Academy of Management Review 2006, Vol. 31, No. 1, 197217.

THE ROLE OF ORGANIZATIONAL CONTROLS IN MANAGING KNOWLEDGE

KARYNNE L. TURNER Georgia State University MONA V. MAKHIJA The Ohio State University
We present a model demonstrating the role of organizational controls in managing organizational knowledge characterized by different combinations of knowledge attributes. Specifically, we show how particular controls (outcome, process, and clan) differ in their ability to acquire, transfer, interpret, and, finally, use knowledge. We argue that the use of different controls therefore creates distinguishably different knowledge management processes within the firm.

According to the knowledge-based view of the firm, the uniqueness of a firms knowledge plays a fundamental role in its sustained ability to compete (Conner & Prahalad, 1996; Grant, 1996a; Zander & Kogut, 1995). The essential dilemma within the firm, then, is how to manage knowledge in a way that such competitive advantage is created (Barney, 1991; Nonaka, 1994; Wernerfelt, 1984). Building competitive advantage involves creating and acquiring new knowledge, disseminating it to appropriate parts of the firm, interpreting and integrating it with existing knowledge, and, ultimately, using it to achieve superior performance (Cohen & Levinthal, 1990; Kogut & Zander, 1992; Kusunoki, Nonaka, & Nagata, 1998). The literature provides us with only a rudimentary understanding of such organizational processes associated with the treatment of knowledge. A primary impediment to developing a more comprehensive understanding arises from the fact that knowledge is inherently unobservable (Argote & Ingram, 2000). Because of the difficulty in distinguishing knowledge in an unambiguous manner (Spender, 1996; Szulanski, 2000), we have very limited insight on how different types of knowledge are managed by the firm. Without such an understanding, however,

We are grateful for the insightful comments of a number of individuals on this work, including Sharon Alvarez, Robert Atkin, Jay Barney, Pamela Barr, Jacob Birnberg, John Camillus, Laura Cardinal, David Deeds, Jay Dial, Laurie Kirsch, Chris Long, John Prescott, Shelby Stewman, Raj Veliyath, and James Walsh. 197

we will be unable to truly comprehend the processes by which firms develop their distinct knowledge, and the firm will largely remain a knowledge-based black box (Spender, 1996). It is this concern that motivates our research. Despite the unobservable nature of knowledge, the firm has other more readily observable features that can be used to illuminate both the properties and use of its knowledge. A particularly useful feature of the firm in this regard is its organizational control systems. Researchers have defined control systems in a variety of ways, including the formal and informal routines and procedures of the firm (Birnberg & Snodgrass, 1988; Cardinal, 2001; Makhija & Ganesh, 1997), the processes by which the firm coordinates activities (Lebas & Weigenstein, 1986; Tushman & Nadler, 1978), and the cultural norms and practices within the firm (Floyd & Lane, 2000; Jaeger & Baliga, 1985; Kirsch, 1996; Rowe & Wright, 1997). Regardless of how control systems are defined, they have a critical feature that has typically been overlooked in the literature: their ability to manage the flow of knowledge within the firm. All control mechanisms influence the firms knowledge management process by affecting how knowledge is acquired, disseminated, interpreted, and used to accomplish organizational goals. Two particular features of controls play an integral role in the firms ability to manage its knowledge. First, control mechanisms have inherent information processing properties (Egelhoff, 1991; Grant, 1996a; Nelson & Winter, 1982; Ouchi, 1979; Tushman & Nadler, 1978). Such

