Factors affecting inter organizational knowledge sharing through IOS

However there is little research exploring the factors affecting the firm’s decision on whether to share knowledge with a specific partner.. Nonetheless, there is little literature study

Chapter 1 Introduction

1.1 Interorganizational Knowledge Sharing through IOS

Achieving competitive advantages is of paramount importance for the firm’s survival in today’s hyper-competitive environment Firms can strive for supernormal gains from either external industry sources (Porter, 1980), or from internal resources and capabilities (Barney, 1991) However, the image of atomistic actors competing for profits is increasingly inadequate as the firms are embedded in networks of exchange, professional, and social relationships with other organizational actors A firm’s critical resources may span firm boundaries and may be embedded in inter-firm resources and routines (Dyer and Singh, 1998) Most firms form strategic alliances to improve their performance by gaining supernormal return Some alliances exploit the productivity of capital and assets through joint maximization of complementary assets, while others are exploratory and involved in the pursuit of new opportunities (Koza and Lewin 1998) Indeed, firms’ choosing to engage in cooperative interorganizational activities has become a hallmark of the current business era

Strategic alliances can derive competitive advantage from four sources, i.e., relation specific assets, knowledge-sharing routines, complementary resources/capabilities and effective governance (Dyer and Singh, 1998) Knowledge sharing in terms of accessing and acquiring critical information and know-how from partners is often stated to be one

of the foremost motivations for alliance formation (Hamel, 1991; Khanna, et al., 1998;

Larsson, et al., 1998) By institutionalizing a regular pattern of interorganizational interactions that permits the transfer, recombination, or creation of specialized knowledge, participating firms expect to generate supernormal gains (Dyer and Singh, 1998; Grant, 1996) The catalyst for the firm to share knowledge with other organizations

is the society’s transition from the industrial to the postindustrial or knowledge age The industrial age was characterized by the conventional wisdom that land, labor, and capital were the factors of production The transition to postindustrial age has brought to the forefront a factor of production – knowledge, which is critically different from the others Land, labor, and capital are subject to diminishing returns; i.e., the output associated with greater use of the factor increases at a decreasing rate Different from these traditional factors of production, knowledge is not subject to decreasing returns Instead, the output associated with knowledge input increases at an increasing rate (Reich, 1992) By sharing knowledge with other organizations, the firm can achieve the synergy brought about by accumulating and consolidating knowledge of different parties Thus, knowledge sharing alliance allows the organizations to better detect and seize market opportunities, respond

to market changes and meet customers’ requirements more swiftly

On the other hand, reaping the benefits of sharing knowledge with other organizations is possible because of the advances of information and communications technology The information systems that span the organizational boundaries and integrate applications across the organizations are called interorganizational systems (IOS) (Bakos, 1991; Barrett and Konsynski, 1982; Chismar and Meier, 1992; Konsynski, 1993; Kumar and van, 1996) IOS support and implement cooperation between strategic alliance partners

(Kumar and Dissel, 1996) and they can sufficiently reduce the coordination cost of information exchange across organizational boundaries As an automated information system shared by companies, the IOS allow the firms to interact electronically in a real time manner and thereby facilitate the creation, storage, transformation and transmission

of knowledge (Barrett and Konsynski, 1982; Johnston and Vitale, 1988; Grover, 1993) Indeed, the increased knowledge flows enabled by IOS are identified as a potential factor that can change the industrial structure and provide competitive advantage (Porter, 1985)

Moreover, IOS are becoming more and more accessible to the firm due to the advent of the Internet Different from the value-added networks, on which EDI has been based, the Internet allows firms to communicate with each other in an economical way and Internet-based IOS are affordable to the small and medium sized companies Also, the applications developed based on the backbone of the Internet provide more functional supports for interoganizational interactions than EDI For example, videoconference allows the participants to communicate with each other efficiently and effectively, with most of the cues of face-to-face discussion being present, while saving the firms traveling cost In addition to sharing standard electronic files, the personnel from different organizations can also discuss about innovative ideas and demonstrate how to get some sophisticated work done through the Internet Hence, sharing knowledge through Internet-based IOS between firms is no longer technically challenging or cost prohibitive for the firm

In the industry, there are successful cases of interorganizational knowledge sharing, such

as the cooperation between Wal-Mart and P&G Given knowledge sharing being part of their business strategy, these firms set up IOS to facilitate the interfirm information exchange processes so that the information strategy can be aligned with their business strategy (Chan, et al., 1997; King and Teo, 1997; Reich and Benbasat, 1996; Reich and Benbasat, 2000) By leveraging the knowledge in managerial controls from partners (Applegate, et al., 1999; Premkumar and Ramamurthy, 1995), firms achieve their organizational objectives and enhance their performance

1.2 Motivation of the Research

Despite the great benefits, technical feasibility and economic affordability of sharing knowledge through Internet-based IOS, it has been widely appealed that inter-organizational knowledge sharing is far from enough, especially among the small and medium enterprises (SME) Studying factors affecting the organization’s predisposition

to share knowledge with other firms through IOS is of great importance In addition to explaining why firms are holding back in sharing knowledge with others, it can help to get more firms to embrace knowledge sharing and provide guidelines for the firms that are deciding whether to share knowledge

However there is little research exploring the factors affecting the firm’s decision on whether to share knowledge with a specific partner Though interorganizational knowledge sharing has become a popular research topic in recent years, a majority of the

studies are either on mathematical modeling of the potential economic benefits of interorganizational knowledge sharing or how to manage the knowledge sharing process For example, Dyer and Nobeoka (2000) examine the “black box” of knowledge sharing and identify the effective methods in creating and managing alliance knowledge sharing processes in their Toyota case study Khanna et al show how the tension between cooperation and competition affects the dynamics of learning alliances Hamel (1991) examines the success factors in knowledge sharing Dussauge et al (2000) investigate the outcomes and durations of knowledge sharing strategic alliances among competing firms

