EJKM Volume 11 Issue 2

Editorial for EJKM Volume 11 Issue 2
This is my first editorial, as I have just recently become the editor of the Electronic
Journal of Knowledge Management, following a long period as a paper reviewer. I feel
very honoured to be able to contribute to the continued success of our journal at a
challenging time for the KM discipline. While the field has evolved significantly since its
emergence in the early 1990s and attracted a high level of interest across both the
academic and the practitioner communities, any comprehensive review of recent
publications across the discipline might produce some sense of dj vu, as many are
concerned that limited progress is being made in the broader recognition of the
discipline in the academic community and in the adoption of good KM practices.
Thus, while we continue to solicit papers on any aspect of KM, we would especially
encourage authors to consider contributing papers that can add rigour to the many
theories in the discipline as well as those that can demonstrate successes in the
practical application of theory in the field
In this issue, we have six papers that provide interesting and contrasting insights. We
have two theoretical papers (one revisiting the tacit explicit dimension, the other
knowledge governance frameworks) three interesting case studies (examining graduate
students personal knowledge, air force incident reporting and manufacturing firms
external knowledge search) and a survey of the perspectives of more than 500 Basque
CFOs on valuing intangible assets.
Ilkka Virtanens In Search for a Theoretically Firmer Epistemological Foundation for the
Relationship between Tacit and Explicit Knowledge is an insightful revisitation of one of
the most frequently used (and often abused) concepts in KM. Following a reexamination of the original work of Polanyi (1958) and the perspective provided by
Nonaka and Takeuchi (1995), he proposes an improved epistemological model for tacit
knowledge that should be of interest to most KM researchers.
In another theoretical paper, David Johnsons Governing Frameworks for Sharing
Actionable Knowledge discusses the importance of context in KM activities and
examines four alternate governance frameworks (formal, informal, markets, and
professional) for interaction within organisations.
Elaiza Benitez, David J Pauleen and Tony Hoopers From Information Gatherers to
knowledge creators: The evolution of the post-graduate student examines the evolution
of graduate students skills in personal information and personal knowledge
management. It should be of interest both to students entering postgraduate studies
and those who supervise graduate students.
In A Form to Collect Incident Reports: Learning from Incidents in the Swedish Armed
Forces, Ulrica Pettersson provides an excellent and detailed case study in an unusual
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and interesting environment, but one from which lessons can be generalised to many
other situations where there is a need to capture experiential knowledge to improve
subsequent performances of complex activities, such as incident reporting.
In The Search for External Knowledge, Rebecca Purcell and Fergal McGrath take an
Interpretivist approach in examining three Irish manufacturing firms to determine how
they carried out external knowledge search, developing a practical framework for
external search activities.
Finally, Real Options in the Valuation of Intangibles: Managers Perception, by Beln

Vallejo-Alonso, Gerardo Arregui-Ayastuy, Arturo Rodriguez-Castellanos and Domingo
Garca-Merino, examines the challenges in financial valuation of intangible resources
and examines a specific method for such an evaluation. Focusing primarily on SMEs in
the Basque Country, they demonstrate the relevance of the method examined, while
highlighting the very limited capacity of firms and their CFOs to under stand and apply
the concept.
These articles are a robust demonstration of the good work that is being done in the KM
discipline. I trust readers will find them of interest and encourage all those interested in
the KM field to consider our journal as a useful outlet for their work and would very
much like to hear from those of you interested in making additional contributions to the
journal, perhaps by acting as one of our paper reviewers.
Ken Grant
Ryerson University
kagrant@ryerson.ca
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In Search for a Theoretically Firmer Epistemological Foundation for

the Relationship Between Tacit and Explicit Knowledge
Ilkka Virtanen
School of Information Sciences, University of Tampere, 33014 University of Tampere,
Finland
ilkka.virtanen@cs.uta.fi
Abstract. Tacit knowledge has become one of the most used buzzwords in many scientific areas, especially in the area of
knowledge management, during the past twenty years. In the mainstream of contemporary KM literature the concept of
tacit knowledge has been brought in a relatively rough way alongside the traditional conception of knowledge (explicit
knowledge) without further analysing the theoretical coherence of the resulting epistemology. Moreover, tacit knowledge
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factors have led to puzzling or even internally contradictory epistemological views. We critically analyse the predominant
epistemological views in the knowledge management literature from the theoretical perspective. We outline a
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although knowledge management is relatively new scientific area, its roots should be firmly grounded in the philosophical
problems concerning knowledge if it is expected to present credible theories that could support knowledge management
practices.
Keywords: epistemology, explication, explicit knowledge, Polanyi, tacit knowledge, theory of knowledge
1. Introduction
For over two decades tacit knowledge and its relation to explicit knowledge have been widely discussed topics
in the fields of management studies, information system science and particularly in knowledge management
KM I
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KM literature to the widely supported claim that organizations could achieve competitive advantages by using
effectively their unique knowledge (see e.g. Nonaka and Takeuchi 1995). As a result, the focus of KM literature
shifted from explicit forms of knowledge to softer and more complex resources of knowledge that were not
stored in information systems but held in human minds. Since then hundreds of scientific papers and reports
have presented possible procedures, models and theories for making tacit knowledge representable by
converting it to explicit knowledge. The innermost aim of these suggestions is to harness valuable personal
understanding and insights to common benefit in organizations.
However, analysis of epistemic views discussing the relation between tacit and explicit knowledge, and
particularly the ones that stress the importance of making tacit knowledge explicit, shows that the concept is
often used in inconsistent, even misleading ways. According to Cowan et al (2000), very often the meaning of
the concept itself remains literally tacit. Various authors (e.g. Grant 2007; Wilson 2002; Tsoukas 2003) have
argued that the fundamental content of the concept has been misinterpreted. This suggests that the subject
area is still inadequately studied.
Conceptual clarity is not important only from the perspective of internal theoretical consistency of KM; KM is a
multidisciplinary field of science, which means that it should communicate with other relevant fields of
science. This naturally becomes difficult if central concepts adopted outside the field are redefined. Instead,
theoretical statements from different disciplines should refer to the same set of phenomena (Bunge 1967).
The focus of KM is evidently on the management and use of knowledge, which means that the area is above all
practical. In this sense it may seem doubtful to introduce profound epistemological considerations to the
practices of the field. However, the moment we begin to discuss theories of knowledge creation and
explication of tacit knowledge we cannot avoid epistemological consideration because we have to know what
we are theorizing about; from the scientific perspective the problem is significant because theories based on
vague concepts are themselves vague and hence close to meaningless.
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I In Search for a Theoretically Firmer Epistemological Foundation for the
Relationship Between Tacit and Explicit Knowledge The Electronic Journal of Knowledge Management Volume
11 Issue 2 (pp118-126) available online at www.ejkm.com
Electronic Journal of Knowledge Management Volume 11 Issue 2 2013
The question about the relationship between tacit and explicit knowledge is important because it lies in the
very heart of the KM theory. Although N
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iginal theory has been revised and modified
(see e.g. Nonaka and Peltokorpi 2007), the epistemological foundation (namely the classification of knowledge
into tacit and explicit) of their original theory has gained a dominant role as the basis for epistemology in the
KM theory (Maasdorp 2007
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the epistemological distinction between tacit and explicit knowledge has been so influential that even the
whole field of KM has been defined basing on it. For example, according to different authors KM means
both tacit and explicit knowledge
ed process for acquiring, organizing, and communicating

(Alavi and Leidner 1999: 6);
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of explicit knowledge held in artefacts or as tacit knowledge possessed by individuals or
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63);
knowledge asse
-Carrin 2006: 34).
Theories can be considered as a systemization of practice, and as such they serve as a framework for making
sense of the subject area. Respectively, indefinite theoretical frameworks may cause wider problems for the
practices of the field by directing research to wrong lines. For example, technology developed to mine tacit
knowledge of the users is of little value if it is unclear what exactly should be mined. Grant and Qureshi (2006)
remark that many KM projects have stated as their aim the conversion of tacit to explicit knowledge, and
storing and sharing it by developing proper ICT-systems for the purpose. These projects, however, often have
had very limited success (Grant and Qureshi 2006). As Grant (2007) suggests, this might have very negative
effects on organizations.
Tacit knowled
opposed to articulate, explicit knowledge (e.g. Nonaka and Takeuchi 1995; Baumard 1999; Steward 1997).We
argue that one key factor behind the conceptual vagueness of the concept of tacit knowledge is the lack of
profoundly studied epistemological foundation of the relation between tacit and explicit knowledge.
Generally, the meanings of theoretical concepts are determined by the scientific theories in which they occur
(Tuomela 1973). Accordingly, to attain a better theoretical understanding of tacit knowledge and its relation to
explicit knowledge we have to go
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and not just for picking up one concept but
to assess the theory as a whole because not only the expression providing a definition of the concept but that
entire theoretical context signifies the concept to be defined (Tuomela 1973).
W
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gical foundations
upon which the theories of application of tacit knowledge rest-P
mentioned and referred basically by every author. The concept has been brought alongside with the
traditional conception of knowledge, which leads to theoretical confusion as will be shown. We critically
analyse the two epistemological theories (knowledge as tacit and explicit categories; knowledge as spectrum)
that seem to have wide influence in the contemporary KM literature. Based o P
sketch an epistemological model that aims to conceptual clarification of tacit and explicit knowledge and the
relationship between the two. We examine in this work the components of which different conceptions of
knowledge consist in order to compare them and to assess their internal consistency. The aim of this work is to
point some flaws in the mainstream epistemic view of KM and present more coherent epistemological model,
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2. Epistemologies of KM literature
Based on the foundations of positivist epistemology, the majority of the contemporary knowledge literature
develops typologies that distinguish between different types of knowledge (Hislop 2005). The most common
distinction, and also the one that we are interested in, is between tacit and explicit knowledge. This view can
be considered significant because the most cited authors of knowledge management and intellectual capital
literature (e.g. Nonaka and Takeuchi 1995; Davenport and Prusak 1998; Steward 1997) embrace it, and many
1
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-review of knowledge management and intellectual capital literature that surveyed all
citations of the topic (about 60 publications in total) in three major knowledge management journals (Journal of Intellectual Capital,
Journal of Knowledge Management and Knowledge and Process Management.
1
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Ilkka Virtanen
authors after them have adopted it (e.g. Johannessen et al 2000; Kikoski and Kikoski 2004; Seidler-de Alvis and
Hartmann 2008). The tacit/explicit distinction came to prominence in KM literature through the work of
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express the foundation of their epistemology clearly:
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s explicit knowledge, which can
be articulated in formal language including grammatical statements, mathematical expressions,
specifications, manuals and so forth. This kind of knowledge thus can be transmitted across
H ever, we shall argue, a more important kind of knowledge
is tacit knowledge, which is hard to articulate with formal language. It is personal knowledge
embedded in individual experience and involves intangible factors such as personal belief,
perspective,
This view treats (explicit) knowledge in a traditional way, namely defining it as justified, true belief. For
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adopt the tradit
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view makes is that (explicit) knowledge is objective and discrete entity (Hislop 2005). As tacit knowledge is
seen convertible into explicit knowledge, the most crucial KM process is to identify the sources of significant
tacit knowledge and codify that tacit knowledge to explicit (Nonaka and Takeuchi 1995; Steward 1997; Kikoski
and Kikoski 2004).
However, this view has some theoretical problems, and we next discuss briefly the two most significant of
them.
First, Polanyi never said that there existed two types of knowledge ontologically although many authors claim
so (e.g. Baumard 1996; Spender 1996; Jasimuddin et al. 2005). I P
knowledge
are related to two different kinds of awareness, subsidiary awareness and focal awareness respectively. The
things that we are attending to and that we are consciously aware of (e.g. propositional belief, mental image,
external object, read sentence etc.) belong to focal awareness. However, all focal awareness is dependent on
subsidiary awareness that consists of variety of clues, elements and processes (personal knowledge structures,
emotional processes, past experiences, motor responses etc.) that enable focal awareness giving rise to the
personal meaning of its contents. This is the structure of all acts of knowing (Polanyi 1969). Hence, the focal
object is always identifiable and in this sense explicit, whereas subsidiary content is unidentifiable, tacit. In
addition, the two kinds of awareness are mutually exclusive; when the attention is switched to something
hitherto subsidiary, it becomes focal losing its subsidiary meaning (Polanyi 1964). Most importantly, this tacitexplicit structure concerns all acts of knowing; tacit knowledge is not a separate category of knowledge but an
integral component of all knowledge. Hence, to divide knowledge into two categories is not only
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to knowledge. Also other authors have
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which
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theory of knowledge, whose vital
component the tacit dimension is. Tacit dimension is present in all knowledge.
Second, the categorisation of knowledge into tacit and explicit and the idea of conversion of tacit knowledge
into explicit knowledge leads to puzzling, even internally contradictory, overall epistemology. For example,
Nonaka and Takeuchi (1995) originally saw rather unproblematic that something subjective and intangible (as
they characterised tacit knowledge) became converted justified, objective and true belief. However, the
process of explication (or externalization) does not explain how tacit knowledge becomes justified and true.
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hat specifically due to the tacit dimension of knowledge it could
never be objective or fully justified.
The epistemology that divides knowledge into two categories has also one practical constraint that does not
coincide with our everyday experience. For example, I might be able to articulate reasons why I choose one
option over another being, however, unable to exhaustively explain all the factors that have affected my
choice. In this sense the described epistemological view is a rather rigid because knowledge is defined either
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definitions of these two categories of knowledge become unavoidably vague in the case of borderline
instances of knowledge.
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It has been argued (e.g. Hislop 2005; Tsoukas 2003; Brown and Duguid 2001) that tacit-explicit dichotomy
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in a sense that it is a compromise between polanyian epistemology and traditional definition of knowledge,
which leads to non-realistic epistemic view. Supposedly for these reasons this perspective has been afterwards
modified to more workable theory of knowledge that recognizes the inseparability between tacit and explicit
knowledge better but still supports the idea of sharing of tacit knowledge.
The modified view is based on the idea that all knowledge exists on a spectrum (or continuum) that runs from
tacit (uncodified) knowledge at one extreme to explicit (codified) knowledge at the other (Leonard and
Sensiper 1998; Hall and Andriani 2003; Jasimuddin et al 2005). Leonard and Sensiper (1998) remark that most
knowledge exists in between these two extremes, which is the main modification compared to the tacitT
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namely the idea that knowledge has both tacit and explicit dimensions. The position of knowledge on the tacitexplicit spectrum is then determined by its tacit-explicit mix (Jasimuddin et al 2005). This epistemic
perspective is described (as we understand it) in figure 1.
2
Figure 1: Knowledge seen as a spectrum. According to this view knowledge-spectrum has tacit and explicit
ends. Hence, any given instance of knowledge has a tacit part and an explicit part unless not taken from either
of the ends
However, as a theory of knowledge this view also has some illogical or at least unexplained features. First, the
explicit pole of the knowledge
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of wholly explicit knowledge (because all knowledge is tacit or based on tacit knowledge, see Polanyi 1966).
However, it would be obviously simple to modify the model and figure 1 so that in the explicit end knowledge
only approached explicitness but the continuum ended before total explicitness. In fact, Leonard and Sensiper
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ompletely
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as a spectrum where one extreme is seen as completely tacit and implicit knowledge and the other as
completely explicit or codified knowledge
It is an interesting question how different instances of knowledge then are situated in the continuum. For
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end. It might be possible to present
scientific theories are anything but explicit; the theory of gravitation probably represents very different kind of
things to a novice compared to its meaning to an experienced physicist based on their experiences and existing
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-view, only described in a different manner. For example, Edwards (2009) presents
knowledge as two circles with the tacit part as a smaller circle within the bigger, explicit circle. The size of the inner circle (tacit part) varies
depending on the level of tacitness/explicitness of the particular instance of knowledge. Hence, the relational amounts of tacit and explicit
parts of any instance of knowledge can be presented with this model in an analogical way to the way an instance of knowledge is
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um-view.
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knowledge structures, among others. Exactly this is the significance of the tacit dimension that enters into
every act of knowing and why completely explicit end of the spectrum is not very realistic.
Second, spectrum-view of knowledge also seems to lead to relatively sharp tacit-explicit dichotomy as many
authors apply it as a background theory for sharing of tacit knowledge (e.g. Leonard and Sensiper 1998; Hall
and Andriani 2003; Jasimuddin et al 2005). Let us observe any given instance of knowledge on a knowledge
spectrum; it has a tacit and an explicit part. In order to share tacit knowledge we should codify it first (Nonaka
and Takeuchi 1995; Hall and Andriani 2003). The process of codification means that tacit knowledge is
converted explicit. Hence, a certain amount of the tacit part of that particular instance of knowledge would be
replaced by explicit knowledge. This means that the proportion of explicit part to tacit part grows and hence,
that particular instance of knowledge must shift towards the explicit end of the spectrum if the codification
succeeds.
Consequently, the same knowledge can exist in various points in the spectrum. In a logical sense this means
that the same instance of knowledge can exist in various forms in the knowledge spectrum. Thus, a
presupposition of the process of explication/externalization/codification of tacit knowledge always
presupposes also two different forms (or categories) of knowledge. For example, Hall and Andriani (2003: 146)
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more or less the same knowledge of music can exist in two different forms of knowledge, tacit and explicit.
Basically this leads back to categorization of knowledge and some kind of knower-independent, objective ideal
of knowledge which, again, are issues that Polanyi wanted to criticise with the concept of tacit knowledge.
Third, even if it were assumed that some tacit knowledge could be traced, supposedly most of it would remain
hidden. This means that it is impossible to specify the amount of tacit knowledge that a given instance of
knowledge includes. Following from that, it is also impossible to specify the location of any given instance of
knowledge on the kn
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view it takes into account that there
nowledge. Besides that it does not seem to
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view makes it rather clear that tacit knowledge is dependent on knower and explicit knowledge is independent
of knower, the spectrum-view does not provide very clear explanation of the role of the knower in the process
of knowing. Evidently, tacit end and explicit end represent knower-dependent and knower-independent
knowledge respectively, but what about the instances in between? Accordingly, the spectrum-model is argued
to provide a unified conception of knowledge but it cannot explain what
knowledge is. Hence, although it covers different types of knowledge, no supporters of this view have
provided further explication of the nature of knowledge in general suggesting that the view has not been
considered completely.
3. Towards theoretically firmer epistemology