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mechanisms, whether they encompass routines, coordination mechanisms, or organizational norms, mandate specific relationships between individuals and groups that influence how information is shared and knowledge is disseminated within the firm (Makhija & Ganesh, 1997; Simons, 1994). Second, controls create incentives and disincentives for organizational members to behave in a manner consistent with firm goals and objectives (Anthony, 1965; Camillus, 1986). Since meeting goals and objectives requires the use of knowledge by organizational members, the purposeful structuring of control mechanisms by a firm in turn directs the type of knowledge management behavior exhibited. These two important knowledge-related properties of control systems help us to provide critical insight into how knowledge is processed within the firm.1 We present a model demonstrating the role of controls in managing organizational knowledge. To accomplish this, we begin by describing the nature of organizational knowledge, emphasizing the ways in which it can vary. We also outline the process by which this knowledge is managed, detailing the important stages identified in the literature. Our model, presented next, draws on this discussion. It shows how each control (outcome, process, and clan) is suited for handling specific attributes of knowledge. Because of this, we argue that a firms mode of control affects its ability to leverage its knowledge. In this vein, we show how controls, owing to their handling of knowledge attributes, vary in their ability to acquire, transfer, interpret, and, finally, use knowledge. Ultimately, this model demonstrates how a firms use of particular controls is critical to the formation of its distinctive organizational knowledge. THE CONCEPT OF ORGANIZATIONAL KNOWLEDGE The Attributes of Organizational Knowledge In order to appreciate how organizational knowledge is managed by the firm, we must first
1 Organizational controls may not be the only means by which knowledge flows within the organization. Unanticipated, unsolicited, and even undesirable information can also flow inside the organization. However, since the organization does not actively manage such knowledge, it is outside the domain of this research.

understand how knowledge itself can vary. A review of the literature, a sample of which is shown in Table 1, indicates that a variety of knowledge attributes have been identified by researchers, but three in particular capture important qualitative differences in knowledge. We refer to these as codifiability, completeness, and diversity.2 Below we discuss these three knowledge attributes in relation to two important kinds of organizational knowledge: (1) the means, behaviors, or processes by which organizational goals are accomplished and (2) the ends or outcomes of these processes, which are the goals themselves (Eisenhardt, 1985; Kirsch, 1996; Snell, 1992; Snell & Youndt, 1995). Codifiability. The defining characteristic of more codifiable knowledge is that it can be broken down into specific components that are easily understood and articulated (Kogut & Zander, 1992). Highly codifiable knowledge is also known as explicit knowledge (Makhija & Ganesh, 1997), since it tends to be unambiguous, observable, and indisputable. Such characteristics allow highly codifiable knowledge to be readily transferred within the organization or between individuals without loss of meaning (Grant, 1996a,b). In contrast, tacit knowledge, or that which is not easily codified, cannot be broken down into component parts. Because of this, tacit knowledge is difficult to articulate or express. Therefore, the ability to use tacit knowledge depends on the individuals prior experiences and familiarity with the knowledge. Such experience provides a base from which new knowledge can be understood more easily. When knowledge related to processes is highly codifiable, it is possible to reduce the process into a set of specific and identifiable rules or courses of action (Grant, 1996a; Kogut & Zander, 1992). The employee can be given clear and unambiguous direction as to the exact procedures in which to engage. In contrast, tacit process-related knowledge cannot be broken down in such an unambiguous manner. Instead, subtle nuances associated with the process are what makes it effective. Because of this subtlety, it becomes necessary to actually engage in the

2 Different terminology has been used in the literature to characterize similar knowledge attributes, requiring us to choose from among them. We clarify terminology differences in the literature as necessary.

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TABLE 1 Knowledge Attributes Discussed in Prior Research

Diversity Codifiability (Tacitness) X X X X X X X X X X X X X X X X X X X X X X X X Number of Parameters (Complexity) Variance of Knowledge (Assortment) Completeness (Uncertainty)

Research Article Badarracco (1991) Bartunek, Gordon, & Weathersby (1983) Duncan & Weiss (1979) Feldman & March (1981) Galunic & Rodan (1998) Grant (1996a,b) Hedlund & Nonaka (1993) Kogut & Zander (1992, 1993) Kusunoki, Nonaka, & Nagata (1998) MacDonald (1995) Makhija & Ganesh (1997) Nelson & Winter (1982) Nonaka (1994) Pisano (1994) Reed & DeFillippi (1990) Spender (1996) Szulanski (1996) Tsoukas (1996) Van de Ven, Delbecq, & Koening (1976) Winter (1987) Zack (1999) Zander & Kogut (1995)

