Cross-Functional Knowledge Management: The International Landscape 0367074230, 9780367074234

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Cross-Functional Knowledge Management Diverse kinds of knowledge are vital for each organization that would successfully compete today in an international scenario. The emergent relevance of knowledge and its management in an even more complex environment opens up the possibility to analyze, investigate and deepen our understanding on different aspects related to several functional areas in business management. Nowadays, firms that create new knowledge and apply it effectively and efficiently will be successful at creating competitive advantages. The choices of the firms in selecting and applying different knowledge processes (such as knowledge sourcing, transferring and exploiting) as well as knowledge tools may be crucial. Thus, the role of knowledge as the key source of potential advantage for organizations and indeed whole economies is still a hot debate in the international landscape. This book develops insights for the management of knowledge in cross-functional business areas to originate an innovative approach to the classical Knowledge Management (KM) field. This book provides a fresh perspective on different knowledge-related topics in an international landscape, highlighting the key role of knowledge and its management in business activities. Overall, the primary aim of this book is to extend our understandings on how KM can be helpful in several cross-functional management areas, such as strategic management, finance, HRM and innovation as well as in different business circumstances such as M&A, internationalization processes and risk management. Riad Shams is a senior research fellow at the Ural Federal University, Russia. He has published in and guest edited for various leading business journals. He is the leadeditor of the Annals of Business Research and has been serving as the track-chair in leading international academic conferences. Demetris Vrontis is a professor and an executive dean at the University of Nicosia in Cyprus. He is the president of the EuroMed Research Business Institute and the editor-inchief of the EuroMed Journal of Business. He has widely published in over 180 refereed journals and 25 books and given numerous presentations at international conferences. Yaakov Weber served in various editorial positions in leading journals such as CMR, JWB, HRM, BJM. He has published in top journals such as SMJ, MSci, JOM, HR, JBR, BJM and received more than 4,500 citations, including “2nd most cited”, “most read”, and “most downloaded”. Evangelos Tsoukatos teaches management at the University of Applied Sciences, Crete, Greece, and is an adjunct faculty at the University of Nicosia, Cyprus, and the Hellenic Open University. He earned his PhD in management from the Lancaster University Management School. Prior to joining academia, he gained experience in senior management positions. Alberto Ferraris is a senior researcher at the Department of Management, University of Turin (Italy) and he is Fellow (F-EMAB) of the EuroMed Research Business Institute. He is also a research fellow of the Laboratory for International and Regional Economics, Graduate School of Economics and Management, Ural Federal University (Russia). He is author of several international publications in academic journals and he won the “2015 Emerald/EMRBI Business Research Award for Emerging Researchers”.

The Annals of Business Research Series Editors: S. M. Riad Shams, Ural Federal University, Yekaterinburg, Russian Federation Demetris Vrontis, University of Nicosia Yaakov Weber, the College of Management, Academic Studies, Israel Evangelos Tsoukatos, University of Applied Sciences, Crete, Greece

Business Models for Strategic Innovation Cross-Functional Perspectives Edited by Riad Shams, Demetris Vrontis, Yaakov Weber and Vagelis Tsou Cross-Functional Knowledge Management The International Landscape Edited by S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Alberto Ferraris For more information about this series, please visit: www.routledge.com/ The-Annals-of-Business-Research/book-series/BUSRES

Cross-Functional Knowledge Management The International Landscape

Edited by S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Alberto Ferraris

First published 2019 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 selection and editorial matter, S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Alberto Ferraris; individual chapters, the contributors The right of S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Alberto Ferraris to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book has been requested ISBN: 978-0-367-07423-4 (hbk) ISBN: 978-0-429-02065-0 (ebk) Typeset in Sabon by Apex CoVantage, LLC

Contents

List of Tables List of Figures Acknowledgments Editorial Note Notes on Contributors 1 The Relevance of Managing Knowledge in an International Landscape

x xii xiii xiv xx

1

S. M. RIAD SHAMS, DEMETRIS VRONTIS, YAAKOV WEBER, EVANGELOS TSOUKATOS AND ALBERTO FERRARIS

Introduction 1 Key Aspects of Knowledge 2 Definitions of Knowledge Management 3 The Importance of Managing Knowledge in an International Landscape 6 The Need for Further Research on Knowledge Relevance in Cross-Functional Business Areas 8 References 11 2 Knowledge Management: A Critical Review of Existing Research DEMETRIS VRONTIS, MICHAEL CHRISTOFI AND ALKIS THRASSOU

Introduction 17 Introducing Knowledge Management 18 Reviewing the Literature on Knowledge Management 20 Knowledge Management Processes 20 Antecedents of Knowledge Management 22 Barriers to Knowledge Management 24 Outcomes of Knowledge Management 25 Discussion: Limitations, Future Research Directions and Conclusions 28 Limitations and Future Research Directions 28

17

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Contents Conclusions 29 References 29

3 A Knowledge Management Approach in Developing Innovation Within Low-Tech SMEs: The Transcendental Dynamic Capability Concept

36

GLYKERIA KARAGOUNI

Introduction 36 Theoretical Background 37 The Dynamic Entrepreneurial Capabilities View 37 The Transcendental Dynamic Capability Concept 38 Research Context and Design of the Research 44 A Knowledge Management Approach in Developing Innovation Within Low-Tech SMEs: The Transcendental Dynamic Capability 47 TC and Innovation 47 Transcendental Conditions 48 Transcendental Synthesis 50 Epilogue 52 References 54 4 The Center for European Trainees: An Instrument of Cross-Functional Knowledge Management for Internationalization of Vocational Education and Training

58

HANS WIESMETH AND ANZHELA PREISSLER

Introduction 58 The Center for European Trainees 59 Literature Review 61 Methodology 62 Case Study: Strengths and Weaknesses of CET 63 Strengths of CET 63 Weaknesses of CET 64 Stakeholder Integration—Implementing the Theory 67 Final Remarks 70 Acknowledgments 71 References 71 5 How University-Bound Students in Lebanon Search for Higher Education Institutions DEMETRIS VRONTIS, EVNIKI CONSTANTINOU AND BALAKRISHNA GRANDHI

73

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Introduction 73 Literature Review 74 Research Methodology 78 Descriptive Analysis 79 Discussion and Conclusions 84 Practical Implications and Propositional Guidelines 86 Limitations and Future Research Directions 88 References 89 6 The Management of Financial Risk Knowledge in the International Conditions

93

DARKO B. VUKOVIC

Introduction 93 Literature Review 94 Financial Risks, Knowledge Management and Financial Derivatives in the International Conditions 98 Financial Derivatives and International Risks 99 Conclusion 107 Acknowledgments 107 References 107 7 Identifying Sources and Practices for Knowledge Acquisition: A Systematic Literature Review

112

GABRIELE SANTORO AND MIRKO GORIA

Introduction 112 Knowledge Management for Innovation 113 Knowledge Acquisition and Open Innovation 114 The Open Innovation Model 114 Internal Capacities for Knowledge Acquisition 115 Knowledge Acquisition Measurement 117 Research Methodology 118 Results 120 Conclusions 123 References 124 8 The Risks Associated With Knowledge: Knowledge Risk Management (KRM) ALBERTO FERRARIS

Introduction 130 Risk and Its Management 131 Risk Management Process 132

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Contents Knowledge Risk and Its Management 133 Conclusions 136 References 137

9 Behavioral Corporate Finance and Knowledge Management: A Cognitive Approach

141

ENRICO BATTISTI AND ELVIRA ANNA GRAZIANO

Introduction 141 Theoretical Backbone 142 Behavioral Corporate Finance: Corporation Biases 142 The Main Corporation Biases 144 Knowledge and Knowledge Management 149 The Main Approaches to the Concept of Knowledge Management 150 A Cognitive Approach to KM Based on the BCF Framework 151 Conclusions and Implications 152 References 154 10 Bottom-Up Approach to Creating Shared Value for Emerging Markets’ Multinational Corporations

160

ZHANNA BELYAEVA AND S. M. RIAD SHAMS

Introduction 160 The Distinct Features of the Emerging Economies’ Business and Social Environments: The State of the Art 160 Specific Features of EMNCs 164 A Conceptual Model for Value Co-Creation 167 Discussion and Conclusion 169 References 171 11 Negotiation, Micro-Foundation and Knowledge Transfer in Mergers and Acquisitions Processes YAAKOV WEBER

Introduction 173 Micro-Foundations at M&A 174 The Human Factor and Negotiation 175 Discussion and Future Research Directions 176 Acknowledgments 177 References 177

173

Contents 12 A Delphi Approach to Boost an Open Innovation Policy

ix 179

ANTÓNIO BOB SANTOS AND SANDRO MENDONÇA

Introduction 179 The Delphi Method 180 Methodology 181 Open Innovation Policy Priorities Using the Delphi Method 184 Proposals for Public Policy Measures to Stimulate Open Innovation in Portugal 189 Final Remarks 190 References 191 13 The Importance of a Knowledge Management System to Manage Relevant Knowledge in an International Scenario

195

S. M. RIAD SHAMS, DEMETRIS VRONTIS, YAAKOV WEBER, EVANGELOS TSOUKATOS AND ALBERTO FERRARIS

Introduction 195 The Development of a Knowledge Management System 197 Conclusion, Limitations and Future Research 201 References 204 Index

208

Tables

3.1 Description of cases 3.2 Innovations in 2007–2016 4.1 Summary of the proposals for an integration of the various stakeholders into the CET activities 5.1 How much time do you spend on social media per day? 5.2 Would you read a brochure/booklet that contains information on a subject of your interest? 5.3 How much time would you spend reading a brochure/ booklet that contains information on a subject of your interest? 5.4 Which of the following sources would you first use when you start looking at a university? 5.5 Before making my final university decision, I would visit its website 5.6 Before making my final university decision, I would visit the campus 5.7 Before making my final university decision, I would talk to former students 5.8 Before making my final university decision, I would visit higher education fairs 6.1 Exchange-traded futures and options, by currency (notional principal, in billions of US dollars) 6.2 Global OTC derivatives market (In billions of US dollars) 6.3 Real effective exchange rates (27 economies indices, CPI-based; period averages; 2010 = 100) 7.1 Five phases of a systematic literature review 7.2 Search information 7.3 Journals identified 9.1 Biases, definition of biases, and cited authors 10.1 Drivers of EMNCs’ international expansion 10.2 Specific advantages of EMNCs

45 46 70 79 80

80 81 82 83 83 84 103 105 106 119 120 121 148 163 167

Tables 12.1 Subjects of the questions presented through the Delphi method 12.2 Level of responsibility in innovation policy by the members of the Delphi panel 12.3 Summary of the application of the Delphi method, according to the answers agreement

xi 182 183 185

Figures

5.1 Framework on information sources used for a university search 6.1 Link between financial risks, knowledge management and financial derivatives 6.2 Notional amount outstanding by risk category on over-the-counter (OTC) derivatives markets 6.3 Derivatives divided by risk category 6.4 Derivatives markets by currencies 7.1 Sources for knowledge acquisition used by empirical studies 7.2 Practices for knowledge acquisition used by empirical studies 9.1 Behavioral corporate finance versus traditional corporate finance 9.2 A cognitive approach to knowledge management based on the behavioral corporate finance framework 10.1 The role of business in society evolution in BRICS countries 10.2 Index of economic freedom (2018) 10.3 Prosperity rankings of BRICS countries (2017) 10.4 Corruption perception index (2017) 10.5 Creating shared value conceptual model

85 100 101 102 104 122 123 144 152 162 164 165 166 169

Acknowledgments

We gratefully acknowledge the generous support of colleagues, who extended their hands to help us to make this book successful. We sincerely thank the contributors for their invaluable contributions. Without their disciplined effort, this book project would not have been accomplished. We would like to express our gratitude to all subject experts for volunteering in the double-blind review process. Moreover, a special thank is due to Ludovica Laddomada for her precious help. We also would like to acknowledge the friendly and supportive role of the editorial staff of Routledge. Last, but not least, we appreciate all our family members for their encouragement to make this project a success.

Editorial Note

Cross-Functional Knowledge Management: The International Landscape This book develops insights for the management of knowledge in crossfunctional business areas to originate an innovative approach to the classical Knowledge Management (KM) field, in order to underpin research and practice in the wide area of business management. In general, novel cross-disciplinary knowledge plays an important role in business and management. but this knowledge needs to be managed within and also outside (through networks) the firm. This book provides a fresh perspective on different knowledge-related topics in an international landscape, highlighting the key role of knowledge and its management in business activities. Overall, the primary aim of this book is to extend our understandings on how KM can be helpful in several cross-functional management areas, such as strategic management, finance, HRM and innovation as well as in different business circumstances such as M&A, internationalization processes and risk management. In terms of academic research, these cross-disciplinary contexts of theoretical developments offer a number of innovative theoretical insights, which are comprehensively supported by rigorous conceptual developments and state-of-the-art empirical analyses, focusing on different aspects of diverse management functional areas. Alongside presenting the new research, this book also offers generous scopes for further research in knowledge-related disciplines. In terms of practical implications, the different chapters offer the varied business discipline-specific fresh suggestions and their relevant managerial area-specific implications. Moreover, the overall relevance of the chapters in different international contexts presented in this book appears as instrumental to enable the crossfunctional knowledge management for firms and managers operating in an international landscape. In order to develop insights focusing on the discussion thus far, this book pursues the aim of extending our understandings on how knowledge management may be applied or connected with different cross-functional

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business and management areas in order to proactively explore/exploit business opportunities and/or limit business risks related to knowledge. To pursue this aim, except the introductory first and the concluding last chapters, the rest of the cross-disciplinary middle chapters of this book are carefully commissioned, focusing on the cutting-edge research on knowledge management issues from the perspectives of the diverse business management functional areas. The first chapter of the book overviews the significance of research in knowledge management, based on cross-disciplinary theoretical gaps, and relevant issues along with the need for further research in an international scenario. The last chapter summarizes the overall findings of the rest of the cross-disciplinary middle chapters of the book to propose innovative perspectives on the role of KM in nowadays international scenario that will have implications for cross-functional business management. More specifically, Chapter 1 introduces the concept of knowledge from different perspectives, describing the key aspects of knowledge and KM. This introductory chapter explains the different types of knowledge within organizations, starting from the definition of tacit and explicit knowledge. After defining main concepts, the chapter focuses on the management of knowledge as an added value in companies and organizations, which should be deeply addressed in order to obtain sustainable competitive advantage. Finally, the chapter focuses on the importance of knowledge management in an international context, highlighting the key aspects and the difficulties deriving from the barriers related to different cultural contexts. The last part of the chapter highlights the need for further research on the relevance of managing knowledge in different crossfunctional areas in order to deeply address and analyze underdeveloped lines of research. In Chapter 2, a thorough review and analysis of the existing literature on the concept of knowledge management is carried out, introducing the knowledge management discipline and providing an overview of what has been done so far in the existing research. Moreover, in this chapter factors and peculiar characteristic of KM have been evidenced as well as barriers and limits. Having explained the pivotal concepts, the chapter provides a roadmap of the knowledge management domain as well as the basis for professionals to be guided and scholars to be given a framework to build further on. Chapter 3 shows the relevance of knowledge for innovation in a specific context of analysis, low-tech SMEs, exploring “how” innovative knowledge-based concepts are created. Low-technology industries constitute an important part of the global economy and present several peculiarities and key characteristics in the knowledge management domain. The main original contribution is the introduction of the Transcendental Capability (TC) as a purely dynamic entrepreneurial capability that implies the development of transcendental conditions and transcendental

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synthesis. The authors concluded the chapter arguing that TC is a purely dynamic entrepreneurial capability of strategic nature that purports to explain how low-tech firms and especially SMEs manage knowledge as a valuable resource for innovation. Chapter 4, instead, focuses on the internationalization of vocational education as an example of cross-functional knowledge management in an international context. Through a case study based on data taken from the pilot phase of the Center for European Trainees (established in Baden-Württemberg in 2014), the authors tried to re-create a model of professional education suited to the German context, identifying its strengths and weaknesses in relation to various hurdles complicating this kind of knowledge management in an international landscape. These strengths and weaknesses make it possible to understand which elements should be taken into consideration and which ones need to be improved or eliminated. This chapter highlights private benefits provided by the Center, such as services for companies as well as cross-functional collaboration within the network of partner institutions and the adequate integration of these stakeholders within the CET. Moreover, the authors argued that the Center for European Trainees can be used as a “model for the internationalization of vocational education and training” that can be replicated in different contexts. In Chapter 5, the authors focus on understanding how the digital generation searches for higher education institutions. In fact, one of the core tools for transferring knowledge is through information and communication technologies (ICTs), which include, among others, online information sources that may enhance human capital in the means of online recruiting and information supply. Consequently, the evolution of ICT enables the creation of new communication channels that can be used by both prospective students as well as higher education marketers to reach each other. This chapter is based on students from two public and three private schools in Beirut and it has the objective of understanding how the decision-making process and its related knowledge take place, starting from the university’s online websites to campus visits. Through this study, the authors have succeeded in outlining which marketing channels institutions should invest in advertising, and have been able to formulate three research hypotheses for which future research should be empirically tested and validated by the proposed framework. Chapter 6 analyzes the relevance of knowledge management in making financial decisions (the choice of financial instruments) in order to reduce risks in international conditions. The most original contribution of this chapter lies in providing solutions for risk reduction to companies that operate in conditions of international financial risks and for whom some innovations are based on knowledge components or assets. The authors used the BIS bank (Bank for International Settlements) data (2018) as one source of most developed financial derivatives markets.

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They argued and confirmed that financial innovations based on the best practices aimed at risk protection contribute to the stability of financial flows. Such instruments represent a cost to companies but they contribute to heavily reduce risks. Thus, this chapter delivers important contributions to the still underdeveloped literature on the financial knowledge management. Chapter 7 focuses on the analysis of knowledge management observed from the point of view of innovation, i.e., how KM is used to improve innovation. In this chapter, we show how knowledge is linked to the model of open innovation and how the latter allows at the same time the acquisition of knowledge from outside the firm’s boundaries and the exchange of internal knowledge and information. In fact, knowledge is the key resource for innovative companies, so managers should try to understand what kind of knowledge they require and which open innovation strategies accordingly should develop. The chapter provides a complete picture of sources and practices for the acquisition of knowledge through a Systematic Literature Review (SLR) from 2003 to 2017. The SLR identifies 19 sources and 16 practices for knowledge acquisition used by previous studies, offering to manager and researcher an original and comprehensive view of knowledge acquisition for innovation. Chapter 8 focuses on the definition of risk, in particular on the risk linked to the complexity of knowledge sharing, which is still a critical element within several business areas of companies. The chapter focuses on risk management as a basic business process for business survival over time, linking this process to knowledge management. These two elements are closely intertwined and cannot be separated in any way from the continuous technological improvement. The chapter describes the four main types of risks and shows how Risk Management (RM) has become an integrated part of project management, including several processes related to planning, identification, analysis and monitoring and control of risk in a project. At the end of the chapter Knowledge Risk Management (KRM) has been proposed. This is a relevant discipline that focuses the attention of managers on several key risks related to knowledge (knowledge leakage risk, knowledge loss risk, knowledge obsolescence risk, knowledge shortage risk). Chapter 9 deals with how the failure of the behavioral monitoring processes of managers and directors has led to negative effects on company profitability and trends. In this context, the process of dissemination and knowledge management is the most studied to identify the causes and effects of this negative movement. The purpose of the chapter is to introduce the cognitive approach to knowledge management, adopting it from behavioral corporate finance (BCF) to bring together different points of view on the creation and management of knowledge. The aim of the study is to define new research developments that also consider behavioral phenomena as determining elements in the decision,

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which until today have not been the focus of many studies. Thus, the chapter links the cognitive approach to KM from the point of view of the BCF and it is useful for managers at different levels and for entrepreneurs or top management members who want to implement a knowledge management process in their organization. In Chapter 10 the multiform nature of the creating shared value (CSV) approach is analyzed in the multinational companies of emerging markets (EMNC) and its conceptual differences with Western multinationals (MNC). Shared value creation focuses on identifying and expanding the connections between societal and economic progress, as well as on specific tailored knowledge transfer. The analysis proposes a conceptual model that provides professionals with explanations for the motivations and principles of value co-creation in emerging markets. This model can be used to improve and adapt the activities of multinational companies to the needs of emerging markets, improving the overall global knowledge approach of these MNCs. Chapter 11 analyzes knowledge aspects in the Merger and Acquisitions (M&A) processes, in particular in the negotiation stage. The author asserts that without human factors, such as managers’ support, and its cross-functional managerial effects including knowledge and knowledge management, the expected performance from a merger or acquisition is rarely realized. This chapter adds knowledge on the crucial yet neglected factors that influence negotiation outcomes in M&A and, at the same time, it shows the role of the micro-foundations in the negotiation process and their cross-functional management effect on the implementation stage and M&A performance. One of the main important conclusions of this chapter is that the creation of specific knowledge during the negotiation stage can provide a better understanding of the post-merger integration challenges. Chapter 12 proposes how an open innovation approach may contribute to the design of innovation policies, namely what concerns the knowledge management field. Using the Delphi method, the authors would propose useful insights in order to learn from public policy decision makers and experts. The main outcome concerns the analysis of how innovation policy can be designed according to an open innovation perspective, contributing for better knowledge management policies. The main contributions reside in the inclusion of open innovation principles within the main priorities for innovation policy in order to enhance knowledge management. Finally, the last chapter of this book provides an overview of the entire book. In addition, the authors analyze the Knowledge Management System (KMS), which is a process that should carefully address three main elements (technology innovation, organization and environment contexts) in order to understand if a company has chosen to implement the

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dissemination of knowledge or if it has decided to keep it for itself. A company that operates in an international scenario that improves KMS allows an exchange of information necessary for the development of both employees and business performances. S. M. Riad Shams Ural Federal University, Russia Demetris Vrontis University of Nicosia, Cyprus Yaakov Weber College of Management, Israel Evangelos Tsoukatos University of Applied Sciences Crete, Greece Alberto Ferraris University of Turin, Italy

Contributors

Enrico Battisti, PhD in business and management, is assistant professor in corporate finance at the School of Management and Economics, University of Turin. He undertakes research integrated with the Department of Management of the University of Turin and he is associate fellow of the EuroMed Research Business Institute (EMRBI). His research interests include capital structure, Islamic corporate finance, real estate finance and behavioral corporate finance. He has published in refereed journal articles, contributed chapters and books and presented papers to conferences on a global basis. Zhanna Belyaeva, PhD, is a full-time associate professor, head of EPAS accredited BA program in International Economics and Business and head of the research unit for the Global Social Responsibility Excellence and International Business at the Graduate School of Economics and Management, Ural Federal University (Russia, Yekaterinburg). She has taught in several European universities and has corporate experience in Russia, Switzerland and Sweden. Her research interests and major publications as well as editorials in refereed journals are in the field of corporate development and global social responsibility models, international business and sustainable development strategies. Michael Christofi received his doctorate in business administration from the University of Gloucestershire Business School, Cheltenham, UK. He is a senior research fellow in marketing strategy and innovation at the University of Nicosia in Cyprus. Previously, he served in various R&D, sales and marketing roles with large organizations. His research spans the fields of corporate social responsibility, cause-related marketing, strategic marketing, product innovation, strategic agility and organizational ambidexterity and has been published in the International Marketing Review, Journal of Services Marketing, and Marketing Intelligence & Planning, among other outlets. Evniki Constantinou is a business professional in the education industry, currently serving as a Quality Assurance Acting Coordinator in the

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Distance Learning unit of the University of Nicosia. She has previously worked as an administrative coordinator for the franchise program of the St. George’s University of London delivered in collaboration with the University of Nicosia in Cyprus. Evniki holds a master’s in business administration and a bachelor’s in computer science. Alberto Ferraris is a senior researcher at the University of Turin—Department of Management. He is also research fellow of the Laboratory for International and Regional Economics, Graduate School of Economics and Management, Ural Federal University (Russia). He is an associate member (AM-EMAB) of the EuroMed Research Business Institute. He is a member of the EuroMed Research Business Institute Research Group on “multinational enterprises and corporate governance” since 2012. He is the author of several academic and scientific articles published in international journals such as Journal of Knowledge Management, R&D Management, Technological Forecasting and Social Change and Multinational Business Review. He won the Emerald/EMRBI Business Research Award for Emerging Researchers in 2015. Mirko Goria collaborates with the Department of Management, University of Turin, Italy. He acts as a consultant in an Italian firm and he is author of several academic articles. Balakrishna Grandhi is currently the dean of Global MBA and MGB programs, area head for Marketing, and professor of Marketing & Strategy at The SP Jain School of Global Management. He is a member of the Academic Board, Academic Course Development & Regulations Committee and Examinations Board governing the programs across Dubai, Mumbai, Singapore and Sydney. He was earlier the dean of executive MBA (2006 to 2016). He has done his master’s in Management Sciences at Madras University, and MBA & PhD at The Carlson School of Management, USA. He is a Fellow of the Chartered Institute of Marketing (UK), a member of the American Marketing Association and the Country Director (UAE) for the EuroMed Research Business Institute. In his professional career spanning over four decades, besides being an academician, he has been an entrepreneur, senior practitioner, consultant and a trainer. While earning his PhD, he was a recipient of Medical Data Reports Inc. Fellowship, Roland S Vaile Fellowship, Jack L Hurley Grant and AMA’s Doctoral Dissertation Award. He has published widely and participated in many workshops/conferences across the globe. Elvira Anna Graziano, PhD in banking and finance, University of Rome “Tor Vergata”, is assistant professor in Financial Markets and Institutions at Link Campus University, where she teaches corporate finance, international corporate and investment banking and behavioral finance. Winner of the AIDEA award for young manager in 2012 and

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Euromed Conference Best Abstract in 2016, her main research interests focus on behavioral finance and investors’ performance. Glykeria Karagouni is an associate professor in entrepreneurship, innovation and production technologies, in the University of Applied Sciences of Thessaly (Greece). She is a mechanical engineer (PhD, MSc, B Eng) with a PhD in knowledge-intensive entrepreneurship, innovation and production technologies from the National Technical University of Athens and has more than 25 years of professional experience in industry and public positions. She teaches various courses in production technologies, management, strategy and entrepreneurship both at the undergraduate and the postgraduate level. Her primary research interests lie in the main domains of strategy, entrepreneurship and innovation with a particular interest in strategic and industrial management, knowledge-based entrepreneurship, innovation, production and technology management, focusing further on SMEs, low-andmedium-tech industries and internationalization, areas in which she has widely published and consulted. She has contributed to a number of related research projects, some of which are financed by the EU and national sources. Sandro Mendonça is professor at the Department of Economics, ISCTE— Lisbon University Institute. Since February 2018, he is executive board member of ANACOM, the Portuguese communications regulator. He is a German Marshall Fund Fellow since 2012. He was a visiting scholar of King’s College, London, in the fall of 2012. In 2015 he was nominated “European Young Leader” by the Friends of Europe Foundation. He is faculty of the University of Sussex since 2016. Since 2012 he teaches and supervises at the doctoral programs of the Southern Medical University (Guanghzou) and the University of Electronic Science and Technology of China (Chengdu). He was Scientific Manager of “Science and Society” at CYTED (the IberoAmerican program for science and technology, www.cyted.org) from January 2014 until December 2017, and remains an adviser to the secretary general. His research and consultancy work have mostly focused on innovation and industrial policy, but he is also active in the fields of strategic foresight and conflict research. His research is cited in a number of scientific papers as well as academic textbooks, professional handbooks, quality standards, and official reports by international organizations, including the European Commission, the OCDE, several UN agencies, etc. Anzhela Preissler has been head of the unit Professional Development  & Competency Management at Fraunhofer Center for International Management and Knowledge Economy IMW at Leipzig, Germany since 2007. In this context, she has been responsible for

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several application-oriented R&D projects, funded by the German Ministry of Education and Research (BMBF). Selection: (1) metaproject: “barriers and drivers of the internationalization of vocational education and training companies”, (2) evaluation project: “Center of European Trainees (CET)”, (3) publicly funded project: “Adding health competencies to the competency management of German small and mediums sized companies” (BMBF program: Future of Work). Between 1993 and the year 2006, she was lecturer at the University of Economics in Ternopil, Ukraine, and from 2003 she was head of the department. In her current research she focuses on internationalization of vocational education and training, the management of competencies and learning processes on the job (with special emphasis on small and medium sized enterprises). Gabriele Santoro, Department of Management, University of Turin, Italy. He obtained his PhD in business and management at the University of Turin in 2017 and is author of several papers published in Technovation, Technological Forecasting and Social Change, and Journal of Technology Transfer. His research interests include open innovation and knowledge management. António Bob Santos holds a PhD in economics from ISCTE-IUL (University Institute of Lisbon), with research on open innovation, clusters and innovation policy. Currently Antonio is member of the Board of ANI— Portuguese Innovation Agency. António is a former adviser to the Portuguese government in innovation policy. In the period 2011–2013 he had responsibilities in the definition and in the deputy-coordination of the Portuguese Digital Agenda, the Innovation and Entrepreneurship National Programme (+E+I) and the Clusters national program. Before that (2005–2011) he had responsibilities in the deputy-coordination of the following programs: the Technological Plan, the Digital Agenda 2015, the Lisbon Strategy and the EU2020 strategy in Portugal, the National Strategy for Sustainable Development (ENDS 2005–2015) and the European Year of Innovation and Creativity in Portugal (2009). In the period 2002–2005 Antonio worked at UMIC—Agency for Knowledge Society—where has designed initiatives like b-On (Online Knowledge Library), NEOTEC (Technology-based companies program) or OTIC (Technology Transfer Offices). He was a visiting assistant professor at Polytechnic Institute of Santarém (2008–2012), with the coordination of the “eGovernment” chair in the Master of Multimedia Education and Communication. Antonio was also a visiting assistant at ISCTE-IUL (2017/2018), in the Master of Economics of Enterprise and Competition. He is author of academic and non-academic articles about innovation, innovation policy, open innovation and clusters.

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Contributors

S. M. Riad Shams is a senior research fellow at the Ural Federal University, Russia. He has completed his doctoral research from the Central Queensland University, Australia in 2011. His MBA and BBA (honors) have been awarded by the University of Dhaka, Bangladesh, in 2004 and 2003 respectively. He is a fellow at the EuroMed Academy of Business, EU. The key research areas of Dr. Shams are stakeholder relationship management, business sustainability, strategic management, corporate reputation, image and brand positioning. Dr. Shams has published in and guest edited for various prominent journals, namely, the Journal of International Management, Journal of Business Research, International Marketing Review, Journal of Hospitality & Tourism Research, Journal of Social Entrepreneurship, Journal of General Management and so forth. He is the lead editor of the Annals of Business Research and has been serving as the track-chair in the leading international academic conferences. Alkis Thrassou is a professor at the School of Business, University of Nicosia (Cyprus, EU). He holds a PhD in strategic marketing management from the University of Leeds (UK) and is also a chartered marketer and fellow (FCIM), a chartered construction manager and fellow (FCIOB), a chartered management consultancy surveyor (MRICS), a senior research fellow of the EuroMed Academy of Business (SFEMAB/ EMRBI), a member of the Society of Petroleum Engineers (SPE) and a member of Cyprus’ Technical Chamber (ETEK). He has extensive academic and professional/industry experience, and has undertaken significant research in the fields of strategic marketing, management and customer behavior. He has published about 130 works in numerous internationally esteemed peer-reviewed scientific journals and books, and he retains strong ties with the industry, acting also as a consultant. Evangelos Tsoukatos teaches management at the University of Applied Sciences Crete, Greece, and is adjunct faculty at the University of Nicosia, Cyprus, and the Hellenic Open University. He earned a BSc in mathematics from the “Aristotelian” University of Thessaloniki, Greece, a postgraduate diploma and MSc in operational research from Lancaster University Management School, UK, where from he also earned his PhD in management science. Prior to joining academia Dr Tsoukatos had extensive experience as a consultant and in senior management positions. His research interests are in services management, quality management, cross-cultural management and entrepreneurship. He holds the position of vice president— operations and development at the EuroMed Research Business Institute. He is associate editor of the EuroMed Journal of Business (EMJB) and editorial board member in a number of international scholarly journals. More information at http://teicrete.academia. edu/EvangelosTsoukatos.

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Demetris Vrontis is a professor and an executive dean at the University of Nicosia in Cyprus, where he has also served as head of the Marketing Department and as dean of the School of Business. He is the president of the EuroMed Research Business Institute and the editor-in-chief of the EuroMed Journal of Business. Professor Vrontis is also a visiting professor and visiting research fellow and collaborates with various universities and organizations around the globe. He is a certified Chartered Marketer and Business Consultant and has widely published in over 180 refereed journals and 25 books and has given numerous presentations in international conferences. Darko B. Vukovic is an associate professor at National Research University Higher School of Economics, St. Petersburg School of Economics and Management, Department of Finance. He is a research fellow at Geographical Institute “Jovan Cvijic” of the Serbian Academy of Sciences and Arts and Chief of Department of Regional Geography. His main topics of research are financial markets, portfolio management, investments and regional economics. Professor Vukovic is member of many national and international professional bodies and also member of editorial board of several international journals. In 2016, he registered an international patent in the field of agglomeration economy. In 2017, he received honorary Doctor of Excellence diploma, honoris causa (Excellentia Doctor), from CIAC—Confederation of International Accreditation Commission, Canada, New Delhi (2017) and from KEISIE—International University (KIU), South Korea (2017). In same year he received a certificate for outstanding excellence in Regional Economics from Indian Management Academy. Yaakov Weber serves in various editorial positions in leading journals such as California Management Review, Journal of World Business, Human Resource Management, British Journal of Management, and more. He has published in top journals such as Strategic Management Journal, Management Science, Journal of Management, Human Relations and Journal of Business Research. His research has received more than 5,000 citations. Other papers achieved “2nd most cited in last 5 years (2010–2015)” and “most read” (2011–2015) or “most downloaded” in leading journals in recent years including 2017. Professor Weber is the winner of an “Outstanding Author Contribution Award” in his area of expertise. Professor Weber is co-founder and co-president of the EuroMed Business Research Institute (www.emrbi.org), the EuroMed Academy of Business and the EuroMed Research Centre. Professor Weber has been senior consultant to CEOs, top executives and directors in leading companies such as Coca-Cola, Motorola, Society of Israel Plastics & Rubber Manufacturers, the largest international engineering company in Israel, the USA-Israel Chamber of Commerce and international companies.

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Hans Wiesmeth is currently president of the Saxon Academy of Sciences at Leipzig, Germany. From 2005 till 2010 he served as dean of HHL— Leipzig Graduate School of Management. He had professorships in economics at Technical University of Dresden (1992–2015), and at University of Bonn (1981–1992). As visiting professor, he spent two years at Canadian universities. He also served as vice-rector research of Technical University of Dresden from 1993 through 2000, and as president of DIU—Dresden International University from 2010 through 2014. After retiring from his position at Technical University of Dresden, he holds an advisory position at the Fraunhofer Center for International Management and Knowledge Economy in Leipzig, Germany, and works for the Graduate School of Economics and Management of Ural Federal University in Yekaterinburg, Russia. His current research interests range from general equilibrium theory to environmental economics, covering various aspects of allocation theory with applications.

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The Relevance of Managing Knowledge in an International Landscape S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Alberto Ferraris

Introduction Organizations all over the world have to face high risks of competition and the possibilities of losing customers. One of the most important factors that causes this problem is that the organizations have a lot of difficulties in facing the rapid changes of market trends (Del Giudice, Della Peruta, & Carayannis, 2010). Very often in different organizations, knowledge management has become the solution to this problem and, simultaneously, the key driver to create customer values (Ting Si Xue, 2017). With the purpose of taking full advantage of knowledge management, organizations must have a clear understanding on how knowledge is formed (Ipe, 2003; Van den Hooff & Huysman, 2009), in particular in a global scenario. In fact, in an international landscape KM gains crucial knowledge from both inside and outside of the organizations for different reasons such as improving service quality by providing faster service response time (Edvardsson & Oskarsson, 2011; Ha, Lo, & Wang, 2015; Bresciani, Ferraris, & Del Giudice, 2016). Nowadays, knowledge is one of the most valuable key sources of competitive advantage in different organizations, but in order to fully take advantage of critical knowledge, organizations should explicitly manage it. In fact, Knowledge Management (KM) is the systematic management of vital knowledge—and its associated processes of creation, organization, diffusion, use and exploitation (Skyrme, 2001). Its importance has been recognized for a long time in many and different streams of business management research (Grant, 1996). Within the literature, knowledge management has been analyzed from a multitude of angles. A lot of studies have been conducted in the private sector while less research has been done in the public sector (e.g.Willem & Buelens, 2007). According to Hackbarth (1998) the main goal of KM is to improve innovation and responsiveness in the exchange of information, in particular inside the organization. Davenport and Prusak (1998) showed that most knowledge management projects have one of three aims: (1) to show the role of knowledge in an organization and to make the process

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visible; (2) to promote a culture of intensive knowledge by encouraging and aggregating behaviors such as knowledge sharing and proactively seeking; (3) to create a knowledge infrastructure and not only a technical system, understood as a connection between people, given space and time. In general, novel cross-disciplinary knowledge plays an important role in business management also if we look at the relevance in managing knowledge that resides within and also outside (through networks) firms’ boundaries. This book develops different insights for the management of knowledge in cross-functional business areas to originate an innovative approach to the classical knowledge management (KM) field, in order to underpin research and practice in the wide area of business management.

Key Aspects of Knowledge Some authors defined knowledge as (1) a state of mind, (2) an object, (3) a process, (4) a condition of having access to information, or (5) a capability (Schubert, Lincke, & Schmid, 1998; McQueen, 1998). Specifically, as a state of mind, knowledge allows individuals to expand their personal knowledge and apply it to the organization’s need (Schubert, et al., 1998). As an object, it can be viewed as something to be stored and manipulated. As a process, knowledge can be viewed as a trial of simultaneously knowing and acting (McQueen, 1998), where knowledge enables acting by applying expertise. As a condition of having access to information, the focus of knowledge is to facilitate access to and retrieval of contents (McQueen, 1998). In this case, knowledge is conceived as the capability to use information to make decisions. Even though knowledge can be classified at the level of individuals or groups, internal or external to firm boundary, hard or soft, practical or theoretical, the most common and well-known taxonomy is the tacit vs. explicit (Nonaka, 1994; Pathirage, Amaratunga, & Haigh, 2007). Tacit knowledge, according to Mooradian (2006) and Grant (2007), is something personal, an ability, a skill to do something, which is partially based on people’s own experiences, and this is one of the key aspect of KM. Explicit knowledge can be documented, codified and shared, can be stored in digital systems and technological ways, and it is transferable. It can be achieved, collected, transformed, shared, communicated with ease and be accessible to people. This type of knowledge is typically more prevalent in organizations (Joia & Lemos, 2010; Huang, Davison, & Gu, 2011). Tacit knowledge is difficult to be evaluated and accessed, is less familiar and it creates the background necessary for assigning the structure to interpret and improve explicit knowledge (Polanyi, 1975). Tacit knowledge is different from explicit knowledge as it is usually shared in drawings or writing. Nonaka, the father of this stream of literature, argued that knowledge is formed through the interactions of tacit and explicit

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knowledge (Nonaka, 1994). Sánchez et al. (2012) added that very often tacit knowledge is meaningless without explicit knowledge, because both types of knowledge are complementary and essential for knowledge creation. Knowledge can be measured in many different ways within organizations. People employed hold knowledge, known as tacit knowledge, in their minds (Davenport, De Long, & Beers, 1998). Tacit knowledge is hard for others to use, and represents knowledge that is influenced by personal experiences, which are shared when employees meet and share their knowledge in the organization. This kind of knowledge is made up of experiences, information, values and systematic attitudes that provide a proper framework for evaluation of new information and experience. New knowledge is created when employees within the organization share their own knowledge, either tacit or explicit (Hooff & Hendrix, 2004), and this is known as “knowledge sharing”, which is one of the main core processes beyond KM. Nowadays, the tacit-explicit knowledge classification has become too superficial, because there are many other classifications of knowledge that try to identify useful distinctive knowledge in organizations with a more pragmatic approach. Examples include knowledge about competitors, heuristics rules, products, processes, customers etc. Different authors (Alavi & Leidner, 2001) coined some very famous types of knowledge. • • • • • • • •

Individual: knowledge made and deep-seated in the individual; Social: knowledge made and deep-seated in the collective group and their actions; Declarative: know-about; Procedural: know-how; Causal: know-why; Conditional: know-when; Relational: know-with; Pragmatic: the essential knowledge for organizations.

Definitions of Knowledge Management The interest in KM has increased over time, becoming a relevant issue in the late 1980s. KM is a way for organizations to take care of all the existing knowledge within the organization. However, the definition of knowledge management is not easy to identify. Today, we still have the tendency to use the term “knowledge” to describe information systems and databases. In reality, more attention is paid to technological infrastructures that allow the passage of information rather than real knowledge and the transfer of it between people (Nonaka, 1994).

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Many authors have given different definitions of knowledge management, identifying different points of interest. According to Sorge (2000, p. 26): KM is the managerial discipline that studies business knowledge and is responsible for identifying the methods and tools for its management through an approach based on cultural, organizational and technological innovation; this approach is aimed at developing skills and competences able to increase the company’s competitiveness, optimizing its processes, shortening the “time to market” and orientating its structures in a more functional way to the business. KM can be also defined as “an emerging set of organizational design and operational principles, processes, organizational structures, applications and technologies that helps knowledge workers dramatically leveraging their creativity and ability to deliver business value” (Gurteen, 1998, p. 6). KM can also be considered as “the practice of selectively applying knowledge from previous experiences of decision-making to current and future decision-making activities with the express purpose of improving the organization’s effectiveness” (Jennex, 2005, p. iv). Further, according to Gold and other authors (Gold, Malhotra, & Segars, 2001) managing knowledge means to unite the internal and external knowledge of organizations, transforming knowledge into new ideas and strategies. Instead, according to Lytras, Pouloudi, and Poulymenakou (2002), knowledge management is a systematic application of knowledge itself. There are four main elements and processes in knowledge management (Zaim, 2006; Fong, & Choi, 2009; Turner, Zimmerman, & Allen, 2012) that conceive the organization as a knowledge system: 1. Knowledge Creation or Knowledge Acquisition: This process involves developing new contents, implementation of knowledge or replacing the current contents within the organization’s explicit and tacit knowledge (Pentland, 1995). This process engages a continual interplay between tacit and explicit knowledge, driving the organization to find knowledge inside and outside of the system. Four modes of knowledge creation have been identified by Nonaka (1994) in his studies: •

•

Socialization: it concerns the transformation of tacit knowledge to new tacit knowledge using social interaction and shared experience between members of the organization; Externalization: it refers to the conversion of tacit knowledge into new explicit ones;

Managing Knowledge in an International Landscape • •

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Internalization: concerns the creation of tacit knowledge from explicit knowledge; Combination: it refers to creation of new explicit knowledge by synthesizing existing explicit knowledge.