We base our understanding of the nature of knowledge on the polanyian argument that knowledge requires
active participation of the knower and is hence knower dependent. Knowing is an act of a particular individual.
The claim that there is knowledge in itself, without a concrete knowing subject, is fantastic (Bunge 1974).
Whenever
however, carry for the most part information, which only a knowing mind can assimilate, understand and
incorporate into its own knowledge structures (Wilson 2002). Despite the various ways to codify and store
someone). When we know something, we engage in that what we know and cannot be neutral or indifferent
in relation to it; we have no means to abstract the knowledge from our life and experiences by the means of
which we understand that knowledge.
If the knower dependency of all instances of knowing is accepted it means that the tacit dimension of knowing
also enters in all types of knowledge as Polanyi argues; knowledge is represented in the mind of the knower
and it is thus necessarily dependent on the processes and elements that take part in the forming of that
representation. In this sense even an instance of knowledge that is presented in an explicit form (e.g. a note
written on the paper) has a tacit dimension. The conscious representation in turn forms the explicit dimension
of knowledge.
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It is important to bear in mind that knowledge presented in an explicit form can only be originated from a
relatively clear representation in the mind; we can articulate and describe only things that we are conscious of
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processes in subsidiary awareness. In this sense for example any proposition is equally explicit whether we
read it, hear it said by another person or come to think it spontaneously by ourselves. The main point is that
explicitness of knowledge does not refer only to the form in which a given instance of knowledge is presented;
the clarity of knowledge and the way we regard it is not dependent on the form of presentation of that
knowledge. Hence, in the epistemic sense explicitness refers to the coherence of knowledge, which in turn
refers to origins and justifiability of the belief in question.
In sum, given that knowing occurs within a human knower, all knowledge has necessarily a tacit dimension
that refers to subconscious or otherwise subsidiary processes and elements that reflect the experiences of that
particular knowing subject, but are also typical to any human cognition. As a result of the tacit factors the
knower forms a focal conception of the matter, which represents more or less explicit knowledge. Hence, all
instances of knowledge have tacit and explicit parts (Polanyi argued that all knowledge can be tacit, that is, an
instance of knowledge that does not have an explicit part. However, in this case even the knower does not
consciously know that he is knowing something tacitly and such a situation can be considered as a special case
of knowing that simply cannot be commented on much). When this basic structure of knowledge is taken into
account, knowledge can be further divided into categories in a suitable way (for example in a way adopted
from psychological memory research: conditioned knowledge, semantic knowledge, episodic knowledge,
procedural knowledge). Importantly, all categories in the model should manifest this structure. The basic
structure of knowledge is described in figure 2.
Figure 2: The structure of knowledge. Knowledge has a tacit part upon which the possible explicit part is
founded.
All instances of knowledge manifest this structure, even if knowledge is further categorized in a suitable way
depending on the context. In this figure is presented an example of categorization adopted from the
psychological memory research
It is useful to relate this conception to the traditional definition of knowledge (knowledge as justified, true
belief) in order to clarify it. The starting point of knowledge in the traditional definition is the belief; knowing
something posits that the thing being known must be believed. However, according to this definition we must
distinguish correct beliefs from incorrect ones. Thus, the belief must somehow correspond to the state of
things in reality in order to be considered knowledge. This, however, is still not enough because for example a
lucky guess could be interpreted to be knowledge. Therefore there has to be some grounds for holding a
certain belief the belief must be justified. Indeed, traditional theory of knowledge as a branch of philosophy is
most basically a theory about epistemic justification (Pollock and Cruz 1999).
Whereas the traditional analysis of knowledge described above starts from the belief and the analyses
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form the belief. In
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. This idea is described in figure 3.
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Figure 3: T
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ief represent explicit
knowledge. Tacit knowledge refers to belief forming factors that cannot be fully traced. In this sense tacit
knowledge can be understood as an internal justification for the focal belief. Instead, the traditional approach
to knowledge studies justification and truthfulness of propositional beliefs
This view suggests that knowledge has two types of justification. External justification refers to justification in
the traditional sense; the requirement to objective explanation/argumentation of how that belief has been
attained. It is specifically related to the ability to publicly present evidence supporting a claim (Niiniluoto
1999). Thus, (external) justification is directed at the belief or other form of representation that the knower
holds. But all evaluations of beliefs derive from belief-forming processes (Goldman 1986). In this sense the
idea of internal justification comes close to the basic argument of naturalized epistemology according to which
epistemic status of a belief state depends on psychological processes that generate and sustain it (Kitcher
1992). Accordingly, natural cognitive and physiological processes involved in the process of knowing refer to
internal justification of the formed belief and cannot be bypassed in an analysis of knowledge. Instead of being
particularly interested in the norms that justify human knowledge, Polanyi stressed the importance of
confidence in human cognitive capacities in understanding reality.
The epistemological conception presented above has considerable strengths compared to the two models
predominant in the KM literature discussed in the section four. First, instead of simply picking up the concept
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logical environment,
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mainly because of considerably different
conceptions of the requirement of justification of knowledge. Second, we express clearly the knowerdependency of knowledge. Every individual knows in his own way, from his basis. Interestingly, this has been
originally the starting point of knowledge sharing but from the theoretical perspective the idea seems to get
lost somewhere en route. Third, as other critics have also suggested tacit knowledge is narrower phenomenon
that KM literature intimates in the sense that our narratives, beliefs, impressions etc. do not represent tacit
capacity.
4. Conclusions
The predominant epistemological conceptions behind the relationship between tacit and explicit knowledge
and the idea
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theory. As a result, the epistemological foundations behind the tacit knowledge discussion tend to wake more
questions than provide answers. This has led to confusion and inconsistency in the discourse concerning tacit
knowledge and its relation to explicit knowledge even up to a point that some critics (e.g. Wilson 2002; Grant
2007) have claimed that the concept of tacit knowledge has become meaningless nonsense.
The origin of the problem of conceptual vagueness is that the concept of tacit knowledge is taken from an
epistemological environment that differs radically from the theoretical environment that it has been brought
to. In order to get the concept function in the new context it has been interpreted very loosely. Moreover,
given that one of most important functions of theoretical models (for example the models of explication of
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tacit knowledge) is to make predictions, it is obvious that models including poorly defined concepts make
wider amount of predictions--up to a point at which the made predictions are anything but accurate, reliable
or even very clear. Therefore not surprisingly, in the case of tacit knowledge it is somewhat simple to report
positive results in the experiments concerning explication or externalization of tacit knowledge because some
subjects regardless of the used method. Instead, a little attention seems to have been paid on the question, in
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understood traditionally as justified true belief simply is too narrow to explain human way to know and act in
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consideration of pre-logical phases of knowing that unavoidab
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broadens the scope of knowledge as he accepts feelings and intuitions not only as valid but also as necessary
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-dependency of knowledge (that knowledge
is necessarily dependent on the subjective processes and elements that take part in the forming of the focal
part of knowing) is also well justified from the psychological perspective.
We have suggested a simple epistemological model that is in line with polanyian theory of knowledge. We
argue that this model provides more coherent foundation for KM theory than the two epistemological views
that are predominant in the contemporary KM literature. Given that tacit knowledge is inarticulate and
inaccessible by definition, we suggest that in attempts to classify knowledge the focus should be on different
crystallization of (focal) knowledge that is difficult to articulate. Hence, we would like to stress that our aim is
not to criticize the goals and methods of knowledge sharing in general but to develop the aspects that are
shown to be inconsistent in the present KM theory.
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Governing Frameworks for Sharing Actionable Knowledge

J. David Johnson
University of Kentucky, Lexington, USA
jdj@email.uky.edu
Abstract: A fundamental necessity for the transfer of actionable knowledge is that it must occur within a context. This
essay suggests that governing frameworks provide the medium within which it becomes possible to share actionable
knowledge. To support this claim the notion of governing frames is first explicated. Frameworks provide the basic support
structures for sharing knowledge within organizations through the development of an inextricable linkage between context
and meaning often found in the underlying foundation for governance structures. Each of the classic governing frameworks
discussed, formal, informal, markets, and professional, has different manifestations of key structural elements,
relationships, elements, context, configurations, and temporal stability and thus different implications for sharing
knowledge. The strengths and weakness of the various frameworks for understanding the sharing of knowledge in
organizations are exemplified by focusing on two exemplar problems: information seeking and clinical and translational
science. In conclusion, the concept of governing frameworks offers a new way of looking at the often intractable problem
of sharing knowledge in our ever more complex organizations. A compelling focus of future research is how these
frameworks are negotiated in an increasingly professionalized world where specialists must integrate their activities in
interprofessional teams.
Keywords: organizational structure, governing frameworks, actionable knowledge, sharing, information seeking and clinical
and translational science
1. Governing frameworks for sharing actionable knowledge

The absence of a role for context in organizational behavior not only leads to inadequate explanations for
individual attitudes and behavior, but also makes it impossible to develop a common paradigm for micro and
macro organizational research (Cappelli and Sherer, 1991, pp. 55).
A fundamental necessity for the transfer of actionable knowledge is that it must occur within a context. In
general, in conceptualizing our world, we have a tendency to focus on objects rather than their grounds
(Stocking and Holstein, 1993), focusing on messages or individuals, for example, rather than the contexts
within which they are embedded. We concentrate on the processes we are interested in rather than on the
more diffuse social contexts that frame, embed, and surround them. This essay will focus, then, on the
relationship between governing frameworks, one instantiation of context, and structure in shaping the sharing
of actionable knowledge in organizations.
Traditionally three senses of context have been used in organizational research (see Johnson, 2003, for more
detail). First, context is seen as equivalent to the situation in which an individual is immersed, with situations
viewed as more important in determining behaviors than individual traits or dispositions. Second, contingency
approaches move toward specifying active ingredients that have specific, predictable effects on various
processes. Third, major frameworks for meaning systems or interpretation are increasingly seen as critical to
various processes. Since the first two of these senses have been extensively explored in the literature (e.g.,
Johnson, 2003), here we will focus on the more recent developments concerning frameworks and governance
structures, the mechanisms by which contexts are operationalized, and become real for organizational
participants.
Increasingly generating and manipulating knowledge is seen as a core function of our econ
(MacMorrow, 2001, pp.
381). Greater knowledge intensity leads to greater profitability for commercial firms, higher levels of
innovation and, ultimately, knowledge has become the source of wealth creation and economic growth
(Florida and Cohen, 1999, Leonard, 1995, Stewart, 2001). This is critical for organizations, since knowledge
becomes something you can do something with. As a result it often leads to strategic advantages since
organizations who have the best understanding of their environment and then act on them accrue competitive
advantages.
Knowledge runs the gamut from information, to explicit knowledge, to tacit knowledge, to wisdom, with a
variety of distinctions made between these terms in the literature. While there is a generally recognized
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Knowledge Management Volume 11 Issue 2 (pp127-138)
available online at www.ejkm.com
ordering among these terms, with wisdom having the least coverage of the other sets, they are often used
interchangeably and in conflicting ways in the literature, resulting in some confusion (Boahene and Ditsa,
2003).
experience (Leonard and Sensiper, 1998, pp. 113, italics in original).
Knowledge is also something that is inherently social (Brown and Duguid, 1998, Barnett, 1988, Orlikowski,
2002), bound to particular contexts (Barnett, 1988, Swan, 2003, Tsoukas and Valdimirou, 2001), and something
that can be communicated to others, even if it may take considerable effort and require the development of
mutually agreed upon symbols which is greatly facilitated by governance frameworks.
Knowledge sharing (also termed diffusion, dissemination, transfer, and adoption) has been a compelling issue
in a variety of areas including technology transfer between developed and developing nations, between
organizations, and within organizations. Here I primarily focus on internal organizational transfer. Since
knowledge transfer among organizational units can provide opportunities for learning, cooperation and
creativity, it has been directly related to organizational innovation (Tsai, 2001), as well as a number of other
organizational processes (Reagans and McEvily, 2003). To be effective, transfer implies a level of
understanding that enables action (Jensen and Meckling, 1995). In this essay it is suggested that governing
frameworks provide the medium within which it becomes possible to share actionable knowledge. Innovation
diffusion is ultimately a social process of information seeking and transfer of ideas perceived as new such as in
clinical and translational science problems discussed in concluding this essay.
2. Frameworks as governance structures

A frame, or the act of framing, usually refers to putting a perspective into words when one encodes a message
(1979) providing, for example, a definition, meaning, or conceptualization of an issue in a conflict situation
(Putnam and Holmer, 1992). The concept of framework has a long history in the social sciences (e.g., Schon
and Rein, 1994, Tversky and Kahneman, 1981), especially in relation to discourse processes (Goffman, 1974).
Frames have been viewed as inherently delimiting, providing individuals with a situated context for action and
for interpretations of particular 'strips of activity' (Goffman, 1974).
The concept of frames is most commonly used to indicate both a way of viewing the world and of subjectively
interpreting it, acting as sense-making devices that establish the parameters of a problem (Gray, 1996). A
fundamental property of communication is that interpretation depends on context. Frameworks are both
windows on the world and lenses that bring the world into focus, at the same time they filter out some stimuli
(Bolman and Deal, 1991). Often understandings attributable to various frameworks assume a taken-forgranted reality among interactants. Indeed, frameworks perform a number of critical functions for
interactants: they are shared conversational resources; they provide a common emotional tone; they insure
quicker responses; and they also provide a basis for temporal stability by insuring more continuous responses
(Collins, 1981, Benson, 1975).
Here the focus will be on governance frameworks that provide a more encompassing context for interaction
within organizations. A framework for interaction is the set of interrelated conditions that promoting certain
levels of shared understanding of meanings, orient interactants to the nature of the event, and establish the
ultimate purpose of continuing interaction (Johnson, 1997b, Johnson, 1998). A framework, then, is the ground
that opens doors to social worlds of situated knowledge and governing rationalities. Frameworks provide the
basic support structures for sharing knowledge within organizations through the development of an
inextricable linkage between context and meaning often found in the underlying foundation for governance
structures.
3. Governance structures
Governance implies the imposition of order by a common authority by allocating legal or quasi-legal
entitlements and obligations (MacKechnie & Donnelly-Cox, 1996, pp. 46).
Structural research has been a primary focus of research on transfer and it has been centrally concerned with
F
social systems whose members are more closely linked by communication networks have a stronger diffusion
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David Johnson
(Rogers, 2003, p. 235). Structure determines what is

possible in large organizations since it enables action within a governance framework. Without a predictable
pattern of recurring relationships, coordinated activity, such as knowledge transfer, within the organization
would be impossible. The more constraints that exist, the more things occur in predictable patterns; the more
people know about their organization. Extensive reviews of the prior literature on structure has identified five
common elements in most of its definitions; relationships, entities, configurations, context, and temporal
stability (Johnson, 1992, Johnson, 1993) H
configuration of communication relationships between entities within an organizational context" (Johnson,
1992, pp. 100).
As Table 1 details each of the governing frameworks we will discuss, formal, informal, markets, and
professional, has different manifestations of these key structural elements. As detailed below, each of these
frameworks has been separately developed within different theoretical traditions. Johnson (1997b, 1998,
2009) has then integrated them by developing scales associated with them for empirical tests, applied them to
case studies, and articulated their relationships to managing knowledge networks.
Table 1: Relationships between structural elements and governance frameworks
Governance Frameworks*
Structure
Formal
Elements
Informal
Markets
Professional
Relationships
Hierarchical
Sentiments
Exchanges
Normative
Entities
Positions
People
Traders/Brokers
Professionals
Context
Rules System
Embeddedness
Practice Standards
Configuration
Bazaar
Guild/clan
Temporal
Stability
Organizational
Chart
Equivalent to
O
Social/Personal/
Climate
Sociogram
Limited
Dynamic
Generations,
Common Law
Knowledge
Rules
Emotional
Intelligence
Explicit
Tacit
*(Johnson, 2009, pp. 62)

A formal approach was the earliest systematic specification of the underlying basis for interaction within
organizations and in many ways the other frameworks were established in opposition, or counterpoint, to it
(Johnson, 1993). In fact, informal communication studies, the precursors to the modern interest in
communication networks, became a residual category including a wide array of potential frameworks (e.g.,
sentiments, informal influence, and so on) for interaction. Thus, exchange rests on individuals pursuing their
rational self-interest common to markets, while normative frameworks depend on operations of larger
collectivities most clearly represented in the professions. The introduction of tacit knowledge also suggests a
need for the more explicit introduction of culturally related normative elements captured most clearly in the
professions. Let us know turn to a more explicit discussion of these four governing frameworks.
3.1 Formal
Administrative rationality in the Weberian sense has always been a central concern of the formal approach
(e.g., Thompson, 1967) and with it has come the assumption that structures are designed to control behavior
in such a way as to produce efficient/effective operations (Pfeffer, 1978), controlling competitive instincts to
produce cooperative behaviors. Thus structures are conceived as fitting into a rational plan, rather than
viewed as representing rationality after the fact (Weick, 1969).
Formal frameworks essentially represent the bureaucratic world of the organization, with its specification of
patterns of super- and sub-ordination and other hierarchical relationships between positions in a relatively
permanent system of rules (Weber, 1947). An hierarchy provides a framework for action by specifying control
patterns, routinizing production, and implementing plans (McPhee, 1988). The kinds of behavior individuals
can engage in are specified in company manuals and output targets are detailed in formal performance reports
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(Baliga and Jaeger, 1984), laying the ground work for much of the common explicit knowledge with the
organization. Usually formal frameworks require only a limited form of knowledge, based on system rules,
training, and a legalistic understanding of relationships between positions best exemplified by the
configurations embodied in the organizational chart. Actors are presupposed to be driven, or motivated, by
the requirements of the positions they occupy within a specified organizational chart.
Knowledge transfer in formal structures is best accomplished if couched within this relatively limited frame
which is especially conducive for sharing explicit, organizationally sanctioned knowledge. Often formal
structure codify in rigid rules who is responsible for sharing knowledge and how it can be transmitted.
3.2 Informal
Often interaction results in collective sentiments; thus, friendship and other more emotional bases for
relationship then provide the underlying basis for ties between people. Traditionally this has been cast as a
primary basis for informal communication structures. The shared understandings characteristic of these
relationships are often dependent on the depth of emotional involvement. Sentiments recognize the often
neglected place of emotions (Mumby and Putnam, 1992) and the desire for affiliation in organizational life.
The degree of affiliation felt between interactants determines the temporal stability of relationships which can
be fleeting and the degree to which parties' sentiments may override other bases for relationships, such as
exchange.
Knowledge transfer within this governing frame often depends on sophisticated understanding of the climate
of the social system embodied in a high level of emotional intelligence. This level of understanding is essential
to minimizing resistance and overcoming the uncertainty that is often associated with the change that
knowledge sharing entails.
3.3 Markets
Recently, yet another view of structure, a market approach, which shares much with both network and formal
approaches, and rests on economic and exchange assumptions, has emerged. Markets focus on exchange
relationships between traders or brokers (see Table 1) and the paramount importance of trust often emerging
from actors embedded in social systems in characterizing them (Kirman, 2001, Granovetter, 1985, Johnson,
1996) which has led to social capital perspectives on brokerage relations (Sawyer et al., 2003). In this view
individuals are seen as driven to maximize rewards through their interaction with each other.
Obviously, an exchange relationship can rest on extremely rudimentary understandings of others, based on
such fundamental issues as fair price and trust that the other party will follow through on bargains.
Relationships are seen from a utilitarian perspective, with the primary bases for continued relationships
resulting from a perception of mutual gain creating dynamic changes in social systems depending on changing
rewards. Indeed, we may seek exchanges with others because they are not like us and they have resources
that we do not possess.
Networks of explicit information exchanges, which also contain market elements, are particularly useful
structures for organizations composed of highly skilled work forces who possess knowledge not limited to
particular tasks (Powell, 1990). Indeed, more generally it has been argued that knowledge sharing may be best
accomplished by market-like structures because of problems in recognizing the significance of information and
communicating it effectively and efficiently (Gupta and Govindarajan, 1991). This form of decentralization
often reduces the possibility of information overload within these organizations, and attendant delays and
imperfect planning orders. Thus, in organizations like universities it may be better to minimize intrusive formal
structures and promote wide-ranging interactions, while providing a framework in which trading relationships
can occur, much like ancient bazaars.
3.4 Professional
Modern expertise comes partly at the expense of narrowness, and of ignorance about what other people do
(Becker and Murphy, 1992, pp. 1146).
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(Polanyi and Prosch, 1975, pp. 204). These professions come together in organizations
to pursue loosely defined larger objectives (e.g., universities and the pursuit of knowledge). Relationships
between and among professions are often governed by such normative expectations (Cheney and Ashcraft,
2007). Professionals reinforce normative isomorphism in institutional theory terms, where all firms come to
act in the same manner, especially under conditions of uncertainty where mimicry is often the safest course
(Mizruchi and Fein, 1999). Unfortunately little theoretic attention has been focused on professionals (Lammers
and Garcia, 2009, Pratt et al., 2006), especially on their interrelationships and micro level processes in
organizations (Chreim et al., 2007), such as knowledge transfer, so we will discuss them in somewhat greater
detail than the other frames here.
Most work on the professions has focused on how they establish (and protect) their jurisdictions and maintain
their status within broader social systems. Knowledge is seen as a key tool in these processes (Lammers and
Garcia, 2009, Abbott, 1988, Macdonald, 1995)
bodies of knowled
(Larson, 1977, pp. xi), and thus is
an incidental focus of traditional research. Knowledge is intimately related with credentialing and training and
the formal (and often legally, state enforced) differentiation of specialties in societies generally and
organizations specifically (Macdonald, 1995). Relatedly, the development of tacit knowledge plays a key role in
distinguishing professionals (Larson, 1977) and their relative competence (Schon, 1983). So, intraprofessional
status often results from the ability of a profession to do non-routine work (Abbott, 1981) to apply old
knowledge in new ways to solve novel or unforeseen problems.
Over the last three decades cultural factors, which norms encapsulate, have assumed a central place in our
theories of organizations. Culture is seen as providing an interpretive framework within which communication
is possible; a macromedium for interaction (Johnson, 1993). Perhaps nowhere in our society is socialization
more intensive than in the preparation of a professional with societies often delegating enforcement of
practice standards to professional bodies. They, in turn, jealously guard their prerogatives, especially in
relation to knowledge claims in specific areas (Cheney and Ashcraft, 2007), since these claims often define
what the profession is and its relative status (Abbott, 1988). Their natural reluctance to share professional
knowledge is further exacerbated by the more general reluctance to share knowledge with others if they are
thought incapable of understanding it (Hew and Hara, 2007).
A key element of this socialization is the development of elaborate semantic systems of tacit understandings
(von Hayek, 1945) that are difficult to share. The more elaborate and refined the framework, the more
effective the communication within the profession (and that much more difficult outside of it). An advantage
of strong cultures is their enhancement of shared understandings between actors and a norm of adjustment
through consultation within a system of mutual authority that governs competition (Polanyi and Prosch, 1975).
Clan controls result in high goal congruence and common interests, most appropriate when transformation
processes are imperfect and measures of outcomes are low (Turner and Makhija, 2006). Interaction
configurations are also provided with a normative base that expresses the underlying cultural values. This
strong emphasis on socialization of succeeding generations reinforces the temporal stability associated with
professions on a near common law accretion of knowledge.
Nonaka (1991) developed a more dynamic, interactive approach to these issues focusing on the implications of
the spiral of knowledge and its articulation (converting tacit to explicit) and internalization (using explicit to
T
ion to develop
insights into deeper problems (e.g., financial trends) then articulate them, as financial brokers do, to specific
buy and sell recommendations for their clients. However, once true expertise is developed, the professional
may have a very difficult time translating it for the novice or generalist (Hinds and Pfeffer, 2003). Professions
(Abbott,
1981).
Expert knowledge does depend on the application of traditional knowledge to which the seeker is in many
ways a servant. The freedom of members of these communities rests on certain obligations and systems of
mutual authority that also entail personal judgments (e.g., scientists making hypotheses, lawyers preparing
briefs). This process is accorded respect by society and certain things are left to communities of specialists to
pursue; the mutual adjustment of these specialists then determine the ultimate directions of the societies of
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which they are a part. Mutual adjustment depends in turn on consultation or, in the case of business,
competitive forces. However, this system of spontaneous order has several limits: one, the public good can be
surrendered to these personal judgments; two, society is ruled by a privileged oligarchy; and, three, it can drift
in directions determined by no one (Polanyi and Prosch, 1975).
Some more cynical observers of the professions suggest that perhaps the most powerful motivation for
doctors and lawyers to keep up-to-date is the ever present threat of a malpractice suit (Paisley, 1993). Most
other professions do not have similarly compelling external motivations to keep current; they do not have
sanctions for 'remediable ignorance,' for actions which duplicate or overlook existing knowledge (Paisley,
1980). These professions can in effect conspire to say it is pointless to try to keep up. They also have
substantial interests in the preservation of personal knowledge unique to their professions by insuring there
are heavy information costs to memberships in their priesthood, discouraging intermediation. However, never
has secret knowledge been more accessible to those who are interested in it.
3.5 Negotiated order