Nonetheless, there is little literature studying factors that can affect the formation of interorganizational knowledge sharing alliances, though the formation of strategic alliances aiming to share traditional production factors was once the focus of strategy study such as the work of Williamson (1991), Teece (1986), and Harrigna (1988) Different from the traditional production factors, knowledge has become critical company asset and the only resource making the firm perform differently in the knowledge age Also, once shared with other organizations, knowledge becomes public good - one where the consumption of the good by one firm in no way prevents the other from consuming the good (Kreps, 1990) The characteristics of knowledge make the firm lose control of how the other party utilizes the proprietary knowledge shared by the focal firm (Kumar and Dissel, 1996) Thus, interorganizational knowledge sharing is more sensitive and directly affected by the organization’s business strategy Decisions on whether to form such a kind of strategic alliance, whom to form with and under what conditions to form, have become more complicated than other types of strategic alliance

While the insights offered by the extant interorganizational cooperation literature may help us to understand factors affecting the organization’s predisposition to share knowledge, they cannot be readily generalized to the context of knowledge sharing due to the special characteristics of knowledge Thus, a study dedicated to factors conducive to the formation of interorganizational knowledge sharing alliance is necessary and imperative

In addition, interorganizational knowledge sharing through IOS, as an innovation, has not been well studied The existing IS literature on IOS mainly focuses on the adoption of EDI, which generally refers to a class of interorganizational systems that enable computer-to-computer exchange of standard business documents (Iacovou et al 1995) Knowledge sharing through IOS is of different strategic meaning from exchanging business documents and factors affecting EDI adoption may not be valid factors affecting knowledge sharing through IOS For example, a majority of the existing studies use the diffusion of innovations theory (Rogers, 1983) to identify attributes of the innovation that influence EDI adoption Lack of resources and low perceived relative benefits are commonly found to be the major factors impeding organizations’ EDI adoption Since knowledge sharing through Internet-based IOS is more economic than EDI over value-added network, lack of resources may not be a factor impeding the firm to share knowledge with its partners As IOS support unstructured information exchange, in addition to the exchange of standardized documents, and the Internet and Internet applications support more functionalities for rich knowledge sharing at affordable cost,

IOS research should be extended to the Internet domain and knowledge sharing should be studied as an innovation different from EDI

On the other hand, to have the firms adopt sharing knowledge with partners through IOS may require the presence of some other factors that have not been studied by traditional innovation adoption theories These theories focus on studying innovations for individual people or individual organizations, while interorganizational knowledge sharing requires both dyadic firms to adopt the innovation to reap its benefits When deciding whether to share knowledge with a specific partner, factors other than those that affect innovation adoption by a single firm may play critical roles Studying these factors’ affecting the organization’s predisposition to share knowledge through IOS can enhance our understanding of the innovations spanning organizational boundaries

Motivated by the importance of understanding factors affecting the firm’s decision on whether to share knowledge with a specific partner and the lack of research on this topic,

we conduct this study In particular, we focus on the firm and its one-to-one relationship with its strategic partner with regard to the focal firm’s knowledge sharing decision The presumption of the study is that interorganizational knowledge sharing can offer competitive advantages to the firm, if properly managed, and IOS enables effective and efficient interorganizational knowledge sharing

1.3 Research Questions

We examine factors influencing the firm’s decisions on whether to share and the extent to which it would share knowledge with a specific partner One the one hand, the firm may choose to share knowledge of different quality and quantity through IOS Due to the information asymmetry and the stickiness of knowledge, it is difficult for the other party

to evaluate the quality and quantity of knowledge shared by the focal firm Thus, it allows the firm to proactively control the quality and quantity of knowledge shared by controlling the traffic and contents going through the IOS, different from the traditional way of knowledge sharing, such as personnel exchange, which makes knowledge hoarding difficult On the other hand, the firm would choose to share knowledge of different quality and quantity Though the higher the quality and the larger the quantity of knowledge shared, the more synergy the dyadic firms can achieve, it may not be optimal for the firm to do so The relationship with the partner is a mix of cooperation and competition and the firm still has business goals different from that of the other party Thus, the firm may strategically choose the quality and quantity of knowledge to share and we intend to understand the factors that affect the firm’s decision making on this issue Specifically we focus on the knowledge sharing between suppliers and customers because there are a lot of researchers advocating sharing knowledge among the members

in supply chain and some reports arguing the sharing in the industry is far from enough

The interorganizational knowledge sharing involves cooperation and commitment of the channel members in the supply chain The participants may have complex economic and business relationships with each other that result in a number of social, political, and economic factors influencing the decision to share knowledge through IOS There are

two broad research streams – economic and socio-political streams – that form the basis for the studies of cooperation along the supply chain The economic stream applies transaction cost economics to investigate the formulation of various decision in supply chain (Bakos and Treacy, 1986; Malone, et al., 1987) The social-political stream studies the impact of socio-political forces on the formation of markets and cooperation decisions (Hart and Saunders, 1997; Hart and Saunders, 1998) While economy oriented researchers totally ignore the role of socio-political factors, socio-political oriented scholars contend that inter-organizational relationships could exist even if they are not cost-efficient because of other social political forces

By drawing upon transaction cost economics and socio-political theories, we intend to find answers to the following questions:

1 What are the important factors affecting the firm’s intention to share knowledge with a specific partner?

2 How do these factors affect the firm’s predisposition to share knowledge with this partner?

3 How do these factors affect the firm’s decision on the extent to which they would share knowledge with this partner, in terms of knowledge quality and quantity?

1.4 Research Methodology

To explore our research questions, we use a mixed method – conducting qualitative and quantitative studies sequentially Specifically, we conduct a series of case studies first

Based on what we found in the field study and insights provided by our interviewees, we designed our experiment and conducted the experiment with a large university in Singapore

The motivation for adopting a mixed method is to take advantage of the context rich and in-dept analysis of case studies and the more precise and generalizable results of quantitative studies The field interviews we conducted, prior to developing and administering our experiment, permits us to gain insights into organizational context within which the quantitative variables are captured It also helps us to modify the procedures, assumptions and hypotheses for our experiment study The refinements to our research hypotheses and data collection procedures enhance the validity of our quantitative study On the other hand, we had the quantitative study follow our case studies so that we can empirically test the validity of our case study findings on a large scale and have the quantitative data corroborate our field study

1.5 Organization of Thesis

This thesis comprises seven chapters Chapter 1 underlines the prevalence of interorganizational knowledge sharing in current business world It discusses the importance of studying the factors affecting the firm’s decision on interorganizational knowledge sharing through IOS with It also presents the main research questions of this thesis

