Hansen 2002-Knowledge Networks Explaining Effective Knowledge Sharing in Multiunit Companies

Knowledge Networks: Explaining Effective Knowledge Sharing in Multiunit Companies
Author(s): Morten T. Hansen

Source: Organization Science, Vol. 13, No. 3, Knowledge, Knowing, and Organizations (May
- Jun., 2002), pp. 232-248
Published by: INFORMS
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Knowledge Networks: Explaining Effective
Knowledge Sharing in Multiunit Companies
Morten T. Hansen
Harvard Business School, Morgan Hall, Soldiers Field Park, Boston, Massachusetts 02163
mhansen @ hbs. edu
Abstract and its business units perform better to the extent that
This paper introduces the concept of knowledge networks units
to possess related competencies that can be used by
multiple units (e.g., Rumelt 1974, Markides and Williamson
explain why some business units are able to benefit from knowl-
1994, Farjoun 1998). While this knowledge content view
edge residing in other parts of the company while others are
not. The core premise of this concept is that a proper under-
has demonstrated the importance of relatedness in skill
standing of effective interunit knowledge sharing in a multiunit
base, it does not shed much light on the integrative mech-
firm requires a joint consideration of relatedness in knowledge
anisms that would allow one business unit to obtain
content among business units and the network of lateral inter-
knowledge from another (Ramanujam and Varadarajan
unit relations that enables task units to access related knowl-
1989, Hill 1994). When sharing mechanisms are consid
edge. Results from a study of 120 new product development
ered in this research, it is often assumed that the corporat
projects in 41 business units of a large multiunit electronics
company showed that project teams obtained more existing center is able to identify and realize synergies arising
from similarity in knowledge content among busines
knowledge from other units and completed their projects faster
units, but this assumption is typically not tested empiri-
to the extent that they had short interunit network paths to units
cally and excludes a consideration of lateral interunit re-
that possessed related knowledge. In contrast, neither network
lations (Chandler 1994, Markides and Williamson 1994
connections nor extent of related knowledge alone explained
the amount of knowledge obtained and project completion time.
Farjoun 1998).
The results also showed a contingent effect of having direct
In other lines of research, in contrast, scholars have
interunit relations in knowledge networks: While established
demonstrated the importance of having lateral linkage
direct relations mitigated problems of transferring noncodified
among organization subunits for effective knowledg
knowledge, they were harmful when the knowledge to be trans-
ferred was codified, because they were less needed but still
sharing to occur. Research has shown that a subunit
involved maintenance costs. These findings suggest that information
re- processing capacity is enhanced by latera
interunit integration mechanisms (e.g., Galbraith 1973
search on knowledge transfers and synergies in multiunit firms
should pursue new perspectives that combine the concepts 1994;
of Egelhoff 1993; Gupta and Govindarajan 2000
network connections and relatedness in knowledge content.product innovation knowledge flows more efficiently
(Knowledge Networks; Multiunit Firms; Organization Capabilities; through
Syn- established relationships spanning subuni
ergy; Knowledge Management)
boundaries (Tushman 1977, Ghoshal and Bartlett 1988,
Nobel and Birkinshaw 1998, Hansen 1999), and best
practices are transferred more easily when a positive ex-
isting relationship exists between the two parties to a
transfer (Szulanski 1996). These lines of research on link-
Why are some business units able to benefit from knowl-
ages have, however, not incorporated opportunities fo
edge residing in other parts of the company while others
knowledge sharing based on commonality in knowledg
are not? Both strategic management and organization the-
ory scholars have extensively researched this question, content among subunits, but has taken this aspect as
but differences in focus between the various approaches given.
have left us with an incomplete understanding of what Yet the existence of both related knowledge in the
causes knowledge sharing to occur and be beneficial firm-i.e., expertise in the firm's business units that can
across business units in multiunit firms. In one line of be useful for tasks performed in a focal business unit-
research, scholars have focused on similarity in knowl-and a set of established linkages among business units
edge content among business units, arguing that a firmseems necessary for interunit knowledge sharing to occur
ORGANIZATION SCIENCE, ? 2002 INFORMS 1047-7039/02/1303/0232/$05.00

Vol. 13, No. 3, May-June 2002, pp. 232-248 1526-5455 electronic ISSN
MORTEN T. HANSEN Knowledge Networks
and be effective. In this paper, I consider both dimensions Knowledge Networks in Multiunit Firms
and develop the concept of task-specific knowledge net- The joint consideration of related knowledge and lateral
works, which comprise not only those business units that interunit relations of a knowledge network is illustrated
have related knowledge for a focal task unit, but also the
in Figure 1 for a new product development team, which
established direct and indirect interunit relations con-
is the unit of analysis in this paper. Diagram la illustrates
necting this subset of business units. I define established
a network of relations among all business units in a firm,
interunit relations as regularly occurring informal but con-does not partition these units into those that have re-
tacts between groups of people from different business
lated knowledge for the focal new product development
units in a firm, and I assume that task units will be able
team, A (i.e., a pure network consideration). Diagram lb,
to use these relations to search for and access knowledge
in contrast, partitions the business units in the firm into
residing in other business units. those that have related knowledge for the focal product
I make two main arguments. First, with respect to in-
development team (A) and those that have not, but there
direct relations (i.e., connections through intermediaries),
is no consideration of the network among the units (i.e.,
I argue that task teams in focal business units with short
path lengths in a knowledge network (i.e., few interme-
diaries are needed to connect with other units) are likely
Figure 1 Illustration of a Project-Specific Knowledge Net-
to obtain more knowledge from other business units and
work for Project A
perform better than those with long path lengths because
of search benefits accruing to business units with shortla. Network among business units (no related knowledge)
path lengths. Long path lengths, in contrast, lead to in-