The forgoing frameworks are ideal types. It is possible for an individual to act with others with their unique mix
of the forgoing frames, to choose among themselves what frame (or combination of frames) will govern their
interactions. It is also possible for two interactants to decide mutually on an idiosyncratic basis for interaction
(Nathan and Mitroff, 1991). This possibility creates the underlying conditions for change (Strauss, 1978).
Indeed, the absence of a dominating frame, or the lack of rigid specification when one or another applies,
creates the possibility of flexibility within an organization.
So two parties communicate with each other to arrange the nature of their future interaction by mutual
agreement. This negotiation is designed to establish a stable ordering of the relationship governing
interactions within it, to move to a state where the underlying base for the interaction is taken-for-granted. At
times this negotiation might be explicit, verging on contractual terms, at other times it might grow out of
ongoing interactions.
4. Discussion
Within organizations, governance frameworks differentially impact knowledge transfer. Formal structures tend
to lessen contact and contracting costs, but may not be very efficient at finding the optimal price. There is also
a quite natural human tendency to exercise ever more control when performance problems are experienced,
which may
(Williamson, 1994, pp. 91). Informal approaches focus on the emotional impact of knowledge sharing focusing
on issues such as potential points of resistance. Strong professional norms can severely restrict the content
and interactants available to individuals, but interestingly, because of the increased sophistication of shared
understandings, they can enhance the effectiveness of knowledge transfer. They also can improve efficiency
by clearly delineating roles and relationships. In contrast, exchange based transfer have few barriers, but
limited breadth and only moderate levels of effectiveness and efficiency, in part because of the differential
understanding levels of the parties.
In general, it has been argued that there are three approaches to organizational phenomenon (Lee et al., 2004,
Ferratt et al., 2005): universalistic; contingency, and configurational which focuses on bundles of attributes
that exhibit synergestic, nonlinear effects on outcomes. This focus on commonly occurring clusters of
attributes which can be linked to performance (Lee et al., 2004) is also linked to the classic system concepts of
equifinality (Gresov and Drazin, 1997). By focusing on sets of practices, with the adoption of one limiting the
adoption of others because of complementarity/fit/gestalt issues. Gestalts are feasible sets of internally
consistent configurations, with research findings suggesting configurational approaches are more predictive of
outcomes than others (Lee et al., 2004). For example, Andersen and Segars (2001) found that IT enhancing
communication supported a decentralized decision structure that was associated with higher financial
performance. Each of the governance frameworks can be seen as relating as a configuration to a variety of
different organizational outcomes such as knowledge sharing. In this section we will focus on the issues of
what types of knowledge can be shared and where it might come from, then we turn to two exemplars of
these processes, clinical and translational science and information seeking.
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David Johnson
The critical knowledge that is the focus of transfer in formal settings is a set of rules and routines that can form
the basis for information processing. In informal governance structures knowledge of personal affiliations and
coalitions is critical to determining the political acceptance of different types of knowledge. Markets are best
suited for the transference of knowledge as a commodity that most often takes on explicit, limited forms,
although in certain situations it may have special significance, somewhat akin to insider trading, because of the
ability of one of the parties to use it for their unique benefit. Finally, professional knowledge is often tacit
based on years of experience and as a result difficult to transfer. In addition, professionals often jealously
guard their secrets and are reluctant to share them with outsiders.
This quick sketch also raises some interesting issues of where new perspectives come from and what is the
nature of the knowledge that is transferred. Interestingly, the first three frameworks focus on the processes by
which knowledge might be shared, while professional knowledge is also concerned with this in developing a
unique approach to problems, it also deals with content more directly. So, fundamentally, these frameworks
provide the overall institutional frame in which knowledge can be shared. One of the reasons why transfer has
proved so difficult is that they must all be operating in concert with each other. Thus agents are needed to
facilitate transfer of tacit knowledge who operate simultaneously within several frames, a key role for
management in the modern organization (Postrel, 2002).
One of the basic problems with relying exclusively on what goes on within an organization is that there is a
finite limit to the number of new ideas that can be produced from the same elements of a knowledge set
(Katila and Ahuja, 2002). Professions play a unique role in determining where is it substantive change within
organizations comes from. In many ways strong professions transcend particular organizations and make their
boundaries more permeable. Membership in a profession provides access to a much larger, scalable tacit
knowledge community outside the organization (Lammers and Garcia, 2009). These much broader tacit
networks, especially associated with professional institutions, become the primary vehicle for external learning
(Lammers and Garcia, 2009, Van der Krogt, 1998). This is a key shortcoming of the other approaches to
governance which primarily focus on what happens within the firm
Professionals seek answers to their questions wherever they may easily be available, whether inside or outside
the organization. Indeed, professional membership is likely to diminish organizational identification (Lammers
and Garcia, 2009). Sophisticated search agents and brokers only accelerate this trend. This is a unique
advantage of a professional framework - they are scalable, they bring the world outside in (Newman et al.,
2006), becoming a more modern version/extension of the classic cosmopolitan/local distinction (Gouldner,
1957).
The relationships between diverse professional groupings, who jealously guard their domains, is an
increasingly critical problem, particularly in health care settings (Clark, 2006, D A
).
P
onal autonomy and
(Sicotte et al., 2002). However,
balancing cooperation and competition must be achieved, most notably in sharing information that is in the
interest of the collective, in spite of individual motivations to hoard (Kalman et al., 2002). The greater effort
that is devoted to specialization, which implies you benefit from the work of others, the more reluctant
someone will be to give up what they know, especially to perceived free riders. Some have suggested that the
best motivator for knowledge sharing is a sense of collectivism and reciprocity (Hew and Hara, 2007).
4.1 The clinical and translational science problem

There is a widely held view that the U.S. is not receiving the full value for its investment in biomedical research
(Colditz et al., 2008, Real, 2008, Lee, 2007). While there are over 10,000 randomized trials of new intervention
approaches every year, very few innovations are ever widely adopted (Grol and Grimshaw, 2003). Drug
companies have also expressed concern about the length of time it takes for their investments to pay off and
their low success rate, with only 1 in nine compounds eventually achieving government regulatory approval
(Berelson and Steiner, 1964). While there has been growth in evidence reviews that inform practice there also
is a growing gap in their implementation (Colditz et al., 2008). Of course, this is emblematic of a larger problem
in translating research into professional practice common to many disciplines including communication,
management (Reay et al., 2009), and information science (Garnett, 2011).
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Clinical and Translational Science Institute's began to be funded by NIH in 2006. They were established to be
the home for clinical research within Academic Health Centers and to improve their resource base by
establishing linkages to industry and other health care organizations enhancing the level of community
engagement, while at the same time increasing the control of NIH over their direction (Robertson and
Williams, 2009). They are also designed to provide the critical infrastructure needed for traditional academic
training and linkages to clinical research resources (Robertson and Williams, 2009). The key problem faced
AHC
The reasons why it takes nearly two decades to transfer knowledge into routine medical practice are complex
and still poorly understood (Sussman et al., 2006). Changes in practice are rarely easy and require
collaborations between disciplines in very complex systems (Grol and Grimshaw, 2003). In the 1970s and 80s,
in recognition of the difficulties in knowledge translation, the dominant conceptual model came to focus on
the inherent differences between research and policymaking communities with the two communities theory
stressing that the inherent differences between them were often intractable (Jacobson et al., 2003).
Translational research often demands that there be communication across disciplines, which often runs into
basic problems that scientist have in communicating well with people from the practice community (Sussman
et al., 2006).
If we apply the framework of governance structures to this problem we can easily see why it has proved so
intractable. First, AHC have a layering of formal bureaucracy that constrains many research processes (e.g.,
human subjects protections, animal usage, and so on). Then, we have an informal structure governed by
sentiments and political coalitions that can prove difficult to negotiate and which is particularly important
traditionally for physicians who often place more weight on reputational standing of their colleagues in
adopting new practices than on bureaucratic dicta. Next, we have market exchanges and the inevitable
question of what is in it for me and who can I trust. Finally, we have the strong, compelling normative interests
of a multiplicity of professions. In some ways, all of these forces need to be aligned for successful
implementation, although adoption and creation may only depend on one. So new ideas are created, but it
may take nearly two decades to align all the frameworks.
When moving from the bedside to the community we face the additional problem that these factors become
even more diffuse, since the formal structures of government regulations and insurance guidelines is not
bolstered by the bureaucracy of the AHC. Further market relations and sentiments become much more diffuse
and fractured, so the only constant is the professional framework within which practice is embedded. All this
makes the information sharing and seeking components more critical for widespread practice implementation.
4.2 Information seeking

Not only to people initiate sharing of information they possess with others, which has been the primary focus
of the literature on knowledge sharing, but individuals often initiate sharing on their own based on their
perceived needs. In doing this they must decide on the objects of their searches. Will a health professional
who needs information seek it from the formal structure of the organization, will they depend on friends, will
they exchange their knowledge with other health professions in teams, or will they rely on the advice of
colleagues in their own profession.
Sadly, in a series of studies, Hersh has demonstrated that the information seeking practices of health
professionals are very problematic which further impedes effective sharing. So, an experimental study by
Hersh, Crabtree et al. (2002) showed that students of medicine and nursing were only partially successful in
applying the results of medical database searches to clinical questions. Subjects did the best in interpreting the
implications of medical literature for prognosis, and worst in applying retrieved documents to questions of
diagnosis and potential harm to the patient. An earlier analysis by Hersh (1998) of existing studies concluded
that literature searches exhibit poor recall of potentially relevant items, their results typically address only a
small port
retrieval for medical doctors are unclear.
Johnson (1996, 1997a) has summarized the basic approach to information seeking of individuals with Case
(2012) in a more recent review making very similar arguments. First, people seek out information that is the
most accessible. However, second, having access to information means very little if an individual does not have
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the proper information seeking skills and training to retrieve it. Third, people follow habitual patterns in their
information seeking. Fourth, face-to-face, interpersonal communication is the preferred mode of
communication for information seeking. This creates some real problems of scale when people move outside
of the physical proximate setting of AHC. Fifth, different types of persons use different sources of information.
This is further reinforced in medical setting by professional norms and standards of care which may differ
somewhat from profession to profession in a health care team. Finally, there are cognitive limits on the
amount of information individuals can process, especially in short term memory. All of this is further
complicated by the near chaotic framework typical of modern health care with multiple frameworks and
players within each of them coming into play (Lawrence, 2002).
5. Conclusion
The corporations take on the task of putting appropriate specializations together to exploit the synergistic
advantages thus accruing. The business executive becomes
(Fuller, 2010/1962, pp. 80).
As this quote suggests the problem of bringing together different professions to share knowledge has been
th
with us for a long time with Fuller maintaining that Alfred North Whitehead early in the 20 century traced it
to the increasingly specialized training of professionals at our universities. This created what was termed the
Whitehead Dilemma of ever deepening
problems. So, a compelling focus of future research is how these frameworks are negotiated in an increasingly
professionalized world where specialists must integrate their activities in interprofessional teams.
Managers need tacit knowledge, deep understanding for fundamental change, but this knowledge is
supported by existing frameworks and various inertial forces. This can result in coalitions and power struggles,
which often are a by-product of tacit knowledge. A key social outcome of more specialized tacit knowledge is
the problems of concertative control resulting in conformity and influence within groups which makes
intergroup action much more difficult. While we need the support of others, they also limit our action.
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From Information Gatherers to Knowledge Creators: The Evolution

of the Post-Graduate Student
Elaiza Benitez, David Pauleen and Tony Hooper
Massey University, Palmerston North, New Zealand
D.Pauleen@massey.ac.nz
Abstract: This exploratory study investigates how post-graduate students manage information and knowledge and how
these skills evolve over time during their post-graduate studies. The concepts of personal information management,
personal knowledge management and brain filtering as well as the critical role of technology are discussed in the context of
the post-graduate learning experience. A short illustrative case study is presented that highlights the evolution in the way
that post-graduate students learn to handle information and develop new knowledge. The study contributes to the still
nascent literature on personal knowledge management through increased understanding of the way students learn and
their use of technology tools. The findings have implications for universities as well as the private sector to better develop
genuine knowledge creators.
Keywords: personal information management; personal knowledge management; post-graduate study; experience;
technology
1. Introduction
Vast amounts of information need to be managed by post-graduate students in their academic studies. To be
academically successful, post-graduate students must be able to find and retrieve information and then
transform it into knowledge. Learning to transform information into knowledge is critical to successful
academic learning and research (Zuber-Skerritt, 2005). Davenport and P
(1998) much cited definition
explains working knowledge as the constant learning and the renewal of information that adds to an
. This renewal is critical to innovative and knowledge-creation-based
industries (Murphy and Pauleen, 2007), areas which post-graduate students often enter after graduation.
While expectations vary for what students will have experienced in their undergraduate studies, post-graduate
students need to develop new academic skills (Fischer and Zigmond, 1998), as the structure and expectations
of undergraduate and post-graduate studies are very different. Methods of finding information are essential to
post-graduate students and they must find ways of re-accessing that information when required and using it in
the production of personal knowledge (Miller, 2005).
Dr. Indira Nair of Carnegie-Mellon University describes the transition process this way: students are
consumers of knowledge in their undergraduate years and when they become post-graduate students they
are creators of new knowledge (Fischer and Zigmond, 1998: 31). Therefore post-graduate students must go
beyond what is known, ask questions, seek answers and evaluate their findings (Fischer and Zigmond, 1998:
31). Furthermore, post-graduate students are responsible for their own achievements as they assign their own
tasks and objectives. Information resources are needed and personal management of the information and
kno
objectives. The practice of both personal information management (PIM) and personal knowledge
management (PKM) appear to have great relevance to post-graduate studies.
PIM has been described as a new field with ancient roots (Jones, 2007) and the same is arguably true with
PKM. However, the practice of PKM has not yet been explored empirically in depth by researchers (Pauleen,
2009). The purpose of this study is to gain more insight into how post-graduate students apply PKM as they
locate and use information to create knowledge (Fischer and Zigmond, 1998). Specifically, we ask how do postgraduate students understand their journey from information users to knowledge producers, and what is the
role of technology in this journey?
This paper is structured as follows: in the next section the relevant literature and the background to this
research are reviewed. This is followed by sections on the methodology, the case study, and further discussion.
Finally the conclusions and implications of the research are offered.
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The Electronic Journal of Knowledge Management

Volume 11 Issue 2 (pp139-149) available online at www.ejkm.com
2. Literature review
Post-graduate
(Fischer and Zigmond, 1998). This section introduces some practical and theoretical background on postgraduate education, as well as the concepts of PIM and PKM.
2.1 Post-graduate education and the learning experience

In many Commonwealth countries (e.g. Great Britain, Australia and New Zealand), Honours is a year of study
following a
in which a student continues with a chosen field of study to build upon the
I
H
-directed study
and individual research under supervision. A student does intensive coursework and research, which involves
learning how to collect and interpret information from academic sources. Following the Honours programme,
a student may continue on to do a Master s degree (usually a one year thesis), or if they achieved a high
cumulative grade in Honours (usually a minimum of B+) they may be admitted directly into a PhD programme.
The level of attainment in a Master s thesis can be understood as follows:
thesis must
secondary information into a meaningful whole, and to present the results in acceptable prose. The length of
the thesis is not important so long as these ends are fulfilled (Stuart, 1979: 1). The PhD degree, on the other
hand, is awarded on the basis of a thesis where the student is able to reflect independent and original
research, which adds value and contributes to their field of study. Research conclusions are drawn from
critical examination of materials hitherto dealt with or from the re-examination of traditional materials by
means of new techniques or from new points of view (Stuart, 1979: 1). The research undertaken at this level
of study.
The aim of education has been described as the expansion of the self as a meaning-making, or sensemaking,
system (Hayes and Oppenheim, 1997) and scholarship is a conversation in which one participates and
contributes by knowing what is being discussed and what others have said on the subject (Glassick et al, 1997:
27). Ramsden (2003: 107) maintains that learning is a change in your conceptions a change in your
understanding of something and that while university teachers can tell students what a right and a wrong
understanding is only students can make sense of it for themselves . Slj (1979, in Barkley et al, 2005) asked
adult learners what they understood by learning and categorized their answers in a hierarchical pattern,
observing that each higher conception implied all that preceded it:
Learning is acquiring information or knowing a lot ;
Learning is memorizing or storing information;
Learning is acquiring facts and skills that can be used;
Learning is making sense or making meaning of the various parts of information;
Learning involves comprehending or understanding the world by reinterpreting knowledge.
When discussing learning in graduate situations, we need to have a clear idea of which of the above
conceptions of learning we are talking about. Constructivist theorists argue that people construct their
knowledge and therefore their learning needs based on their interpretation of their experiences in the world
around them (Taylor et al, 2000; Ben-Ari, 2001; Hayes and Oppenheim, 1997). One can argue that humans
adjust to the environment in which they live by building on their prior knowledge and experience. This is a
cyclical process in which we identify our individual learning needs based on our past knowledge and skills,
constantly increasing our competitive advantage. In such a conceptualization of learning we are accepting that
learning involves comprehending or understanding the world by reinterpreting knowledge .
If one accepts this view, the educational experience should provide students with the means for discovering
what is known and what they personally still need to know or to discover. M
: 162) definition of
learning elaborates on this point: Learning is understood as the process of using a prior interpretation to
in order to guide future action .
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According to Wickersham and McGee (2008) deeper learning is manifested when the learner does not just
regurgitate information but reflects on and actively explores it, producing knowledge. Cross (2005: 1) on the
other hand explains that students learning for deeper understanding
actively engaged in learning and
likely to learn more than students not so engaged . H
A
(2005) perspective that deep and surface learning correlate fairly closely with motivation: deep with
intrinsic motivation and surface with extrinsic. B
C
A
abstract element of learning and the necessity of reflecting on reality in order to integrate new experience and
discoveries with older learning and experiences.
Weick (1995: 15) writes: People make sense of things by seeing a world on which they already impose what
they believe . They do not arrive at the scene alone and empty; patterns are present. People realize reality by
reading into a situation patterns of significant meaning. This cyclical approach to learning and discovery
assumes that humans are active, growth-oriented organisms who are naturally inclined toward the
development of an organized coherence among the elements of their psychological makeup and between
themselves and the social world (Deci and Ryan, 2000: 262). This organized coherence involves interaction
with others as well as with the content of their discipline.
According to Kanuka and Anderson (1998), content interaction that leads on to the construction of knowledge
by students takes place in a five-stage process in which students:
1. share their information and opinions;
2. explore inconsistencies in that material;
3. work together to construct knowledge from the information and opinions;
4. test and modify that newly-constructed knowledge; and
5. form statements about and apply that new knowledge.
However, the authors found that the interactions seldom rose above stage 2.
Two points emerge from this the first being the importance of interaction in the sharing of information and
opinions and the exploration of inconsistencies. These two processes in items 1 and 2 above involve others.
They reflect the findings of Deci and Ryan (2000) who emphasized the importance of relatedness and
interpersonal interaction in the learning process. In their explanation of self-determination theory, Deci and
Ryan (2000) argue that there are three innate psychological needs: for competence, autonomy, and
relatedness. Activities that are characterized by novelty, by optimal challenge, deep task absorption and flow
are intrinsically motivated activities. They are also associated with better learning, performance, and wellbeing.
The second point to emerge from Kanuka and Anderson
that items 1 and 2 above describe a
process of sense making . Sense making is about the ways people construct a plausible account of what they
interpret how users make sense of their experience as they work towards an interpretation (Weick, 1995).
Aaltonen (2007) considered sense making to be a form of constructionism (as opposed to a cognitive
viewpoint). While we observe and communicate reality, we simultaneously take part in the process of creating
it. Therefore, every sense-maker is by nature a social constructionist (Aaltonen, 2007: xix). In other words, we
construct meaning out of our interpretation of the situation based on our prior learning or experience, and in
doing so participate in the creation of meaning.
Students develop and create knowledge through relatedness with others as well as through content
interaction. An integral part of this process involves personal information management.
2.2 Personal information management

