University of Twente Student Theses


knowlegde asymmetry in inter-firm relationships - A suggestion for a knowlegde sourcing strategy for the Ministry of Oil of Iraq

Dellemijn, R.N.J.C. (2012) knowlegde asymmetry in inter-firm relationships - A suggestion for a knowlegde sourcing strategy for the Ministry of Oil of Iraq.

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Abstract:This thesis introduces a new knowledge sourcing strategy model. Four strategies were developed a grow, transfer, buy and hire strategy. Based on the analyses of the organisational and knowledge characteristics it is possible for an organisation to create the most optimal strategy to source new knowledge. To demonstrate the working of this model it was applied to a real-life case study for the Ministry of Oil of Iraq (MoO). The most optimal (combination) of knowledge sourcing strategies to acquire knowledge in the contract management and control domain is presented as a suggestion for the Ministry of Oil of Iraq for the development of their knowledge base. This is however the end-result of this thesis. In the preceding chapters it is explained why knowledge is important in an inter-firm relationship. The most important findings will be described in the upcoming sections after which the advice for the knowledge sourcing strategy for the Ministry of Oil of Iraq will be explained in more detail. Since the world is becoming increasingly complex and knowledge is increasingly dispersed, organisations ever increasingly have to rely on external organisations to help them develop and sell their products or services. They develop many inter-firm relationships. Managing these relationships is a challenge, since an external organisation may not always have the same goals as your organisation. They may show unwanted behaviour or represent themselves in an untruthful manner. In both situations the agent may act on his own interest, that is referred to as agency problems in the agency theory. These agency problems can have large financial and/or other consequences for the principal. The concept of knowledge asymmetry is introduced in the first chapter as evolution of the already known concept of information asymmetry in the agency theory. Information asymmetry creates the opportunity for the agency problems to occur, since the principal won’t have information on the behaviour, actions or results of the agent. Having information however is not a guarantee for understanding the behaviour, actions or results of the agent. It is the interpretation of the information, understanding the information that is critical to understand the behaviour, actions, and results of the agent and curb the possible agency problems. It is knowledge that allows the interpretation and understanding of information. Knowledge is a transformation of information using experience, skills and attitude, all within the individual mind. It has to be learned, which is difficult, time consuming, uncertain, and often accompanied with great costs. Information, in comparison to knowledge, can be purchased, although not always available, at a certain price. Understanding that reducing information asymmetry is more easily than resolving the knowledge asymmetry is valid, based on the previous statements. Knowledge is in contrast to information a more difficult construct. It is more difficult to absorb, it can’t be transferred, it is bound to an individual. That makes knowledge also explicitly more costly. ‐ 4 ‐ The difference between information and knowledge will require a completely different approach for the principal when engaging in an inter-firm relationship. The principal will need to carefully consider the available and necessary knowledge in the organisation to effectively manage and control the inter-firm relationship, since sourcing knowledge takes more time, is uncertain, bound to individuals and sometime unavailable and certainly more costly than sourcing information. How knowledge asymmetry affects the performance of the inter-firm relationship is described in the second chapter. Risk directly influences the performance of the inter-firm relationship, which can be ‘managed’ by control or trust. Reducing the knowledge asymmetry between the principal and the agent positively affects the performance of the relationship, is argued and formulated in propositions. Reducing the knowledge asymmetry allows the principal to more accurately assess the risk, reducing the uncertainty that negatively affects the performance of the inter-firm relationship. A smaller knowledge asymmetry also allows the principal to more accurately assess the trustworthiness of the agent as well as the processes and behaviour of the agent. This positively affects the effectiveness of both the control and trust mechanism, which in turn have a positive effect on the perceived risk. The last chapter provides an answer to a topic that was introduced in the first section of this management summary. “If I am in need of knowledge, how can I source it?” Four strategies are developed, grow, transfer, buy, and hire, which cover all possible sourcing possibilities. Based on four organisational (absorptive capacity, financial capacity, HR capacity, and risk attitude) and four knowledge characteristics (core competence, knowledge availability, time to knowledge, and knowledge time-span). An organisation can identify knowledge gaps, and for each knowledge gap a knowledge sourcing strategy can be developed. In particular (in this thesis) for organisations that are in an inter-firm relationship, and find themselves in need for specific knowledge regarding the management and control of a relationship. The strategies can be combined in parallel or sequential order to reach the desired knowledge state, and provide the principal with flexibility regarding the sourcing of knowledge. The knowledge sourcing strategy model however is not limited to use in inter-firm relationships. The strength of the model is also in its wide possible appliance. Every organisation, business unit or individual that has identified a need for knowledge can use the knowledge sourcing strategy model to source knowledge. The organisational and knowledge characteristics of the MoO were measured using an online questionnaire. Based on these results a suggestion for a knowledge sourcing strategy was formulated. The suggestion is to start with a grow and hire strategy at the same time. Since the MoO regards the knowledge in the management and control of inter-firm relationships as core competence, it is suggested to internally grow that knowledge. The financial means to accommodate that strategy are deemed available by the respondents. The knowledge is however needed at a short time-span, the MoO is already engaged in the inter-firm relationships. That why it is suggested to also immediately execute a hire strategy as knowledge will be almost immediately available (respondents have indicated that they expect that the knowledge is available at external sources). Since the grow strategy will take time to provide results, a hire strategy can fill this gap. The hire strategy can, in time, be replaced ‐ 5 ‐ with a buy strategy. This can support the grow strategy, the knowledge will be at close proximity, and provides more certainty at a lower cost than the hire strategy. A buy strategy provides a more solid base for the MoO. A buy strategy will take more time to execute, which is the reason to first execute the hire strategy, given the immediate knowledge need. After the grow strategy has shown sufficient results, the buy strategy can be phased out, from which time on the Ministry of Oil is self-sufficient regarding the knowledge in this domain. In the first chapter the significance of the concept of knowledge asymmetry as evolution from information asymmetry is reasoned. Consequently the importance to reduce the knowledge asymmetry in an inter-firm relationship is formulated in propositions. The last section of this thesis provides a practical model, the knowledge sourcing strategy framework, for any organisation that wants to source knowledge, and more specifically for those in an inter-firm relationship that want to reduce the knowledge asymmetry to increase the performance of the relationship.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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