2. Knowledge Storage: Both explicit and tacit knowledge should be stored. Empirical studies contend that during the process of creating knowledge and learning, organizations also forget to store it (Argote, Beckman, & Epple, 1990; Darr, Argote, & Epple, 1995). For this reason, it is fundamental to develop mechanisms with the object to store the information in different forms, as for example written documentation, electronic databases and networks of individuals. There are two types of memory: individual and organizational. The first one is based on personal observations, actions and experiences. The second one is based on knowledge from the past that influences the present activities in the organization. This type of memory is divided into two areas: semantic and episodic. Semantic memory indicates general and articulated knowledge. On the other hand, episodic memory concerns the specific context. 3. Knowledge Transfer: This process involves sharing and exchanging knowledge among individuals and their networks (Alavi, Kayworth, & Leidner, 2005; Carrion, Landroguez, & Rodríguez, 2016). The process of knowledge transfer is one of the most important actions for an organization, in particular to support the process of decision-making, innovation and strategy planning. Knowledge transfer take place at different levels: between individuals, from individual to explicit sources, from individual to groups, between and across groups, and from the group to the organization. Within the knowledge transfer domain, Gupta and Govindarajan (2000) have structured knowledge in five different elements: (1) perceived value of the source unit’s knowledge, (2) motivational disposition of the source, (3) existence and richness of transmission channels, which is the main focus of literature, (4) motivational disposition of the receiving unit and (5) the absorptive capacity of the receiving unit, defined as the ability not only to acquire and assimilate but also to use knowledge (Cohen & Levinthal, 1990), which is the most difficult to implement, because the re-creation process depends on the beneficiary’s cognitive capacity to elaborate the incoming continuous stimuli. 4. Knowledge Application: This process implies the use of knowledge to adapt the strategic direction, for decision-making, for improving efficiency and reducing costs (Markus, Majchrzak, & Gasser, 2002; Orlikowski, 2002). The source of competitive advantage does not consist in knowledge itself, but in its application in different contexts. There are three primary operations for integrating knowledge to create organizational skills: directives, organizational routines and

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S. M. Riad Shams et al. autonomous task teams. The first method of integration concerns the set of procedures and rules that derive from the conversion of tacit knowledge from specialists in explicit knowledge of non-specialists, to obtain an efficient communication between the two parties (Demsetz, 1991). The second method concerns the creation and development of models for the coordination of activities that allows people to integrate and increase their specialized knowledge without communicating what they know to others. The third integration mechanism concerns the creation of autonomous work teams, which are able to face problems deriving from an absence of directives and organizational routines, through their knowledge and training (Demsetz, 1991).

The Importance of Managing Knowledge in an International Landscape Nowadays international and multinational firms have a large intake and a large output of information. Indeed, in a knowledge economy, knowledge and information are considered as instruments to use resources more effectively with the purpose of reducing costs, gaining a competitive advantage or improving corporate social responsibility (cfr. Chuang, 2004; Johannessen & Olsen, 2003; Ringel-Bickelmaier & Ringel, 2010; Chatzoglou, Chatzoudes, Amarantou, & Aggelidis, 2017). In this context, while knowledge is the primary foundation of value creation, knowledge management is even more fundamental. International and multinational firms are composed of highly diversified employees, which in many cases are hired at the local community and an effective KM needs to take into account possible cultural challenges to knowledge transfer and sharing (De Long & Fahey, 2000; Ringel-Bickelmaier & Ringel, 2010; Ferraris, Bresciani, & Del Giudice, 2016). Furthermore, a large part of staff generally is employed on fixed-term contracts. According to Ringel-Bickelmaier and Ringel (2010, p. 525), “this increased staff mobility underlines the need for active codification of information and the sharing of explicit and implicit knowledge to allow new staff a smooth take-up of their posts and to avoid knowledge drain”. For a long time, multinational companies have been used to source knowledge from other countries. Research and development (R&D) internationalization was intended to gain knowledge from abroad to integrate and improve knowledge production at home (Almeida, 1996; Cantwell & Santangelo, 2000; Bresciani & Ferraris, 2014). Today foreign direct investment (FDI) in R&D remains predominantly from advanced countries, but new players have transformed this global phenomenon. In

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the last years, emerging countries have showed an improvement of their technological capabilities and enjoy large accessibility of skilled workforce at advantageous cost, both critical inputs for knowledge production (Athreye & Cantwell, 2007; Lewin, Massini, & Peeters, 2009; Laursen & Santangelo, 2017). Nevertheless, Haeussler and Rake (2017) argue that the delocalization of R&D activities is led by knowledge rather than cost reasons. When knowledge is extremely integrated within a firm, the firm is referred as a KIE, a knowledge-intensive enterprise. In KIEs, highly qualified employees form the largest part of the staff focus mostly on intellectual work (Alvesson, 2000). According to Carayannis, Sindakis, and Walter (2015), global KIEs are among the greater producers of technological knowledge in the new economy. With their R&D work, “they play a leading role in the development of new technologies for industrial applications. Just in the United States, for example, international KIEs accounted for more than three quarters of the domestic R&D performed by all U.S. businesses in the recent years” (Del Giudice, Carayannis, & Maggioni, 2017, p. 230). Given that, international and multinational KIEs are supposed to serve as relevant players for transfers of knowledge as new technologies and research between countries. Some authors proposed a model of internationalization process that has the objective of focusing on the improvement of the individual organization, and particularly on its gradual acquisition, integration and use of knowledge about foreign markets, and on its successively increasing effort in foreign markets (Vahlne & Johanson, 2013). On the basis of the model, knowledge is the critical resource to create a strong connection with a foreign country. The absence of a strong common knowledge creates important obstacles in the development of international operations, and it can be gained particularly through such international operations. According to Vahlne and Johanson (2013), the internationalization of companies is the product of a series of different decisions ranging from the choice of a particular country, passing through a point of view of the export channel, until reaching a stronger rooting, which brings a greater investment. To achieve this link between origin country and foreign country, and make it strong and lasting, it is necessary to overcome all obstacles that derive from the differences that countries have between them. Examples of differences can be found in history, education, practice, culture and industrial development. To do this it is necessary that knowledge is shared and managed in the most correct way (Johanson & WiedersheimPaul, 1974). The basic mechanism of internationalization is based on two elements: market commitment and market knowledge (Vahlne & Johanson, 2013). Focusing our interest on market knowledge, the evaluation of alternatives is based on relevant knowledge of the market and the performance

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of the various activities (Altıntas, Kurtulmusoglu, Altintas, Kaufmann, & Alkibay, 2017). A classification of knowledge is based on the way in which knowledge is acquired. “One type, objective knowledge, can be taught; the other, experience or experiential knowledge, can only be learned through personal experience” (Penrose, 1966, p. 53). As stated by Vahlne and Johanson (2013), this experiential knowledge is the key knowledge in the present context. It is critical because it cannot be so easily acquired as objective knowledge. In domestic operations, firms may to a large extent rely on lifelong basic experiences to which they can add the specific experiences of individuals, organizations and markets. In foreign operations, however, firms have no such basic experiential knowledge to start with. It must be gained successively during the operations in the country (Johanson & Vahlne, 1977).Thus, the less the activities and knowledge required are structured and defined, the more important the experiential knowledge is. However, it is important also to distinguish between general knowledge and market-specific knowledge. As reported by Johanson and Vahlne (1977) and Vahlne and Johanson (2013), general knowledge concerns, in the present context, marketing methods and common characteristics of certain types of customers, irrespective of their geographical location, depending, for example, in the case of industrial customers, on similarities in the production process. The market-specific knowledge is knowledge about characteristics of the specific national market, for example its business climate, cultural patterns, structure of the market system, and, most importantly, characteristics of the individual customer firms and their personnel. To act in a specific local context and to perform a certain type of operation or activity it is necessary to have both general knowledge and specific knowledge of the market. Specific knowledge can be acquired through personal experience in the market, while knowledge of the operation can be transferred from one country to another. Concluding, it is the diffusion of this general knowledge that eases growth in dissimilar business environments (Vahlne & Johanson, 2013).

The Need for Further Research on Knowledge Relevance in Cross-Functional Business Areas The emergent relevance of knowledge and its management in an even more complex scenario opens up the possibility to analyze, investigate and deepen our understanding on different aspects related to several functional areas in business management. This becomes even more relevant in an international landscape. In the current environment, firms that create new knowledge and apply it effectively and efficiently will be successful at creating competitive advantages (Lopez-Nicolas & Meroño-Cerdán, 2009). The choices of the

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firms in selecting and applying different knowledge processes (such as knowledge sourcing, transferring and exploiting) as well as knowledge tools may be crucial in the today’s international arena. Thus, the role of knowledge as the key source of potential advantage for organizations and indeed whole economies is still a hot debate in the international landscape. This chapter, as well as the whole book, aims at proposing original and flavor insights on this. Some relevant areas of interest in the field are the following: •

Strategic management and knowledge management KM is a process of continually managing different types of knowledge that should be developed, aligning it with companywide strategy that comprises policy, implementation, monitoring and evaluation (Quintas, Lefrere, & Jones, 1997; Vrontis, Tharassou, Chebbi, & Yahiaoui, 2012). There exists a wide variety of strategy tools (e.g. mission statements, competitive intelligence, environmental scanning, portfolio matrices, SWOT, core competencies, the value chain) as well as different “schools” of strategy formation (Drew, 1999; Bresciani, Thrassou, & Vrontis, 2012). This stream of research aims at enriching these tools and schools of strategy by introducing a knowledge dimension.

•

Knowledge management for innovation Knowledge and innovation are two of the most important sources for sustaining the competitive advantage of a company (Xu, Houssin, Caillaud, & Gardoni, 2010). Moreover, these two terms are widely interconnected because knowledge is seen as being essential to innovation in the traditional and most recent research. However, KM and innovation have established themselves as separate fields and distinct areas of research even if KM has a strong relationship to innovation (Du Plessis, 2007), also with regard to low-tech SMEs (Karagouni, 2018). Moreover, firms should also be able to manage knowledge that not only relies within corporate boundaries but it is outside and should be carefully detected, sourced and integrated through firms’ external networks (Pisano, 1994). Some recent studies that refer to the Open Innovation landscape made some improvements in this direction (e.g. Ferraris, Santoro, & Bresciani, 2017; Miglietta, Battisti, & Campanella, 2017). However, overall, it is still unclear if the research literature in the two fields converges.

•

Knowledge risk management As noted by Massingham (2010), Knowledge Risk Management (KRM) is a field that allows the solution to the most common problems related to knowledge risks. The risks for the firms in the

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S. M. Riad Shams et al. knowledge management (KM) domain are many, such as knowledge loss, information overload, data security, knowledge update and real time access. So, KM and KM processes and systems rightly implemented may be a satisfactory solution in order to guide the firms in access, transfer, sharing and organizing knowledge within the firm (Aloini, Dulmin, & Mininno, 2007).

•

Entrepreneurship and knowledge management Teece (1998) suggested that entrepreneurship should have been one notable future direction for researchers in KM field. The importance of knowledge in entrepreneurship has been noteworthily addressed in many studies based on resource-based theory (RBT) and knowledgebased theory (KBT) (e.g. Karagouni, Aimilia, & Caloghirou, 2013; Karagouni, 2015). However, very few studies have been specifically developed. One of the few notable exceptions is the work of Palacios, Gil, and Garrigos (2009), which analyzes the introduction of knowledge management (KM) system to long-term sustainability and entrepreneurship success.

•

International business and knowledge management Multinational enterprises (MNEs) have always had their primarily relevance in creating a competitive advantage very often through the development, creation, sharing and exchange of relevant knowledge (Del Giudice & Maggioni, 2014; Ferraris, Santoro, & Dezi, 2017). Yet, currently those companies are accompanied and supported by their subsidiaries in generating this advantage through knowledge and innovation (Bresciani & Ferraris, 2016). Accordingly, companies tend to assume the form of an open system leveraged by knowledge as a key asset (Romano, Del Giudice, & Bresciani, 2017; Ferraris, Santoro, & Bresciani, 2017) in multiple locations worldwide. This highlights the emergence of managing the efficacy of cross-border and cross-cultural knowledge (Sanchez Bengoa & Kaufmann, 2014).

•

The management of knowledge in SMEs Most of the literature on knowledge management has been centered on large corporations (Yew Wong & Aspinwall, 2004), neglecting KM applications for small and medium enterprises (SMEs). SMEs possess certain unique features that distinguish them from MNEs that should be understood and addressed in the implementation of KM tools, practices and processes (Sefiani, Davies, Bown, & Kite, 2018). So, the recognition of different characteristics, advantages and disadvantages as well as key problems and issues related to KM become crucial (Del Giudice et al., 2010).

Managing Knowledge in an International Landscape •

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Knowledge management and corporate finance The relation between knowledge management and organizational performance has been empirically analyzed, but seldom through evaluating the state of KM practice per se and comparing it with direct measures of financial performance (Daud & Yusoff, 2010). However, investigating the connection between KM ability and organizational performance is essential as the findings can help the companies further explore the consequences of knowledge management (Liu & Deng, 2015). In this sense, in the literature, there are many key benefits of introducing KM practices in organizations, and some of these may be the positive impact on organizational performance (Tubigi & Alshawi, 2015) and interrelations with corporate financial structure. In this sense, in order to extend the debate on the topic, it would be interesting to explore the relationship between knowledge management, financial performance and the choice of type of capital structure (Miglietta, Battisti, Carayannis, & Salvi, 2018).

•

Knowledge management in mergers and acquisitions Mergers and Acquisitions (M&A) performance is affected by a large number of variables including knowledge management during postmerger integration (Weber, 2014). However, knowledge management has not received adequate attention in previous research despite its critical role in synergy realization. For example, through knowledge transfer the merging firms create value by accessing new knowledge that resides in the acquired target or from combining the resources of the two firms in new ways. Regardless of the importance of knowledge management in M&A, only a few studies have examined the complex mechanism that creates value through knowledge management during post-merger integration (PMI). It is well-known that cultural differences are detrimental to M&A performance (Weber & Tarba, 2010). There is a lack of integrative models that spell out how key mechanisms facilitate or impede knowledge transfer in M&A.

References Alavi, M., Kayworth, T., & Leidner, D. (2005). An empirical examination of the influence of organizational culture on knowledge management practices. Journal of Management Information Systems, 22(3), 191–224. Alavi, M., & Leidner, D. E. (2001). Review: Knowledge management and knowledge management systems: Conceptual foundations and research issues. Journal MIS Quarterly, 25(1), 107–136. Almeida, P. (1996). Knowledge sourcing by foreign multinationals: Patent citation analysis in the US semiconductor industry. Strategic Management Journal, 17(2), 155–165.

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Knowledge Management A Critical Review of Existing Research Demetris Vrontis, Michael Christofi and Alkis Thrassou

Introduction In today’s turbulent and highly competitive business environment, the most important drivers for company performance are the differences in the company’s capabilities of utilizing and creating knowledge (Alsaad, Yousif, & AlJedaiah, 2018; Vrontis, Thrassou, Santoro, & Papa, 2017; Inkinen, 2016; Vrontis, Thrassou, Chebbi, & Yahiaoui, 2012; Spender & Grant, 1996). Understanding the importance of knowledge in business practices, scholarly research focused on this phenomenon that was deployed around the notion of knowledge management (KM) (Inkinen, 2016; Von Krogh, 1998), a stream of research mainly devoted to comprehending the processes by which knowledge shifts from differentiated to integrated states to create organizational effectiveness (Barley, Treem, & Kuhn, 2018; Davenport & Prusak, 1998). It has become common practice for businesses to engage in technological, relational and structural interventions specifically created for the purpose of gaining knowledge to develop distinct value (Ferraris, Santoro, & Bresciani, 2017; Ferraris, Santoro, & Scuotto, 2018). These actions are triggered by the belief that knowledge management can allow businesses to make use of differentiated knowledge possessed by their human workforce to create new knowledge, to integrate knowledge that exists outside the boundaries of the company, or to utilize knowledge in manners that enhance organizational effectiveness (Ferraris, Bresciani, & Del Giudice, 2016). Based on these operational aims, scholars frequently use knowledge management as a strategic endeavor: an action plan that businesses apply based on the premise that value creation occurs from effectively and efficiently managing the flow of knowledge (Barley et al., 2018; Davenport & Prusak, 1998). As a terminology, knowledge management was developed more than 30 years ago (Barley et al., 2018), even though it relates to a set of thoughts and activities that must have been occupying the minds of human beings for hundreds of years, such as: How to discover what others know? How to generate new ideas? How to use in practice what we know? These

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are some of the views of what has become known (Edwards, Ababneh, Hall, & Shaw, 2009). As a general notion, knowledge management refers to the practices applied in an organization with the goal of utilizing its knowledge potential by enhancing the efficiency and effectiveness of managing the knowledge resources of the organization (Santoro, Vrontis, Thrassou, & Dezi, 2018; Inkinen, 2016; Andreeva & Kianto, 2012; Heisig, 2009; Gold, Malhotra, & Segard, 2001). Today, the domain of knowledge management has attracted great scholarly interest and created vast literatures, whereas firms that learn faster and utilize knowledge better tend to be leaders in their field (Castaneda, Manrique, & Cuellar, 2018). However, to be constantly credible, research and development on knowledge management should preserve and further build on the great literature that currently exists (Alavi & Leidner, 2001). Thus, the aim of this chapter is to provide an overview of the existing research on the knowledge management domain. Toward this aim, the primary objective is to provide an understanding of what knowledge management is and to deliver a thorough review of the literature on this topic towards the following contributions: (a) the development of a multi-perspective literature review on knowledge management; (b) to suggest promising paths for future research on the intersection between knowledge management and other disciplines, and; (c) mapping and consolidating the literature on the topic. This review stimulates valuable insights for practitioners to use and researchers to further build on. The chapter is organized as follows. The following section provides a brief introduction on the concept of knowledge management. The next section provides a comprehensive overview of the knowledge perspective and its implications for knowledge management. The next section provides a comprehensive and a critical analysis of how existing literature on the topic was evolved. Continuing, the factors that enhance as well as the barriers to KM are discussed. Next, a brief overview of the outcomes of KM is provided. The final section provides a summary and presents the limitations of this work, as well as various future research directions that emerge from this review.

Introducing Knowledge Management The notion that knowledge is an important source of effectiveness for businesses today has become a fact (Barley et al., 2018). The socioeconomic landscape proposed by Bell (1973) is today an accepted reality elucidated by the presence of and dependence on communication and information technologies in every aspect of the business life cycle as well as a source and outcome of knowledge creation (Barley et al., 2018; Alavi & Leidner, 2001; Castells, 2000). Since the last decade of the twentieth century, further developing on an emerging interest in the ways businesses could deal with knowledge in a strategic way, researchers from

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the strategic management field, such as Cole (1998), Grant (1996) and Nonaka and Takeuchi (1995) advanced the knowledge-based perspective of firms (Barley et al., 2018; Alavi & Leidner, 2001). This perspective builds upon and extends the resource-based view theory of the firm initially stated by Penrose (1959) and evolved by other researchers (i.e., Barney, 1991; Wernerfelt, 1984). Based on this, the knowledge-based aspect argues that the services offered by resources that are tangible depend on how they are applied and combined; in turn this is transformed as a function of the company’s know-how (e.g., knowledge). This knowledge becomes a core part, disseminated through various entities, including organization systems, processes, identity and culture, policies, activities, documents and employees (Franco & Haase, 2017; Okhuysen & Eisenhardt, 2002; Nelson & Winter, 1982; Spender, 1996; Grant, 1996). Due to the fact that knowledge-based resources are often hard to copy and characterized by social complexity, the knowledge-based view of the company states that these knowledge assets could serve as the key driver for developing a long-term sustainable competitive advantage (Barley et al., 2018; Okhuysen & Eisenhardt, 2002; Grant, 1996; Spender, 1996; Nelson & Winter, 1982). However, the gravity of knowledge to exist at any given point in time is less per se than the company’s capability to use the extant knowledge effectively in order to generate new knowledge and apply in practice that which provides the basis for developing a sustainable competitive advantage from knowledge-based resources (Barley et al., 2018; Alavi & Leidner, 2001). It is at this point that information technologies could play a significant, and maybe necessary, role in realizing the knowledge-based perspective of the firm. Information technologies, including, but not limited to, the browsers, Internet, data mining programs, intranets and extranets, software agents and data warehouses, can be utilized properly to systematize, advance and hasten the management of large-scale intra- and inter-firm knowledge. Even though the notion of coding, storing and transmitting knowledge in businesses is not contemporary, as organization systems, processes, manuals, policies, activities, documents and employees focused on providing this function for years, business and management practice has become more knowledge-focused in recent years (Alavi & Leidner, 2001). For instance, best practice transfer, benchmarking, knowledge audits, and training and development of the company’s human workforce point to the understanding of the significance of intangible assets and company knowledge (Okhuysen & Eisenhardt, 2002; Nelson & Winter, 1982; Spender, 1996; Grant, 1996). This knowledge-based perspective received the attention of knowledgeintensive companies, which are based more on services, intangible assets, and human capital than the contrary, such as tangible assets, capital infrastructure and formal procedures (Barley et al., 2018; Starbuck, 1992). A knowledge-based view of the company comprises not a single stance, but

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includes a plethora of views as regards to the process of knowledge in business contexts and the related actions to manage this knowledge. For example, one knowledge-based view focused on the ways in which companies were constituted by the efforts of employees developing and applying situated knowledge (Barley et al., 2018; Nonaka & Takeuchi, 1995; Spender, 1996). Even though varying views exist of how knowledge is instituted in businesses, all these researchers stated that the management of knowledge is a serious challenge, as well as an opportunity for companies (Barley et al., 2018). In comprehending the strategic value of knowledge, this emerging work ignited problem-oriented inquiry into the actions of management practitioners that would cause a company to be successful in managing knowledge. This line of inquiry is today known as knowledge management. Managing knowledge transformed into a concept that not only organizations apply in their core functioning, but as a distinct domain in the management field with great literature, as well as the driver for investments in human capital, technology and financial resources by organizations (Alavi & Leidner, 2001; Davenport & Prusak, 1998; Empson, 2001; Grover & Davenport, 2001). Today knowledge management serves as an umbrella term that includes a variety of practices, processes and artifacts within organizational contexts (Alvesson & Karreman, 2001; Teece, 1998), created for the purpose of generating value through the application and usage of knowledge. The research focus then turned to the theories of knowledge describing these activities, as well as the dynamics and dimensions of the processes through which knowledge management is enacted (Barley et al., 2018).

Reviewing the Literature on Knowledge Management This section provides an overview of extant literature on knowledge management. It starts with a brief overview of the most important knowledge management processes and continues with an overview of the antecedents of knowledge management. Finally, it concludes with a discussion on the outcomes of knowledge management for organizations. Knowledge Management Processes The processes related to knowledge management provide companies with the opportunity to enhance their chances of fulfilling their goals (Hosein Rezazadeh Mehrizi & Bontis, 2009; Andreou & Bontis, 2007; Jasimuddin, 2006). By reviewing extant literature, one can notice that there are several versions and categorizations of these KM activities (Hosein Rezazadeh Mehrizi & Bontis, 2009; Bergeron, 2003; Despres & Chauvel, 1998). However, in an attempt to provide a thorough classification, this

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review adopted Hosein Rezazadeh Mehrizi and Bontis’s (2009) classification, as it is shown further below, because it provides a well-analyzed effort to incorporate the most important classifications that emerged from extant literature. Based on the authors, these include the following: 1. Knowledge assessment: it includes needs assessment, developing knowledge and knowledge management strategy, and finding sources and underlying mechanisms of other consecutive activities; (Kreng & Tsai, 2003) 2. Knowledge acquisition/absorption/assimilation: it incorporates the efforts in parallel with capturing existing knowledge that is outside the boundaries of the organization and that is significant to the company; (Meyer & Zack, 1996; Zack, 1999) 3. Knowledge creation/processing/development/transformation: the creation of new knowledge that it is not available outside the organization, or it cannot be attained efficiently; (Nonaka & Takeuchi, 1995) 4. Knowledge storage/retrieval: it focuses on the coding of knowledge in different forms with several software programs and technological tools, thus, enhancing the efficiency of using it again and making it more durable; 5. Knowledge sharing/distribution/circulation/transfer: it includes the generation of knowledge that can be attained by various units, groups or individuals within the organization (for instance, dissemination of best practices among different divisions within an organization); (Davenport & Prusak, 1998) 6. Knowledge utilization/application: it focuses on generating value in its general meaning, based on existing knowledge within the organization; 7. Active forgetting of knowledge: it focuses on the actions of eliminating obsolete knowledge from the knowledge base of an organization in an intentional and active manner; (Toffler, 1993) 8. Administrative process of knowledge management: it includes activities that are not classified in any of the above processes, but incorporates activities that have a direct bearing on them, like knowledge management diagnostics, evaluation, planning and capability building. The application of knowledge management processes relies upon three core categories of issues: human resource issues, organizational issues and communication and information technologies. The second category

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of issues, namely, organizational issues, can be sub-categorized a step further into formal issues such as organizational processes and structure and informal issues like organizational routines and culture (Hosein Rezazadeh Mehrizi & Bontis, 2009; Eschenfelder, Heckman, & Sawyer, 1998). Antecedents of Knowledge Management Based on Inkinen, Kianto, and Vanhala (2015) and Heisig (2009), extant research on knowledge management has categorized the antecedents of knowledge management into four clusters: (1) human-oriented that incorporates people, leadership and culture; (2) management processesoriented factors that incorporate corporate strategy, measurement and goals; (3) organization-oriented factors that involve processes and structures and (4) technology-oriented factors which focus on applications and infrastructure. Other researchers, such as Donate and Guadamillas (2011), DeTienne, Dyer, Hoopes, and Harris (2004) and Mehta (2008), categorized the critical success factors for effective knowledge management into human and technical. This review follows the latter categorization, starts below with an analysis of the human factors and continues with the technical-related success factors for knowledge management. To start with, culture is most probably the most important factor in advancing knowledge management (Zack, McKeen, & Singh, 2009; Davenport, De Long, & Beers, 1998; Lee & Choi, 2003). Businesses that value their human workforce for their knowledge, and reward them for disseminating that knowledge to their coworkers, develop an organizational climate that promotes knowledge management (Zack et al., 2009). Knowledge management is developed when a company has an organizational culture that supports dissemination of information, employee learning and reciprocal feedback (Lunden, Teräs, Kvist, & HäggmanLaitila, 2017; Chen, 2012; Leggat & Balding, 2013). Strong support from the environment and enhancing the relationship between managers and subordinates enhances learning (Lunden et al., 2017; Hsu, Lee, Fu,  & Tang, 2011). In addition, managers and supervisors have to provide incentives and a stimulating environment in order for their subordinates to transfer their knowledge and experiences in a voluntary mode in order to support knowledge development and practice (Donate & Guadamillas, 2011; Roth, 2003; Yang, 2007). Adding to this, supervision that provides the means for reflection and self-assessment has been found to positively affect the personal and professional growth of employees (Lunden et al., 2017; Guest et al., 2013; Severinsson, Haruna, & Friberg, 2010). Consequent to the above, people, the knowledge of the human workforce within an organization, also has a positive impact on a developing knowledge management within an organization (Bresciani, Thrassou, & Vrontis, 2012). Research showed that since all learning starts at the individual level and expands and advances both in the social context and routines

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within a business, this means that the success of management relies upon the employees themselves. Thus, the main task of management within an organization is to disseminate the specialized knowledge of employees and business units within and across the organization (Kiessling, Richey, Meng, & Dabic, 2009). Knowledge management is triggered by a corporate culture that provides rewards to its employees according to their competency (Hsu et al., 2011). As a return, employees provide a feedback to their supervisors (Chen, 2012). However, for the purpose of maintaining a level of competency that is considered satisfactory, it is crucial that managers and supervisors are given the latest information based on feedback as regards to the level of competency and training needs among staff (Guest et al., 2013). Moreover, human resource practices such as teamwork, incentives or training must be used to enhance knowledge dissemination and development in businesses (Donate & Guadamillas, 2011; Chen & Huang, 2009; Currie & Kerrin, 2003). Furthermore, Schein (1985) states that culture is about controlling the behavior of people; thus, it could be used either positively or negatively by and for the company in order to achieve its goals. Therefore, companies should develop corporate values that affect behaviors toward enhancing the willingness for knowledge sharing (Donate & Guadamillas, 2011; Leidner, Alavi, & Kayworth, 2006). Another pool of human-related success factors for knowledge management relates to leadership styles, as well as the leader’s traits and competences. Regarding leadership models, research found that transformational leadership facilitates competency among employees and the development of knowledge management (Lunden et al., 2017; Strickland & O’LearyKelley, 2009; Leggat & Balding, 2013). Leadership that facilitates knowledge management incorporates the leader’s commitment to achieving her or his tasks and objectives, as well as the responsibility, reliability, clarity and stability of his/her role (Lunden et al., 2017; Chen, 2012; Leggat & Balding, 2013). The competency of the leader figures in behaviors that facilitate knowledge management, such as enhanced leadership skills and advanced emotional intelligence levels, has increased by introducing, for example, peer and conflict coaching (Lunden et al., 2017; Brinkert, 2011). Other factors that relate to the human category include strategic planning and teamwork spirit (Lunden et al., 2017; Romain-Glassey et al., 2014). As a concluding remark to all the above, Bollinger and Smith (2001) stated that the behavior of human beings is the key to success or failure of knowledge management initiatives, because knowledge management can be present in an organization only if (1) an organizational culture, (2) learning incentives, (3) a teamwork spirit and (4) the sharing of knowledge exist within the organization (Donate & Guadamillas, 2011). Relating to the technical pool of factors that promote the development of knowledge management, the work done by Heisig (2009), provides an exhaustive list of such factors. Thus, based on Heisig (2009), these include

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factors that relate to: organizational processes, business processes, organizational structures, process organization, organizational infrastructure, organizational design, applications and infrastructure, technological infrastructure, communication and information technology, technological systems, knowledge management technologies and applications and tools. Finally, information technology provides the means for enabling knowledge sharing and, consequently, the development of knowledge management, through, for example, networking and communal learning, online studies and feedback (Lunden et al., 2017; Chen, 2012; Pepin, Dubois, Girard, Tardif, & Ha, 2011). Barriers to Knowledge Management In a review of the literature, two main classifications of factors that inhibit knowledge management have emerged: company culture and human resource management related factors (Lunden et al., 2017). Factors related to the first category incorporate a lack of organizational support, motivation and knowledge. Further breaking down these three dimensions, factors associated with the lack of motivation incorporate not specific responsibilities and roles given to employees, inadequate rewarding systems and no motivational disposition to learn from mistakes (Lunden et al., 2017; Carr & Clarke, 2010; Leggat & Balding, 2013). In addition, several other barriers that knowledge management must overcome also exist. These include, perceived value of the knowledge that the source unit has, motivational disposition of the source unit for knowledge dissemination, appearance and richness of channels for transmission, motivational behavior of the target individual or unit to embrace and incorporate the disseminated knowledge and the absorptive capacity of the individual or business unit for which the disseminated knowledge is delivered (Kiessling et al., 2009; Gupta & Govindarajan, 2000). Moreover, lack of interest or poor interest in work development, as well as extreme pressures to succeed, can also lead to negative consequences related to motivation (Lunden et al., 2017; Akerjordet, Lode, & Severinsson, 2012). A barrier toward knowledge management can also be the poor organizational support for the continuing professional development of employees and managers/leaders (Lunden et al., 2017; Leggat & Balding, 2013). Continuing, scholars found that knowledge characterized as tacit was one of the primary factors for knowledge to be sticky within businesses (Barley et al., 2018; Brown & Duguid, 2001; Osterloh & Frey, 2000) and, thus, very hard to disseminate or acquire. Other barriers include insufficiencies in terms of technology and financing, as well as limited support for (1) provision of information and education and (2) research and development activities within the company (Lunden et al., 2017; Akerjordet et al., 2012). Also, businesses where the distribution of knowledge is open to a handful of employees,

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and only to specific organizational levels, were also found to be a barrier to knowledge management (Lunden et al., 2017; Leggat & Balding, 2013; Akerjordet et al., 2012). Continuing, other researchers found that organizational traits, such as the small capacity of a company and a taskoriented corporate culture with an individualistic orientation, operate as a barrier to knowledge management (Lunden et al., 2017; Leggat & Balding, 2013). Moreover, other researchers found that the limited time resources, as a consequence of short-term goals, create stress in employees that emerges from the pressure of time and the incapability of human resources to develop the appropriate competencies among staff in an organization is also a factor inhibiting knowledge management (Lunden et al., 2017; Akerjordet et al., 2012; Carr & Clarke, 2010). Finally, Wasko and Faraj (2005) found that one of the most important barriers to fostering knowledge management initiatives arises because employees tend to only contribute knowledge when they believe that their participation will benefit them in return. Without any incentive, employees tend to view participation in knowledge management information systems and initiatives as either counterproductive or a waste of time (Barley et al., 2018; Vaast & Walsham, 2005). Outcomes of Knowledge Management Knowledge management refers to the procedures and practices executed within an organization with the goal of advancing its knowledge potential by enhancing the efficiency and effectiveness of managing corporate knowledge assets (Inkinen, 2016; Andreeva & Kianto, 2012; Heisig, 2009; Lee & Choi, 2003). Based on the review outcomes and supported by other authors as well (i.e. Inkinen, 2016), knowledge management research on the relationship between knowledge management and company performance outcomes has evolved into two paths of research. In the first pathway of research, scholars focused on how the activities, such as dissemination and usage, as well as knowledge acquisition, that often take place within companies without any intervention from management, are associated with several company performance outcomes (Inkinen, 2016; Lee et al., 2013; Chen, Huang, & Hsiao, 2010). The research community has stated various names for these processes, such as knowledge management capacity and knowledge management capability (Inkinen, 2016; Hsiao, Chen, & Chang, 2011; Ho, 2008; Lin & Kuo, 2007). The second stream of research has focused on the conscious corporate and management practices, with the purpose to fulfill organizational goals based on effective and efficient management of a company’s knowledge resources (Inkinen, 2016; Kianto, Ritala, Spender, & Vanhala, 2014; Andreeva & Kianto, 2012). In general, research has shown that companies that are characterized as knowledge-based organizations from their employees’ knowledge positively influence various organizational outcomes, like, for

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instance, employee improvement, product improvement, and enhanced organizational innovation (Karagouni, 2018; Awwad & Akroush, 2016; Kiessling et al., 2009). Moreover, a study conducted by Fugate, Stank, and Mentzer (2009) found that when the interpretation of new knowledge is in a shared form among operational workforce, this mediates the way knowledge is distributed and applied to design and applies in practice a holistic operational response to that knowledge. Adding to this, their results also support the positive relationship between knowledge management process and organizational and operational performance. Other researchers, such as Nonaka and Takeuchi (1995) and Pagell (2004) found similar results and further supported the fact that facilitating effective communications of knowledge acquired from the business environment is a crucial factor for operational improvement. A simple transfer of information is not enough for enhancing knowledge management. A critical requirement is the development of an open dialogue about the information needed by all units and involved parties within an organization, so as to arrive at a mutual understanding which is the basis for a unified action and decisionmaking. The notion of using effective communications to achieve a shared interpretation of distributed information has been a topic for investigation by various disciplines such as organizational behavior, strategic management, and marketing research (Christofi, Leonidou, & Vrontis, 2015; Fugate et al., 2009; Hult, Ketchen, & Slater, 2005; Sinkula, 1994). Another stream of studies has investigated the impact of various perspectives of knowledge-based resources and knowledge management on organizational performance in the context of innovation (Inkinen et al., 2015). One stream of scholars empirically showed that organizational culture is a significant trigger of knowledge-related behavior among employees (Inkinen et al., 2015; Travica, 2013; Alavi, Kayworth, & Leitner, 2006). Another stream of researchers has found that general knowledge procedures, including, knowledge development and dissemination (Chen et al., 2010), knowledge development, storage and implementation (Lee et al., 2013), and knowledge development, storage, dissemination, documentation and acquirement (Andreeva & Kianto, 2011), have a positive effect on a company’s innovation performance (Inkinen et al., 2015). A different stream of scholars has investigated the knowledgebased assets and how the acquisition of those assets is related to the development and enhancement of organizational innovation. For example, Castro, Delgado-Verde, Amores-Salvadó, and Navas-López (2013) found that very skilled and experienced employees, referred to as human capital, in parallel with well-developed networks of the firm’s customers, also known as customer capital, constitute the main elements in acquiring high levels of innovation performance. In the same vein, the findings of a study conducted by Wang and Chen (2013) showed that the institutionalized knowledge and experience of codifying, called organizational

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capital, in line with the interaction-based knowledge between individuals and their networks, also called social capital, acts as mediators on the relationship between Human Resource Management practices and the capability for innovativeness. Adding to this, their results also showed that social capital is a mediator between Human Resource Management practices and capabilities related to radical innovations (Inkinen et al., 2015). Similarly, Menor, Kristal, and Rosenzweig (2007) argued that skill levels of a company’s human workforce, are significant success factors for enhancing product innovation. These are (a) the organizational learning capabilities, which constitute elements of the human capital; (b) the codified knowledge incorporated in the procedures and information systems, which constitute the elements of the structural capital; and (c) the extent of external and internal supply and customer integration, which comprises elements of the social capital. Adding to this, some other researchers (i.e., Karagouni, 2018; Carneiro, 2000; Nonaka, 1994) found that businesses that are capable of triggering and enhancing the knowledge base of their employees are better equipped to constantly align with today’s turbulent environment and to innovate in the area that they are invested in and compete in the market. Based on insights from extant knowledge management research, a knowledge worker with a sense of creativity can be a solution to the problems that need new and innovative ways in order to be resolved, to the relationships that can be developed in complex markets where businesses operate and to the situations that require innovative approaches (Carneiro, 2000). Moreover, knowledge management can provide managers with the means to handle problems in a better way and to innovate. Based on knowledge management, managers are better equipped to analyze and evaluate environmental scenarios, as well as to provide sufficient alternative solutions (Carneiro, 2000; Dutta & King, 1980). In summary, this stream of research has empirically proved the positive relationship between knowledge processes and knowledge assets with innovation performance (Inkinen et al., 2015). Finally, the potential for knowledge management to create a sustainable competitive advantage has led to a new stream of research, which found that there is a positive relationship between knowledge management and organizational performance (Zack et al., 2009; Schulz & Jobe, 2001). Researchers also found a strong relationship between knowledge infrastructure and knowledge processing on the one hand with organizational effectiveness on the other hand. They measured organizational effectiveness in terms of responsiveness, coordination, process efficiency, ability to identify market opportunities and speed to market. Other researchers also found that knowledge management is directly associated with several other elements of strategic organizational performance, including operational excellence, product leadership and customer intimacy, and that those outcomes are, in turn, related with financial performance (Zack et al., 2009).

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Discussion: Limitations, Future Research Directions and Conclusions Limitations and Future Research Directions The aim of this work was to provide a critical overview of existing literature on the knowledge management field. To develop the review a narrative approach was applied which bears the limitation of omitting relevant research, contrary to a systematic review (i.e., Christofi, Leonidou, & Vrontis, 2017; de Menezes & Kelliher, 2011). However, it is the authors’ belief that the rigorousness and thoroughness applied in this review here eliminated the possibility that the research that was omitted could provide findings that would alter the conclusions of this review. Also, this review did not come to an integrative framework for graphically illustrating what has been done until now. However, this was not the aim of the review and, due to the vast literature on the topic, a conceptual framework incorporating all identified elements would have been very complex and difficult to be applied by management practitioners. Lastly, this research partly builds on various existing reviews on the topic. Hence, future contributions to the knowledge management field could modify considerations developed in this review and alter the validity of some findings. Continuing, throughout the critical analysis of the results, various research gaps were identified or stated by other researchers and have not been investigated until now, thus providing fruitful pathways for further research. To start with, De Long and Fahey (2000) stated that one of the factors that caused several knowledge management initiatives to fail in practice was the extreme emphasis on processes of codification and transfer in relation with the failure to recognize and take into consideration the dynamic nature of knowledge in businesses. In the same vein, Tsoukas (2009) and Tsoukas and Vladimirou (2001) have criticized knowledge management research for failing to take into consideration the importance of the locally differentiated and performed knowledge in daily work practices. Massaro, Handley, Bagnoli, and Dumay (2016) state various other research streams that are ignored by extant literature, such as gender analysis or the role of entrepreneurs, thus leaving room for future research paths. Other researchers have argued that knowledge management research has paid minimal attention to the underlying mechanisms and processes through which businesses develop new knowledge across and within various business units (Barley et al., 2018; Argote & MironSpektor, 2011), which constitutes another avenue for further research as existing studies use knowledge creation as an outcome of unifying previously isolated streams of knowledge as opposed to the development of something new (Barley et al., 2018; Phelps, 2010). In terms of methodology, future research could apply a case study methodology approach

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because that strategy could provide significant information on various dimensions about the organizations that have excelled or failed in the process of applying a knowledge management approach (Inkinen, 2016). Finally, in terms of the contextual dimension, future research could focus on industry-level differences in the development of knowledge management practices for organizational performance, as each industry has industry-specific characteristics that could influence relationship outcomes. Also, because these relations are scarcely examined, future research could focus on industries where knowledge employees have a more specific and significant role (Carneiro, 2000).

Conclusions This chapter provided an overview of the existing research on the knowledge management domain. Toward this aim, the primary objective was to comprehend the various dimensions of knowledge management and to deliver a thorough review of the literature on this topic toward the following contributions: (1) the development of a multi-perspective literature review on knowledge management; (2) to suggest promising paths for future research on the intersection between knowledge management and other disciplines and (3) to map and consolidate the literature on the topic. The chapter started with a brief introduction on the concept of knowledge management. Then, a comprehensive overview of the knowledge management perspective and its implications for knowledge-based organizations was discussed. The chapter continued with a comprehensive and a critical analysis of how existing literature on the topic has evolved. Next, the factors that enhance as well as the barriers to knowledge management were discussed. Then, a brief overview of the outcomes of KM were reported. The last section presented the limitations of this work, as well as various future research directions that emerged from this review. We believe that this work triggers further research development and cross-fertilization of various disciplines for the purpose of further evolving and expanding the knowledge management field.

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Nonaka, I., & Takeuchi, H. (1995). The knowledge creating company. New York, NY: Oxford University Press. Okhuysen, G. A., & Eisenhardt, K. M. (2002). Integrating knowledge in groups: How formal interventions enable flexibility. Organization Science, 13(4), 370–386. Osterloh, M., & Frey, B. S. (2000). Motivation, knowledge transfer, and organizational forms. Organization Science, 11(5), 538–550. Pagell, M. (2004). Understanding the factors that enable and inhibit the integration of operations, purchasing and logistics. Journal of Operations Management, 22(5), 459–487. Penrose, E. T. (1959). The theory of the growth of the firm. New York, NY: Sharpe. Pepin, J., Dubois, S., Girard, F., Tardif, J., & Ha, L. (2011). A cognitive learning model of clinical nursing leadership. Nurse Education Today, 31, 268–273. Phelps, C. (2010). A longitudinal study of the influence of alliance network structure and composition on firm exploratory innovation. Academy of Management Journal, 53(4), 890–913. Romain-Glassey, N., Ninane, F., de Puy, J., Abt, M., Mangin, P., & Morin, D. (2014). The emergence of forensic nursing and advanced nursing practice in Switzerland: An innovative case study consultation. Journal of Forensic Nursing, 10, 144–152. Roth, J. (2003). Enabling knowledge creation: Learning from the R&D organization. Journal of Knowledge Management, 7(1), 32–48. Santoro, G., Vrontis, D., Thrassou, A., & Dezi, L. (2018). The Internet of Things: Building a knowledge management system for open innovation and knowledge management capacity. Technological Forecasting and Social Change, 136, 347–354. Schein, E. H. (1985). How culture forms, develops and changes. In R. H. Kilmann, M. J. Saxton, & R. Serpa (Eds.), Gaining control of the corporate culture (pp. 17–43). San Francisco, CA: Jossey Bass. Schulz, M., & Jobe, L. A. (2001). Codification and tacitness as knowledge management strategies: An empirical exploration. Journal of High Technology Management Research, 12(1), 139–165. Severinsson, E., Haruna, M., & Friberg, F. (2010). Midwives’ group supervision and the influence of their continuity of care model: A pilot study. Journal of Nursing Management, 18, 400–408. Sinkula, J. M. (1994). Market information processing and organizational learning. Journal of Marketing, 58(1), 35–45. Spender, J. C., & Grant, R. M. (1996). Knowledge and the firm: Overview. Strategic Management Journal, 17, 5–9. Starbuck, W. H. (1992). Learning by knowledge-intensive firms. Journal of Management Studies, 29(6), 713–740. Strickland, R. J., & O’Leary-Kelley, C. (2009). Clinical nurse educators’ perceptions of research utilization: Barriers and facilitators to change. Journal for Nurses in Staff Development, 25, 164–172. Teece, D. J. (1998). Capturing value from knowledge assets: The new economy, markets for know-how, and intangible assets. California Management Review, 40(3), 55–79. Toffler, A. (1993). War and anti-war. Boston, MA: Little, Brown.