X X X X X X

X X

process in order to understand the true nature of this knowledge (Makhija & Ganesh, 1997). When knowledge related to outcomes is explicit, organizationally desired end results can be specified clearly and precisely. It is possible to give the individual exact and indisputable standards to which he or she should adhere. In contrast, when such outcome-related knowledge is tacit, objectives and targets are characterized by less specificity or greater imprecision. In this regard, they may be more subjective and based on assumed understandings. In such a case, organizational members will extrapolate from past experience, observation of others success and failure, and perspectives of what they consider should be appropriate standards (rather than what are the standards). For example, universities rarely specify their exact requirements for tenure. Tenure-track professors therefore assume these requirements based on their subjective understanding of tenure-related standards. Completeness. The notion of completeness refers to the degree to which the knowledge for making decisions or completing tasks is entirely

sufficient and available for the decision makers use. Knowledge is less likely to be complete when decision situations are not stable or predictable (Gresov, 1990). When the attributes of the decision-making situation vary over time, the knowledge required to make effective decisions correspondingly changes (Snell & Youndt, 1995). Such a notion of knowledge incompleteness mirrors that of task uncertainty discussed in Van de Ven, Delbecq, and Koening (1976), where unpredictable decision situations reduce the likelihood that the organization will know in advance what knowledge is required to achieve its goals. For this reason, organizational decision makers require access to a wider range of knowledge than is internally available (Duncan & Weiss, 1979). Information must often come from external sources to supply all the bits required to complete the knowledge set (Gazdik, 1986).3 MacDonald (1995) notes that extraneous

3 To illustrate this point, we can use the analogy of the pieces of a puzzle, which represent components of knowl-

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bits of information from the most humble and obscure sources inside and outside the organization may prove critical to the completion of a novel pattern. In these instances the variations in the requisite set of knowledge will lead to more complicated information search processes. In contrast, complete knowledge reflects task certainty (Snell & Youndt, 1995; Van de Ven et al., 1976) and suggests that all the knowledge necessary for making a particular decision is available. In this case, the decision situation does not vary over time, outcomes are expected, and the relevant processes do not change. The critical feature of incomplete knowledge, then, is the need to search for additional knowledge so that it can become complete. For example, when knowledge relating to processes is incomplete, the means or procedures for accomplishing tasks are not completely known or understood. This may be because the decision situation is relatively new such that viable processes are not established. It may also be the case that the knowledge necessary for achieving particular goals changes from one period to the next (Tsoukas, 1996). Because of such uncertainty, the individual is required to engage in search processes to obtain the necessary information to accomplish tasks and to determine the relevant processes in which to engage. Complete process-related knowledge, however, suggests that the nature of the process is entirely understood. There is no need to seek out additional knowledge in order to effectively accomplish tasks related to this process. Similarly, when the knowledge relating to outcomes is incomplete, desired ends are likely to vary over time in line with changing circumstances. There is uncertainty as to what should be the appropriate outcome, which necessitates, in turn, the additional seeking of information. In contrast, complete knowledge relating to outcomes reflects the fact that desired outcomes are completely understood and organizationally known. Note that tacit knowledge, which is inexpressible and not readily transferable to others, may

still be complete. Consider the case of knowledge relating to a special technique used by a bakery for making French bread, or the manufacture of custom-made shoes in an Italian shoe company. In both of these cases, the knowledge is complete, even though it is highly embedded in the individual. However, tacit knowledge may also be incomplete, as when the bakery attempts to develop a new technique for making French bread in a microwave oven (which is difficult to do), or when the Italian shoe company tries to create a new type of high-fashion shoe completely out of rubber. In these cases, new knowledge is required by the organization since its current stock of knowledge is inadequate for achieving such results. Similarly, explicit knowledge may be complete (e.g., the defect rate of production in ones own plant) or incomplete (e.g., competitors defect rates for similar products). Diversity. A final attribute of knowledge considered here is that of diversity, which reflects both the amount and relatedness of information required to characterize the knowledge in question (Galunic & Rodan, 1998; Winter, 1987). Knowledge that is highly diverse has numerous (Kogut & Zander, 1992) as well as varied (Szulanski, 1996) parameters associated with it (see Table 1). Highly diverse knowledge may emanate from distinct and multiple functional areas or disciplines (Kusunoki et al., 1998; Zander & Kogut, 1995). According to Bartunek, Gordon, and Weathersby (1983), such complex knowledge incorporates multiple complementary perspectives in relation to decision situations.4 Although in the literature researchers have tended to differentiate between number and unrelatedness of underlying parameters of knowledge (see Table 1), we do not find this distinction to be particularly meaningful. This is due to the fact that unrelatedness of knowledge parameters is highest when the number of parameters is likewise high. Since these notions are difficult to separate out conceptually, our definition of diversity combines both, as we show in Table 1. For example, the requisite knowledge associ-

edge. In order to have complete knowledge, all the pieces should be in place. Should some pieces be missing, the knowledge would be incomplete and reflect uncertainty over the nature or source of the knowledge. The decision maker would then have to externally search for the missing piece or create a new piece that would complete the knowledge.