Chapter 2 discusses the three views of competitive advantage and highlights that relational view is more relevant in knowledge age It suggests that the potential benefits

of interorganizational knowledge sharing motivate the firm to form strategic alliances It reviews the literature on interorganizational knowledge sharing and the extant research

on factors that lead to interorganizational cooperation along the supply chain

Chapter 3 reports our pilot case study It outlines the preliminary research model derived from the substantial literature, describes the data collection method and reports the results

of our qualitative study It is found that it is the socio-political factors that lead the firms

to decide to share knowledge with a specific partner, rather than the factors suggested by Transaction Cost Economics This chapter also discusses why the factors suggested by transaction cost economics are not robust in affecting the firm’s decision on whether to share knowledge with a specific partner

Chapter 4 presents the research model for our experimental study The findings of our pilot case study motivate us to conduct further study by focusing on socio-political factors’ effect on the firm’s predisposition to share knowledge with its partner This chapter formulates research hypotheses relating the independent variables, i.e., the socio-political factors, to the dependent variables

Chapter 5 illustrates the research methodology for our experimental study It presents the experimental design, describes how the hypothetical scenarios were developed, and

explains how the independent variables were manipulated and the variables were measured It illustrates the procedures of conducting the experiment

Chapter 6 reports the results of statistical analyses performed on the experimental data It describes the statistical methods employed It illustrates the tests conducted to ensure that the manipulation of independent variables and regulation of controlled extraneous variables were successful It discusses the measures taken to ensure that the questionnaire gathering perceptual data had construct validity and discriminant validity In addition, it presents the results of analyses carried out to assess the research hypotheses

Chapter 7 interprets the findings of the statistical analyses and answers the research questions of this study It discusses the significance and managerial implication of the effects of socio-political factors on the firm’s predisposition to share knowledge with its partner It lists the contributions and limitations of this study and ends this thesis by exploring potential research that is worthwhile conducting in the future

Chapter 2 Literature Review

2.1 Three Views of Competitive Advantage

The explanation of differential firm performance is the fundamental concern for strategic management researchers (Rumelt et al 1991) In searching for the sources of competitive advantage that are critical to firms’ performance, three prominent views have emerged They are industry structure view, resource-based view (RBV) and relational view

2.1.1 Industry Structure View

The studies of industry structure view have adopted two implying assumptions First, they assume that firms within an industry are identical in terms of the strategically relevant resources they control and the strategies they pursue (Porter, 1981; Rumelt, 1984; Scherer, 1980) Secondly, these studies assume that should resource heterogeneity develop in an industry or group, this heterogeneity will be very short lived because the resources that firms use to implement their strategies are highly mobile and they can be bought and sold in factor markets (Hirshleifer, 1980; Barney, 1986)

Under these two assumptions, industry structure view suggests that supernormal returns are primarily a function of a firm’s membership in an industry with favorable structural characteristics, such as bargaining power and barriers to entry (Porter, 1980) In particular, it posits that superior firm performance is the consequence of a firm’s strategic position and the degree to which it executes those positions through an integrated system

of activities (Sambamurthy et al 2003) The firm’s position in the industry establishes the uniqueness and value of its products or services and the activity system reinforces how well it executes its position to reap supernormal return (Porter 1996, 2001) On the one hand, the integrated activity system locks out rivals from mimicking the firm’s position

On the other hand, the system locks in the firm to the chosen position and constrains its strategic mobility (Ghemawat 1991) Studies of this view tend to focus primarily on analyzing a firm’s opportunities and threats, affected by the integrated activity system, in its competitive environment In other words, this view emphasizes the firm’s gaining power over its suppliers and customers, endowed by its position in the industry, while attempting to contain the power of competitors

2.1.2 Resource-Based View

Different from industry structure view, resource-based view operates under two alternative assumptions First, this view assumes that firms within an industry may be heterogeneous with respect to the strategic resources they control Second, it assumes that these resources may not be perfectly mobile across firms and thus heterogeneity can be long lasting Resources tend to survive competitive imitation when protected by isolating mechanisms such as time compression diseconomies, historical uniqueness, embeddedness and causal ambiguity (Barney, 1991)

Resource-based view argues that it is firm heterogeneity rather than industry structure that causes the differential firm performance (Barney, 1991; Rumelt et al., 1991;

Wernerfelt, 1984) and firms compete on the basis of “unique” corporate resources that are valuable, rare, difficult to imitate, and non-substitutable by other resources (Barney, 1991; Conner & Prahalad, 1996) To gain competitive advantage, firms leverage two distinct mechanisms in the form of resource picking and capability-building (Makdok 2001) Resource-picking mechanisms create economic rents when firms apply superior information and knowledge in procuring resources cheaper than their marginal productivity when used in combination with other resources (Barney, 1986) In contract, capability-building leverage refers to firms’ ability to integrate, build, and reconfigure internal resources in creating the higher-order capabilities that are embedded in their social, structural, and cultural context (Grant 1995; Teece et al 1997)

2.1.3 Relational View

As the image of atomistic actors competing for profits against each other is increasingly inadequate, scholars came up with the third perspective – the relational view While both industry structure and resource-based views emphasize internal analyses of organizational strengths and weaknesses and external analyses of opportunities and threats, relational view studies the possibility for firms to derive competitive advantages

by cooperating with other organizations The relational view posits that a firm’s critical resources may extend beyond firm boundaries, embedded in inter-firm resources and routines Productivity gains in the value chain are possible when trading partners are willing to make relation specific investments and combine resources in unique ways (Dyer, 1996; Dyer & Singh, 1998)

The relational view is rooted in the social network perspective (Granovetter, 1985) which argues that structural holes or disconnects in the social structure in which firms conduct business present value-creating opportunities through “information access, timing, referrals, and control” (Burt, 1992) (pp 2) Accordingly, the network literature holds that

a firm’s external embeddedness is a potential source of entrepreneurial profits and value creation, especially since sources of innovation do not reside exclusively inside firms but are instead “commonly found in the interstices between firms, universities, research laboratories, suppliers and customers” (Powell et al., 1996) The importance of external resources networks on competitiveness and value creation (McEvily & Zaheer, 1999) implies that competitive advantage may be generated not only through reorganization of resources and capabilities within organization (Casson, 1982), but also through accessing and integrating key strategic resources that are trans-organizational (Achrol, 1997) Firms that can identify and exploit synergistic value-creating opportunities with partners that own complementary resources and capabilities may gain advantages over those that are either unable, or unwilling, to do so (Dyer et al., 1998; Lado et al., 1997; McEvily et al., 1999)

