentional



Human resources:
p
eople out
flow


Positive

Negative

Intentional



Unintentional



I
ntellectual
P
roperty
R
ight
s

(IPRs)

and Trust


Positive

Negativ
e

Intentional



Unintentional




Both
suppliers

and
customers

can be differentiated by the nature of a firm’s role in its
value chain. The major categories of suppliers and customers relevant to the
challenges posed by knowledge leakage are those with

which the firm is involved in
the development of projects and products, both at the front
-
end and during the product
lifecycle. An additional important category of suppliers are those providing
strategically important components (for example, moulds or el
ectronic controls), and
customers for whom the firm provides these inputs. It is also likely that the nature of
knowledge leakage will vary depending on whether the relationship to other firms
involves embodied goods or services (the former are more likely

to be private goods;
the latter to be public goods).

Given the importance of trust and the difficulties of coordinating global value chains,
the key differentiating elements amongst
competitors

are their locale. Here the critical
differences relevant to k
nowledge loss by UK firms are likely to be between
competitors who are in the same locale (where trust relationships can often be
stronger as the costs of opportunistic behaviour will be high), those based in the UK
(language and other ties may be importan
t), in Western Europe (
some common
cultural ties
, with similar operating profiles), eastern Europe (some common cultural
ties, but with different factor costs), China (often considered to be a case of highly
opportunistic behaviour with the danger of rever
se engineering being high) and India
(IPRs are more easily sustained)
.

The higher the degree of trust, the more likely that
knowledge can be managed in its tacit and disembodied forms without the dangers of
negative knowledge leakage.

Firms often interact
with
institutions in their
National and Regional Systems of
Innovation

and these pose simultaneous threats for knowledge leakage gain and loss.
These institutions may include universities/other higher education institutions, private
and public research and

technology organisations, trade associations and cluster
8

groups.

In most cases these knowledge flows are tacit. They are also likely to
comprise public goods, unless they are transformed into private goods via the use of
intellectual property rights. Know
ledge externalities are particularly relevant to this
category of relationships.

Incoming people

may be an important source of knowledge gain and, to the extent
that they maintain informal relationships with

their ex
-
employees may also be

a
source of knowl
edge loss. These inflows may involve recruitment from customers,
suppliers, competitors, the
National
/Local System of
Innovation or from an affiliate or
different branch of the same enterprise.
Outflows of people

include similar parties

(
but
also arise whe
n employees retire or die, are made redundant, or are sick or on
maternity leave
)
.

The final vector is through
intellectual property rights

or via
relations of trust
.
Th
e
major categories of
IPRs
are patents, trade secrets, trade marks, copyrights, Indicat
ors
of Source, Appellations

of Origin,

and Geographical Indicators. To a greater or lesser
degree, each of these
in
volve

some from of disclosure and are potentially a source of
both potential knowledge loss and gain. Trust relations involve obligational
re
lationships and are characterised by the absence of written contracts.


9

Figure 4
: Differentiating key parties within individual vectors



Vector

Key differentiating types

Suppliers



Not involved at early stage of product/project development



Involved in e
arly stage of product/project development



Ongoing involvement throughout product/project lifecycle



Strategically important suppliers

Customers



Not involved at early stage of customer’s product/project development



Involved in early stage of
customer’s
prod
uct/project development



Ongoing involvement throughout
customer’s
product/project lifecycle



Strategically important supplier

to customer

Competitors



Same locale



UK



Western Europe



Eastern Europe



China



India

National/Regional
System of
Innovation



Universit
ies and other higher educational institutions



Private RTOs



Public RTOs



Trade Associations



Cluster Groups

People inflow



From suppliers



From customers



From competitors



From National/Local System of Innovation



From affiliate or different department of enterp
rise



Freelancers or consultants

People outflow



To suppliers



To customers



To competitors



To National/Local System of Innovation



To Affiliate or different department of enterprise



Made redundant




Internal leakage (retirement/death, i
llness
, m
aternity leave
,
holidays
)

IPRs/Trust



Patents



Trade secrets



Trade marks



Copyrights



Indicators of source



Appel
ations

of origin



Geographical indicators



Non
-
written obligational diclosures



10

5
.