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A Knowledge Management Approach in Developing Innovation Within Low-Tech SMEs The Transcendental Dynamic Capability Concept Glykeria Karagouni

Introduction Innovation in low-tech industries is not easy; low-tech markets are generally assumed to be mature, slow-growing and subject to overcapacity and high levels of price competition, forcing firms to focus on technology upgrading and process improvements rather than innovative prospects (Protogerou, Caloghirou, & Lioukas, 2013). Furthermore, the impact of the global crisis on low-tech industries made quite clear that, besides the established perceptions, mature industries have to compete within a very vulnerable and volatile environment. Drawing on the theories of low-tech innovation, the Resource-Based View, Dynamic Capabilities (DC) and entrepreneurship (e.g. Penrose, 1959; Teece, Pisano, & Shuen, 1997; Teece, 2007), enterprises have been regarded as sets of specific resources. The concept of resources includes both tangible and intangible ones such as physical assets, capabilities, organizational processes, information and knowledge (Barney, 1991). Unique and difficult-to-imitate resources are the answer to performance requirements (Foss & Klein, 2012) and competitive advantage (Penrose, 1959; Barney, 1991). Next to the extant literature on resources, knowledge and differential knowledge sources play a focal role in entrepreneurial and innovation fields in general (e.g. Ferraris, Erhardt, & Bresciani, 2017; Santoro, Vrontis, Thrassou, & Dezi, 2017; Agarwal, Fos, & Jiang, 2013) as one of the most valuable resources that provides sustainable competitive advantage (e.g. Ferraris, Santoro, & Bresciani, 2017; Magnier-Watanabe & Benton, 2017). Some studies have empirically investigated the effect of knowledge management on firm or innovative performance. For example, Ferraris, Santoro, and Dezi (2017) argue that the firms which develop and possess superior knowledge management capabilities have the ability to better manage external knowledge and combine it with the internal one.

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Meanwhile, according to the relevant literature, knowledge processes are composed by knowledge creation or transfer, storage, distribution and knowledge application (e.g. Ferraris, Santoro, & Scuotto, 2018), while several researchers (e.g. Demarest, 1997) have emphasized knowledge being located within the human body. However, besides some theoretical work (e.g. Easterby-Smith & Prieto, 2008), there is scarce empirical research to link knowledge management processes to dynamic or entrepreneurial capabilities (e.g., Gloet & Samson, 2016) and hardly any to explain knowledge creation under the DC view. Especially regarding low-tech sectors (i.e. those industrial sectors that have no or low R&D expenditures such as wood and furniture or textiles), today it is highly acceptable that there is a growing number of firms that are increasingly engaged in complex knowledge activities, even including appropriability regimes (Karagouni, 2015; Karagouni, 2018). These ventures appear to invest in knowledge in order to overcome the rigidities of their mature and slow-growing markets. Thus, the main research question can be stated as: How can low-tech firms and especially SMEs manage knowledge as a valuable resource for innovation? Transcendental Capability (TC), inspired by Kantian “Critique of Pure Reason” and several thoughts and views of knowledge management and knowledge-creation theorists, is described as a purely dynamic entrepreneurial capability which purports to answer the above question. The empirical analysis indicated that the enactment of mechanisms that TC enables is needed to allow unexplored knowledge paths and lead to innovative ideas even in cases of so-called mature traditional industries.

Theoretical Background The Dynamic Entrepreneurial Capabilities View In the saturated and competitive markets where low-tech firms act, innovative capability has been claimed to form the competitive advantage since it can enable the creation of new customer value allowing firms to stay ahead of competitors (Ollonqvist & Rimmler, 2005; Hirsch-Kreinsen, 2015). Within low-tech research, Hirsch-Kreinsen and Schwinge (2011) introduce the configurational and the transformative capability as the main capabilities for low-tech and knowledge-based innovativeness while Hirsch-Kreinsen (2015) connects the notion of transformative capabilities with the approach of dynamic capabilities, arguing on the “overlooked yet highly dynamic development” of low-tech industries. Regarding successful creation of resource bases, a broader view of relevant literature indicates two specific areas: entrepreneurial and dynamic capabilities (e.g. Arthurs & Busenitz, 2006; Helfat & Peteraf, 2003).

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Actually, entrepreneurship literature is overwhelmed with both theoretical and empirical work on the significance of entrepreneurial capabilities (Kirzner, 1973; Grégoire & Shepherd, 2012). On the other hand, the DC framework, introduced by Teece et al. (1997), investigates how firms go about matching their resource bases with opportunities in the marketplace (e.g. Boccardelli & Magnusson, 2006) and explains change processes within firms in several industrial settings and at different moments of a firm’s life cycle (Helfat & Peteraf, 2003; Teece, et al., 1997). There is a general consensus in literature that innovation as the ability to develop new products and processes or to improve existing ones can be a dynamic capability (Eisenhardt & Martin, 2000). Furthermore, business environments are not stable anymore for low-tech industries (Karagouni, Protogerou, & Caloghirou, 2016), and therefore DCs constitute a significant approach to enhance innovation while knowledge has been recognized as a core asset that enables an organization to be innovative and remain competitive in the market. Within the DC perspective, Dynamic Entrepreneurial Capabilities (DECs) have been defined as higher-order dynamic capabilities that influence the location, selection and the ways of selection of resources, skills and knowledge in order to produce innovation and create new competitive advantages. DECs were developed to portray the abilities of an entrepreneurial or a managerial team to engage in non-routine activities and a paradoxical way of combining a variety of knowledge assets in order to create new knowledge and novel ideas. They incorporate the search for novelty through improvisation and bricolage and creativity through transcendental thinking to build sustainable competitive advantages (Karagouni et al., 2016). Entrepreneurs and managers are the key agents of DEC development; DECs can be deliberately cultivated, developed and influenced by the core decision makers. They are simple, idiosyncratic and iterative. They are related with the firm’s survival, affecting its core choices, growth, innovativeness and competitive advantage. The Transcendental Dynamic Capability Concept “The best way to predict the future is to create it” (Drucker, 1985); in today’s competitive environment, firms can survive and grow only if they manage to challenge existing business ecosystems or create new ones (Dawkins, 1976). This holds especially true for low-tech firms with wellestablished technologies and highly standardized processes, which share to a greater or lesser extent markets on mature products. Transcendence connotes a capacity to think paradoxically. Transcendence has been behind many theories on innovation. Senge (1990) theorizing on the learning organization relates transcendental to the ability of “building the present on our future”. According to the Kirznerian approach, transcendence comes in any of innumerable forms such as ideas in pricing,

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production, organization, product line, marketing, customer service and so on (Klein & Klein, 2001). Perhaps more consistent—in general terms— with this perspective was Schumpeter, who suggested that entrepreneurial success depends on “intuition, the capacity of seeing things in a way which afterwards proves to be true” (Schumpeter, 1934, p. 85). Regarding the knowledge perspective, Nonaka and Takeuchi (1995, p. 58) discuss extensively the role of knowledge creation on innovation: “when organizations innovate, they do not simply process information from outside in, in order to solve existing problems and adapt to a changing environment. They actually create new knowledge and information, from the inside out, in order to redefine both problems and solutions and in the process, to re-create their environment”. Today, knowledge and the capability to create and utilize knowledge are indeed considered to be the most important sources of a firm’s sustainable competitive advantage (Kazadi, Lievens, & Mahr, 2016; Nonaka, 1994; Protogerou & Karagouni, 2012). Several scholars tried to relate knowledge generation to organizational processes and capabilities (e.g. Autio, Sapienza, & Almeida, 2000). Kogut and Zander (1996) introduce combinative capabilities which enable the continuous recombination of knowledge bases and their application to new market opportunities. The nature of transcendental capability has been developed mainly around the core themes of knowledge generation and transcendence to explain the attributes and behaviors observed regarding the formation of a novel idea that is transferred to an innovative product, process, service or model within the context of the low-tech but knowledge-intensive cases of the research. Transcendental capabilities (TCs) are the key drivers of shaping unorthodox ideas and orchestrating innovation processes. TCs enable investigation in a variety of fields—be they knowledge, practical or other types—and through a variety of ways. Furthermore, TC’s conceptualization was based on Kant’s work “Critique of Pure Reason”. Immanuel Kant and his theories have served as a basis of inspiration and a springboard of theory building in entrepreneurship, long before (Clarke & Holt, 2010; Chou, 2013). In modern philosophy, Kant, in his theory of knowledge, introduced “transcendental” as a concept concerned with the conditions of possibility of knowledge itself, presenting a seminal approach of knowledge creation and transcendence: for Kant transcendental knowledge, a kind of knowledge which is both synthetic and a priori, defined the boundary between empirical knowledge and speculation about the transcendent realm (Kant, 1781). The Kantian principles regard (a) the existence of the “thing-in-itself” and the difficulty in describing “what it is” and “how it is”; (b) the search for “what we can know, and how we can know it” since knowledge constitutes a resource of scattered senses. Kant argues that we derive the greater part of our knowledge from observing the real world and (c) the position that the act of cognition is not passive, but active.

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Following Kant, a firm’s cognitive capabilities and extended experience of individuals enable the structure of new “worlds”. Kant here can be applied directly: Knowledge does not depend so much on the object of knowledge as on the capacity of the knower. However, it should be stated that in low-tech cases, “the real voyage of discovery consists not in seeking new landscapes but in having new eyes” (Proust). Traditional firms and especially SMEs do not actually triumph with their breakthrough findings but with their ability to offer more options or create novel uses and new niches. New knowledge seems to enlarge the sphere of an individual’s/organization’s judgments beyond the limits of their present experience. And it is in this very kind of knowledge that transcends the mature low-tech world, and where established practices can neither guide nor correct, that the transcendental capability enables investigations in a variety of fields—be they scientific or technical knowledge, technology, practice, design, models or other types; unique knowledge, be it internal or external, is the most valuable asset of a firm for achieving competitive advantage (Vrontis, Thrassou, Santoro, & Papa; 2017; Robertson & Smith, 2008). In parallel with Kant’s conception of the human mind as the active creator of the experience instead of being a passive recipient of the sensory perception, low-tech firms are characterized by the active role of the actors instead of a passive role as plain technology users. Teams and entrepreneurs have to act as “knowledge operators”, working at the intersection between science, technology, innovation and markets, utilizing existing knowledge to extend horizons and then seeking novel knowledge, combining the newly acquired knowledge assets and generating new knowledge. Even Teece (2011) accepts the fact that at least in medium-tech industries knowledge or mind processes drive the success of certain undertakings, claiming that in the petroleum industry, oil in a fundamental sense is “found” in the mind and not in the ground (Teece, 2011). Therefore, it seems that, even in low-tech cases, innovation depends on processes based on knowledge and a transcendental capacity of both entrepreneurs and firms’ human capital. However, it does entail some processes and preconditions in order to be successful; within the chaotic knowledge system which seems to be far more complicated within lowtech industries, actors need to develop a constant sensation of where they are and where they want to go. This task involves the thorough determination of their cognitive situation, the search for ways that lead to objective knowledge, the ability to receive and spontaneously react to the new input and synthesize it in order to create the novel concept. Kant contends also that for individuals to experience meaningful development, they need the consciousness of passing into a higher sphere of being and to make sense of spaciousness, while the process of knowledge generation entails the acts of receptivity and spontaneity as well as judgment as significant individual capabilities.

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In accordance, transcendental capabilities have been described as mechanisms and capacities to act paradoxically, to see beyond simplistic solutions and create new knowledge in order to form novel ideas (Karagouni, 2015, 2016). TC’s main dimensions are: A. Transcendental conditions and their sub-dimensions, panoramic ecosystem awareness and sense of spaciousness: In traditional sectors markets seem saturated and therefore breakthrough innovation is not easy. Globalization and trade liberalization within a rather fluid and unfavorable ever-changing context make “new horizons and contents” (Faltin, 2001) sound a utopia in traditional business landscapes, while most entrepreneurs tend to protect themselves from emerging threads and changes. Common low-tech efforts turn around low price strategies, faster deliveries, upgrade of technologies and uses of ICT or locality privileges. Space has been called a “room for activities” (Massey, 1995), while spaciousness regards the intellectual enlargement and implies freedom or, otherwise, enough room to act (Tuan, 1977). Spaciousness and crowding are antithetical feelings. Thus, although traditional markets are usually considered as “crowded”, the sense of spaciousness allows for these markets to generate opportunities instead of imposing limitations. Kant says, “space is essentially one; however, the general concept of spaces arises entirely from limitations”. In this vein, TC suggests that while mature markets are difficult to change, niche markets and new sub-markets arise mainly from limitations set by new rules and novel concepts created by entrepreneurs, such as stricter quality standards or new “translations” of quality, new market segmentations and similar rules and concepts. The sense of spaciousness is the dimension that poses a beginning, a potential and a capacity for creativity, but it is also valuable for knowledge to be created resembling Nonaka’s ba (Japanese word for “place”); ba is a phenomenological space where knowledge as “a stream of meaning” emerges (Nonaka & Toyama, 2003). Accordingly, a sense of spaciousness can set the necessary foundations for the development of “know how to know” (Kant, 1781), providing the space in which information will be given specific meaning, it will be interpreted and will turn to novel knowledge through existing knowledge. The sense of spaciousness reflects the openness of the entrepreneurs to novelty depending on their attitudes, experiences, knowledge as well as the level of search they do for novel ideas such as the areas (sectors, sciences, perspectives) they search, the agents they envelop, the markets they explore, the mechanisms and channels they use, and the visions they develop in order to build subjective expectations of an unknowable future. Still, it seems that a kind of awareness is necessary which, however, is not limited in the individual as the Kantian “self-awareness” but covers

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the broader area of business ecosystems. This kind of awareness should make it possible to gain “representations” (the Kantian view), thus information and data on individuals’ areas of interest in order to create the necessary knowledge. According to Scharmer (2009) “ecosystem awareness” denotes the ability to perceive a problem from all of the perspectives in a given social-ecological system, internalizing the concerns and issues of the other players. While market and technology sensing constitute a significant dynamic capability (Teece, 2007) for large organizations with well-defined processes, in SMEs, it is the entrepreneurs who devote long periods of intentional time-and-money consuming search and questioning to develop this ability of obtaining a broad awareness at least of their sector at national and global level. Accordingly, the entrepreneurs seem to try to define the sectorial potential and at the same time develop a capability to recognize triggers, information and knowledge for raw ideas transcending their sectorial ecosystem. This reflects the capability of panoramic ecosystem awareness (PEA) which highlights the importance of the “bird’s view”. Developing PEA, entrepreneurs see connections among different inputs and translate information in novel ways so that their outcomes can inspire new ways of thinking. It should be made clear that there is really no top to conquer. Actually PEA launches the interaction with the environment; actors want to acknowledge the environment and reshape it through knowledge creation (Nonaka & Nishiguchi, 2001). PEA regards mainly the level of acknowledgment of the inter-sectorial business ecosystem view (starting with the specific industry and expanding to areas defined by the actors) and the level of perception of changes. Prior knowledge and previous experiences and successes, existing strong networks or a strong starting knowledge pool can assist PEA’s development. B. Transcendental synthesis (TS) and its sub-dimensions receptivity and judgment: Kant considers that knowledge is not possible without a concept, however obscure or imperfect it may be, and he describes a concept as “something general, something that can serve as a rule”. In accordance, TC suggests that knowledge creation starts becoming meaningful when an initial concept is formed—no matter how general, obscure and imperfect it may be. Thus, actors are not alert to meet opportunities but due to PEA and spaciousness, they have already identified areas of interest or otherwise their “objectives” (Kantian term). Inspirations come from complex data, retrieved by multiple sources and alternative directions surpassing the mere defensive attitudes of common low-tech strategies. Grouping the above actions, two main processes of the idea formation have been outlined: (1) the process of receiving data

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and stimuli and (2) a repetitive action of judgment. These two processes constitute the transcendental synthesis act. In its most general sense, I understand by synthesis the act of arranging different representations together and of comprehending what is manifold in them under one form of knowledge. . . . That knowledge may at first be crude and confused and in need of analysis, but it is synthesis which really collects the elements of knowledge, and unites them to a certain extent. (Kant, Critique of Pure Reason, transl. Meiklejohn, 1905, p. 75) The TS dimension actually rules and harnesses the act of unifying and combining the manifold information, data and stimuli into one idea, which will be further developed into a knowledge-based innovative concept. Synthesis plays an essential role in knowledge by allowing the agents’ a priori knowledge (knowledge independent of experience) to enter into concepts, providing them with contents that would, otherwise, be lacking. It seems that without synthesis, novelty is quite difficult to be thought of or known within the context of low-tech firms. The result is a product of a far more complex process than just a combination of knowledge bases (as described in Kogut & Zander, 1992). The term “transcendental” denotes the fact that its outcome, i.e. the formed concept, entails a kind of knowledge which is both synthetic and a priori, defining the boundaries between empirical knowledge and speculation (i.e. hypothesis) about the innovative/creative realm. The above suggestions do not contradict current entrepreneurship theory; as indicated by Loasby (2003), the actual generation of new ideas is necessarily tacit and what has not been thought cannot yet be codified. Todd, Hills, and Hendrickson (2013) postulate that genuine entrepreneurial choices are due to entrepreneurs’ subjective expectations of an imagined future and can themselves “create and continually recreate opportunities through such imaginative acts”. While transcendental conditions provide a structured coordination of getting to know the external environment (micro and macro environment, industries and markets) and work on the internal environment of the entrepreneurial team or the company (cognitive properties, capabilities, resources etc.), transcendental synthesis enables the creative receipt and exploitation of all input. Based on Kant’s definition of receptivity as the faculty of receiving representations, TS’s sub-dimension receptivity involves the “capacity for receiving data”. It regards the ways and processes used of sensing, retrieving and storing data and information, their mechanisms to process them and combine them with relevant resources in order to prepare the manifold. By itself receptivity yields only “the manifold of data”.

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The sub-dimension of receptivity entails a certain level of spontaneity; i.e. a certain level of freedom to create. It may be informal or formal with established mechanisms and processes of acceptance or rejection of the information manifold, its reproduction within the context of future innovation (within the life cycle of the novelty) and its recognition as a potential springboard for new innovation activities. The dual function of receptivity and spontaneity cannot be separated from the capacity or process of judgment. Kant devoted a whole essay in this faculty under the name of “Critique of Judgment”. Judgment can be regarded as a spontaneous cognitive capacity that mediates the formation of innovative ideas. Whenever it is externally stimulated by raw unstructured sensory data as inputs, it organizes or “synthesizes” those data in an unprecedented way relative to those inputs. This is done by applying specific rules that directly reflect the internal structures of the entrepreneur/organization, thereby generating its correspondingly structured outputs. Judgment “lands” novelty into the existing world. To gain widespread acceptance, a radically new innovation within low-tech industries must be comprehensible in terms of existing knowledge (Hargadon & Douglas, 2001). In other words, innovation, in order to succeed, must catch and couch the strange in the language of the familiar (Chiles, Tuggle, McMullen, Bierman, & Greening, 2010). The innovative idea should be at the same time surprising and familiar looking (Hargadon & Douglas, 2001). Judgment further takes into account constraints of compatibility with the laws of nature, the principles of human nature and the posture of things in human thoughts. Capital resources and institutions also serve as “common signposts” to which entrepreneurs orient their plans (Chiles et al., 2010). At this point it should be mentioned that all mechanisms above of both dimensions of the transcendental capability (i.e. transcendental conditions and transcendental synthesis) are not linear processes but rather dynamic continuous loops and iterations, managed by the entrepreneurs or managers; since novel input is both sought and accidentally acquired, concepts become clearer and ideas more refined.

Research Context and Design of the Research The research is a longitudinal, multiple exploratory case study with the individual family firm as the unit of analysis (Yin, 2009). This method permits replication logic since each case is viewed as an independent research study that may confirm, reject or extend the theoretical background through new insights. The sample was selected among low-tech SMEs in Greece and Cyprus known for their tendency to innovate which have resisted the crisis. It consists of three private SMEs: a Cypriot manufacturing company in Nicosia (SHCo), and two Greek ones from

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Korinthos (WCo) and Lamia (FCo). The three firms belong to different industries (Table 3.1), which however occupy prominent positions in the European manufacturing industry. Names given to firms and some other information have been disguised for confidentiality reasons. Table 3.1 reports basic information. Data were collected through several face-to-face, in-depth interviews using semi-structured questionnaires with the entrepreneurs themselves. The interviewees were asked to discuss their innovation efforts within the 2007–2016 decade, recall knowledge bases used and new knowledge created and to focus on the way the initial novel idea was formed, managed and implemented. Additional sources of information were also used to complement the interview data such as plant visits, company reports, awards, company websites and press since 2007. It should be mentioned that the 2007–2016 decade is the decade of crisis mainly in Greece and partly in Cyprus and, therefore, insights are of significant importance taking into consideration the vulnerable and instable socioeconomic environment and supporting further the need of dynamic capabilities development according to the DC literature (e.g. Teece, 2007). Measuring innovativeness may take several forms especially in cases of low-tech firms where R&D is scarce. The firm-level innovativeness scale was adapted from existing instruments (see Boso, Story, Cadogan, Micevski, & Kadić-Maglajlić, 2013) and regards: (1) product/service innovativeness, (2) process innovativeness and novel technology further developed, (3) marketing innovativeness and (4) new materials. Improvements of innovations are also taken into consideration as an indication of innovativeness. Innovations should be either (1) new to the firm, (2) entirely new to the market, or (3) new to the world. These levels were assessed by the interviewees’ sayings and relevant information derived by Internet and press or discussion with sectorial experts in order to avoid respondents’ exaggerations. Furthermore, traditional measures were also taken into consideration such as the number of innovations together with patents, awards and trademarks.

Table 3.1 Description of cases Family Year of Legal Number of % Industry Business foundation Form employees exports WCo

1924

SA

185

50

FCo

1960

SA

35

20

SHCo

1983

Ltd

11

0

Wood

Product Family

Plywood/marine plywood Food Gourmet dairy products Solar Solar Heating Heating Systems

WCo 3 FCo 1/year SHCo 1

2 5 17

4 3 2

3 1 2

2 0 1

2 0 3

1 2 1

1 4 several

0 0 1

yes no no

yes yes yes

yes yes yes

Firm New New New New technology New Use of R&D Improvements Market Patents Trademarks Awards Products Processes technical bought and services novel of initial innovation specifications further developed materials innovation

Table 3.2 Innovations in 2007–2016

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A Knowledge Management Approach in Developing Innovation Within Low-Tech SMEs: The Transcendental Dynamic Capability TC and Innovation The case analysis indicated that innovation within low-tech firms lies mainly on a capability to form concepts based on transcendental ideas with a perspective of knowledge generation. External “stimuli” can be induced by threats and opportunities, competitive pressures, technology changes or just accidental inspirations. WCo was stimulated by a significant problem in production, and later by their strategy to keep being among the global leaders during the severe socioeconomic crisis. FCo’s entrepreneur narrates an accidental inspiration of his patented process during a visit in France. This exceeds the resource view which regards the firm as a collection of resources and connects outperformance to superior resources while it does not show any interest in the entrepreneurial side of organizations (a main drawback of the DC view as well). The cases indicate that within low-tech industries, the actors are trying to capture the “extraordinary” and “distinctive” (Faltin, 2001) but at the same time “familiar” and “acceptable”: “We designed the new application and it was just unique . . . you know one of its kind! But then we thought of the users. We should offer an easy device to handle. People of a certain age, here in Cyprus, do not like complicated technology in their everyday life!” (SHCo’s entrepreneur). This cognitive capability, which determines the origins, the extent, and the objective validity of knowledge on the idea development, is actually a fruit of transcendental capability. TC enables knowledge to build on information extracted from data (Boisot, 1998) and at the same time to form new requests on more knowledge, new information and novel data. On the other hand, innovation means an effort to get out of conventional business, domestic markets and certain knowledge patterns. “Open space has no trodden paths and signposts. It has no fixed pattern of established meanings; it is like a blank sheet on which meaning may be imposed” (Tuan, 1977, p. 54). Cross-case analysis revealed the existence of a constant sensation of where the agents were and where they wanted to go; the stronger the case, the more challenging the novelty that the entrepreneurs were seeking. It seemed that actors could envisage conditions of business possibilities outside of their domestic markets in order to develop strong competitive advantages. “When we thought of innovation, we wanted to be the best and not only in Greece. Our market is very small to support innovation” (WCo’s entrepreneur). Actually, WCo challenges the properties, technical specifications and quality of a very delicate product worldwide, introducing process innovations, entirely new sets of performance features and improvements in

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known ones of five times or greater, which are called radical innovations according to Leifer et al. (2000) definition. Today it produces the best and most expensive marine plywood and possesses the fifth position in the sector globally. It is also one of the most advanced companies in quality and leadership worldwide. “Lately we were awarded among the most developed firms regarding quality and leadership worldwide” (WCo’s entrepreneur). FCo started with process innovation (with two patents so far) but soon turned to product innovation, too. The entrepreneur crafted a niche in a saturated market, and places great emphasis on introducing new products that incorporate a high degree of innovation. He does not consider his company to be market oriented; according to his opinion, consumers are not able to indicate truly innovative products. FCo presents a series of novel products every year, wins prizes and increases sales. In 2010 the entrepreneur established a spin-off by the name of “R*. I*.” for clearly premium gourmet products, designating authenticity, novel flavor combinations and hyper-premium tastes, which is doing extremely well. FCo has not been affected by the severe crisis. With a philosophy diploma, the entrepreneur believes strongly in a priori knowledge and novelty generation, and he also claims that his studies made him develop alternative and creative ways of thinking, broadening horizons and perspectives. He also places great emphasis on the training of all people involved in his business (including franchisees). With a BSc in manufacturing engineering and management and an MSc in renewable energy systems technology, SHCo’s entrepreneur believes strongly in knowledge-based innovation. “I joined the family business in 2008. It was high time to become innovative. We designed new production lines and made big alterations to the existing factory production space. At the same time we redesigned our solar collector that was in need of improvements and began research for new automated machines and new more advanced raw materials. That was a springboard to become innovative”. In all cases, it appears that tacit knowledge enables leaders to sense emerging opportunities before these become manifest in the marketplace (according to Scharmer, 2009). “But for something innovative, there is no point to run another conventional traditional company today. You have to create, to offer the different and exceptional at the same time. It’s a matter of knowledge then.” (FCo’s entrepreneur). Transcendental Conditions In all three cases, innovation was considered the very “specific function” (Drucker, 1985) of the business, involving strong efforts to apply knowledge from different functional areas, not known or anticipated from the very beginning of the idea creation. The sense of spaciousness dimension

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describes the conscious excess of the limited “known” because of the existence of the unlimited “unknown”. FCo’s entrepreneur is among the first to depart from the detrimental complacency of protected traditional feta cheese: “In general, low-tech entrepreneurs won’t get off the beaten track easily, due to ignorance and fear. They keep on with feta and oil. ‘Business as usual’ is still the prevailing watchword!” (FCo’s entrepreneur). The cultivation of such sense stimulates forward-looking thinking, creates opportunities and shapes visions. It is a precondition of possibility, especially for the entrepreneurs to become aware of the existence of empty “spaces” and fill these discovered empty but unknown spaces through knowledge-based innovation; this is a significant differentiation from others who regard space as “a determination of existing phenomena”. “I believe strongly in innovation even in traditional areas such as ours. I pose questions and then I have to find the answers. This is a process of collecting knowledge, to create knowledge, to experiment. The process is quite fascinating!” (FCo’s entrepreneur). FCo is a case of strong and continuous development of panoramic ecosystem awareness. When taking over the family business, the entrepreneur realized that “traditional products—no matter the quality—cannot make you differentiate”. He started with re-engineering and advanced from imitation to innovation with mainly trial-and-error processes and a flexible use of the knowledge gained from re-engineering, visits, trade shows, the Internet and books in order to react to the traditional character of the company’s products. “I visited the Fancy Food Show in San Francisco and New York and came in contact with producers who invited me in their farms in Wisconsin. I visited them and I ‘saw’ opportunities—I mean what I could do”. “It is very difficult to have your ideas turn into products for a number of reasons. It can be the luck of funds or people available to do the research. Yet, you have to offer more options or create novel uses and new niches”; for the entrepreneur of SHCo, it was actually a bet. “Cyprus is not ready to accept women in business like ours. I wanted to be really good! I got my diploma and my master’s in the UK, I traveled a lot to collect experience and knowledge. Ever since I joined the business I have visited several exhibitions in Europe concerning our sector to keep up with all new technologies and innovations”. SHCo’s entrepreneur created purposefully significant PEA in order to develop spaciousness. “In the beginning it was quite easy. Certification . . . technology upgrade. . . . But, it is never enough! Innovation may be even new ways to use your machinery. We have done this too, to enter other sectors. We also try to expand business in new areas such as new applications for animal farms”. It is worth mentioning that all three entrepreneurs are quite different in attitude and knowledge, and above the average low-tech manufacturer. The cases reveal certain relationships between the educational level and its impact on TC development. All three possess an academic degree and

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significant experience at the sectorial level, at least. Starting from their own long experience and know-how, the entrepreneurs of WCo redefine quality at the global level. Their new vision toward top quality marine plywood concentrates on innovative process technologies such as the development of novel stitching technology. This is further accompanied with new ways to innovative uses and complementary products targeting high value markets. Innovation is deeply knowledge-intensive and clearly export-oriented. The company targets itself to be a “high value top-class marine plywood global leader”. In the examined cases a conscious acceptance of spaciousness, an almost systematic creation of a broader view of the entrepreneurial landscape and a will and a plan to achieve widespread experience and knowledge were observed. “Traveling abroad and my visits overseas contributed in a major way to the birth of these ideas on innovation” (FCo’s entrepreneur). According to our cases, the development of PEA needs time but it can also be developed due to external pressure as in the case of the innovation of the stitching process by WCo after a significant failure of quality in 2008. However, this is not strange, since “pressure makes us take notice of space” (Tuan, 1977). The interviewed entrepreneurs admitted that they seek ideas out of domestic and sectorial limits, which are quite unusual for traditional industries, at least within the Greek and Cypriot context. They further recognized connections among different input and translated data and information in novel ways so that their outcomes could inspire new ways of thinking. Transcendental Synthesis All three interviewees appeared keen to recognize a variety of a priori elements and work on the abovementioned basis. For WCo, messages sent by their own production—e.g. the weakness of the plywood production system, a need for more control of raw material and efficiency improvement—were creatively combined to external messages of the need for new strategy and the weaknesses of the Greek market together with the development of new technologies. The initial general concept, the “something that can serve as a rule” according to Kant was, in the WCo case, “quality”. Openness to ideas regarding the extremely traditional feta cheese product was the core of receptivity for the entrepreneur of FCo. Receptivity and spontaneity is exercised by locating collateral characteristics and needs of target groups; e.g. innovative combinations and use of retroinnovation combined with gourmet trends, healthier ways of living, natural tastes and unique selling propositions with the potential to surprise. The ideas will then be realized through production and organizational processes.

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“Everybody has an idea but the hard part is to follow through” states the entrepreneur of SHCo. “We started with Solar Keymark because this was the certification that would open the door to exports. However, this decision triggered a number of new ideas which turned into innovations; not accidentally of course!” The act of intelligent unification that triggered New Product Development (NPD) is here quite obvious. Openness to ideas is combined with sensitivity to internal signs and gives birth to process innovations: “We used our knowledge of the domestic and European market to improve our product. We actually decided to stop the previous production line”. In all three cases, knowledge and long experience are significant preconditions: for example, knowledge of wood material science and technology, plywood processes, engineering and automation—among others—supports innovation. Knowledge was important for the entrepreneur of SHCo too: “Knowledge is very important if you want to innovate. This is why I have chosen an MSc in Renewable Energy Systems Technology. Of course, even this is not enough! I visit several exhibitions in Europe to keep up with all new technologies and innovations. I attend a lot of seminars to learn all about the EU legislations and product certifications or new technologies. Now I am preparing the technical file for my patent and I really read a lot!” The entrepreneur of FCo narrates his passion for hunting knowledge “I believe in the creative combination of multiple knowledge bases. I combine knowledge received from a scientific journal with the valuable practical knowledge from farmers in Crete or US or a seminar in France. This is the basis of my new company; it produces only innovative products!” His spin-off has developed a dedicated R&D department and charges R&D expenditures. Continuing the case of FCo, judgment regards many aspects of the new ideas’ formation, such as the new market requirements and trends, the shift to eco-friendly production and circular economy, limited budgets, and technology limitations. WCo’s decision-making regards a number of judgmental decisions such as: (a) to devote significant budgets but only equity capital (“we always choose the most expensive way we can afford”); (b) to innovate on high quality standards and specifications (“For us quality is the spearhead of our strategy. We have decided to innovate mainly in this arena”.); (c) to invest in regular innovative improvements of products and services. “Leadership requires top standards, constant quality, variety, surprise through new different products, innovation. Therefore, it was also a question of flexibility in a constant evolution of products and ideas. If an idea is good enough, we will find a way to make it real”. EU regulations, eco-friendliness, the Cypriot market specificities and a limited budget are significant issues for SHCo’s judgmental processes. The company tries to reach other sectors and markets exploiting its

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innovative production lines too. Judgmental decisions are taken to ensure quality consistency, flexibility, differentiation and a better control. In all three cases, narrations made evident the existence of judgmental decisions on issues such as scarce resources, combinations and deployment of capital goods, expectations, choices, resolving conflicts and increasing variety among others. It further appears that judgments keep being individual decisions of the entrepreneurs and not ones of a collective nature, even in the case of WCo, which is bigger in size. Furthermore, judgment seems to be mainly based on the entrepreneurs’ or the entrepreneurial teams’ perceptions, knowledge and experiences as well as the level of their transcendental conditions.

Epilogue TC is a purely dynamic entrepreneurial capability of strategic nature that purports to explain how low-tech firms and especially SMEs manage knowledge as a valuable resource for innovation. It regards the process of intangible assets’ creation, such as novel knowledge and know-how which according to Teece (2011) constitute the new, hard to “build” and difficult to manage “natural resources” and the formation of the innovative idea itself. TC enables the a priori cognitive configuration, the ability to cognize the nature of what is going to offer competitive advantage. The transcendental movement from non-existence to existence is a fact which takes place within the field of creation and knowledge (knowledge-based innovation) starting from opportunity creation. The level of the Transcedental Capability development depends on the level of the transcendental conditions’ (TC’s dimension) development, while transcendental synthesis is the dimension actually responsible for the capture of the novel but initially vague idea for the innovative product, process, service or model. The fruits of TCs seem to be able to permit newcomers be accepted in already established and seemingly saturated mature markets. Low-technology industries constitute an important part of the global economy. Knowledge, defined as “justified true belief” (Kant), increases an organization’s capacity for effective action. Knowledge management in such industries appears to be a significant way to innovation and consequently to survival and growth nowadays. The entrepreneurs of the research appear to have the capability to create the content of the idea; knowledge is organized around the innovative idea while the origins of all knowledge collected and selected, to form the novel idea, are derived by a complicated set of multiple, multifarious and multifaceted knowledge areas and are subject to interactions. That means that there must be certain time and resources devoted for the collection, selection and technical disposition of the media (information, knowledge, networks and other resources) needed under the guidance of the actually underdeveloped idea while there is actually no definite plan of arrangement. Then it becomes

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possible to view the idea in a clear light and to project a plan of the whole according certain principles. This is how knowledge and science enters the organization’s knowledge basis at least in low-technology cases. It appears that innovation in SMEs depends mainly on the capacity of the entrepreneurs themselves who are responsible for the development and further cultivation of the transcendental conditions dimension (PEA and spaciousness) and the transcendental synthesis (receptivity and judgment). Of course, social, cultural and historical contexts are important for the transcendental capability. In creation, one cannot be free from one’s own context since such contexts form the bases to interpret information and knowledge to create meanings (Nonaka & Toyama, 2015). Then, of course, the market will be the final area of judgment. Although Kirzner argues that “entrepreneurship reveals to the market what the market did not realize was available, or indeed, needed at all” (Kirzner, 1979, p. 181), and this is further repeated by many of the interviewed entrepreneurs, it is actually the market test that will sort out which innovations are workable. Naturally, the study bears certain limitations such as the problems associated with the case study method, the level of the interviewees’ objectivity regarding self-reported data, its national (Greek and Cypriot) context, which both refer to small market sizes and perhaps the time that the research was contacted. Furthermore, it is not a longitudinal research with the strict definition of the method. The chapter’s main effort is to shed some more light from a DEC research perspective on the phenomenon of low-tech and usually nonR&D-intensive innovation. Low-tech firms with insignificant or zero R&D efforts are still “regarded as a type of a ‘black box’ in scientific, managerial, and particularly current public and political discussions” (Som & Kirner, 2016, p. 4). Besides the core aim, there are several other contributions: the chapter highlights the importance of the knowledge management field and especially the process of knowledge creation in cases of traditional firms and especially SMEs, an area highly underestimated by researchers that explore knowledge creation issues. The chapter deals with the co-evolution of dynamic capabilities and knowledge management fields indicating explicit connections between the two areas as provided by TC, which can be described as a dynamic entrepreneurial capability enabled by knowledge management. While the DC view emphasizes the renewal of resources (Teece et al., 1997), knowledge management research often focuses on providing solutions regarding explicit and tacit knowledge (Cepeda & Vera, 2005). Although there is a bilateral acceptance of the importance of the two fields and research in the area, such efforts are limited at an empirical basis and extremely limited for low-tech firms. Therefore, the effort to extend discussion on the dynamic capabilities approach can be considered another significant contribution of the chapter.

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In general, the chapter seeks to enhance knowledge regarding knowledgebased innovation of the non-R&D-intensive firms in low-tech industries. Therefore, it seeks to increase the awareness of innovation and mainly low-tech innovation researchers, business practitioners, students and policy makers regarding innovation and relevant challenges in low-tech industries which are often overlooked but still constitute a significant part of the global business landscape.

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4

The Center for European Trainees An Instrument of Cross-Functional Knowledge Management for Internationalization of Vocational Education and Training Hans Wiesmeth and Anzhela Preissler

Introduction Knowledge-based economies require an adequate pool of high-skilled workers. Necessary skills comprise competencies from an academic education, often in natural or engineering sciences, but also in management. However, vocational education plays an important role, too: most production-oriented business companies are more and more dependent on well-trained employees, who are capable of operating increasingly sophisticated technical and technological equipment. Whereas the share of academically trained young people continues to increase in many industrialized countries (OECD, 2017, Table A1.2), shortages can be observed regarding conventionally trained future employees. Thus, replenishing this pool needs continuous and increasing attention, especially in times of low unemployment. This applies not only, but in particular, to the German economy (OECD, 2017, Table A5.2), and to its prosperous Länder, such as Baden-Württemberg (BW, 2015). Concepts that interest young people from certain member states of the EU for vocational training in Germany, or even that export certain features of the German model of vocational education and training, characterized by combined school-based and work-based programs, arise out of this situation. “Dual systems” are not yet implemented in Italy and Spain, but can be found in Austria, the Czech Republic, Denmark, Hungary, the Netherlands, the Slovak Republic and Switzerland (OECD, 2017, p. 56). Italy and Spain still have a significantly high youth unemployment. Thus, in 2016 the unemployment rate of 25–34 year-olds with a “below upper secondary education” was 23.8% in Italy, and 30.5% in Spain, in comparison to 16.0% in Germany. For those 25–34 year-olds with an “upper secondary or post-secondary non-tertiary education”, the corresponding shares are 16.0% for Italy, 20.8% for Spain, and 4.2% for Germany (OECD, 2017, Table A5.4).

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In view of these reasons, but also in view of time-tested economic interrelations, Italy and Spain constitute natural neighbors for BadenWürttemberg for implementing these goals. However, there are various hurdles complicating this kind of knowledge management in an international landscape. Diversity regarding social structures, cultural contexts and other facts influencing social relations in the participating countries are of utmost importance and have to be respected. Moreover, a crossfunctional approach is necessary, as different competencies are of relevance for different areas of future employment, and connections across organizations with different functional responsibilities have to be built. For these reasons and because private companies, in particular SMEs, can, in general, not adequately handle this issue alone, Baden-Württemberg established the Center for European Trainees (CET) in 2014. Since then, this initiative, considered a pilot project, has undergone various evaluations by the Fraunhofer-Center for International Management and Knowledge Economy (Fraunhofer IMW) in Leipzig, Germany. These yearly evaluations were meant to judge the development of the CET in view of the overarching goals and to give advice for a possible institutionalization of CET after the pilot phase. Together with regular selfevaluations of the CET, these external evaluations provide the basis and the data for the case study to be conducted in this chapter. The chapter addresses these aspects of a cross-functional knowledge management in an international landscape by means of the example of the CET. Emphasis is placed on the necessary cross-functional collaboration within the network of partner institutions and, in particular, on the adequate integration of these stakeholders into the CET. The research questions refer exactly to this issue: why and to what extent is the integration of the various stakeholders into the operations of the CET necessary, and how to integrate these stakeholder groups to allow the efficient achievement of the goals. In order to provide an answer to the research questions, the case study method is adopted. The following section presents major features of the CET, including some general results of the various evaluations. After the review of the literature the explanation of the methodology prepares the ground for the thenfollowing case study. Thereafter, the “theory”, based on the adequate integration of the stakeholders with cross-functional links, will be investigated. This leads to recommendations for appropriate adjustments for the CET as a policy tool after the pilot phase. Some final remarks conclude the chapter.