Four Interorganizational Sources of Competitive Advantage

The relational view contends that the competitive advantage can be generated from four sources: relation specific assets; substantial knowledge exchange, including the exchange

of knowledge that results in joint learning; the combining of complementary, but scarce,

services, or technologies; and lower transaction costs than competitor alliances, owing to more effective governance mechanisms (Dyer et al., 1998)

Figure 2.1 Determinants of Interorganizational Competitive Advantage

(Adapted from Dyer and Singh, 1998)

Determinants of

relational rents

Sub-processes Facilitating Relational Rents

1 Relation-specific

assets

1a Duration of safeguards

1b Volume of interfirm transactions

3 Complementary

resources and capabilities

3a Ability to identify and evaluate potential

3b Role of organizational complementarities to access benefits of strategic resource complementarity

4 Effective governance

4a Ability to employ enforcement rather than third-party enforcement governance

self-4b Ability to employ informal versus formal self-enforcement governance mechanisms

Among the above-mentioned four sources of competitive advantage, knowledge exchange is widely stated as the foremost motivation for the firm to form alliances (Hamel, 1991; Khanna et al., 1998) Firstly, this phenomenon is directly related to the increasingly importance of knowledge for firms’ market competence The catalyst for the firm to form alliances to share knowledge is the society’s transition from the industrial to the postindustrial or knowledge age The industrial age was characterized by the conventional wisdom that labor, land, and capital were the factors of production The transition to postindustrial age has brought to the forefront a factor of production – knowledge Knowledge is critically different from the others Labor, land, and capital are subject to diminishing returns; i.e., the output associated with greater use of the factor increases at a decreasing rate Different for these traditional factors of production, knowledge is not subject to decreasing returns The output associated with knowledge

input instead increases at an increasing rate (Reich, 1992)

In additional to its increasing marginal return, knowledge resources are difficult to imitate and socially complex Thus, knowledge assets may produce long-term sustainable competitive advantage (Alavi & Leidner, 2001) According to the knowledge-based view

of the firm, the services rendered by tangible resources depend on how they are combined and applied, which is in turn a function of the firm’s knowledge (Grant, 1996) By sharing knowledge with other organizations, the firm can create new knowledge and master new ways of producing merchandise and delivering services Indeed, interorganizational knowledge sharing is critical to competitive success, as organizations

Simon, 1958) For example, more than two-thirds of the innovations von Hippel studies could be traced back to a customer’s initial suggestions or ideas (von Hippel, 1988) In some other industries, such as wire termination equipment, the majority of innovations could be traced back to suppliers Also, sharing knowledge can generate a certain synergy for the firms and enhance their market competence, since firms can learn more by collaborating with others (Levinson et al., 1995; Powell, Koput, & Smith-Doerr, 1996) It was found that the locus of innovation in biotechnology industry was the network – not the individual firm and firms who are unable to create learning networks are at a competitive disadvantage (Powell et al., 1996)

The great benefits brought about by sharing knowledge with organizations have been a widely studied research topic for scholars in management science and the most recent management literature has profound studies on such benefits, especial in supply chain management By mathematical modeling and simulation, management scholars prove that when firms share knowledge with each other, they can optimize the performance of their supply chain and reduce the cost caused by “Bullwhip effect” (Lee, 2000), the increasing forecasting variation along the upstream of the supply chain Some examples

of such studies are Anand and Mendelson (1997), Chen et al (2000), Gerard and Marshall (2001), Lee et al (1997), Raju and Roy (2000) and Srinivasan (2001) Hence the basic assumption of our research is that knowledge sharing between organizations provides potential benefits in reducing inventory cost, cutting lead time, shortening production cycle and improving responsiveness to market demand

2.2 Inter-organizational Knowledge Sharing

2.2.1 Definition of Knowledge

The definition of knowledge stays controversial, though it has occupied the minds of philosophers since the classical Greek and been widely debated Some scholars define knowledge by distinguishing among knowledge, information and data A commonly held view is that data is raw numbers and facts, information is processed data, and knowledge

is authenticated information (Dretske, 1981; Machlup, 1980; Vance, 1997) Yet these three concepts also vary along dimensions, such as context, usefulness and interpretability (Alavi and Leidner, 2001), as such, the hierarchy from data to information

to knowledge rarely survives scrupulous evaluation In contrast, Tuomi (1999) contends that the often-assumed hierarchy from data to knowledge is actually inverse – knowledge must exist before information can be formulated and before data can be measured to form information Tuomi further argues that knowledge exists which, when articulated, verbalized, and structured, becomes information which, when assigned a fixed representation and standard interpretation, becomes data Consistent with this view, Alavi and Leidner (2001) posit that “information is converted to knowledge once it is process in the mind of the knower and knowledge becomes information once it is articulated and presented in the mind articulated and presented in the form of text, graphics, words, or other symbolic forms” (pp 109) An implication of such differentiation between knowledge and information is that knowledge management system may not appear radically different from other types of information systems, but will enable users to assign meaning to information and capture knowledge in information and data

There are five other alternative perspectives to view the concept of knowledge Researchers treating knowledge as a state of mind describe knowledge as “a state of fact

of knowing” with knowing being a condition of “understanding gained through experience or study” (Schubert et al., 1998) A second view defines knowledge as an object (McQueen, 1998; Zack, 1999) This perspective posits that knowledge can be viewed as a thing to be stored and manipulated Alternatively, knowledge can be viewed

as a process of simultaneously knowing and acting (McQueen, 1998; Zack, 1999) The process perspective focuses on the applying of expertise The fourth view of knowledge

is that of a condition of access to information and this view contends that organizational knowledge must be organized to facilitate access to and retrieval of content (McQueen, 1998) Finally, knowledge can be viewed as a capability with the potential for influencing future action (Waston, 1999) Scholars of this school suggest that knowledge is not so much a capability for specific action, but the capacity to use information; learning and experience result in an ability to interpret information and to ascertain what information

is necessary in decision making (Alavi et al., 2001)

