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THE TRANSFER AND MANAGEMENT OF KNOWLEDGE IN THEMULTINATIONAL CORPORATION: CONSIDERING CONTEXT

ANDREW C. INKPEN

ThunderbirdThe American Graduate School of International Management

15249 N 59th AvenueGlendale, AZ 85306-6000

602-978-7079Fax: 602-843-9148

email: [email protected]

ADVA DINUR

School of Business and ManagementTemple University

Speakman Hall (006-00)Philadelphia, PA 19122

(215) 477-8101Fax: (215) 204-8029

email: [email protected]

Acknowledgements:

Funding from the Carnegie Bosch Institute for Applied Studies in InternationalManagement is gratefully acknowledged.

THE TRANSFER AND MANAGEMENT OF KNOWLEDGE IN THEMULTINATIONAL CORPORATION: CONSIDERING CONTEXT

The importance of managing organizational knowledge is increasingly gaining

recognition from both scholars and practitioners. In the past decade and a half,seminal works have been published, such as Nelson and Winters (1982)examination of organizational routines, Teeces (1977; 1982) work on technologytransfer and proprietary knowledge, and Nonakas (1990, 1994) studies ofknowledge creation. Notwithstanding this significant body of knowledge, however,there remain many aspects of organizational knowledge and knowledge transfer ofwhich we know very little. In particular, the importance of context in shapingfirms knowledge bases and transfer capacities is a key area requiring furtherstudy. Every organizational practice, routine, or piece of information is deeplyembedded within its context. Firms develop specific capabilities in specificcontexts. Although many studies of organizational knowledge note that context is

important, few take context into account in their analysis (Szulanskis 1996 studybeing an exception). The current study recognizes the importance of context in thedevelopment and utilization of knowledge in organizations. We develop a modelto explain how context defines organizational knowledge and enables knowledge

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earch Proposal -- Dissertation http://cbi.gsia.cmu.edu/newweb/1998WorkingPapers/Inkpen/Inkpen.ht

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transfers. We then examine the model using data from three case studies involvinginternational knowledge transfer.

Multinational companies (MNCs) operate in an increasingly complexenvironment. We use a context-centered model to explain the difficulty MNCsexperience while engaging in internal knowledge transfers. Replication of existingsuccessful practices and routines enables multinational organizations to maximizetheir value (Bartlett & Ghoshal, 1989). MNCs use knowledge transfers to

economize on their existing body of knowledge, to expand their competitiveadvantage base, and to make sure all their subsidiaries are at par with the mostsuccessful ones (Kogut & Zander, 1993).

The sharing of knowledge across the organization has been recognized byorganizational studies literature to be a critical driver of firm performance (Grant,1991; Inkpen, 1996; Prahalad & Hamel, 1990). However, intra-firm knowledgetransfers are just as problematic, expensive, and difficult as they are critical toorganizational survival. Many large MNCs encounter great difficulties intransferring practices across organizational units. For example, a large consumerproducts company, in attempting to globally integrate various product managementtasks, found that European managers resented what they saw as Americanmanagers with a limited understanding of strategy. In a case study, Cerny (1996)described a COO who recognized the need to encourage and facilitate the flow ofknowledge across borders. However, because knowledge was not being transferredeffectively, the company was in serious trouble. Thus, the research question raisedby this paper is what factors influence the difficulty level of intrafirm, cross borderknowledge transfers. More specifically, what role does context similarity betweenthe knowledge source and recipient play in explaining transfer difficulty?

The model developed in this paper suggests that various organizational units face

different contexts. Every knowledge pocket is embedded within a specific set ofcontextual elements, which are critical to the firms ability to hold and utilize theknowledge. We divide the elements into five major dimensions: strategic,decision-making, environmental, cultural, and technological. When engaging in aknowledge transfer, firms attempt to take a knowledge pocket and replant it in anew, different context in the knowledge recipient. Our model suggests thatdifficulties in transfer stem from an absence of some or all of the criticalcontextual variables at the recipient. We propose that the more similar contextualvariables present at the recipient relative to those at the source, the more successfulthe transfer will be.

CONCEPTUAL BACKGROUND

Organizational knowledge

Viewing the firm as a body of knowledge has become a central theme in theorganizational studies literature. The resource-based view of the firm (Barney,1991; Wernerfelt, 1984), which focuses on a firms inimitable capabilities as acritical source for sustainable competitive advantage, places knowledge at thecenter of its latest theoretical developments (e.g. Conner & Prahalad, 1996).Similarly, organizational knowledge plays a role in other organizational researchstreams, such as organizational design (Sanchez & Mahoney, 1996) and strategicalliances (Inkpen & Beamish, 1997; Mowery, Oxley & Silverman, 1996).