formation distortion in the knowledge network, making
search for useful knowledge more difficult. Second, I ar-
gue that a focal unit's direct established relations in a
knowledge network are a two-edged sword: While they
provide immediate access to other business units that pos-
sess related knowledge, they are also costly to maintain. A
They are, therefore, most effective when they help teams
solve difficult transfer problems, as when the knowledge
to be transferred is noncodified (Szulanski 1996, Hansen
1999). When there is no transfer problem, they are likely
lb. Related knowledge between business units (no network)
to be harmful for task-unit effectiveness because of their
0
maintenance costs.
This knowledge network model seeks to advance our 0
.
understanding of knowledge sharing in multiunit com-
*0 0 0
panies in several ways. First, by integrating the concepts
of related knowledge and lateral network connections that 0
. 0
enable knowledge sharing, the model seeks to extend ex-
tant research that has addressed only one of these aspects.
* Has related knowledge for A
Second, while extant research on knowledge transfers O Does not have related knowledge for A
tends to focus on direct relations (i.e., the dyadic link
between a recipient and a source unit of knowledge), I
also consider the larger organization context of indirect
lc. Project-specific knowledge network (network and related knowledge)
relations, which are conduits for information about op-
Knowledge network
portunities for knowledge sharing (cf. Ghoshal and Bartlett
1990). This approach enables a richer understanding of
search processes for knowledge use in multiunit firms.
Third, while scholars often consider the positive effects
of network relations on knowledge sharing, I also con-
sider maintenance costs of networks by incorporating this
time commitment in analyzing the impact of interunit net- A
work relations on knowledge-sharing effectiveness in * Has related knowledge for A
O Does not have related knowledge for A
multiunit firms.
ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002 233
a pure related knowledge consideration). Diagram Ic il- person are uniquely placed to pass on information about
lustrates a project-specific knowledge network: Business new job opportunities because they are more likely than
units are partitioned into those that have related knowl- strongly tied connections to possess nonredundant infor-
edge for the focal product development team (A), and the mation. The common thread in these lines of work is that
complete set of network of relations among them are in- indirect relations are pervasive conduits for information.
cluded, including both direct and indirect relations (i.e., Intermediaries help forge connections and pass on mes-
intermediary links connecting the focal unit with others sages that bridge two otherwise disconnected actors.
in the knowledge network). Both the indirect and direct However, indirect interunit relations may not be perfect
relations affect the extent to which a focal product de- conduits of information about opportunities. As infor-
velopment team is able to obtain knowledge from other mation gets passed on across people from different units,
business units and use it to perform better. there is likely to be some degree of imperfect transmis-
sion of the message about opportunities for knowledge
Effects of Indirect Relations in Knowledge Networks use. In particular, when information about opportunities
A product development team's direct and indirect inter- has to be passed on through many intermediaries (i.e.,
unit relations in its knowledge network affect the effec- through long paths, cf. Freeman 1979), it is likely to be-
tiveness of its search for useful knowledge by being im- come distorted (Bartlett 1932, March and Simon 1958).
portant conduits for information about opportunities- People who exchange such information are prone to mis-
the existence, whereabouts, and relevance of substantive understanding each other, forgetting details, failing to
knowledge residing in other business units. While busi- mention all that they know to others, filtering, or delib-
ness units in the network may not be able to pass on erately withholding aspects of what they know (Collins
product-specific knowledge directly, as such knowledge and Guetzkow 1964, Huber and Daft 1987, Gilovich
often requires direct interaction with the source to be ex- 1991). The distortion may be unintentional or deliberate
tracted, a focal team that hears about opportunities (O'Reilly 1978). Huber (1982) relates a dramatic exam-
through the network can contact the source directly to ple, originally provided by Miller (1972), of a mistake
obtain the knowledge. Such knowledge, as defined here, made during the Vietnam War. The chain of messages
includes product-specific technical know-how, knowl- was as follows: The order from headquarters to the bri-
edge about technologies and markets, as well as knowl- gade was "on no occasion must hamlets be burned down,"
edge embodied in existing solutions, such as already de- the brigade radioed the battalion "do not burn down any
veloped hardware and software. hamlets unless you are absolutely convinced that the Viet
Although direct relations in the knowledge network Cong are in them;" the battalion radioed the infantry com-
provide immediate access and hence are especially useful pany at the scene "if you think there are any Viet Cong
for a focal team inquiring about opportunities, indirect in the hamlet, bur it down;" the company commander
relations are beneficial as well, because information about ordered his troops "bur down that hamlet." Thus, the
opportunities is likely to be passed on by intermediary more intermediaries needed, the higher the chances of
units and eventually reach the focal team, provided that such distortion, and hence the less precise is the infor-
business units in the knowledge network are reachable.1 mation that is passed on (Miller 1972, Huber 1982).
The idea that intermediaries pass on messages and that The implication of receiving imprecise information in
they help forge connections has been well supported in this context is that a project team cannot easily focus on
communications and social network research. Studies in- a few opportunities that are especially relevant, but must
vestigating the "small-world" phenomenon demonstrated instead check a number of imprecise leads to verify
that the path length (i.e., the minimum number of inter- whether they are relevant for the team, resulting in a more
mediaries) needed to connect two strangers from different elaborate interunit search process that takes time. For ex-
states in the United States was remarkably short and con- ample, a project manager in my study told me that he had
sisted of about five to seven intermediaries (Milgram been told by a third party in the company about a group
1967, Kochen 1989, Watts 1999). Early work on inno- of engineers in another unit who were supposed to have
vation research showed that new product development some useful technical know-how, but when he was able
teams benefited from having a gatekeeper or boundary to reach them after trying for a while, it turned out that
spanner, that is, a person who scans and interprets the the know-how was not relevant for the project. Such fruit-
team's environment and then passes on information to the less searches not only take time, but also cause delays in
rest of the team (Allen 1977, Katz and Tushman 1979). the project to the extent that the needed knowledge input
In social network research, Granovetter (1973) showedholds up the completion of other parts of the project.
that intermediary persons who are weakly tied to a focal Because of the problem of information distortion when
234
ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002
relying on intermediary units, a focal team is likely to source unit and incorporated into the project. For exam-
benefit from short path lengths in the knowledge network ple, in a number of projects in my sample, team members
(i.e., few intermediaries required to connect a team in a were frequently able to obtain software code from engi-
focal unit with other units). Short path lengths enable the neers in other business units, but sometimes the engineers
team to know about precisely described opportunities in- who wrote the code needed to explain it and help the team
volving related knowledge and allow it to discard infor- to incorporate the code into the new project. Receiving
mation about irrelevant opportunities. The team can then such help was often much easier when the team and the
focus on opportunities with a high degree of realization engineers providing the code knew each other before-
potential and can quickly contact people in these units hand. This likely positive aspect of direct relations needs
and begin working with them to extract and incorporate to be compared with their maintenance costs.
their knowledge into the focal project. Thus, less time is Direct relations are especially helpful when a team is
spent evaluating and pursuing opportunities, reducing ef- experiencing transfer difficulties-i.e., spending signifi-
forts devoted to problemistic search, including search ef- cant time extracting, moving, and incorporating knowl-
forts that establish that no useful opportunities exist edge from other subunits-because the knowledge is non-
(Cyert and March 1992). Teams with short path lengths codified, which is defined as knowledge that is difficult
are thus more likely than teams with long path lengths to to adequately articulate in writing (Zander and Kogut
hear about more opportunities that overall yield more use- 1995, Hansen 1999). Relying on established direct rela-
ful knowledge, to the extent that opportunities are not tions may ease the difficulties of transferring noncodified
redundant to one another. All else equal, this benefit knowledge, because the team and people in the directly
should reduce a focal team's time to complete the project. tied unit have most likely worked with each other before
The arguments can be summarized in two hypotheses. and have thus established some heuristics for working
together, reducing the time it takes to explain the knowl-
HYPOTHESIS 1. The shorter a team's path lengths in
edge and understand one another (Uzzi 1997, Hansen
the knowledge network, the more knowledge obtained
1999). When a focal team experiences significant transfer
from other business units by the team.
difficulties because of noncodified knowledge, having es-
HYPOTHESIS 2. The shorter a team's path lengths in tablished direct relations to related business units is likely
the knowledge network, the shorter the project comple- to reduce the amount of time spent transferring knowl-
tion time.
edge, which may offset the costs of maintaining such re-
Effects of Direct Relations in Knowledge Networks lations and shortening project completion time. In partic-
The shortest possible path length is to have an established ular, having a number of direct relations in a knowledge
network increases the likelihood that a team will be able
direct relation to all other business units in a knowledge
network. Such a network position does not require any to use one of them in transferring noncodified knowledge.
Thus, while indirect relations are beneficial to the extent
intermediary units and should remove the information
distortion caused by using intermediaries. However, un- that they serve as intermediaries that provide a focal unit
with nonredundant information, direct relations are ben-
like indirect relations, which are maintained by interme-
diary business units, direct interunit relations need to be eficial to transferring noncodified knowledge, implying
that the benefit of having intermediaries supplying non-
maintained by people in the focal business unit, possibly
redundant information is relative (cf. Burt 1992).
including focal team members, and require their own set
In contrast, this transfer benefit of direct relations is
of activities that take time. In the company I studied, for
example, product developers spent time outside of their less important when a focal team can easily extract and
incorporate the knowledge that was identified in another
projects traveling to other business units on a regular ba-
sis to discuss technology developments, market oppor- subunit, as when that knowledge is highly codified. In
these situations, direct interunit relations are not useful
tunities, and their respective product development pro-
for transfer, but they still carry maintenance costs, which
grams. Such interunit network maintenance can be a
take time away from the completion of the project to the
distraction from completing specific project tasks: Time
extent that team members do not have slack resources that
spent on maintaining direct contacts is time not spent on
can be devoted to maintaining these relationships. The
completing project-related tasks.
more such relations that are maintained by a focal unit,
Although direct interunit relations involve maintenance
the higher the maintenance costs, and the more time is
costs, they also provide a benefit in certain situations:
Established direct relations between a focal team and an- taken away from completing a project. The arguments can
be summarized as follows:
other business unit may be helpful when the team iden-
tifies knowledge that requires effort to be moved from the HYPOTHESIS 3A. The higher a team's number of direct
relations in the knowledge network, the shorter the proj- I therefore included both canceled projects and projects
ect completion time when the knowledge to be transferred still in progress. After having removed too-small, pre-
is noncodified. mature, and idiosyncratic projects, I ended up with a list
of 147 projects. The project managers of 120 of these
HYPOTHESIS 3B. The higher a team's number of direct
returned their survey, yielding a response rate of 85%. Of
relations in the knowledge network, the longer the project
the 120 projects, 22 were still in progress at the time of
completion time when the knowledge to be transferred is
data collection, four had been canceled, and 54 reported
codified.
a significant transfer event involving another division.
Data and Methods Specifying Project-Specific Knowledge Networks
Setting Identifying Related Subunits. Together with the three