Early work in the personal information management area focused on helping university students to develop
information literacy skills and use technology to organize and use information (Frand and Hixon, 1999; Avery
et al, 2003). Effective PIM is a necessary skill for post-graduate students. PIM is the ordering of information
through categorization, placement, or embellishment in a manner that makes it easier to retrieve when it is
needed (Jones and Teevan, 2007). It is an activity in which an individual stores personal information for later
use (Bergman et al, 2008 P
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and to organize that new information so that it is meaningful and useful (Jefferson, 2006). The ability to
determine whether information is relevant or irrelevant presumably increases with experience.
Jones and Teevan (2007) organize PIM into the following activities: information seeking, information keeping,
organization and information maintenance. They explain information seeking as finding and refinding
information. Finding is seeking information to satisfy some goal of the individual. Technology such as the
World Wide Web and library databases are often used (Wilson, 2000). Refinding is the process of finding
information that was seen before and is based on an information keeping action in which the individual has
recognized the value and relevance of the information. This is followed by the organization of the information
and how to represent that information when storing it, in order to be able to retrieve it at a later stage (Jones
and Teevan, 2007). Information maintenance is then required and involves the individual deciding on the
composition and preservation of information, how the information is stored and when the information is no
longer useful (Jones and Teevan, 2007).
Barreau (1995) lists five PIM activities: acquisition, organization and storage, maintenance, retrieval and
output. She describes PIM as a system supported by the technology found in the personal computer
environment such as the operating system, mailbox and browser. PIM systems have become ubiquitous as the
searching, storing and managing of information is a fundamental aspect of computer-based activity. Computer
users manage their personal information through technology as a daily routine (Barreau, 1995).
PIM is connected to PKM in that once an individual has found, managed and made use of information it
becomes a part of their personal knowledge. Specifically the information literate PKM practitioner is engaged
in the construction of knowledge, uses PKM to solve problems and resolve needs, critiques information before
committing it to affective and effective personal knowledge, and absolutely creates new knowledge through
the information-seeking and knowledge acquisition process (Gorman and Pauleen, 2011). PKM is part of the
meaning-making process and the way students, themselves, make sense of the information they work with.
2.2.1 Personal knowledge management
PKM is a relatively new research area with few empirical studies (Pauleen, 2009; Tsui, 2005). The focus of PKM
is on helping individuals to be more effective in personal, organizational and social environments (Pauleen,
2009). PKM is rooted in a number of diverse fields such as KM, PIM, cognitive psychology, philosophy,
management science and communication (Pauleen, 2009). Martin (2000) describes personal knowledge
management as knowing what knowledge we have and how we can organize it, mobilize it and use it to
accomplish our goals, and from this, how we can continue to create new knowledge. This is similar to Dorner
and G
information to create new knowledge to resolve needs in specific situations such as at work.
This suggests a close relationship between PKM and PIM, as an individual needs to be able to manage
information in order to gain or create knowledge. Arguably though, PKM is essential for making use of the
information an individual has collected. The Anderson School (Frand and Hixon, 1990) created a conceptual
framework as a method to organize and integrate information that is viewed as valuable by an individual as
the information adds to their personal knowledge base. This process of discovering and valuing information is
prior
U
to manage new and relevant information enhances the ability to learn from new experiences and resolve
problems (Cheong and Tsui, 2011).
Avery et al (2003) see PKM as a set of learning-to-learn information skills: retrieving information, securing
information, evaluating information, organizing information, collaborating around information, analyzing
information, securing information and presenting information. They also consider information technology as a
means for accessing, retrieving and storing large amounts of information that contribute to PKM. The choice of
technology is an individual one (Gorman and Pauleen, 2011). How the technology is used contributes to an
Jefferson (2006) argues that PKM is a conceptual framework for blending personal skills and processes., Like
Gorman and Pauleen (2011), she argues technology is only a supporting tool and that individuals must have
PIM skills that allow the retrieving, processing, filtering, structuring, storing and securing of information.
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PKM assumes individuals have developed self-awareness of the limits of what they know and can do (Avery et
al, 2003). Individuals understand what they know and do not know and have methods for obtaining new
knowledge and accessing new information when needed (Avery et al, 2003). The core focus of PKM is
personal inquiry : the quest to find, connect, learn and explore (Clemente and Pollara, 2005). Viewed another
way, PKM is a personal approach to learning and discovery that Deci and Ryan (2000) attributed to growthoriented humans inclined to understanding their roles as individuals in a social world.
2.3 Research background

In a previous exploratory study (Benitez and Pauleen, 2009) we interviewed seven post-graduate students
from a department of information management at an Australasian university. Using grounded theory
techniques we developed a conceptual model that linked PIM and PKM. The link, brain filtering, was a concept
that emerged from the interview data. Figure 1 illustrates how brain filtering links PKM and PIM. As Davenport
and Prusak (1998) explain, knowledge is used to make decisions about strategy. This understanding is applied
to how the post-graduate students use their PKM (values and beliefs, expert insight, experience, and sense
making) to engage in brain filtering in order to access, select, structure and re-access information.
Personal
Knowledge
PIM
Values and Beliefs
Retrieve
Expert Insight
Storing
Brain Filter
Experience
Archive
Sensemaking
Backup
Reacess
Figure 1: Brain filtering and the relationship between Personal Knowledge and Information Management (from
Benitez and Pauleen (2009)
The arrows in Figure 1 indicate the recursive nature of the relationships between PKM, PIM and brain filtering.
Our findings showed that a
teachers and supervisors and gain experience through trial and error. Davenport and Prusak (1998) explain
working knowledge as the constant learning and the renewal of i
existing knowledge base. Through the learning experience of brain filtering during the retrieval and storing of
information sources, personal knowledge grows and the student becomes more effective in managing
information.
In the next section we provide background findings used to develop the conceptual model followed by a
supporting case study that illustrates how one post-graduate student evolved from an information gatherer to
a knowledge creator during a two-year
M
(now) well into his PhD
research. Data was collected during a one-hour interview and in shorter subsequent follow-up interviews.
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2.4 PIM, brain filtering, PKM and the role of technology

Before presenting the case study, we briefly summarize the data from the previous study to give a greater
understanding of PIM, PKM, brain filtering and the role of technology as understood by post-graduate
students.
2.4.1 Personal information management
Students engaged in PIM in a process similar to that described by Barreau (1995) and Jones and Teevan (2007).
The retrieving process involves seeking and storing information, such as journal articles and conference
papers, needed for their studies. Storing and archiving involve organizing information in such a way that it can
be re-accessed later (Barreau, 1995; Jones and Teevan, 2007) Information is also backed up in case anything
happens to the original files.
Students demonstrated these personal information management skills when they were questioned about their
PIM. One student described creating folders and subfolders of information categorized with names meaningful
to the student. This process implies that information can be easily accessed when folders are categorized
according to the
H
because they have categorized it in a meaningful way which perhaps only they understand. Students realized it
was important to store, retrieve and re-access information effectively, especially PhD students who are dealing
with a large number of information sources, including journal articles, conference papers and books.
Students used technology to assist in their PIM. Information resources such as library databases and online
academic journals were used to retrieve information needed for their studies. As they selected information
sources appropriate for their study, a personally meaningful approach was taken when naming and storing
each electronic file. This enhanced their ability to find the file later on. Some students preferred to store files
electronically, others in paper form. However, because so many articles and other academic information
sources are used, it is more effective to store them electronically because of easier re-access.
Students are aware of the consequences if they do not back up their electronic files. They have invested a lot
of time and effort in locating information sources. The students have either lost work themselves or are aware
of colleagues who have lost their work.
2.4.2 Brain filtering
With their research topic in mind, students have an idea of what information to look for. The term brain
filtering describes how the students identify what information needs to be incorporated as personal
knowledge. Brain filtering is a process used to determine what information is relevant, and for what purposes
it will be used. PKM attributes such as experience, sense making, and critical thinking, are used to identify
worthwhile information.
Skyttner (1998: 889) provides a definition of the relationship between data, information and knowledge that
relates to this process of brain filtering:
Data reaches our senses and makes us aware that something has changed or is going on and is
said to give us information. That is, we have cognitive or physical representation of data about
which we are aware of. In other words, we have been informed. Assigning meaning and
understanding to information by the use of higher mental processes then makes it possible to
speak about knowledge.
Post-graduate students use information resources such as journal databases to gather data, which in turn
becomes information for their research. This information is then transformed into something meaningful and
useful in their studies (Skyttner, 1998). Through analysis and reflection they engage in a form of knowledge
creation. By applying communication skills, students develop their thesis and demonstrate academic
achievement as they make explicit the knowledge that they have created (Fischer and Zigmond, 1998). The
students are able to speak about knowledge which they developed from data and information.
Post-graduate students are knowledge creators, a clear progression from when they were undergraduate
students and mere knowledge consumers (Fischer and Zigmond, 1998). As post-graduate students they go
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beyond what is known, ask questions and disseminate their results (Fischer and Zigmond, 1998). Brain filtering
involves determining what information will be of use and how this information will provide meaning and
understanding.
Post-graduate study makes students aware of this brain filtering process, something which they may not have
acquired in the workforce or as an undergraduate. They use brain filtering to efficiently manage information.
While doing so they add to their personal knowledge of how to filter irrelevant information.
2.4.3 Personal knowledge management
Davenport and Prusa
5) definition of working knowledge a fluid mix of framed experience, values,
contextual information, and expert insight that provides a framework for evaluating and incorporating new
experiences and information implies individuals are constantly exposed to learning environments as they
continually integrate new information. Here we evaluate PKM using this concept of working knowledge as a
frame for dealing with new experiences and information. Values will first be assessed followed by experiences,
expert insight and sense making.
V
people with different values see different things in the same
situation and organize their knowledge by their values (Davenport and Prusak, 1998: 12). The following quote
shows how personal values can affect the managing of information:
A
know how to do a lit review so I followed the steps that our

I
I
B
ss I knew where everything was.
(Participant C)
The PhD students recognized it was crucial to have a personal management approach to deal with an
increasing number of journal articles. Most PhD students came to understand they needed an efficient
personal management system. As the volume of information increased, so did their level of PIM. The simple
realization that a system of PIM is needed is a step into PKM. As time goes by, sense making, experience and
expert insight are developed. As Davenport and Prusak (1998) explain, experience and expert are related
words and that experts are people with knowledge about a subject developed by past and new experiences.
Experience allows individuals to formulate connections between what is happening now and what happened
then.
Experience teaches the individual to act according to the situation as exemplified by the student recognizing
the need for a PIM system in their PhD studies. In their previous studies they had not developed a PIM system.
After moving up to PhD level, the students learned the importance of PIM that allowed them to efficiently
retrieve important information.
As for sense making, the students apply their own context to incorporate the new information received into a
personal knowledge base. An example of this can be seen i
personal knowledge:
I I
I
S
ction
with something that is meaningful to you in the context of what you are doing. I guess the other
I
I
I can connect with. So it relates to my experience. (Participant E)
2.4.4 The critical role of technology

The summary of findings and discussion above demonstrates that technology played a critical role in helping
students with their PIM, brain filtering and PKM skills. Technology influenced these processes in several ways.
First, technology gave students access to the information resources they needed, including the Internet, library
databases, online journals, and e-versions of conference papers. All the students used the Internet to access
these information resources.
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The Internet allows the students to information seek (Jones and Teevan, 2007), and use their brain filtering
skills to identify relevant information. There is a symbiotic relationship between PIM and brain filtering
because to find information in the library databases and on the Internet, students have to be able to
distinguish between irrelevant and relevant information sources. As they continue to research and practice
their brain filtering skills, this experience is added to their PKM skills.
Technology is also used as a mechanical support . The students used technological applications and devices to
PIM
PKM
A
personal approach to management. This personal approach is formed from their values and experience but
also as they deal with technology and large volumes of information (Avery et al, 2003). The students
developed personal management systems through their relationship with technology, reflecting the cyclical
nature of PIM: information seeking, information keeping, organization and information maintenance (Jones
and Teevan, 2007).
The students process large quantities of information while their mental capacity can only handle a certain
amount. Other devices apart from the human mind are needed to store the knowledge and information.
Technology, such as Google Desktop and mobile devices, is used as knowledge repositories.
2.5 From information to knowledge: an illustrative case

In this short case we highlight how one student applied personal information management by using
technology to organize a large number of journal articles. Moreover, we show how he used what we have
termed brain filtering, again assisted by technology, to analyze the articles and as a result create new
knowledge. TT is a PhD student in an Australasian university researching in the area of entrepreneurship in the
information technology industry and was an acquaintance of the authors. He has finished presenting his formal
proposal for his programme and is now collecting data. This case highlights how he conducted his literature
review for the formal proposal.
His strategy for the PhD literature review was based in large part on his experience as a Master s student. He
explains his experience with his Master s project:
It got quite complicated having lots of different articles and keep ... and read something and
I
and all that sort of stuff. [I] used post it notes, highlighter pens.... big stacks of paper.
TT
his PhD literature review. He took up his supervisor suggestion to use NVivo, which provided support to his
personal information management, which in his words was a very process-oriented approach . After
discussions with his supervisors he developed an article summary form that had a number of different
categories such as the purpose of the article, key outcomes, the methodology, and the relevance of the paper.
He then started researching and reading articles. He continued to develop the structure of the form and added
sections for definitions that he found useful in the paper and for those points he thought important. He also
added sections for his comments and observations on the paper. He filled out one form for most of the articles
he read and uploaded them into NVivo. He then coded the article summaries, which gave him a database of
the existing literature.
This system allowed him to see linkages based on his coding between multiple articles. When it came to the
PhD stage of writing up sections of his thesis such as the literature review he was able to go into the NVivo
database and in his own words have a collection of issues, topics, and information...basically it was
information . He would then print them out, interpret them and choose what to follow up. Essentially, TT
created a searchable database of not only the articles he read, but also the article summary sheets that he had
coded. All of this was searchable and as he explains:
I can go into the database and type it (a key term) there and it brings information up. I was using
I
B
I
T
I
I
I
I
I
I
D
when I need to
come and understand it.
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Essentially, what has been described above represents a PIM approach to dealing with a great deal of
information. However, by creating article summary forms and coding the documents TT was in fact applying
knowledge in the form of a preliminary analysis of the information. About midway through this process he
became aware of grounded theory, and began to apply more formal grounded theory coding processes to the
information. As he explained when doing a literature review,
not . He explained that he had to go very broad and very deep . He found that grounded theory allowed him
to be open to the process and to see where the literature would take him.
The grounded theory method facilitates theory creation (Jones and Teevan, 2007) and TT use of it at the
stage of the literature review was a novel application of the method that resulted in a number of benefits (he
subsequently published papers on the use of grounded theory in conducting literature reviews) that directly
helped him develop new knowledge from the literature. One method he used from grounded theory was
memoing in which he would formally write down his thoughts and ideas about what he was reading and then
include and link them in the database. These memos led to the designation of waypoint articles, those articles
that he believed were critical and which took him in new directions or to higher levels of understanding. TT
explains:
Every now and then I come across a critical article and I declare this a waypoint article. And that
meant on my journey of discovery I think this is quite a seminal article that is going to take me to
the next stage. And if I ever get lost on tha
I
In the following quote TT explains his understanding of the relationship between information and knowledge:
Each person can have access to the same information. How you interpret it and come to
understand it will be heavily influenced by your own world views, your environment, your
experiences and all that sort of stuff. Information is what you would then apply your own
interpretation to, which will then result into the knowledge.
He goes on to explain how one can take knowledge a step further to the development of theory. He
understood that it was of great importance to be able to communicate what he learned, i.e. making tacit
understanding explicit to others:
S
I
have knowledge as a practitioner but you also need theoretical knowledge. So I have to do quite
T
what my proposal was all about, is going through
that, absorbing that. And then showing that I can articulate it and have an awareness of what it
was [I learned].
TT called his NVivo database his knowledge centre . He coded it, structured it and believes it will serve him in
good stead for the coming years. He explains that he can update it and build on it and he sees it as a growing
thing . He even coded his proposal and put it in the database and by doing so got useful variables and
constructs. Moreover, he points out the database provides rigour to his study, indeed it provides an auditable
trail of his research.
This case presents a clear example of how a post-graduate student can develop a system of PKM. In this case
TT system evolved from an initial PIM approach of managing large amounts of information with the help of
technology to a PKM system using brain filtering supported by his previous experience, ongoing knowledge
acquisition, and increasing insight and sense making techniques (using grounded theory). A significant
intangible in this process was TT personal motivation, which Clemente and Pollara (2005) explain as the
quest to find, connect, learn and explore.
2.6 The importance of experience

The experience and information Davenport and Prusak (1998) speak of in their definition of working
knowledge is evident when looking at the increasing ease with which PhD students use their brain filtering and
PIM skills. This growth of experience is evident in the case of TT. While PhD students engage in Kanuka and
A
five-stage process of knowledge construction, much of their work is done solo, with
occasional input from supervisors. During Honours, students are not only shown how to use the information
resources such as the library databases and guided in how to write a literature review, but they are much more
likely to construct knowledge socially through the sharing of information and opinions and the exploration of
inconsistencies in the classroom situations, after-hours studying and socializing that form the bulk of their
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learning experiences. As their studies continued, postexperiences in PIM increased,

improving their brain filtering skills and abilities to apply knowledge and experience to the tasks at hand. As
knowledge workers, they are constantly applying their brain filtering and PIM skills as they work through their
studies. They are responsible for their own success (Fischer and Zigmond, 1998).
2.7 Conclusions
Universities rely heavily on the creation and dissemination of knowledge as their core activity (Rowley, 2000).
Graduate schools and academic research are central in the creation of knowledge, a role they have played for
centuries. Therefore post-graduate students, particularly PhD students, are vital to university knowledge
creation. In the same vein, the business world, particularly consulting and other creative industries where
large amounts of information must be analyzed, based on knowledge, experience and insight, and formed into
(knowledge) strategies, also succeed in great part on their effectiveness in developing and applying new
knowledge.
The successful evolution of the post-graduate student is based in great part on the ability to move successfully
from the management of information to the management of knowledge and ultimately to the creation of new
knowledge. We have shown that students understand that through learning and experience, and the effective
use of technology, they develop the ability to brain filter and so make the jump from PIM to PKM. Brain
filtering, a term used by students in this study, is how they make sense of what information is useful and
relevant. As they progress in their studies, the students are exposed to new learning environments in which
their personal knowledge grows through their increasing use of brain filtering. This was reflected in the
illustrative case study where a PKM system was generated from the use of a technology program that
TT PIM
P D Brain filtering skills improve as they continually search for literature and
become more efficient and effective in their PIM skills. Technology can be used to support the improvement of
brain filtering skills as identified in the case study where a database was created to identify and summarize the
articles that contributed to his PhD literature review. Brain filtering is a skill which they may not have acquired
as undergraduates, but is essential to learn for successful post-graduate studies and successful careers as
knowledge workers. Further research into PKM skill development would have benefits to both academia and
the private sector. With respect to the field of knowledge management, in this study we see clearly see that
technology plays a critical part in the access and management of information. As information provision is a
significant part of organizational KM initiatives, this study would seem to support this aspect of KM. However,
it is equally clear that post-graduate students effective use of technology and information in creating new
knowledge is predicated on their learning PKM and brain filtering skills, a process that takes 2-3 years of
intensive effort. In addition, these students are receiving significant mentoring from their teachers and
supervisors, which demonstrates that even individual learning takes place in a social context (Deci and Ryan,
2000).
This exploratory study contributes to the still nascent literature on personal knowledge management through
increased understanding of the way students learn and their application of technology tools. As the study is
based on a limited and localized data set, the findings are realistically only indicative and require larger
H
tentially
important implications for universities as well as the private sector in the development of genuine knowledge
creators.
Note: An earlier version of this paper appeared at AMCIS American Conference of Information Systems
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A Form to Collect Incident Reports: Learning From Incidents in the