The Center for European Trainees CET was established in June 2014 as a central service unit of the Bildungswerk der Baden-Württembergischen Wirtschaft e. V., a registered association of business, industry and trade in Baden-Württemberg. Since

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then, the task of CET has been the internationalization of vocational education in Italy and Spain in combination with promoting vocational training of young people from these countries. Thereby, youth unemployment in these countries should be reduced while, at the same time, replenishing the pool of skilled labor in Baden-Württemberg. To accomplish these goals, CET developed into a platform, connecting various service providers and collaborating with other institutions on the: 1. micro level: business companies, schools and trainees, welcome centers and language schools; 2. meso level: chambers of industry and commerce, branch and industry associations, ministries and public administration; 3. macro level: institutions of the EU, umbrella organizations of industry and commerce, social partners in management and labor. Besides basic funding from Robert Bosch Stiftung GmbH, Bildungswerk der Baden-Württembergischen Wirtschaft e. V. and Arbeitgeberverband Baden-Württemberg, CET received temporary funds from the Federal Ministry of Labour and Social Affairs, Germany and the European Commission, mostly to raise mobility of young people with respect to vocational training and education. Framework conditions provided by the relevant public and private institutions regulate the operations of CET. A SWOT analysis, provided in a self-evaluation by CET, helps to characterize the relevant framework conditions. The strengths of CET results undoubtedly come from its proximity to the business sector of the economy of Baden-Württemberg. The business companies have an interest in a continuous supply of highskilled workers—in the short run and in the long run (BW, 2015). The chances of CET have to be seen in a large number of contacts to various levels of the public administration in Baden-Württemberg, in Germany and the EU, established and intensified in the recent years. However, these relationships imply a certain dependence on the public administration, on the policy makers, so to say, and, thus, constitute also one of the major risks for CET. The attention of the public authorities in all participating countries may easily decrease or even vanish due to elections with the new governing bodies setting different priorities. Moreover, upcoming political issues might divert the required attention. The large number of migrants and asylum seekers coming to Germany and other European countries in 2015 provides an example. Among the weaknesses of CET count the limited time horizon for the current activities in the pilot phase as well as the small number of employees pursuing the cross-functional and international goals of the center. As these goals have some importance for the German economy in general and the business companies of Baden-Württemberg in particular, the following analysis is devoted to a careful investigation of the framework

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conditions and the integration of the various stakeholders into the operations of the CET. Before that, however, a literature review and an explanation of the methodology will clarify the setting and provide the details of the procedure in the main section.

Literature Review There is, of course, an extensive literature on the knowledge economy in general and on knowledge management in particular. A fundamental survey is provided in OECD (1996) with a development of appropriate indicators of a knowledge-based economy. More recent papers on knowledge management in the context of collaborative networks include, for example, Daňa, Caputo, and Ráček (2018) and Tang (2011). More concretely, Svetlik and Stavrou-Costea (2007) elaborate on the interface between human resource management and knowledge management, thereby considering knowledge management “an evolved form of human resource management” (p. 198), getting closer to the topic of this chapter. Similarly, Rowley (2000) addresses the issue of implementing knowledge management in universities, which are, of course, involved in knowledge creation and dissemination of learning. Büttner (2005) also considers knowledge management in universities, however, with a focus on internationalization within the knowledge society. Nieuwenhuis, Nijhof, and Heikkinen (2003), also with respect to internationalization, argue in favor of “responsive and proactive” systems of vocational education and training, which are deeply rooted in cultural and socioeconomic traditions of the countries (p. 4). Mohamed, Stankosky, and Murray (2004) point to the importance of cross-functional teaming for critical knowledge flows. Regarding the CET the relevant literature refers mainly to some texts, characterizing the founding of the CET. The context is provided by a strategy paper for the internationalization of German vocational education and training (BIBB, 2002). The position of the BIBB, the Federal Institute for Vocational Training in Germany, refers to the increasing Europeanization and globalization with tremendous consequences regarding the need for international competencies in vocational education and training. The member states of the EU are considered to be the important partner with respect to establishing a European vocational education, thus providing the logical background for establishing the CET. This position has then been accepted by the relevant institutions in Baden-Württemberg and extended into a paper detailing the requirements (BW, 2015). Fässler, Jäger, and Maurer (2016) investigate the export of the dual system in vocational education from the point of view of Switzerland, thus allowing a comparison with the situation in Germany, and Nieuwenhuis et al. (2003) address the role of traditions in this context. With respect to stakeholder integration, which plays an important role in the operations of the CET, there is again an ample literature. With

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regard to education, Shams (2016), for example, looks at the “alignment to stakeholders’ needs and expectations as a sustainability indicator” (p. 148) in transnational education, and Shams (2017) considers quality assurance in transnational education and the significance of stakeholder relationships in this context. Moreover, Shams and Belyaeva (2017) address issues of quality assurance in higher education, with sharing knowledge between key stakeholders being one of the drivers to uphold quality.

Methodology The chapter adopts a case study approach based on the continuous evaluations of the operations of the CET since its founding in 2014. These observations are confronted with the theory extensively discussed in the recent literature (cf. also Literature Review), emphasizing the role of the various stakeholder groups and their adequate integration into the CET network. Data for the case study, collected from the evaluations, allow insight and interesting conclusions on the actual and perceived strengths and weaknesses of the institution. Moreover, the chances and risks associated with possibly changing framework conditions of relevance for the CET have to be considered—as mentioned in the introductory section. This data are partially quantitative, referring, for example, to the number of trainees included in the various features of the program or the number of business companies showing interest in the activities. The larger part of the data collected is, however, qualitative: the answers provided to structured interviews with members of the relevant groups of stakeholders—trainees, representatives of business companies, of the network partners and of the public administration, allow further insight into important aspects of the operations of CET regarding its goals. Regarding the results and conclusions, the current framework conditions, regulating in particular the integration of the stakeholders, seem to be incomplete, thus requiring some extensions. In this sense, this case study can be used to develop a theory, to deepen the understanding of “optimal” framework conditions for CET with respect to its goals. This case study design could best be classified as “no theory first” (Ridder, 2017, p. 286): “the richness of the observations is captured without being limited by a theory”. And the research question formulated in the introductory section is of relevance in the sense that it points to a research gap: theorizing about the right framework conditions for the CET. As already indicated, the “theory” rests upon the requirement of a careful integration of the various groups of stakeholders into the operations of CET with CET controlling cross-functional links. This case study design has also been popularized by Eisenhardt (1989), who argues in favor of qualitative data, although a combination of

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qualitative and quantitative data is possible as well (Eisenhardt, 1989, p.  538). Interestingly, Davis and Eisenhardt (2011) use this design to investigate technology collaborations, to understand processes supporting innovations. This corresponds to the attempt to study the collaborations within the network characterizing and supporting CET. In this sense, the following section presents the case study of CET with a focus on strengths, but also on weaknesses to address the research gap.

Case Study: Strengths and Weaknesses of CET The regular self-evaluations of CET combined with the external evaluations through the Fraunhofer IMW reveal interesting strengths, but also persistent weaknesses of the institution, which will be analyzed in the following subsection in order to address the research questions. Strengths of CET Since its founding in 2014, CET has developed into a widely recognized platform with strong contacts to a meanwhile large number of partner institutions, which collaborate for the success of the program. Regarding trainees, CET succeeded in attracting an increasing number of young people to its initiatives. Interestingly, many contacts with CET resulted from recommendations of partner institutions in Italy and Spain. Thus, although CET is a small institution in terms of employees, it succeeded in establishing a cross-functional, international network of partners. This network helps to provide CET access to virtually all parts of Italy and Spain, to address young people with quite different preferences regarding vocational training. The interviews with some of the trainees show a high degree of satisfaction of the trainees with the support given by CET. This support includes the welcome culture (“first steps in Germany”) and the readiness to help at practically anytime (“always around to help you”). Business companies in Baden-Württemberg constitute the next diverse group of stakeholders, involved in the activities of the CET. Indeed, CET was established to help to ease possible problems regarding the future supply of high-skilled workers. The representatives of the companies, who were interviewed in the course of the evaluations, responded also quite enthusiastically. The job accomplished by CET took away some burden and allowed them to concentrate on their business. A few more critical remarks refer mostly to issues, which count among the weaknesses of CET and will therefore be discussed in the next subsection. The third group of stakeholders are, as already indicated, the network partners. Among others, political organizations on all levels and in each country (Baden-Württemberg, Germany, Italy, Spain, EU), ministries on all levels, chambers of industry and commerce, embassies in Italy and

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Spain, schools in Italy and Spain, subsidiaries of private business companies in Italy and Spain, information centers of the German Academic Exchange Service (DAAD) in Italy and Spain, and appropriate research institutions contribute toward the success of CET. Those partners, who participated in the interviews, responded again in a very positive way and praised the operations of the CET and their social relevance for the participating countries. Moreover, the evaluation of the qualitative data of the final report revealed that the attitude of a critical competition among some of the network partners (fear of a destructive competition) subsided and turned into a successful and mutually beneficial cooperation. Each one of the partners has found an appropriate task in the cross-functional arena to attract international trainees for business companies in BadenWürttemberg and to raise awareness for the German dual model of vocational education. The strengths of the operations of the CET, which emerged and became firmly established over the last four years, are undoubtedly positively recognized and acknowledged by the stakeholders involved in these activities in one way or the other, but also by the general public. Weaknesses of CET Quite naturally, there are weaknesses of CET in this pilot phase. The framework conditions, in particular those in Italy and Spain, were initially anything other than clear for CET. Therefore, the institution had to adapt to these conditions and try to find its way. A similar situation arose when, as already mentioned, migrants and asylum seekers required the heightened attention of the public administration in 2015. At that time, quite a few larger companies were convinced that many problems regarding the supply of skilled labor could be solved. As it turned out a little bit later, this was not the case, as most migrants didn’t fulfill the basic educational requirements for working in Germany. Nevertheless, although this development was not in favor of the CET, it helped CET to sharpen its profile and to get prepared for any new challenges along this line. The question remains how to better protect CET against changes in the fundamental framework conditions. Another critical weakness of CET is associated with the interests of the various stakeholders to actively participate in the operations to further the common goals. Of course, there is the question of why the stakeholders should not take part in a project, which seems to be beneficial for all those involved. There are, however, social and economic mechanisms that prevent trainees, companies or potential network partners from a more active involvement with CET. Trainees: This refers, first of all, to the young people in Italy and Spain, to the potential trainees. They typically learn about CET

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and the possibility for an internship or even an apprenticeship in Baden-Württemberg through one of the network partners in their country. There remains, however, the issue of finding an appropriate company, offering such an opportunity in an area corresponding to the needs or preferences of the potential trainee. This matching problem is not easy to solve, as there usually is incomplete information on the available places for internships and apprenticeships in the business sector, which can be filled with candidates from Italy or Spain. Often, apprenticeships in high demand, for example in robotics or similar fields, are occupied with German applicants. Moreover, the potential trainees from Italy and Spain themselves often have only partial knowledge of the cultural barriers when searching for an apprenticeship. This is at least the information contained in the various evaluation reports. This issue is aggravated by the fact that most potential trainees from Italy or Spain lack sufficient knowledge of the German language. The motivation to learn German is linked, of course, to the willingness to search for and find an appropriate apprenticeship in Germany. If, however, there is only incomplete information, as outlined above, on the relevant framework conditions, then potential trainees tend to hesitate before they invest time, possibly money, and a lot of effort into a language program. The consequence is that for these reasons CET did not really succeed in the course of the last years in improving the language skills of those trainees coming to Baden-Württemberg. This conclusion results again from the information provided in the evaluation reports. Business Companies: Business companies in Baden-Württemberg and their subsidiaries in Italy and Spain obtain the information about CET through the usual media and information channels. For sure, the Bildungswerk der Baden-Württembergischen Wirtschaft e. V. is quite active in spreading information on CET. Moreover, CET itself keeps offering consultations with companies about the advantages of a closer cooperation with CET. All these points to the assumption that most companies in Baden-Württemberg are aware of potential shortages regarding skilled workers in the near future. However, it might be that for quite understandable reasons they prefer German candidates, and if other companies employ sufficiently many young Italians or Spaniards, they might still have access to German apprentices. Among the reasons cited are cultural differences, language barriers, the recognition of credits, bureaucracy and others. These reasons might keep one or the other business company from a more active involvement with CET. It applies, in particular, to those companies offering attractive fields of apprenticeship and employment. Consequently, there remain, for example, care

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Hans Wiesmeth and Anzhela Preissler facilities looking urgently for nursing staff. Unfortunately, employment in this is area is not in high demand neither from German candidates nor from candidates from Italy and Spain, at least not under the current framework conditions. Thus, matching candidates and companies remains an important issue for CET. Arguments of this kind are, of course, not directly provided in the interviews or in the meetings with CET. There, companies point to their genuine interest regarding an internationalization of vocational education, although they refer in general more to sending their German apprentices to their subsidiaries in other countries, not so much to employing international candidates. Thus, the above conclusion seems to point in the right direction, and the question remains, how to attract the interest of the German companies to the employment of trainees from other countries. Network Partners: The network partners, especially those in Italy and Spain, are in particular involved in “selling” the German dual system of vocational education. They face the problem that the German model is not necessarily the preferred one in these countries. There is often the argument that young people would rather attend a university than have a vocational education. To change this attitude takes time, although there are first encouraging signals from these countries. Regarding the cooperation of the partners with CET, there has been a strongly positive development over the last years. There is sufficient interest from schools in Italy and Spain to motivate appropriate candidates for an internship in Baden-Württemberg, and there are activities from the local chambers of industry and commerce to support these efforts. There are only a few hints in the interviews pointing to potential problems. A little bit more problematic is the required cooperation with the partners from the various institutions of the public administration. As already indicated, their involvement in CET is to some extent dependent on other political issues, which may pop up anytime and distract interest from CET. This situation points to the requirement of stabilizing the “political” framework conditions of relevance for CET by integrating other institutional stakeholders more carefully into the operations of CET. These are some of the more important results and conclusions from the various evaluations of CET in the years since its founding. In summary, CET managed quite well in this pilot phase and certainly deserves the further attention of the institutions financing and promoting CET. The following section presents the “theory” (Ridder, 2017, p. 286) emerging from and associated with this case study.

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Stakeholder Integration—Implementing the Theory The results of the case study, the conclusions from the evaluations of the CET, demonstrate a good, not to say a remarkable, development of the CET as a tool for the internationalization of the vocational training with a focus on attracting young people from Italy and Spain to Baden-Württemberg in the short run and for exporting certain features of the German model of vocational education in the long run. The qualitative interviews confirm a positive reception of the CET among those trainees, companies and institutions, collaborating with the CET. However, the results also show that there could be a larger number of interested young people, who could be, in addition, better prepared for an internship or apprenticeship in Baden-Württemberg. This refers, in particular, to proficiency in the German language and information on peculiarities of the German education system. There could also be a larger number of business companies participating in the programs of the CET, ready and well prepared to welcome trainees from Italy and Spain. Currently, firms seem to be hesitating to get more intensely involved with this kind of internationalization of vocational training. Finally, some of the relevant framework conditions, in particular those referring to the partner institutions from or closely associated with the public administration, need to be stabilized for a longer time horizon with predictable conditions. Integration of Trainees: Regarding trainees, the core problem seems to be incomplete information. There is a lack of information on the German model of vocational education and training, there is a lack of information on available internships or apprenticeships and there is a lack of information on working and living conditions in Germany. The ensuing uncertainties result in a cautious behavior; potential candidates hesitate to apply for an apprenticeship in Baden-Württemberg, and simultaneously hesitate to obtain proficiency in the German language. The proposal for CET is therefore to increase its potential as a network platform providing and cultivating links to all stakeholders. In the case of potential trainees, CET should, thus, continue to offer workshops and seminars in Italy and Spain, which provide all kinds of necessary information on living and working in Germany, but also additional information on aspects such as financing, job perspectives and others. Moreover, CET could extend its services to academically trained young people, or even adults with an appropriate training. This would lead to a larger pool of people to be trained for working in Baden-Württemberg. The GiveME5

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Hans Wiesmeth and Anzhela Preissler initiative, allowing young people to spend a five-day “trial” internship in a company in Baden-Württemberg or its subsidiary in Italy or Spain, could provide additional valuable insight, and should therefore also be intensified. Another serious issue is the matching of candidates with appropriate companies. There is currently kind of an adverse selection: companies offering apprenticeships in preferred areas such as car manufacturing or robotics can, in general, fill these positions with German candidates, who do not require additional attention and resources. On the bottom line, there remain companies, such as the care facilities mentioned above, which urgently need additional trainees and employees, but which are currently not in high demand. A first measure to deal with this matching problem on the one hand, and to reduce the information deficit on the other, could be a preliminary contract between a potential trainee and a business company in Baden-Württemberg. This contract, extending over a limited period of time, should offer the potential trainee an apprenticeship in a certain business company in Baden-Württemberg in return for a completed intensive language training in German. An official certificate documenting proficiency in German on an appropriate level should then open the door to the apprenticeship. This is an attempt to integrate potential trainees more carefully into the operations of the CET. However, this proposal also demonstrates the need for a more careful integration of the business companies—there has to be a cross-functional link between the stakeholders. Business Companies: As indicated above, business companies in Baden-Württemberg face a variety of hurdles when employing young people from Italy or Spain: they have to deal with the increasing cultural differences among their employees, they likely need additional resources to care for these young people and they have to handle the bureaucracy. For all these reasons, they tend to hesitate to employ those candidates. They thereby reveal some kind of “beggar-thy-neighbor policy”, leading to the adverse selection issue discussed above. The proposal in this case should help to reduce the additional burden resulting from engaging young people from Italy and Spain, and it should improve the possibilities for companies to attract appropriate candidates. This implies again that CET should try to enlarge its pool of potential trainees—efforts to reduce the information deficit could be helpful in this regard. Moreover, CET could select candidates according to their school certificates, or, even better, could conduct “entry exams” in cooperation with

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partner institutions in Italy and Spain. Keeping cross-functionality in mind, it could also, with support from partner institutions, be possible to upgrade human capital through promoting access to a certain range of skills and the capacity to learn. Furthermore, CET could keep bureaucracy and cultural issues away from the companies, at least to some extent. In such a context, business companies might find the services of CET sufficiently attractive to participate more actively and even to pay for them. After all, they get access to a larger pool of potential candidates, they will be released from certain bureaucratic work, the candidates are tested and selected and are willing to learn the German language in the context of the preliminary contract mentioned above. The adverse selection problem could be solved or at least reduced in this way. Thus, the integration of the potential trainees is linked, or, rather, has to be linked to the integration of the business companies, with CET functioning as a gatekeeper. Network Partners: The third issue refers mainly to exporting the German model of the vocational education. This is clearly in the interest of the German business sector, as it would allow the required internationalization of vocational training in view of globalization. As the current CET activities are closely associated with this issue, it makes sense that this part of the CET operations, which refers to a public good benefiting all companies, should be sustainably supported by organizations of the business sector in Baden-Württemberg. This moves CET a little bit away from purely political institutions, which are dependent on elections and other politically relevant issues, possibly distracting their attention from CET. This more intense integration of some umbrella organizations would help to support the activities of CET as “ambassadors” of the German model of vocational education, while at the same time allowing for the synergies from the other activities more oriented toward private benefits of business companies. The following table summarizes these conclusions and demonstrates the role of CET after the careful integration of the various stakeholders. Thus, integrating the stakeholders into the operations of the CET and carefully linking their activities will help to enhance the performance of the CET at the end of the pilot phase. In this sense, the case study analysis provided hints for the theory, stipulating this integration and exploiting the links between the stakeholders as a requirement for a successful cross-functional knowledge management regarding vocational training in an international context.

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Table 4.1 Summary of the proposals for an integration of the various stakeholders into the CET activities Stakeholders

Current Situation

Trainees from Italy and Spain

Lack of information on living and working conditions in Germany; matching problem; language problem

Business companies in BadenWürttemberg

Network Partners

Appropriate Integration

Cross-functional role of CET

Contract between company and trainee; language training for an apprenticeship

CET enlarges pool of candidates; provides all kinds of information; selects candidates; prepares and supervises the matching contracts CET handles all Trainees from Italy Firms get access details of the to a larger pool and Spain require matching issue of appropriate additional efforts and bureaucracy candidates, and resources; for the compawhich increases the problem nies; the comtheir willingness of an adverse panies pay CET to participate; selection may for the benefits, language problem result which accrue and bureaucratic privately to them issues are reduced CET continues Sustainable Political partner to serve as financing of institutions ambassador those operations are dependent of the German of CET with on elections model of a public good or might get vocational character through distracted education in organizations due to other synergy with its of the business developments other activities. sector

Source: Own compilation

Final Remarks The CET, the Center for European Trainees, was established in 2014 with the task of cultivating a pool of young people from Italy and Spain for vocational training and apprenticeship in a company in BadenWürttemberg. Moreover, CET should serve as an ambassador for the German dual system of vocational education in these countries. During this pilot phase, CET had been closely evaluated through Fraunhofer IMW. The corresponding reports and self-evaluations provided the mostly qualitative data for the case study of this chapter. The results propose the theory that a careful integration of the relevant stakeholders, in particular potential trainees and business companies, is required together with appropriate links. Thus, the CET should play its role as central node of the network more consciously.

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In addition to that, the classic theory also postulates to separate the activities of the CET, which refer to private benefits of the business companies, from those with a public good quality. The latter should be sustainably supported by the organization of the business sector of Baden-Württemberg; the first ones could be financed by the business companies, which, through the more intense integration, are encouraged to participate more actively in CET. Regarding the further development of CET, it is good to know that the Bildungswerk der Baden-Württembergischen Wirtschaft e. V. just separated “private” and “public” activities of CET in this way. With an adequate integration of trainees and business companies, CET will thus achieve its goals more effectively. It then has all chances to act as a role model for the internationalization of vocational education.

Acknowledgments The authors are grateful for the opportunity to monitor the development of CET in the recent years. In particular, the authors have to thank Mr. Stefan Küpper, managing director of the Bildungswerk der BadenWürttembergischen Wirtschaft e. V., Ms. Sylvia Hirsch, senior project manager of the Robert Bosch Stiftung GmbH, and Ms. Karin Nagel, BBQ Berufliche Bildung GmbH. The work was supported by Act 211 Government of the Russian Federation, contract No. 02.A03.21.0006.

References BIBB. (2002). BIBB international: A strategy paper for the internationalisation of German vocational education and training [in German]. BWP spezial Nr. 7/2002. Retrieved from www.bibb.de/veroeffentlichungen/de/bwp/show/1419 Büttner, H. G. (2005). New IDEAs for internationalisation within the knowledge societies. Higher Management and Policy, 17(2). https://dx.doi.org/10.1787/ hemp-v17-art13-en BW. (2015). Fachkräfteallianz Baden-Württemberg: Ziele, Bilanz und Maßnahmen 2015 [in German]. Ministerium für Finanzen und Wirtschaft, Stuttgart. Retrieved from www.bw-i.de/fileadmin/user_upload/redbw-i/informationsma terialien/karriere_in_baden-wuerttemberg/Fachkraefteallianz_BW_Ziele__ Bilanz_und_Massnahmen_2015.pdf Daňa, J., Caputo, F., & Ráček, J. (2018). Complex network analysis for knowledge management and organizational intelligence. Journal of the Knowledge Economy, 1–20. https://dx.doi.org/10.1007/s13132-018-0553-x Davis, J. P., & Eisenhardt, K. M. (2011). Rotating leadership and collaborative innovation: Recombination processes in symbiotic relationships. Administrative Science Quarterly, 56(2), 159–201. https://dx.doi.org/10.1177/00018392 11428131 Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550. http://dx.doi.org/10.2307/258557

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Fässler, M., Jäger, M., & Maurer, M. (2016). Exportartikel Berufsbildung? Internationale Bildungszusammenarbeit zwischen Armutsreduktion und Wirtschaftsförderung [in German] hep Verlag, Bern. ISBN 978-3-0355-0334-0 Mohamed, M., Stankosky, M., & Murray, A. (2004). Applying knowledge management principles to enhance cross-functional team performance. Journal of Knowledge Management, 8(3), 127–142. https://doi.org/10.1108/13673270 410541097 Nieuwenhuis, L. F. M., Nijhof, W. J., & Heikkinen, A. (2003). Shaping conditions for a flexible VET. In W. J. Nijhof, A. Heikkinen, & L. F. M. Nieuwenhuis (Eds.), Shaping flexibility in vocational education and training: Institutional, curricular and professional conditions. Netherlands: Springer. https://dx.doi. org/10.1007/0-306-48157-X_1 OECD. (1996). The knowledge-based economy. Paris: OECD Publishing. Retrieved from www.oecd.org/sti/sci-tech/1913021.pdf OECD. (2017). Education at a glance 2017: OECD indicators. Paris: OECD Publishing. Retrieved from http://dx.doi.org/10.1787/eag-2017-en Ridder, H. G. (2017). The theory contribution of case study research designs. Business Research, 10(2), 281–305. https://dx.doi.org/10.1007/s40685-017-0045-z Rowley, J. (2000). Is higher education ready for knowledge management? International Journal of Educational Management, 14(7), 325–333. https://dx.doi. org/10.1108/09513540010378978 Shams, S. R. (2016). Sustainability issues in transnational education service: A conceptual framework and empirical insights. Journal of Global Marketing, 29(3), 139–155. https://dx.doi.org/10.1080/08911762.2016.1161098S Shams, S. R. (2017). Transnational education and total quality management: A  stakeholder-centred model. Journal of Management Development, 36(3), 376–389. https://dx.doi.org/10.1108/JMD-10-2015-0147 Shams, S. R., & Belyaeva, Z. (2017). Quality assurance driving factors as antecedents of knowledge management: A stakeholder-focussed perspective in higher education. Journal of the Knowledge Economy, 1–14. http://dx.doi. org/10.1007/s13132-017-0472-2 Svetlik, I., & Stavrou-Costea, E. (2007). Connecting human resources management and knowledge management. International Journal of Manpower, 28(3/4), 197–206. https://dx.doi.org/10.1108/01437720710755209 Tang, F. (2011). Knowledge transfer in intra-organization networks. Systems Research and Behavioral Science, 28(3), 270–282. https://dx.doi.org/10.1002/ sres.1074

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How University-Bound Students in Lebanon Search for Higher Education Institutions Demetris Vrontis, Evniki Constantinou and Balakrishna Grandhi

Introduction It is evident that, in today’s era, university-bound students can choose among different online and physical information sources to perform a university search. Gibbs and Dean (2015, p. 155) stated that “marketing in higher education has grown from information in a prospectus into a range of communicative and relationship communication practices, specifically designed to attract students in the very same way as consumers become attracted to cars, iPads and holidays”. Vrontis, El Nemar, Ouwaida, and Shams (2018) stated that if institutions want to achieve their recruitment goals, they need to be proactive enough to explore alternative options, channels and marketing strategies. As Inkinen (2016, p. 230) stated, “knowledge management (KM) represents the processes and practices conducted in a firm that aim to unleash its intellectual potential by improving the effectiveness and efficiency of the management of organizational knowledge resources”. In the same vein, Nurach, Thawesaengskulthai, and Chandrachai (2012) mentioned that the ability to create, maintain and transfer knowledge has a major impact on a company’s performance, especially if it operates in a knowledgebased society (Perez-Soltero, Leon Moreno, Barcelo-Valenzuela, & Lino Gamiño, 2017). Adding to this, successful organizations use specific mechanisms to manage and transfer knowledge (Santoro, Vrontis, Thrassou, & Dezi, 2017; Gold, Malhotra, & Segars, 2001). Today, one of the core tools for transferring knowledge is through information and communication technologies (ICTs), which include, among others, online information sources. It is evident that competitive markets are strongly influenced by ICTs (Perez-Soltero et al., 2017). Toward this direction, the higher education industry cannot be disregarded as it falls under the category of increasingly competitive markets. Steinfield, Scupola, and López-Nicolás (2010) found that ICT is used, inter alia, to enhance human capital in the means of online recruiting and information supply (Inkinen, 2016). Consequently, the evolution of ICT enables the creation of new communication channels that can be used by both prospective students as well as higher education marketers, to reach each other.

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Based on the above, today’s tertiary-bound students use different ways and sources to seek information about institutions than before, as they now have more options. Considering the fact that the current tertiarybound students are digital natives, some authors state that online information sources would be most popular in a university search. However, other researchers argue that online information sources will never totally replace physical information sources. Royo-Vela and Hünermund (2016) recently asserted that marketing and branding strategies should be developed based on the most recent research findings on understanding the search behavior of the target audience. As Giovanis, Athanasopoulou, and Tsoukatos (2016, p. 133) stated, “one way to study consumer purchasing behaviour is to determine their behavioural intentions”. In response to these realities, the aim of this study is to advance our understanding of the way prospective students that belong to the digital generation choose to search higher education institutions. More specifically, it seeks to address the most popular first source for collecting information about higher education institutions, as well as to outline the information sources that the majority of tertiarybound digital natives use during the university search process and before they make their final decision on an institution. The framework that results from the secondary and primary research findings presents a new approach toward the university search process. Specifically, it provides an organized view of the search path that digital natives follow during a university search process. The findings of this study shed new light on the university search process and enhance experiential learning in higher education marketing by providing suggestions as to how universities can improve their marketing and branding strategies with a view to increasing their student enrolments. In the following sections, the authors first provide a thorough review of models that capture the student’s decision-making process, as well as an analysis of the extant literature on the information sources used by prospective students during a university search. The next section provides an overview of the survey methodology applied, followed by descriptive analysis and presentation of the results. The final section synthesizes the findings into a preliminary conceptual framework and provides testable research hypotheses for future research to validate the proposed framework. Further, it discusses the contributions of the findings for both research and practice, and proposes avenues for future research.

Literature Review According to Gai, Xu, and Pelton (2016), during the last 50 years the university decision-making process has received extensive research attention. MacEachern (2018) stated that the factors which impact international student recruitment are prospective students (as the demand factor), and

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higher education institutions (as the supply factor). This statement points to research into the student’s decision-making process, which is significant for the improvement of university marketing and branding strategies, and ultimately for the achievement of enrollment goals. Chapman (1986) was among the first researchers to apply the buying behavior theory to education. He has identified five critical phases that tertiary-bound students go through in order to decide on an institution or a course. These phases are pre-search, search behavior, application decision, choice decision and matriculation decision. During the pre-search phase, the individual assesses the costs and benefits of attending a higher education institution and eventually decides whether they will attend or not. The search behavior stage entails an extensive and active search of information about university alternatives. As the selection of a higher education institution is an important milestone in a person’s life, it is expected that prospective students will perform an extensive university search. The search stops when the individual decides on a set of universities and starts submitting applications. The process now shifts to the application decision phase, where the student has already applied to the universities in of his/her interest as well as to some “fairly low preference but high-probability-of-admission” universities. The next phase of the process is the choice decision. The choice set consists of the universities to which a student is accepted. At this stage, tertiary-bound students usually receive acceptance letters or notifications about possible admissions, together with information about relevant university attributes like financial aid and scholarships. The individual is now called to make an assessment of the new information and decide whether he/she will attend a specific university or postpone admission to a later time. The process ends with the matriculation decision phase, where the student enrolls and attends the chosen university. In some cases, students enroll and even pay a deposit to low preference universities while being wait-listed to highly preferred universities. If they get accepted to one of their preferred universities at a later stage, they usually drop the first institution (Chapman, 1986). Continuing, the Hossler and Gallagher (1987) three-stage model is, according to Krezel and Krezel (2017), one of the most broadly adopted models for the university selection process. This combined model emphasizes three phases for the selection of a higher education institution: predisposition, search and choice (Han, 2014). The predisposition phase focuses on the development of educational aspirations; in other words, it is the moment that students have to decide whether they will continue their education or not. The search phase concerns the collection of information about institutions and leads to a shortlist of colleges and universities. The choice phase involves the evaluation of the shortlisted institutions by taking into consideration a big range of factors that affect the outcomes of this process, and eventually leads to university selection.

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Moreover, another important and recently developed decision-making model is the one created by El Nemar and Vrontis (2016). This decisionmaking process (DMP) model aims to help higher education institutions comprehend student behavior during the university selection phases. This model examines how prospective students select specific institutions, by collecting the elements that lead them to that decision. Moreover, it captures the student views during their first weeks at the university. The five phases of the DMP Model are problem recognition, information search, evaluation of alternatives, purchase decision and post-purchase behavior (El Nemar & Vrontis, 2016). Based on the literature, it is evident that most of the decision-making models developed by various researchers share a common route. Most of them start from the stage of the student’s decision to attend a higher education institution and end with the enrollment phase. The information seeking/search stage is the only one found in all decision-making models. Although all phases of these models are important, the search stage is the one that basically drives the student’s decision on a university or a set of preferred universities. This notion is in good agreement with the Choo Sense Making Knowledge Management Model (Choo, 1998), which highlighted that “the process of decision-making is driven via searching” (Hamoud, Tarhini, Akour, & Al-Salti, 2016, p. 55). More specifically, Choo (1998) found that knowledge, decision-making and sense making are highly interconnected as together they play an essential role in creating knowledge and shaping decision-making (Hamoud et al., 2016). At the other end of the line, the university search phase provides an extensive description of how prospective students search higher education institutions. As Natalie Massenet concluded, a positive experience can create long-lasting business relationships, whereas a bad impression can seldom be remedied. Therefore, in a continuous process such as the university search, a series of positive impressions during the search process will presumably lead to enrollment. In contrast, a single bad conception at any time can make a student drop a university from consideration. Keeping students engaged during the university search process is a responsibility of higher education institutions. Thus, institutions see marketing not as a series of cut-off marketing actions, but as a dynamic operational activity that has several applications and various dimensions, which must be conducted in an integrated way (Fagerstrøm & Ghinea, 2013). Adding to this, the planning and implementation of engaging marketing and branding activities appear to be significant in the enhancement of student engagement during the university search process, which ultimately increases student enrollments. The high rivalry between competitors, the lack of government funding particularly in private education, and the high operating costs of running a university make higher education marketing particularly crucial for the viability of institutions, as it helps increasing enrollments and income (Krezel & Krezel, 2017;

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Guilbault, 2016). As a consequence, “universities compete with each other to attract funds and students” (Lombardi, Lardo, Cuozzo, & Trequattrini, 2017, p. 131; Vrontis, Thrassou, & Melanthiou, 2007). According to Perez-Soltero et al. (2017), organizations need KM to be more competitive. KM has been fairly characterized as “a key managerial process necessary for achieving competitive advantage” Santoro et al. (2017, p. 348). As technology is nowadays crucial in removing the boundaries to communication and knowledge flows, Santoro et al. (2017) concluded that ICTs are a fundamental part of knowledge management systems (KMS). Duffett and Wakeham (2016) stated that today’s young adults have grown up using a broad range of ICT channels, such as computers, the Internet and mobile devices (smartphones and tablets). It is therefore expected that they will turn to online sources when seeking information about products, services or organizations. As Royo-Vela and Hünermund (2016) state, marketing and branding strategies should be developed based on the most recent research findings on understanding the target audience. For this reason, the current study seeks to shed new light on how tertiary-bound digital natives choose to start a university search and identify the information sources used by them during the university search process. As today’s seniors are digital natives, university marketers must consider the use of (more) digital communication channels to reach them and communicate their message. This notion is supported by a Portuguese study, which found that the university website is the most popular source of information during the information search phase, followed by influences from current/former students (Simões & Soares, 2010). Gai et al. (2016) confirm that the university website is often the first source used by tertiary-bound students to learn about a higher education institution. Collins et al. (2011) also found that online searching is one of the most critical phases in the student’s choice (Jan & Ammari, 2016), as during this phase most students decide whether they should continue searching a university or not. On the other hand, Krezel and Krezel (2017) stated that despite the increasing use of online sources, printed materials like prospectuses and brochures appear to remain an essential source of information as today’s tertiary-bound students are still getting influenced by them. Gibbs and Dean (2015) conducted a survey study through which they collected 1,475 responses from students of 19 universities. Their results showed that campus visits is the most trustworthy and useful information source for a university search, followed by the university website. The same study found that printed prospectuses are the third most trustworthy and useful information source for tertiary-bound digital natives. Interestingly, the less trustworthy and useful source of information in the study of Gibbs and Dean (2015) was found to be social media (e.g. Facebook).

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However, there are various studies in the extant literature that found different results than those of Gibbs and Dean (2015). For instance, a study by Vrontis et al. (2018) that examined the role of social media in the international student recruitment revealed that the direct information sources that prospective students use when searching universities are institution websites and wom. The same study showed that today’s seniors only use social media as an indirect tool for reaching their friends or university staff, in order to obtain information about university courses (Vrontis et al., 2018). Constantinides and Zinck Stagno (2011) andClark, Fine, and Scheuer (2017) and others state that social media are an ideal platform for relational marketing due to its interactive and collaborative nature. As Melanthiou (2017, p. 122) stated, “higher education institutions are increasingly turning to industry-style business practices to meet their strategic targets, grow or simply survive”, as they are “struggling in an incessantly changing and highly turbulent market environment”. One of these industry-style business practices is social media marketing, which has been already proven prosperous for many other businesses. It is expected that social media marketing in the higher education industry will bring positive growth in student enrollment (Constantinides & Zinck Stagno, 2011; Clark et al., 2017). Moreover, based on data from 340 survey participants, Jan and Ammari (2016) showed that social media and websites have a positive impact on the student’s decision-making process. Rutter, Roper, and Lettice (2016) confirm that the use of social media in higher education marketing has a positive impact on the performance of a university, especially when they have many followers. Rutter et al. (2016) also stated that the interactive use of social media in higher education marketing could be proven particularly effective for universities. More recent evidence (Krezel & Krezel, 2017) reveals that many higher education institutions use social media in their recruitment strategies due to the necessity for building brand loyalty and customer engagement.

Research Methodology The quantitative research that follows provides a descriptive analysis and insights into how university-bound students that belong to the digital generation search for higher education institutions. The literature review of this study encompasses secondary research through journal articles and e-books. Although there is a considerable amount of literature on the university search and decision-making process, a traditional survey was also conducted to capture the behavior of today’s seniors when it comes to searching for higher education institutions. As stated recently, marketing and branding strategies should be developed based on the most

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recent research findings on understanding the search behavior of the target audience (Royo-Vela & Hünermund, 2016). Our sample represents the Lebanese 12th-graders population of the academic year 2017/18. It consists of 222 randomly selected tertiarybound students of grade 12 from two public and three private schools in Beirut, Lebanon. Female students make up 56.8% of the sample, and the remaining 43.2% are males. In order to develop a holistic view, the survey was intentionally conducted to schools with different academic reputations and levels seeking responses from students coming from various socioeconomic levels. Twelfth graders in public schools make up 60.1% of the participants, and the remaining 39.9% are seniors in private schools. Primary data collection was implemented through a self-administered questionnaire that consists of eight closed-ended questions. The survey questions are mainly asking about the usage of different online and physical information sources by seniors as it aims to capture the behavior of today’s 12th graders in regard to university search. The questionnaires were administered during class time, provided that the administration of each school has given consent for this research.

Descriptive Analysis The findings of this study identify the first information source that university-bound students in Lebanon use on their university search, and it lists other information sources that students utilize before making their final university choice. Further, it pinpoints how much time tertiarybound students spend on social media per day. To start with, the following tables illustrate the results of this research and they are followed by implications that are based on the relevant findings. Table 5.1 shows the hours spent on social media platforms per day by today’s tertiary-bound students. The majority of respondents (83.41%) stated that they spend more than 2 hours per day on social media, while very few participants (5.85%) indicated that they use social media less than one hour per day. Table 5.1 How much time do you spend on social media per day?

N/A Less than one hour 1 to 2 hours 2 to 3 hours 3 to 4 hours More than 4 hours Total

Frequency

Percent

Valid Percent

Cumulative Percent

1 13 23 45 49 91 222

.5 5.9 10.4 20.3 22.1 41.0 100.0

.5 5.9 10.4 20.3 22.1 41.0 100.0

.5 59.0 10.8 31.1 53.2 100.0

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These results offer indisputable evidence that digital natives spend much of their time on social media. Consequently, the advertising potential of social media is practically limitless for higher education institutions as they can, inter alia, target the right audience for their programs based on what each user is more interested in and generate leads quickly and effectively. If used properly, social media platforms not only can increase brand awareness tremendously but also enable keeping up with current students and alumni, findings that align with extant literature (Constantinides & Zinck Stagno, 2011; Clark et al., 2017). Table 5.2 demonstrates that 77% of respondents would read brochures/ booklets that contain information on subjects of their interest. Although digital natives are expected to turn into digital sources for information gathering, it appears that they would not mind utilizing printed materials to collect information on subjects of their interest. Taking this into account, it seems that brochure marketing can also be an effective technique for higher education marketing. University brochures can also be available online at the institution websites. Table 5.3 presents the hours that university-bound students would spend reading brochures/booklets that contain information on subjects of their interest (provided that their answer to the previous question is “yes”). Of the 171 respondents who answered “yes” to the previous question, 91.22% stated that they would spend less than two hours reading brochure/booklets that contain information on subjects of their interest. Table 5.2 Would you read a brochure/booklet that contains information on a subject of your interest?

No Yes Total

Frequency

Percent

Valid Percent

Cumulative Percent

51 171 222

23.0 77.0 100.0

23.0 77.0 100.0

23.0 100.0

Table 5.3 How much time would you spend reading a brochure/booklet that contains information on a subject of your interest?

N/A Less than one hour 1 to 2 hours 2 to 3 hours 3 to 4 hours More than 4 hours Total

Frequency

Percent

Valid Percent

Cumulative Percent

51 78 78 9 5 1 222

23.0 35.1 35.1 4.1 2.3 .5 100.0

23.0 35.1 35.1 4.1 2.3 .5 100.0

23.0 99.5 58.1 62.2 64.4 100.0

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Table 5.4 Which of the following sources would you first use when you start looking at a university? Frequency University prospectus Former student (WoM) Call the university University application form Campus visit University social media University website Higher education fair Total

Percent

Valid Percent

Cumulative Percent

20

9.0

9.0

9.0

47

21.2

21.2

30.2

9 8

4.1 3.6

4.1 3.6

34.2 37.8

47 24

21.2 10.8

21.2 10.8

59.0 69.8

62

27.9

27.9

97.7

5

2.3

2.3

100.0

222

100.0

100.0

This is enough time for prospective students to obtain information about a university and the program of their interest. We assume, though, that students would spend this amount of time reading a brochure provided that this is clear, brief and, of course, attractive—it grabs the reader’s attention. As Natalie Massenet stated, businesses and individuals should never forget that “they only have one opportunity to make a first impression”. It is essential that institutions work on their first impression as it has the ability to make or break a candidate’s decision. A positive experience can create long-lasting business relationships, whereas a bad impression can seldom be remedied. Table 5.4 provides considerable insight into how prospective students will draw their first impression of a university as it demonstrates the sources that they would first use when start looking at a university. A total of 27.9% of respondents stated that they would first visit the university website, 21.2% would first visit the campus, and 21.2% would first ask a former student. Of the respondents, 10.8% would visit the social media pages of the universities, 9% would look at university prospectuses, and the remaining 10% would either call the university, download the application form of the university or visit a higher education fair. Based on the findings of the literature review and the answers to this question, higher education institutions should focus on the following for creating an effective first impression: 1. Maintain a website. Institution websites have been fairly characterized in the Hanover Research (2015) as “the ultimate brand statement”. The results of this question concur well with the study of Gai

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et al. (2016), who found that tertiary-bound students would often start a university search by looking at institution websites. As Sillence, Briggs, Fishwick, and Harris (2004) stated, the website’s first impressions are 94% design related so institutions must invest in well-designed websites to enhance student engagement. 2. Structure engaging campus visits for prospective students. Campus visits are very critical as the can make or break a student’s decision about an institution (Okerson, 2016). 3. Build and sustain good relationships with their current and former students to avoid negative wom, as it significantly affects the student’s choice of university. This can be enhanced, inter alia, through social media platforms. According to the Table 5.5, today’s tertiary-bound students appear to trust university websites, as 59% of respondents either strongly agree or agree with the above statement. Even if some prospective students would start their university search using other information sources, it appears that at some point before the matriculation stage they would visit the website of the university of their interest. In a survey of university-bound high school juniors and seniors (E-Expectations Report, 2015), nearly 80% of respondents indicated that university websites make a difference in their perception of an institution. One of the key takeaways occurred from the results of a survey of 529 high school juniors and seniors conducted in spring 2018 is that “a bad website experience will cause 1 in 3 students to go elsewhere and 1 in 10 to drop a campus from consideration” (E-Expectations Report, 2018). Consequently, universities should not take their websites for granted, as poorly designed websites reflect negatively on enrollment rates. Table 5.6 shows how university-bound students feel about visiting university campuses before making their final decision on a higher education institution; 71.2% of respondents either strongly agree or agree with the above statement. Campus visits are an integral part of a university’s marketing strategy. As stated in the literature review, campus visits are the most trustworthy Table 5.5 Before making my final university decision, I would visit its website Frequency 1—Strongly Disagree 2—Disagree 3—Neutral 4—Agree 5—Strongly Agree Total

Percent

Valid Percent

Cumulative Percent

1

.5

.5

.5

16 74 101 30 222

7.2 33.3 45.5 13.5 100.0

7.2 33.3 45.5 13.5 100.0

7.7 41.0 86.5 100.0

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Table 5.6 Before making my final university decision, I would visit the campus Frequency Percent Valid Percent Cumulative Percent 1—Strongly Disagree 1 2—Disagree 10 3—Neutral 53 4—Agree 77 5—Strongly Agree 81 Total 222

.5 4.5 23.9 34.7 36.5 100.0

.5 4.5 23.9 34.7 36.5 100.0

.5 5.0 28.8 63.5 100.0

Table 5.7 Before making my final university decision, I would talk to former students Frequency Percent Valid Percent Cumulative Percent 1—Strongly Disagree 0 2—Disagree 6 3—Neutral 48 4—Agree 98 5—Strongly Agree 70 Total 222

0 2.7 21.6 44.1 31.5 100.0

0 2.7 21.6 44.1 31.5 100.0

0 2.7 24.3 68.5 100.0

and useful information source for a university search (Gibbs & Dean, 2015). This piece of information should ring the bell to higher education institutions as a successful and engaging campus visit can increase their student enrolments significantly. Table 5.7 shows how university-bound students feel about talking with former students before deciding on a university; 75.6% of respondents either strongly agree or agree with the above statement. Most of today’s tertiary-bound students would ask a former student to share their experience with them before they enroll in a university. For this reason, universities have to ensure that their former students share positive experiences with prospective students. Thus, institutions should build and sustain good relationships with their current and former students in order to avoid negative wom. Another way to avoid negative wom is to ensure that prospective students would talk only with satisfied formed students, who would presumably have some positive experiences to share. In an effort to control this interaction, many institutions employ satisfied former students to share their experiences with prospective students, either through their official website or during campus visits. Table 5.8 shows how university-bound students feel about visiting higher education fairs; 45.5% of respondents either strongly agree or agree with the above statement, 39.6% neither agree nor disagree and 14.9% either disagree or strongly disagree. The fact that less than half of the respondents would visit a university fair before choosing a university should not discourage institutions from

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Table 5.8 Before making my final university decision, I would visit higher education fairs Frequency Percent Valid Percent Cumulative Percent 1—Strongly Disagree 5 2—Disagree 28 3—Neutral 88 4—Agree 71 5—Strongly Agree 30 Total 222

2.3 12.6 39.6 32.0 13.5 100.0

2.3 12.6 39.6 32.0 13.5 100.0

2.3 14.9 54.5 86.5 100.0

participating in university fairs. A university fair provides visitors with a comprehensive overview of all higher education institutions and facilitates the connection between candidate students and universities. Universities that choose not to attend fairs allow for their possible candidate students to be taken by competitors.

