According to Knowledge-Based View (KBV) theory, knowledge is the most strategic resource of the company. This perspective models the company as a repertoire of knowledge residing in individuals and the reason firms exist is to integrate such knowledge effectively and efficiently for the production of services and goods. To facilitate such integration, knowledge transfer and hence communication becomes a core element of it. However, to share/transfer knowledge, there has to be a certain level of (pre-requisite) shared understanding between the parties to be able to share additional knowledge.
According to KBV, to effectively coordinate knowledge transfer, the kind of ‘dependence’ between the company units has to be understood first, i.e. whether it is sequential, pooled, reciprocal or team interdependence. Depending on type of dependence organizational structure should be designed to facilitate transfer. For example, for sequential or reciprocal dependence rules and routines can be emphasized so that knowledge transfer can be economized whereas, say, for complex or unusual problems, team structure performs better. This is evident from New Product Development teams these days which are typically cross-functional. Also, if coordination demands are high (e.g. when knowledge involved is more of tacit nature) then hierarchies are likely to perform poor and fluid team structure is a better choice. This also has implications for decision-making in the company.
KBV suggests that if knowledge is explicit and can be transferred at low cost then decision making should be centralized while for decision based more on tacit knowledge it should be decentralized, referred by the author as ‘co-location’ of decision making. According to KBV, firm boundary can also be analyzed in the light of relative efficiency of knowledge utilization. E.g., if there is no dependence of knowledge between two stages of production then they can transact in market fashion and if dependence is high then it should be internalized.
KBV has gained traction recently because of the increasing knowledge intensity across industries mainly due to rise of Information Technology in the recent era, which has inherently marked knowledge as the key strategic resource of the firm in many industries. Therefore, the use of KBV in industry is expected to gain more foothold. Nevertheless, it is an interesting perspective to model and look at your organization as it might yield insights which might not be apparent otherwise.
Grant, R.M. “Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal (17), Winter Special Issue, 1996, pp. 109–122.