I tested the knowledge network model in a large, multi- corporate R&D managers, I developed a list of 22 tech-
divisional and multinational electronics company (here- nical competencies that constituted related knowledge ar-
after called "the Company"). I negotiated access to the eas (see Appendix 1 for the list of technical competen-
company through three senior corporate R&D managers cies).2 I asked the R&D managers in the divisions to
and initially visited 14 divisions where I conducted open- indicate up to four specific competencies of their divi-
ended interviews with 50 project engineers and managers sions on this list and to add any if they thought the list
to better understand the context, and to develop survey was incomplete. The three corporate R&D managers re-
instruments. The company, which has annual sales of viewed the responses to verify whether it made sense to
more than $5 billion, is involved in developing, manu- group those divisions that had reported the same com-
facturing, and selling a range of industrial and consumer petence. The project managers of the 120 projects were
electronics products and systems, and is structured into then asked to indicate what technical competencies the
41 fairly autonomous operating divisions that are respon- specific project required and were presented with the
sible for product development, manufacturing, and sales. same list that was presented to the divisional R&D man-
By focusing on these divisions, I was able to compare agers. Thus, for a given project, a number of divisions
units that occupy the same formal position in the Com- had a competence that matched the requirements listed
pany, thereby controlling for a potential source of varia- by the project manager (see Appendix 1 for the distri-
tion in formal structure. They all had the same formal bution of projects per competence). For example, a pro-
status as a business unit with profit-and-loss responsibil- ject manager indicated that his project required technical
ity, all had a general manager, and none of the divisions competencies in three areas: distributed measurement,
reported to another division. In addition to interunit re- communication system monitoring, and optics. Twelve
lations, there were a few other integrative mechanisms different divisions had at least one of these technical com-
across divisions, notably divisionwide conferences and petencies and thus constituted the knowledge network for
electronic knowledge management systems, but initial in- this particular project.
terviews revealed that these did not vary much among the
divisions. Specifying Interunit Relations. A group of engineers in
a division typically maintained an informal regular con-
Selecting Product Development Projects tact with a group of engineers in another division, and a
project team would use such contacts to access other di-
I used two surveys: a network survey administered to the
R&D managers in the 41 divisions and a survey for the
visions. These relationships were common knowledge in
project managers of the product development projects in- that most product developers seemed to know about their
cluded in this study. In selecting projects, I first createdexistence and how to use them, and I was told in prelim-
a list of all projects that the divisions had undertaken dur-
inary interviews that a main responsibility of a division's
ing the three-year period prior to the time of data collec- managers was to provide these contacts for his or her
tion. I then excluded very small projects (i.e., those with project teams, should the need arise. I therefore assumed
less than two project engineers) and projects that had notthat at least one member of a project team would know
yet moved from the investigation to the development about the divisional-level contacts and that the team
phase and were therefore hard to track. I also excludedmembers could access these contacts if they wanted to.
idiosyncratic projects that had no meaningful start andBecause of the importance of these interdivisional con-
end (e.g., special ongoing customer projects). Including
tacts in the company, I chose to focus on these types of
only successfully completed projects may lead to an over- contacts.
representation of successful projects, biasing the results. Following previous research, I used a key informant t
236
obtain information on interdivisional relations (Knoke but that ceased to exist by the time the R&D managers
and Kuklinski 1982, Marsden 1990). I considered the di- completed the survey. This problem can be partially con-
visional R&D managers to be the most appropriate in- trolled for. This potential bias should be more of a prob-
formants because they were "in the thick of things" in the lem for projects in divisions in which relations come and
R&D department in their division. The R&D manager in go than in divisions with long-lasting relations. If a di-
each of the 41 divisions received a questionnaire asking, vision's relations are long lasting, then it is less likely
"Over the past two years, are there any divisions from that there were some relations that ceased to exist be-
whom your division regularly sought technical and/or tween the time just prior to the project's start and the time
market-related input?"3 The question was followed by a of surveying. To control for this potential bias, I entered
list of the 41 divisions included in the study, allowing a control variable for the average age of direct relations
respondents to indicate whether they had a tie to any on to related subunits (Age relations).
the list, leading to a complete network where everybody
was asked whether a tie existed with everybody else Dependent Variables
(Marsden 1990). Because I asked everybody to indicate Project Completion Time. To assess project task per-
whether a tie existed with each of the other 40 divisions,
formance, I measured project completion time as the
I avoided a potential bias resulting from having to ask number of months from the start of concept development
someone to ascertain whether ties exist among others to the time of market introduction for a given project (or
(Krackhardt and Kilduff 1999). time to the end of the study period or cancellation for
To validate the responses, I employed the cross- ongoing and canceled projects, respectively). I defined
validation method used by Krackhardt (1990) by asking starting time as the month when a dedicated person
the R&D managers who comes to them for input. An started working part or full time on the project, which
actual tie exists when both divisions agree that one comes typically coincided with the time an account was opened
to the other for input. I then sent an e-mail to all of the for the project. I defined the end date as the date on which
R&D managers, asking them about the ones about which the product was released to shipment, which is a formal
there was no joint agreement. On the basis of their re- milestone date in this company because it signifies that
sponses, I included some of these suspect ties and ex- the product is ready to be manufactured and shipped on
cluded others.
a regular basis. These definitions turned out to be very
clear and provided few problems in specifying the start
Merging Network and Project Data. I constructed
and completion times, which were 14.8 months on aver-
project-specific knowledge networks by including all re-
age for completed projects.
lations among divisions possessing related knowledge for
Scholars have proposed two alternative measures of
a given project. For example, for the aforementioned proj-
completion time. First, completion time can be measured
ect for which there were 12 related divisions, I included
as the extent to which the project is finished on schedule
all relations among these 12 divisions, and this network
(e.g., Ancona and Caldwell 1992). The assumption in this
constituted the project-specific knowledge network. To
schedule measure is that inherent project differences are
construct these project-specific networks, I merged the
accounted for in the original schedule, but also that every-
project data with the divisional network data by assigning
body sets equally ambitious schedules, which was most
a division's network relations to its projects. Thus, inter-
likely not true in this company, where individual project
divisional ties became the equivalent of interdivisional
managers set their own targets. A second approach is to
project ties. It is important to record the values on thegroup projects according to some similarity measure and
network variables prior to the start of a project because
then take a project's deviation from the mean completion
my theoretical arguments assume that a project team uses time of the group (Eisenhardt and Tabrizi 1995). The
established preexisting interunit ties to search for andproblem with this approach is that the mean deviation
transfer knowledge. Following the approach of Burt relies on a clear similarity measure that was not easy to
(1992) and Podolny and Baron (1997), I handled this is- attain in this setting. Given that these two alternative
sue by measuring the interdivisional network relations methods seemed problematic, I chose to use the number
over several years by only assigning network ties thatof months as the dependent variable and then add project-
existed prior to the start of the project. This procedurespecific variables to control for inherent differences be-
generated time-varying network data from information tween the projects.
that the respondents could recall.
The potential bias in this approach is that it may ex- Amount Acquired Knowledge. During field interviews
clude some relations that existed prior to a project's start I was told that the most common knowledge that project
237
ORGANIZATION SCIENCE/VOl. 13, No. 3, May-June 2002
teams received from other divisions took the form of tech- value of zero if no divisions were reachable (i.e., there
nical solutions embodied in already developed software were no paths connecting the divisions) and a value of
code and hardware components. There were two types of one if all divisions in the project-specific knowledge net-
"ware" being used in the projects-standard input to the work were reachable (the mean value for this variable is
products being made (e.g., components that were used in 0.85).
nearly all oscilloscopes being manufactured), and ware I used the measure of closeness centrality to measure
that helped solve ad hoc problems that were unique to a path lengths in the network (Freeman 1979). Closeness
given project (i.e., technical know-how that had been em- was measured as (Wasserman and Faust 1994)
bodied in software code or hardware). While the former g- 1
was typically handled within divisions, the latter was typ- Cc (ni) = (g - 1) d(ni, ni)
ically obtained through interdivisional network contacts. j=1
Because my theoretical analysis focuses on knowledge