4 Our notion of diversity overlaps that of complexity as used by Winter (1987), Kogut and Zander (1993), and Kusunoki et al. (1998), but goes further to incorporate the notion of knowledge unrelatedness and knowledge dispersion discussed by Galunic and Rodan (1998), both of which capture different elements underlying knowledge.

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ated with maintaining a just-in-time system includes such diverse information as delivery and production schedules, plant layout, capacity levels, and production-related knowledge. In contrast, knowledge that is less diverse will comprise fewer units of knowledge and may be particular to one functional area, task, or decision-making situation that involves more similar elements of information. When process-related knowledge is less diverse, it suggests that the knowledge is highly specialized for a given task or set of tasks. It often pertains to a specific functional competence. As process-related knowledge becomes more diverse, it encompasses more competencies and a broader base of knowledge for accomplishing tasks. Thus, jobs that require a worker to understand only one specialized activity, such as attaching seats to the car frame in an assembly line, will be comparatively less diverse than the knowledge associated with operating a just-in-time system as described above. When outcome-related knowledge is less diverse, it suggests that the knowledge components relating to goals are fewer in number or more specific in nature. For example, knowledge is less diverse for a more narrow objective, such as minimizing the costs of inputs used to manufacture shoes, in comparison to the more diverse knowledge associated with an objective, such as increasing market share of the firms shoe sales. This latter objective requires simultaneous consideration of complex issues relating to competitors strategies, consumer preferences, pricing, and factors influencing the direction of the economy. The Knowledge Management Process Since each knowledge attribute discussed above can vary along a continuum, from low to high, the combinations of the three knowledge attributes are potentially infinite. This is what helps to give rise to the uniqueness of a firms knowledge. This unique organizational knowledge, in turn, is the basis of a firms heterogeneous resources and capabilities (Conner & Prahalad, 1996; Grant, 1996a; Kogut & Zander, 1992; Kusunoki et al., 1998; Verona, 1999). In light of this, the firms ability to manage and maintain its unique knowledge is of fundamental importance.

Below we discuss four particularly critical stages of the management of a firms knowledge (Grant, 1996a; Huber, 1991; Szulanski, 2000; Thomas, Sussman, & Henderson, 2001). These include (1) knowledge creation and acquisition, (2) the transfer of knowledge to other individuals or organizational units, (3) the interpretation of this knowledge in a manner conducive to the objectives of the organization, and, finally, (4) the application of the knowledge toward organizational goals. The knowledge acquisition stage initiates the overall knowledge management process of the organization. It consists of the processes by which new knowledge (i.e., that not previously possessed by the firm) is obtained by the organization. This knowledge may be (1) newly created by organizational members through research, experimentation, or experiential learning or (2) acquired from external sources through scanning and searching. Knowledge acquisition can occur either through systematic processes consciously engaged in by organizational members or as an unintentional by-product of other processes (Huber, 1991). The processes by which organizations acquire knowledge have been of great interest to researchers, who have studied it in the context of firms absorptive capacity (Cohen & Levinthal, 1990; Zahra & George, 2002) and ability to learn (Huber, 1991; Levitt & March, 1988). Once new knowledge is acquired, it needs to be disseminated to other parts of the organization (e.g., individuals, groups, departments, or divisions) that require or otherwise may benefit from it. Without this, incoming knowledge is likely to have minimal impact on the organization. Therefore, the ability to distribute knowledge across space and time is an important element in the firms amassment of organizational knowledge. Difficulties can, in fact, occur in either transmission or receipt (Grant, 1996b), making knowledge transfer one of the most difficult aspects of the knowledge management process. This is because knowledge is sticky the more it is embedded in individuals, contexts, or locations (Szulanski, 2000). Such stickiness causes transfer between people to be slow, costly, and uncertain (Kogut & Zander, 1993). Nonetheless, in the literature scholars have tended to dismiss such problems and, instead, have conceptualized knowledge transfers as essentially costless, instantaneous, or otherwise effortless. Any