Swedish Armed Forces
Ulrica Pettersson
Lund University Centre for Risk Assessment and Management (LUCRAM), Lund University
Sweden
ulrica.pettersson@fhs.se
Abstract: In the modern business environment a greater number of organizations act worldwide and regularly meet with
new cultures and environments. The change calls for a more rapid learning process than previously, in order to adjust to
new situations. In order to prevent incidents from recurring, organizations put effort into collecting information after
incidents. Learning from experience is often associated with incidents and accidents, however it can also concern positive
occurrence. The purpose of the collection is to explore knowledge, analyse what happened and find the root-cause (basic
contributions facts and circumstantial conditions) of the incident. If the root-cause is found, the organisation has
possibilities to make changes in order to avoid similar incidents and to respond to crises. The collection is regularly done
through pre-printed forms, but the reports are seldom sufficient as they often tend to lack vital information. We state, the
answers in incident reports are closely related to the form design and the questions arising in the form. To improve the
collection method, we designed a structured incident reporting form, using interview and questionnaire research and
focused on the aim of the information collection. Our new form was compared to the unstructured form (at present used
in the Swedish Armed Forces and NATO) in two experiments. Forty participants from the Swedish National Defence College
were recruited to watch film sequences displaying incidents, and in the time that followed report and describe the incident
they had observed in writing. The new structured form led to significantly improved results in both experiments.
reporting. As incident reports become more complete, analysts have an enhanced possibility to find the basic contributing
factors and circumstances and there will be a better possibility to learn in the organization and to avoid similar incidents in
the future.
Keywords: incident report, experience-based, data collection, incident, acquiring knowledge
1. Introduction
In the modern global environment, many armed forces operate in unfamiliar environments, facing new tasks
and responsibilities. This necessitates a greater ability to identify and implement improvements more rapidly
than before (US Army 2009, NATO 2010). Nonaka (1994) stresses that those organizations which deal with
changing environments, ought to collect, process and create knowledge frequently. According to Simon
(1991), individuals learning in an organization are dependent on what others already know and if the
information is present for others in the environment. In other words, there is a huge need in the armed forces,
as well in as most organizations, to explore knowledge, improve and actually learn from earlier experience.
In the aftermath of most incidents, there are normally a number of questions raised. For example: What
happened, Why did it happen and, How can we act to avoid it happening in the future? One way to acquire
information on incidents is to use pre-printed forms. In numerous organisations, incident-forms (paper or
digital) are provided to all personnel, in order to be used in a learning process. Unfortunately, a serious
weakness in several organizations seems to be that numerous experiences are poorly or not reported at all
(Dekker 2007, US Army 2009, Pettersson & Nyce 2011). US Army also claims that despite high speed
techniques and excellent storage possibilities, units often fail to preserve records of their mission tasks (US
Army 2009). To succeed in reaching the entire loop in the lessons learned process, organizations need to
collect accurate knowledge regularly. At the Centre for Army Lessons Learned (CALL) one of the most
important mission statements is that collection of knowledge/unit operational data and the collection process
U A
C
L
M
U A
Results from an earlier study (Pettersson 2010), using an incident reporting form (currently used in the
Swedish Armed Forces (SwAF) and NATO) to collect experience from international missions among Swedish
officers, confirmed that reports are often poorly written. In view of the fact that acquired reports often lack
vital info
we assume a few overarching headings are not sufficient for the
observer to write a clear and mature report.
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Reference this paper as: Pettersson U A Form to Collect Incident Reports: Learning From Incidents in the
Swedish Armed Forces The Electronic Journal of Knowledge Management Volume 11 Issue 2 (pp150-157) available
online at www.ejkm.com
Electronic Journal of Knowledge Management Volume 11 Issue2 2013
In NATO s LL process there is an articulated distinction between raw observation and mature observation: Raw
observation: an observation which requires further study or analysis to fully understand the root causes.
Mature observation: an observation for which there is already sufficient data and/or understanding to identify the root
causes and thus requires no further analysis. (NATO BI-SC 2007, p. (2-1)).
Given these poor results, one can speculate if the method used in the incident reporting process does in fact fit
its purpose. Why do the reports not hold the information required? Our paper is concerned with whether
incident report forms can be improved, in order to guide the observer to share his or her knowledge and
experience to the analysts. If reports can become more mature, containing more complete and accurate
information, analysts might be able to find the root cause and in the long run the organisation will have a
better chance to learn, improve and by that reduce friction (von Thaden & Wiegmann 2004). The experimental
idea was to compare two different incident report forms, the unstructured form at present used in the SwAF
and NATO with our new redesigned, more structured form. Is it possible that participants using the new form,
which aims to guide the writer through the reporting process, produce more mature experience reports,
compared with participants using SwAF's and NATO s unstructured form?
1.1 Knowledge required in Armed Forces

The customer of the incident report process, in this case analysts at the SwAF headquarters, can request
reports from a specific unit or domain, so called top-down driven reporting. On the other hand the report
process might be initiated by the individuals working in the field, bottom-up driven reporting. In either of the
scenarios, analysts or other receivers of the report look forward to finding certain specific information in the
report. Incidents reported in the SwAF cover a wide aspect of incidents; from e.g. vehicle accidents, shooting
accidents. Other reports cover non-functional/inefficient equipment such as car tires, uniforms or tents.. Some
reports cover human aspects e.g. weak leadership, unclear orders etc. There is no clear definition on what an
incident is and what should be reported. Consequently, all personnel have to decide if events should be
reported or not. The situation can be one explanation as to why the report number is low.
The minimum information CALL desires from an observation is administrative, such as instance contact
information, operation and location, followed by an observation title. They also need background information,
including relevant items. Insight is also required into what happened, under what conditions, how the unit was
affected and why, and finally, what should be learned by the event (US Army 2009).
A NATO
l distinguishing if it contains
any causes (why) of the incident occurrence, and if the explanation seems to be correct, and secondly by
distinguishing if the report contains a recommendation (solution), and whether this recommendation seems to
address the cause. Summarized, the report should be credible, logically convincing and easy to read (NATO
2010, NATO BI-SC 2007). Almost every report has to be further analyzed, but it will make it easier for the
analysts if the reports are as mature as possible when they are written and posted from the mission area.
2. Collection of incident reports

According to Reason (1997) there are two important mechanisms in handling error management: error
reduction, where one tries to avoid and prevent errors from occurring, and error containment, where one
strives towards limiting severe consequences when errors do occur. In both cases data collection is needed,
but we will emphasise that organisations should not complete
blame individuals (Reason 1997, Dekker 2007, Pettersson & Nyce 2011). Management has an enormous
responsibility to create a culture in which everyone actually wants and especially dares to report their errors
and near-misses (Reason 1997, Dekker 2007, Pettersson & Nyce 2011). Collection of data regarding incident
must be carefully organized, as the answers one will receive depend heavily upon what is asked (Andersson
2007).
2.1 Interview and questionnaires

Data collection can be completed using a number of different methods. It is important to choose a method
which will serve the collection purpose and is suitable in the actual context. Interview research can be divided
into verbal interviews and written questionnaires (Christensen 2007, Andersson 2007). Normally interviews
take more recourse but the method is especially useful when one wants to collect deeper knowledge and
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Ulrica Pettersson
penetrate into a certain topic. Questionnaires or forms can be easily and widely distributed, but seldom collect
the same level of detailed knowledge.
During the design process of a questionnaire, one must carefully analyze what the questionnaire is supposed
to reveal and what the researcher or analyst wants to know (Christensen 2007). Compared to interviews, there
will be no opportunity to explain the questions or to clarify the answers. Nor will there be opportunities to
compose supplementary questions (Andersson 2007), which is the case during verbal interviews (digital
questionnaires manage to create predefined supplementary questions to some extent). During verbal
interviews, pauses and encouragement can be used; this is not practicable using questionnaires. A rigid design
and questions in fixed order are often called structured interviews and is often a feature of questionnaires.
During interviews it is easier to adjust the order of the questions and be more flexible, which gives the
opportunity to be less structured (Andersson 2007).
An interview is called structured when the questions are highly concentrated around a specific slim topic and
the researcher already knows what he/she wants to ask about. In this case, unstructured will reflect an
T
A
attention might facilitate getting started and feeling comfortable, so consider the questions position carefully.
U
(Oppenheim, 2005, p 129). All questions should be clear, easy to understand and possible to answer. Be aware
interest seems to weaken after a certain time (Trost 1994, Christensen 2007). Questions should thereby be
limited to what the respondents are expected to have knowledge about. To predict the future or answer
hypothetical questions is extremely difficult and those questions must be very well-considered (Synodions
2003).
Open-ended questions allow the informants to answer in any way they please. Meanwhile closed-ended
questions require them to choose from a limited number of alternative answers (Christensen 2007). Using
open-ended answers is normally more burdensome to answer and requires extra analysis, although might be
preferred when one cannot define well known variables. Do not squeeze several questions into one. Rather
divide them into several sub questions (Trost 1994, Synodions 2003). Seek to attain perfection with questions
that flow logically, more general to more specific, least sensitive to more sensitive (Synodions 2003).
Expression, vocabulary and phrases must be known to the informant so there is no misunderstanding
regarding the questions (Trost 1994). To give the informant examples can be fruitful, but should be considered
carefully in each case (Andersson 2007). In contrast to interviews, questionnaires do not provide the
opportunity to ask additional questions (except in some digital forms). Using open-ended answers or at least
providing empty space for supplementary infor
A
quality questionnaire demands a lot of planning and design. It must be tailor-made for its specific purpose,
audience and the culture it is supposed to work in (Synodions 2003).
2.2 Consideration in design of a form

Dekker (2007) claims there are two major things to handle in the reporting process. The forms should be
accessible for all personal, regardless of rank or title; they must not be troublesome to fill in or to forward to
analysts in the learning cycle. According to Reason (1997) format, length and content of the reporting form are
central matters in reporting. The reporting form must not be too long or require too much time to complete. If
so, the respondent might not complete the task. On the other hand, if the form is too short, analysts will not
get hold of what really happened. A solution should hit upon a suitable balance between time and effort for
the reporter and the total content on behalf of the analysts. Direct questions are easy to complete. On the
contrary, only using direct questions might restrict the reporter
queried. Open-ended questions or free text fields take longer to complete but tend to gather additional
information. It is also normally more time consuming to analyze open questions (Reason 1997, Andersson
2007).
AF LL-process can be divided into six phases (fig. 1), where the process starts with observation and ends
with follow up. Our study focuses on the first parts of the process and explores the encircled steps:
observation, collection and, briefly, analysis (HQ 2008).
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Figure 1: The Swedish Armed Forces Lessons Learned Process (SwAF HQ 2008)
To describe the encircled steps in figure 1 in more detail, the reporter (officer/civilian) first observes an
incident and decides if it is worth reporting. If so, they will make a brief analysis of what happened and write a
report about the incident. In a second stage the incident report will later be read, interpreted and more deeply
analyzed by an analyst. Now we will turn the encircled steps around and view the process from a customer
perspective, starting with the product, and see the observer at the other end. The customer is represented by
the people gathering information for different purposes, e.g. analysts, lessons learn division or management.
From this point of view we can visualise step by step how the customer can support the process and offer the
observer suitable tools in which he or she will be able to deliver a report containing the knowledge required.
2.3 Form construction

Our form is designed to be rather general, to fit a wide range of incidents. The form is structured; all headings
follow a fixed order and under every heading there are sub-questions. Several examples are provided to guide
the respondent. Furthermore, the form has an uncomplicated layout; it contains less than half a side of A4 of
questions (incomplete). Terminology was chosen which aims to be understandable for the average
respondent. H
O
W
O
.T
what information NATO and CALL require after an incident.
The new form differs from the old in the following aspects:
The heading Observation was increased with a request to describe the incident as detailed as possible.
Heading Discussion was changed to Facts. In addition three sub-questions were asked, with proposals
(cues) on potential answers to help respondents.
Who were the main actors/components? (describe them in detail)
In what context did the incident occur? (e.g. environment, climate, weather, F/C)
When did the incident occur? (e.g. dd/mm/yyyy, hh:mm)
The heading Complementary Information was added. In addition two sub-questions were asked, with
proposals on potential answers to help respondents.
Were there any previous areas/issues, that might have affected the incident?
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Ulrica Pettersson
Are there other vital areas/issues of interest or uncertainty, related to this observation?
3. Method
In our study we conducted two experiments, where two different incident report forms (independent variable)
were compared. In the first experiment all participants watched the same film sequence (incident). In the
second experiment, ten altered film sequences (incidents) were used to approximate the situation where
different participants reported their own story. The second experiment was conducted to test the structured
3.1 Procedure
A total of 40 participants were recruited from the Swedish National Defence College (SNDC), 23 female and 17
male all of them undergraduate students of political science. The participants were randomised into four equal
sized groups; A.1, A.2, B.1 and B.2. In compensation for their time and effort they received two cinema tickets
each.
First, the participants signed an informed consent. Secondly, they were given written instructions to watch one
randomized film sequence. Finally, they were given additional written instruction to describe the incident they
had observed, in an electronic MS Word form. The film sequences were approximately 6 - 8 minutes and
contained one incident each. Total experimental time was limited to 30 minutes. Our ten film sequences were
chosen from nine drama and youth feature films; the Horse Whisperer (I), Defiance (II), Private Ryan (III),
Thelma and Louise (IV), Top Gun (V), Young Guns 1 (VI), Young Guns 2 (VII), Madicken p Junibacken [Swedish
movie] (VIII), Skrllan, Ruskprick och Knorrhane [Swedish movie] (IX), Nya hyss av Emil i Lnneberga [Swedish
movie] (X).
The study was divided into two parts; experiment 1 and experiment 2. In experiment 1, all the participants in
groups A.1 and A.2 were shown one identical film sequence displaying one incident, although group A.1
reported in the structured form and group A.2 reported in the unstructured form. In experiment 2, the same
procedure was carried out in groups B.1 and B.2 although in this part, ten altered film sequences displaying
one incident, were shown to both groups. Group B.1 reported in the structured form and group B.2 reported in
the unstructured form (see Table 1).
Table 1: Experiment design experiment 1; group A.1 and group A.2. experiment 2; group B.1 and B.2
Structured form
Unstructured form
1 film sequence
Group A.1
Group A.2
10 film sequences
Group B.1
Group B.2
The structured form
:
A
-questions are inserted under the main
headings: What happened (describe your observation in as much detail as possible), Who were the main
actors/components (describe them in detail), Where did the incident occur (e.g. country, city, area/region,
organization), In what context did the incident occur (e.g. environment, climate, weather, F/C), When did the
incident occur (e.g. dd/mm/yyyy, hh:mm), What could be possible reasons for this incident, What should be
done to avoid/decrease, this kind of incident in the future, Were there any previous areas/issues, that might
have affected the incident, Are there other vital areas/issues of interest or uncertainty in relation to this
observation? The unstructured form
:
, and no options were given to leave additional or supplementary
information.
3.2 Evaluation
T
NDC
one male. Both used master reports as keys, which were created in consultation with an analyst from the SwAF
intelligence service. Eight categories (variables) were evaluated: (a) Does the report describe the incident?
Does the report give a clear picture of (b) the main actors/components in the incident, (c) where the incident
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occurred, (d) when the incident occurred, the (e) context/environment, (f) why the incident occurred? Does
the report contain information about (g) previous issues/matters that might have affected the incident? Does
the report describe a (h) useful/reasonable recommendation on how to avoid a similar incident in the future?
All eight categories could achieve 0-6 points; maximum for each report was 48 points.
4. Results
Experiment 1:
In our first experiment the results turned out as we expected; group A.1, using the structured form, performed
considerably better than group A.2, using the unstructured form (see Table 2). Variables (c), (d), (e) and (total)
were significantly enhanced. Variables (a), (b), (f), (g) and (h) were modestly improved although no significant
effects were found. Mean figures of both graders were used as foundation in the t-test. Inter-rater reliability
calculated on variable (total) was good, r = 0,894472.
Table 2: Results from t-tests between groups in experiment 1: Mean 1 = unstructured form, mean 2 =
structured form. Variables: (c) where did the incident occur, (d) when did the incident occur, (e) in
what context or environment did the incident occur and (total) sum of all eight variables
Varia.
(c)
(d)
(e)
(total)
Mean 1
1,60
1,35
3,20
16,97
Mean 2
4,70
3,30
5,10
26,67
t-value
-5,00
-2,60
-3,64
-4,13
df
18
18
18
18
p
0,00
0,01
0,00
0,00
Experiment 2:
In our second experiment, where we used ten randomized film sequences, the result did not differ appreciably
from experiment 1, except that variable (g) also was significantly enhanced. There was no obvious variation
between the randomized film sequences. Inter-rater reliability calculated on variable (total) was good, r =
0,950537.
Table 3: Results from t-tests between groups in experiment 2: Mean 1 = unstructured form, mean 2 =
structured form. Variables: (c) where did the incident occur, (d) when did the incident occur, (e) in
what context or environment did the incident occur, (g) previous issues/matters that might have
affected the incident and (total) sum of all eight variables
Varia.
(c)
(d)
(e)
(g)
(total)
Mean 1
2,40
0,45
1,00
0,00
13,75
Mean 2
4,00
4,05
5,00
2,10
27,77
t-value
-2,84
-6,51
-8,09
-2,33
-5,31
df
18
18
18
18
18
p
0,01
0,00
0,00
0,03
0,00
5. Discussion
Choosing a method for data collection is not easy, and is often influenced by the amount of resources.
Questionnaires do not collect the same in-depth knowledge as interviews, but they have a major advantage of
being easy to distribute in a broad range at a relatively low cost. The aim of this study was to compare if our
new structured form produced improved (more detailed) incident reports than the currently used
unstructured form. A starting point was found in that several acquired reports seemed to lack vital
information, that is to say the report was raw. Could the incomplete forms be due to the method the reports
were collected through? Our study has shown that an unstructured form will not help the observer to write a
detailed report. We argue that the results (answers) in reports, are closely related to the questions raised in
the report form, and that what is important is not only which questions are asked, but also the structure of the
form. Accordingly, before designing or distributing incident forms, the stakeholders should carefully consider
what they actually want to know (Christensen 2007). First then, there is a base of good quality and the form
can be designed to fit its purpose.
In Form 1, we have tried to design questions to get hold of the information that, for example, CALL considers
epresents the minimum information needed. The form is structured, all questions are given in a fixed order
and it is highly concentrated around a specific topic. All questions are relatively short and several examples are
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Ulrica Pettersson
W
erest in a very long form.
Beside the commonly used questions about what happened and who was involved, extra effort has been paid
to acquire, at what time, under what conditions and in what environment the incident occurred.
We have also considered what NATO
mature
I
CALL
NATO
recommendation should address the cause of the incident. We believe that incident reports should provide
space for conclusions/cause of incident as well as recommendations on how to avoid similar incidents.
However, it is essential to understand that the observer of an incident often has access to a sharply defined
part of an operation in a mission. The root-cause can seldom be found without a holistic perspective and
therefore this task might be difficult for the respondent. It could also be contradictive to ask respondents to
answer questions that they might not know or require them to predict what could be helpful in the future.
However, the observer presumes to possess knowledge of what happened and we believe they should have an
opportunity to describe what caused the incident and suggest actions if they can. However, this opportunity
should never replace analysis, which is the next stage in the lessons learned cycle.
During both our experiments we used film sequences to show the participants incidents. In that way, we had
the advantage of knowing exactly what happened before, during and after each incident. The key report was
extremely valuable as the reports were evaluated. Compared with evaluation of incident reports written in
reality (without key documentation) we could identify what actually was improved in the reports.
Our new structured form provided significantly enhanced results, a (total) sum of all the eight variables, in
experiment 1. In experiment 2 we used 10 different film sequences and yet the significant result was repeated.
This indicates that our structured incident report form could capture knowledge regardless of the character or
context of the incidents.
To confirm that form 1 is useful in a military context, further research is required. Additional experiments using
officers employed by the Swedish Armed Forces as participants will be conducted later this year.
6. Conclusions
In many organizations, incident reporting methods are insufficient. The resulting reports appear to lack vital
information, required by analysts to understand the incident and, as a result, management is unable to
respond effectively.. It seems easier said than done to bring clarity of the root-cause of the incident and
suggest suitable recommendations to prevent incidents from being repeated and to prepare for crises and
response if they do I
perspective, using interview and questionnaire research. We argue that results (answers) in incident reports
are closely related to the questions asked, as well as the form s overall design. The aim was to construct a form
that was easy to fill in, by avoiding difficult terminology, acronyms and abbreviations. The structured form
does not require too much time to complete
effort with content
for the analysts. The form starts with an open-ended question, followed by more direct questions. The
F
into one. Examples (cues) are given on purpose to lead the respondent.
A more detailed incident report does not guarantee learning in the organization. However, incident reports
provide important information and are a foundation for analysis and learning over time. If analysts were
provided with improved foundations, it would most likely increase the chances of building understanding of
what happened and why the incident occurred.
The current research demonstrates that to improve collection, incident report forms should be planned and
knowledge and experience.
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Acknowledgements
The Swedish Armed Forces provided funding for this study and their support is gratefully acknowledged. I also
thankfully acknowledge Prof. Brehmer for most valuable comments. Finally, special thanks are addressed to
fil.mag. Granberg and fil.mag. Rehman at the Swedish National Defence College, for evaluation of reports.
References
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No. 3, pp. 251-260.
Christensen, L. B. (2007). Experimental Methodology. Boston: Person Education Inc.
Dekker, S. (2007). Just Culture Balancing Safety and Accountability. Surrey: Ashgate Publishing Ltd.
Nonaka, I. (1994). A Dynamic Theory of Organizational Knowledge Creation. Organization Science,
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NATO BI-SC. (2007). BI-SC Directive Number 80-6 Lessons Learned. Norfolk: Supreme Allied Commander Transformation.
NATO. (2010). Lessons Learned Handbook. Lisbon: Joint Analysis and Lessons Learned Centre.
Oppenheim, A. N. (2005). Questionnaire Design, Interviewing and Attitude Measurement. Biddles Ltd., Norfolk.Pettersson,
U. (2010). Acquisition of Experience-Based Knowledge from the Swedish Armed Forces International Missions; a
Comparison between Groups and Individuals. Proceedings of the 7th International Conference on Intellectual Capital,
Knowledge Management & Organisational Learning, pp. 360-366.
Pettersson, U. & Nyce, J. (2011). Hierarchy and Tacit Knowledge in the Swedish Armed Forces: An Organisational Approach.
Proceedings of the 3th European conference on Intellectual Capital pp. 328-332.
Reason, J. (1997). Managing the Risks of Organizational Accidents. Hants: Ashgate Publishing Ltd.
Simon, H. (1991). Bounded Rationality and Organizational Learning. Organizational Science, Vol. 2, No. 1, pp. 125-134.
SwAF HQ. (2008). Swedish Armed Forces Headquarter 23 290:75766 - appendix 1. Stockholm: Swedish Armed Forces.
N E
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es.
Integrated Manufacturing Systems, Vol. 14, No. 3, pp. 221-237.
Trost, J. (2007). Enktboken [the Book of Questionnaire]. Lund: Studentlitteratur.
US Army. (2009). Handbook Commanders Guide to Operational Records and Data Collection Tactics, Techniques, and
Procedures. Ft. Leavenworth: Combined Arms Centre. Retrieved November 12, 2010 from http://call.army.mil
von Thaden, T. L. & Wiegmann, D. A. (2004). The use of schematic aids to facilitate the incident reporting of critical events,
paper number 2004-01-010. Safety Across High-Consequence Industries Conference
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The Search for External Knowledge

