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(how valuable is wisdom)
Vertical Integration: Applying an Economic Calculus to Knowledge
"We are increasingly concerned… with knowledge as a factor of production, having costs and values that we must try to estimate in order to make correct decisions for the conduct of business… We have discovered that applying an economic calculus to knowledge… is often, because of… intangibility… far more difficult than costing and valuing… production machinery. Yet, whether we can make the measurements accurately or not, it is precisely these costs and values that determine the efficiency and profitability of our activities…" (Simon, 1999: 34)
The determination of economic inter-firm boundary location is a key strategic concern. Correctly deciding which activities are more economically organized "in a unified firm (AB) rather than in two autonomous firms (A and B)" (Williamson, 1999: 1097) is no simple undertaking. The question of firm boundary location is important since it attempts to predict the productive activities a firm should undertake in-house, which products it should purchase or activities it should outsource, and when it should sell its product to the next segment of the value system (Pfaffmann, 1998).
My doctoral research responds to that challenge in an innovative fashion by "applying an economic calculus to knowledge" (Simon, 1999: 34). The conceptual and empirical framework I apply in my research proposes that specialization leads to differences in cost and technical efficiency of knowledge-based factors of production between adjacent stages along a value chain. These divergent costs and technical efficiencies in turn shape the economics of inter-firm boundary location.
Simon's (1999) urging to consider various forms of knowledge as factors of production in applying microeconomic theory may be considered somewhat novel. In assessing the contribution of R&D to productivity growth, Griliches (1979: 95) introduced a production function that included "a measure of the current state of technological knowledge". Since then, the idea that "…there are markets for knowledge, with their supply and demand curves and marginal rates of substitution between one form of knowledge and another" (Simon, 1999: 24) appears to have received scant attention. The framework constructed in my research suggests that tacit, codified, and encapsulated forms of knowledge be considered as factors of production. This differentiation appears to be foundational and is operational even when adjacent stages of production rely on common substantive knowledge.
Managing Knowledge and Information in Times of Major Organizational Transition
Social
Sciences and Humanities Research Council of Canada (SSHRC)
Initiative on the New Economy research grant (2003-2006)
Principal Investigator: Dr. Chun
Wei Choo, University of Toronto
"The objective of this research project is to increase our understanding
of how organizations mobilize and leverage their knowledge and information
capabilities during times of significant organizational change... such
as mergers and acquisitions, privatization, technology disruption, and
changes induced by external environmental forces."
" Knowledge management is best studied in the context of addressing
and solving a set of concrete complex problems."
"The study will contribute to our theoretical understanding of knowledge-driven
change by developing an empirically grounded model that links knowledge
and information management practices to the organizational capacity for
learning and adaptation. The study will develop practical recommendations
on how to nurture, interface, and integrate formal and informal knowledge
and information practices... These recommendations would be of interest
to administrators, managers, policy makers, as well as professional staff
responsible for... knowledge management initiatives."
source: http://choo.fis.utoronto.ca/FIS/SSHRC/KIM/
University of Toronto
140 St. George Street
Toronto, ON
M5S 3G8