where d(ni nj) is the geodesics linking division
that was obtained to solve ad hoc problems for a project,
Summing over all reachable related divisio
I chose to focus on software and hardware that the focal
the focal one (g - 1), this gives division ni's
team obtained from other divisions to solve emerging
ness score. This measure is standardized, so
problems. With a few exceptions, most of the ware ob-
sion has the shortest path length (i.e., is close
tained from other divisions was of this kind.4 During pre-
divisions when the index is one and the lo
tests, project managers thought they could indicate the
length when the index is near zero (Close rela
amount of ware obtained from other divisions fairly ac-
measures were computed in UCINET IV (Bo
curately. The project manager was asked to indicate the
1992).
percentage of all the project's software and hardware that
came from other divisions in the company (see Appendix Direct Relations with Divisions in a Knowledge Net-
work. Because direct relations were asymmetric in the
1 for the specific question). To construct the dependent
variable, I computed the fraction of ware (ranging from network in the Company, I distinguished between direct
zero to one) that came from other divisions (Amount ac- relations in which the focal team went to other divisions
quired knowledge). for advice (i.e., advice-seeking relations) and direct re-
While engineers also obtained other types of knowledge lations in which other divisions went to the focal one for
from other divisions, such as informal technical advice not
advice (i.e., advice-giving relations). Each type of rela-
embodied in either software or hardware, these were more tions implies different costs. Advice-seeking relations
need to be maintained, while advice-giving relations re-
difficult to quantify, and I therefore did not develop a sepa-
rate dependent variable for these types. However, I did ask quire time helping others. I coded the number of direct
the project manager to indicate the extent to which the advice-seeking relations to related divisions by counting
team had obtained such knowledge, and this measure cor-the number of preexisting divisional ties to divisions that
related 0.7 with the chosen dependent variable. It is thus had related knowledge for a project and then assigned that
likely that my measure of amount acquired knowledge isvalue to the focal project (Outdegree related). I then
a proxy for more informal types of knowledge obtained coded the number of direct advice-giving relations to re-
through the network in this setting. lated divisions by counting the number of preexisting di-
visional ties in which a related division reportedly went
to the focal division for advice on a regular basis (Inde-
Independent Variables
gree related).
Path Lengths in a Knowledge Network. I relied on ge- To control for the possibility that these variables are
odesics to compute the distances in the network. A geo- simply an indication of the division's overall number of
direct relations, I also included similar measures for direct
desic is the shortest path length (i.e., the one with fewest
intermediaries) between a focal division and another di- relations outside a project's knowledge network. I sub-
vision in a knowledge network (Wasserman and Faust tracted the number of related advice-seeking ties from the
1994). However, the measure is complicated because sev- total number of direct advice-seeking relations for the fo-
eral of the project-specific knowledge networks were dis- cal division to arrive at the unrelated advice-seeking ties
connected in that some divisions did not have a tie with (Outdegree unrelated). I subtracted the number of related
other divisions in the knowledge network. I handled thisadvice-giving ties from the total number of advice-giving
problem by creating a control variable that indicates the ties to compute the number of unrelated advice-giving
fraction of related divisions that were reachable in a ties (Indegree unrelated).
knowledge network (Reach). This variable takes on a Finally, I included a measure of the strength of related
238
advice-seeking ties. Previous research has shown that be in a powerful position where they can control the flow
weak ties may facilitate search but impede the transfer of of information between two other units, thus using this
complex knowledge (Hansen 1999). Although the theory benefit to obtain favors from others, such as help in trans-
in this paper does not pertain to the effects of tie weakness ferring knowledge. To control for this power-oriented
on interunit knowledge transfers, I wanted to control for benefit of central positions, I included a measure of be-
the possible effect of tie weakness. Tie weakness was tweenness centrality (Wasserman and Faust 1994)
computed by asking the R&D divisional managers to in-
dicate on a seven-point scale how frequently people in
their division talked to people in the other division and C'b (ni) = gjk (ni)/gjk
j<k
how close their working relationship was (see Appendix
1 for the specific questions). I took the average frequency
and closeness for related advice-seeking ties to compute where gjk is the number of geodisics linking divisionj and
the measure (Strength related). k, and gjk (ni) is the number of geodisics linking division
j and k that involve the focal division i. The measure is a
Noncodified Knowledge. I constructed a three-item sum of the probabilities that the focal division will fall
scale of noncodification (see Appendix 1 for the specific on the geodesics linking all pairs of related divisions. The
items) and asked the project manager to indicate the level measure is standardized as follows:
of codification of the knowledge that the project team
received from other divisions (Noncodified). This vari-
C, (n,) = B (ni)l[(g - 1) (g - 2)/2]
able was then interacted with the number of related
advice-seeking relations to test the hypothesis (Noncod-
where the denominator is the number of pairs of divisions
ified X outdegree related).
not including the focal division i. This measure ranges
Alternative Explanations. I included variables to test from zero to one, where one is the maximum related be-
for the possibility that either short path lengths or related tweenness among related divisions (Between related).
knowledge (but not both) explains the amount of acquired
knowledge and product development time. First, I in- Project Attribute Controls. To make the projects com-
cluded an overall closeness centrality measure by using parable, I controlled for several project-specific factors. I
the above equations for the closeness centrality measure, controlled for the extent to which the project used soft-
using the entire set of 41 divisions as the relevant network ware and hardware existing within its division. This mea-
(Close all). To make this analysis comparable to the rest sure controls to some extent for a project team's moti-
of the analysis, I also included a variable indicating the vation to conduct searches through the interunit network.
total number of direct advice-seeking relations (Outde- The team should be less motivated to the extent that it
gree all). If the estimate for the general closeness measure can use existing ware inside its own division. Project
is positive and significant, then the network argument managers were asked to indicate the percentage of all
about the importance of close positions (irrespective ofsoftware and hardware in the project that they reused or
knowledge relatedness) is plausible. To capture the extent
leveraged from their own division (Own existing ware).
of related knowledge available to a project team, I in-
I used the log of estimated dollar costs at the start of
cluded a variable measuring the number of related divi-
the project to control for size and scope differences be-
sions (No. related units). If this measure of the extent of
tween the projects (Budget).s In my field interviews with
related knowledge in the Company is positive and sig-
project managers, I was also told that estimated costs cap-
nificant, then the argument about the importance of re-
ture inherent differences in technical complexity among
lated knowledge (irrespective of network relations) is
the projects (the more complex the technology, the more
plausible.
engineering hours billed to the project). I used the budget
Control Variables
figure to avoid an interaction between final costs and the
Betweenness Centrality. Because the closeness central- dependent variable. High final costs may reflect long
ity measures may be correlated with other centrality completion
mea- time because of more engineering hours
sures that attempt to capture other causal mechanisms, billed
I to the project.
included a measure of betweenness centrality, which I also
is coded whether a project-specific patent was ap-
often used to measure a focal actor's brokering position plied for, to measure degree of innovation (Patent), and
in the network (Freeman 1979, Brass and Burkhardt whether the project team developed a product or a system
1992, Burt 1992). Divisions with high betweenness (Product).
may More innovative projects presumably take
longer to complete. The product-systems distinction was I used the piecewise exponential specification as im-
entered as a variable to control for possible differences plemented in the statistical program TDA, because I did
between these two categories with respect to cross- not want to make any assumption about duration depen-
divisional knowledge use. Each variable was coded as a dence that would require a specific parametric distribu-
dummy variable, where a value of one indicates a patent tion. I controlled for duration dependence, however, be-
and a product, respectively. cause the survivor plot revealed a nonmonotonic curve
Finally, because strictly personal relations spanning (cf. Tuma and Hannan 1984). The plot revealed several
subunits may be used by team members to obtain knowl- transition phases occurring at 10, 12, 15, 18, and 21
edge, I entered a control measure that was obtained from months and I therefore entered six time-period variables
a third survey that was sent to all engineers on the projects that reflect the time distribution of events. The transition
in the sample (see Hansen et al. 2001). Engineers were rate is assumed to be constant within these periods, and
asked to indicate the number of advice-seeking relations covariates are assumed not to vary across time periods
that they personally had to people in other divisions. I (Blossfeld and Rohwer 1995).
then summed these relations for a team (excluding con- Because multiple projects belong to a division, it is
tact names mentioned more than once) to arrive at a team- possible that project-specific observations are non-
level measure of direct interpersonal relations spanning independent because they vary with divisional attributes.
subunits (Personal relations).6 I therefore chose a fixed effect specification and entered
26 dummy variables, one for each division (except one)
Statistical Approach that had a project in the sample (Greene 1993). These
Because 66 projects did not report any knowledge use take on a value of one for projects belonging to the di-
from other divisions, the dependent variable "amount ac- vision, and zero otherwise. Because the variables for the
quired knowledge" was set to zero for these projects. Be- alternative explanations do not vary with divisional at-
cause of this large number of observations with a value tributes, I could not use this fixed effect specification and
of zero, a least squares regression model was inappropri- omitted the dummy variables for those models.
ate, and I employed a tobit model, using maximum like-
lihood estimation (Maddala 1983, Greene 1993).
In addition, the statistical analysis of completion time Results
was complicated by the fact that 22 of the 120 projects Descriptive statistics are reported in Table 1, and results
were still ongoing at the time of data collection. The da- pertaining to the amount of acquired knowledge and proj-
taset, therefore, includes right-censored cases (Tuma and ect completion rate are presented in Tables 2 and 3, re-
Hannan 1984). Furthermore, four projects were canceled. spectively. Models 1 and 2 in Tables 2 and 3 present the
Because the dataset contains right-censored data, ordi- results for the alternative explanations that general close-
nary least squares regression analysis cannot be employed ness centrality (i.e., path length) or knowledge relatedness
(Tuma and Hannan 1984), but the problem of right cen- (but not both combined) explains the extent of knowledge
soring can be dealt with by using a hazard rate model. In obtained and product development time. None of these
this approach, a project enters the risk set from the time variables are significant in these models. Project teams in
it was started and leaves the risk set when it is completed divisions with short path lengths in the entire network did
or canceled. The instantaneous transition rate-the de-
not acquire more knowledge (i.e., software and hardware)
pendent variable-is a measure of the likelihood offrom
a other divisions and were not completed faster. In
project either completing or terminating at time t, con- addition, project teams for which many other divisions
ditional on it not having completed or terminated before had related knowledge available did not acquire more
t. The higher the transition rate, the more likely the software
pro- and hardware from other divisions and were not
ject will be completed faster. The hazard rate model takes
completed faster. These results show that neither the ex-
the following form:
tent of related knowledge that is available in the Company
nor a beneficial network position consisting of short path
r(tj = r(t)* exp[aCj]
lengths in the entire network is a sufficient factor explain-
where r(t)j is the completion rate of project j, t is project
ing the amount of interunit knowledge sharing and prod-
time in the risk set, and r(t)* is the completion rate in-
uct development time.
cluding the effects of all of the control variables in the
The independent variables predicting the extent of
knowledge acquired from other divisions are entered in
model. The effects of the independent variables are spec-
ified in the exponential bracket; a is a vector of estimated
Models 3 and 4 in Table 2. The main effect for the "close
coefficients, and C is a vector of independent variables.
related" variable is positive and significant. Projects in
240
Table 1 Descriptive Statistics
Item Variables Mean S.D. Min Max 1 2 3 4 5 6 7 8 9 10 11 12 1
1. Amount of
acquired
knowledge** 0.083 0.157 0.000 0.900
2. Own existing
ware 0.450 0.307 0.000 1.000 -0.418
3. Budget 6.735 1.061 4.500 10.719 0.012 -0.257

