Competing in the New Economy
partners using complex governance structures and processes (Quinn 1992; Lewis 1999; Stock and Hill 2000).
Coase’s (1937) research on transaction cost economics has long recognised that firms do not conduct all activities concerning their businesses internally. Instead they create relationships with other firms and invite them to share their business value creation process.
Relationships are formed because the firm does not posses the requisite expertise for that business process [eg BTG seeking advise from leading industry consultants in the relevant technology markets]. The demand for new skills and know-how far outstrips the capacities of firms to develop them on their own. Put differently, most organisations have limitations in terms of the bandwidth of capabilities they can develop, and hence necessarily have to look for external sources for meeting environmental demands. Moreover, as these environmental demands change, organisations have to re-configure the nature of complementary capabilities that they need and are relevant under the changing circumstances. As such, if organisations do not develop the right set of relationships for dynamic value creation and rely only their internal strengths to reinforce prevailing product-market positions, or consolidate a particular set of processes and routines, are very likely to be out-maneuvered by more nimble organisations.
The key premise being that in the knowledge-based economy, no one firm can have all the required capabilities inside the corporate boundaries. Knowledge resources cannot be appropriated like physical, tangible resources. [Network Effects] As corporate boundaries get blurred with companies entering into cross-licencing, co-sourcing as well as joint R&D and joint venturing for leveraging knowledge resources, we need to take a different perspective to look at strategy. Thus this emerging perspective takes the form of economies of expertise.
What are economies of expertise? They are advantages that come from leveraging knowledge flows in a complex network of relationships. They require a different set of strengths, both in terms of understanding where the potential sources of knowledge reside and the ability to absorb and deploy external knowledge in their businesses. The external knowledge in their businesses. The strategic focus shifts from strengthening internal processes and routines from leveraging internal capabilities to building mechanisms that enable identifying, sharing, and absorbing knowledge in a broader network of organisations (Kogut, 2000).
It is important to highlight that the Economies of Expertise is about conceptualising how a firm develops superior strategy by understanding the knowledge flows in a complex network of relationships. The rational is that networked firms benefit by accesssing and leveraging the expertise of complementary entities that are tied together through financial capital, cross technology licencing as well as important directorates. Hence, they develop multiple avenues to access and leverage expertise to succeed in the highly dynamic hi-tech marketplace.
Challenges to Conceptualising Economies of Expertise:
It should be noted that this concept of strategy is still evolving – more work needs to be done to formalise this thinking and transform it into a framework that can not only steer [next page]