What’s So Great About Tacit Knowledge? — Cont’d

27 October 2006 at 10:08 am 5 comments

| Nicolai Foss |

Peter asks, “what’s so great about tacit knowledge?”, pointing out that there is a tendency in the KM literature (and, I may add, parts of the strategic management literature as well) to exalt tacit above explicit knowledge. He correctly points out that tacit knowledge may well be errorneous, to which it may be added that errorneous tacit knowledge is usually more of a problem than errorneous explicit knowledge, since the latter is presumably easier to correct. In a comment on Peter’s post, JC Spender points out that “for the most part the discussion of tacit knowledge is sheer obscurantism.”

I agree with both Peter and JC. But I may want to be even more radical, and ask “What’s — analytically speaking — so great about tacit knowledge?”More specifically, as social scientists what do we need the concept of tacit knowledge for? OK, it sounds sexy, students (and occasionally managers as well) are attracted to the mystique surrounding it, and there is indeed a substantial (and not necessarily obscurantist) philosophy literature to back it up.

However, the emphasis on tacit versus explicit knowledge knowledge tends to polarize, whereas in actuality we are dealing with a spectrum. What matters to the things we are interested in as social scientists are the costs of making knowledge explicit. This suggests that it may be more useful to speak of knowledge-that-is-extremely-costly-to-articulate and knowledge-that-isn’t-at-all as defining the two ends of a continuum. (In contrast, the literature on tacit knowledge sometimes reads as if there is tacit knowledge that is inherently impossible to articulate; no matter the costs (Hayek may actually have taken this position)).

What we are, at the end of the day, usually interested in in the organization theory, strategic management, knowledge management, etc. fields are the costs of articulating (and per implication transferring, absorbing and integrating) knowledge. It is not clear that we are assisted here by the tacit-explicit dichotomy.

Entry filed under: - Foss -, Management Theory, Methods/Methodology/Theory of Science, Myths and Realities.

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5 Comments Add your own

  • 1. JC  |  28 October 2006 at 1:56 pm

    Hmm .. Nicolai says ‘in actuality we are dealing with a spectrum’. Now there’s an epistemological ssertion for you. How does Nicolai know this?

    OK, the real issue behind the discussion of tacit knowledge – as I mentioned in my previous post on this, Tsoukas and gourlay make this quite clear in the best discussions I know of since Polanyi’s deployment of the term – is that it is a rhetorical device for stepping outside the prevailing concept of knowledge (that which is explicit).

    the term is of particular relevance to current debates because we are seeing a kind of epistemological exhaustion with positivist notions of knowledge as always about the ‘reality out there’. This position therefore can only allow ‘tacit’ to mean that which is not yet fully explicit. Max Boisot does a thorough examination of this position in “Knolwedge Assets’.

    This, of course, happens to be Nicolai’s position too – and we can see it likewise deployed in Nonaka & Takeuchi’s book.

    However this characterization is clearly unable to explain what Polanyi was getting at, and, relatedly what Nelson & Winter or Penrose are getting at.

    They are flirting with constructivism. In Penrose’s case very consciously, in N&W’s I beleive somewhat less so.

    An extreme version of the constructivist approach in economics is to be found in the work of Shackle and that of Lachmann. The bottom line is the reality is not out there to be researched, rather it has yet to be created. Ah, but what by? How can we make something from nothing? Well, one of the duties the notion of tacit provides is just this, our ability to create something new.

    The current appeal of the notion of tacit is a subset of this – since it presumes the tacit acts on situations, so creating new knowledge, through our practice – learning-by-doing. But where does this ability come from – the tacit.

    So the idea of it being ‘on a spectrum’ is no more than an indication of an epistemological assumption that all knowledge has already been created (reminds me of the chap who wanted to close the Parent Office in the 1890s, concluding everything important had already been invented).

    But we surely don’t believe this. So if we are to embrace some non-positivistic view of the world in which all invention is deployment of knowledge already existing, then we need some mystifiying term like ‘tacit’.