Rebecca Purcell1 and Fergal McGrath2
1
S P
C
E
T
I
2
Centre for Information and Knowledge Management, University of Limerick, Ireland
rpurcell@stpats.ie
fergal.mcgrath@ul.ie
Abstract: The purpose of this paper is to examine the process by which firms search for external knowledge, with a view to
better understanding how to represent and manage this central function of the knowledge exchange process; the
identification and acquisition of external knowledge being a fundamental activity for organisations seeking to replenish
their internal knowledge stocks. However, previous research on search activity does not distinguish between internal and
external search actions. Therefore, conceptual and empirical understandings about external search activity are very scarce.
This paper seeks to address this gap by investigating the external search activity of three Irish based manufacturing firms.
The comparative case method is used to develop a framework of external knowledge search. Findings regarding external
knowledge search activity are identified across six key areas; drivers of external search, problem definition and external
search, external search actions, external search paths, external knowledge sources and external search frequency. This
ch
process and in turn aid managerial decision making centered on harnessing the value of external knowledge and resource
allocation to boundary spanning activity.
Keywords: external knowledge: knowledge search: external knowledge search: knowledge acquisition: open innovation:
exploitation: exploration
1. Introduction
I
T
ategy has since
resulted in multiple successful developments including Olay Regenerist and Oral B pulsonic toothbrushes. The
systematic searching for proven technologies ... (can
(Huston
and Sakkab, 2006: 62). Connect and develop is just one example of how organisations are focused on
harnessing the innovative power of external knowledge. While the concept of open innovation has been
studied extensively, the mechanism by which external knowledge is searched for and acquired by the firm
remains relatively unexplored. This paper examines the external knowledge search process through a cross
case comparison analysis of three exploratory case studies within the Irish High Technology sector.
External knowledge is important to firm innovation processes for two reasons, firstly the integration of
external knowledge allows firms to create new knowledge and thus close internal knowledge gaps and
external competitive gaps (Zack, 2005). Secondly, the use of external knowledge avoids the risk of an overreliance on internal knowledge, thus avoiding learning traps. The benefits derived from the sourcing and
assimilation of external knowledge centre on the development of absorptive capacity (Cohen and Levinthal,
1990), architectural competency (Henderson and Cockburn, 1994) and dynamic capability (Zahra and George
2002). To this end, many organisations enable and facilitate boundary spanning activities, such as, external
partnering activity; boundary spanning networks, informal boundary spanning communities and individual
level interpersonal networks. Sourcing and acquiring external knowledge in therefore a primary concern of
business organisations. Organisations source external knowledge through external search activity.
In addition, internal and external knowledge pools exhibit very different characteristics, for instance, external
knowledge pools often display increased levels of variance, which in turn can increase the variance of search
outcomes (Lichtenthaler et al, 2010). Compared to internal knowledge sources, searching in external domains
often means that searchers have limited prior experience and limited control (Mezias and Glynn, 1993), this is
further reflected in higher levels of uncertainty (Koput, 1997). However, despite the differing characteristics of
internal and external knowledge pools, most researchers have chosen not to distinguish between internal and
external search. As proposed by Katila (2002: 1006),
, less however is known about external search activities.
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Reference this paper as: P
M G
F The Search for External Knowledge The Electronic Journal of
Knowledge Management Volume 11 Issue 2 (pp158-167) available online at www.ejkm.com
While direct research is limited, inferences on external search activity can be drawn from related areas. We do
know that organisations make choices about search activity, in that, some organisations favour external
M
P
invented he
A
A
requiring complementary recombinatory problem solving efforts by the firm is also linked to external search
(Cassiman and Veugelers, 2006). In addition, Lane and Lubatkin (1998) argue that skills different to those
knowledge sourced from the external search space. Lastly, the traditional conceptualisation of search activity
as existing on a technological trajectory operationalised as varying degrees of exploitation (local search) and
exploration (distant search), is assumed to apply to external search activity also (March, 1991).
This paper contributes to both the knowledge search and innovation literatures by extending our
understanding of the external knowledge search process. Despite continued contentions that the success of
innovative performance is dependent on externally sourced knowledge and know-how (Keeble et al, 1999);
studies detailing the external search process as part of organisational knowledge acquisition processes are
limited.
Based on the rich exploratory data, we develop a framework of the external search process and compare it to
classic conceptions of search. The primary point of departure between these two conceptions is the
investigation of external search process as a distinct activity, with distinct characteristics.
2. Data and methods

Our goal in gathering the exploratory data was to delve into the process by which external knowledge is
searched for. As a result we identified firms in industries which we believed would have a large representation
of external search activity. Data was gathered from three multinational organisations, operating in Ireland. The
case firms operate in the Medical Device, Consumer Healthcare and Biotechnology sectors respectively. For
each firm we identified a formal group with whom the study would be conducted. In the Medical Device firm
we identified the advanced process development group (hereafter APD group), who were responsible for
research and development onsite. In the Consumer Healthcare firm we identified the knowledge management
group. The knowledge management group had responsibility for the advancement of knowledge management
onsite and packaging development. Lastly, in the Biotechnology firm, we identified the technology transfer
group, during the course of this study; the technology transfer group was engaged in the inward transfer of a
new drug manufacturing process.
These three cases are important as they each represent a different contextual environment for external
knowledge search, thus ensuring that the potential derived understandings on external search are maximised.
The use of a qualitative case study approach to investigate organisational search, represents a departure from
previous search literature, which to date is dominated by investigation through quantitative techniques such
as computer simulation, structured patent analysis and survey data (e.g. Levinthal and March, 1981; Mezias
and Glynn, 1993; Makadok and Walker, 1996; Katila, 2002). The implementation of a qualitative approach
allows a deeper understanding of how external knowledge search happens.
The case investigation was conducted over an 18 month period, using the between method triangulation of indepth interviews, non-participant observation and documentation analysis. The comparison method proved
particularly efficient in this instance, since it enabled the comparison of different three exploratory cases from
different perspectives. Data collection, reduction and display were aided by the use of the qualitative data
analysis programme QSR NVivo.
3. A Framework of external knowledge search

3.1 The classic model of search
Classic management research on search, built on evolutionary economics and behavioral theory, argues that
search is a costly and at least partly planned and routinised process through which organisations attempt to
solve problems, discover opportunities in an ambiguous world and drive adaptation. Organisation search is
motivated in response to problems, such as, a need to improve upon current technologies (Nelson and Winter,
1982), learn and develop new skills (Makadok and Walker, 1996) and adapt to environmental change (Cyert
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Rebecca Purcell and Fergal McGrath
and March, 1963). Searching without a problem, is only tolerated in times of success (Levinthal and March,
1981). Search often takes place in complex and dynamic environments (March and Olsen, 1976); thus
searching organisations often have incomplete information about the search environment and the best
solutions, these uncertainties drive indecisiveness about where and how to search. This means that the
effectiveness of search actions can be highly context-dependent. Search is costly (Cyert and March, 1963),
especially if the target is ambiguous; however, investment in search is a key determinant of a successful
outcome for organisations (Levinthal and March, 1981). These time and monetary costs constrain searchers in
the location of optimal solutions, and therefore they exhibit satisficing behaviour. Search is goal directed
(March and Simon, 1958), with search frequency and propensity often responding to changes in perceived
success or failure. Search is also regarded as path-dependent, in that, new searches begin where previous
searches ended, over time leading to the establishment of search rules and routines (Nelson and Winter,
1982). As described by Cyert and March (1963), search often begins as local and only becomes more distant if
the initia
change (Sastry, 1997), as by driving problem-solving, search also drives adaptation. In this view, search
strategies follow organisational change activities, characterised as simplistic or complex (Miller et al., 1996).
Searching organisations are also members of searching communities, and therefore the outcomes of searching
ers (March, 1996).
Organisations can develop capabilities in the area of search, based in part on its path dependent nature.
Eisenhardt and Martin (2000) liken search actions to a dynamic capability due to the role knowledge search
plays in keeping organisations abreast of changes in the environment. Added to this Kogut and Zander (1992)
propose that knowledge search actions on the part of organisations represent a combinative capability, in that
search represents a way in which organisations can capture and integrate knowledge resources with the aim of
creating new resources. Within evolutionary models the process of search is viewed as resulting in
organisational adaptation and learning, since adaptation commonly occurs in response to environmental
change and learning implies the development of new skills, achieving these outcomes through search
behaviour can decrease the risk of organisational failure. In this way, goal oriented search should provide a
selection advantage (Levinthal, 1990).
A common strand of search theory is that search is characterised by the technological direction of search
effort, i.e. the type of knowledge the firm is searching for relative to their own knowledge base. The
technological direction of search distinguishes between a) increasing specialisation on what the organisation
already knows vs. b) searching what is new to the organisation. Many researchers have treated these two
constructs as opposite ends of a single continuum, indeed a hallmark of management literature is the tradeoff
between the flexibility and efficiency of organisations (March, 1991). Within early management theorising,
Cyert and March (1963) make the distinction between problemistic search i.e. search that is focused on
improving and/or refining current practices, and innovative search, i.e. search that is focused on changing the
practices used by the organisation. Levinthal and March (1981) later refer to this as the focusing of search
activity within refinement or innovative pools of knowledge, March (1991) adopts this construct under the
terms exploitation, referring to refinement and exploration, referring to innovation. An addition to the
technological focus of search activity is the degree to which a searcher focuses on exploitation and
exploration, i.e. search depth and scope (Katila and Ahuja, 2002).
Search models routinely depict the search process as both linear and sequential and investigate search activity
solely at the firm level (e.g. Levinthal and March, 1981; Mezias and Glynn, 1993; Makadok and Walker, 1996).
Following the majority of investigation in the area, the processes involved in exploitation, receive more
attention. Conversely, investigations into the processes involved in exploration, are limited, this is due in part
to the proliferat
C
process perspective, whereby, the search unit must engage in recombination and trial and error to improve
radically upon current technologies. Later models have attempted to address this and represent a more
complex search process, particularly in relation to non-local search activity (e.g. Koput, 1997; Katila and Ahuja,
2002; Mahdi, 2003), representing search as a more dynamic process.
Search modeling begins with Levinthal and March (1981) who regard organisations as experiential learning
systems, thus emphasising the local and pathL
M
decision rules have in turn been adopted by Mezias and Glynn (1993). Although, Levinthal and March (1981:
327) warn that their model
, it
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remains one of the most comprehensive models of organisation search. Makadok and Walker (1996) model
search activity within the sphere of evolutionary economics, thus the selection advantages attributed to search
take precedence over detailing the
T
search activity to be goal-directed, by persisting in areas of previous success and impacted upon by the
perceived variance of search opportunities. Theoretical and empirical investigations into the external search
process are lacking however.
3.2 The external search process

Figure 1 illustrates our framework of the external search process. The external search process is distinct from
the classic conceptions of search presented in the previous section in multiple ways. Examples include the
emergent nature of external search at individual level, the evidence of micro level drivers of external search,
the addition of a social search dimension as evidenced by the search mechanisms used by searching units and
the ongoing nature of the search for external knowledge. The majority of external search actions evidenced in
our case analyses followed a similar series of steps as outlined in Figure 1.
Figure 1: A framework of external knowledge search

Drivers of External Search
Traditional search literature cites search as motivated by the need to solve problems, central of which is the
need to meet or exceed performance goals (e.g. Mezias and Glynn, 1993). Evidence from this study, however,
classifies specific micro-issues that drive the external search activity of searching units. Firstly, searching units
are motivated to search externally to close knowledge gaps. Previously, Zack (2005) determined that locating
external knowledge is a key way in which firms can fill internal knowledge gaps and external competitive gaps.
The drive to fill knowledge gaps was evidenced throughout the firm at both personal and firm level.
Mechanisms evidenced in this regard at the firm level included hiring from competitor firms, as reflected by
McEvily and Chakravarthy (2002), merger and acquisition activity, market intelligence activity and the
formation of partnerships and collaborative relationships with outside bodies. At the personal level, as
evidenced in recent studies in personal knowledge management (Wright, 2005), knowledge processes play an
important role in filling these gaps at the more micro levels of the firm also. In addition to enhancing personal
internally. As reported by Menon and Pfeffer (2003) compared to heavily scrutinised internal knowledge,
external knowledge appears to be more special and unique and therefore more valuable.
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Secondly, searching units in this study were motivated to search externally to close internal equipment gaps.
As the head of the technology transfe
here were equipment gaps, that were essential to
T
the cost efficiencies that can be garnered through external searching (Powell et al., 1996). In all cases the cost
of developing the necessary equipment internally would have far outweighed the cost of external search and
partnering. Of course, the focus on the need to fill equipment gaps is most likely a direct result of this studies
focus on manufacturing firms.
External Search and Problem Definition
First, the degree of problem definition prior to the search action influences the external search action. Two
categories of external search were identified, emergent search and reactionary search; reactionary search can
be further subdivided into problem-orientated and solution-orientated external search. Acknowledging
degrees of problem definition in external search allows for the representation of search actions stemming
from problems that are well defined and finite at the start of the process (problem-orientated), to evolving
problem definition, happening throughout the process (solution-orientated).
When a problem is well defined prior to the search action, multiple levels of the firm engage in problemoriented external search. For instance, in the Consumer Healthcare firm a concerted effort was made to
ensure problems were well defined by searching individuals and groups prior to partnering or searching
externally. The predominance of problem-oriented external search at the Consumer Healthcare firm, may
reflect the fact that early stage research and development work does not take place on site, as reflected upon
C
M
here is usually a well defined ne
When a problem is not well defined, prior to searching externally individuals and groups engage in solutionorientated external search. We found that the absence of a well defined search problem meant that searching
units searched a wider number of possibilities, across a wider area of technological disciplines, allowing them,
as one technologist put it, to
Emergent external search is search enacted by the individual level with no prior problem definition. Individual
searchers simply wanted to expand their personal knowledge relating to particular topics that held a special
interest for them. While these knowledge areas were not related to the work occurring onsite at the time of
search action, t
F
member of the APD group had a personal interest in laser technology, this was manifested in conference
attendance and subscriptions to publications, this occurre
manufacturing strategy, at which point the Individual in question became a central driver of laser technology
onsite. These findings on emergent external search reflect findings on the early stages of community of
practice development, whereby, individuals satisfy their own technological and professional interests through
external scanning (Wenger et al, 2002). However, traditional concepts of search would consider, emergent
search inefficient or irresponsible.
The External Search Action
March (1994) alludes to branches of search actions, when he cites goals as representing search branch points
along which multiple firm-level search heuristics can be enacted. In relation to external search actions,
however, our findings demonstrate that problems as opposed to goals represent the search branch points and
define the search action. Comparative evidence across all three case firms highlights that external search is
enacted in one of two ways; multifarious external search and singular external search.
In multifarious external search actions searching units search among a number of external knowledge sources
simultaneously. The decision to engage in multifarious search is driven by, preference, i.e. searchers and
groups simply prefer to use a multifarious search strategy or, necessity, i.e. problems that are very open and
not well defined often mean that a multifarious approach has to be used as knowledge on the location of
suitable solutions is limited. For instance, the members of the APD group regarded a multifarious search action
as reflecting search policy within the group, whereby the aim of the group, as highlighted by the head
engineer, was to
M
nal search actions were
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enabled by the proliferation of boundary spanning technologies on offer, including, patent and journal
databases, the internet and knowledge management and social networking tools.
In a singular external search action, searching units focus their search effort on one source of external
knowledge during the search action, often this makes singular search suited to problem-oriented search, as
the well defined nature of problems makes the prior identification of solutions and therefore knowledge
sources more straightforward. Singular search actions are enabled by the many formal boundary spanning
arrangements in place with research institutes and Universities. These relationships necessitated the natural
gravitation towards these external sources when a solution was required.
External Search Paths
As in classic models of search, searching units engage in exploitative and exploratory search, albeit externally
focused. However, in this study, another dimension is added to the technological trajectory of search. In
external search actions, searching units also search along a social dimension, using both formal and informal
search mechanisms. Informal search mechanisms occur in response to personal and operational needs and
generally do no
F
mechanisms on the other hand, are enacted in response to functional and strategic objectives and generally
have authoris
Taken together the technological and social
trajectories of external search illustrate four search paths searching units follow into the external search space.
These external search paths are as follows, informal exploitation, informal exploration, formal exploitation and
formal exploration.
In this study we found that informal search mechanisms draw predominantly on the personal and professional
networks of search actors. These informal mechanisms provided access to both local and distant external
knowledge sources. From the perspective of informal exploration, having access to personal and professional
prevent within-industry knowledge sharing. Whereas, when the aim of external search actions was to retrieve
exploitative knowledge, informal mechanisms aimed at personal and professional networks across the
subsidiary networks of all case firms. In addition, conference attendance, as well as, non-personal sources of
knowledge, such as the Internet and journal databases were important sources of external knowledge
accessed through informal mechanisms.
Formal search mechanisms aimed at sourcing local knowledge focused on contracted relationships with
research institutions and training bodies, as well as, other searching units located within their subsidiary
network. For instance, the APD group at the Medical Device firm located exploitative knowledge through the
formation of contractual relationships with research institutions with similar technical bases, such as the
Industrial Chemical Institute (ICI). In addition, the technology transfer group performed multiple site visits to
similar operations to theirs, including a competitor site. Formal search mechanisms aimed at sourcing
exploratory knowledge focused on search relationships with research institutions and Universities, firms in
non-competing industries and government agencies. For example, contract relationships between the Welding
Institute and the National Centre for Laser applications
M
D
these relationships had positive outcomes for
the group as,
dy for us, we could just go over and do our experimentation
I
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Healthcare firm had recently acquired an oral care facility, which was located on the same site, and was in the
process of assimilating management across both plants. These findings build on recent work by Rothaermel
and Alexandre (2009) who also identify the combinatory affect of a technological and geographic dimension,
albeit in relation to ambidexterity, i.e. the balance of exploitation and exploration activity.
Key Sources of External Knowledge
Three key sources of external knowledge were identified in this study, these being, personal and professional
networks, supplier organisations and subsidiary network partners. The distinction between personal and
professional networks reflects differences cited by Ingram and Roberts (2000). Personal networks include
networks where membership of an organisation is not a pre-requisite for joining the network, for instance,
members of the APD group in the Medical Device firm regularly acquired knowledge from family members
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working in other industries, friends working in other industries, friends from previous employment and friends
from educationa
A
C
H
I
would often draw on the knowledge of other people, that I even went to school with, who are in similar
While usually associated with strong tie principles (Granovetter, 1985),
personal networks can be a cost efficient means to transfer valued information (Bian, 1997), however, Burt
(2000) finds the formation and maintenance of weak ties to be much less costly and therefore more appealing
to managers. In the context of this study, accessing personal networks allowed many searchers to overcome
the confidentiality issues and enforced protectionism which defined two of the firms in particular.
Professional networks include relationships developed and mediated through membership of an organisation.
To this end, Granovetter (1985) found that boundary spanning behaviour in professional networks is usually
embedded in the larger organisational networks. The importance of personal and professional networks to
firm performance is established by Ostgaard and Birley (1996). While specific to this study, Johannissson
(1998) finds that people in high technology firms spend more time building and accessing these networks, than
those in medium to low technology sectors. For example, external professional networks developed by
members of the APD group included contacts made at conferences, both academic and practitioner,
colleagues from previous employment, previous work colleagues from the medical device firm, technical
communities such as the Six Sigma and Decision Support System councils, peers that have remained in
academia and people from external bodies previously involved in collaboration projects with the group. In
general terms, the advantages to be gained from membership of such networks include, benefits in accessing
information beyond what could personally be processed, receiving business referrals from network members
and the access to information early, conferring temporal advantages (Burt, 2000).
The importance of suppliers as sources of external knowledge is reflected elsewhere in the literature (e.g. Dyer
and Hatch, 2006). In all cases searching units frequently relied on suppliers to provide technical knowledge on
equipment and testing capabilities.
Lastly, searching units demonstrated a preference for accessing subsidiary partners as a source of external
knowledge. For instance the Medical Device firm had strong relationships with their US based headquarters,
which was fostered by an employee exchange programme. This important knowledge sharing relationship was
reflected in both the Consumer Healthcare and Biotechnology firms also. Essentially, sharing knowledge with
subsidiary partners should pose less risk, than sharing knowledge with external parties outside the network. In
addition, Powell et al (1996) find that firms sharing knowledge more frequently in their network, gain more
experience at knowledge sharing and are more likely to form new and diverse knowledge ties, and in turn
become dominant players in the subsidiary network. Of course, it is possible that continuing to share
knowledge within a subsidiary network can create over embeddedness and risk aversion among network
members (Brass et al., 2004), as well as a lack of diverse knowledge (Baum et al., 2000). The importance of
subsidiary partners as a source of external knowledge is of course, a reflection of the context of this study.
External Search Frequency
Classic models of search discuss search in punctuated equilibrium terms (Levinthal and March, 1981; Nelson
and Winter, 1982), whereby search actions happen within specified search periods, each search period begins
once the outcome of a previous search period has been identified and ends once an increase or decrease in
performance has been detected, thus implying that the adoption of one successful search outcomes per
period should be sufficient (Levinthal and March, 1981). In this study external search is found to be an ongoing
activity. The frequency of external search does not remain constant however and is interrupted at times by
higher and lower levels of activity. In all cases searching units were continually involved in either emergent or
reactionary external search activity. As one engineer commented, I
not split it out, for me it is an
T
focus on firm level search action, and their limited analysis of micro level search actions. This closely reflects
recent theorising in organisational change, which calls for recognition of micro level agents of change and a
conceptualisation of change as transformational and continual (Tsoukas and Chia, 2003).
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4. Discussion and implications