Increasingly, organizational research is centered around knowledge-based theoriesof firms (Foss, 1996) or around using knowledge as a basis for theory (Spender,1996).

Hedlund and Nonaka (1993: 117) defined knowledge as being constructed from

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"cognitive perceptions as well as skills and expertise embodied in products orservices." They made the distinction between tacit, intuitive, non-verbalizedknowledge and articulated knowledge. Other definitions refer to the explicit ortangible versus the implicit, or tacit parts of knowledge. Teece (1977: 243), forexample, discussed a "capability to manufacture a product or process" andidentified two forms of technology: the physical, or "embodied" and the"unembodied" information regarding effective utilization of the technology, suchas methods, procedures, and controls. Kogut and Zander (1992) also divided

knowledge into two types: information and know-how. Information, or knowingwhat something means, includes facts, axiomatic propositions, and symbols. Todefine know-how, or knowing how to do something, Kogut and Zander cited vonHippel (1988), who stated that know-how is the accumulated practical skill orexpertise that allows one to do something smoothly and efficiently.

Various different views of knowledge have been proposed, including knowledgeas a competency (Amit & Schoemaker, 1993; Barney, 1991; Grant 1991); as thebasis for creating competencies by combining knowledge (Clark & Fujimoto,1991; Kogut & Zander, 1992; Nonaka & Takeuchi, 1995); and as an input forinnovation (Bartlett & Ghoshal, 1989; Cohen & Levinthal, 1990; von Hippel,1994). As noted by Foss (1996), all knowledge-based approaches to the theory ofthe firm explain why some firms out-perform others and they all agree thatknowledge is socially embedded. However, the knowledge-related literature doesnot fully recognize the importance and consequences of the context embeddednessof knowledge.

Our objective is to understand why some firms hold certain pockets of knowledgewhile others firms hold different pockets. We suggest a knowledge spectrummodel that incorporates the importance of contextual factors in shaping thedifferences between knowledge states and knowledge spectrums of various firms.

Moreover, the model seeks to explain the difficulty level experienced by firms thatengage in knowledge transfers. Before developing the model in detail, we reviewthe literature on knowledge transfer. The review clearly demonstrates the need formore focus on contextual elements to enable an enhanced understanding oforganizational knowledge transfers.

Knowledge Transfer

While the literature discussed above focuses on the nature and purpose oforganizational knowledge, its importance in large, complex organizations mustalso be addressed. Whether knowledge is a competency, an input, or an integration

process, MNCs seeking to maximize its value must transfer and share knowledgeacross the organization. Nelson and Winter (1982: 121) argued that "if an existingroutine is a success, replication of that success is likely to be desired." Theinternationalization of learning was identified by Bartlett and Ghoshal (1989) as akey dimension of a transnational firm. They defined international learning as thedevelopment and sharing of knowledge across national boundaries. Similarly,Kogut and Zander (1993) referred to the ability to transfer superior knowledge atthe international level as a primary source for competitive advantage as well asfurther development and growth of the MNC.

The importance of interdependencies and knowledge flows across organizational

units of the MNC has been recognized and extensively discussed (Doz & Prahalad,1991; Ghoshal & Bartlett, 1988; Gupta & Govindarajan, 1991; Hedlund &Nonaka, 1993; Simon, 1973). It is knowledge flows that enable the transmission ofunique solutions from one subunit to another, the coordination of variousconnected units, and the collaboration among them. Simon (1973) professed that a

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highly interdependent structure across subunits enables organizations to economizeon coordination costs. Information and knowledge have a critical role in managinginterdependencies, especially in the international arena, where task uncertaintymay be very high (Galbraith, 1973).

More recently, empirical evidence demonstrates the importance of knowledgeflows as a specific medium for unit interdependence. Darr, Argote and Epple(1995) found that interdependent organizational units, connected through

knowledge flows, exhibited greater cost reduction than independent units. Ghoshaland Bartlett (1988) found that communications across organizational unitsfacilitated efficient innovation. Gupta and Govindarajan (1991) similarlyrecognized the importance of knowledge flows in facilitating organizationalcontrol across organizational subsidiaries.

Knowledge transfer, or what is often referred to as "best practice transfer" is thefocus of this paper. Knowledge is not only a competency by itself, such as amanufacturing process or human resource practice, but is also a potential forachieving competitive advantages. As can be seen in Figure 1, holding knowledgewill not necessarily lead to a competitive advantage. Only effective use of theknowledge through efficient integration (Grant, 1996) or combining new andexisting knowledge (Kogut & Zander, 1992) will lead to a best practice. Bestpractice transfer was defined by Szulanski (1996: 28) as "replication of an internalpractice that is performed in a superior way in some part of the organization and isdeemed superior to internal alternate practices and known alternatives outside thecompany," while a practice is a routine use of knowledge (Nelson & Winter,1982). Figure 1 shows that only effective use of knowledge may lead to a bestpractice.