4. Patent 0.200 0.402 0.000 1.000 -0.037 0.137 0.282
5. Product 0.750 0.435 0.000 1.000 -0.095 0.110 -0.044 -0.096
6. Age relations 2.873 1.041 1.000 5.000 0.090 -0.083 0.037 0.159 0.048
7. Personal
relations 1.618 2.186 0.000 9.000 -0.116 0.123 0.272 0.402 0.046 -0.141
8. Strength
related 4.299 1.275 1.167 7.000 0.103 -0.166 -0.085 -0.197 0.142 0.012 -0.295
9. Outdegree
unrelated 2.317 1.824 0.000 8.000 0.062 0.184 0.115 0.337 -0.058 0.223 0.038 -0.279
10. Indegree
related 3.550 2.503 0.000 11.000 0.069 0.080 0.230 0.065 0.097 -0.127 0.158 0.126 -0.263
11. Indegree
unrelated 2.725 2.843 0.000 14.000 -0.137 0.132 0.083 -0.069 0.100 -0.133 0.312 -0.296 0.096 -0.045
12. Number of
related units* 0.000 1.000 -2.337 1.857 0.112 -0.094 0.233 -0.018 -0.050 0.045 -0.237 0.090 -0.372 0.501 -0.426
13. Outdegree
related* 0.000 1.000 -1.376 2.386 0.205 -0.036 0.368 0.245 -0.042 0.076 0.062 -0.116 -0.029 0.586 -0.384 0.590
14. Between
related 0.087 0.108 0 0.650 0.015 0.111 -0.103 0.190 0.088 0.126 -0.052 -0.321 0.160 0.151 0.282 -0.013 0.103
15. Close related* 0.000 1.000 -2.754 2.271 0.033 0.100 -0.078 0.003 0.164 -0.062 0.188 -0.044 0.183 0.089 0.140 -0.378 0.01
16. Reach 0.856 0.237 0.000 1.000 0.061 -0.017 0.118 -0.044 0.086 0.020 -0.025 -0.263 -0.419 0.338 -0.259 0.528 0.412
17. Noncodified 0.000 1.000 -0.74 2.73 -0.117 0.121 0.020 -0.124 -0.058 -0.003 0.082 -0.032 -0.003 0.069 0.069 0.040 -0.121
18. NoncodifiedX
Outdegree
related 0.272 2.162 -7.803 8.758 0.160 0.035 0.283 0.181 -0.026 -0.057 -0.056 -0.106 -0.017 0.353 -0.094 0.388 0.611
19. Outdegreeall 8.608 3.892 1.000 16.000 0.015 0.222 0.154 0.212 0.110 0.057 0.321 0.291 0.263 0.579 0.599 0.024 0.355
20. Close all 0.400 0.097 0.227 0.597 -0.040 0.170 -0.027 0.105 0.054 0.271 -0.112 -0.308 0.198 0.118 0.371 0.021 0.170 0
N= 120
* Standardized variables (mean set to 0; S.D. set to 1)