Based on the entity’s nature, knowledge can be classified into individual and organizational knowledge (Holsapple and Joshi 2004) Individual knowledge is what the person knows as well as his skill and ability that would determine or help him make decisions and take action In contrast, organizational knowledge is what the organization possesses in the form of patents, publications, manuals or written know-how, regulations, and institutions It also includes dynamic process knowledge relates to actions carried out

by knowledge workers and substance knowledge for knowledge application and creation

Hence individual knowledge cannot be taken for granted as organizational knowledge, but it could be a potential organizational knowledge The organization can utilize and leverage individual knowledge and externalize it within the organization or have it transferred into the domain of the organization’s knowledge system (Nonaka et al 2000)

2.2.2 Dimensions of Knowledge

Knowledge in organizations can be explicated along two ends on one dimension - tacit and explicit (Polanyi, 1962; Polanyi, 1967; Nonaka, 1994) Tacit knowledge is subconsciously understood and applied It is developed from direct experience and action It is difficult to articulate, and is usually shared through highly interactive conversation, storytelling, and shared experience The tacit dimension of knowledge is comprised of two elements, i.e., cognitive and technical (Nonaka, 1994) The cognitive element refers to an individual’s mental models consisting of mental maps, beliefs, paradigms, and viewpoints The technical component consists of concrete know-how, crafts and skills that apply to a specific context An example of tacit knowledge is knowledge of the best means of approaching a particular customer – using flattery, using

a hard sell or using a no-nonsense approach In contrast, explicit knowledge can be more precisely and formally articulated, even when it is removed from the original context of creation or use An example is the explicit knowledge contained in an owner’s manual accompanying the purchase of an electronic product

Though the explicit-tacit knowledge classification is widely cited in the extant literature, the distinction does not provide a comprehensive explanation as to the interrelationships among the various knowledge types Being tacit and being explicit are not dichotomous states of knowledge, but mutually dependent and reinforcing qualities of knowledge (Alavi and Leidner, 2001) For example, tacit knowledge forms the background necessary for assigning the structure to develop and interpret explicit knowledge and only individuals with a requisite level of shared knowledge can truly exchange knowledge (Polyani, 1975) Hence knowledge is also classified based on other criteria For example, knowledge in organization can be declarative, procedural or causal knowledge (Zack, 1999) Declarative knowledge is about describing something and procedural knowledge

is about how something occurs or is performed, while causal knowledge is about why something occurs

In addition, knowledge can be either public or private Public knowledge is reported through standard instruments such as company reports, audited financial statements, regulatory filings, advertised bid and ask prices, price quotes, contractual stipulations, warranties, and other forms of prepared information accessible in the public domain (Uzzi and Lancaster, 2003) It is “hard” information for the asking, verifiable through third parties that standardize the collection and reporting of the information to the market

In contrast, private knowledge is not publicly available or third party guaranteed Rather,

it is “soft” information that references idiosyncratic and nonstandard information about the firm, such as unpublished aspects of the firm’s strategy, distinctive competencies, undocumented product capabilities, inside management conflicts or succession plans,

critical supplier or customer dependencies, special contractual provisions, unpublished innovations, and underlying motives

a-yet-2.2.3 Knowledge Sharing Alliances

Knowledge sharing alliance is defined as an arrangement between independent firms that choose to carry out a knowledge intensive project or operate in a specific business area

by coordinating the necessary skills and expertise jointly rather than either operating on their own or merging their operations

Knowledge sharing alliances can be identified as of scale and link (Dussauge et al., 2000)(Dussauge, Garrette, & Mitchell, 2000) In scale alliances, the partners contribute similar resources pertaining to the same stage or stages in the value-chain Such alliances produce significant economies of scale for those activities that firms carry out in collaboration Scale knowledge sharing alliances can include joint R&D efforts, the joint production of a certain component or the manufacture of an entire product In contrast with scale alliances, link knowledge sharing alliances combine different and complementary skills and expertise that each partner contributes Link alliances refer to partnerships in which one partner provides market access to products that the other firm develops, such that the two allies create a form of customer-supplier relationship

It is found that the life span of link alliance is longer than that of scale alliance (Dussaruge et al 2000) Due to the complimentary nature of the knowledge shared in link

alliance, the participants can maintain the partnership with fewer conflicts than scale alliances Given that partners of scale alliance are competitors in the market originally, the cooperative relationship of knowledge sharing usually ends with the completion of a project or the acquisition of one of the firms by the other In contrast, it is more difficult for the partners of link alliance to eliminate the partner from the channel due to their difference in core competence

2.2.4 Knowledge Sharing in Supply Chain

In the supply chain, knowledge sharing with trading partners is one kind of link alliance and it creates profits, increases market share, strengthens competitive position, and enhances the value of the participating companies (Lee, 2000) The success of these companies, such as Lucent, Wal-Mart, Procter& Gamble, Sun Microsystems, is a result

of sharing knowledge and making smart use of shared knowledge to orchestrate the activities of the chain The sharing of knowledge among members of the supply chain includes the sharing of demand information, inventory status, capacity plans, production schedules, promotion plans, demand forecast, and shipment schedules (Lee, 2000)

In the industry, there is a new initiative involving extensive interorganizational knowledge sharing, called collaborative planning, forecasting and replenishment (CPFR) CPFR is designed to improve the supply chain efficiency by joint actions such as demand forecasting, replenish planning and product development (Dillon, 1999) It can result in a simultaneous reduction in inventory levels and an increase in sales for both retailers and

suppliers Indeed, retailers engaged in CPFR pilots have already experienced higher service levels, higher in-stock performance and lower inventories Pilot suppliers have seen sales increase, lower inventories and faster cycle times For example, one of Kmart’s first CPFR pilots, with Kimberly-Clark, resulted in a 14 percent increase in sales, as well

as in-stock improvements that went from 86 percent to 94 percent without increases in overall inventory (Parks, 2001) Similarly, in its CPFR pilot with Warner-Lambert, Wal-Mart improves in-stock levels on Listerine to 98% from 87% Lead times were reduced form 21 days to 11; on-hand inventory was cut by two weeks; orders were more consistent; production cycles were smoothed; Listerine’s sales increased by $8.5 million; and there was improved joint communications on merchandise and promotional planning (Parks, 2001)