External search activity is an understudied domain, but one that is likely to be both managerially important
and rich in theory building insights. In this paper we provide initial empirical documentation of the external
search process an activity aimed at the motivated problem-solving and at times arbitrary location, of
knowledge held by external sources. External search is the mechanism by which firms seek knowledge to
replenish their internal stocks. In our comparative analysis of three large multinational firms, external search
was found to be an ongoing and valuable activity. Based on this analysis we also develop a framework of the
external search process followed by searching units.
5. Theoretical contributions
The central contribution of this research is the distinction made between internal and external search by
investigating external knowledge search specifically. Existing literature on search makes no such distinction,
implying that the characteristics and drivers of one are commonplace for both (e.g. Mezias and Glynn, 1993;
Stuart and Podolny, 1996).
As evidenced by Allen
even the largest R&D labs

, thus highlighting the
central role of external knowledge acquisition in successful R&D performance. Despite this however, studies
detailing external search as part of the innovation process are limited. Therefore, this line of research is
especially important as the organisation field tries to develop more answers to the question of how new
knowledge is created in the face of the declining value of internal R&D systems.
From an empirical perspective, this research follows McNamara and Baden-Fuller (1999) who call for more
case based research on search issues, by the adopting interpretivist methods as a novel approach within the
organisational search field, which to date is dominated by stochastic modelling and the use of firm level survey
data (e.g. Levinthal and March, 1981; March, 1991; Stuart and Podolny, 1996; Katila, 2002).
6. Managerial implications
An improved understanding of external knowledge search activity has managerial implications. Technology
managers who plan search actions and assign resources to search can possibly benefit from understanding the
importance of external search to the firm. Mastering external search activity can provide a source of additional
value for the organisation, since current research proposes that most organisations require supplementary
external knowledge, driven by a need to innovate across an ever-broadening technological base (Hargadon,
2003; Chesbrough, 2003). Developing a systematic conception of external knowledge search can help to
structure and focus search efforts, and create an environment conducive to targeted innovation and inward
knowledge transfer. As according to Appleyard (2003: 137), it is only through an improved understanding of
the mechanisms and determinants of knowledge flows, that ompany managers and public policy makers can
influence
.
Of course, the managerial implications outlined above assume the firm is willing to create the permeable
boundaries necessary for the large scale acquisition of external knowledge at all levels. There also exists the
possibility that the opposite is the case, and the firm is in fact attempting to limit external influence and
protect firm resources from external parties. In this instance, managers can follow three paths when
protecting internal knowledge resources. Firms can seek to access external knowledge through more
formalised external search channels, such as formal alliances, within which safeguards to protect internal
knowledge can be accounted for. In addition, managers can empower employees to act as the protectors of
further re-enforced through penalty systems, as is the case in many large organisations. Lastly, managers can
attempt to supplement inter-personal knowledge sharing by providing access to external knowledge through
non-personal sources such as comprehensive databases, journal subscriptions and the internet. As according
to Grimpe and Kaiser (2010)
firms engaged in externalised R&D activity.
7. Limitations and future research

We identify limitations and areas of improvement congruent to our framework. A central exclusion is the
failure to conduct research with the search targets and partners mentioned in all three case studies. In this
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instance, the perspective of external search is always from the searchers point of view and is therefore not
fully inclusive. A second improvement on the present research should be the implementation of a larger study.
An obvious extension of this research is to use the presented framework of external knowledge search to
structure an explanatory study with additional case firms. An explanatory study should allow future research
to move towards the identification of a model of external knowledge search.
In addition there are multiple possibilities for future research. This research presented a view of external
searching units as problem solvers. One interesting question for future work is to study the impact external
kn
F
ability can be strongly linked to the variance of their external ties provides an interesting avenue for future
research.
In sum external search actions need not be considered random or intangible. The study shows that they can be
studied comprehensively, and that it is possible to characterise the ways in which search units plan and
execute their external search for knowledge. This line of research is especially important as the organisation
studies field seeks to develop answers to the question of how new knowledge is created in the face of the
declining value of internal R&D systems.
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Real Options in the Valuation of Intangibles: M
Beln Vallejo-Alonso, Gerardo Arregui-Ayastuy, Arturo Rodriguez-Castellanos and

Domingo Garca-Merino
Universidad del Pas Vasco, Bilbao, Spain
belen.vallejo@ehu.es
gerardo.arregui@ehu.es
arturo.rodriguez@ehu.es
josedomingo.garcia@ehu.es
Abstract: The aim of the present is to verify the degree of applicability of the financial valuation method developed by
Rodrguez-Castellanos et al. (2006a, 2007) for the valuation of real option-based intangibles in the Spanish region of the
Basque Country. The field study consisted on a telephone survey of CFOs in a random sample of Basque Country
s,
selected using segmentation criteria based on size and business sector. Considering the 517 replies received it is stated
that, despite three of every four CFOs answering that options were included in their intangibles, approximately one of
every five is actually capable of identifying such options. When we consider the difficulties encountered in estimating the
ly
the method proposed for the valuation of real option-based intangibles, which means a preliminary phase of analysis and
diagnosis is required before the method can actually be applied in practice. The present paper makes a substantial
tudy that tries to verify the utility of a method for the financial valuation of intangible
resources to take into account the associated real options. It could be useful from an academic and managerial point of
view.
Keywords: real options, intangible resources, core competencies, financial valuation, intellectual capital,
intangible valuation
1. Introduction1
The management of intangible resources also called intangiblesis a major preoccupation for businesses
2
today. Knowledge-related resources, also called intellectual capital , give particular cause for concern (Hussi,
2004; Kaufmann and Schneider,
T
resources is often
greater than its material assets. However, the value of most intangibles does not appear on the financial
statements, largely because the lack of transparency and the absence of a benchmark market make it difficult
to value them (Lev and Zarowing, 1998).
bles is unnecessary, because

the market does this through the valuation of
securities. However this approach does not solve the
problem of individual intangible valuation. Besides, to apply such valuation to non-quoted companies
always necessary the arguable reference to similar quoted companies. A further problem is that such
reference is based on the equally questionable assumption that the stock market is continuously efficient.
Intangibles, and knowledge-related intangibles in particular, are vital to the generation of competitive
advantage and value creation in firms (Hall, 1992; Teece, 1998). The obvious limitations of the information
provided by stock markets encouraged research in identifying and valuing business intangibles. The growing
store of knowledge on intangibles and their valuation is helping to reduce information asymmetries on the
market. It also helps to improve the way a company manages its intangibles, enabling it to assign its assets
more efficiently and give greater guarantees when looking for financial resources (Rodrguez-Castellanos et al.,
2006a).
The search for true and simple methods and models for the financial valuation of intangibles is not easy. We
consider more appropriate the models which combine cash flow discounts with the real options approach.
[1]
The paper includes results from the University-Business Research Project UE05/A24, financed by the University of the Basque Country
(UPV) and the Management & Finances Forum. This is an association of CFOs from leading firms in the Basque Country.
[2]
The concept of intangible is wider than intellectual capital, since it includes resources as corporate image, shared values, and so on, that
not are referred directly to knowledge (Seetharaman et al., 2002). But most of intangibles include combinations of knowledges, emotions,
values and desires, for what many authors use the terms intellectual capital and intangibles as synonymous (Lev, 2001).
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Reference this paper as: Vallejo-Alonso, B, Arregui-Ayastuy, G, Rodriguez-Castellanos, A and Garca-Merino, D.
Real Options in the Valuation of Intangibles: M
P
The Electronic Journal of Knowledge
Management Volume 11 Issue 2 (pp168-182) available online at www.ejkm.com
These methods allow bearing in mind the possibility of some intangible having an additional value because it
contains real options. These proposals are based on the distinction between the effect of intangibles on a
co
current earnings and the possibility of a positive influence on company earnings in the future.
Most attempts at implementing intangible valuation models have involved large companies. Very little
research has focused on valuation methods and models that might also be applicable to small and medium
enterprises. As Andriessen (2005) notes, research seeking to compare and contrast the potential for the
h their
validity and applicability is clear. This is especially true in case of real option approach because of the major
technical complexity of the method, as compared with the traditional models.
The present paper focuses on verifying the applicability of the model developed by Rodriguez-Castellanos et al.
(2006a, 2007) for the financial valuation of intangible, taking into account the associated real options. It is part
of a wider research programme undertaken with members of the Management & Finances Forum.
The main concern of the study is to know if the CFOs are conscious about the possibility of some intangible
having an additional value because they contains real options, and if CFOs are able to identify them and
quantify the parameters required to value the identified options. It has directly used the opinions of a
representative sample of firms from all sectors of business and company sizes, facilitating comparisons in size
and sector.
The results show that very few firms are likely to be in a position to a direct application of the real optionbased valuation method. Only one in every five firms was capable of identifying intangible-related options.
Roughly half of these would not be able to estimate any of the required inputs. I
that in most cases
a preliminary phase of analysis and diagnosis would be required before the method could be applied
practically. The complexity of the preliminary phase would
about the intangibles and the options associated with them.
Section 2 of the paper provides a review of the main contributions on the financial valuation of intangibles.
This section pays particular attention to the real options approach. Section 3 summarizes the intangible
valuation method used as a reference herein. Section 4 presents the methodology used and the way the firms
were selected. Section 5 shows the results of the empirical study. Conclusions are given in section 6.
2. The financial valuation of intangibles

2.1 Some approaches
Research on the assessment of intangibles that began in earnest in the 1990s focused principally on
measurement. Measurement performs two tasks: first, it seeks to identify and classify intangibles, i.e. to
discover what types of intangibles there are in particular firm, which of them are generators of core
competencies and how they interrelate. Second, it searches for indicators to measure them, to see how they
develop and when
benchmark organizations. These indicators are mainly ratios. This means the measurement of intangibles has
basically been approached in non-monetary terms. Contributions by Brooking (1996), Edvinsson and Malone
(1997), Kaplan and Norton (1997), Roos et al. (1997), Sveiby (1997) and Bueno (2003) are of particular interest.
intangible resources. This is what

.
3
Methods used fall into three groups :
ones based on the assumption of stock market efficiency (Rodov and Leliaert, 2002),
ones based on cash flow discount, including Khoury (1998), Andriessen and Tissen (2000), Lev (2001), Gu
and Lev (2001), Andriessen (2004), Rodrguez-Castellanos et al. (2006a, 2007) and McCutcheon (2007),
ones based on the options theory, e.g. Pakes (1986), Newton and Pearson (1994), Mayor et al. (1997),
Kossovsky (2002), Bose and Oh (2003) and Rodrguez-Castellanos et al. (2006a, 2007).
[3]
For a more extensive debate on the subject, see Rodrguez and Araujo (2005).
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Beln Vallejo-Alonso et al.
All three have advantages and drawbacks . The search for true and simple methods and models for the
financial valuation of intangibles is not easy. Between the existing methods we have choice the
financial valuation method propose by Rodrguez-Castellanos et al. (2006a, 2007), that is appropriate for
valuing the intangibles of large companies, and also small ones where large databases are nor available. This
method combines cash flow discounts with the real options approach. This combination is based on the
current earnings (valuation as basic project) and
the possibility of a positive influence on company earnings in the future (valuation as real option). The
possibility lenfof both situations occurring at the same time is also admitted.
2.2 The real options approach

Originally conceived to value options on financial assets (financial options) (Black and Scholes, 1973; Merton,
1973), the options valuation methodology was rapidly adapted to the valuation of other assets. These included
investment projects and tangible assets, leading t
Dixit and Pindyck, 1994; Kogut
and Kulatilaka, 1997; Amram and Kulatilaka, 1999).
A real option is a right not an obligation- to take an action on an underlying nonfinancial, real asset. Real
assets may include real state, projects, intellectual property, etc. most of which are not usually traded. If the
action taken is to buy the underlying asset (new investment or increasing exiting one) is a call option.
Otherwise, if the action is to sell the underlying asset (
Further, the underlying characteristics of these options can also be applied to knowledge-related resources
and other intangibles, thereby facilitating their valuation as options (Kogut and Kulatilaka, 2001; Bose and Oh,
2003; Andrikopoulos, 2005).
If knowledge is considered as an asset, and different option categories are very often found in all kinds of
assets, the options valuation model can be applied to knowledge. Indeed, some elements of intellectual capital
clearly have option characteristics. Patents, for example, may be considered as call options, as they give the
right, but not the obligation, to exploit a product commercially (Pakes, 1986: Damodaran, 2002; Bose and Oh,
2003). The same is also true, in general, of intellectual property (Kossovsky, 2002) and even of R&D (Mitchel
and Hamilton, 1988; Newton and Pearson, 1994, Bodner and Rouse, 2007), IT (Benaroch, 2002) or market
research (Mayor et al., 1997). The options approach may also be used to analyze and valuate the flexibility of
industrial organization (Nembhard et al., 2005), human resources management (Bhattacharya and Wright,
2005) and human resources training (Jacobs, 2007).
Therefore, the real options approach gives a framework where knowledge-related resources can be better
valued, including their options characteristics (knowledge options). The options valuation methodology
(formulae, parameters, and so on) has been devised and developed to value financial options, and therefore
must be adapted to the real asset context. The valuation of knowledge options cannot ignore the major
differences between these options and financial options, showed in Table 1. The uncertainty associated with
their main features, pointed out in Table 1, i.e. the value and volatility of the underlying asset, exercise price
and expiry date, makes it much more difficult to value knowledge options.
If the logic of financial options is strictly applied to the valuation of knowledge options, wrong decisions may
be taken on the exercise of the last ones (Coff and Laverty, 2002). In knowledge options, there is a fair degree
of autonomy to decide when the option should be exercised. However, while uncertainty over financial
5
options totally dissipates when the option is exercised , uncertainty may persist even when knowledge-based
options are exercised. This is because, at the moment the option is exercised, manager receives weak signals
about whether the desired competitive advantage will be achieved, i.e. about the value of the underlying
6
asset .
Uncertainty also exists about the exercise price. When a knowledge option is acquired, the exercise price is
usually unknown. The attendant uncertainty can only be reduced by increasing the (often tacit) knowledge.
Therefore, decision-makers may be tempted to delay systematically the decision to exercise the option.
[4]
Rodrguez-Castellanos et al. (2007) provide a review of methods for the financial valuation of intangibles.
Exercise price and exercise date are established beforehand. This eliminates uncertainty at the moment the option is exercised.
[6]
These signals may include glimpses of the evolution of technological knowledge, threats of rival firms entering, the skills of workers
required to launch the project, etc.
[5]
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Objective signals about the suitability of the decision are rarely forthcoming. Although such delay may reduce
uncertainty, missed opportunities may also have harmful effects for the firm in a highly competitive
environment.
Table 1: Differences between financial options and knowledge-based options
Facet
Initial uncertainty about value of a
full-scale investment
Underlying asset value
Financial option
Increases the value of purchasing an
option
Financial asset is traded in a
competitive market and its current
value is well known
Fully specified: variation is available
for publicly traded securities
Knowledge option
Increases the value of purchasing an
option
Idiosyncratic knowledge-based asset
lacking a competitive factor market is
hard to value
Lack of competitive market thwarts
calculating variance of value of the
underlying asset
Typically unknown at the time option
is established
Ex ante specification of exercise price
Fully specified in option contract
Ex ante specification of date option

expires
Fully specified in option contract
Typically unspecified and flexible
Implication for option purchase

decisions
Determine the value of purchasing

options using rigorous option pricing
models
Apply real option heuristics or

frameworks in lieu of applying formal
pricing models
Source: Coff and Laverty (2002, p. 36)

Another major factor differentiating knowledge options from financial options is the dependence of
knowledge on other company resources. Knowledge management seeks to share knowledge. The aim is to
spread knowledge throughout the organization to assure it generates as much value as possible. This
complicates hugely the exercise of knowledge options. If a knowledge option is abandoned, the firm loses
what it cost to acquire (or build up) the option, but the company also incurs additional costs. It has to
disassemble the structures, processes and routines created to integrate the knowledge in the organization.
Abandonment costs are very difficult to anticipate, as they depend on the links associating the project with
other resources and routines, which evolve over time. The more integrated a knowledge option is with other
resources, the higher the costs incurred by the company by allowing the option to expire.
Delay in exercising options combined with the growing cost of eventually abandoning them may induce bias in
the exercise of options. If a decision to exercise or abandon an option has to be made and the cost of
abandonment has greatly increased, it will probably seem better to exercise rather than abandon. Ultimately,
more knowledge options would be exercised that the optimum.
A company can make the mistake of rejecting attractive projects if it applies the discounted cash flow model
exclusively to valuate knowledge-based investment projects. By not valuating the knowledge options the
projects might include, investments are likely to be lower than required. But the automatic application of the
logic of financial options to knowledge options raises the risk of embarking on too many projects. Caution is
therefore required when applying the logic of financial options to knowledge options.
3. Method for financial valuation of intangibles as real options

3.1 Benchmark method
For our empirical analysis, we take into account the method of financial valuation of intangibles proposed by
Rodrguez-Castellanos et al. (2006a, 2007). This method is based on a specific taxonomy that distinguishes
, as intangible resources generators of value in business.
Intangible assets are taken to be those assets of a company that do not have a physical basis, and which are
codified the relevant rights or the
results generated
have to be established by means of a contract, a regulation or some other deed of right. Patents, concessions,
trademarks, licences and so on are therefore intangible assets.
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Core competencies are those corporate characteristics or factors that give the firm a more or less sustainable
competitive advantage over its competitors, generating significant value or benefit for the client (Hamel and
Prahalad, 1994). We consider core competencies to be the main source of value in the company. The
associated value depends on factors such as its sustainability and the degree of appropriability by the company
of the results generated. They are usually associated with some knowledge category, particularly of a tacit
type.
The method is designed to identify and quantify intangible resources in monetary terms. It assumes that
intangible business value is to be found esse
A
and Tissen (2000), Viedma (2001) and Andriessen (2004). It is therefore mainly oriented towards such
competencies.
According to the type of intellectual capital to which they are associated, core competencies are classified as
related to Human Capital, to Structural Capital and to Relational Capital.
The method:
starts from a strategic analysis of the firm to identify its core competencies.
facilitates the individualized valuation of intangibles.
is based on the discounted cash flow and real option valuation models. The election of the specific
valuation model depends on the temporal dimension of the returns associated with the intangibles.
considers standardized information from the financial statements and the perceptions of managers to
maximize the information available for valuation.
explicitly includes the possible existence of synergies between intangibles.
is appropriate for the valuation of intangibles not only in large companies, also in small ones, non-quoted
and/or that do not have large databases.
This paper only analyzes the degree of applicability of the method of valuation of intangible resources as real
options.
3.2 Intangible resources as real options

A core competence or an intangible asset includes real options if the present possession or availability of that
competence or intangible asset may affect company earnings in the future. The effect may be because it will
permit the future acquisition of other assets or competencies, or because it will enable investment projects to
be implemented in the future. In this case, they are investment or growth options, that are characterized like
call options. The exercise of call options involves a payment to buy the underlying asset or to develop the new
investment or the new core competence. However, the effect on future earnings could be related to the exit,
total or partial, from an investment or current core competence, that are characterized like put options. The
exercise of put options involves giving up receiving future cash flows and obtaining the sale value of
investment.
Though it is not possible to reject, a priori, that the analyzed core competence or intangible asset contains
options related to decisions of disinvestment, the model takes into account the options associated to a growth
strategy, which carries the acquisition or incorporation of new assets, that is, call options.
Nevertheless, the characterization of these real options is not easy. First, the underlying assets need to be
established. That is, the assets, competencies or projects that the current holding of the assets or
competencies in question will enable the company to acquire or pledge in the future have to be identified.
7
8
Then, to value the real option is necessary to estimate several parameters related to these underlying assets ,
wich is even more difficult. Such parameters include the moment in the future when the option can be
exercised, the exercise price, the value of the underlying asset and its future volatility.
T
B
The only one of the basic parameters in the valuation of real options that is not related to the characteristics of the underlying is the risk
free rate.
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The first parameter involves estimating the time required for the new asset, competence or potential project
to be developed. The date is clearly associated with the exercise of the option, because then the decision has
to be taken on whether to take advantage or not of the potential benefits of the newly available asset,
competence or project. In conventional option terminology, this is the exercise date of the option.
An estimate is also required of the future cost of acquiring the new asset, generating the new competence or
undertaking the new project. At the moment the option is exercised, the acquisition of assets or
competencies, or the start of a project must have some cost. Otherwise the value of the option would simply
be the current value of the underlying asset. So an estimate is needed of the cost required by exercising the
option, i.e. the exercise price.
We must also estimate the impact, and its sustainability, of the new asset or competence on net company
earnings. This facilitates the calculation of the value of the underlying asset, i.e. the expected value, at the
exercise date, of the new competence, the new asset or the new project. To do this we need to estimate its
nd for how long they will continue; so that, suitably
discounted, they provided the expected value.
A decisive feature in the characterization of an option is the degree of risk associated with it. Uncertainty
about the value of the future asset, competence or project is the key aspect of the value of options. Thus,
volatility is an essential element in option valuation. The nature of the underlying assets considered makes
estimating real option volatility difficult. CFOs were therefore given the opportunity to answer using a Likert
scale, from 1 to 5, that would be
into a quantitative estimate by the valuation team.
4. Methodology and sample selection