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****

Teece (1977) and Nelson and Winter (1982) laid the critical foundation forunderstanding knowledge transfer. Teece (1977) focused on the implicit, orunembodied forms of knowledge. Teece focused mainly on technologicalknow-how and suggested that the international transfer of technology enables the

firm to accumulate a stock of knowledge that is applicable across borders. Theprimarily variables Teece studied were the level and the determinants of the costsinvolved in transfers. Nelson and Winter (1982) examined the replications oforganizational routines and claimed that possessing the routines template enablesfar better replication within the organization than across organizations. Kogut andZander (1993) examined the characteristics of knowledge that inhibit its transferand thus influence a firms decision about internalizing the knowledge transfer. Ifthe technology being transferred is codifiable and teachable, the firm does notpossess a relative advantage in transferring it, and thus will not transfer it.

A rather different view is taken in a recent study by Szulanski (1996), whoempirically investigated not only the characteristics of the knowledge beingtransferred, but also the situation or the context of transfer. He investigated factorsthat influence the "stickiness" of the knowledge, or the difficulty involved in thetransfer, and found them concentrated mainly at the knowledge receiving unit.Lack of motivation at the recipient location, and its lack of absorptive capacitywere found to be positively correlated with stickiness of knowledge transferred.

The contributions of existing knowledge and knowledge transfer studies issignificant. This work allows us to view the firm as a dynamic system thatprocesses different types of knowledge (Spender, 1996) to support organizationalrenewal and sustainable competitive advantage (Prahalad & Hamel, 1994; Quinn,1992). With the exception of Szulanski (1996), however, the importance oforganizational context to enable this process is largely ignored. As a point ofdeparture from prior studies, this paper focuses on the role of contextual factors inenabling effective knowledge transfer to create advantages such as strengtheningthe organizational knowledge base and better flexibility in responding to the firmsenvironment.

Knowledge Transfer Approaches

Two approaches to knowledge transfer have been developed: the communication

model and the knowledge spiral model. In the first, used by Szulanski (1996) todescribe intra-firm knowledge transfer, the transfer is seen as a messagetransmission from a source to a recipient in a given context. More extensivelyanalyzed by Dinur and Inkpen (1996), the process follows four stages: initiation,where transferred knowledge is recognized; adaptation, where knowledge ischanged at the source location to the perceived needs of the recipient; translation,where more alterations occur at the recipient unit as part of the generalproblem-solving process of adaptation to new context; and implementation, whereknowledge is institutionalized to become an integral part of the recipient unit. Fourgroups of related factors can be identified: source related factors, recipient relatedfactors, factors relating to the relationship and distance between the two units, and

factors related to the nature of the knowledge transferred.

The second knowledge transfer model was suggested by Nonaka andTakeuchi(1995). Nonaka and Takeuchi asserted that four modes facilitate theconversion of knowledge from the individual to the organizational level. This

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process was described as the knowledge spiral. Inkpen and Crossan (1995) appliedthe knowledge spiral concept in a study of learning through international jointventures. The four modes in the spiral are patterns of interaction between tacit andexplicit knowledge. Through these processes existing knowledge can be convertedinto new knowledge. We suggest that these notions also can be used as an effectivedescriptive model for overall knowledge transfer.

Using the knowledge spiral model of knowledge transfer, tacit knowledge can be

transferred through two processes: socialization, which maintains the knowledgein its tacit form, and externalization, through which it is transformed into explicitknowledge. Explicit knowledge can be transferred through two other processes:combination, which retains its explicit nature, and internalization, a processthrough which explicit knowledge is converted into tacit knowledge.

Embeddedness of Knowledge in Context

Notwithstanding the importance and contribution of the various knowledge andknowledge transfer articles discussed above, and despite some references to thecontext embeddedness of knowledge and knowledge transfers, it is our contentionthat more attention should be given to the context in which firms in general, andMNCs in particular, utilize and transfer organizational knowledge.

Firms are unique entities, composed of various unique organizational units. Thecircumstances of every unit, as well as the individuals that compose the unitsdiffer. Therefore, both the knowledge organizational units hold and the way theyuse it will also be unique (Tsoukas, 1996). The difference between organizationalunits stands at the core of understanding their ability to utilize and shareknowledge. Every organizational unit operates in a context that is specific andunique. Organizational and sociological literature extensively discusses the context

embeddedness of two distinguishable organizational layers: individuals andorganizations. There is a societal, situational, and historical unarticulatedbackground to every individual in an organizational role (Polanyi, 1962; 1975;Tsoukas, 1996). Individuals acquire this background through socialization (Taylor,1993). A set of cognitive processes, physical repetition of a practices, as well asunintentional, embodied internalization, constitute an individual experience ofunarticulated background (Hedlund & Nonaka, 1993; Moss, 1995; Taylor, 1993).Individuals, hence, operate within unique, individually, socially andorganizationally embedded contexts.

