Stocks of Knowledge and Organizational Performance a Dynamic Relationship.Pdf

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STOCKS OF KNOWLEDGE AND ORGANIZATIONAL PERFORMANCE: A DYNAMIC RELATIONSHIP Fernando Arenas Universidad ICESI Calle 18 122-135, Cali, Colombia tel: +57 2 5552334 x8858 faarenas@icesi.edu.co Abstract The relationship between the level of knowledge and organizational performance has been studied by the academic community and is receiving growing attention from decision makers in organizations. However it is not the case of the feedback relationship between performance and the level of knowledge, although this relationship has a dynamic pattern of behavior on both variables. This research poses a conceptual approach that involves a causal model of this feedback relationship, theoretically founded on the resource based view and the behavioral theory of the firm. The methodology involves the design and use of a system dynamics simulation model based on a pharmaceutical company which relates stocks of knowledge, innovation capability, financial performance and investments on knowledge stocks. The concept of “managerial dynamic hypothesis” is defined and used to explain, via the prospect theory, how much managers decide to invest over time on knowledge stocks. Simulations, based on managerial dynamic hypotheses with two different levels of complexity, were carried out. The results show that the more complex the hypothesis is the more stable the investment flow is and a better performance is achieved. Keywords: knowledge stocks, organizational performance, organizational knowledge, prospect theory, simulation. system dynamics,

1. INTRODUCTION The influence of variables related to knowledge (knowledge management, stocks of knowledge, organizational learning) on organizational performance, has been the subject of numerous studies. It has not occurred in the same way with the study of the influence of the performance itself on these variables. It should then be asked, is organizational performance just a result of these variables, or does it, in turn, influence them? If so, how this interaction occurs and what its dynamic behavior is? There are few studies exploring this relationship, although several authors suggest a relationship of mutual interaction between learning and performance (Argyris and Schön, 1978, Lee et al., 1992, Mintzberg et al., 1995) and that has raised the importance of considering the performance as an endogenous variable (not just as a dependent variable) within the models formulated in strategic management research in general and particularly in organizational learning research (Bontis et al., 2002). Other authors, mainly from the perspective of organizational behavior theory (Cyert and March, 1963; March, 1991) have studied the influence of performance on organizational change processes as a one-way relationship, with the exception, relevant for this research, of the work of Greve (2003) which establishes a

dynamic feedback between learning and organizational performance by means of the "theory of learning from performance feedback" (Greve, 2003, 10). The scarcity of research on the dynamic relationship between learning, knowledge and performance, despite its obvious relevance (Bontis et al., 2002) , may be justified in part by the methodological difficulties that longitudinal studies entail (von Krogh, Erat & Mackus, 2000), and partly by the high complexity involved in developing formal models capable of describing this relationship. To cope with these difficulties, several authors have made use of the development of simulation models as a methodological proposal that allows, usually based on secondary data, both development and verification of theory (Davis, Eisenhardt and Bingham, 2007), and makes possible the formulation of complex models involving, as in the case of this proposal, the integration of diverse but complementary theoretical perspectives. Among the methodological approaches to the development of simulation models, it is of particular interest for this proposal the system dynamics...
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