Knowledge Management and Innovation

Theories of the firm have usually emerged to explain why firms differ in their performance (Chandler, 1962; Donaldson, 1995; Coase, 1937; Williamson, 1975; Wernerfelt, 1984; Barney, 1991) and these performance differentials emerge essentially as a result of a firms ability to create a sustained competitive advantage that generates, sustains and appropriates rents (Coff, 2003b: 245). Today, knowledge, learning and innovation are at the heart of our understanding of competitive advantage and firm performance. For the purposes of this chapter the two most important theoretical perspectives to have been applied to understand these issues are organizational learning and the RBV. Building upon Kogut and Zander (1992) and Tsai and Ghoshal (1998), Tsai (2001: 996) stated that ‘inside a multiunit organization … knowledge transfer among organizational units provide opportunities for mutual learning and interunit cooperation that stimulate the creation of new knowledge and, at the same time, contributes to the organizational units’ ability to innovate’. The intricate web of relationships that links these themes is currently the dominant paradigm in the strategy and international business academic literatures.