Organizational contexts are a basis for differentiating between organizational

units. Organizational context differs from one physical unit to another and fromone operational unit to another. The constructs used by organizational scholars todiscuss context usually parallel organizational practices. Examples are the use offirm policies and standards of operations and performance (Szulanski, 1996) orwork ethics such as standards, objectives, individual involvement level, andmanagerial support (Ghoshal & Bartlett, 1994). Other knowledge-based modelsprimarily use individual, organizational, and environmental factors. For example,Leonard-Barton (1992: 114) discussed a knowledge system constructed of fourdimensions, the central one being the "value assigned within the company to thecontext and structure of knowledge." The other three dimensions were technicalsystems within the organization, managerial systems of control and creation, and

individual skills and knowledge. Gupta and Govindarajan (1991), in a frameworkof knowledge flow patterns in international subsidiaries, identified key contextvariables as task environment, structural characteristics, and required behavior,which could be inferred as organizational culture.

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The question we target is part of the organizational boundary question, first raisedby Penrose (1959). However, our interest goes beyond boundaries of physicalnature to boundaries of aptitude. Somewhat similar is Nelson and Winters (1982)notion of a firm bounded by its rules and routines. Spender (1996: 51) identifiedthe need to ask "What is the minimum set of genetic material or organizationalroutines necessary to create life or the viable firm?" We address a closely relatedquestion: What defines and confines the ability of a firm to hold and effectivelyutilize knowledge? Effective utilization means the potential to turn knowledge into

a competitive advantage-yielding capability (Grant, 1996). Considering theimportance of knowledge in the value chain (Denison, 1968), the boundariesaround the ability to utilize knowledge may be the boundaries of maintaining firmviability.

In summary, the review in this paper suggests that contextual elements stand at thecore of knowledge utilization and transfer. The specific context of eachorganizational unit provides it with specific tools as well as specific limitations.The use of context as an explanatory factor for firms operations and performanceis not new. From Porters (1981) basic model of industry structure, conduct, andperformance, it is clear that both environmental and internal factors influencefirms. External factors such as industry entry barriers or demand elasticity andstrategic factors such as a firms choices of price, quality or capacity both affectthe innovativeness of a firm and its allocative and technological efficiencies. Morecontextual elements are discussed by Miller (1990), who claimed that firms lock instrategic, cultural and structural configurations. Once set, these configurations areextremely difficult to change, and will affect future directions the firm can take.Certain configurations may cause momentum towards viability-dissentingdirections. The core idea shared by our model is that a firms situation limits itsspectrum of available action or knowledge.

KNOWLEDGE TRANSFER MODEL

The model in this paper uses the term knowledge spectrum as a core concept.Knowledge spectrum consists of the total knowledge an organization may be ableto utilize. Organizational routines, technologies, processes, and procedures used byan organization are all confined within a five dimensional space, next to otherroutines and processes yet to be discovered. Knowledge spectrum is both thefeasible and actual organizational knowledge: what is actually used by the firm andwhat could potentially be used. We argue that five contextual dimensions shapethe spectrum and define it: environmental, cultural, strategic, decision-making, andtechnological (Table 1). The structural dimension is captured by thedecision-making dimension, which incorporates the individual level of hierarchical

position and power, as well as organizational characteristics such ascommunication style and incentive structures. The common thread of thedimensions is that they enable and restrict knowledge transfer. Each dimensioncontributes to the knowledge spectrums shape and size by affecting differentorganizational variables.

TABLE 1Knowledge Contextual Dimensions and Central Variables

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KnowledgeContextualDimension

Central Variables

Culture Fit between culture andknowledgeCulture clash and

differences amongunitsOrganizational andnational cultures

Strategy Choice of a strategyStated goals andobjectivesStrategic group orniche

Decision MakingStructure andProcesses

Formal hierarchyPower structureCommunication andleadership stylesTeam work, Formality,and Incentive systems

Environment Uncertainty, andCausal ambiguityIndustry volatility andlife cycle

LocationRelationship with otherfirms as well as withpolitical and legalagents

Technology andoperations

Education and skills ofemployeesAvailable physicalequipment andexperience with similar

technologyFirm infrastructureTurnover of inventory,equipment and peopleEfficiency and Quality

