Knowledge and Learning, Markets and Organizations:
Managing the Information Transaction Space

Ard Huizing
Wim Bouman

Department of Information Management
University of Amsterdam

Abstract

The aim of this article is to develop an economic foundation for knowledge management. To this end, we make use of two economic theories of organization: Transaction cost economics (Coase, 1937; Klein, Crawford & Alchian, 1978; Williamson, 1975, 1985) and agency theory (Alchian & Demsetz, 1972; Jensen & Meckling, 1973; Fama & Jensen, 1983). Both theories represent serious attempts by economists to come to terms with the existence of firms and their related organizational activities. Knowledge management is one such related activity whose existence needs to be explained. Transaction cost economics and agency theory are therefore applied to this field to address the question: Which governance structure is most efficient for knowledge management?

The way knowledge management is conceptualized in theory and applied in practice is subject to growing criticism. First, knowledge is frequently seen as a relatively static phenomenon that does not capture the ongoing cycle of action taking and knowledge acquisition found in learning theories (Crossan, Lane & White, 1999). In today's dynamic world, however, learning processes constitute organizational learning, rather than the time-limited knowledge that is accumulated as a result of these processes (Dixon, 1997). Best practice descriptions, for instance, can lead to learning traps when conditions change (Lant & Mezias, 1990). Knowledge from others may therefore inform people's thinking, but can not replace it.

Second, the prevailing notion of knowledge often rests on a naively positivistic, objectivist model of learning (Leidner & Jarvenpaa, 1995; Tenkasi & Boland, 1996; Cook & Seely Brown, 1999). Knowledge is treated as an 'it' or an possession that is made up of discrete and transferable granules of understanding which can be added to an extant heap of knowledge (Spender, 1996; Davenport et al., 1998). Equating learning with making information available, and information and communication technology that is primarily used to automate the information delivery function is typical for this kind of reasoning.

Third, knowledge management is biased towards the supply of information (Manville & Foot, 1996; Alavi & Leidner, 1999). The main problem addressed is how to structure reality into generalized representations and to 'push' that information to the users who will uncritically absorb it. This approach underestimates the active role users play in seeking and creating knowledge. It also denies that increasingly information demand, and not supply, is the scarce factor in knowledge economies (Pine, 1999). Hence, there is a need to rebalance the demand and supply sides in knowledge management, based on a reexamination of the notions knowledge, information, and learning.

To appear in "Strategic Management of Intellectual Capital and Organizational Knowledge" edited by Nick Bontis & Chun Wei Choo (Oxford University Press).