** Dependent variable
Table 2 Results from Tobit Model Estimating the Amount of Acquired Software and Hardware from Other Divisions
Variables Model 1 Model 2 Model 3 Model 4
Control Variables
Own existing ware - 0.468*** (0.105) - 0.474*** (0.109) -0.511 ** (0.101) -0.523*** (0.107)
Budget -0.014 (0.024) -0.027 (0.026) -0.066** (0.032) -0.058* (0.031)
Patent 0.063 (0.074) 0.034 (0.071) 0.011 (0.079) -.008 (0.081)
Product -0.071 (0.065) -0.073 (0.064) -0.055 (0.062) -0.071 (0.061)
Age relations 0.039* (0.021) 0.041* (0.021) 0.043 (0.041) 0.015 (0.037)
Personal relations 0.007 (0.018) - 0.004 (0.016) 0.012 (0.017) 0.012 (0.018)
Alternative Explanations
Number of related units 0.020 (0.031) -0.029 (0.039) -0.0281 (0.059)
Outdegree all 0.017 (0.015)
Close all 1.046 (1.319)
Knowledge Network Controls

Indegree related -0.025 (0.049) -0.024 (0.055)
Indegree unrelated -0.023 (0.059) -0.024 (0.044)
Outdegree related -0.002 (0.021) -0.004 (0.043)
Outdegree unrelated 0.014 (0.059) -0.033 (0.048)
Strength related 0.001 (0.035) 0.024 (0.032)
Between related 1.109 **(0.23) 1.261 **(0.54)
Reach 0.475 *(0.12) 0.493 *(0.275)
Hypothesized Effect
Close related 0.061 **(.016)
Fixed Effects? No No Yes Yes
Log likelihood -33.1 -31.3 -9.8 - 7.5

Chi square (d.f.) 3.6 (2) + 4.5*(1) + +
Number of Observations 120 120 120 120
Note. Number of observations with depend

controls in all models are not shown.
*p < 0.1; **p < 0.05; ***p < 0.01

Two-tailed tests for variables; standard errors in parantheses.
+ Compared with Model 1; + + compared with Model 3
divisions with a high degree of closeness centrality lations)(i.e., and transfer difficulty variable (i.e., noncodified
short path lengths) in their respective knowledge network knowledge) is entered in Model 5 in Table 3. When this
were able to acquire more knowledge from other divi- interaction effect is added to the model, the main effect
sions. This result supports Hypothesis 1. for outdegree to related divisions becomes significant and
The results for the independent variables predicting negative, while the coefficient for the interaction variable
project completion time are included in Models 4 and 5
including outdegree and noncodified knowledge is posi-
in Table 3. The main effect of the "close-related" variable tive. These results can be interpreted as follows:
is positive and significant. That is, projects whose divi-
sions have a high degree of closeness centrality (i.e., shortcompletion rate = exp [-1.230*outdegree
path lengths) in their respective knowledge network were + outdegree*(0.237*Noncodified)].
likely to be completed more quickly than those with a
low degree of closeness centrality (a positive hazard rate The net effect remains negative (i.e., the completion rate
above one indicates faster completion). This result sup-is below one, which means slower project completion
ports Hypothesis 2. time) even for high degrees of noncodification (e.g., when
The interaction effect for the outdegree (i.e., direct re-the noncodified variable takes on a value of two, which
242 ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002
Table 3 Results for Hazard Rate Analysis of Project Completion Time
Variables Model 1 Model 2 Model 3 Model 4 Model 5
Control Variables
Own existing ware 1.13** (0.452) 0.914* (0.484) 2.474*** (0.730) 2.559*** (0.691) 2.739*** (0.811)
Budget - 0.743*** (0.143) -0.853*** (0.156) -0.939*** (0.202) -0.888*** (0.200) -0.979*** (0.221)
Patent -0.063 (0.311) 0.199 (0.315) -0.521 (0.544) -0.493 (0.550) -0.865 (0.578)
Product 0.092 (0.271) 0.350 (0.294) -0.374 (0.441) -0.468 (0.479) -0.711 (0.498)
Age relations 0.172* (0.094) 0.034 (0.097) 0.159 (0.235) 0.133 (0.121) 0.187 (0.237)
Personal relations 0.046 (0.073) 0.055 (0.075) 0.246** (0.115) 0.225** (0.109) 0.295** (0.122)
Amount of acquired knowledge 2.38** (1.19) 2.388** (1.120) 2.301** (1.127)
Noncodification 0.061 (0.104)
Alternative Explanations
Number of related units -0.252 (0.156) -0.493** (0.248) -0.228 (0.399) -0.301 (0.330)
Outdegree all -0.034 (0.067)
Close all -3.20 (5.83)
Knowledge Network Controls

Indegree related -0.683** (0.347) -0.778* (0.415) -0.878** (0.434)
Indegree unrelated -0.554* (0.300) -0.476 (0.329) -0.567* (0.336)
Outdegree unrelated -0.352 (0.324) -0.255 (0.556) -0.478 (0.329)
Strength related 0.287 (0.175) 0.362* (0.194) 0.330* (0.196)
Between related 0.244 (0.333) 0.177 (0.334) 0.391 (0.3331)
Reach 2.13'* (1.086) 2.11** (1.083) 2.31** (1.147)
Hypothesized Effects
Close related 0.373** (1.79) 0.718** (0.346)
Outdegree related -0.421 (0.708) -0.683 (0.713) -1.230* (0.720)
NoncodifiedXOutdegree related 0.237** (0.107)
Fixed Effect Model? No No Yes Yes Yes
Log likelihood -640.1 -639.8 -613.8 611.4 -607.2

Chi square (d.f.) 0.6 (1)+ 4.8*(1)+ + 13.2** (2)+ +
Number of observations 120 120 120 120 120
Note. Coefficients for divisional dummy var

shown.
Two-tailed tests for variables. Standard errors in parentheses.