  • 2. Nicolai Foss  |  28 October 2006 at 3:55 pm

    JC, I do agree with you that arguing that tacit – explicit represents a continuum does not do justice to what Polanyi (or Heidegger or Merleau-Ponty) meant by tacit knowing. However, my point was that for management studies, not much harm is done by the continuum idea. We are interested in knowledge sharing, knowledge transfer, knowledge integration, etc., and what we are ultimately interested in are the net benefits that these processes may bring organizations — which directly involves the costs of making knowledge shareable, tranferable, integrateable etc. You argue that understanding knowledge creation/discovery must inherently involve tacit knowledge. If true, this may indeed establish a strong role for the concept in management. But you fail to give reasons why discovery etc. _must_ involve tacit knowing (if indeed this is what you are saying). And I don’t think that tacit knowledge is at all a strong theme in Shackle or Lachmann.

  • 3. JsW  |  28 October 2006 at 7:05 pm

    Tacit knowledge killed Transaction Cost Economics! Or so we were led to believe some years ago, when e.g. David Teece (California Management Review, 1998) told us that tacit knowledge “requires us to stress the entrepreneurial rather than the administrative side of corporate governance. In high technology industries, firms are not so much organizations designed to minimize transactions costs—although this they do—but organizational structures capable of shaping and reshaping clusters of assets in the distinct and unique combinations needed to serve ever-changing customer needs. Accordingly, boundary issues (such as vertical integration) are not determined by transactions cost considerations alone. Rather, they are strongly influenced by tacit knowledge and imitability/replicability considerations. Even setting aside strategic and transaction cost issues, the tacit component of knowledge cannot frequently be transferred absent the transfer of personnel and organizational systems/routines. Tacit knowledge and its transfer properties help determine the boundaries of the firm and may well swamp transaction costs considerations.”
    So, if we are going to consider the notion of “tacit knowledge” to be a serious challenge to conventional wisdom, it probably mainly has to be linked to the discovery process or the “entrepreneurial side of corporate governance”. I wonder, however, if the term ‘tacit knowledge’ isn’t then a bit misplaced (as Nicolai, I consider this must be related to the costs of making existing knowledge shareable and transferable)? Isn’t Teece (and JC too?) really talking about some (non-transferable) personal/organisational capabilities for creating new knowledge/innovation? What should be the term for that?

  • 4. Bo  |  27 November 2006 at 8:03 pm

    This entry just got me thinking about an article on R&D alliances by Rachelle Sampson (2004 Managerial and Decision Economics), where she argues for the relationship between technological diversity and governance mode – comparing TCE and KBV arguments – only to find in favor of the TCE argument at the end…She even concludes with a quote from Foss (1996) stating (among other things) that “In the absence of opportunism/moral hazard, the degree of co-specialization among the various resources would carry no implications for ownership”. She also finds that above a certain level of technological diversity (or lack of overlap in knowledge bases), there is a decreasing tendency to choose equity over non-equity in JVs because of the lack of absorptive capacity – that is, if the knowledge bases being combined are extremely diverse and different, you can assume the level of opportunism to be relatively low because of a lack of absorptive capacity – no need to safeguard against knowledge spillover etc. when the knowledge being shared is so different that absorption is the main problem….

    So the term you are looking for is some kind of absorptive capacity at either the individual, the team (or alliance) or organizational level. For alliances, it turns out that specific alliance units increase the level of absorptive capacity and thus make tacit (or diverse) knowledge more valuable – but at a cost: the cost of creating and maintaining this alliance unit…

  • 5. Ryan Lanham  |  20 September 2007 at 11:05 am

    Tacit knowledge implies, as used here, that knowledge is a continuum in some valuation based scale related to money.

    Isn’t it absurd to pretend things normalize to a value continuum?

    Money is only so interesting. That’s where economists find themselves…trying to edge into ecologies, psychologies and sociologies to make comments about…what? Money?

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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