Discussion and Conclusions The evidence from this study intimates that today’s university-bound students make use of both digital and traditional marketing channels during their university search. The results of the survey reveal the marketing channels/information sources that play an essential role in the first impression drawn by tertiary-bound students for an institution. Further, the survey outlines some of the marketing channels that will be likely used by today’s prospective students during the university search and before decision-making. The findings of this study indicate how higher education institutions can become more strategic in terms of student engagement, especially when it comes to the first impression. Our study develops a framework for a new approach toward the university search process, which results from the secondary and primary research findings. It provides an organized view of the search path that digital natives follow during the university search process. As a future research direction, this framework can also be statistically tested. From Figure 5.1 the following hypothesis can be derived: H1: Today’s university-bound students use both (a) digital marketing channels/online information sources and (b) traditional marketing channels/ physical information sources when it comes to university search. H2: Today’s university-bound students’ usage of (a) digital marketing channels is higher than (b) traditional marketing channels when it comes to the development of the initial university pool. H3: Today’s university-bound students depend more on (a) physical information sources than (b) online information sources when it comes to making the final university decision.

H1b

Traditional Marketing Channels / Physical Information Sources Campus visit Word of Mouth (Ask former students) University Prospectus Telephone Application Form Higher Education Fair

H2b

H2a

Figure 5.1 Framework on information sources used for a university search

University Search

H1a

Digital Marketing Channels / Online Information Sources University website Social Media pages

H3b

Developing the initial university pool

H3a

Conceptual Framework on Information Sources used for a University Search

Final Decision

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The first hypothesis of the above framework is that today’s universitybound students use both (a) digital marketing channels/online information sources and (b) traditional marketing channels/physical information sources when it comes to university search. Digital marketing channels/ online information sources in the context of this study are the university website and the social media pages, whereas traditional marketing channels/physical information sources are campus visits, wom, university prospectus, telephone, application form and higher education fairs. The findings of this research provide enough evidence to support that today’s 12th graders do make use of both information sources or marketing channels during a university search. The second hypothesis is that today’s university-bound students’ usage of (a) digital marketing channels is higher than (b) traditional marketing channels when it comes to the development of the initial university pool. Our results in the fourth survey question (Question 4: Which of the following sources would you first use when you start looking at a university?) are consistent with most of the studies examined in the literature review section. This study has further strengthened our second hypothesis that today’s seniors mostly use online sources when starting a university search. Nevertheless, we should not ignore the fact that only the university website has been identified as the first online information source used by university-bound digital natives. This study found that social media, which is the second digital marketing channel shown on our framework, is mostly used by universities (rather than students) as part of their marketing, branding, targeting and recruitment strategies. Finally, the third hypothesis is that today’s university-bound students depend more on (a) physical information sources than (b) online information sources when it comes to making the final university decision. Based on the primary and secondary research findings of this study we would support this hypothesis as it appears that today’s seniors would not enroll in a university before they use some physical information sources like wom and campus visits. Less than half of the respondents of this survey indicated that beyond these two traditional marketing channels, they would also visit a higher education fair before they make a final decision on an institution. As a general remark, the abovementioned three hypotheses arise from our findings and through a theoretical triangulation with extant research. Thus, future research must empirically test these hypotheses in order to be supported or not and, similarly, validate or not the framework’s proposed relationships.

Practical Implications and Propositional Guidelines This chapter provided further evidence about the sources that universitybound digital natives use for searching higher education institutions.

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The study identified the marketing channels that enable today’s seniors to draw first impressions about institutions as well as the information sources that will be likely used during their search process. The results revealed that today’s 12th graders still make use of both digital and traditional marketing channels during their university search, so institutions should blend digital and traditional marketing strategies to attract and engage them. This study showed that tertiary-bound digital natives get influenced by three important factors encompassing both digital (websites) and traditional (campus visit and wom) marketing channels. The obtained survey results, as well as the literature findings, indicate that the university website is often the first source used by tertiarybound digital natives to learn about a higher education institution. Taken together, they highlight the importance of maintaining a well-structured and engaging website as this marketing communication tool will enable today’s students to draw their first impression about an institution. Melewar, Foroudi, Gupta, Kitchen, and Foroudi (2017) stated that a good and up-to-date institution website provides added value and improves trust, loyalty and commitment. A recent study also revealed that “a bad website experience will cause 1 in 3 students to go elsewhere and 1 in 10 to drop a campus from consideration” (E-Expectations Report, 2018). Universities should, therefore, consider their website as an essential part of their marketing strategy and keep it as effective and intuitive as possible. Making a good first impression should not be the only concern of higher education institutions though, as this is not enough to get a student to enroll. As Chapman’s model indicates (1986:247), “students should be contacted at several points during the search process, near the beginning and at the end, at a minimum”. As mentioned in the literature review, a series of positive impressions during the search process will presumably lead to enrollment, however, a single bad conception at any time can make a student drop a university from consideration. Wom is also an important factor that seems to affect the student’s choice of a university. This study revealed that most of today’s tertiarybound students (75.6%) would ask a former student before they enroll in a university. This finding stresses the importance of building and sustaining good relationships with current and former students so that negative wom is avoided. Universities should keep their alumni “attached” and informed about news and improvements so as to be willing to affect prospective students positively. Further to wom, campus visits are also considered by digital natives as one of the most important factors that influence their decision on a university. This study substantiates previous findings in the literature regarding the significance of campus visits during the university decisionmaking process, as 71% of the respondents stated that they would go for a campus visit before they enroll in a university. Campus visits are one of

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the most important factors in a student’s decision about where to apply, as they can make or break a student’s decision about an institution. Universities should place a strong emphasis on the structure of their campus visit and make it an engaging experience for prospective students. Beyond the factors that affect a student’s choice on a university, this study also revealed that the vast majority of university-bound digital natives spend more than two hours per day on social media. This makes social media platforms the perfect place to advertise, as to be where the students are spending their time is critical. Through social media ad targeting, marketers can gain control over who sees what based on their interests and ensure that each advertisement reaches people likely to convert. As mentioned in the analysis section, social media platforms not only can increase brand awareness tremendously but also enable keeping up with current students and alumni.

Limitations and Future Research Directions Various researchers have widely addressed the university search process. Our study provided considerable insight into the subject, as it addressed the most popular first source for collecting information about higher education institutions, and outlined the information sources that the majority of tertiary-bound digital natives use during the university search process and before they make their final decision on an institution. Although the research objectives were met, the researchers had to deal with some unavoidable limitations. First, one of the objectives of this study was to provide an overview of the extant literature on the topic. To conduct this, we applied a narrative review methodology which bears the limitation of being non-reproductive and omitting relevant research. However, we believe that the rigorousness and thoroughness applied here minimized the possibility that the omitted research could provide information that would seriously change the findings of the review. Adding to this, the main focus and nature of the paper was not the expansion of the literature to a major degree. Toward this direction, future research could provide a systematic review on the topic, which applies a reproductive procedure (de Menezes & Kelliher, 2011; Tranfield, Denyer, & Smart, 2003) and, to our knowledge, such type of review is currently absent from the extant literature. Further, future scholars could follow the examples of other systematic reviews in top management and marketing journals (e.g., Vuorinen, Hakala, Kohtamäki, & Uusitalo, 2017; Christofi, Leonidou, & Vrontis, 2017) to create a reliable knowledge base from which to orient future research and guide practitioners. Second, our empirical study and analysis was descriptive in nature; thus, a more in-depth analysis of these findings is required. Based on this, we developed a preliminary conceptual framework and a series of

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research hypotheses for scholars to empirically test and validate the proposed relationships. Third, as the access to some schools was denied (sometimes the school’s management was negative in allowing their students to participate in this survey), the survey was administered only to university-bound students from two public and three private schools in Lebanon. Based on this, there is evidence that the research context of empirical studies may influence their findings. For instance, Sharabi (2017) found that such as cultural and demographic variables affect work outcome preferences, whereas Lombardi et al. (2017) found that environmental factors affect the promotion of an entrepreneurial attitude among universities. Based on this, future research should focus on conducting comparative studies with university-bound students from other geographical contexts in order to examine whether or not the findings of this study (which focuses on the Lebanese context) are applicable in other countries as well. Fourth, the present study has only investigated the information sources that students use during their university search. Therefore, future studies may explore how each marketing channel influences students and produce tools to examine the factors enabling and deterring enrollments during the decision-making process. The sample of such surveys should be university students, as they would have already completed their university search and decision-making process. Concluding, the descriptive nature of this research, as well as the general framework developed, runs contrary to the general trend in marketing research for specialized and focused research. Instead, the aim here was to purvey the groundwork for an emerging research on the topic which currently lacks both conceptual and empirical development. We believe that this work shall ignite the cross-fertilization of the various marketing domains and sub-domains for developing new theories and showing the path to higher education practitioners in conducting a multidimensional marketing approach for attracting new and retaining existing students.

References Chapman, R. G. (1986). Toward a theory of college selection: A model of college search and choice behavior. NA: Advances in Consumer Research, 13, 246–250. Choo, C. W. (1998). The knowing organization: How organizations use information to construct meaning, create knowledge, and make decisions. New York: Oxford University Press. Christofi, M., Leonidou, E., & Vrontis, D. (2017). Marketing research on mergers and acquisitions: A systematic review and future directions. International Marketing Review, 34(5), 629–651. Clark, M., Fine, M. B., & Scheuer, C. L. (2017). Relationship quality in higher education marketing: The role of social media engagement. Journal of Marketing for Higher Education, 27(1), 40–58.

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Collins, S. L., Carpenter, S. R., Swinton, S. M., Orenstein, D. E., Childers, D. L., Gragson, T. L., . . . Whitmer, A. C. (2011). An integrated conceptual framework for long-term social-ecological research. Frontiers in Ecology and the Environment, 9(6), 351–357. Constantinides, E., & Zinck Stagno, M. C. (2011). Potential of the social media as instruments of higher education marketing: A segmentation study. Journal of Marketing for Higher Education, 21(1), 7–24. de Menezes, L. M., & Kelliher, C. (2011). Flexible working and performance: A systematic review of the evidence for a business case. International Journal of Management Reviews, 13(4), 452–474. Duffett, R. G., & Wakeham, M. (2016). Social media marketing communications effect on attitudes among millennials in South Africa. African Journal of Information Systems, 8(3), 20–44. El Nemar, S., & Vrontis, D. (2016). A higher education student-choice analysis: The case of Lebanon. World Review of Entrepreneurship, Management and Sustainable Development, 12(2–3), 337–351. Fagerstrøm, A., & Ghinea, G. (2013). Co-creation of value in higher education: Using social network marketing in the recruitment of students. Journal of Higher Education Policy and Management, 35(1), 45–53. Gai, L., Xu, C., & Pelton, L. E. (2016). A netnographic analysis of prospective international students’ decision-making process: Implications for institutional branding of American universities in the emerging markets. Journal of Marketing for Higher Education, 26(2), 181–198. Gibbs, P., & Dean, A. (2015). Do higher education institutes communicate trust well? Journal of Marketing for Higher Education, 25(2), 155–170. Giovanis, A., Athanasopoulou, P., & Tsoukatos, E. (2016). The role of corporate image and switching barriers in the service evaluation process: Evidence from the mobile telecommunications industry. EuroMed Journal of Business, 11(1), 132–158. Gold, A. H., Malhotra, A., & Segars, A. H. (2001). Knowledge management: An organizational capabilities perspective. Journal of Management Information Systems, 18(1), 185–214. Guilbault, M. (2016). Students as customers in higher education: Reframing the debate. Journal of Marketing for Higher Education, 26(2), 132–142. Hamoud, M. W., Tarhini, A., Akour, M. A., & Al-Salti, Z. (2016). Developing the main knowledge management process via social media in the IT organisations: A conceptual perspective. International Journal of Business Administration, 7(5), 49–64. Han, P. (2014). A literature review on college choice and marketing strategies for recruitment. Family and Consumer Sciences Research Journal, 43(2), 120–130. Hanover Research. (2015). 2016 trends in higher education marketing, enrollement, and technology. [online] Arlington, VA, USA. Retrieved August 20, 2018 from www.ct.edu/files/pdfs/workgroup-report-marketing-trends.pdf Hossler, D., & Gallagher, K. S. (1987). Studying student college choice: A threephase model and the implications for policymakers. College and University, 62(3), 207–221. Inkinen, H. (2016). Review of empirical research on knowledge management practices and firm performance. Journal of Knowledge Management, 20(2), 230–257.

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Jan, M. T., & Ammari, D. (2016). Advertising online by educational institutions and students’ reaction: A study of Malaysian universities. Journal of Marketing for Higher Education, 26(2), 168–180. Krezel, J., & Krezel, Z. A. (2017). Social influence and student choice of a higher education institution. Journal of Education Culture and Society, 8(2), 116–130. Lombardi, R., Lardo, A., Cuozzo, B., & Trequattrini, R. (2017). Emerging trends in entrepreneurial universities within Mediterranean regions: An international comparison. EuroMed Journal of Business, 12(2), 130–145. MacEachern, J. M. (2018). A comparative study of international recruitment: Tensions and opportunities in institutional recruitment practice. Journal of Marketing for Higher Education. doi:10.1080/08841241.2018.1471014 Melanthiou, Y., Thrassou, A., & Vrontis, D. (2017). A value-based transcription of student choices into higher education branding practices. Global Business and Economics Review, 19(2), 121–136 (ISSN: 1097–4954, Inderscience). Melewar, T. C., Foroudi, P., Gupta, S., Kitchen, P. J., & Foroudi, M. M. (2017). Integrating identity, strategy and communications for trust, loyalty and commitment. European Journal of Marketing, 51(3), 572–604. Nurach, P., Thawesaengskulthai, D., & Chandrachai, A. (2012). Developing an organization competencies framework for SME (s) in Thailand. Chinese Business Review, 11(2). Okerson, J. R. (2016). Beyond the campus tour: College choice and the campus visit (Dissertations, Theses, and Masters Projects). Paper 1463413085. http:// dx.doi.org/10.21220/W43W20 Perez-Soltero, A., Leon Moreno, F. J., Barcelo-Valenzuela, M., & Lino Gamiño, J. A. (2017). An approach based on knowledge management for the use of ICTs in Mexican SMEs. IUP: Journal of Knowledge Management, 15(4), 7–23. Royo-Vela, M., & Hünermund, U. (2016). Effects of inbound marketing communications on HEIs’ brand equity: The mediating role of the student’s decisionmaking process: An exploratory research. Journal of Marketing for Higher Education, 26(2), 143–167. Ruffalo Noel Levitz, & OmniUpdate. (2018). 2018 E-expectations report. Cedar Rapids, Iowa: Ruffalo Noel Levitz. Retrieved from www.RuffaloNL.com/ Expectations Ruffalo Noel Levitz, OmniUpdate, CollegeWeekLive, & NRCCUA (2015). E-expectations report. Cedar Rapids: Ruffalo Noel Levitz. Retrieved from www.RuffaloNL.com Rutter, R., Roper, S., & Lettice, F. (2016). Social media interaction, the university brand and recruitment performance. Journal of Business Research, 69(8), 3096–3104. Santoro, G., Vrontis, D., Thrassou, A., & Dezi, L. (2017). The Internet of Things: Building a knowledge management system for open innovation and knowledge management capacity. Technological Forecasting & Social Change. doi:10.1016/ j.techfore.2017.02.034 Sharabi, M. (2017). Valued work outcomes among Jews, Muslims and Christians in Israel: The effect of cultural and demographic variables. EuroMed Journal of Business, 12(3), 285–299. Sillence, E., Briggs, P., Fishwick, L., & Harris, P. (2004). Trust and mistrust of online health sites. Proceedings of the 2004 Conference on Human Factors in Computing Systems (pp. 663–670). ACM, New York.

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Simões, C., & Soares, A. M. (2010). Applying to higher education: Information sources and choice factors. Studies in Higher Education, 35(4), 371–389. Steinfield, C., Scupola, A., López-Nicolás, C. (2010). Social capital, ICT use and company performance: Findings from the Medicon Valley Biotech Cluster. Technological Forecasting and Social Change, 77(7), 1156–1166. Tranfield, D., Denyer, D., & Smart, P. (2003). Towards a methodology for developing evidence-informed management knowledge by means of systematic review. British Journal of Management, 14(3), 207–222. Vrontis, D., El Nemar, S., Ouwaida, A., & Shams, R. (2018). The impact of social media on international student recruitment: The case of Lebanon. Journal of International Education in Business, 11(1), 79–103. Vrontis, D., Thrassou, A., & Melanthiou, Y. (2007). A contemporary higher education student-choice model for developed countries. Journal of Business Research, 60(9), 979–989. Vuorinen, T., Hakala, H., Kohtamäki, M., & Uusitalo, K. (2017). Mapping the landscape of strategy tools: A review on strategy tools published in leading journals within the past 25 years. Long Range Planning. In Press.

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The Management of Financial Risk Knowledge in the International Conditions Darko B. Vukovic

Introduction Knowledge management is not directly close as a discipline to finance. However, today it is not possible to imagine any decision-making in a financial institution without strategic orientations, new knowledge and innovations supported by knowledge management. The benefits from decision-making based on knowledge management are twofold: from one side, corporations (financial institutions) want to maximize their returns, and from the other side, they want to reduce their risks. In both cases, there is a need for new knowledge and experience that will help financial decision-making in the strategic orientations. This situation is even more significant when it comes to international markets.Exposure to international competition, foreign exchange rates, different international regulations and systemic risks of different countries create far greater risks for companies. One of the most important results of the use of knowledge management are new financial instruments that minimize exposure to these risks. The absence of knowledge management has caused one of the biggest global crises in 2008–2009. Many of the largest financial corporations and institution (Bear Stearns, Lehman Brothers, AIG, Goldman Sachs, Morgan Stanley, GMAC, CIT Group, etc.)made their strategy and decisions based on markets’ historical data and a similar methodology for calculating risks and returns. Their strategy, based on the high yields of the real estate market since 2004, brought high returns on issued instruments for the several years (mostly derivatives like mortgage-backed securities [MBS], credit default swaps [CDS], etc.). However, the profit declined in the real estate markets generated multiple risks for instruments issued by such financial players. Driven by greed for high returns and neglecting the newly emerging situation or their late detection, this situationinfluenced all these companies to experience a failure and caused the greatest crisis of global proportions. In fact, a far greater number of companies from financial markets have caused the crisis—not only these six or seven—but they were the most famous and biggest losers.In

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the words of management discipline, it could be explained as an organizational routine that led them to such a situation. As a matter of fact, organizational routine can be viewed as a double-edged sword: first, it contributes tothe conversion of resources into capabilities (as a main organizational function) and second, if it does not change according to the requirements of the market, it can lead to poor business strategies (in this case to bankruptcy). Would knowledge management have saved them from failure? Surely there would have been far greater chances to protect themselves from the risk of falling prices on the real estate market. As much as they were guided by greed, none of these players would want to go bankrupt. In the case that their strategic decisions were based on systematization of knowledge and best practices, their investment strategy would be more or less different. Moreover, rating agencies Standard & Poor’s, Moody’s, Fitch Group, etc. would have downgraded the credit rating of these companies and their derivatives instrumentsbefore problems started with the realization of such assets.This would mean that companies would be alerted to consider new strategic orientation and new instruments that would protect them more from risks—in other words, to consider new information and new methodology of risks and yields calculations. That’s why knowledge management would have saved them from failure. However, it is not considered a moral hazard, which probably existed before giving credit ratings to some of these companies. This chapter analyzes the importance of knowledge management in making financial decisions (the choice of financial instruments) in order to reduce risks in international conditions.Using BIS bank (Bank for International Settlements) data (2018), the most developed financial derivatives markets are analyzed. The novelty of this chapter lies in the fact that companies operate in conditions of international financial risks and that innovations and best practices in this issue provide solutions for such risk reduction. More importantly, a great deal of literature deals with the pure knowledge management, while the literature on the financial knowledge management is very rare (more indirect in some similar research). Therefore, the theoretical contribution is even greater.

Literature Review According to Darroch (2005), knowledge management supports most important coordinating mechanisms to enhance the conversion of resources into capabilities. The findings of this author are based on the research ofNelson and Winter’s (1982) concept of a knowledge management coordinating mechanism. The same author (2005) emphasizes that knowledge management represents a matter that has scarcely been written about and researched because of difficulties in identifying and measuring knowledge. Moreover,Preiss (1999) argues that it is a new management discipline

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and that management may add a quantitative dimension to qualitative (knowledge management) approaches. Darroch (2005) in her model explains knowledge management through an organizational routine that includes: knowledge acquisition, knowledge dissemination and responsiveness to knowledge. There is a positive relationship between these organizational routine components. Their inputs are: 1. Tangible knowledge: profile of human capital, data and explicit information (financial reports, marketing research reports, productivity reports and customer databases) and 2. Intangible or tacit knowledge: information knowledge, skills and experiences of employees. Results of organizational routines are outputs—innovations and outcomes— and superior financial performance. Organizations use capabilities to underpin the long run survival. If their behaviors and practices regarding knowledge management are more effective, they will have more chances for a better use of resources (Darroch, 2005).It just means that they will achieve superior outcomes such as more innovation and superior financial performance (returns). This model explains precisely howknowledge managementis important in making financial decisions. Goodorganizational routines generate innovations that are used as a competitive advantage in the financial markets. Many authors link knowledge management and innovation with superior performance of organization (Griffin & Hauser, 1996; Anderson & West, 1996; Capon, Farley, Lehmann, & Hulbert, 1992; Tang, 1999; Darroch, 2005; Del Giudice, Della Peruta, & Maggioni, 2015; Shams, 2016a, 2016b, 2016c; Shams & Kaufmann, 2016; Shams, 2017; Vrontis, Thrassou, Santoro, & Papa, 2017; Ferraris, Santoro, & Bresciani, 2017a; Karagouni, 2018). Innovations in finance, as well as investment in the research and development (R&D) in different financial instruments are a fundament of financial knowledge management. They are not a new phenomenon, as they have been accompanying the technological innovations from the very beginning (Michalopoulos, Leaven, & Levine, 2009). The research in this issue was conducted by Gennaioli, Shleifer, and Vishny (2012). These authors claim in their model that financial innovations increase the efficiency of firms and reinvesting profits in R&D positively affects results. Similar analysis by Amore, Schneider, and Zaldokas (2013), Laeven, Levine, and Michalopoulos (2015) and Campanella, Del Giudice, Thrassou, & Vrontis (2016) claims that innovation and knowledge in technology is positively correlated with financial markets. Blanco and Wehrheim (2017) claim that companies that use more financial instruments have a greater impact on the development of innovation and knowledge. Hsu, Li, and Nozava (2018).make similar claims. Managers

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often use knowledge and financial innovation to take higher risks and thus achieve higher returns on investment (Gao, 2010; Gennaioli, Shleifer, & Vishny, 2012; Mattarocci & Siligardos, 2015; Trequattrini, Shams, Alessandra Lardo, & Lombardi, 2016; Hsu et al., 2018; Shams & Thrassou, 2018). According to Błach (2011), financial innovations are linked to technological innovations. They always follow each other, and they evolve together over time. The first reason is that innovative technological processes are very expensive, and companies do not have their own resources to fund them due to high investment risk. The other reason is that economic and technological processes are facing a new dynamic business environment and higher complexity of business processes with a number of risks. Such risks force the financial system and financial markets to adapt to the changes. Moreover, knowledge management can also be used to create investment and financial strategies. According to expectations about the markets in question, Damodaran (2003) states that it is possible to classify investment strategies in 3 groups: •

•

•

Momentum strategies (dynamic)—Based on the hypothesis that what happened in the recent past can happen in the future. One should include most of the technical indicators that deal with momentum, like trend lines, relative robustness, as well as the growth investment, based on the momentum that the news about the company’s profit generated. Contrarian strategies—Assume that there is a tendency for all aspects that are behind the company’s performance to get closer to historical averages (like Net Income, several Multiples, etc.), even though the figures may be, at a given point in time, far from those historical averages. Opportunistic strategies—In this investment strategy, one assumes that the market makes mistakes, which lead to price fluctuations (without the justification from fundamentals—contrarian). Other times, there may be a short price fluctuation (without the justification from fundamentals—momentum). Notice that the main arbitrage strategies, and some based in technical analysis (price pattern and cycles), can also be stated within this group.

Damodaran (2003) states that, after the investor defines his or her preferences and personal needs, he or she finds a philosophy that suits his or her own personality, the choice should be straightforward. However, an investor has two options: •

Best unique strategy—The investor chooses the strategy that best fits his or her ambitions. This way, if a long-term investor believes that the market overreacts, he can adopt a strategy of Passive Value Investing.

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Combination of strategies—The investor can also adopt a combination of strategies in a way to maximize the return on investment. For example, the investor can mix a long-term strategy with a mediumterm strategy when buying shares with a significant relative strength.

In truth, when combining these strategies, investors should have the following two points in mind: • •

They should use strategies that contradict one another, regarding the market’s behavior during a certain period. When they are combining strategies, they should separate between the dominant strategy and the secondary strategy. This way, if the investors have to decide regarding a specific investor, they will know which strategy is the main one.

A wide literature has shown that there is a high positive correlation betweenfinancial markets (instruments), knowledge (information) and company performance (good investment choices). In long-term investments, knowledge (information) influence on stock prices is more efficient (Cao, 1999; Chakravarty, Gulen, & Mayhew, 2004; Grubišić, Zarić, & Vukovic, 2011;. Vyklyuk, Vukovic, & Jovanović, 2013; He & Tian, 2013; Pan & Poteshman, 2006; Hu, 2014; Shams & Lombardi, 2016; Vukovic, Ranisavljevic, & Hanic, 2017a; Blanco & Wehrheim, 2017; Shams & Belyaeva, 2017). However, survey evidence by Graham, Harvey, and Rajgopal (2005) and analysis by Blanco and Wehrheim (2017) shows that management can misuse knowledge for their personal short-term goals in companies (mostly personal wealth). According to the same authors, such examples are the most common in technology-intensive industries (R&D industries). Moreover, it is not only one financial risk in such industry. Price volatility has a strong influence on financial risk decisions.According to Hagstrom (2005), in modern investment theory, risk is defined as the price volatility of assets. Buffett has always considered that price drops are a great opportunity to buy an asset. Buffett has a different definition for risk: the possibility of damage. This means that the opportunity cost, when calculating a company’s projected cash flows in the future and estimating the expected return on the investment, can be extremely damaging when done wrongly, especially if there are better alternatives in the market. On top of that, the author also considers that risk is related to the timeframe of the investment. For example, if the investor buys a share today with the intention of selling it tomorrow, then he performed a risky transaction. This way, it is extremely difficult to prove if shares will go up or down in a very short timeframe, and it results on the impossibility of having good, and positive, returns. However, Buffett mentions that, if we broaden the timeframe for several years, (assuming t is a rational investment), the probability of having an upside on the investment increases significantly (Hagstrom, 2005).

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There is not much literature dealing with knowledge and innovations in financial instruments. Among the more systematic authors who deal with this issue areBlanco and Wehrheim (2017). The largest number of authors research other variables that influence knowledge and innovation (Ferraris, Santoro, & Dezi, 2017b; Ferraris, Santoro, & Scuotto, 2018), like analyst coverage (He & Tian, 2013), credit supply (Amore et al., 2013), stock liquidity (Fang, Tian, & Tice, 2014), the development stage of financial markets (Hsu, Tian, & Xu, 2014) etc.The reason for the weaker link between financial instruments and knowledge management is mostly in completely different researches of these disciplines. Authors usually specialize in financial or management discipline. On the other hand, the management of financial operations also requires skills of knowledge management. Therefore, it is important to analyze both issues. Considering that knowledge management implies both tangible and intangible resources (Hall, 1993), in financial operations, this means that human capital (financial experts) and financial reports are tangible resources and expert skills and experiences of employees are intangible resources. Finally, derivative instruments are closely related to the risks arising in the international conditions.Under these risks are consideredexposure to international payments (transactions) as well as the risk of the credit rating of foreign organizations (default risks). The first one is interest rate risk and the second is credit (or default risk).Numerous studies have confirmed a positive correlation between interest rate risk and credit risk with the use of derivatives (Li, 2015; Vukovic, Hanic, & Hanic, 2017b). Mayordomo, Rodriguez-Moreno, and Peña (2014) consider that there is a high level of correlation between derivatives and systematic risk. Norden, Buston, and Wagner (2011) proved a high connection between credit risks and derivatives. There is also a strong relationship between the use of derivatives and interest rate exposure (Froot, Scharfstein, & Stein, 1993; Chaudhry, Christie-David, Koch, & Reichert, 2000; Acharya  & Yorulmazer, 2008; Boot, 2014; Li, 2015). Lastly, international risks have great impact not only on countries or groups of countries (markets) (Jovanović, Vukovic, & Zakić, 2012), but also on regions (Vukovic, Markovic, & Hanic, 2016; Vukovic, Radulovic, Markovic, Kochetkov, & Vlasova, 2017c), industries (Petrovic et al., 2017; Kochetkov, Larionova, & Vukovic, 2017) and specific companies.

Financial Risks, Knowledge Management and Financial Derivatives in the International Conditions There is strong positive and significant relationship between financial risks and the use of financial derivatives. In research of Li (2015), it was proved that higher utilization of interest rate derivatives, exchange rate derivatives and credit derivatives corresponds to the higher systematic interest rate risk, exchange rate risk, and credit risk. This higher utilization of financial derivatives is true for both hedging and speculative

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strategies. However, how much do financial innovation and information technology have an impact on the behavior of financial organizations? According to Boot and Thakor (2010), Thakor (2012), Marinč (2013), Boot (2014) and Li (2015), financial organizations use innovations and technological advantages to increase their competitive position in the market. These authors believe that the banks, due to the use of derivatives, have promoted market-driven behavior. Such research offers great support to the thesis that the management of financial knowledge is the generator and the promoter of financial innovations. From the other side, financial innovations create different financial derivatives. Innovations are the result of the application of knowledge management, and the need for this process lies in the protection of financial risks (hedging) or the desire to achieve high yields (speculation). Protection against financial risk is greatest nearly before or in times of crisis. Figure 6.1 shows the relationship between financial risks, knowledge management and financial derivatives. Among them, exchange rate risk is especially separate because it affects both nondiversifiable risks and firm-specific risks. In the first case, exchange rate risk affects price risk, reinvestment rate risk, market risk and the macroeconomic situation of a country. Secondly, changes in exchange rates have a major impact on individual companies operating in international flows. Therefore, companies use different financial derivatives to protect themselves against these risks (options, forward, futures, etc.). Financial derivatives represent an expense for the company, which on the other hand protects them from the risks. Also, the risks of changing interest rates are not the only risks that affect companies in the international environment. Companies are also exposed to various types of credit risks such as: exposure rate risk, credit event risk, sovereign risks, etc. With all this in mind, we often could see hybrid derivatives that include protection from several types of risks. Creating such derivatives is a process of innovation created as a result of experience and best practice in the management of financial capital. In other words, the emergence of a derivative can be attributed to the management of financial knowledge. These instruments can be traded on some of the largest stock exchanges of derivatives like the New York Stock Exchange, Standard & Poor’s or the Chicago Mercantile Exchange. It can be easily seen that the largest derivatives markets are in the United States, which has the most developed financial markets in the world. How other countries are involved in the global flows of derivatives we will see in the next section.

Financial Derivatives and International Risks According to Figure 6.2, strong growth in risk begins in 2005 and reaches a peak in 2009. The highest increase in risk exists in the interest rate categories of derivatives. More specifically, the risks associated with changing

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FINANCIAL RISKS Systematic risk (non-diversifiable risk)

Interest rate risk

Market risk

Inflationary risk

Price risk

Absolute Risk

Demand Inflation Risk

Reinvestment Rate Risk

Relative Risk Directional Risk

Liquidity risk

Cost Inflation Risk

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Nonsystematic risk (firm-specific)

Credit Risk

Operational Risk

Asset Liquidity Risk

Exposure Rate Risk

Model Risk

Funding Liquidity Risk

Recovery Rate Risk

Human Risk

Credit Event Risk

Legal Risk

Sovereign Risk

Political Risk

Settlement Risk

Technology Risk

Exchange Rate Risk

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SYSTEMATIZATION OF KNOWLEDGE, DECISION-MAKING AND BEST PRACTICES

Collateralized Debt Obligations

Swaps

The New York Stock Exchange

Over the Counter (OTC)

Forwards Options

DERIVATIVE INSTRUMENTS

Futures Collars

Chicago Mercantile Exchange

S&P 500

Collateralized Loans

Caps

Floors

Warrants

Figure 6.1 Link between financial risks, knowledge management and financial derivatives

interest rates have influenced the change in the price of derivative instruments. Even more, certain signs of crisis were seen in 2005–2006, but at that time it was not known in what proportion the crisis would be. The peak is in 2009 (world financial crisis). Although there was a slight

The Management of Financial Risk Knowledge 800000000 700000000 600000000 500000000 400000000 300000000 200000000 100000000 0

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Interest rate Total derivaves Foreign exchange

30/06/1998 30/06/1999 30/06/2000 30/06/2001 30/06/2002 30/06/2003 30/06/2004 30/06/2005 30/06/2006 30/06/2007 30/06/2008 30/06/2009 30/06/2010 30/06/2011 30/06/2012 30/06/2013 30/06/2014 30/06/2015 30/06/2016 30/06/2017

Credit derivaves

Figure 6.2 Notional amount outstanding by risk category on over-the-counter (OTC) derivatives markets. Source: Retrieved from BIS (27.07.2018).

recovery in 2010, the crisis continued and increased since 2011 (sovereign debt crisis). The situation improved after 2014. These OTC derivatives capture the outstanding positions of derivatives dealers, which are mainly banks. Global OTC markets cover the outstanding notional value, market value and credit exposure of OTC foreign exchange, interest rates, equity, commodity and credit derivatives. Any increase in risk increases the value of derivative instruments since the derivatives are used by speculators and hedgers. Therefore, the total risk value is covered (measured) by $700 trillion in 2012–2014. Most of the risks are related to interest rate risk (caused by a fall in the real estate markets in 2007 and interest rates in 2009), while the risk of foreign exchange is steadily increasing (even today). Another important feature is that interest rates are exposed to international risks (due to the international integration of financial market). Therefore, international risks can be viewed not only as foreign exchange risk, but they are much more complex. Bear in mind that previous derivatives are nothing but innovations in the management of financial capital with the aim of protecting against risk (hedging) or taking risks to obtain extra profits (speculation). These derivatives are formed on the experience and knowledge of financial experts to use them as instruments of capital management. Therefore we can say that derivatives are a product of knowledge management. Any successful exit from the crisis or acquiring extra profits is an additional experience in financial knowledge management, which is the greatest precisely in the riskiest situation. Financial knowledge management is the most sensitive part of knowledge management, because the mistakes end up usually by bankruptcy or takeover process. On Figure 6.3 we can see the importance of international conditions in financial risks. The crisis in the global financial market has influenced

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700000000 600000000 500000000 400000000

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0

Figure 6.3 Derivatives divided by risk category Source: Retrieved from BIS (27.07.2018).

the rise in the value of derivatives to US $1,500 trillion. The same was repeated in early 2012 and 2014, and after the value of derivatives began to decline. Most of the funds relate to interest rate and credit derivatives, whose values are also indirectly influenced by international factors. Direct risks associated with international conditions are related to foreign exchange derivatives, which make up a fifth of the total funds. The process can be viewed doubly. First, the figure clearly shows a large impact of the crisis on financial flows. For 20 years flows have increased 10-fold. Second, the same process can be viewed as the influence of financial knowledge management on the development and use of financial derivatives. According to the data in Table 6.1, we can see that in this process the currencies of the developed countries dominate. The largest number of derivatives transactions were made in US dollars, followed by transactions in euros and pound sterling. An interesting fact is that among the first five exchange-traded values are transactions in Brazilian reals. Brazil is the only developing country which has a significant share in the global market for financial derivatives (the same level as Australia), although it is significantly behind the US and EU financial markets (more than 90% of all derivatives transactions). Figure 6.3 shows the difference between the first countries in participation in trade on derivative markets. In the last ten years, the dominance of the US dollar has tripled in comparison to all other currencies (Figure 6.4). According to BIS bank data (2018), trade in derivative markets in US dollars exceeds US $75 trillion. After US dollars transactions, transactions denominated in euros (26 trillion) and Japanese yen (12 trillion) follow as the biggest. The huge difference in the level of transactions in US dollars and other currencies

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80,572 1,379 1,595 724 252 17 12,341 6,137 225 29 1 14 86 170 57,593

Dec. 2017 105,157 1,517 1,543 700 404 10 16,517 6,378 282 34 1 0 97 0 77,663

Mar. 2018 6,535 147 42 87 22 5 900 533 41 14 0 0 5 3 4,736

2016 7,444 139 59 98 25 9 1,238 621 38 12 0 0 4 4 5,195

2017 6,706 126 59 73 20 11 846 725 40 10 0 0 5 5 4,785

Nov. 2017 6,082 154 51 94 19 6 1,203 494 51 13 0 1 4 3 3,988

Dec. 2017 8,911 152 66 96 42 7 1,812 657 43 12 0 0 3 7 6,013

Jan. 2018

12,480 151 57 98 26 6 1,548 958 42 12 0 0 5 6 9,570

Feb. 2018

10,534 191 70 100 29 6 1,519 683 58 16 0 0 9 0 7,852

Mar. 2018

Source: The table has been modified by data retrieved from BIS (27.07.2018). Countries with exchange-traded values equal to zero are not included.

Interest rate Australian Dollar Brazilian Real Canadian Dollar Swiss Franc Renminbi Euro Pound Sterling Yen Won Mexican Peso Norwegian Krone New Zealand Dollar Swedish Krona US Dollar

Dec. 2016

Table 6.1 Exchange-traded futures and options, by currency (notional principal, in billions of US dollars)

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1,200 1,000 USD 800

EUR GBP

600

JPY 400 CHF 200

CAD SEK 12-2017

06-2017

12-2016

06-2016

12-2015

06-2015

12-2014

06-2014

12-2013

06-2013

12-2012

06-2012

12-2011

06-2011

12-2010

06-2010

-

Figure 6.4 Derivatives markets by currencies Source: Retrieved from BIS (27.07.2018)

is in the fact that US financial markets (derivatives markets) are the most developed in the world. Almost the most innovations in financial instruments come from US financial markets. Other financial markets take over these innovations and apply them in their markets (more or less, depending on the development of their national financial markets). The markets that are most developed outside the United States are: European, British, Japanese, Australian and Hong Kong. Second, there is still a major dominance of the US dollar in the world in all international transactions. The US dollar is the currency that globally dominates in transactions, trade, balance sheets, reserves and securities. With all this in mind, it is clear to see why the crisis emerged on US financial markets was immediately transferred to many other world markets (the first on financial and after on all other flows), but also we can say that the largest number of financial innovations as a result of knowledge management comes from the US market. The following table shows the dominance of the dollar in derivative instruments and foreign exchange contracts (Table 6.2). So how many countries have been exposed to international risks after two major crises (financial and sovereign crisis)? In Table 6.3, the real effective exchange rates increment indicates an appreciation of the economy’s currency against a broad basket of currencies. If we observe the period of the last five years, the highest fall of real effective exchange rates occurred in Australia, the European Union, Canada and Mexico. The European Union, Greece, Ireland, Norway and Sweden had the highest fall of real effective exchange rates denominated in their currencies.