MANAGING KNOWLEDGE LEAKAGE


As we observed in
Section 2
,

our concern

with kno
wledge leakage
is

built on a
foundation of literatures which address particular components of the costs and
benefits of different types of knowledge flows into and out of the firm. These flows,
and their consequences, are contextual in the sense that they
have changed over time.
In the current era, they are particularly influenced by the growing
global
fragmentation of value chains. They are also obviously contextual depending upon the
sector, and the place of individual firms within their

particular chains
. In Section 4
,
we identified seven vectors of knowledge flows arising out of our work with a sample
of pilot firms
(see Section 3 above)
.

We believe that our resulting characterisation of knowledge leakage provides an
architectural
and comprehensive frame
work t
h
at

firms can utilise in the development
and defence of competitive advantage in a rapidly globalising economy. From the
perspective of managing knowledge flows, this raises four key issues.

First, knowledge leakage as we have defined it
,

is a strate
gic meta
-
concept. Although
management is deluged by similar strategic meta
-
concepts, in our view the critical
importance of knowledge in providing for sustainable competitive advantage
in the
contemporary globalising world necessarily

place
s

the management

of knowledge
-
leakage at the centre of firm strategies. As a consequence, it needs in the first instance
to be addressed at the centre of corporate management
, including in the structure of
corporate control
.

Here the
twin
key challenge
s

are

to make explic
it and intentional
what is o
ften implicit and unintentional, and to address the pervasiveness of
knowledge flows.

Second, having developed a strategic overview of the pervasiveness of knowledge
within the firm, the
gains and losses associated with these fl
ows, and the
multiplicity
of vect
ors in which they occur, this challenge needs to be reduced into routines which
can be applied at all levels of the firm. For this to be effective, the firm will need to
classify knowledge flows which currently are embodied

and disembodied, which are
tacit and codified, which are subject to trust relations, where there are externalities
,

and which are public or private
goods
. In each case, a strategic judgement will need to
be made on the extent to which the future managemen
t of knowledge flows should
continue to be treated in the same manner as in the past. It will inevitably lead to the
need to develop new structures and routines, and to train people to act appropriately
and effectively.

A third challenge is for the firm to

recognise that it may be operating in different
chains. Characteristically firms buy from and sell into chains which are characterised
by different degrees of trust and governance. These will affect the management of
knowledge leakage. For example, and mo
st basically, firms may sell to affiliates
(where in most cases the costs of knowledge loss may be reduced and where
knowledge gains may be positive), to firms with whom they have long
-
term and trust
-
intensive obligational relations (where opportunistic be
haviour is minimised) (Sako,
1992), and to anonymous firms with whom they link on an arms
-
length basis (and
where anything goes in relation to knowledge gains and losses).

It will need to
develop and adjust knowledge leakage routines to reflect for these c
ategories of
interaction.

11

Finally, particular problems are raised for SMEs. Large and transnational firms have a
history of operating in low
-
trust global environments, and many have begun to
develop a strategic overview to knowledge leakage. For these firm
s the
major
problems are that many elements of knowledge leakage remain unintentional and that
it may be difficult to exert control over knowledge leakages when there are so many
points of contact with other firms. But it is the SME sector


particularly t
hose who
are beginning to outsource or insource as their value chains fragment


who are most
likely to be unaware of the
multiplicity of potential leakages, and who are mostly
unconscious of the extent and nature of leakages. It is here that the managemen
t
challenge is particularly felt, and especially when they begin to operate for the first
time in global value chains.

Without
the develop
ment

of a strategic framework for knowledge leakage, and more
importantly the capacity to implement and manage this fr
amework effectively, the
modern firm is unlikely to sustain competitive advantage. The world has become too
competitive for competitive advantage to be sustained without a competitive approach
towards the management of knowledge leakage.


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