The five dimensions influence a firms decision-making, behavior, skills, and viewof the world. Their effect on a firms ability to hold knowledge is tightly connectedto such influences. An organizational unit with experience in manufacturing cars

will not usually come up with the latest drug, unless critical changes take place. Afirm with a defender strategy will not easily think about venturing into the latestfad market. A firm operating in India is not likely to have the knowledge requiredto operate a steak house. Thus, the model suggests that every knowledge pocketthat can be found in a firm must be considered in the light of the contextual

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elements that enable it to exist. Context shapes a firms ability to recognizeknowledge, to utilize it, and to derive competitive advantage from it. As such, inorder for a specific knowledge pocket to be successfully transferred from oneorganizational unit to another, similar or at least related contextual elements mustexist in both locations.

Three types of knowledge pockets exist (Figure 2). The first is within theknowledge spectrum and outside the knowledge state. This pocket has the

potential to become a competency but is not yet recognized, identified, ordiscovered by the organization. The second is within the knowledge state. It hasthe potential to become a competency and is recognized and utilized by theorganization. The third type of knowledge pocket exists outside of the knowledgespectrum. It is incompatible to the firms knowledge base and has very littlepotential of becoming used in a way that will yield a competency. The dimensionsrepresent the specific contextual elements that are an integral part of the ability ofthe firm to utilize knowledge. A knowledge pocket that exists within theknowledge state is said to be in alignment with its context. This alignment createsthe potential for a competitive-advantage-yielding competency utilizing this pocketof knowledge. Note that we are not suggesting that knowledge spectrums are rigidand unchangeable. However, the model does suggest that changing the boundariesthat shape the organizations abilities and knowledge is not an easy task. It requireseffort, time, and resources.

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Knowledge Transfer within the Model

When a transfer of a specific knowledge pocket takes place, it is extracted from its"natural" context and moved to new context. This new context may or may not bein alignment with the knowledge. Every organizational unit faces differentrestricting conditions across the five dimensions. Thus, every unit will developdifferent abilities in identifying, developing, and utilizing knowledge. If two unitsface somewhat similar levels of the restricting dimensions their knowledgespectrums will partially overlap. The more distinct the restricting conditions ofevery unit, the smaller will be the overlapping area of their knowledge spectrum(see Figure 3).

Only knowledge pockets that exist within this overlapping area, within both thesource and the recipient units knowledge spectrum can be successfully

transferred, or transferred with a low eventfulness level (Szulanski, 1996). A bestpractice that exists within the source knowledge state and does not exists withinthe recipients knowledge spectrum will require very high levels of adjustment.Both restricting context at the recipient and the nature of transferred knowledge

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itself would have to be changed in order to incorporate it within the recipientsspectrum.

Figure 3 illustrates two knowledge pockets within the source units spectrum:pockets X and Y. Since both are candidates for transfer to the recipient unit, bothare currently utilized by the source unit and are located within its knowledge state.However, when turning to the recipient unit, it is evident that while pocket Y iswithin the recipients knowledge spectrum, pocket X is in dissonance with the

knowledge spectrum and is located outside the spectrum. Our model suggests thatthe transfer eventfulness of pocket Y will be significantly lower than of knowledgepocket X. Eventfulness was first empirically studied by Szulanski (1996), whoused the term stickiness of knowledge (von Hippel, 1994). As measured bySzulanski, eventfulness has three primary attributes and all relate to hownoticeable is the event. A knowledge transfer will be considered more eventfulwhen it costs more than expected, takes longer than expected, or leaves the partiesunsatisfied from any other reason. Note that eventfulness is a process rather thanan outcome. Even through a transfer outcome may be successful - the knowledgepocket is incorporated into the recipient unit - such success may be preceded by atransfer that deviated from cost, time, and other specified limitations. Eventfulnessis thus not necessarily a measure of success but rather of difficulty.

CASE STUDIES

To examine the proposed model and develop new insights in the knowledgetransfer area, case study data were collected. Three case studies involving differentknowledge transfer challenges were carried out (see Table 2 for characteristics ofthe cases). The most comprehensive case study involved a U.S. MNCsestablishment of a new manufacturing and marketing organization in a LatinAmerican country. For this case, on-site interviews in three different cities in theLatin American country were carried out. In total, 12 managers, including the

country manager, were interviewed over the course of a week. The second caseinvolved a U.S. MNCs efforts to transfer its technology and R&D process tovarious locations throughout the world. Interviews were conducted with 7 middleand senior managers, including the vice president of technology, at theheadquarters of the U.S. MNC. The third case involved a U.S.-based MNC and itsefforts to transfer its manufacturing processes to several new locations. Interviewswith 10 senior and middle level managers were conducted at the headquarters ofthe U.S. MNC.