552,925 85,867 75,422 26,473 15,400 10,528 3,909 3,511 1,775 34,716

482,422 78,781 70,550 24,334 14,146 9,080 3,541 3,350 1,812 30,748

H2 2016 542,439 88,429 77,044 27,826 14,904 11,070 4,120 4,068 2,038 35,789

H1 2017

Source: The table has been modified by data retrieved from BIS (27.07.2018)

All contracts Foreign exchange contracts USD—US Dollar EUR—Euro JPY—Japanese Yen GBP—Pound Sterling CHF—Swiss Franc CAD—Canadian Dollar SEK—Swedish Krona Other currencies

H1 2016

Notional amounts outstanding

Table 6.2 Global OTC derivatives market (In billions of US dollars)

531,912 87,117 74,756 28,280 14,838 12,257 4,257 4,088 2,268 33,490

H2 2017 21,119 3,578 3,104 917 916 667 134 125 47 1,245

H1 2016 14,948 3,324 2,947 871 714 367 112 111 46 1,479

H2 2016

12,683 2,626 2,299 929 405 346 113 140 55 964

H1 2017

Gross market value

10,956 2,293 1,974 782 300 305 91 107 47 979

H2 2017

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Table 6.3 Real effective exchange rates (27 economies indices, CPI-based; period averages; 2010 = 100) Year

Australia Austria Belgium Canada Chinese Taipei Denmark Euro area Finland France Germany Greece Hong Kong SAR Ireland Italy Japan Korea Mexico Netherlands New Zealand Norway Portugal Singapore Spain Sweden Switzerland United Kingdom United States

2013

2014

2015

2016

2017

106.4 101.4 101.0 98.8 106.4 98.1 99.0 100.3 98.2 98.8 96.8 104.9 97.9 100.5 82.1 109.6 103.9 100.8 112.3 98.9 100.0 115.9 100.6 107.2 104.4 104.4 100.5

101.3 102.3 100.5 92.8 106.0 98.8 98.4 101.5 98.0 99.0 94.6 109.6 96.7 100.0 76.9 116.5 102.9 101.1 116.5 94.3 99.2 115.3 99.7 101.3 105.1 111.4 103.2

94.9 100.5 97.6 84.5 111.2 96.7 88.9 98.6 94.7 94.7 90.5 123.8 90.0 96.5 73.6 120.9 92.5 98.1 111.0 87.4 98.3 115.3 96.6 95.4 113.3 118.8 118.5

94.3 101.3 99.8 82.4 108.5 97.6 90.5 99.1 94.9 95.4 90.1 126.0 91.1 96.5 82.6 116.4 79.9 98.4 110.4 87.4 99.1 112.8 96.6 95.6 110.5 105.6 123.0

97.3 102.4 101.4 83.6 114.3 98.2 92.8 99.2 95.1 96.6 90.2 125.6 91.4 96.9 77.9 120.2 81.9 99.2 111.8 88.4 99.2 111.0 97.7 94.9 108.3 100.2 122.3

Source: The table has been modified by data retrieved from BIS (27.07.2018)

If we say that Greece and Ireland were affected by sovereign crisis and that affected the fall of their real effective exchange rates, we cannot say the same for Norway and Sweden. Both countries did not have a public debt problem and were not directly exposed to sovereign crisis. We can say the same for Canada and Australia. However, these countries were highly connected with international financial markets. This means that international financial factors have had a major impact on real effective exchange rates of the mentioned countries. Strong connections and exposure to international financial (derivative) markets have two consequences: (a) positive—because it promotes innovations and experience in managing financial flows (financial knowledge management) and (b) negative—conveys the consequences of the crisis among different markets.

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Conclusion Financial innovations result as a process of financial knowledge management creating new ideas, instruments and solutions for complex financial flows. According to the methodology of OECD (2005), innovations can be classified into four groups: (1) product, (2) process, (3) marketing and (4)  business organization. Innovation in finance can be recognized as ordinary in the first two groups, as a product and process. Sustainable and growing returns to financial flows are impossible without knowledge management. Numerous examples have shown that the absence of knowledge management usually leads to an increase in risk, lower profits and ultimately to takeover or bankruptcy.On the other hand, many financial derivatives that have resulted in innovations in the financial knowledge management have influenced the growth of risks in financial flows. In fact, we can conclude the following:financial innovations based on the best practice aimed to risk protection contribute to the stability of financial flows. Such instruments represent a cost to companies but also reduce risks. On the other hand, financial innovations based on the urge to acquire high extra profits pose a risk of large losses and can generate a crisis. Without financial innovations and financial knowledge management, the wealth of nations cannot grow and be sustainable because economic and technological development would also be very slow (Błach, 2011).Although much literature indirectly points to the importance of knowledge management in finance (through financial innovation), in the research of Fabozzi and Modigliani (2003), Anderloni and Bongini (2009), Frame and White (2009) and Błach (2011); it is very hard to find literature on the direct term of financial knowledge management. Therefore, the main finding of this chapter is to explain the character and significance offinancial knowledge management through examples of international financial markets.

Acknowledgments The research was supported by the Ministry of Education, Science and Technological Development of Republic of Serbia (Grant III 47007).

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7

Identifying Sources and Practices for Knowledge Acquisition A Systematic Literature Review Gabriele Santoro and Mirko Goria

Introduction This chapter provides a systematic review of the quantitative studies on knowledge acquisition to identify the sources and practices used by firms to acquire strategic knowledge. As such, the chapter builds on both knowledge management (Del Giudice & Maggioni, 2014) and open innovation literature (Ferraris, Santoro, & Bresciani, 2017) in order to give a comprehensive view of how and who can provide the relevant knowledge useful to innovate in this competitive era. Since the seminal work of Chesbrough (2003), knowledge acquisition strategies have been framed with the term “inbound open innovation”, according to which firms acquire and integrate external knowledge and technologies that are globally dispersed in the external environment to accelerate innovative processes (Sandulli, Ferraris, & Bresciani, 2017; Ferraris, Santoro, Bresciani, & Carayannis, 2018). The main idea of this model is that firms improve innovation processes by integrating and leveraging external sources of knowledge and collaborating with different partners (Laursen & Salter, 2006; West & Bogers, 2014; Santoro, Bresciani, & Papa, 2018). Accordingly, firms explore and exploit external knowledge to enhance their innovation performance since external sourcing might have a mediator effect on firm performance, especially in knowledge-intensive firms, which strive to find new solutions and business opportunities (Vrontis, Thrassou, Santoro, & Papa, 2017; Karagouni, 2018). The transformation into an open innovation (OI) model has become a need to maintain a competitive advantage and cope with the changes in the contextual environment. In the current globalized world of aggressive competition and fast pace of change, OI strategies become a key element for new product development and firm survival (Enkel, Gassmann, & Chesbrough, 2009; Schroll & Mild, 2011). A key aspect in the knowledge acquisition perspective of OI regards the measurement of openness. However, the literature presents inconsistent perspectives about what openness is and how to measure the level of knowledge acquisition in a firm’s innovation process. In fact, a major critique to the OI phenomenon is about the lack

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of coherence in the OI theoretical framework and assessment (Trott & Hartmann, 2009). Most of the studies have followed the concept of search breadth and depth of knowledge sources to measure knowledge acquisition at the firm level (Caloghirou, Kastelli, & Tsakanikas, 2004; Laursen & Salter, 2006; Nieto & Santamaría, 2007; Chiang & Hung, 2010; Ahn, Minshall, & Mortara, 2015). Breadth refers to the extent that firms access different external knowledge sources, such as customers, suppliers, competitors, universities and research centers, while depth regards the intensity of each relationship. However, these measures fail to provide a comprehensive view of the firm’s innovation process with regard to knowledge acquisition. So, the absence of a comprehensive framework makes it difficult to compare and validate the results about the effects of firms’ openness on performance measures and to assess openness antecedents. For example, recently, studies have measured openness of knowledge acquisition in terms of open innovation practices (OIP) exploited (Van de Vrande, De Jong, Vanhaverbeke, & De Rochemont, 2009; Parida, Westerberg, & Frishammar, 2012). This chapter thus aims to fill this gap, shedding light on the OI model with regard to knowledge acquisition identifying the sources and practices for knowledge acquisition used in the literature in order to explain “where” and “how” firms can acquire knowledge and technologies to follow an open innovation journey. The purpose is to help in understanding what are the sources and practices for knowledge acquisition available for firms and how literature has used these sources and practices in empirical studies and to be a starting point for future studies on the specific topic, with the aim to stimulate a debate both for theory building among scholars but also to stimulate insights for managers. Through a Systematic Literature Review (SLR) conducted over a period from 2003 to 2017, 42 papers were identified and analyzed. The SLR identifies 19 sources and 16 practices for knowledge acquisition used by previous studies that hint at a measurement framework for future studies about openness. The remainder of the chapter is organized as follows. First, we present the theoretical background referring to the literature on knowledge acquisition under the lens of KM and the literature on OI. Second, we present the methodology of the SLR used in this research. Finally, we present and discuss the results of the analysis, while also proposing several managerial and theoretical implications.

Knowledge Management for Innovation The importance of knowledge in firms’ innovation processes has been highlighted by both academics and practitioners in the last decades (Alavi & Leidner, 2001; Del Giudice & Della Peruta, 2016; Santoro, 2018), because

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knowledge is the fundamental basis to compete and innovate. Specifically, tacit knowledge can be a source of advantage because it is very hard for competitors to imitate (Grant, 1996) and is considered a key resource available for firms (Papa, Santoro, Tirabeni, & Monge, 2018). However, knowledge itself cannot guarantee a real advantage because it must be managed and shared throughout the organization (Ferraris, Santoro, & Dezi, 2017; Santoro & Usai, 2018). Knowledge management has been recognized as a key managerial process necessary for achieving competitive advantage (Carayannis, 1999; Argote & Ingram, 2000; Dias & Bresciani, 2006; Bresciani, Ferraris, Santoro, & Nilsen, 2016). In fact, the knowledge-based view (KBV) has reached growing interest in several research streams such as information technology and systems, strategic management, innovation management and organizational literature (Nonaka, 1994; Spender, 1996; Nonaka & Takeuchi, 1995; Alavi & Leidner, 2001; Soto-Acosta & MeroñO-Cerdan, 2008; Bresciani, 2010). The true competitive advantage is built through the ability of the firm to apply effectively existing knowledge to create new products and processes exploiting new knowledge (Santoro, 2017; Santoro, Vrontis, & Pastore, 2017). As a consequence of that, we can assume that knowledge management regards the identifying and leveraging of knowledge to foster innovation processes at the firm level (Darroch, 2005). For example, firms must be able to build and acquire both market knowledge, that is knowledge about customers’ needs, customers’ preferences, competitors’ intelligence and so on, but also technological knowledge, that is applied knowledge to complement internal capabilities and advance existing technologies (Siegel & Renko, 2012). Knowledge management is thus recognized as a necessary process in sustaining and maintaining competitive advantages in this knowledgedriven global economy. Despite this, a major contribution to this field typically concentrated on internal sources of knowledge, neglecting what comes from the external environment (Grant & Baden-Fuller, 2004; Chesbrough, 2006; Teece, 2007; Lichtenthaler & Lichtenthaler, 2009; Del Giudice & Maggioni, 2014). This is striking, given that, currently, the best performing firms are those that are able to create internal knowledge while acquiring external knowledge through ambidextrous processes. This is extremely important because actually firms are not able to develop all the needed resources internally (Ferraris, Santoro, & Papa, 2018). For example, Teece (2007) supports that firms could combine internal and external knowledge in order to cope with the dynamic environment.

Knowledge Acquisition and Open Innovation The Open Innovation Model There has been increasing interest in understanding how firms engage in collaborative and networked activities in the last two decades (Gulati,

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1998; Katila & Ahuja, 2002; Nieto & Santamaría, 2007; Sefiani, Davies, Bown, & Kite, 2018). These new models of innovation and knowledge exploitation contrast the view of a closed innovation process according to which a firm generates, develops and commercializes its own ideas with a tight control of knowledge (Chandler, 1990; Rothwell, 1992; Chesbrough, 2003). The link between internal and external sources of knowledge has been studied in depth by the open innovation literature. This model was defined by Chesbrough (2006) as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. Open innovation is a paradigm that assumes that firms can and should use external ideas, as well as internal ideas, and external and internal paths to market, as they look to advance their technology” (p. 1). The provided definition poses that knowledge is an essential source for innovative projects. Several factors and trends can explain the open innovation phenomenon: • • •

Firms more and more look for knowledge deriving from external sources distant from a geographical point of view; Firms more and more look for cross-field knowledge and technologies; Firms more and more look for collaboration with scientific partners such as universities and R&D centers.

Two main mechanisms describe the OI model. The inbound OI mechanism regards the leveraging of technological and knowledge capabilities developed outside the boundaries of the organization to integrate those developed internally (Kang & Kang, 2009; Spithoven, Vanhaverbeke, & Roijakkers, 2013; Du, Leten, & Vanhaverbeke, 2014). In turn, the outbound OI mechanism entails innovation activities aimed at capturing value by transferring knowledge and technologies to other counterparts through, for example, licensing-out (Bianchi, Chiaroni, Chiesa, & Frattini, 2011; Kutvonen, 2011). From one hand, firms can establish inbound open innovation strategies by acquiring or sourcing for external knowledge from different market-based partners, such as customers, suppliers and competitors (Ferraris et al., 2017), or science-based partners, such as research centers and universities (Carayannis, Rogers, Kurihara, & Allbritton, 1998; Santoro, Ferraris, Giacosa, & Giovando, 2016). Open firms are those with a greater level of readiness to collaborate, namely the propensity of a firm to open to several forms of collaborations (Bresciani & Ferraris, 2014; Ahn et al., 2015). Internal Capacities for Knowledge Acquisition As highlighted, the open innovation paradigm considers R&D as an open system of knowledge where internal and external sources take the same

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relevance. However, a vast stream of literature suggests that, in order to achieve this, organizations must develop internal capacities in order to exploit external knowledge, six of which have been identified by Lichtenthaler and Lichtenthaler (2009): • • • • • •

Inventive capacity regards the firm’s ability to internally explore or generate new knowledge; Absorptive capacity refers to a firm’s ability to explore and utilize external knowledge; Transformative capacity is the firm’s ability of internally store knowledge; Connective capacity represents the firm’s ability to store knowledge in inter-organizational relationships; Innovative capacity is the final process stage of developing new products and services; and Desorptive capacity regards the outward knowledge transfer.

Ferreras-Méndez, Fernández-Mesa, and Alegre (2016), extending the absorptive capacity concept, investigate the effects of external sourcing strategies on explorative learning, transformative learning, and exploitative learning, to find that different search strategies exert different effects on different learning processes. Open innovation theory goes beyond the internal perspective proposed by knowledge management literature, suggesting that firms should use both external and internal knowledge (Bresciani, Thrassou, & Vrontis, 2013, 2015; Santoro et al., 2017; Santoro, 2018). Several studies on knowledge management suggest that, in order to exploit external knowledge, organizations must deploy knowledge management systems (Huber, 2001), through which they can be flexible and respond more quickly to changing market conditions, as well as be more innovative, improve decision-making and productivity leveraging internal knowledge (Meso & Smith, 2000). This is because knowledge management systems can encourage the employees to become proactive. Moreover, access to an increasing amount of information allows them to improve capacities and ideas creation (Del Giudice & Della Peruta, 2016). The literature also indicates that an open approach to innovation can help in developing internal knowledge management capacities (Del Giudice & Della Peruta, 2016; Ferraris, Bresciani, & Del Giudice, 2016; Bresciani, Ferraris, & Del Giudice, 2018). This means that, with higher openness, knowledge management systems help improving internal capacities. In particular, exploiting internal and external knowledge flows, and developing digital ecosystems through new ICTs is essential in bearing the knowledge management and acquisition (Scuotto, Santoro, Bresciani, & Del Giudice, 2017; Scuotto, Santoro, Papa, & Carayannis,

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2017). In addition, the nature of the relationship, the search mode, and the level of trust with external partners could also affect the development of internal knowledge management capacities (Ahn et al., 2016). Many studies found a positive relationship between openness and performance, even though some scholars indicate that over-searching risks also exists (Berchicci, 2013). However, other studies suggest that firms enhance open innovation performance only developing internal capabilities (Lichtenthaler & Lichtenthaler, 2009), and therefore without internal mechanisms, open innovation strategy does not increase innovativeness (Amirkhanpour, Vrontis, & Thrassou, 2014; Zobel, 2017). One possible explanation is that an increase in knowledge flows inside and outside the firm can intensify the challenge related to knowledge management. Thus, knowledge is the essential asset for increasing a firm’s innovativeness. Converting general knowledge into specific knowledge is essential in innovation processes (Smith, 2001). Developing internal knowledge management capacities helps in generating new ideas and exploiting the organization’s thinking power, in turn supporting the development of innovative capacity (Lichtenthaler & Lichtenthaler, 2009). In fact, a firm with internal knowledge management capacities is also likely to be more innovative and to address and manage complexity. This is because, in order to be more innovative, firms should ensure that knowledge is used effectively and efficiently, through the development of internal mechanisms. In sum, many studies advocate that the relationship between open innovation (OI) and performance—innovative, financial and economic— is moderated by internal facilitators such as absorptive, integrative, connective and transformative capacities (Cohen & levinthal, 1990; Ahn et al., 2016). Accordingly, the ability of firms to profit from external knowledge can be influenced by various internal, specific factors. Other factors, such as the not-invented-here (NIH) syndrome, are seen as barriers to the OI journey provoking real challenges to innovative firms (Katz & Allen, 1982). Also, internal culture and organizational issues can be barriers to implement OI (Van de Vrande et al., 2009). These barriers can be overcome through knowledge management mechanisms and HRM practices. Knowledge Acquisition Measurement Despite the large number of theoretical studies on knowledge acquisition through the lens of inbound OI (Laursen & Salter, 2006; Santoro et al., 2017; Dezi, Santoro, Monge, & Zhao, 2018; Ferraris et al., 2018), the literature has failed to provide a comprehensive framework to measure the openness of the firm’s innovation process with regard to knowledge acquisition. This is because each study uses different measures of openness and considers openness in different ways. In fact, a major critique to the OI phenomenon is about the lack of coherence in the OI theoretical

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framework and assessment (Trott & Hartmann, 2009). The absence of this framework makes it difficult to compare and validate the results about the effects of firms’ openness of performance measures and openness antecedents. Scholars have used the concept of openness degree in order to explain the weight knowledge acquired in the innovation process. In particular, a stream of studies considers the number of external sources of knowledge involved in the innovation process to measure openness (Laursen & Salter, 2006; Tether & Tajar, 2008; Chiang & Hung, 2010; Gronum, Verreynne, & Kastelle, 2012; Lasagni, 2012; Ahn et al., 2015). Specifically, Laursen and Salter’s seminal work proposed the concept of search breadth and depth to describe the number of the external sources of knowledge and the intensity of the relationship with each source. Other authors have used the same measures (Ahn et al., 2015; Aloini, Pellegrini, Lazzarotti,  & Manzini, 2015; Bengtsson et al. 2015; Chen, Vanhaverbeke, & Du, 2016). By contrast, other studies consider openness as the leveraging of different OIP (van der Meer, 2007; Van de Vrande et al., 2009; Petroni, Venturini, & Verbano, 2012; Michelino, Lamberti, Cammarano, & Caputo, 2015). Van de Vrande et al. (2009), for example, they propose technology exploitation in terms of venturing, licensing-out and employee involvement, while technology exploration in terms of customer involvement, networks, external participation, outsourcing R&D and licensing-in. Parida et al. (2012) assesses the openness in terms of technology scouting, vertical collaboration, horizontal collaboration and technology sourcing. Spithoven et al. (2013) focused on both sources and practices. First, they evaluate openness considering cooperation with several external sources. Second, they investigate several modes for accessing external knowledge. Also Ahn et al. (2015) used a mixed approach by considering several practices such as licensing-in, co-R&D, M&A, alliances, user involvement, spin-off and open sourcing. Overall, most of the empirical studies on OI have followed the concept of search breadth and depth of knowledge sources to measure knowledge acquisition processes within a firm (Laursen & Salter, 2006; Nieto  & Santamaría, 2007; Chiang & Hung, 2010; Ahn et al., 2015), while some studies have considered the practices for knowledge acquisition but incoherently. The methodology section will present all the sources and practices for knowledge acquisition found in empirical studies in order to trace directions for future studies and shed light of this phenomenon from both a theoretical and empirical point of view.

Research Methodology This chapter draws particularly on theoretical evidence published in academic journals about open innovation, through a Systematic

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Literature Review (SLR), which is a method of locating, appraising and synthesizing evidence (e.g. Tranfield, Denyer, & Smart, 2003; Pittaway, Robertson, Munir, Denyer, & Neely, 2004; Becheikh, Landry, & Amara, 2006). An SLR was used because this method allowed the sample of publications to be examined in a systematic way. The use of the SLR method was guided by the desire to improve the knowledge on the analyzed topics in the academic field. This research method makes it possible to increase the knowledge already present in the literature and so to achieve a good indepth study, through a careful, formalized and replicable research pattern (e.g. Tranfield et al., 2003; Booth, Sutton, & Papaioannou, 2016; Hou & Neely, 2013). This investigation policy has been used in the social sciences and in the managerial field by various authors (e.g. David & Han, 2004; Thorpe, Holt, Macpherson, & Pittaway, 2005). The five stages of this analysis that characterize the SLR method are summarized in the following table; these phases correspond to the different moments of inquiry in each stage of research (Thorpe et al., 2005). In order to classify and analyze the empirical literature on open innovation, we created a taxonomy consisting of two variables: sources and practices (for knowledge acquisition). The main purpose is to identify the frequencies of sources and practices that occurred in empirical studies. The findings presented in this chapter are thus part of a broader study where systematic searches of the OI literature have been carried out in several sequential studies covering a time period from 2003 up until 2017. Following Schroll and Mild (2012), we restricted the timeframe to articles published from 2003 onward, as the term “open innovation” was proposed in 2003. The searches were made in three selected databases, presented in Table 7.1, namely ISI Web of Knowledge, Google Scholar and Scopus. As seen in Table 7.2, only papers explicitly using the term “open innovation” were included in the search range. Naturally, there are publications closely related to OI that do not use the term. The search was also limited to business and management publications. Only peerreviewed material was included in the analysis, and thus material such as pure interviews, industry reports and book reviews was excluded. We chose to also exclude conference papers, as some conferences are not peer-reviewed, and we did not have the capacity to make a distinction Table 7.1 Five phases of a systematic literature review • Phase 1 • Phase 2 • Phase 3 • Phase 4 • Phase 5

• Definition of search and selection key in the database • Search of articles (papers) in the database • Reading and selection of titles and abstracts • Reading and selection of articles (papers) • Analysis of articles (papers) for the purpose of research

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Table 7.2 Search information Database

Search terms and Limitations

ISI Web of Knowledge

The search term “open innovation” in title, keywords or abstract was used in order to find relevant articles. Moreover, the search was restricted to the Social Sciences Citation Index (SSCI). The search term “open innovation” in the title, keywords or abstract was used in this database too in order to find relevant articles. Moreover, the search was restricted to “social sciences” only. The search term “open innovation” in title, keywords or abstract was used in this database too in order to find relevant articles. Moreover, the search was restricted to “social sciences” only.

Scopus

Google Scholar

between conferences that are peer-reviewed and those that are not. In total, 486 publications in English were found. Secondly, we analyzed the abstracts in order to verify whether the article had an empirical nature or was simply citing other empirical articles. In the latter case, we discarded the article from our research. Whenever the abstracts were too ambiguous to understand the subject of the respective articles, we extended the preliminary analysis of the abstract to the entire article in order to avoid undesirable exclusions. Then, we read the abstract, trying to understand whether the paper addressed in some way the issue concerning the measurement of openness with particular regard to the acquisition of knowledge or technology. Therefore, the transfer of knowledge/technology (outbound open innovation) is not considered in our study. It is noteworthy that we decided to include just quantitative papers because they allow an easy identification of sources and practices assessed. This procedure led us to 42 papers published between 2006 and 2017.

Results This section sets out a summary of the SLR. Specifically, it presents and discusses the results in relation to the academic journals and aspects assessed. Moreover, our objective was to identify sources and practices for knowledge acquisition used in the empirical research. The articles included in our literature review were published by 22 different journals. Among them, the most relevant journals have been Technovation (6 occurrences), Creativity and Innovation Management (4), Journal of Small Business Management (3) and International Journal of Technology Management (3). All other journals published two or one empirical studies included in our sample.

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Table 7.3 Journals identified Journals

No. of papers

Technovation Creativity and Innovation Management Journal of Small Business Management International Journal of Technology Management International Journal of Innovation Management R&D Management Technology Analysis & Strategic Management Journal of Product Innovation Management European Journal of Innovation Management Research Policy Strategic Management Journal Measuring Business Excellence Journal on Chain and Network Science International Journal of Innovation and Technology Management Research-Technology Management Industrial Marketing Management Small Business Economics Technological Forecasting and Social Change Journal of the Knowledge Economy Journal of Knowledge Management European Journal of International Management Journal of Innovation Management

6 4 3 3 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1

The SLR analysis led us to identify sources and practices for knowledge acquisition used by empirical studies approached by quantitative methods. As figure 7.1 shows, we found 19 sources used by empirical studies, some of which are more used (universities, suppliers, clients/customers, competitors, commercial laboratories/R&D enterprises, private research institutes, consultants and government research organizations). Then, we identified studies using practices for knowledge acquisition in empirical settings. Figure 7.2 shows the practices for knowledge acquisition used and the occurrences. As the table shows, licensing-in the most frequent practices used, followed by partnering/R&D alliances/co-patent, customer engagement, equity investment/M&A/JV, outsourcing R&D. Overall, the findings presented in the figures suggest that studies are inconsistent in using sources and practices for knowledge acquisition in empirical studies given the frequencies found. This means that although open innovation has increasingly obtained greater attention among scholars, the measurement of openness with regard to knowledge acquisition did not find a consistent framework of analysis. Studies agree that one of the open innovation pillars regards the acquisition of relevant external knowledge, resources and technologies to incorporate that developed internally with the final goal of achieving the renewal of products,

Figure 7.1 Sources for knowledge acquisition used by empirical studies

0

5

10

15

20

25

Universities and other higher education institutes Suppliers of equipment, materials, components, or software Clients or customers Competitors Commercial laboratories/R&D enterprises Private research institutes Consultants Government research organisations Cross-sector companies Other public sector, e.g. business link, government offices Professional conferences, meetings Fairs, exhibitions Trade associations Technical/trade press, computer databases Intermediaries Technical standards Health and safety standards and regulations Environmental standards and regulations Scientific publication

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25 20 15 10 5

Crowdsourcing (unknown problem solvers)

Government collaboraon Idea and start-up compeon

Patent search

E-collaboraon tools/social media

Naonal public funding

Technology scoung

Horizontal technology collaboraon

University collaboraon and grants

Networking

Vercal technology collaboraon

Outsourcing R&D

Equity investment/ M&A/JV

Customer engagement

Licensing in/Technology purchase Partnering/R&D alliances/Co-patent

0

Figure 7.2 Practices for knowledge acquisition used by empirical studies

processes and services (Laursen & Salter, 2006). However, as indicated in this study, scholars have found difficulties in proposing a consistent and comprehensive model describing “where” and “how” to acquire these external resources.

Conclusions In this chapter, we have built on knowledge management (Alavi & Leidner, 2001; Del Giudice & Maggioni, 2014) and open innovation literature (Chesbrough, 2006; Laursen & Salter, 2006; Ferraris et al., 2017) to provide a comprehensive framework of sources and practices for knowledge acquisition to describe “where” and “how” a firm can acquire external knowledge and technologies following an open innovation logic. Accordingly, the main contribution of this chapter is that we offer a wide picture of sources and practices for knowledge acquisition available for firms that want to be open and a guideline for future studies on sources and practices for knowledge acquisition. It therefore extends prior studies that have tried to measure openness of knowledge acquisition processes and assess their antecedents and outcomes (Laursen & Salter, 2006; Van de Vrande et al., 2009; Parida et al., 2012; Berchicci, 2013; Spithoven et al., 2013), by giving an ultimate framework to build variables and scales of measurement. Future studies may use this framework to develop quantitative studies on both sources and practices.

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Managerially speaking, knowledge is the key resource for innovative firms; therefore managers should try to understand what type of knowledge they require, and develop an open innovation strategy accordingly. Among the sources identified, some of them provide scientific knowledge (universities, commercial laboratories/R&D enterprises; private research institutes, government research organizations, scientific publication), while some of them provide relevant knowledge about the market (suppliers, customers, competitors, consultants, cross-sector companies, business links, professional conferences, fairs and exhibitions, trade associations, intermediaries). We finally propose that knowledge can be acquired through 16 different practices, each of which entails different advantages and challenges. For example, some practices must be established through pecuniary mechanisms and entail IP strategy (R&D collaboration), while other practices are conducted informally and have lesser risks. Future studies could address these aspects.

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Soto-Acosta, P., & MeroñO-Cerdan, A. L. (2008). Analyzing e-business value creation from a resource-based perspective. International Journal of Information Management, 28(1), 49–60. Spender, J. C. (1996). Making knowledge the basis of a dynamic theory of the firm. Strategic Management Journal, 17(S2), 45–62. Spithoven, A., Vanhaverbeke, W., & Roijakkers, N. (2013). Open innovation practices in SMEs and large enterprises. Small Business Economics, 41(3), 537–562. Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. Tether, B. S., & Tajar, A. (2008). Beyond industry-university links: Sourcing knowledge for innovation from consultants, private research organisations and the public science-base. Research Policy, 37(6–7), 1079–1095. Thorpe, R., Holt, R., Macpherson, A., & Pittaway, L. (2005). Using knowledge within small and medium-sized firms: A systematic review of the evidence. International Journal of Management Reviews, 7(4), 257–281. Tranfield, D., Denyer, D., & Smart, P. (2003). Towards a methodology for developing evidence-informed management knowledge by means of systematic review. British Journal of Management, 14(3), 207–222. Trott, P., & Hartmann, D. A. P. (2009). Why “open innovation” is old wine in new bottles. International Journal of Innovation Management, 13(4), 715–736. Van der Meer, H. (2007). Open innovation—the Dutch treat: Challenges in thinking in business models. Creativity and Innovation Management, 16(2), 192–202. Van de Vrande, V., De Jong, J. P., Vanhaverbeke, W., & De Rochemont, M. (2009). Open innovation in SMEs: Trends, motives and management challenges. Technovation, 29(6–7), 423–437. Vrontis, D., Thrassou, A., Santoro, G., & Papa, A. (2017). Ambidexterity, external knowledge and performance in knowledge-intensive firms. The Journal of Technology Transfer, 42(2), 374–388. West, J., & Bogers, M. (2014). Leveraging external sources of innovation: A review of research on open innovation. Journal of Product Innovation Management, 31(4), 814–831. Zobel, A. K. (2017). Benefiting from open innovation: A multidimensional model of absorptive capacity. Journal of Product Innovation Management, 34(3), 269–288.

8

The Risks Associated With Knowledge Knowledge Risk Management (KRM) Alberto Ferraris

Introduction Knowledge Management (KM) has proved to be a key strategic capability for organizations (Karadsheh, Alhawari, El-Bathy, & Hadi, 2008; Ferraris, Mazzoleni, Devalle, & Couturier, 2018) that has made it possible to reduce different kind of business risks, improving related business performances (Ferraris, Bresciani, & Del Giudice, 2016; Altıntas, Kurtulmusoglu, Altintas, Kaufmann, & Alkibay, 2017; Karagouni, 2018; Sefiani, Davies, Bown, & Kite, 2018). Moreover, changes that are taking place in the current scenario have led to the introduction of new risks that have made it necessary for organizations to possess increasingly knowledge in order to better face all threats, old and new (Karadsheh et al., 2008; Shams, 2016). In this scenario, we should add the problem of corporate globalization, which has brought other international challenges. To face them better and achieve their goals, organizations must become more innovative and continuously introduce new ideas; in fact, there is a need for continuous change which forces companies to reorganize their projects and their systems through the use of internal or external resources (Karadsheh et al., 2008), improving firm value (Miglietta, Battisti, & Campanella, 2017; Miglietta, Battisti, & Garcia-Perez, 2018). Thus, over time the interest and the study of risk management (RM) becomes a key element within organizations by helping to reduce the impact of threats in an international scenario and by allowing them to seize opportunities during the life cycle of different projects. In this context, Holsapple (2005) argues that knowledge management cannot be separated from computer-based technology or information technologies (IT). This information processing allows management to identify business risks and solve risk problems (Karadsheh et al., 2008). As we already know, the main problem for an organization is the need to have the necessary, appropriate and correct knowledge to make the right decisions at the right time and respond quickly to the needs in order to successfully execute an activity or a process (North & Kumta, 2018). In fact, knowledge alone is not enough; it is necessary to integrate it with RM (Alhawari, Karadsheh, Talet, & Mansour, 2012).

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The main objective of RM is to be efficient, with the aim of obtaining optimal solutions to problems, extending the experience gained to other problems to improve overall performance (Rodriguez & Edwards, 2008). RM also promotes the use of technology in a more innovative way, by ensuring that the organization uses a complete information system on risks, which leads to results in the short term. So, the KM discipline is closely linked to the field of study on risk management, as regards the management of data and information, the sharing of knowledge of risk and the consolidation of analysis and reporting (Shaw, 2005). These two disciplines are now the basis of good business management, and organizations can no longer ignore them. We addressed them in this chapter, which is organized as follows. First, different definitions of risks have been proposed along with the classical risk management process. Second, we introduce the concept of knowledge risk and the necessity of managing it.

Risk and Its Management Risk can be seen as an uncertain event or an unsafe condition, which has a positive or negative effect, if it occurs, on at least one project objective, such as costs, time or scope (Project Management Institute, 2004). A risk may have one or more causes and, eventually, one or more impacts. Risk refers to all events and actions that could prevent the organization from realizing its ambitions, plans and goals (Alryalat & Alhawari, 2008). It is essential for an organization to identify different kind of risks, regardless of the outcome, evaluating the probabilities that this event will happen, and what could be the relative consequences (Alryalat & Alhawari, 2008). Risk can have a two-dimensional meaning, namely negative and positive events (Olsson, 2008). This author considers the risk with a negative connotation, but takes into consideration that a risky event can also lead to a positive consequence, since it can be seen as an opportunity and not a problem. Several other authors have given their definition of risk. According to Padayachee (2002), the risk is any variable that leads the initial project to failure. The risk can also be seen as the probability of loss or gain multiplied by its respective magnitude (Jaafari, 2001), but it can also be considered as an uncertain event that could cause positive or negative effects on the project, according to different situations. Other researchers, such as Miles and Wilson (1998), consider it as an element linked to the barriers and threats of a project; therefore they see risk as a barrier to success. In recent decades, risk management has become an integrated part of project management (Del Cano & Cruz, 2002), very quickly including several processes related to planning, identification, analysis, responses and monitoring and control of RM in a project (Project Management Body of Knowledge, 2004). Thus, it should be seen as an integral part of

132 Alberto Ferraris every commercial activity, which is done by combining knowledge in different fields of activity, in order to solve a specific problem (Del Cano & Cruz, 2002). Specifically, RM refers to strategies, tools and methods aimed at controlling and monitoring risk (Bruckner, List, & Schiefer, 2001). The final task of RM is to identify all the risks related to a project, an activity or a product in order to prevent or address them, classifying them according to their frequency and impact level to determine which are the most important to deal with and with what actions are better to do it (Cule, Schmidt, Lyyttnen, & Keil, 2000). Since it is impossible to predict which losses will occur in the future, RM should ensure that risks are limited during the execution of a project with the aim of limiting losses as much as possible. To be truly effective, RM must be an integral part of the general framework of the project. It is helpful to understand how risks should be treated, evaluated and compared (Roy, 2004).

Risk Management Process The risk management process is made up of precise phases within organizations, which are similar in different sectors and in different contexts, especially in the case of network environmental presence in an international scenario (Hallikas, Karvonen, Pulkkinen, Virolainen, & Tuominen, 2004). A typical risk management process of an enterprise consists of: • • • •

Risk identification; Risk assessment; Decision and implementation of risk management actions; Risk monitoring.

First, risk identification is one of the most important steps within the process because it allows the organization to identify the risks and the resulting problems that arise from them, so they can deal with them and prevent them. By identifying a risk, a decision maker or group of decision makers become aware of the phenomenon that could happen or of the event that may cause uncertainty (Hallikas et al., 2004). Each company and organization is responsible for their own risks, so it is necessary to identify those that are from their own point of view, although it is essential to share the knowledge acquired among the members of the same organization in order to decrease internal and external uncertainty. In an international scenario, risk research and risk identification does not depend only on a single actor, but on all the members of the organization (Chapman, 1997). Second, being able to choose the appropriate actions to address the risks identified in the previous phase requires know-how on the assessment of

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risk and priorities, at both organizational and network levels. It is necessary to understand what kind of event the company is able to deal with. This is because an event or change that is harmful to a company in an (international) network can have positive effects or no effect for another company in the same network (Hallikas et al., 2004). Also, all intangible risks should be evaluated, but they are difficult to convert into monetary terms, and they can lead to serious financial losses in the short and long-term. For example loss of trust, reputation, loss of knowledge or degradation of key business knowledge may cause negative strategic consequences such as losing firm position in the network (Hallikas et al., 2004). The generally used strategies for risk management include risk transfer, taking, elimination, reduction and further analysis of individual risks. Within a business network, risks can be managed as a group, through a common network strategy, to address them using everyone’s skills, but this needs more knowledge-sharing activities (Jafari, Rezaeenour, Mahdavi Mazdeh, & Hooshmandi, 2011). Overall, risk identification and assessment allows a precise identification on where to concentrate knowledge-related actions leading to strategic decisions. In fact, some risks can be reduced by the collaboration of the network; others must be managed by each company. Within a multi-network environment, the different components can have different objectives; this can lead to contradictions within, and risk assessment can help the company in deciding how to operate. Network relationships often include transferring risks from one company to another, but this may be accompanied by knowledge transfer. This can reduce the total risk if the risk-taking company can do it better than the company that transfers it. Taking the risk of an investment can be considered an example (Hallikas et al., 2004; Chapman, 1997). The basic idea within a network is to find an optimal risk management strategy to share it globally. Fourth, the organization and the surrounding environment are in continuous movement and in constant change, and consequently the risk and related knowledge process tend to change and change over time. Thus, the risk factors that have been identified must be constantly monitored, to understand how these evolve and how they increase their chances of future event. To identify these, it is necessary to monitor the changes in the national and international networks, customer needs, technology, partner strategies and competitors (Hallikas et al., 2004; Chapman, 1997).

Knowledge Risk and Its Management Knowledge management and risk management are fundamental elements for any organization that wants to succeed. Massingham (2010) noted that Knowledge Risk Management (KRM) is a field that allows

134 Alberto Ferraris the solution to the most common problems related to risks. He argued that the basic problem is the lack of knowledge of risk on the part of individuals who do not find it possible to anticipate its possible consequences. According to Neef (2005), a company cannot manage risks effectively if it cannot manage the knowledge derived from it. In fact, many projects are likely to fail because the project team does not share the knowledge needed during the development process or because the appropriate knowledge is shared at an inappropriate time of the project (Fuller, Valacich, & George, 2008). The application of KM processes to support RM processes is fundamental to the success of the project, allowing the reduction of risk, thus increasing the probability of success of the project execution (Fuller et al., 2008). Neef (2005) argues that the basis of RM processes is the company’s ability to mobilize employee knowledge and skills in reducing risk, to provide decision makers (individuals or groups) with the necessary, accurate and timely insights. A functioning RM system is based on an effective KM, which requires open and lasting communication within the involved team (Perera & Holsomback, 2005). The risks for the firms in the knowledge management domain are many, such as knowledge loss, information overload, data security, knowledge update and real time access. To help avoid these, a proper KM discipline is developing in this period of time that can distinguish between data and knowledge and that can guide the firms in accessing, transferring, sharing and organizing knowledge within the firm (Aloini, Dulmin, & Mininno, 2007). One classical landmark in the field is Nonaka’s spiral of knowledge, which properly address the distinctions between data, information and knowledge and provides an overview of core concepts (Nonaka, 2008). But new forms are still growing. Struggling for knowledge management usually does not have a foreseeable reward to explain the needed expense. Therefore, top management is negatively affected and can hardly understand the importance of managing knowledge with efficiency and effectiveness. At the same time, organizational staff pays disproportionately more attention to the values created by knowledge than the problems or risks associated with knowledge leakage, loss and deterioration. Assessing knowledge risk could be the medicine to get through the lack of motivation of senior executives to implement KM in their organizations (Nonaka, 2008). As reported by Trkman and Desouza (2012), knowledge risk refers to an event which decreases the value or benefit of knowledge operationally or strategically for parties involved in knowledge activities in an organization. However, knowledge risk may be conceived as a problem or a threat that may occur as a result of knowledge being mishandled or mismanaged on organizational practice at all levels. This needs to be properly managed in order to decrease its impact on organizational performance or the likelihood of occurrence (Ferraris et al., 2017).

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Mainstream literature defines four types of knowledge risk that can be found at the firm level (e.g. Ahmad et al., 2014; Bernard, 2000; Perrott, 2007; Takeuchi, Lepak, Wang, & Takeuchi, 2007): • • • •

Knowledge leakage risk; Knowledge loss risk; Knowledge obsolescence risk; Knowledge shortage risk.

First, knowledge leakage is the intentional or accidental disclosure of knowledge to unauthorized parties inside or outside an organization and can be related to product designs, marketing plans, corporate strategies or many other types of organizational knowledge (Frishammar, Ericsson, & Patel, 2015). Ahmad et al. (2014) mention drop in revenues, increased costs, loss of productivity and damage of reputation as examples of negative impacts due to knowledge leakage. Second, knowledge loss risk is described as the risk of losing knowledge that resides in individual employees or organizations (intentionally or unintentionally) and gained through organizational activities (Perrott, 2007). The major cause of knowledge loss is staff turnover. This loss may be caused by staff retirement, staff resignation, illness, accidents or deaths. Furthermore, the lost knowledge could be rare and difficult to rebuild (Durst & Wilhelm, 2013; Massingham, 2010). Third, knowledge obsolescence risk relates to the potential undesirable impact caused by a part of knowledge in use which generates no or rapidly diminishing value because of change or progress taking place inside or outside an organization (Bernard, 2000). This type of knowledge risk has a significant weight nowadays, since the market is continuously changing with regard to technology, customers and competitors. One of the main factors that can lead to knowledge obsolescence is poor research and development (R&D) activities. In fact, if the investment in R&D is inadequate, obsolescence will be reflected in firm’s products (García-Zamora, González-Benito, & Muñoz-Gallego, 2013). Fourth, knowledge shortage risk refers to the potential negative effects generated by the existing company knowledge when it cannot respond to present or future business needs (Del Giudice, Della Peruta, & Carayannis, 2010). The deficiency may occur in terms of quantity, scope, depth, applicability, quality or other attributes of knowledge already possessed by the employees or incorporated into the systems, documentation, processes and culture of the organization (Mohamed, Mynors, Grantham, Walsh, & Chan, 2006). This knowledge shortage generally occurs when employees are not incentivized and supported to improve their knowledge and skills to reach individual and organizational objectives. Indeed,

136 Alberto Ferraris to nurture the enterprise-wide learning atmosphere, the human resources management should first provide adequate, high quality training and development programs to appropriate staff, making lack of certain necessary knowledge in jobs less likely to happen. (Takeuchi et al., 2007) Thus, knowledge risk management (KRM) helps to deal with all the knowledge risks, since it is an emerging field of academic inquiry that merges two previously separate fields: risk management and knowledge management. According to Durst, Bruns, and Henschel (2016), knowledge risk management is “a systematic process of identifying, analysing end responding to risk occurring during the phases of knowledge management such as creation, application and retention”. However, KRM is at the moment a new term to many people, considering that at the academic level, it has not been consistently researched and the consciousness of its importance at organizational level is practically absent. Indeed, compared to other business risks, the consciousness of knowledge risk between business professionals turned out to be short. Moreover, almost everyone considers the new perspective of looking at knowledge and the various types of knowledge risk contribute to their general understanding and use of knowledge, as well as to a better response to the knowledge risk in their firms.