4.1 The questionnaire9
A field study was proposed to find out what companies thought about the financial valuation of intangibles
and the degree of applicability of the method under review.
Data were collected via telephone survey. The questionnaire was submitted to a pre-test with members of
Management & Finances Forum to identify problems regarding the interpretation of items. The definitive
1. Questions 1 to 7 explore the importance of financial valuation of intangibles for firms in the Basque Country
and the reasons for that importance.
2. Questions 8 to 13 provide information about the applicability of the financial valuation model for the
3. Questions 14 to 20 analyze
real option that this paper refers.
s as
4.2 Selecting the population

The study concentrated on firms of the Basque Country, an Autonomous Community of Spain, using selection
and segmentation criteria based on size and business sector.
The territory was chosen for several reasons. Situated in the north of Spain, the Basque Country is a region
with legislative capacity in certain areas and its own government. With a population of just over two million,
the region accounts for roughly 5% of the Spanish population. The region has tax autonomy, collects all taxes
and has the capacity to establish tax characteristics. It has suffered from a prolonged lack of natural resources,
and
Despite these
drawbacks, it has one of the strongest industrial and business traditions in Spain. The economic crisis of the
1970s and 80s badly affected the major industries, and today SME provide the backbone of Basque business.
In the aftermath of the crisis, commerce and services developed strongly. SME today employ 60% of the active
population (Rodrguez et al., 2003). The lack of natural resources and economies of proximity should make
Basque firms value their intangible resources more highly.
9
The appendix shows the questions of the survey related to the analysis of this paper.
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Inform
ABI
M
turnover) were excluded from the initial population of 44,637 companies as being too small. This cut the
population under consideration to 3,477.
Three criteria for size are habitually used: the number of employees, turnover and total assets. We chose the
first one as being more stable over time and less subject to temporary factors. The population was subdivided
into 2,451 small, 813 medium and 213 large companies.
To guarantee a minimum number of observations in each subgroup, businesses were grouped into four large
sectors: (1) Primary, (2) Industry, (3) Construction and (4) Commerce and Services, subdividing the population
into 34 businesses in the primary sector, 1,371 in industry, 447 in construction and 1,625 in commerce and
services (Table 2).
Table 2: Distribution of population by size and sector
SMALL
MEDIUM
LARGE
Total Sector
PRIMARY
24
34
INDUSTRY
881
394
96
1,371
CONSTRUCTION
332
97
18
447
COMMERCE & SERVICES

Total Size
1,214
2,451
313
813
98
213
1,625
TOTAL: 3,477
4.3 Obtaining the sample

We obtained a random sample of 517 companies. This gave a confidence level of 95% and a maximum level of
error of 4%. Table 3 shows the minimum number of questionnaires to be answered in each size and sector
segment to comply with the desired levels of error and significance and the questionnaires answered.
Table 3: Distribution of sample by size and sector
SECTOR
Population
Target sample
Primary
Industry
Construction
Commerce and services
SIZE
Small (10-49)
Medium (50-499)
Large (500)
34
1,371
447
1,625
30
173
137
176
Questionnaires
answered
18
184
118
197
2,451
813
213
182
159
103
241
222
54
M
Lar C
P
C
the questionnaire being sent to all firms in these segments. The total sample size required (517
questionnaires) was reached by increasing the sample in the other segments.
A Call Centre conducted the field work trying an average 2.6 contacts with firms answering the questionnaire.
Prior to the survey,
CFO
Table 4 summarizes the basic characteristics of the study.
Table 4: Technical details of study
Population
Sample
Sample segmentation
Random error
Data collection technique
Calendar
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3,477 companies domiciled in the Basque Country

517 valid questionnaires to CFOs
Size and sector
For the entire sample, random error of 4%, with
confidence level of 95%, p=q=0.5
Telephone survey of CFOs
20 November 2007 to 14 January 2008
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The answers obtained were subjected to a descriptive analysis, including the use of non-parametric tests
depending on the characteristics of each question. Since the results relative to the third section of questions
2
are given as qualitative distributions, the statistic was used to perform the contrasts.
5. Results
5.1 Future development of new assets or competitiveness factors from current intangibles
The third section of questions began by enquiring about the possibility of some intangible resources having an
I
CFO
key competitiveness factors, whether in isolation or combined with others, might permit the development in
the future of new assets or competitiveness factors.
70.2% of CFOs answering the questionnaire considered there were options in their intangibles. However
69.1% of CFOs answering positively said they were unable to identify them. In short, just 21.7% of all CFOs
answering the questionnaire considered options existed and was capable of identifying them. These results
show that most of CFOs thinks that the intangibles have associate possibilities of future developments with
characteristics, but the majority is unable to specify or identify them. A possible explanation may be
that they ignore the real options framework or because even knowing it they consider that its application
could be too complex and / or costly.
These findings are coherent with the scarce literature about the use by CFOs of the real options approach in
analyzing and valuating business investments. Busby and Pitts (1997), analyzing how financial managers in the
UK perceive real options, state that very few firms integrate the real options approach in their decision-making
processes, although, in general terms, they are taken into account. Lander and Pinches (1998) point out the
real option model has not been as widely used in companies the expectations predicted. Andrikopoulos (2005)
concludes that CFOs had to understand the real options approach before they could use it to evaluate and
manage knowledge-based assets. The technical complexity and limitations of the methods used hindered
mastery of the method. Consequently, CFOs prefer to use other procedures, such as discounted cash flow or
EVA, in the evaluation of knowledge-based assets.
Taking into account the segmentation by size, 67.2% of small enterprises considered their intangibles could
potentially facilitate the development of new assets or competitiveness factors in the future. The proportion
increased to 80.6% in medium enterprises and to 70.4% in large firms. However, only 27.8% of CFOs at small
companies, 31.3% at medium enterprises and 44.7% at large companies were able to identify these future
opportunities. As Table 5 suggests, just 18.7% of all small firms, 25.2% of medium enterprises and 31.5% of
large companies considered there were options associated with their intangibles and were in a position to
identify them, being the differences significant to 10%. Large firms are clearly more aware of their intangibles.
This may be due to the fact, as Salojrvi (2004) noted that they have greater resources available to identify and
manage them.
More CFOs at companies whose key competitiveness factor was linked to structural capital said there were
options associated with such capital (80.7%), as opposed to CFOs at firms whose key competitiveness factor
was associated with human capital (73.5%) or relational capital (65.4%). A greater proportion of the first
group, 35.4%, declared it was able to identify the options associated with intangibles, as opposed to 28% in the
second group and 26.4% of the third. These differences were significant to 10% between structural and
relational capital. Significant differences in the other comparisons were not found. We did not find a
theoretical basis to explain this difference. We believe, however, this is due to the fact that larger firms (which
claim to be able to identify options to the greatest extent) give greater importance to structural capital. This
may in turn be because they have a greater need to generate mechanisms to transfer knowledge and
competencies
A larger percentage of CFOs in the commerce and services sector was able to identify future assets or
competitiveness factors (Table 5). However, the differences are not statistically significant.
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ACPIL
The rest of the analysis only took account of the answers from the 118 firms in the sample able to identify such
options, so as to verify the applicability of the real option approach. Data for this sub-sample, segmented by
sector and size, is given in Table 5:
Table 5: Ability to identify options by size and sector
SECTOR
Primary
Industry
Construction
Commerce and services
SIZE
Small
Medium
Large
Questionnaire
sample
18
184
118
197
Capable of identifying
options
3
35
26
54
16.7%
19.0%
22.0%
27.4%
241
222
54
45
56
17
18.7%
25.2%
31.5%
As this is a sub-sample of the population surveyed, sample error increased to 8.87%. Subsequent conclusions
must therefore be treated with caution. However, the results are of interest for guiding further research.
From this point on, the items in the questionnaire were oriented towards finding out whether the CFOs
surveyed could actually quantify the parameters required for value the identified options: exercise price, the
moment when the option may be exercised, the value of the underlying asset and its future volatility.
5.2 Need for new investments for developing new assets or competitiveness factors
In some cases, the option implicit in the intangible resource may be a put option. However, in our model we
considered, in general, that for the new asset or competence to materialize some investment would be
required. It would therefore be a call option. A further question was whether it would be necessary to
undertake new investments to develop the new assets or competitiveness factors. 92.4% of CFOs surveyed in
this sub-sample considered new investments would be required. Only 46.8% of them were capable of saying
how much the investment would be. No significant differences were found depending on any of the
segmentation criteria (size, sector or type of intangible resource). Only 51 companies, of the 379 that
considered options existed, was able to identify them and say how much the exercise price would be. That is
only the 13.5%. The fact that less than 10% of all CFOs surveyed felt able to do this shows how difficult it is to
use an options approach directly in intangible valuation.
5.3 Time required developing new assets or competitiveness factors

The next question was how long it would take to develop the new resource. 11% was incapable of determining
the time needed or did not replay. However, a majority (55.9%) considered the period to be less than 3 years.
32.2% forecast a period of between 3 and 5 years. Only one company estimated a period longer than 5 years,
having been incapable of determining the investment required in the previous question. The results show a
Time is in fact the main brake on the imitability of a competitiveness factor. In the light of these results,
companies planning to develop new resources associated with their intangibles would not able to delay such
10
decisions too long .
Table 6: Time needed to develop options depending on type of intellectual capital
Human Capital
Structural Capital
Relational Capital
TOTAL
< 3 years
38.1%
67.6%
56.8%
55.9 %
3 to 5 years
47.6%
23.5%
31.8%
32.2%
> 5 years
4.8%
0%
0%
.8%
Impossible to say
9.5%
8.8%
11.4%
10.2%
Human capital-associated intangibles needed more time to develop new assets or competitiveness factors.
47.6% of firms whose key competitiveness factor was linked to human capital considered a period of 3 to 5
years would be necessary, as opposed to 23.5% whose factor was linked to structural capital and 31.8% when
[10]
So it would seem that

does not take place.
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it was associated with relational capital. Only the difference between the first two was significant to 10%.
Several studies suggest human capital usually only impacts on company results indirectly, by way of structural
and relational capital. It is therefore reasonable to assume the generation of new resources in human capital
takes longer. Statistically significant differences were not found in answers to this question as regards size and
sector.
5.4 Calculating returns generated by new assets or competitiveness factors

The main return from future assets or competitiveness factors developed from current intangibles would be an
increase in sales (83.9%) and a reduction in operating costs (61.9%). Just 29.7% felt there would be an increase
in sales price and 49.2% a reduction in non-operating costs.
The new resources emerging from structural capital-associated intangibles would generate a reduction in
operating and non-operating costs in the view of 85.3% and 61.8%, respectively. Table 7 shows structural
capital is most closely related to internal aspects of a company. However, considering the type of intangibles,
the only statistically significant difference, in this case to 1%, comes in answers concerning the reduction of
operating costs.
Table 7: Improvements generated by new intangible resources according to type of intellectual capital
Human Capital
Structural Capital
Relational Capital
TOTAL
Operating costs
52.4%
85.3%
47.7%
61.9%
76.2%
85.3%
88.6%
83.9%
38.1%
14.7%
36.4%
29.7%
Non-operating costs
52.4%
61.8%
36.4%
49.2%
The value of the new resource developed from a current intangible is determined by the returns it can
generate. CFOs were asked if they could estimate these returns and the period during which they could be
obtained. 45.7% of them would be able to calculate the returns. 64.7% of these CFOs are from larger
companies and 42.6% from SME. These results suggest that large companies know their intangibles better and
the elements associated with them. Once again, firms whose main intangible is associated with human capital
have greater difficulty in quantifying returns, with 33.3% of positive answers, being this percentage 47.1% in
firms with intangibles related to structural capital and the 50% whe
relational
capital In none of the criteria were the differences in answers statistically significant.
5.5 Sustainability and variability of yields generated by new assets or competitiveness factors
The final two questions were answered only by CFOs capable of estimating returns that comprised 54
companies. 29.6% of this firms said such returns would be obtained for fewer than three years. 31.5%
reckoned on three to five years and 27.8% established a period longer than five years. Table 8 shows a trend
towards longer periods when the intangible with which the options are associated is linked to human capital.
With structural capital the trend is towards shorter periods. Differences in return periods depending on the
type of intangible were significant to 10%.
Table 8: Sustainability of returns from new intangibles depending on type of intellectual capital and the total
Human Capital
Structural Capital
Relational Capital
TOTAL
< 3 years
0%
50%
22.7%
29.6%
3 to 5 years
42.8%
31.3%
22.7%
31.5%
> 5 years
28.6%
18.7%
36.4%
27.8%
Impossible to say
28.6%
0%
18.2%
11.1%
The last question refers to the volatility of returns generated by the new resource developed from a current
intangible. 44.5% of CFOs would be capable of estimating the variability of such returns using quantitative
methods and 37% using a Likert scale. Only 18.5% would not be capable of doing it or did not reply. It must be
underlined the high percentage of CFOs (81.5%) capable of estimating this parameter, considering that it is
probably the most difficult to estimate. The firms answering this question in the affirmative had already shown
a greater degree of knowledge of their intangibles. Ultimately, they only account for 8.5% of sample
companies.
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ACPIL
No statistically significant differences were found regarding either the type of intangible, sector, or size.
Curiously, the largest percentage of firms that stated they were capable of estimating volatility using
quantitative methods were small businesses (50% as opposed to 45.5% of large firms and 39.1% of medium
enterprises). Firms claiming their principal intangible was linked to human capital also said they were more
capable of estimating volatility using quantitative methods (57.1% as opposed to 45.5% link to relational
capital-related and 43.7% link to structural capital).
6. Conclusions
Intangibles have become the basic resources for generating competitiveness advantages and one of the main
challenges in the field of business management. Management of intangibles faces numerous difficulties,
mainly due to lack of information, which is precisely the result of their intangible nature. The value of most
intangibles does not appear on the financial statements, largely because the lack of transparency and the
absence of a benchmark market make it difficult to value them.
M
A
current availability may affect future net income, either because it allows other resources to be acquired in the
future, or because it allows investment projects to be carried out in the future. Therefore, the real options
approach gives a framework where intangibles can be better valued, including their options characteristics.
The search for true and simple methods and models for the financial valuation of intangibles is not easy. The
research seeking to compare and contrast the potential for the practical application of valuation methods
appropriate to small and medium enterprises is scarce, even though the need to establish their validity and
applicability is clear. This is especially true in case of real option approach because of the major technical
complexity of the method, as compared with the traditional method.
The present paper focuses on verifying the applicability of the model developed by Rodriguez-Castellanos et al.
(2006a, 2007) for the financial valuation of intangible taking into account the associated real options. The main
concern of the study is to know if the CFOs are conscious about the possibility of some intangible resources
having an additional value because it contains real options, and if they are able to identify them and quantify
the parameters required to value the identified options. It has directly used the opinions of a representative
sample of firms from all sectors of business and company sizes.
The first interesting point is the high percentage of CFOs surveyed who thought options were contained in
their intangibles (70.2%). However, only 21.7% said they would be capable of identifying them. The ability to
identify options in intangibles is greater in large companies and in those whose key competitiveness factor was
linked to structural capital. When CFOs were asked to quantify the investment necessary for the potential new
asset or competitiveness factor to materialize, the difficulty in using the options approach in the valuation of
intangibles became clear. Less than 10% of CFOs surveyed said they could do it.
The 55.9% of firms, that are able to identify options, felt they needed less than three years to develop the new
opportunities associated with their principal intangibles. 88.1% of the CFOs said their firms would not need
more than 5 years. This gives an idea of the high degree of immediacy in the appearance of new opportunities.
The term of development for new competitiveness factors was shorter when the intangible was linked to
structural capital. Human capital-based intangibles required more time.
Results for new resources developed from current core competencies or intangible assets mainly involve
increases in sales and reductions in operating costs. Companies whose main competence was associated with
structural capital thought to a greater extent that the new resources would lead to reductions in operating and
non-operating costs. Large firms claim to be more capable than SME of quantifying the returns yielded by the
future resources. Companies whose main intangible was linked to human capital appeared to have the
greatest difficulty in quantifying such returns. Only 10.4% of CFOs surveyed said they could identify options in
their intangible resources and quantify the returns the underlying asset would generate.
The CFOs that could quantify the returns also answered about their sustainability and variability. The response
to how long such returns could be maintained was distributed uniformly over a period of three to five years.
Longer terms were considered when the intangible the options are associated with was linked to human
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capital. The 81.5% of these CFOs claimed they were capable of estimating the volatility. There were no
statistically significant differences depending on the type of intangible, sector or company size.
This research shows that most of the CFOs surveyed consider that there are options associated to intangibles,
although very few companies are suitable for a direct application of the real option-based valuation method.
Only one in every five firms was capable of identifying intangible-related options. Roughly half of these would
not be in a position to provide the estimates for any of the inputs required.
O
the real options framework is unknown for the
managers, or even knowing it they consider that its application could be too complex and/or costly. This could
be especially true in the SMEs where the management is less professionalized. In this respect, larger firms
surveyed, which usually devote more resources to identifying and analyzing their intangibles, had fewer
difficulties in applying the method. Even for the managers who know the real options approach, the
mathematics of these models could make the results non-intuitive and therefore hard to use, for what they
would prefer the traditional investment models that are well known and wide-spread. In this respect, it could
be of interest to make a new survey to know why the CFOs are unable to identify and quantify the options they
perceive associated to the intangibles. Any way, there is a line of thinking that focu
rather than on the exactness of calculations, that is, the logic of real options must be used, and the
mathematics could be left out in favour of a qualitative assessment (Fredberg, 2007).
Considering the difficulties the companies have to directly apply the options framework to the valuation of
intangibles, a preliminary phase of analysis and diagnosis would clearly be necessary. This task should be
realized with the support of an external team of analysts. The phases and the complexity of the process will
In
the first stage, it is necessary to establish whether a strategic analysis of the company has identified its
intangibles. If no strategic analysis has been performed, the team of analysts focuses on encouraging company
managers to conduct an analysis by stressing the fundamental characteristics of the intangibles, considering
specially the associated options. Once identified the options, it will be necessary to specify their characteristics
to value them. This process will be carried out in narrow collaboration with the executives, taking into account
both objective information and their perceptions.
Appendix: Questionnaire
St
T
related to the analysis of this paper.
B
V
C
B
Intangibles of the Firms
Questionnaire
Intangibles are resources with no physical basis, they do not necessarily have to appear in the Balance Sheet,
but they create value in the firm. For example: knowledge of employees, organizational culture, brands,
patents, etc
1.- Do you consider a financial valuation of intangibles to be important for your

firm?
YES
NO
N/A
14.- D
key competitiveness factor might allow, in an isolated
way or in combination with other resources, to develop new assets or competitiveness factors in the
future?
- Yes, and I can identify it
1
-Y
I
2
- No
3
- N/A
0
You have finished
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ACPIL
15.- Is it necessary to make new investments (in assets, training, R+D, etc.) to develop the new assets or
competitiveness factors in the future?
- Yes, and I can quantify them
1
-Y
I
2
- No
3
- N/A
0
16.- How long which would be the most probable period of time to develop the new asset or to reinforce
the competitiveness factor?
- Less than three years
1
- Between three and five years
2
- More than five years
3
- It is not possible to quantify it
4
- N/A
0
17.- If the future asset or competitiveness factor were developed, what
performances would it generate in your company?
- Increase in sold units/services
- Increase in the sale price
- Reduction in operative costs
- Reduction in non operative costs
- Others (please specify)
-I
18.- Could you somehow quantify this performance?
YES
NO
N/A
1
1
1
1
2
2
2
2
0
0
0
0
YES
1
NO
2
N/A
0
You have finished
19.- Once developed, how long do you estimate this asset or competitiveness factor could generate
returns?
- Less than three years
1
- Between three and five years
2
- More than five years
3
- I not possible to quantify it
4
- N/A
0
20- Could you estimate the risk or variability of the hypothetical new asset or future competitiveness
- Yes, though quantitative methods
- Yes, though a scale (1 to 5: 1 minimum risk, 5 maximum risk)
-I
- N/A
1
2
3
0
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