Alpha.In the first case study, the U.S. MNC, which we call Alpha, had fourstrategic objectives associated with its knowledge transfer and internationalization:

1) re-establish its brand name in the Latin American country; 2) build an efficientmanufacturing facility; 3) export to other Latin American countries using the newproduction capacity; and 4) establish the new production facility as a worldwidebenchmark for efficient production. Thus, there were clear short-term objectivesfor the transfer of knowledge to the new organization and longer term objectivesfor the transfer of manufacturing best practices to other parts of the organization.In that sense, the new organization was intended to be both a knowledge receivinglocation and a knowledge source location. This study focuses on the short-termobjectives since the outward transfer of knowledge will take additional years tobecome established.

The technology transfer involved both process and product technology from otherparts of the organization. One of the products will be about 70% U.S. technologyand about 30% from another Latin American country. The other main product willbe largely European technology. The manufacturing process technology wastransferred from another plant in Latin America and a plant in Europe. Transferred

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knowledge also included both marketing knowledge and the overall Alpha culturesince the objective was to build a new, sustainable organization that would survivefor many years. Some of the specific non-manufacturing process best practices thatAlpha was attempting to transfer from other parts of the organization included: acustomer satisfaction measurement program, distribution network, team building(unfamiliar to most of the local employees), market research methods, and varioushuman resource practices such as an internship program, cell structure in theplants, plant dress codes, and a collective bargaining process.

Alpha was relying on various knowledge transfer mechanisms, including: 1) alarge team of expatriates from various parts of the world; 2) an advisory system ofvisitors from other Latin American and international locations; 3) local andinternational training for managers and line workers; 4) videos from otherlocations; 5) extensive email communication; 6) visits outside the Latin Americancountry for Latin American managers and supervisors; 7) internationalcoordination of the manufacturing plant construction; and 8) company manuals.

Beta. Although about 40% of Betas sales were outside the United States, producttechnologies largely originated in the United States. Thus, the firm was faced withtwo major challenges: 1) transferring new product technologies to other regions ofthe world and 2) transferring the technology development, i.e. R&D, processoutside the United States. The first objective was critical to firm success and wasgenerally accepted within the organization. The second objective was morecontroversial within the firm because there was no agreement that R&D should bedistributed throughout the world. One argument was that as the firms non-U.S.sales grew, it was natural to begin the process of distributing R&D and earlyproduct development to other parts of the world. The argument was stated asfollows: It is impossible to develop customer solutions if you do not understandcustomer problems. Different parts of the world should logically be the focus for

problems unique to their area. Remote R&D facilities would facilitate technologytransfers outside the United States.

The counter to the above argument was that the culture and tacit knowledge of thecentralized R&D unit was so unique it would be impossible to replicate it.Moreover, trying to replicate a smaller version of central research anddevelopment would fail. The complexity of Beta products and systems, it wasargued, was such that a large team of R&D people was needed in one location toensure interaction occurs between scientists. Decentralization would reduceinteraction and personal contacts. Moreover, one of the main functions of Betascentral R&D was to move ideas around the world. Decentralizing R&D would

jeopardize this central dissemination function.

Gamma. Gamma, a successful U.S.-based manufacturer, recognized the need toexpand internationally if the firm was to remain a major supplier in its industry.Without international growth, Gamma risked losing its high quality status as asupplier. A major challenge for Gamma revolved around the question of how totransfer what was perceived to be a unique organizational culture. Among seniormanagement there was a consensus that the foundation of Gammas success wasits fundamental culture and values. As a result, the vision for expansion was thatall Gamma facilities inside and outside the United States would have the Gammaunderlying value system based on trust, respect, and integrity.

The specific knowledge transfer that was examined for this study was theestablishment of a manufacturing plant in Mexico. Explicit knowledge transferwas quite straight forward. The Mexican plant was only involved inmanufacturing; there was no product development. The assembly line was a

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replication of one in Gammas U.S. facilities with about 75% of the equipment thesame. Some of the automation was designed out of the process to take advantageof the lower cost of labor in Mexico. The transfer of the manufacturing knowledgeinvolved a variety of linkages between Mexico and the United States, includingtraining in Mexico and the United States and various specialized technicalpersonnel from other Gamma facilities.