Conclusions KM can be an important element in the risk reduction of organizations (Karadsheh et al., 2008). However, using KM processes to improve the application of RM processes is a recent and important area of research. Despite its importance, this research topic has not yet been addressed intensively until today due to the degree of involvement of organizations and employees in international networks, which could lead to obvious higher risks. In a knowledge society (David & Foray, 2003), most activities require more complicated steps, processes or procedures to accomplish. Therefore, in order to successfully execute a process or an activity, it is necessary to have the right knowledge and information to make the right decisions during the execution of the processes. Knowledge Risk Management (KRM) is an emerging field that allows organizations to find a solution to problems related to risk management. Without KM as a tool to communicate risks among members of a project team or firm’s networks, RM could suffer from inefficiencies (Schwalbe, 2007). Thus, an organization must ensure that project knowledge is available for use on future projects to reduce rework. In smart cities, for example, Ferraris et al. (2017) have empirically noted that the smart city manager

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(a sort of project manager) has the objective of carrying out these practices of transferring knowledge from one project to another in order to reduce the risk problems. Because of the complexities in the smart city field, some multinationals have also taken advantage of some form of independent coordination unit to link projects to headquarters (Sandulli, Ferraris, & Bresciani, 2017; Bresciani, Ferraris, & Del Giudice, 2018). These coordination units focus on the development, accumulation and transfer of knowledge and practices at project level to be used in other projects or in other contexts at global level (in other countries). However, the role of different stakeholders needs to be addressed properly (Ardito, Ferraris, Petruzzelli, Bresciani, & Del Giudice, 2018; Ferraris, Santoro, & Papa, 2018). So, in this chapter we argued that each organization needs to start from defining its specific business risks, also related to knowledge, and then they need to create a specific knowledge management system that supports KM processes in order to reduce negative effects and to build up a knowledge repository to create further knowledge to be more competitive in an international scenario. Concluding, the application of KM processes to support RM processes has the potential of iteratively mitigating the probability of risks, thereby raising the probability of successful project execution (Fuller et al., 2008). It is thus important that the organization prioritizes knowledge infusion of RM, which would require the creation, capturing and sharing of knowledge related to potential risks to key assets of stakeholders.

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138 Alberto Ferraris Technological Forecasting and Social Change. https://doi.org/10.1016/j.techfore. 2018.07.030. Bernard, R. (2000). Social research methods: Qualitative and quantitative approaches. Thousand Oaks, CA: Sage Publications. Bresciani, S., Ferraris, A., & Del Giudice, M. (2018). The management of organizational ambidexterity through alliances in a new context of analysis: Internet of Things (IoT) smart city projects. Technological Forecasting and Social Change, 136, 331–338. Bruckner, M., List, M. B., & Schiefer, J. (2001). Risk-management for data warehouse systems. Lecture Notes in Computer Science, 2114, 219–229. Chapman, C. (1997). Project risk analysis and management: PRAM the generic process. International Journal of Project Management, 15(5), 273–281. Cule, P., Schmidt, R., Lyyttnen, K., & Keil, M. (2000). Strategies for leading off is project failure. Information Systems Management, 14(2), 68–73. David, P. A., & Foray, D. (2003). Economic fundamentals of the knowledge society. Policy Futures in Education, 1(1), 20–49. Del Cano, A. D., & Cruz, M. P. (2002). Integrated methodology for project risk management. Journal of Construction Engineering and Management, 128(6), 473–485. Del Giudice, M., Della Peruta, M. R., & Carayannis, E. G. (2010). Knowledge and the family business: The governance and management of family firms in the new knowledge economy. New York: Springer Science & Business Media. Durst, S., Bruns, G., & Henschel, T. (2016). The management of knowledge risks: What do we really know? International Journal of Knowledge and Systems Science (IJKSS), 7(3), 19–29. Durst, S., & Wilhelm, S. (2013). Do you know your knowledge at risk? Measuring Business Excellence, 17(3), 28–39. Ferraris, A., Bresciani, S., & Del Giudice, M. (2016). International diversification and firm performance: A four-stage model. EuroMed Journal of Business, 11(3), 362–375. Ferraris, A., Santoro, G., & Dezi, L. (2017). How MNC’s subsidiaries may improve their innovative performance? The role of external sources and knowledge management capabilities. Journal of Knowledge Management, 21(3), 540–552. Ferraris, A., Mazzoleni, A., Devalle, A., & Couturier, J. (2018). Big data analytics capabilities and knowledge management: Impact on firm’s performance. Management Decision. https://doi.org/10.1108/MD-07-2018-0825 Ferraris, A., Santoro, G., & Papa, A. (2018). The cities of the future: Hybrid alliances for open innovation projects. Futures, 103, 51–60. Frishammar, J., Ericsson, K., & Patel, P. C. (2015). The dark side of knowledge transfer: Exploring knowledge leakage in joint R&D projects. Technovation, 41, 75–88. Fuller, M. A., Valacich, J. S., & George, J. F. (2008). Information systems project management: A process and team approach (1st ed.). Englewood Cliffs, NJ: Prentice Hall. García-Zamora, E., González-Benito, Ó., & Muñoz-Gallego, P. A. (2013). Organizational and environmental factors as moderators of the relationship between multidimensional innovation and performance. Innovation, 15(2), 224–244.

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Hallikas, J., Karvonen, I., Pulkkinen, U., Virolainen, V. M., & Tuominen, M. (2004). Risk management processes in supplier networks. International Journal of Production Economics, 90(1), 47–58. Holsapple, C. (2005). The inseparability of modern knowledge management and computer-based technology. Journal of Knowledge Management, 9(1), 42–52. Jaafari, A. (2001). Management of risks, uncertainties and opportunities on projects: Time for a fundamental shift. International Journal of Project Management, 19(2), 89–101. Jafari, M., Rezaeenour, J., Mahdavi Mazdeh, M., & Hooshmandi, A. (2011). Development and evaluation of a knowledge risk management model for project-based organizations: A multi-stage study. Management Decision, 49(3), 309–329. Karadsheh, L., Alhawari, S., El-Bathy, N., & Hadi, W. (2008). Incorporating knowledge management and risk management as a single process. Proceedings of International Conference of the Global Business Development Institute (GBDI) (pp. 207–214). Las Vegas, NV, USA. Karagouni, G. (2018). Production technologies and low-technology knowledgeintensive venturing. EuroMed Journal of Business, 13(1), 75–85. Massingham, P. (2010). Knowledge risk management: A framework. Journal of Knowledge Management, 14(3), 464–485. Miglietta, N., Battisti, E., & Campanella, F. (2017). Value maximization and open innovation in food and beverage industry: Evidence from US market. British Food Journal, 119(11), 2477–2492. Miglietta, N., Battisti, E., & Garcia-Perez, A. (2018). Shareholder value and open innovation: Evidence from Dividend Champions. Management Decision, 56(6), 1384–1397. Miles, F. M., & Wilson, T. G. (1998, February). Managing project risk and the performance envelope. Proceedings of the 13th Annual Applied Power Electronics Conference and Exposition (pp. 15–19). APEC Singapore. Mohamed, S., Mynors, D., Grantham, A., Walsh, K., & Chan, P. (2006). Understanding one aspect of the knowledge leakage concept: People. Proceedings of the European and Mediterranean Conference on Information Systems (EMCIS) (pp. 6–7). Neef, D. (2005). Managing corporate risk through better knowledge management. Journal of the Learning Organization, 12(2), 112–124. Nonaka, I. (2008). The knowledge-creating company. Massachusetts, MA: Harvard Business Review Press. North, K., & Kumta, G. (2018). Knowledge management: Value creation through organizational learning. Cham: Springer. Olsson, R. (2008). Risk management in a multi-project environment: An approach to manage portfolio risks. The International Journal of Quality and Reliability Management, 25(1), 60–71. Padayachee, K. (2002). An interpretive study of software risk management perspectives. Paper presented at the Proceedings of SAICSIT, Port Elizabeth, South Africa. Perera, J., & Holsomback, J. (2005). An integrated risk management tool and process. Paper presented at the Aerospace Conference, 2005 IEEE, Big Sky, MT, USA.

140 Alberto Ferraris Perrott, B. E. (2007). A strategic risk approach to knowledge management. Business Horizons, 50(6), 523–533. Project Management Institute. (2004). A guide to the project management body of knowledge: PMBOK guide (3rd ed.). Newton Square, PA: Project Management Institute. Rodriguez, E., & Edwards, J. (2008). Before and after modeling: Risk knowledge management is required. Paper presented at the 6th Annual Premier Global Event on ERM. Chicago, IL. Roy, G. (2004). A risk management framework for software engineering practice. Paper presented at the Software Engineering Conference. Proceedings, Australian, Melbourne, Australia. Sandulli, F., Ferraris, A., & Bresciani, S. (2017). How to select the right public partner in Smart City projects. R&D Management, 47(4), 607–619. Schwalbe, C. S. (2007). Risk assessment for juvenile justice: A meta-analysis. Law and Human Behavior, 31(5), 449. Sefiani, Y., Davies, B. J., Bown, R., & Kite, N. (2018). Performance of SMEs in Tangier: The interface of networking and wasta. EuroMed Journal of Business, 13(1), 20–43. Shams, S. M. R. (2016). Capacity building for sustained competitive advantage: A conceptual framework. Marketing Intelligence & Planning, 34(5), 671–691. Shaw, J. (2005). Managing all your enterprise’s risk. Risk Management, 52, 85–94. Takeuchi, R., Lepak, D. P., Wang, H., & Takeuchi, K. (2007). An empirical examination of the mechanisms mediating between high-performance work systems and the performance of Japanese organizations. Journal of Applied Psychology, 92(4), 1069. Trkman, P., & Desouza, K. C. (2012). Knowledge risks in organizational networks: An exploratory framework. The Journal of Strategic Information Systems, 21(1), 1–17.

9

Behavioral Corporate Finance and Knowledge Management A Cognitive Approach Enrico Battisti and Elvira Anna Graziano

Introduction1 The proliferation of studies both on knowledge management and on behavioral corporate finance during the last decades is recognized by researchers and scholars. While, on one side, knowledge management is a complex, heterogeneous and multifaceted topic with multilayered meanings (e.g. Gupta, Iyer, & Aronson, 2000; Papa, Dezi, Gregori, Mueller,  & Miglietta, 2018; Xu, Sankaran, Sankaran, & Clarke, 2008), on the other side, behavioral finance (BF) is a field that challenges the traditional theory that individuals are rational (e.g. Shefrin, 2002; Shleifer, 2000). BF focuses on the cognitive and emotional aspects (positive and/ or negative) of finance, drawing on psychology and sociology, to explore true financial behavior. In particular, BF includes cognitive psychology in conventional finance, suggesting that individuals are inclined to various heuristic-driven biases in the decision-making process (Ramiah, Zhao, Moosa, & Graham, 2016). From this point of view, behavioral finance holds important implications for the practice of corporate finance (Shefrin, 2005). The traditional approach to corporate finance, embodied in the practice of value-based management, is based on three concepts: (1) rational behavior, (2) the capital asset pricing model (CAPM) and (3) efficient markets. Proponents of behavioral finance argue that psychological forces interfere with all three components of the traditional paradigm. They maintain that psychological phenomena prevent decision makers from acting in a rational manner, that security risk premiums are not fully determined by security betas and that market prices are regularly at odds with fundamental values. In the literature, few studies address the cognitive factors within knowledge activities (e.g. Kumar, Khan, & Gandhi, 2011; Misch & Tobin, 2006; Tsuchiya, 2001), but, to our knowledge, there are no contributions that try to contextualize the cognitive approach of corporate finance to knowledge management. However, there are deep relationships that tie the cognitive science—the science of how humans think, reason, know, emote and feel (Wiig, 1993)—to corporate finance and that are based on the role of the individual in the decision-making process. Much more

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often than might be imagined, decisions are made following behavioral patterns that are not fully rational and logical but are the result of distortions and dissonance, which may push individuals to make systematic errors. Behavioral finance studies these phenomena from a theoretical point of view, using assumptions derived from cognitive science. Many pieces of empirical evidence show that the irrationality peculiar to each individual represents a key trait of human action and, in particular, decision-making. Starting from these considerations, the purpose of this work is to introduce the cognitive approach to knowledge management, adopting it from behavioral corporate finance, to connect different perspectives on the creation and management of knowledge. The main contribution of this explorative study is to define new research developments that also consider behavioral phenomena as determining elements in the decision-making process of the management and sharing of knowledge. We believe that this new perspective can offer some interesting implications for theory, practice and policy. Concerning the theoretical implications, by connecting KM and BCF, we propose a new approach based on cognitive theories, and, to the authors’ knowledge, this is the first exploratory study based on these topics. From the practical point of view, this research is useful for managers at different levels and for entrepreneurs or top management members who intend to implement a KM process in their organization. Finally, regarding the policy implications, our work is the first to provide a new theoretical perspective on knowledge management based on a cognitive approach that can be used to project complementary and innovative initiatives and as a tool for improving managerial behaviors. The remainder of this chapter is organized as follows. The theoretical backbone explores behavioral corporate finance and knowledge management. The main approaches to the concept of KM are explained next, while the next section presents a cognitive approach to KM based on the BCF framework. Finally, a concluding discussion identifies implications for theory, practice and policy and future lines of research.

Theoretical Backbone Behavioral Corporate Finance: Corporation Biases Behavioral biases affect not only investors’ decisions but also corporations’ decisions (Shefrin, 2001, 2005). A corporation is a type of organization that is defined by March and Simon (1993) as a “system of coordinated action among individuals and groups whose preferences, information, interests or knowledge differ”. In corporations, managers play an important role, organizing the business to run along the right track. Therefore, the way in which managers make their financial decisions can affect the development of the corporation directly.

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Managers and board members need to recognize two key behavioral impediments to the process of value maximization, one internal to the firm and the other external. The internal obstruction is called behavioral costs. Behavioral costs stem from psychologically induced errors made by managers and employees. They are the costs—or, alternatively, the loss in value—associated with errors that managers make because of cognitive imperfections and emotional influences. These errors can create a wedge between fundamental values and market prices. Managers may then find themselves unsure of how to factor the errors of analysts and investors into their own decision-making. External obstructions stem from psychologically induced errors made by analysts and investors. This second impediment produces changes in stock prices, influencing the behavior of the financial markets. Managers’ decision-making procedure can still be influenced by their behavioral biases. The “managerial biases” approach assumes that managers have behavioral biases but retain the rationality of investors, albeit limiting the governance mechanisms that they can employ to constrain managers (Baker & Wurgler, 2013). Bounded rationality, introduced by Simon (1955), supposes that some type of cognitive or information-gathering cost prevents individuals from making fully optimal decisions. Bounded rationality offers reasonably compelling motivation for the financial rules of thumb that managers commonly use. In the case of boundedly rational managers, precise rules are usually used that avoid a severe bias, ensuring an acceptable level of performance. In 1996, Conlisk reviews the older boundedrationality literature. More recently, Gabaix (2011) formalizes the modeling approach. In context of limited governance in which less-than-fully rational managers are constrained to making rational decisions, boards may be more a part of the problem than the solution if they have their own biases or are pawns of the management. Gompers, Ishii, and Andrew (2003) show that firms that have adopted policies to decrease shareholder rights experience lower stock returns. In addition, unlike in a traditional agency problem, which arises from a conflict of interest between managers and outside investors, standard incentive contracts have little effect, because an irrational manager may well think that he or she is maximizing value. The figure of the top manager is important in the life of a firm, because, through his or her decisions, he or she is able to condition the investment and financing policy and firm value. According to Bertrand and Schoar (2003), individual managers have investment and financing styles and preferences, possibly inherent and possibly shaped by beliefs, that they bring from previous to new employers. Cronqvist, Makhija, and Yonker (2011) observe that CEOs who use bigger mortgages for their own home purchases also use more leverage in their firms, although part of this effect can be attributed to endogenous firm-manager matching. Kaplan,

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Klebanov, and Sorensen (2012) find that certain executive ability characteristics are correlated with firm performance. As one might expect, the expression of individual managerial decisions is stronger when the CEO is powerful or, similarly, when the governance is weaker (Adams, Almeida, & Ferreira, 2005; Cronqvist et al., 2011). Figure 9.1 summarizes the comparison between behavioral corporate finance and traditional corporate finance. The Main Corporation Biases

EXTERNAL BEHAVIOUR IMPEDIMENTS INVESTORS & ANALYSTS’ BEHAVIOUR

EMOTIONAL FACTORS

BIASES

INTERNAL BEHAVIOUR IMPEDIMENTS

RATIONAL BEHAVIOUR

CAPM Firm Value Maximization

EFFICIENT MARKET

TRADITIONAL CORPORATE FINANCE

BEHAVIOURAL CORPORATE FINANCE

The most-investigated irrational behaviors of managers are optimism and overconfidence. A simple model shows how these biases, by leading managers to believe that their firms are undervalued, encourage overinvestment from internal resources and a preference for internal to external finance, especially internal equity. The effects of optimism and overconfidence are studied empirically in the context of corporate and entrepreneurial financing and investment decisions, merger activity, and the structure of financial contracts. Describing optimism, Weinstein (1980) observes that individuals are convinced that they are more likely than average to experience positive future life events and less likely to experience negative events. To qualify the overconfidence in one’s own skills, as well as possibly optimism, Svenson (1981) reports that, when asking a group of students to declare that they were reliable drivers, 82% of them

Figure 9.1 Behavioral corporate finance versus traditional corporate finance

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placed themselves among the top 30% safest drivers. There are several good reasons for this focus on these particular biases. First of all, these managerial biases are strong and robust, being documented in many samples, including samples of actual managers (Ben-David, Graham, & Harvey, 2010; Larwood & Whittaker, 1977; March & Shapira, 1987). Second, according to Gervais (2010), in a setting in which overconfidence is most pronounced and idiosyncratic, managers’ decisions tend to be highly complex, decreasing the potential for debasing through learning. Third, these biases are also often simple to integrate into existing models. Optimism is usually modeled as an overestimate of a mean ability or outcome and overconfidence as an underestimate of a variance. Finally, overconfidence also naturally leads to more risk taking. Even if managers on average are not overconfident, in the population of managers, those who are overconfident are more likely to perform extremely well or extremely badly, placing them disproportionately in the ranks of upper or former management. For example, an attribution bias, such as the tendency to take greater responsibility for success than failure (Langer & Roth, 1975), may lead successful managers to become overconfident (Gervais & Odean, 2001). Through a cross-sectional test of the effects of optimism on investment, Malmendier and Tate (2005) form a manager-level proxy for optimism based on the propensity of a manager to hold in-the-money stock options voluntarily in his own firm. They guess that, since the CEO’s human capital is already so exposed to firm-specific risk, voluntarily holding in-themoney options is a strong vote of optimism. Testing this optimism proxy for a large sample of US firms between 1980 and 1994, the authors find that the sensitivity of investment to the cash flow is higher for more optimistic CEOs. It is especially high for optimistic CEOs in equity-dependent firms, that is, in situations in which the perceived financial constraints are the most binding. Their results support the predictions of the basic optimism model. Ben-David et al. (2010) test whether survey-based measures of overconfidence and optimism help to explain the level of investment as opposed to its sensitivity to the cash flow. Asking financial executives to estimate the mean and variance of their firm’s stock return, they find that financial executives are extremely overconfident. Their subjective 80% confidence intervals regarding the firm’s one-year stock return contain the realized return only 33% of the time. The authors also relate these measures to the level of investment, finding that both optimism and overconfidence are associated with higher investment. In a contribution relevant to behavioral corporate finance, Roll (1986) outlines a hubris-based theory of acquisitions, suggesting that successful acquirers may be optimistic and overconfident in their own valuation of deal synergies and fail to account properly for the winner’s curse. In relation to M&A operations, Malmendier and Tate (2008) find that

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optimistic CEOs complete more mergers, especially diversifying mergers, typically suggested to be of dubious value. Second, optimism has its biggest effect among the least equity-dependent firms when managers do not have to weigh the merger against an equity issue that they, as optimists, would perceive as undervalued. Third, investors are more skeptical about bid announcements when they are made by optimistic CEOs. Schneider and Spalt (2010) observe that the announcement return evidence is consistent with the theme of irrational managers operating in efficient markets. However, managerial optimism can lead to a positive effect on the investment policy: an optimistic manager may tend to assume more investment only about assets in place, in which case there is no overinvestment, and there will typically be underinvestment as a firm approaches its debt capacity. Layering on other imperfections, such as risk aversion, may mean that optimism moves investment from an inefficiently low level toward the first best, as in Gervais, Heaton, and Odean (2011) and Goel and Thakor (2008). Hackbarth (2009) discusses another setting in which multiple biases can work in opposition, arguing that the combination of managerial optimism and overconfidence can reduce the underinvestment due to debt overhang (Myers, 1977). Relating to the financing policy, Hackbarth (2009) argues that managerial overconfidence can have different effects on the capital structure from optimism. If overconfidence is modeled as underestimating the risk of earnings, managers may view their debt as undervalued and too expensive as a source of capital. Baker and Xuan (2011) find evidence that CEO-specific share price performance does indeed affect financing activity. Equity issuance is responsive to recent stock returns but considerably more so when they occur during the current CEO’s tenure. In particular, the probability of equity issuance in a follow-on offering increases discontinuously when the share price exceeds the inherited price. Dougal, Engelberg, Parsons, and Van Wesep (2011) find that the nominal level of historical borrowing costs exerts a strong influence on the time t cost of debt, controlling for a variety of time t borrower characteristics. Jointly with overconfidence and optimism, reference points and anchoring are important psychological foundations in identifying behavioral effects in corporate finance. Anchoring or focalizing is a cognitive bias that describes the tendency for an individual to rely too heavily on an initial piece of information offered when making decisions (Tversky & Kahneman, 1974, 1991). During decision-making, anchoring occurs when individuals use this initial piece of information to make subsequent judgments. When managers exhibit anchoring biases, they develop initial estimates from a variety of possible sources that include their own experiences and subjective beliefs (Latham, Budworth, Yanar, & Whyte, 2008; Sterman, 1989; Tversky & Kahneman, 1974; Uecker, 1978). Managers may then refine these initial estimates, perhaps by combining new

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objective information with their own subjective probability estimates, to update their beliefs for the following period. In relation to reference points, contracts are considered to be natural reference points in negotiations and determine ex post the satisfaction of the various parties, because a firm is collection of implicit and explicit contracts between the firm and its customers, creditors, underwriters, shareholders and other stakeholders and between managers and employees. Hart (2008) uses this aspect to underpin a theory of the firm. Using contracts as reference points to which parties feel entitled is a substitute for the assumptions of incomplete contracts and ex post bargaining over the surplus that drive the results of Grossman and Hart (1986) and Hart and Moore (1990). A research stream considers IPO prices in relation to reference point preferences and mental accounting (Thaler, 1999). Loughran and Ritter (2002) assume that issuing managers mentally account for two quantities when judging an offering’s success: the (perceived) gain from the gap between the first-day closing price and a natural reference point, the midpoint of the file price range; and the (real) loss from the dilutive effect of the under-pricing. They show that, in issues in which the offer price is below the minimum of the file price range, the first-day returns are a relatively small 4%, on average, while those priced above the maximum have average first-day returns of 32%, which is consistent with issuers acquiescing in severe under-pricing only when they are simultaneously receiving good news in the form of upward revisions from the filing range. Using data on the ownership stakes of executives in IPO firms, Ljungqvist and Wilhelm (2005) find that executive teams that are more “satisfied” with their IPOs regarding this criterion are more likely to use the same underwriter for seasoned offerings and to pay higher fees for those transactions Correcting the behavioral bias of managers is possible by stimulating their learning process through direct and indirect initiatives aimed at increasing and improving their knowledge. Similar to consumers and investors, informed managers are able to make conscious choices by solving the typical distortions in their decision-making processes. Particularly regarding consumers and financial consumers, there is an emerging theoretical and experimental literature showing that the market mechanism does not always prevent firms from engaging in behavior that takes advantage of consumer biases, and only a learning process, direct or indirect, can really protect the consumers. With negative (or positive) feedback (i.e. paying a fee or communicating a saving), consumers learn to avoid triggering future fees; being seen as an essential means to obtain market competition correctly, the combination of these phenomena would be of high theoretical relevance to advancing research (Agarwal, Driscoll, Gabaix, & Laibson, 2013). Similar processes aimed at stimulating knowledge and managing it could be put in place and investigated to propose a new paradigm of thinking about the knowledge management phenomenon based on behavioral theories.

Table 9.1 Biases, definition of biases, and cited authors Type of bias

Definition of bias

Optimism

Optimism bias is a cognitive bias that causes a person to believe that he or she faces less risk of experiencing a negative event than others.

Overconfidence

The overconfidence effect is a well-established bias in which a person’s subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.

Anchoring and reference points

Anchoring is a cognitive bias that describes the tendency for an individual to rely too heavily on an initial piece of information offered (known as the “anchor”) when making decisions. According to this heuristic, people start with an implicitly suggested reference point and make adjustments to it to reach their estimate. Mental accounting is a cognitive bias according to which individuals classify personal funds differently and therefore are prone to irrational decision-making in their spending and investment behavior.

Mental accounting

Source: Authors’ elaboration

Cited authors Gervais et al. (2011), Goel and Thakor (2008), Hackbarth (2009), Malmendier and Tate (2005, 2008), Roll (1986), Svenson (1981), and Weinstein (1980) Baker and Xuan (2011), Ben-David et al. (2010), Dougal et al. (2011), Gervais (2010), Gervais and Odean (2001), Hackbarth (2009), Larwood and Whittaker (1977), March and Shapira (1987) and Svenson (1981) Grossman and Hart (1986), Hart (2008), Hart and Moore (1990), Latham et al. (2008), Sterman (1989), Tversky and Kahneman (1974), and Uecker (1978)

Ljungqvist and Wilhelm (2005), Loughran and Ritter (2002), and Thaler (1999)

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Knowledge and Knowledge Management In the literature, there are many definitions of “knowledge” that are reflected in the multitude of notions that characterize the meaning (for example, skills, knowledge, competence, intellectual capital and intellectual knowledge) and that make the term a varied concept that is difficult to place in an absolute sense. In fact, numerous interpretations are given to the term “knowledge”, from which definitions are derived that are sometimes dissimilar to each other. Knowledge “consists of facts, truths, and beliefs, perspectives and concepts, judgments and expectations, methodologies and know-how” (Wiig, 1993, p. 15). According to Huber (1991) and Nonaka (1994), knowledge is defined as a justified belief that increases an entity’s capacity to take effective actions. In particular, for Huber (1991), knowledge is the overall and articulated product of learning that derives from the interpretation of information and beliefs on cause/effect relationships and their application. Davenport and Prusak (1998, p. 5) indicate that knowledge represents “a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information”. Knowledge can be referred to as information possesses in the people’s minds or people’s experience and understanding (Alavi, Kayworth, & Leidner, 2005). In this sense, Vicari (2001) defines knowledge as a set of cognitive schemes that is sufficiently stable and widespread within the company. From this point of view, the cognitive patterns are sometimes characterized, as evidenced by behavioral finance, by behaviors that are not fully rational. The identifiable conceptual indeterminacy in the term “knowledge” is also reflected in the concept of knowledge management (Ruggles, 1998). In particular, the search for a uniquely shared definition of knowledge management has always attracted the attention of researchers (e.g. Battisti, 2015; Girard & Girard, 2015; Kakabadse, Kakabadse, & Kouzmin, 2003). The literature on the subject provides different statements and many facets of this term, attributing heterogeneous meanings and giving prominence to one aspect rather than another, depending on the context of reference. Wiig (1993), one of the most important pioneering researchers of knowledge management, defines it as the systematic, explicit and deliberate building, renewal and application of knowledge to maximize an enterprise’s knowledge-related effectiveness and returns from its knowledge assets. Several studies conducted during the last 20 years focus on the aspects that distinguish the applicability of KM in various organizational contexts (e.g. Del Giudice et al., 2015; Del Giudice & Della Peruta, 2016; Ferraris, Santoro, & Bresciani, 2017, Ferraris, A., Santoro, G., & Dezi, L., 2017; Vrontis, Thrassou, Santoro, & Papa, 2017; Santoro, Vrontis, Thrassou, & Dezi,

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2017; Scuotto, Del Giudice, Bresciani, & Meissner, 2017) and the interest of scholars has thus shifted from the content of the resources collected by the company to the processes with which to speed up their dissemination and enhancement (e.g. Nonaka, 1991; 1994; Sorge, 2000; Tsoukas & Vladimirou, 2001; Von Krogh, Nonaka, & Nishiguchi, 2000). Moreover, if for some authors knowledge management focuses on perfecting human resources, for others its main purpose is to support managers in defining company strategies aimed at obtaining new competitive advantages (e.g. Azzariti & Mazzon, 2005; Massa, Merlino, & Puliafito, 1999; Rahimli, 2012; Tonchia, Tramontano, & Turchini, 2003). In particular, Lloria (2008) highlights the following key elements of KM: (1) it is related both to business practice and to research; (2) it is a broad concept and consists of several activities; (3) it extends further than technology or information management and (4) it is mainly found in people and is developed through learning.

The Main Approaches to the Concept of Knowledge Management As previously introduced, the KM theme is particularly debated in the literature, in particular with regard to the definition of aspects and application areas. Fewer in-depth studies are the approaches to the concept of KM (e.g. Lloria, 2008; McAdam & McCreedy, 1999; Sharma, 2004; Sorge, 2000). McAdam and McCreedy (1999) identify some approaches that are attributable to three main models: (1) the knowledge category model; (2) the intellectual capital model and (3) the socially constructed model. The first model is identified by attempting to classify knowledge into separate elements by differentiating among ontological levels. The second model observes that intellectual capital and KM can be separated into human, process, client and growth elements, which are contained in two categories of human capital and organizational capital. The last model considers an extensive definition of knowledge and views it as being fundamentally connected with the social and learning processes within the organization. Sorge (2000) classifies three approaches: (1) cultural/ educational; (2) organizational and (3) technological. The cultural/ educational approach concerns the sharing and dissemination of business knowledge generated by the adoption of a “learning organization” model; each manager will have to manage part of the knowledge and then become a sort of “knowledge manager”. The organizational approach refers to the transformation, through the implementation of appropriate models and methodologies, of individual into organizational knowledge. Finally, the technological approach, in a close relationship with the two approaches mentioned above, requires an adequate technological infrastructure that supports, on the one hand, the construction of

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a “learning organization” model and, on the other, the implementation of methodologies aimed at transforming knowledge from individual into organizational. Sharma (2004) shows four approaches to KM: (1) mechanistic; (2) systematic; (3) core capability and 4) cultural. The mechanistic approach involves applying technology and resources to more of the equally better. The systematic approach entails the use of systematic practice with the aim of disseminating knowledge and information among the people. The core competence approach is a process to adapt core knowledge capability to services and goods. Finally, in the cultural approach, the focus is on innovation, creativity and a learning organization. Lastly, Lloria (2008) highlights that there is no clear consensus on the various approaches to the study of knowledge management and proposes a classification of approaches to KM based on the descriptive perspective and the normative perspective depending on whether the emphasis is on the human factor or the information technology.

A Cognitive Approach to KM Based on the BCF Framework As analyzed in the previous paragraphs, both behavioral corporate finance and knowledge management are widely discussed topics in the literature. Even the most general theme of knowledge is extensively studied. With reference to this last aspect, it should be noted that the knowledge is based on the study of the behavior of individual decision makers, an analysis approach typical of behavioral corporate finance. In this work, we introduce a complementary approach to KM, focalized on psychological aspects. In this sense, taking up the concept of limited rationality that influences the decision-making process of investors, which is typical of BCF, we introduce the cognitive approach to the study of knowledge and, consequently, of its management. Key elements, such as biases, framing effects, heuristics and emotional factors, influence investors as well as, in general, every individual decision maker. Inspired by the existing literature on consumers’ and investors’ behaviors, the learning processes that can be activated to solve the managerial cognitive biases and improve their decision-making processes, with important effects on the knowledge management at the level of the corporate governance bodies, can be direct and indirect. Starting from the assumption that managers are on average individuals with high levels of education, culture and experience, rather than proposing the organization of refresher training courses (direct learning processes), various initiatives and tools (indirect learning processes) can be activated to support corporate financial decisions that can improve company profitability by reducing the impact of behavioral costs. In a context of continuous evolution, the process of the dissemination and management of knowledge is not so simple to activate, because it

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COGNITIVE APPROACH

Rational Choise

Biases

Decision Making Process

KNOWLEDGE MANAGEMENT

BEHAVIOURAL CORPORATE FINANCE

KNOWLEDGE

Psychological phenomena

Figure 9.2 A cognitive approach to knowledge management based on the behavioral corporate finance framework

implies deeper aspects, of a psychosocial nature, that bring into play the subjects and their willingness to be involved. Overcoming the resistance of managers, stimulating their ability to become involved in a new perspective, represents a challenge at all levels regarding the practical application of behavioral economic theories to the life and decision-making processes of companies. This is because learning is itself a mental activity that may be subject to storing and recall biases. For this reason, the efforts must aim to activate initiatives aimed at stimulating conditioned or automated (Automatic Cognitive System or System I) learning, which does not occur within such frames, rather than conscious learning (Reflective Cognitive System or System II), which, to override a conditioned response, requires deliberation, effort and time before what is learned becomes automated (similar to learning how to ride a bicycle). The activation of these processes, which act on the knowledge of the subjects who hold top positions in corporate governance, implies the activation of the same number of management processes. We believe that the correct implementation of application processes or a set of technologies or key principles oriented toward KM cannot disregard a discussion of the behavior of individuals and their biases and emotional factors. The following figure summarizes the cognitive approach to knowledge management.

Conclusions and Implications In this chapter, we have introduced the cognitive approach to knowledge management, adopting it from behavioral corporate finance, to connect

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different perspectives on the management of knowledge. In particular, our work has addressed two main questions. Is there a way to improve the knowledge of managers to solve the behavioral biases affecting their business decisions? If one exists, how do knowledge management approaches influence it? As previously analyzed, scholars of BCF take two different approaches (Baker, Ruback, & Wurgler, 2007). The first emphasizes that investors are less than fully rational, and the second highlights that managers are less than fully rational. Based on these approaches, the cognitive approach has as its main purpose the interpretation of a company’s evolutionary dynamics through the analysis of the individual who characterizes the decision-making process (Miglietta & Battisti, 2011). According to BCF, individuals are characterized by cognitive distortions, such as biases, heuristics and framing effects, in all the phases that characterize their decision-making process (Fairchild, 2008; Miglietta & Battisti, 2013; Shefrin, 2005). From this perspective, it is possible to consider the key elements that characterize behavioral corporate finance in the context of a cognitive approach to knowledge management. In this sense, the use of a cognitive approach to the study of knowledge management represents a new interpretative key for the evidence that emerged from our explorative research, which is innovative and recommended for future development of the subject. The new approach presented in this study offers some interesting implications for theory, practice and policy. Concerning the theoretical implications, we have connected the cognitive approach to KM from the BCF perspective, and, to the authors’ knowledge, this is the first exploratory study based on these topics. We believe that cognitive aspects (bias and emotional factors) can represent a complementary approach to the study of KM, because, following the existing literature on consumer and investor behaviors (Carretta, Farina, Fiordelisi, Martelli, & Schwizer, 2011; Graziano, 2016; Graziano & Vicentini, 2017), learning processes are identified that can be activated to solve the cognitive biases of the management and improve their decisionmaking processes with important effects on the management of knowledge at the level of corporate governance. Regarding the practical implications, this research is useful for managers at different levels and for entrepreneurs or top management members who intend to implement a knowledge management process in their organization. We can assert that it is essential to consider behavioral phenomena as determining elements in the decision-making process of the management and sharing of knowledge. Stimulating the managers’ ability to become involved in this new perspective represents a challenge at all levels regarding the practical application of behavioral economics theories to life and decision-making processes of companies. Finally, concerning the policy implications, our study is the first to provide a new theoretical perspective on KM based on a cognitive approach that can be used to project complementary and innovative initiatives and

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as a tool that improves managerial behaviors. Starting from the assumption that managers are on average individuals with high levels of education, culture and experience, rather than proposing the organization of refresher training courses (direct learning processes), various initiatives and tools (indirect learning processes) can be activated to support corporate financial decisions that can improve company profitability by reducing the impact of behavioral costs. Future researchers may find it useful to measure statistically the impact of bias and/or other distortions in the processes of knowledge management as well as conducting preliminary interviews with managers and/or entrepreneurs.

Note 1. Although this contribution is the result of an equal joint effort by the two authors, their primary individual contributions are reflected in the following sections of the chapter: Enrico Battisti “Introduction”, “Knowledge and Knowledge Management”, “The Main Approaches to the Concept of Knowledge Management”, “A Cognitive Approach to KM Based on the BCF Framework” and Elvira Anna Graziano “Behavioral Corporate Finance: Corporation Biases”, “The Main Corporation Biases”, “Conclusions and Implications.

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10 Bottom-Up Approach to Creating Shared Value for Emerging Markets’ Multinational Corporations Zhanna Belyaeva and S. M. Riad Shams Introduction The modern world economy research still accepts multinational corporations’(MNCs) models of the last century. On the contrary, a firm’s strategic expansion deals, nowadays, increasingly impact on sustainability, responsibility and flexibility as the key competitiveness factors. Such an approach changes the leaders in the list of the biggest corporations’ rankings, which tops with Chinese corporations and has lots of entries from other emerging markets, such as Brazil, Russia, India, China and South Africa (BRICS). The globalization of production and marketing has not only changed the shape of the world economy, but also inverted the geography of foreign investment flows. Most extant studies focus on different factors of global corporations’ development and the sources of their competitiveness, and such extant studies mainly rely on the worldknown Western corporations’ empirical data. In general, the emerging economies offer some distinct features, in comparison to the economic variables of the established economies. As a result, the traditional approaches of determining competitive advantages, and its possible shared value model (e.g. considering the stakeholders’ value anticiaption only), relevant to the Western multinationals, do not seem to be entirely applicable in the emerging economies’ multinational corporations (EMNCs). While there are many details about developed countries’ shared value models, and also a lot of studies about Western MNCs creating shared value (CSV) in emerging markets, there seems to be a gap in studying CSV models suggested by EMNCs for the outer global business environment to advance emerging markets and its businesses’ competitiveness. This chapter is aimed at looking for the conceptual development and empirical evidence of such a model and its prerequisites to raise competitiveness using a bottom-up approach in EMNCs.

The Distinct Features of the Emerging Economies’ Business and Social Environments: The State of the Art The literature review has revealed several streams of empirical and conceptual studies devoted to the changing role of EMNCs in the global

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economy. To estimate their contribution to the business legitimacy and competitiveness in the emerging economies business environment, we have outlined several vectors. Currently, it is considered that the important factors of MNCs’ successful strategies are responsible management and following the principles of sustainable development (Berkhout, 2005; Shams, 2016a). These factors depend on competent stakeholder management relations (Shams & Belyaeva, 2017; Ferraris, Belyaeva, & Bresciani, 2018). At the end of the 20th century, social and environmental issues became crucial factors that affected government policy and corporate strategy. Researchers have already shown solid proof for positive dynamics in the local emerging markets with Western MNCs’ exposure (Hansen, Pedersen, & Petersen, 2009). Due to their influence on global economy, MNCs become dependent on corporate social responsibility (CSR) (Nidumolu, Prahalad, & Rangaswami, 2009), and also on their cross-cultural understanding in the recipient country (Belyaeva & Kaufmann, 2015). The development of the concept of corporate social responsibility in the developed countries is mainly focused on the responsibility of businesspersons (Bowen, 1953), proceeding with the well-applied stakeholder theory (Freeman, 1984). The majority of studies are devoted to the linkage between CSR and corporate competitiveness (Li, 2012; Maruffi, Petri, Malindretos, & Paterson, 2013; Gugler & Shi, 2009; Boulouta & Pitelis, 2014), which posits a positive correlation; although mostly devoted to the Western headquartered MNCs that have effects on the global economy. The CSV concept (Porter & Kramer, 2011) has been perceived as a relatively naïve theory by many corporations. In this chapter, we would like to address the need and practicalities of the CSV theory for EMNCs. The concept of shared value is taken as policies of operating practices that enhance the competitiveness of a company while advancing the economic and social conditions in the communities where the company operates its business(es). Shared value creation focuses on identifying and expanding the connections between societal and economic progress, as well as on specific tailored knowledge transfer (Shams & Kaufmann, 2016). While in the advanced economies most of the previously mentioned statements have legal, cultural and business tradition history (Bengoa, Czinkota, Kaufmann, & Schrader, 2015); in the emerging markets, the socially responsible behavior and value concept often do not have any solid shared framework and could vary, based on the specific emerging country’s particular social and business context(s). A lot of Western practitioners and researchers redefined the purpose of corporations, related to developing shared value (Porter, 2011-). This will drive the next wave of innovation and productivity growth in the global economy. A CSV initiative project1 revealed that sustainable social change matters if MNCs create a shared value strategy, specific to their sector, geography and mission. Social sector actors are an important part of creating shared value in emerging markets (Shams & Lombardi, 2016;

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Trequattrini, Shams, Alessandra Lardo, & Lombardi, 2016). They can catalyze shared value through a range of efforts providing issues related to either area expertise or supporting implementation processes. Profits involving a social purpose represent a higher form of business organization today—one that will enable society to advance more rapidly, while it allows companies to grow even more. The result is a positive cycle of company and community prosperity, which leads to profits that endure. Authors also emphasize that the ability to create shared value applies equally to advanced economies and developing countries, though the specific opportunities differ with different economies (André, 2014). Nevertheless, the idea is based on the analysis of Western MNCs and their expansion in developing countries. Western economies have a higher level of social and economic development. Porter and Kramer explain the phenomenon of CSV as a response to changes in the definition of companies’ competitiveness (2011). Creating shared value is considered as a new strategy of MNCs from developed countries in the global economy (Shams, 2016b). However the concept does not take into account the peculiarities of EMNCs. For example, researchers have noted different factors and reasons for EMNCs’ expansion in the world market, in comparison to the Western MNCs (Belyaeva & Bentsion, 2015). Following the discussion thus far, related to the diversified research streams on the evolutionary step of EMNCs’ anticipated CSV model in the BRICS countries, an integrated framework is portrayed in Figure  10.1. The data have been obtained from public MNCs with open statements that might be a limitation of the study as the companies’ data demonstrate a fairly high level of formal social responsibility and CSV orientation (Figure. 10.1).

Societal Support

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Creating Social Value Russia, Brazil

Philanthropy

EU

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India China, SA

Financial Support

Figure 10.1 The role of business in society evolution in BRICS countries

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EMNCs have arisen as a significant new contributor to the global economy (Xie, Huang, Peng, & Zhuang, 2016; Shams, 2016c). Due to the fast growth in internationalization of EMNCs, it becomes relevant to identify new and specific factors that determine their competitiveness in the global market. Currently, the majority of scientific papers focus on the key research question: What are the drivers of EMNCs’ expansion and internationalization? Thus, based on the five-year panel from 257 publicly listed firms from China (Xie et al., 2016), we have developed our conceptual model, with an aim to explore how technological resources and marketing resources could moderate the effect of EMNCs’ performance, related to their aspirations of growth in the global market. Many researchers follow the ideas of Alan Rugman’s contributions to the literature on EMNCs (Xie et al., 2016). They examine Rugman’s application of the classic country- and firm-specific advantages (CSA— FSA) framework to the EMNCs’ context, and it has been proven valuable in explaining the nature of EMNCs’ positioning. Based on an empirical analysis of the largest emerging market firms, Rugman concluded that EMNCs lagged behind developed market MNCs, because EMNCs primarily possessed home-based FSAs, yet lacked the capability to develop host-based FSAs and non-location-bound FSAs. Another interesting research stream defines drivers of the international expansion of EMNCs (Boscor, Bratucu, & Baltescu, 2013), which is presented in Table 10.1. Thus, the literature review outlines the following components  of MNC drivers: market-entry strategy, international expansion, competitive Table 10.1 Drivers of EMNCs’ international expansion Drivers

Characteristic

Market entry

Closest markets, from the geographical and cultural point of view, expansion into more distant markets Firm-specific advantages, country-specific advantages Entry into alliances in the local and foreign markets Globalization of markets Adoption measures for increasing the trust of real or potential customers in the quality of products and services Government and the policies adoption. Government efforts to support local companies for improving the national image

International expansion

Competitive advantages National prestige

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advantages and national prestige. It mostly focuses on the top-down strategy, but the issue is whether it corresponds to the need(s) of the emerging markets. In fact, the discussion thus far on the MNCs from the context of the Western economies does not reveal cross-cultural differences, knowledge transfer and glocal (global and local) importance of EMNCs.