+ Compared with model 1; + + compared with Model 3.
*p < 0.1; **p < 0.05; ***p < 0.01
is two standard deviation from its mean, the completion the higher the number of related divisions that come to
the focal division for advice, the slower the completion
rate is still below one). Thus, having direct relations to
other divisions in the project's knowledge network miti- time of the focal project. My interpretation for this effect
gated the difficulties in transferring noncodified knowl- is that focal team members spend time helping others who
edge, but the net effect of having these direct relations come to the focal division for advice, leading to pro-
led to longer project completion time, likely because of longed completion time of the focal project. Second, proj-
the maintenance costs involved in keeping them. These ect teams that obtained high levels of knowledge from
results lend partial support to Hypothesis 3a and full sup-other divisions (i.e., the first dependent variable) com-
port to Hypothesis 3b. pleted their projects faster than those that did not. Thus,
In addition, the results in Model 5 in Table 3 reveal acontrolling for network relations, the use of existing
few other interesting findings. First, there is a significantknowledge from other divisions led to higher degrees of
negative effect for the indegree-related variable. That is, effectiveness as measured by completion time.
Discussion and Conclusion interunit relations because teams will, on average, have
longer path lengths. If interunit network search for related
The main finding in this study is that a joint consideration
knowledge
of related knowledge and lateral network relations is is problematic in a relatively dense interunit
network,
needed to explain the extent and benefits of interunit then it is also likely to occur in a company with
a less dense network.
knowledge sharing in multiunit firms. Projects in divi-
Implications
sions with short network path lengths to other divisions
that possessed related knowledge obtained moreWhileknowl-these limitations imply that some caution is needed
edge from other divisions and were completedtofaster,interpret the findings, the study provides new insights
likely because of the search benefits accruing tointo the challenges of sharing knowledge across business
project
teams with this network position. In contrast, neither units the
in a multiunit firm. Although a prior paper reported
extent of available related knowledge in the Company norbased on some of the same data (Hansen 1999),
results
the path length in the entire network explained thethis study extends well beyond those findings and theo-
amount
of knowledge obtained from other divisions and project retical framework in two important ways. First, the earlier
completion time. study did not consider the possibility that divisions may
Limitations
possess different competencies and hence provide differ-
ent levels of utility to teams that seek their knowledge.
The study was limited to lateral relations between divi-
As the results reported here demonstrate, network rela-
sions and excluded other means of obtaining knowledge,
tions have different performance implications, depending
potentially biasing the results. As mentioned in the meth-
on whether they tie a team to units that possess related
ods section, however, the other existing interunit integra-
knowledge. Second, the earlier study did not include a
tive mechanisms did not vary much across the divisions
full analysis of indirect relations but was limited to a di-
and were therefore held fairly constant in the empirical
vision's direct contacts and the ties between those con-
test. Another bias may exist because some divisions were
tacts (i.e., maximum path lengths of one intermediary).
located in the same geographical area, while others were
The finding that long path lengths impede search because
isolated geographically. Thus, some project teams may
they lead to information distortion could not have been
have been located in divisions that were in close physical
obtained in the first study. Because most prior research
proximity with clusters of other divisions, perhaps mak-on knowledge transfers (including Hansen 1999) has fo-
ing it easier to interact and obtain useful knowledge.
cused on direct relations only, this paper makes a contri-
However, this variation among divisions would have bution to that line of research by empirically testing the
been captured by the divisional dummy variables, which
implications of indirect relations on a task unit's ability
controlled for divisional attributes.
to obtain and benefit from knowledge transfers.
Another limitation is that the network model presented This study also builds on other studies that have at-
here treats the network variables as exogenous, but they tempted to empirically capture how noncodified or tacit
may be an outcome of other variables, such as team dem- knowledge is transferred across organization boundaries.
ographic variables. This possibility raises the issue ofThe scale that I developed in a prior paper (Hansen 1999)
whether any omitted variables create a spurious associa- and used here complements other scales, notably two (see
tion between the main network variables (closeness cen-
Appendix 2 for a comparison of the questions in these
trality and outdegree) and project completion time. For
three scales). It is similar to the one used by Szulanski
example, team members with long tenure may have larger(1996), who measured knowledge dimensions in the
networks and be more skilled at completing projects transfer of best practice, and to the one used by Zander
quickly. To check for this possibility, I ran several other and Kogut (1995), who measured knowledge aspects of
models where I included average team tenure and agemanufacturing processes that were transferred across or-
(and standard deviation for team tenure), but these vari- ganization units. A few differences notwithstanding, the
ables did not alter the results, so I excluded them. three scales are very similar. Their empirical validation
Finally, because this study focused on one company,suggests that subsequent research can usefully apply both
the results may not generalize to a diverse group of com-the construct of noncodified knowledge and the existing
panies. The company that I studied is most likely more
measurements.
networked than are many multiunit firms, especially when The most important implication of this study for exis
it is compared with holding-type companies in whiching research is the suggestion that scholars adopt a
business units tend to operate independently of one an-
way of analyzing knowledge synergies in multiunit fir
other. This bias may, however, be in a conservative di-
In their extensive review of decades of empirical resear
rection. It is likely that network search for related knowl-on the value of firm diversification, Ramanujam a
edge will be more difficult in a network with fewerVaradarajan (1989) concluded that "we still do not kn
244
why synergy in diversification is so elusive to obtain." mechanisms will have negative or positive performance
They suggested that research refocus on internal organi- implications.
zation structures and processes that mediate the link be- In conclusion, by incorporating the dual dimension of
tween the firm's overall diversity status and its perfor- relatedness in knowledge content and network relations
mance. This paper has attempted to uncover some of the and the issues of indirect ties and cost considerations,
internal organization network mechanisms that explain subsequent research on knowledge synergies and trans-
the extent and effectiveness of knowledge synergies. In fers in multiunit companies is likely to provide new in-
particular, the results suggest that subsequent research on sights into the question of why knowledge sharing in mul-
this topic needs to be altered in three ways. tiunit firms leads to performance improvement.
First, existing research needs to be more integrative by Appendix 1. List of Technical Competencies and
considering both relatedness in skill bases among busi- Survey Questions
ness units and interunit integrative mechanisms. Research Technical Competencies:
on relatedness in knowledge can benefit by incorporating Number of Number of
lateral interunit sharing mechanisms in addition to the Divisions per Projects per
current focus on the relatedness construct, thus attaining Technical Competence Competence Competence
a better understanding of how synergies are realized. This (1) Digital signal processing 12 37
approach requires that researchers collect network data (2) Analog signal processing <10 MHz 6 19
on companies; it is not sufficient to collect only archival (3) Analog signal processing >10 MHz 5 27
data on the types and degrees of relatedness in multiunit (4) Quartz/cesium resonance 1 4
firms. Likewise, research on lateral integrative mecha- (5) Optics 4 12
(6) Mechanical measurement 4 9

nisms, including network research, can benefit by consid-
(7) Distributed measurement 5 8
ering the knowledge content, such as technical compe-
(8) Component test technology 3 17
tencies, that is obtainable through networks.
(9) Real-time software 15 48
The second implication for research on knowledge syn- 3 16
(10) IC design
ergies in multiunit firms is the need to incorporate con- (11) Measurement integration 9 20
cepts that include indirect relations among business units. (12) Analog to digital conversion 4 15
Extant research on interunit knowledge sharing has (13) Fault diagnostics 2 1
mainly focused on "nodal" (i.e., the attributes of the sub- (14) High-speed digital design 10 27
(15) RF measurement 10 27
unit only) or dyadic (i.e., the relations between two parties
(16) Communication system monitoring 7 17
to a transfer) interunit relations but not on network po-
(17) Test system architecture 10 19
sitions characterized by both direct and indirect interunit
(18) High-power design 3 5
relations (for an exception, see Nohria and Ghoshal 7 13
(19) Software engineering
1997). As demonstrated by the empirical study in this 1 1
(20) Device physics
paper, a unit's entire path length in a knowledge network (21) Special user interface 4 1
affects its ability to access useful knowledge in the firm (22) Protocol test 2 4
and improve task performance. While my study focused Average 4.9 2.9
on path lengths, subsequent studies can address attributes
Survey Questions:
of intermediary units that facilitate the routing of mes-
Amount Acquired Kn
sages (cf. Huber and Daft 1987). includes software and hardware that were defined as follows in the
A third implication is that research on knowledge syn- survey: Software included firmware and flow and structure charts;
ergies in multiunit firms also needs to consider the costs hardware included electronic, electrical, and mechanical parts. Project
and drawbacks of having integrative interunit mecha- managers were asked, "Of all the software (hardware) that was needed
nisms. While direct interunit relations enable task units in the product, what were the following breakdowns?" They were given
to access and transfer knowledge, they also carry costs in the following six categories and asked to allocate 100 points among
them: (1) already developed ware from own division, (2) new ware
the form of time spent building and maintaining them and
developed in own division, (3) already developed ware from other di-
efforts required to help other units. Unless research does
visions, (4) new ware developed in other divisions, (5) already devel-
not distinguish between costs and benefits of having di- oped ware from outside of the company, and (6) new ware developed
rect interunit relations, it is unlikely to find robust results outside the company. The project manager was also asked to indicate
for the net effects of lateral integrative mechanisms on the project's percentage split between software and hardware, and I
performance. Future research thus needs to more care- used this information to take a weighted sum of (3) and (4), which I
fully specify conditions under which lateral integrative divided by 100.
245
Noncodified Knowledge. Project managers answered three questions Interdivisional Tie Strength to Related Divisions. Divisional R&D
based on seven-point scales: (1) "How well documented was the managers answered two questions on a seven-point scale: (1) "How
knowledge that your team leveraged from this division? Consider all frequently do (did) people in your division interact with this division
the knowledge." Categories were: 0 = It was very well documented, (on average over the past two years)?" Categories were: 0 = once a
3 = It was somewhat well documented, 6 = It was not well docu-
day, 1 = twice a week, 2 = once a week, 3 = twice a month, 4 =
mented. (2) "Was all of this knowledge sufficiently explained to your
once a month, 5 = once every second month, 6 = once every 3
team in writing (in code comments, written reports, manuals, e-mails,
months. (2) "How close is (was) the working relationship between your
faxes, etc.)?" Categories were: 0 = All of it was, 3 = Half of it was,
division and this division?" Categories were: 0 = "Very close, prac-
6 = None of it was. (3) "What type of knowledge came from this
tically like being in the same work group," 3 = "Somewhat close, like
division?" Categories were: 0 = Mainly reports, manuals, documents,
self-explanatory software, etc., 3 = Half know-how and half reports/discussing and solving issues together," 6 = "Distant, like an arm's-
documents, 6 = Mainly personal practical know-how, tricks of thelength delivery of the input." The two scores were reversed, the scale
trade. The average of the three scores represents noncodified knowl- set to one through seven (zero for no ties), and the average of the two
edge (Cronbach's Alpha = 0.81). represents tie strength.
Appendix 2. Comparison of Three Measures for Codified Knowledge