The transfer of tacit knowledge associated with the organizational culture was

much more ad hoc. There was no specific planning or discussion about how totransfer the culture; the startup objectives were strictly based on the strategicrationale for establishing a Mexican plant. A key factor in the successful transferof the culture was that the manager running the Mexican operation was veryexperienced and therefore, there was an assumption that "he knew the culture andhad the fit with Gammas way of doing things." As well, some specific, albeitunplanned, actions helped to facilitate knowledge transfer. The Mexican HRmanager and financial manager visited the U.S. headquarters to learn how thingswere done. The workforce hired in Mexico were young and "moldable" and did nothave much manufacturing experience. Also, the customer was unwilling to settlefor anything less than the same quality standards as Gamma delivered in the U.S.The result was that the Mexican quality and delivery standards were as good as inthe United States. However, the cleanliness and plant organization were not yet upto Gamma standards and people development processes were lagging.

ANALYSIS

The three case studies provide an opportunity to study various types of knowledgetransfers and knowledge transfer attempts. The following sections provide alinkage with the earlier discussion of the knowledge transfer model.

Knowledge Spectrum and Contextual Dimensions

We suggested earlier that when knowledge is extracted from its "natural" contextand moved to a new context, this new context may or may not be in alignmentwith the transferred knowledge. Contextual alignment in turn is a function of fivedimensions. The nature of the dimensions is that they enable and restrictknowledge transfer. In our case studies, we found that explicit knowledge, usuallyassociated with manufacturing processes, was generally transferred successfullywith low eventfulness. In the case of Alpha, the parent firm established very cleargoals for the transfer of manufacturing knowledge and established a very receptiveculture for the knowledge. The recipients in the Latin American country had theopportunity to visit the United States as well as other Latin American operations.

These visits were designed to establish cultural similarity and fit with the newknowledge. The decision making structure adopted for manufacturing was areplica of one in another Latin American country. One of the plant managers was along time Alpha employee from a neighboring country. He was deliberately chosento manage the manufacturing knowledge transfer. The other plant manager, aEuropean, was in a more difficult position because the scale of the plant was largerand the incoming knowledge more complex. In the case of Gamma, themanufacturing knowledge was also transferred successfully, primarily because ofvery tight coordination between the Mexican plant and the United Statesheadquarters.

With Beta, a continual challenge was transferring technology developed in theUnited States to international units. To create a successful technology transfer,there had to be evidence that the technology was relevant and could providecustomer solutions. Crossing borders with the technology was always difficultbecause of a historical lack of trust between headquarters R&D and international

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operations. In recent years, the distrust was breaking down but it persisted in someareas. Drawing on our earlier discussion, successful transfer requires similar or atleast related contextual elements in the source and recipient locations. With Beta,the contexts were often very different, which restricted the amount of knowledgethat could be transferred.

Although the explicit knowledge transfer in Alpha was proceeding smoothly, themore tacit knowledge transfer involved much more adaptation and

experimentation. For example, there was great skepticism about the ability toadopt Alphas European system of supplier management. According to onemanager, the environment was too dissimilar. This manager cited the poortransport system in the Latin American country, lack of understanding at thesupplier level, need for warehousing of inventory, and no competition at thesupplier level as evidence of environmental differences. Our observation is that alack of understanding in Alphas Latin American operation about the rationale foradopting the system was an impediment to successful knowledge transfer. Themore tacit marketing knowledge was not yet fully transferred. Our prediction isthat significant difficulties will arise in this area.

Knowledge Pockets and Transfer Success

When knowledge overlaps the knowledge spectrums at both the source andrecipient, successful knowledge transfer is more likely. Because Alpha wascreating a new organization where one did not previously exist, initially there wasno source knowledge spectrum. This spectrum had to be created from scratch. Todo so, the knowledge spectrum created became an amalgam of Alphas knowledgefrom around the world. Sales and marketing knowledge came from two LatinAmerican countries plus the United States; materials and logistics knowledgecame from Latin America, United States, Europe, and a subsidiary company;

finance knowledge came from Latin America and the United States; humanresources knowledge came from the United States, Europe, and Latin America;and the general manager came from Europe via Latin America. These initialtransfers, although not without problems, were largely successful. As this spectrumsolidifies, knowledge transfer will become more difficult. Thus, we expect thatthat over time in Alpha, the overlapping area within both the source and therecipient units knowledge spectrums will shrink, making future knowledgetransfers more difficult.

In Beta, the problem was that the knowledge to be transferred typically existedoutside of the recipients knowledge spectrum. The new technology had to exist

outside the recipients knowledge spectrum or there would have been no need totransfer it. Thus, to ensure successful transfer required a type of negotiationbetween the central R&D managers and the international subunit managers. As amanager indicated, "tech transfer is about interaction and begins with trustbetween two people." Applying our model to this statement suggests that thenegotiation was designed to penetrate the recipients knowledge spectrum andcreate an overlap between the spectrums. This was done through the internalnetwork of Beta and the personal contact-based system.

Gamma was able to create a recipient unit with overlapping knowledge spectrumsthrough the use of the specific knowledge transfer mechanisms discussed earlier.