Specific Features of EMNCs It is a well-known fact that the economic environment and operating conditions of EMNCs in the home countries are at a lower level than in developed countries. The level of country’s economic development can be partly analyzed by Index of Economic Freedom (IEF). The Index of Economic Freedom (2016) is an annual guide published by the Wall Street Journal and the Heritage Foundation. The index covers 10 freedoms—from property rights to entrepreneurship—in 186 countries, and focuses on four key aspects of the economic environment over which governments typically exercise policy control: rule of law, government size, regulatory efficiency and market openness. Figure 10.2 shows that the initial starting environment conditions for the EMNCs’ development in BRICS countries are dramatically lower than in the developed United States, Germany and Japan. IEF defines BRICS countries as mostly unfree economies. BRICS environment could be also illustrated by prosperity index by the Legatum Institute. The interest of this research is that analysts move 100%

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from using traditional macroeconomic indicators, defining only material wealth, toward measuring well-being as a complement to GDP. Figure 10.3 presents the ranking of BRICS countries in three directions— economy, social capital and personal freedom. China shows the highest rank of economic efficiency over the lowest rank of personal freedom among other BRICS countries together with Russia (32). The specificity of EMNC economic environment could be also described with the Corruption Perception Index, developed by Transparency International. This index measures the perceived levels of public sector corruption worldwide.2 Analysts point out a high level of corruption in BRICS countries, which hinders efficiency of social development. While in developed countries business values have increased toward social values, in emerging countries, companies still follow business values and adherence to social values and principles of sustainable development perceived as a kind of formal condition to increase their competitiveness relative to Western multinationals in the global economy. For instance, Chinese MNCs realize that social projects support and environmental protection are a risk of reducing profits. Ramamurti (2012) considers emerging market multinationals as a competitive threat for Western managers, but this threat might be underestimated. He highlights the stereotypical features of EMNCs, such as technological backwardness, unsophisticated products, inefficient enterprises, lack of knowledge in marketing and lack of international

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Figure 10.4 Corruption perception index (2017)

experience. Ramamurti also indicates emerging economies’ macro risks (and confirmed by the presented study)—weak political institutions, corruption, social tensions, overreliance on natural resources, and degrading natural environments, which could derail growth and competitiveness. Arguing stereotypical features offered by other scholars, Ramamurti identified the following specific advantages of EMNCs. Based on the literature review, Table 10.2 summarizes slight differences between developed countries MNCs and EMNCs advantages. Thereby, EMNCs had a significant home-field advantage because their strategies are ideally suited to the local environment; they expand into other emerging markets, especially within their own regions; and try to gain worldwide leadership rather than just national or regional leadership. It is noteworthy that none of these works of EMNCs’ competitiveness growth factors take into account the influence of CSR issues, as well as CSV issues. Many countries and multinational corporations try to strike a balance between consumption, profits and sustainable development (Maruffi et al., 2013). Comparing arguments against increasing CSR in traditional shareholder-owner value model and arguments for increasing CSR in modern stakeholder-value model, authors came to the conclusion that the integration of CSR into corporate strategy can become a successful contributor to the long-term sustainability of global economy (Maruffi et al., 2013; Li, 2016). MNCs have embraced the possibility of finding growth or strategic opportunities by targeting poor population markets, while contributing

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Table 10.2 Specific advantages of EMNCs EMNC

MNC

Firm-specific advantages

Emerging market scale Fixed assets cost reduction (ultralow cost production) Frugal innovations

Business environment advantages

Natural experience of operating in adverse environments

Global market scale Current assets cost reduction Long-term innovations, know-how Obtained experience of operating in adverse environments Privileged access to developing countries resources and markets First-mover advantages in creating cuttingedge technologies Creating limited career labor market

Privileged access to national resources and markets First-mover advantages in adopting cutting-edge technologies Creating extended career labor market

to alleviate poverty of the so-called base or bottom of the pyramid (BoP) (Prahalad & Hammond, 2002).

A Conceptual Model for Value Co-Creation The present contribution argues that socially responsible behavior business models in emerging markets grouping like BRICS countries, for instance, have many common features. The most appealing socioeconomic characteristic of the studied emerging markets underlies the forecasted economic effect on the group development and its integration into the world economy. Moreover, the suggested way to make up for the current lack of the systematic CSR resulting in some business and social disadvantages may be included in the local national strategies. We also propose that it is necessary to work out such methodologies of CSR, which would be based on the international principles, but would also consider current realities of the analyzed countries. The present research suggests a framework for raising the CSR, which included detailed analysis of the core problems at the national level, then offered some possible structural methods to overcome possible barriers and proposed some expected results (Belyaeva, 2016). Such a framework may well be developed into details and implemented by all the members of the BRICS countries. The dynamics of the current stage of corporate development in the context of an increasing CSR gives a good possibility to the BRICS business community to raise the level of economic culture and to integrate national corporations into the world map of social responsibility/CSR. It will allow

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generating positive investment and corporate climate in the BRICS business environment underlined by a new world corporate development model based on CSV. Emerging countries embrace more stakeholders in comparison with the Western world (Vrontis, El Nemar, Ouwaida, & Shams, 2018), which is partially due to less formalized business-government links system. The EMNCs do not need to address poor in their markets, and they are also customized to work with a wider selection of key customers, due to cross-cultural and business environment understanding. There are still twofold strategies—a Westernized top-down and a glocal (bottom-up) approach. The CSV conceptual model consists of the following elements. The legal framework creates legal bases of economic behavior using international public and private law. It includes laws, legal certificates, regulations, and standards, international agreements formed by countries, international organizations and integration groups. Global market integration leads to strengthening interrelations and interdependence of local markets, and includes market liberalization and a transnationalization process. Business environment is built on the internal and external factors that promote the CSV by MNCs. CSV within business environment enhances MNCs’ formal competitiveness on the global market. In this case, MNCs formulate top-down business strategies on the basis of the achieved high level of global economic development. Bottom-up approach means that MNCs create shared value using specific socio-cultural factors at the local level. Academic research framework stimulates the development of theoretical and empirical basis of socioeconomic research, and includes publications, research papers, theses etc. Local society integration leads to international expansion of customers’ tastes and preferences. Thus, the social environment is shaped by cultural factors, the level of social development and the degree of companies’ involvement in the solution of social problems. MNCs’ adaptation to socio-cultural environment creates a soft competitiveness. The conceptual model with some indicators to be utilized in the future research is presented in Figure 10.5. The conceptual model, as portrayed in Figure 10.5 attempts to show that Western MNCs create shared value through top-down business environment and use the strategy of enhancing formal competitiveness, which is based on integrated efficiency indicators. EMNCs’ soft competitiveness is shaped mostly by social environment, in particular social experience, cultural fit and welcomed products and services.

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Figure 10.5 Creating shared value conceptual model

Discussion and Conclusion CSV can be considered as a still fresh, yet to be practically developed, but essential factor of global competitiveness. So MNCs should be socially responsible to compete on the global market. But, CSR strategies of MNCs and EMNCs differ. While MNCs apply shared value strategy in host-countries (top-down), EMNCs started with shared value strategies in home countries (bottom-up). Best practice examples of most active MNCs in implementing top-down CSV strategy in developing host-countries are Nestle, Unilever, Johnson&Johnson, Wal-Mart, Coca-Cola. In 2007, global healthcare company Novartis,

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based in Switzerland, established the Arogya Parivar project in hostcountry India for improving rural India’s access to healthcare (Smith, 2016). Also, researchers (Park, Song, Choe, & Baik, 2015) found that the implementation of strategic CSR programs can be an effective strategy for MNCs to enter an emerging market on the sample of Korean (LG Electronics and Samsung Electronics) and Japanese MNCs (Panasonic and Sharp) in Indonesia. They suggest focusing on the important social issues in the host-country using their firm-specific capabilities and resources. The presented conceptual model resonates with André’s (2014) study in generating formal and informal, so called soft, competitiveness, which is provided by soft factors, such as cross-cultural factors and countryspecific business model perceptions. The impact of cross-cultural factors is confirmed by Apsalone and Šumilo (2015) and Shams (2017), proving that socio-cultural factors, such as shared values, norms and attitudes, can be the source of international competitiveness. Apsalone and Šumilo have developed a relationship model of socio-cultural factors and international competitiveness. Based on several global frameworks, Hofstede, Parsons, World Values Survey, Cultural Orientations Indicator (COI) developed by TMCorp, and using multiple regression analysis, they confirmed the impact of socio-cultural factors on international competitiveness. It has been a topic for discussion for almost 30 years now, whether country-specific advantage is more important than firm-specific advantage. The strategic importance of the local business and institutional environment seems to be unquestionable as supported by many researchers (see Porter, 2011; Li & Oh, 2016). The main contribution of the presented research is the perception of the company in the local emerging market, which contributes to the so-called soft competitiveness. It could be described as values-specific advantage. It is rather complex to find solid empirical proof for its uniqueness and sustainability in the EMNCs’ bottom-up strategy development. This chapter seeks to initiate this discussion to proceed with a novel formula of a CSA and FSA multistakeholder matrix forming soft competitiveness and better integration into the heterogeneous emerging markets economies and cultures. The practical and social implications of this chapter seek to enrich academic and business knowledge on the emerging markets’ specific call for CSV that differs dramatically from the western approach.

Notes 1. Shared Value. (n.d.). Shared Value in Emerging Markets: How Multinational Corporations Are Redefining Business Strategies to Reach Poor or Vulnerable Populations. http://sharedvalue.org/resources/shared-value-emerging-marketshow-multinational-corporations-are-redefining-business 2. Transparency International. www.transparency.org

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References André, T. (2014). Corporate social responsibility boosts value creation at the base of the pyramid. Retrieved April 22, 2016, from https://hal.archives-ouvertes.fr/ hal-00989791 Apsalone, M., & Šumilo, Ē. (2015). Socio-cultural factors and international competitiveness. Business, Management and Education, 13(2), 276–291. Belyaeva, Z. (2016). Glocalisation strategies of CSR in BRICS countries. MIRBIS Research Journal, 2(6), 10–19. Belyaeva, Z., & Bentsion, V. (2015). Formation of corporate social responsibility trends in BRICS countries (in Russian). Vestnik UrFU, Seria Economica i upravlenie, 14(5), 762–777. Belyaeva, Z., & Kaufmann, R. H. (2015). Competences for corporate social responsibility: Institutional, business and cross-cultural factors. Paper presented in the 8th Euromed Conference of the EuroMed Academy of Business Conference Book of Proceedings (1959–1964) in Verona, Italy. Rome: EuroMed Press. Bengoa, D. S., Czinkota, M. R., Kaufmann, H. R., & Schrader, M. F. (2015). A concerted effort to transfer knowledge within European MNCS. European Journal of International Management, 9(3), 88–305. Berkhout, T. (2005). Corporate gains: Corporate social responsibility can be the strategic engine for long-term corporate profits and responsible social development. Alternative Journal, 31(1), 15–18. Boscor, D., Bratucu, G., & Baltescu, C. (2013). Drivers of the international expansion of emerging-market multinationals: Bulletin of the Transilvania University of Brasov. Economic Sciences, 6(1), 9. Boulouta, I., & Pitelis, C. N. (2014). Who needs CSR? The impact of corporate social responsibility on national competitiveness. Journal of Business Ethics, 119, 349–364. Bowen, H. R. (1953). Social responsibilities of the businessman. New York, NY: Harper & Row. Ferraris, A., Belyaeva, Z., & Bresciani, S. (2018). The role of universities in the smart city innovation: Multistakeholder integration and engagement perspectives. Journal of Business Research. Published online ahead of print, https://doi. org/10.1016/j.jbusres.2018.12.010. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman Publishers. Gugler, P. H., & Shi, J. (2009). Corporate social responsibility for developing country multinational corporations: Lost war in pertaining global competitiveness? Journal of Business Ethics, 87, 3–24. Hansen, M. W., Pedersen, T., & Petersen, B. (2009). MNC strategies and linkage effects in developing countries. Journal of World Business, 44(2), 121–130. The Index of Economic Freedom. (2016). Retrieved June 15, 2016, from www. heritage.org/index/?ac=1 Index of Economic Freedom. (2018). Economic freedom. Retrieved July 20, 2018, from www.heritage.org/index/ Li, J., & Oh, C. H. (2016). Research on emerging-market multinational enterprises: Extending Alan Rugman’s critical contributions. International Business Review, 25, 776–784. Li, W. (2012). Study on the relationships between corporate social responsibility and corporate international competitiveness. Energy Procedia, 17, 567–572.

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Maruffi, B. L., Petri, W. R., Malindretos, J., & Paterson, W. (2013). Corporate social responsibility and the competitive advantage of multinational corporations: What is the right balance? Journal of Global Business Issues, 7(2), 69–81. Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Retrieved April 18, 2016, from https://hbr. org/2009/09/why-sustainability-is-now-the-key-driver-of-innovation Park, Y., Song, S., Choe, S., & Baik, Y. (2015). Corporate social responsibility in international business: Illustrations from Korean and Japanese electronics MNEs in Indonesia. Journal of Business Ethics, 129, 747–761. Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1–2), 62–77. Prahalad, C. K., & Hammond, A. (2002). Serving the world’s poor, profitably. Harvard Business Review, 80(9), 48–59. Ramamurti, R. (2012). Competing with emerging market multinationals. Business Horizons, 55, 241–249. Shams, S. M. R. (2016a). Capacity building for sustained competitive advantage: A conceptual framework. Marketing Intelligence & Planning, 34(5), 671–691. Shams, S. M. R. (2016b). Branding destination image: A stakeholder causal scope analysis for internationalisation of destinations. Tourism Planning & Development, 13(2), 140–153. Shams, S. M. R. (2016c). Sustainability issues in transnational education service: A conceptual framework and empirical insights. Journal of Global Marketing, 29(3), 139–155. Shams, S. M. R. (2017). International education management: Implications of relational perspectives and ethnographic insights to nurture international students’ academic experience. Journal for Multicultural Education, 11(3), 206–223. Shams, S. M. R., & Belyaeva, Z. (2017). Quality assurance driving factors as antecedents of knowledge management: A stakeholder-focussed perspective in higher education. Journal of the Knowledge Economy, published ahead of print. doi:10.1007/s13132-017-0472-2 Shams, S. M. R., & Kaufmann, H. R. (2016). Entrepreneurial co-creation: A research vision to be materialised. Management Decision, 54(6), 1250–1268. Shams, S. M. R., & Lombardi, R. (2016). Socio-economic value co-creation and sports tourism: Evidence from Tasmania. World Review of Entrepreneurship, Management and Sustainable Development, 12(2/3), 218–238. Smith, N. C. (2016). From corporate philanthropy to creating shared value: Big pharma’s new business models in developing markets. GfK-Marketing Intelligence Review, 8(1), 30–35. Trequattrini, R., Shams, S. M. R., Alessandra Lardo, A., & Lombardi, R. (2016). Risk of an epidemic impact when adopting the Internet of Things: The role of sector-based resistance. Business Process Management Journal, 22(2), 403–419. Vrontis, D., El Nemar, S., Ouwaida, A., & Shams, S. M. R. (2018). The impact of social media on international student recruitment: The case of Lebanon. Journal of International Education in Business, 11(1), 79–103. Xie, E., Huang, Y., Peng, M. W., & Zhuang, G. (2016). Resources, aspirations, and emerging multinationals. Journal of Leadership & Organizational Studies, 23(2), 144–161.

11 Negotiation, Micro-Foundation and Knowledge Transfer in Mergers and Acquisitions Processes Yaakov Weber Introduction Mergers and acquisitions (M&As) are a significant and increasingly popular strategy used by a large number of firms around the world despite the consistent evidence on negative post-merger performance. The year of 2015 constituted the strongest year for worldwide mergers and acquisitions activity since records began (UNCTAD, 2016). Interestingly, high failure rates, ranging between 50 and 83 percent, have been identified by several studies (Weber, Tarba, & Oberg, 2014). While many studies focus on the planning stage or implementation stage of M&A to understand the high failure rate, it is rarely possible to find a study on the negotiation stage. Yet, managers and scholars point on negotiation as an essential factor in M&A success (e.g., Weber et al., 2014). There is a limited and insufficient understanding of the negotiation process, especially concerning the role of micro-foundations, namely, individual behavior and attitudes that may play a major role in negotiation outcomes and, thus, in M&A success (Weber et al., 2014). In other words, while top executives may perceive M&A as a good strategy for corporate growth based on synergy, the price paid for the acquired company, the method of payment, and the necessary commitment of top managers of the target firm to the implementation stage, the negotiation process may cause premium paid and poor processes during the postmerger process due to misunderstanding of the micro-foundations of organizations. The goal of this research is to fill some of the existing gaps in M&A processes. It asserts that without human factors, such as managers’ support, and knowledge management, the expected performance from a merger is rarely realized. The contributions of this research are twofold: (1) to explore the crucial yet neglected factors that influence negotiation outcomes in M&A, and (2) an examination of the role of the micro-foundation at the negotiation process and its crossfunctional management effect on the implementation stage and M&A performance.

174 Yaakov Weber

Micro-Foundations at M&A In a discussion of micro-foundations and aggregation, Barney and Felin (2013) indicate that human capital is a multilevel concept. This also means that individuals influence each other, and their interaction may lead to aggregate effects. Social interaction can take many forms, leading to both positive and negative effects. Barney and Felin also point out that the top management team can also be seen as one attempt to look at organizations as a type of aggregate. Indeed, case studies and larger samples found that the support of top managers and employees of the acquired firm is contingent upon cultural fit, or the degree to which they perceive their culture to be compatible with that of the buying firm (Weber, 1996; Weber & Drori, 2011; Junni, Sarala, Tarba, & Weber, 2015). This research will argue that merely investigating additional discrete variables, within the discipline of one specific function or department in the organization, may not be sufficient to progress M&A research, as this is to fall into a “specialization trap”. M&A is a multi-level, multi-disciplinary and multi-stage phenomenon (Weber & Fried, 2011a). It requires a more pluralist approach, with integrative frameworks, to grasp the complexities of this multi-faceted, multi-temporal phenomenon (King, Dalton, Daily, & Covin, 2004; Stahl & Voight 2008; Dezi, Battisti, Ferraris & Papa, 2018). A multidisciplinary approach and interdisciplinary research are necessary and desirable as they seek to capture the dynamic and complex nature of the phenomena and also foster cross-disciplinary and cross-functional knowledge management and learning. In particular this research will highlight critical success factors promoted by different research perspectives and their linkages across the M&A process, in order to improve upon the connectedness of research in M&A. Thus, this research will develop a framework with a negotiation stage that was suggested also as an important stage to consider in the M&A process (Weber et al., 2014). The exploration of cultural differences at the planning stage, and during negotiation stage, can provide better understanding of the postmerger integration challenges. This may have several effects on individuals and on M&A performance. First, the success of steps and milestones of cultural integration during the post-merger stage that depends also on the target top managers, their specific expertise and knowledge and their retention may affect the price paid, after negotiation, for the target company and the payments that will be contingent on successful cultural integration. Second, based on the information and knowledge collected during the negotiation stage, a better choice of an integration approach can be made by the buying company at the integration planning during the pre-merger stage. This planning will be based on various data, knowledge collected from the acquired company, and understanding the knowledge needed to be transferred to, and from, the acquired company (Ferraris, Santoro, & Bresciani, 2017, Ferraris, Santoro, & Scuotto, 2018; Vrontis, Thrassou, Santoro, & Papa, 2017).

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The inclusion of the risk of turnover of top managers after the deal to M&A performance in the negotiation stage and agreements may lead to lower payment or payments contingent on the level of turnover of top managers after the deal. The amount of the premium paid affects the outcome of M&A. Therefore, such mechanisms as payments that are contingent on cultural differences’ effect on individual and group behavior at the target firm after the merger will allow a more realistic price, discussed at the negotiation stage, for the target company and minimize premium payment.

The Human Factor and Negotiation Many studies assert and explain how corporate culture clash in M&A causes high stress and negative attitudes among acquired top managers that in turn reduces their commitment to and their cooperation with the top managers of the buying company (Chatterjee, Lubatkin, Schweiger, & Weber, 1992; Gomes, Weber, Brown, & Tarba, 2011; Weber, 1996; Weber, Shenkar, & Raveh, 1996; Weber & Drori, 2011; Weber & Tarba, 2010). Such low commitment was found to explain turnover of acquired top executives even in the first year after the merger. This turnover of top executives was found to cause lower M&A performance (Lubatkin, Schweiger, & Weber, 1999), also because the knowledge of the acquired top executives gets lost. Similarly, a culture clash at M&A negatively affects trust, which in turn reduces commitment, cooperation, job performance, and acceptance of change that eventually leads to lower synergy realization as well as post-acquisition sales growth and profit (Weber et  al., 2014). Communication before, during and after negotiation is instrumental in building and maintaining trust as well as creating positive attitudes and lowering anxiety. After a careful and comprehensive evaluation of the future target at the planning stage, including the evaluation of synergy potential from the transfer of knowledge from and to the target firm, companies are in a better position to negotiate the right price during negotiation. Scholars point out that the planning and negotiation of the deals are important to subsequent management of the post-acquisition phase and eventually M&A success. Also, the success of the negotiation and achieving a satisfying agreement depends on a planning of the negotiation that takes into account cultural differences and characteristics of the knowledge of the target company and how easy it is to transfer it (Weber et al., 2014). These planning and agreements should take into account the individual role at the negotiation stage and at the post-merger stage. Thus, the following propositions are: Proposition 1: Planning that considers the type of knowledge to transfer to and from the acquired company as part of synergy potential from the M&A as well as cultural differences and following possible

176 Yaakov Weber effects between the negotiation teams in the pre-merger stage will lead to fewer conflicts at negotiation and better agreements. Similarly, such planning at the pre-merger stage can help in the creation of trust during the negotiation stage. Therefore, Proposition 2: Planning that considers the type of knowledge to transfer to and from the acquired company as part of synergy potential from the M&A as well as cultural differences between the teams at negotiation stage will lead to the development of trust at the negotiation process. In terms of negotiation on price, the buying company that performs rigorous cultural differences analysis and considers its possible consequences on the performance of the target company after the merger may achieve better price and lower premium payments. Therefore, Proposition 3: Planning that considers at the pre-merger stage the type of knowledge to transfer to and from the acquired company as part of synergy potential from the M&A as well as the consequences of cultural differences on financial performance will arrive to better prices and less premium paid at their agreement. The inclusion of the risk of turnover of top managers after the deal to M&A performance in the negotiation stage and in agreements may lead to lower payment or payments contingent on level turnover of top managers after the deal. The amount of premium paid affects the outcome of M&A. Therefore, such mechanisms as payments that are contingent on cultural differences’ effect on individual and group behavior at target firm after the merger will allow more realistic price for the target company and minimize premium payment. Proposition 4: The higher the trust level at the negotiation stage and the higher the trust at post-merger stage between the two top management teams, the higher the synergy exploitation from knowledge transfer at the post-merger stage Proposition 5: Trust building at the negotiation stage will mediate the negative effect of cultural differences on top managers’ stress and negative attitudes at the post-merger stage. Proposition 6: Agreement achieved at the negotiation stage that takes into account the effect of cultural differences on target manager behavior at the post-merger integration stage will create higher synergy exploitation from knowledge transfer.

Discussion and Future Research Directions There are ample opportunities for research directions following the propositions suggested in this chapter and more. Studies of important factors have tended to remain “within” M&A phases, such as only premerger phase, or, only post-merger phase (Weber & Fried, 2011b). For instance, studies of pre-acquisition variables tend to associate these with

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final performance outcomes rather than post-acquisition success factors. Similarly post-acquisition key success variables are generally associated with final performance outcomes rather than with a precursor success variable. For instance, while it is well-established that post-acquisition communications affect employee attitudes and that this can be related to organizational performance (Weber, 1996; Weber et al., 2014), there are no studies that examine the use of communications throughout the entire process. There is great potential for examining the links between all stages of pre-acquisition, negotiation and post-acquisition key success variables. To illustrate the point, overall pre-acquisition synergy potential could be related to the post-acquisition integration approach and its milestone as appears in agreement following the negotiation stage in order to evaluate the extent to which the choice of integration approach along the acquisition process influences performance outcomes.

Acknowledgments This study was supported by the Research Unit at the School of Business Administration, The College of Management Academic Studies, Rishon Lezion, Israel

References Barney, J., & Felin, T. (2013). What are microfoundations? The Academy of Management Perspectives, 27(2), 138–155. Chatterjee, S., Lubatkin, M. H., Schweiger, D. M., & Weber, Y. (1992). Cultural differences and shareholders value: Explaining the variability in the performance of related acquisitions. Strategic Management Journal, 13, 319–334. Dezi, L., Battisti, E, Ferraris, A., & Papa, A. (2018). The link between mergers & acquisitions and innovation: A systematic literature review. Management Research Review, 41(6), 716–752. Ferraris, A., Santoro, G., & Bresciani, S. (2017). Open innovation in multinational companies’ subsidiaries: The role of internal and external knowledge. European Journal of International Management, 11(4), 452–468. Ferraris, A., Santoro, G., & Scuotto, V. (2018). Dual relational embeddedness and knowledge transfer in European multinational corporations and subsidiaries. Journal of Knowledge Management. doi: https://doi.org/10.1108/JKM-09-2017-0407. Gomes, E., Weber, Y., Brown, C., & Tarba, S. (2011). Managing mergers, acquisitions and strategic alliances: Understanding the process. Hampshire: Palgrave McMillan. Junni, P., Sarala, R. M., Tarba, S. Y., & Weber, Y. (2015). The role of strategic agility in acquisitions. British Journal of Management, 1–21. King, D. R., Dalton, D. R., Daily, C. M., & Covin, J. G. (2004). Meta-analyses of post-acquisition performance: Indications of unidentified moderators. Strategic Management Journal, 25, 187–200. Lubatkin, M., Schweiger, D., & Weber, Y. (1999). Top management turnover in related M&A: An additional test of the theory of relative standing. Journal of Management, 25, 55–73.

178 Yaakov Weber Stahl, G. K., & Voight, A. (2008). Do cultural differences matter in acquisitions and acquisitions? A tentative model for examination. Organization Science, 19, 160–176. UNCTAD. (2016). A commitment to inclusive trade. Geneva, Switzerland: United Nations. Vrontis, D., Thrassou, A., Santoro, G., & Papa, A. (2017). Ambidexterity, external knowledge and performance in knowledge-intensive firms. The Journal of Technology Transfer, 42(2), 374–388. Weber, Y. (1996). Corporate cultural fit and performance in mergers and acquisitions. Human Relations, 49, 1181–1203. Weber, Y., & Drori, I. (2011). Integration of organizational and human behavior perspectives on mergers and acquisitions: Looking inside the black box. International Studies of Management and Organization, 41(3), 76–95. Weber, Y., & Fried, Y. (2011a). The role of HR practices in managing culture clash during the post merger integration process. Human Resource Management, 50(5), 565–570. Weber, Y., & Fried, Y. (2011b). The dynamic of employees’ reactions during post merger integration process. Human Resource Management, 50(6), 777–781. Weber, Y., Shenkar, O., & Raveh, A. (1996). National and corporate culture fit in mergers/acquisitions: An exploratory study. Management Science, 42, 1215–1227. Weber, Y., & Tarba, S. Y. (2010). Human resource practices and performance of M&A in Israel. Human Resource Management Review, 20, 203–211. Weber, Y., Tarba, S. Y., & Oberg, C. (2014). A comprehensive guide to mergers and acquisitions management: Integration and implementation. New York, NY: Financial Times Press.

12 A Delphi Approach to Boost an Open Innovation Policy António Bob Santos and Sandro Mendonça

Introduction* The “open innovation” concept, which gains traction from 2003 onward, is one of the most studied by academic literature in recent times. The initial definition of open innovation was submitted by Chesbrough (2003) and has been refined and enriched over time with the results of research carried out since then (see Chesbrough & Bogers, 2014). The open innovation perspective was always hybrid in the sense of having an academic life in connection with managerial practice on the ground, including in knowledge management literature. However, how this view is today perceived as useful by those with responsibilities at the macro- and mesolevels is less clear. Open innovation research has indeed been successful in terms of academic research, being the subject of study not only in economics and management (original areas of open innovation), but also in areas such as medicine, biotechnology, the food industry or public policies (Santos, 2015). As the innovation process is influenced largely by the active role of public policy (Caraça, Lundvall, & Mendonça, 2009; Mazzucato, 2013), the relationship between open innovation and public policy—in particular its influence on the design and implementation of policies— has not been much analyzed, except for some exceptions (e.g., De Jong, Kalvet, & Vanhaverbeke, 2010). The ultimate purpose of this chapter is to learn from public policy decision makers and experts and to analyze how innovation policy can be designed according to an open innovation perspective, contributing to better knowledge management policies. For this we used a generative empirical tool applied in several research areas, including in public policy and innovation studies—the Delphi method (e.g., Brown et al., 2010; Tornjanski et al., 2015). With the Delphi method we identified the existence (or not) of consensus concerning the priorities of innovation policy, in particular those oriented to boost open innovation activities. We proceed to discuss in the next section the Delphi method and its relevance to the

180 António Bob Santos and Sandro Mendonça identification of guidelines for public policy. Then we describe the methodology used in the application of the Delphi method. The presentation of the results is made in the next section. The conclusion follows.

The Delphi Method The Delphi method has its origins in the 1950s and was developed to make predictions based on tacit knowledge for military planning purposes. By gathering opinions of experts on a particular issue, the intention was to reach a global set of forward-looking insights that capitalized on a diversity of views and opinions, minimizing blindspots and groupthink (Stitt-Gohdes and Crews, 2004). This is a qualitative method, and can be described as a process of structured and interactive communication and iterative synthesis of knowledge on a particular topic/problem, from a group of specialists/experts (Adler and Ziglio, 1996; Szpilko, 2014). As a process of overcoming the initial assumptions and creating a transcendent new coherent set of insights, this method can be described as “social technology” (Mendonça, 2001; see also Nelson and Sampat, 2001). Such convergence can bring novelty of understanding (Scapolo & Miles 2004) The application of the Delphi method follows four principles, according to Wright and Giovinazzo (2000: 54–56): (1) anonymity; (2) the use of experts to answer the questions; (3) applying the questionnaire in rounds, with interaction between the inquirer and the respondents, and (4) the search for consensus. The confidentiality of responses is facilitated by the possibility that respondents can be located in different geographical areas—the communication can be electronic (e-mail) or mail (Hsu and Sandford 2007: 2). The Delphi method is also a method used in exploratory and normative analysis, associated with long-term analysis (Scapolo and Miles 2004: 4). In public policy the Delphi method is applied as a foresightfriendly and decision-leveraging tool (Giannarou and Zervas, 2014: 66). This method allows organizations to identify policy priorities and to define different development scenarios (Hsu and Sandford 2007: 1; Linstone and Turoff 1975: 84). Examples can be found in studies in the education policy area (see Bruening et al., 2002; Stitt-Gohdes and Crews, 2004) or health policy (see Adler and Ziglio, 1996; Goula, 2013). The application of the Delphi method in this chapter is justified, therefore, by its relevance as a methodology tested in public policy definition and in the process of decision-making. In this context, we apply the Delphi method using a panel of senior policy-shapers responsible for the design and implementation of innovation policies in Portugal between 2005 and 2015.

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Methodology Following the steps described in Scapolo and Miles (2004: 6) and Wright and Giovinazzo (2000: 57), the Delphi method applied in this research involved: preparation of the questionnaire (Step 1); identification of the participants in the Delphi questionnaire (Step 2); implementation of the questionnaire (Step 3); analysis of the results (Step 4). In Step 1 we proceed to the preparation of the questionnaire. The structure thereof was based on the conceptual framework of open innovation activities defined in De Jong et al. (2010). This framework contextualizes the way companies organize their open innovation activities (internal conditions) and external factors that influence its adoption (external conditions). In sequence, seven areas (groups of questions) and 24 questions were defined to prepare the Delphi questionnaire (see Table 12.1). The questions were structured in semi-open form, i.e. in each of these seven blocks the respondents had space to complement their answers with either proposing new questions or with opinions they found pertinent. We intend for each of the 24 questions to determine the degree of importance according to the opinion of each of the respondents. To this was applied the Likert scale with five levels (the first level corresponds to the lowest level of importance and the fifth to the highest level). The Likert scale is often used in Delphi studies to measure different levels of agreement or different levels of importance of the questions (Geist, 2010; Goula, 2013; Ku Fan & Cheng, 2006; Lee & King, 2009; Mason  & Alamdari, 2007). The definition of the final list of questions of the questionnaire was preceded by a pre-test with five experts in innovation policy.1 These experts were chosen due to their past experience in the defining of innovation policies. The final questionnaire questions were adjusted to include the contributions received in the pre-test. Then we proceed to the panel identification to inquire (Step 2). There is no ideal number of participants in Delphi studies, although the literature mentions that a number of respondents between 10 and 15 people is adequate to ensure the validity of results (Giannarou & Zervas, 2014, p. 67). One of the requirements to apply the Delphi method is that the surveyed group consists of knowledgeable persons or experts on the subject of inquiry (Hsu & Sandford, 2007, p. 3; Szpilko, 2014, p. 332). Since we intend to ascertain the priorities of innovation policy for the period 2015–2025, we defined as targets for the application of the Delphi questionnaire the persons with responsibilities in the innovation policy in Portugal between 2000 and 2015. The assumption is that if they had responsibility in the design or implementation of the innovation policy, they can be considered as having in-depth knowledge as experts in the innovation subject. In this sense, we have identified 13 people, all of them with responsibility for innovation policy in Portugal until 2015, both at

Table 12.1 Subjects of the questions presented through the Delphi method Open Innovation Area

Nº

Networks and Clusters

1 2 3

Business entrepreneurship

4 5 6

Innovation and R&D Management

7 8

Intelectual Property Management

9 10 11

Human Resources for Innovation

12 13 14 15

Venture Capital and Innovation Funding

16 17 18 19 20

Public Policy Role

21 22 23 24

Subject of the question (open innovation priority) Cluster policy support Integration of companies in international innovation networks Requalification of interface entities with qualified personnel User innovation stimulus Public incentives to intrapreneurship Legal and/or fiscal framework for spin-offs Support for collaborative projects (in relation to individual projects) Outsourcing of innovation and R&D activities Valorization of R&D results Intellectual property awareness More flexible forms of intellectual property protection Support for the placement of PhD personnel in companies Hiring of qualified personnel by interface entities Attraction of international qualified human resources Requalification of the workforce in areas related to ICT and innovation State seed and venture capital Private venture capital supported in part by public funds Legal framework for new forms of innovation funding (e.g. crowdfunding) Public funding: quality and experience of management teams as a criterion Companies’ reimbursement in case of future profits from public support Public procurement for innovation Diplomacy for innovation and science Mapping major technological, entrepreneurship and innovation infrastructures Public and private resources to solve societal problems

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the political or the executive level. We have sought a balance between those who currently have responsibilities in innovation policy and those who had in the past, as well as having a diverse mix of institutions (Table 12.2). In the third step we applied the questionnaire in two rounds. To this end, 13 people surveyed were contacted individually (personally, by mobile phone or e-mail),2 the scope of the study, duration and methodology were explained. As all of them agreed to participate, the questionnaire was made available in the second week of May via the Internet3 using the electronic platform Qualtrics Online Software (first round). Of the 13 people contacted, 11 people responded to the questionnaire, i.e., a response rate of 84.61%. We proceeded to the processing of data in June 2015, in qualitative terms (the semi-open nature of the questions enabled the introduction of feedback and suggestions) and quantitative terms. In this case, we used statistical techniques that have allowed us to verify the central tendency (mean, mode) and the degree of dispersion (standard deviation and interquartile range), identifying the responses with greater or lesser consensus (Hsu & Sandford, 2007; Giannarou & Zervas, 2014).4 This processing of data allowed us to elaborate a second questionnaire sent to 11 members of the panel in July 2015 (second round),5 where they were shown the results of the first round of responses (using the Qualtrics Online Software platform). Respondents could therefore compare their answers with those of other experts, in order to maintain or change their responses in this second round (Szpilko, 2014, p. 332). In this second round again we contacted each of the 11 respondents (mobile phone and e-mail), contributing this fact to a response rate of 100%. The data were treated statistically again in August 2015, and the results were summarized and made available to the 11 panel members in September 2015 (Step 4). At this stage we’ve made a global analysis of the data collected in the two rounds of responses, checking the differences in views of consensus and its evolution between the two rounds.

Table 12.2 Level of responsibility in innovation policy by the members of the Delphi panel Level of responsibility

People surveyed

Period of responsibility Past

Political level: Government/ Policy coordination Executive level: Institute / agency

A, E, F, K

x

B, D, G, H, L C, I, J, M

x

Current

x

Note: To preserve anonymity, the 13 people surveyed are represented by the letters A through M. Source: Author’s own elaboration, based on Santos and Mendonça (2018) and Santos (2016)

184 António Bob Santos and Sandro Mendonça This analysis allowed us to establish and consolidate the views of the panel members on the priorities of innovation policy to stimulate open innovation.

Open Innovation Policy Priorities Using the Delphi Method For the identification of the questions that generated more (or less) consensus, we used a combination of three statistical measures (instead of using just one, like the mean). This combination is proposed by Giannarou and Zervas (2014, pp. 75–77), suitable when using a Likert scale of five levels. According to these authors, the consensus is generated when: • • •

At least 51% of the answers are concentrated in the highest categories of the Likert scale (4 and 5 on the Likert scale of 5 levels) The interquartile range is less than 1 The standard deviation is less than 1.5

The application of these combined statistics to the two questions rounds allows a more robust assessment in identifying which generates greater consensus among the panelists. This is justified by the fact that there may be questions considered important or very important to most respondents (4 or 5 level in the Likert scale), although they can have a high standard deviation or a high interquartile range (examples of questions no. 5 and no. 18 in the first round of responses, Table 12.3). The data from the two Delphi rounds show that the questions that get full consensus in both rounds are those that fall in the areas of networks/ clusters and the role of public policies. However, in all of the other areas there is at least one of the questions that not had achieved consensus among the opinions given in the first round (using the three statistics combined). In all, there were seven questions without consensus in the first round (29% of total). However, consensus was reached on these questions in the second round, but with distinctions in relation to the importance given to questions. When asked when the priorities should be implemented (if they have been considered important or very important in the second round) most respondents chose the period to 2020, over the period 2020–2025 (Table 12.3). This indicates the urgency and relevance of these priorities. In the area of networks/clusters there is a consensus on the importance of the three questions considered, in particular as regards the need to strengthen the cluster policy, to support the inclusion of companies in the international networks of knowledge and to requalify interface entities.6 Between 82% and 91% of respondents considered these issues important (level 4 in the Likert scale) or very important (level 5) in the first round, reaching the percentage between 91% and 100% in the second round. Between the two rounds there was even a greater convergence of views, visible by the decrease of the standard deviation of the responses (Table 12.3).

9 10 11

12

Intelectual Property Management

Human Resources for Innovation

15

14

13

8

7

6

4 5

3

1 2

Nº

Innovation and R&D Management

Business entrepreneurship

Networks and Clusters

Open Innovation Area

Cluster policy support Integration of companies in international innovation networks Requalification of interface entities with qualified personnel User innovation stimulus Public incentives to intrapreneurship Legal and/or fiscal framework for spin-offs Support for collaborative projects (in relation to individual projects) Outsourcing of innovation and R&D activities Valorization of R&D results Intellectual property awareness More flexible forms of intellectual property protection Support for the placement of PhD personnel in companies Hiring of qualified personnel by interface entities Attraction of international qualified human resources Requalification of the workforce in areas related to ICT and innovation

Subject of the question (open innovation priority)

90.9

81.8

45.5

90.9

90.9 81.8 63.3

81.8

63.6

100

81.8 72.2

81.8

90.9 81.8

1st round

81.8

90.9

54.5

100

100 90.9 90.9

90.9

81.8

100

81.8 90.9

90.9

100 100

2nd round

Percentage of responses in level 4 or 5, Likert scale

0.9

1.01

1.36

0.69

0.69 1.14 1.25

0.89

1.3

0.47

0.75 1.08

0.81

1.21 1.03

1st round

0.81

0.69

1.12

0.52

0.5 0.6 0.45

0.45

0.7

0.4

0.75 0.6

0.67

0.5 0.52

2nd round

Standard deviation

Table 12.3 Summary of the application of the Delphi method, according to the answers agreement

1

1

3

1

1 1 2

1

2

1

1 2

1

1 1

1st round

1

1

1

1

1 1 0

0

1

0

1 1

1

1 1

2nd round

Interquartile range (Q3-Q1)

100%

0%

28.6%

25%

0%

0% 12.5% 20%

0%

0%

25%

22.3% 25%

12.5%

22.3% 12.5%

2020– 2025

(Continued)

71.4%

75%

100%

100% 87.5% 80%

100%

100%

75%

77.7% 75%

87.5%

77.7% 87.5%

Until 2020

Period for the implementation of priority (percentage of responses)

24

23

22

21

20

19

State seed and venture capital Private venture capital supported in part by public funds Legal framework for new forms of innovation funding (e.g. crowdfunding) Public funding: quality and experience of management teams as a criterion Companies’ reimbursement in case of future profits from public support Public procurement for innovation Diplomacy for innovation and science Mapping major technological, entrepreneurship and innovation infrastructures Public and private resources to solve societal problems

Subject of the question (open innovation priority)

81.8

90

100

90.9

63.6

81.8

72.7

81.8 45.5

1st round

0.71

0.67

0.52

0.69

0.89

0.82

1.12

0.79 0.93

1st round

0.4

1

1

1

0.48 0.47

1

2

1

2

1 1

1st round

0

1

1

1

0

1

1

1 1

2nd round

Interquartile range (Q3-Q1)

0.47

0.54

0.47

0.5

0.5 0.81

2nd round

Standard deviation

83.3%

100%

100%

100%

85.7%

85.7%

85.7%

100% 100%

Until 2020

1.7%

0%

0%

0%

14.3%

14.3%

14.3%

0% 0%

2020– 2025

Period for the implementation of priority (percentage of responses)

Source: Author’s own elaboration, based on data extracted from the Delphi survey (responded by the Portuguese innovation policy experts). Based on Santos and Mendonça (2018) and Santos (2016).

100

100

100

100

90.9

100

100

100 63.6

2nd round

Percentage of responses in level 4 or 5, Likert scale

Note: at grey, questions with no consensus according to statistical measures used.

Public Policy Role

16 17

Venture Capital and Innovation Funding

18

Nº

Open Innovation Area

Table 12.3 (Continued)

A Delphi Approach

187

In business entrepreneurship, one of the three questions did not deserve the consensus of the respondents in the first round. While the need for public support for intrapreneurship was considered important or very important by 72% of respondents in the first round, and the standard deviation was within the defined criteria (