Hansen 1999 and This Study Szulanski 1996 Zander and Kogut 1995
Measures (Noncodification) (No Causal Ambiguity) (Codifiability)
Similar items to this study *How well documented was the (scale with five answers possible: *Large parts of our manufacturing
knowledge that your team Yes!; yes, but; no opinion; no, not control are embodied in standard
leveraged from this division? really; no!) type software that we modified for
(0 = It was very well our needs
*There is a precise list of the
documented, 6 = It was not well
skills, resources, and prerequisites *Large parts of our manufacturing
documented) control are embodied in software
necessary for successfully
*Was all of this knowledge performing the practice developed within our company
sufficiently explained to your team *Useful manuals for the practice exclusively for our use
in writing (in code comments are available *Extensive documentation
written reports, manuals, e-mails,
*Existing work manuals and describing critical parts of the
faxes, etc.)? (0 = All of it was, 6
operating procedures describe manufacturing process exist in our
= None of it was)
precisely what people working in company
*What type of knowledge came the practice actually do
from this division? (0 = Mainly
*Operating procedures for the
reports, manuals, documents, self-
practice are available
explanatory software, etc., 6 =
Mainly personal practical know-
how, tricks of the trade)
Less similar items to this study *The limits of the practice are *A useful manual describing our
fully specified manufacturing process can be
written
*With the practice we know why a
given action results in a given
outcome
*When a problem surfaced for the

practice, the precise reasons for
failure could not be articulated
even after the event (reversed)
*It is well known how the
components of that list interact to

produce practice's output.
Cronbach's Alpha for scale 0.81 0.86 0.678
Source. Szulanski 1996, causal ambiguity scale in Appendix 2. Zander and Kogut 1995, codifiability scale in Appendix 1.
246
ORGANIZATION SCIENCE/VOl. 13, No. 3, May-June 2002
Endnotes Collins, B. E., H. A. Guetzkow. 1964. A Social Psychology of Group

'Nonreachable units do not have any relations in the knowledge net- Processes for Decision Making. Wiley, New York.
Cyert, R., J. G. March. 1992. A Behavioral Theory of the Firm, 2nd
work and are isolates, making it more difficult for focal teams in other
units to know about opportunities for knowledge sharing in those units. ed. Blackwell Business, Cambridge, MA.
Egelhoff, W. 1993. Information processing theory and the multina-
2The list reveals that the technical competencies are at a fairly detailed
level, because they are mainly in one industry, but interviews indicated tional corporation. S. Ghoshal and D. E. Westney, eds. Organi-
that this was the most appropriate level of detail to study: A more zation Theory and The Multinational Corporation. St. Martin's
abstract level would mask important differences in technical compe- Press, New York, 182-210.
Eisenhardt, K., B. Tabrizi. 1995. Accelerating adaptive processes:
tencies among divisions, whereas a more detailed level would force
differences among divisions even where commonalities existed. Product innovation in the global computer industry. Admin. Sci.
3In addition to these contacts, there were a few regularly occurring Quart. 40(1) 84-110.
licensing agreements between divisions and some enduring cross-
Farjoun, M. 1998. The independent and joint effects of the skills and
divisional groups that were focused around a specific technology area. physical bases of relatedness in diversification. Strategic Man-
I included these two types of fairly informal relations so as not to bias agement J. 19(7) 611-630.
the network information. Freeman, L. 1979. Centrality in social networks: Conceptual clarifi-
4In a few instances, divisions did obtain standardized software and hard- cation. Social Networks 1(3) 215-234.
ware components from other divisions and had entered into cross- Galbraith, J. 1973. Designing Complex Organizations. Addison-
divisional licensing agreements that specified transfer prices for these trans- Wesley, Reading, MA.
actions. To remove this potential bias from my measure of interdivisional -. 1994. Competing with Flexible Lateral Organizations, 2nd ed.
software and hardware for ad hoc problem solving, I created a dummy Addison-Wesley, Reading, MA.
variable that took on a value of one if the focal division had an inter- Ghoshal, S., C. Bartlett. 1988. Creation, adoption, and diffusion of
divisional licensing agreement, and zero otherwise. Because this variable innovations by subsidiaries of multinational corporations. Inter-
did not alter any of the results, I excluded it from the main results. nat. Bus. Stud. 19(3) 365-388.
5Because information on estimated costs was missing for 19 projects, -- , -. 1990. The multinational corporation as an interorganiza-
I imputed the values for these projects through a regression analysis tional network. Acad. Management Rev. 15 603-625.
estimating the log of estimated project costs at the start of the project.
Gilovich, T. 1991. How We Know What Isn't So: The Fallibility of
The results of this imputation are not reported. Human Reason in Everyday Life. Free Press, New York.
6This information was missing for 62 projects whose response rate for
Granovetter, M. 1973. The strength of weak ties. Amer. J. Soc. 6(6)
the individual network survey was below 50%. I therefore set the 1360-1380.
personal-relation variable to zero for these projects and entered Greene,
a W. H. 1993. Econometric Analysis, 2nd ed. Macmillan Pub-
dummy variable that took a value of one if the information was missing, lishing, New York.
and a zero otherwise.
Gupta, A. K., V. Govindarajan. 2000. Knowledge flows within multi-
national corporations. Strategic Management J. 21(4) 473-496.
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Accepted by Bruce Kogut.
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Knowledge Networks: Explaining Effective Knowledge Sharing in Multiunit Companies

Author(s): Morten T. Hansen

ORGANIZATION SCIENCE, ? 2002 INFORMS 1047-7039/02/1303/0232/$05.00

path lengths. Long path lengths, in contrast, lead to in-

ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002 233

ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002 235

Data and Methods Specifying Project-Specific Knowledge Networks

Setting Identifying Related Subunits. Together with the three

Because my theoretical analysis focuses on knowledge

ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002 239

Item Variables Mean S.D. Min Max 1 2 3 4 5 6 7 8 9 10 11 12 1

3. Budget 6.735 1.061 4.500 10.719 0.012 -0.257

5. Product 0.750 0.435 0.000 1.000 -0.095 0.110 -0.044 -0.096

* Standardized variables (mean set to 0; S.D. set to 1)

Variables Model 1 Model 2 Model 3 Model 4

Knowledge Network Controls

Fixed Effects? No No Yes Yes

Log likelihood -33.1 -31.3 -9.8 - 7.5

Note. Number of observations with depend

*p < 0.1; **p < 0.05; ***p < 0.01

242 ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002

Table 3 Results for Hazard Rate Analysis of Project Completion Time

Variables Model 1 Model 2 Model 3 Model 4 Model 5

Knowledge Network Controls

Log likelihood -640.1 -639.8 -613.8 611.4 -607.2

Note. Coefficients for divisional dummy var

Two-tailed tests for variables. Standard errors in parentheses.

ORGANIZATION SCIENCE/Vol. 13, No. 3, May-June 2002 243

firms. Likewise, research on lateral integrative mecha- (5) Optics 4 12

(6) Mechanical measurement 4 9

Appendix 2. Comparison of Three Measures for Codified Knowledge

*When a problem surfaced for the

components of that list interact to

Endnotes Collins, B. E., H. A. Guetzkow. 1964. A Social Psychology of Group

Accepted by Bruce Kogut.

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p < 0.1; p < 0.05; p < 0.01