As a subset of the larger supply chain management picture, CPFR is much more than data exchange CPFR builds on the sharing of information and partners’ know-how about the markets and technology Using CPFR, retailers and suppliers submit their own individual forecasts; both evolve into one shared, agree-upon forecast The joint forecast is created through the sharing of point-of-sale (POS) information, existing inventory, stock-out information, promotions and supplier production constraints Moreover, to create a shared, agree-upon forecast, the partners explain the rationale behind the numbers they come up with and share their knowledge about the market/technology (Katz & Hannah, 2000) For instance, a retailer has insights into retail chain information, including product sales at particular stores for different times of the year Conversely, the suppliers have channel insights, such as total sales for a particular product at all retail accounts, and may

subscribe to data from syndicated sources They may use different forecasting techniques and come up with different forecasting figures

2.3 IOS Supporting Knowledge Sharing

The advances in information and communications technology enable effective and efficient interorganizational knowledge sharing More and more organizations integrate applications and expand their information systems to reach entities beyond the organization’s boundaries to share knowledge These systems are called interorganizational systems (IOS) (Bakos, 1991; Barrett & Konsynski, 1982; Chismar & Meier, 1992; Konsynski, 1993; Kumar & van, 1996) Interorganizational systems exist to support and implement cooperation between strategic alliance partners (Kumar et al., 1996) They enable the firm to incorporate buyers, sellers, and partners in the redesign of their key business processes, thereby enhancing productivity, quality, speed and flexibility (Applegate et al., 1999) Given knowledge sharing as part of their business strategy, the firms set up IOS to facilitate the interfirm exchange processes so that the information strategy can be aligned with their business strategy (Chan, Huff, Barclay, & Copeland, 1997; King & Teo, 1997; Reich & Benbasat, 1996; Reich & Benbasat, 2000)

As an automated information system shared by two or more companies, IOS facilitate the creation, storage, transformation and transmission of knowledge (Barrett et al., 1982; Johnston & Vitale, 1988) (Grover, 1993) They allow firms to share knowledge and interact electronically across organizational boundaries Hence, they enable firms to achieve organizational objectives by leveraging the knowledge in managerial controls

from partners (Applegate et al., 1999; Prekumar & Ramamurthy, 1995) Increased knowledge flows enabled by IOS play a vital role in changing industrial structure and providing competitive advantage (Porter, 1985)

Based on Thompson’s (Thompson, 1967a) interdependence theory, Kumar and Dissel (1996) classify IOS into pooled information resource IOS, value/supplier chain IOS, and networked IOS Pooled information resources IOS, is an interorganizational sharing of common IS/IT resources, such as common databases (Kumar and Dissel, 1996) Value/supply-chain IOS support customer-supplier relationships by facilitating the interactions between organizations These interactions could range from formal EDI-based orders, order tracing, database look-up of adjacent partners in the chain and the transfer of CAD-based specifications The third type of IOS - networked IOS - operationalizes and implements reciprocal interdependencies among organizations These systems include the use of e-mail, voice communications to coordinate interorganizational operation, discussion databases, synchronous and asynchronous systems for supporting collaborative work All the above three types of IOS can facilitate knowledge exchange between alliance partners to a certain extent, although firms may choose to share knowledge by using one type of them

IOS facilitate knowledge sharing at both lower and higher levels (Scott, 2000) At the lower level, electronic adaptive learning systems adjust to stimuli and provide fast feedback to promote greater efficiency using explicit knowledge (Levinson et al., 1995) For example, in the textile, automobile, and insurance industries, their use of EDI and the

Internet for electronic business shows how IT potentially optimizes their supply chain and reduces inventory bottlenecks (Bensaou, 1997) At the higher level, E-mail, intranets, groupware, videoconferencing or electronic document-based systems can convey tacit knowledge through dialogue and interaction (Scott, 2000)

CPFR is implemented by using IOS that facilitate the communication and collaboration between the partners The common database accessible to both sides can facilitate the firms in sharing real-time demand information, existing inventory and stock-out information which serve as the foundation of the planning, forecasting and replenishment The discussion databases record the knowledge shared during the discussion started by the discrepancies in the supplier and retailer’s sales forecast It contains the partners’ insight into the market and technology E-mail, videoconference and discussion board enable effective and efficient communications between/among the boundary personnel from different firms Especially, the intelligent agent, data mining and advanced indexing embedded in the IOS facilitate the searching and updating of the common databases and discussion databases

2.4 Research on Inter-organizational Cooperation

There are two broad research streams, i.e., economic and socio-political streams, that form the basis for many studies on interorganizational cooperation, especially those between/among the upstream and downstream members along the supply chain The economic stream applies mainly transaction cost economics theory to investigate the

formation of markets and formulation of various channel decision It examines the firm relationships based on efficiency considerations, in terms of use of hierarchical structures or market-based structures In the study of the impact of IOS, IS researchers have used the economic approach For example, Malone and his colleagues (1987) examine the factors leading to formation of electronic markets and hierarchies Bakos and Treacy (1991) study the cost factors influencing a firm in generating competitive advantage Clemons et al investigate the impact of IOS on production and coordination costs which are the primary factors influencing the firms’ selection of governance structure of transactions (Clemons et al., 1993)

inter-By contrast, the socio-political stream contends that interorganizational relationships could exist even if they are not cost-efficient because of some social and political forces (Pfeffer, 1982) It argues that a firm forms interorganizational linkages aiming primarily

at gaining control over critical sources Reve and Stern (Reve & Stern, 1986) stress that

to fully comprehend interorganizational relationships, it is necessary to study both structure and processes of transactions and they identify three major variables: exercise of power, dependence between channel members and the dominant climate sentiments

This socio-political stream of research has contributed to significant findings in the marketing area Though this research approach has not been extensively used in IOS research (Premkumar & Ramamurthy, 1995), recent research has highlighted the need to study the impact of social and political factors on inter-organizational cooperation in the context of IOS in IS field (Hart & Estrin, 1991; Saunders & Hart, 1993)

