A Knowledge-based Theory of the Firm

Published: 2001

This article is seeking to explore the practical implications of an epistemological approach to strategy formulation. In doing so it tries to expand the field of knowledge management and intellectual capital beyond its operational and often inwardly technological focus to a new theory of the firm. A resource-based perspective is suggested, using autopoietic epistemology to guide strategy formulation.

The theory suggests that people use their capacity-to-act in order to create value in mainly two directions; by transferring and converting knowledge externally and internally to the organisation. The value grows each time a knowledge transfer or conversion takes place. The strategy formulation issues are concerned with how to utilise the leverage and how to avoid the blockages that prevent sharing and conversion. Activities that form the backbone of a knowledge-based strategy are to be aimed at improving the capacity-to-act both inside and outside the organisation.