Gamma was also able, through their management selection and hiring practices, tocreate a motivated recipient. The challenge for Gamma in the future will be totransfer more complex knowledge. Plans were underway for a significantEuropean presence. With Gamma, there was a great deal of concern about thetransfer of organizational culture and specifically, human resource practices.

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DISCUSSION AND CONCLUSION

This study represents an initial attempt at understanding knowledge transfers andknowledge management by focusing on the knowledge spectrum and the contextwithin which knowledge exists. Our initial expectation was that context similaritywould be the key factor in the success of knowledge transfer. To context similaritywe would add the nature and extent of the knowledge transfer mechanismsemployed. Although we were aware of the importance of knowledge mechanisms,

and our prior research (Inkpen & Dinur, 1998) in the alliance area revealed this,we were surprised by the extent of the different mechanisms associated withdifferent types of knowledge. In particular, in the Alpha case, we identified morethan 50 types of knowledge and more than 15 different knowledge transfermechanisms. Even in the Gamma case, where the knowledge transfer wasrelatively straightforward, a variety of very different knowledge mechanisms wereused.

We also found that explicit knowledge was easier to transfer than tacit knowledge,which suggests that knowledge complexity is a key variable. Therefore, wepropose Figure 4 to illustrate the interrelationships between the variables thatimpact knowledge transfer success. Knowledge transfer mechanisms is shown inthe model, along with context similarity, and knowledge complexity.

*

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A further insight involves the distance that new knowledge traveled. With Alpha,knowledge was sourced from a wide variety of different geographical locationsand organizational subunits. However, we were able to detect a pattern in thesource of knowledge. We found that two broad types of knowledge came fromneighboring countries: marketing and distribution knowledge, and human resourcepractices knowledge. The manufacturing process technology came from Europeand North America. Consistent with our earlier arguments, this pattern can be

explained by the context similarity. Human resource practices are more deeplyassociated with national cultures than the manufacturing process technology,which suggests that trying to transfer tacit, cultural knowledge will be moredifficult than transferring explicit manufacturing technology. The question wecannot answer as yet is how successful the transfer of the "philosophy" ofmanufacturing will be since this transfer was still in process.Finally, there are some interesting questions for future research. One is that weneed better understanding of the relationship between context, transfermechanisms, and knowledge complexity. We know that the relationships exist;what we dont know is which variables are the strongest or weakest. We observedthat different contextual dimensions played varying roles in the different cases.Are there some dimensions that are generally more important than others? Arethere certain types of knowledge transfer situations in which some of thecontextual dimensions are more important than others?A second question deals with the notion of a knowledge network. In practice andas the case studies revealed, knowledge is not transferred in discrete packages.Knowledge is always part of a broader spectrum and knowledge base. In an MNC,when knowledge is transferred from one location to another, there will be otherpockets of knowledge that may directly or indirectly influence the transfer process.Over time, a network of knowledge flows will evolve. A question for furtherresearch is how the network is shaped and influenced and how different contexts invarious subunits affect knowledge flows.Finally, an interesting and unanswered question for Alpha is the extent to whichAlphas new Latin American organization can become a source of knowledge forother units in Alpha. Out study focused on a one-way movement of knowledgeinto the new organization. A rational view suggests that Alpha should look at theirnew organization as a basis for benchmarking various new technologies andpractices. When Alphas new organization is established, it will presumably havesome state-of-the-art knowledge, which is synonymous with best practices. Hamel(1996) argued that the people at the organizations geographic periphery are aconstituency that deserves a larger say in strategy making. At the periphery of theorganization (in this case the Latin American country), people are forced to be

more creative because they have fewer resources and are exposed to ideas thatchallenge the organizations accepted practices. It remains to be seen as to whetheror not the older, more established units within Alpha are able to leverage theknowledge created in the new organization.

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TABLE 2Key Characteristics of the Three Cases

CharacteristicsAlpha Beta Gamma

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Firm Size

>$10 billionin sales

$7 billion insales

$1 billion insales

InternationalExperience

extensive extensive minimal

Products OEMmanufacturer

Consumerand industrialproducts

OEM supplier

KnowledgeTransferObjective

establish anewmarketing andmanufacturingorganizationin a Latin

Americancountry

transfertechnologyandtechnologydevelopmentprocesses to

variousregions andcountries

establish amanufacturingpresence outsidethe United States

Satisfactionwith thetransfer

highsatisfaction

somedissatisfaction

moderatesatisfaction

Timedeviation

on-time forexplicitknowledge,

tacitknowledgetransfer inprocess

behindschedule

on-time

MostImportantContextualDimensions

strategy,technology,environment

decisionmakingstructure,technology

firm culture,decision-making,technology

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