In the context of EDI, there is evidence to indicate the interorganizational relational factors identified by socio-political stream have a significant role in the adoption decision for EDI (Saunders & Clark, 1991; Smith & Aldrich, 1991; Wey & Gibson, 1991) EDI has been installed using a hub and spoke arrangement, where the hub firm exercised its power and required its trading partners to connect to it The spokes, usually the trading partners with less power, had to accept such arrangement, due to their dependence on the hub firm (Barber, 1991; Pitts, 1991) There are also cases of adoption of IOS driven by long-standing and conducive transaction climate rather than power and dependence Examples of IOS such as Economost of KcKeeson Corp and ASAP of American Hospital Supply Corp were based on good relationships with trading partners rather than power-dependence relationships, as the initiators were firms more dependent on their partners

2.4.1 Socio-political Factors

Trust

Trust, as a fundamental ingredient and lubricant, an unavoidable dimension of social interaction is generating increased interest in various disciplinary studies, such as psychology (e.g., Deutsch, 1960, Lewicki and Buner, 1995; Lindskold, 1978), sociology (e.g., Lewis and Weigert, 1985; Strub and Priest, 1976), marketing (e.g., Anderson and Weitz, 1989; Dwyer et al., 1987), strategic and organizational research (e.g., Zaheer and

Venkatraman, 1995) Each discipline offers unique insights into the nature of trust, its definition and the processes through which it develops Also, a number of conceptual and empirical perspectives have been taken on trust at different levels, ranging from interpersonal (Helgeson, 1994; Wrightsman, 1991) to inter-group (Zander, 1994), to organizational (Bradach & Eccles, 1989; Gambetta, 1988; Granovetter, 1985; Hosmer, 1995), and to societal (Lewis & Weigert, 1985) As a result of the range of disciplinary lenses used to study trust and the inherent ambiguity of the trust construct, there is currently a confusing assortment of conceptual perspectives on trust (Zaheer et al., 1998)

Definition of Trust

In their societal study, Lewis and Weigert (Lewis et al., 1985) described trust as “the undertaking of a risky course of action on the confident expectation that all persons involved in the action will act competently and dutifully”(P.971) Hosmer generally defines trust as “… the reliance by one person, group, or firm upon a voluntarily accepted duty on the part of another person, group, or firm to recognize and protect the rights and interests of all others engaged in a joint endeavor or economic exchange (P393)” (Hosmer, 1995) The definitions of trust proposed by Mayer et al (1995) is “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party” (p 712) For trust at interorganizational and inter-unit within organizations level, Cummings and Bromiley define trust as “an individual’s belief or a common belief among a group of individuals

that another individual or group (a) makes a good-faith efforts to behave in accordance with any commitments both explicit or implicit, (b) is honest in whatever negotiations preceded such commitments, and (c) does not take excessive advantage of another even when the opportunity is available.” The many definitions of trust which have been offered tend to agree that the concept denotes the confidence of a person, group, or organization relating to transacting with another under conditions of some uncertainty that the other’s actions will be beneficial rather than detrimental to it (Kramer & Tyler, 1996; McAllister, 1995) The core principle of trust is the optimistic anticipated behavior

of another party

Organizational Vs Individual Trust

Individual trust has individual as its origin and referent, i.e., it is the expectation of one individual towards another individual; whereas organization trust is the expectation towards another organization or another unit of the organization Organizational trust has empirically been found to be different from individual trust (Doney & Cannon, 1997; Zaheer et al., 1998) Zaheer et al describe organizational trust as “the extent to which organizational members have collectively held trust orientation toward the partner firm” (Zaheer et al., 1998) This definition closely matches the understanding of trust at a macro level in sociology It is a generalization from the mutual trust in a two-actor system to one that involves a greater number of actors (Coleman, 1990)

While individual trust and organizational trust are two different constructs, they are closely related It is argued that there is circularity between the micro and macro levels of trust (Coleman, 1990) Indeed, in their study of interorganizational cooperation in insurance industry, Zaheer and colleagues (1998) found that the trust of the spanning personnel, which is at micro level, had positive effect on the organizational trust While Jeffries and Reed posit that the individual trust tend to be higher when the organizational trust is high (Jeffries & Reed, 2000)

Other Taxonomy of Trust

A second way to classify trust is to differentiate it between being dispositional and being relational Dispositional trust is an individual trait reflecting expectancies about the trustworthiness of others in general (Rotter, 1980) Some people tend to trust others more easily For example, some people assume others are good people before they know enough about them or until they find that they are actually bad This group of people have higher dispositional trust towards others In contrast, relational trust derives from repeated interactions over time between trustor and trustee Reliability and dependability

in previous interactions with the trustor give rise to positive expectations about the trustee’s intentions Hence, the organization with high relational trust towards another firm does not naively trust all exchange partners Rather, its relational trust is likely to be based on experience and interaction with that particular exchange partner (Ring & Van, 1992)

Another way to classify different types of trust is to conceptualize it either as behavior or belief (Shoda, Mischel, & Wright, 1994) Behavioral trust is the action of trusting the other party, while trust, as a belief, is psychological state of the actor about the trustworthiness of others Trust, conceptualized as a belief, should be measured along two dimensions, the extent of affect-based and cognitive based trust (Crites, Fabrigar, & Petty, 1994); McAllister 1995)

Trust is cognitive-based in that “we choose whom they will trust, in which respects and under what circumstances, and they base the choice on what they take to be ‘good reasons’, constituting evidence of trustworthiness” (Lewis et al., 1985) (P.970) Previous organizational researchers have assumed competence, responsibility, reliability and dependability to be the important sources of cognitive-based trust (McAllister, 1995; Rempel et al., 1985) It relies on a rational evaluation of another’s ability to carry out obligations and it rests on a degree of knowledge about the other party, no matter how limited and imperfect that knowledge might be (Brenkert, 1998)

Unlike cognitive trust, affect-based trust is rooted in emotional attachment and care and concern for the other party’s welfare (Lewis et al., 1985; McAllister, 1995) These emotional bonds express a feeling that the relationships have intrinsic virtue, and a belief that these sentiments are reciprocated In other words, they incorporate an identification with the other party’s wishes and intentions (Rempel & Holmes, 1985)

McAllister argues that, in general, levels of cognitive-based trust are higher than levels of affect-based trust The argument is consistent with the understanding that some level of cognitive-based trust is necessary for affect-based trust to develop Emerging empirical evidence lends support to McAllister’s finding that trust has both cognitive and affective dimensions (Jonson et al., 1998; McAllister, 1995)

Trust and Cooperation

Numerous scholars have acknowledged that trust can lead to cooperative behavior among organizations (Axelrod, 1984; Mayer et al., 1995; McAllister, 1995) In their study of EDI adoption, Hart and Saunders found that trust is positively related with the diversity

of EDI use (Hart & Saunders, 1998) Similarly, Bensaou found that goal compatibility and perception of fairness are the most robust predictor of cooperation (Bensaou, 1997) These relational characteristics are what trust is based on (Gulati, 1995; Ring & Van, 1994) Similarly, the results of Andaleeb’s study indicate the important role of trust in explaining intentions to cooperate (Andaleeb, 1995) Indeed, as noted by Smith and his colleagues (Smith, Carroll, & Ashford, 1995), “Although research has identified many determinants of cooperation, virtually all scholars have agreed that one especially immediate antecedent is trust”

Because trust plays such a central role in interfirm relationships, some researchers argue that trust is the major factor in the formation of strategic partnerships between firms (Madhok, 1995; Mcknight et al., 1998) Johnson and his colleagues (1996) found that

trust towards partner leads the firm to integrate cooperative alliance into its own strategic framework Specifically, when a firm trusts its partner, the firm tends to think it can rely

on fair treatment in the relationship Hence, the firm will be more inclined to view the relationship as a strategic asset and strategic tool In addition, the firm will be encouraged

to capitalize on this strategic potential and will likely consider the relationship in its strategic planning In this kind of high-quality relationship, the discretionary contributions of the partners broaden and strengthen each firm’s competitive viability, encouraging the firm to cooperate with each other and derive the synergistic benefits provided by strategically integrate the resources of individual firms (Johnson, 1999)

Andaleeb, S.S

(1995)

This paper studies the moderating role of dependence and trust By

a 2X2 factorial experimental design, trust was found to be an important factor in explaining firms’ intention to cooperate

Ganesan, S (1994)

In the survey study involving 124 retail buyers and 52 vendors supplying to these retailers, the author found that the firm’s long-term orientation in a buyer-seller relationship is a function of the extent to which they trust one another

Geyskens, et al

(1996)

In their field studies involving two countries, the authors found that the higher the trust existing in the trade partner relationship, the more likely the firms will feel like being committed to the relationship

Wieselquist, et al

(1999)

This paper tests an interdependence-based model of the associations among commitment, pro-relationship behavior, and trust From two longitudinal studies, it is found trust increases the partner’s willingness to become dependent on the relationship

Williams, T

This paper provides a framework combining the interorganizational relationship analysis and a typology of interoganizational

(1997) relationships The author argues that success of interorganizational

information systems depend more on trust

Willams and Lilley

(1993)

This paper considers the influencing factors that should be taken into account so that performance of the alliances can be improved Trust, as one of the influencing factors was found to be important Zaheer and

Venkatraman

(1995)

The paper develops a model of relational governance as a specific form of inter-organizational strategy By collecting data from 329 independent insurance agencies, the authors found that rust is an important determinant in firms’ decision of governance

Powell et al

(1996)

In their longitudinal study of dedicated biotechnology firms the authors found that the lack of trust between firms is a significant barrier to inter-firm collaboration

Meier (1995)

The author presents a framework of different contexts of IOS usage that helps to assess of the importance of relationship management The author asserts that trust between IOS participants is essential for successful IOS

Hart and Saunders

(1998)

Focusing on suppliers in EDI relationships, the authors found that trust was related to diversity of EDI use They propose that researchers focus on the role of trust in supporting information exchange between electronic partners

Scott (2000)

By conducting semi-structured interviews in the disk drive industry, the author found that effective interorganizational knowledge sharing requires trust between the participating firms

Table 2.1 Some Studies on Trust’s Effect on Interorganizational Cooperation

Interdependence Structure

Interdependence has been explored and defined conceptually within a variety of social science disciplines Pfeffer and Salancik (1978) (p 40) state, “Interdependence exists whenever one actor does not entirely control all of the conditions necessary for the achievement of an action or for obtaining the outcome desired from the action.” Similarly, Tedeschi et al (1973) (p 234) observe that interdependence represents “the degree to which one actor’s behaviors, acts or other goals are dependent for their occurrence or change on the behaviors, actions or goals of one or a set of other actors.” In channels research, Cadotte and Stern (1979) (p 133) suggest that “interdependence means the two or more organizations must take each other into account if they are to accomplish their goals.” Etgar and Valency (1983) (p 87) believe that “channel interdependence refers to the extent to which distributors and suppliers are committed to mutual exchanges.”

These definitions suggest that firms become interdependent as a result of engaging in economic exchange to obtain resources outside their control but necessary to their goals (Gundlach & Cadotte, 1994) In examining the dependence of organizations on each other, Pfeffer and Salancik (1978) suggest that dependence is made up of three elements: (1) importance of the resource being obtained, (2) the discretion of the use of the resource, (3) the absence of alternatives for obtaining the resource Building on this work, Heide and John (1988), in their study of dependence balancing in marketing channels,

expand the notion of fewer alternatives to include both fewer current alternatives as well

as fewer potential alternatives

Various researchers have argued that a comprehensive view of the channel interdependence structure must include both interdependence asymmetry and total interdependence (Gundlach et al., 1994; Kumar et al., 1995) Interdependence asymmetry refers to the difference between the firm’s dependence on its partner and the partner’s dependence on the firm A firm has power advantage if its dependence on the partner is less than the dependence of the partner on the focal firm In this case, we say the firm has power over its partner and the dependence structure is of relative asymmetry Total interdependence refers to the sum of each firm’s dependence on its partner and it is called magnitude of interdependence (Buchanan, 1992) Magnitude of interdependence embraces Emerson’s notion of cohesion

Asymmetric Dependence – Power

Some researchers suggest that power refers to the power holder’s ability to control or influence another, the target, or to get the target to do something that s/he would not do otherwise (Emerson, 1962) Dahl (1957) refers to power as the firm’s capacity to influence change in another firm that is dependent on the resources of that firm Weitz and Jap (1995) define power as the degree to which one party can influence another party

to undertake an action that the other party would not have done Frazier and Antia (1995) support Gaski’s (1984) view that power is the ability of a channel member to influence decision variables of another Power represents one firm’s potential for influence on