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difficulty actually experienced is treated as an anomaly rather than as a characteristic feature of the transfer (Szulanski, 2000). As a consequence, and in contrast to the knowledge acquisition stage, the issues associated with the process of knowledge transfer have tended to receive little systematic attention. Once transferred, the value of disseminated knowledge is ultimately derived from the interpretations given to it by its recipients. According to Daft and Weick (1984), knowledge interpretation is the process by which new information or knowledge is given meaning, in accordance with existing organizational understandings (Cohen & Levinthal, 1990) or in other ways that render it appropriate for the purposes or needs of the organization. Interpretation of knowledge can be commonly sharedthat is, individuals have the same interpretation or it can be diversethat is, individuals have differing interpretations (Fiol, 1994). The interpretation of new knowledge depends on the relationship of the new knowledge to an a priori base of knowledge. For example, a product development group in an organization already has a base of knowledge relating to design, technology, concepts, and experience that pertain specifically to research and development. This a priori knowledge provides the filter through which any new knowledge is understood and incorporated. Any holes in this knowledge base will result in an inability to understand or interpret new knowledge. The organizations already existing knowledge therefore is an important initial condition for the interpretation of new knowledge. The importance of the knowledge interpretation stage in the management of a firms knowledge is evidenced in the work on organizational cognition and knowledge structures (Lyles & Schwenk, 1992; McNamara, Luce, & Thompson, 2002; Walsh, 1995; Weick, 1979). For the organization, the ultimate purpose of acquiring, transferring, and interpreting knowledge is to apply it toward organizational ends (Penrose, 1959). The specific manner in which these prior stages are managed creates proficiencies within the organization in the use of knowledge. This occurs because the collective understandings that are formed via these earlier stages result in a distinct way of thinking and acting. In the final analysis, this shapes the decisions made in the organization (Tsoukas &

Vladimirou, 2001). The entire process, then, enables the organization to put its resources to particular uses. Accordingly, the ability to use knowledge in a superior fashion is the key to development of a firms competencies. Although others have talked about this in a general fashion (i.e., Galunic & Rodan, 1998), there has been relatively little work linking the stages of a firms knowledge management process to specific proficiencies in the use of knowledge. A firms ability to engage in the stages of the knowledge management process described above is not automatic. A firms knowledge flows are greatly affected by the manner in which it is organized, including its organizational form and the processes by which individuals cooperate and exchange information (Anthony, 1965; Tushman & Nadler, 1978). Earlier we discussed three attributes of knowledge, each having important implications for how knowledge is managed. Clearly, the processes or directives used to manage codifiable knowledge are not likely to work when handling tacit knowledge. By the same token, knowledge that is incomplete will require management different from that for complete knowledge, and the same is true for knowledge diversity. The essential question here revolves around how they will differ. There is very little insight in the literature on this issue, resulting in little understanding of how firms should manage particular types of knowledge. We address this problem below by showing how a firms ability to manage knowledge is greatly affected by its control systems. CONTROL SYSTEMS AND THE MANAGEMENT OF KNOWLEDGE Controls and the Management of Knowledge Characterized by Different Attributes In this section we show that the effectiveness of a given control mechanism for managing knowledge is in large part determined by the attributes of the knowledge that is being managed, including its tacitness, completeness, and diversity. To demonstrate this, we draw on three well-known categories of controls: outcome, process, and clan.5 In the discussion below we focus

A review of the control literature indicates that over seventy articles in top-ranking management, accounting, and marketing journals have used the process/outcome cat-

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FIGURE 1 The Relationship Between Controls and the Firms Knowledge

Adapted from Ouchi (1979) and Eisenhardt (1985). a The decision situation is likely to be simple when knowledge of both the process and outcome is perfect. In such cases, both process and outcome knowledge are characterized as being complete, codifiable, and nondiverse.

on these three pure forms of control in order to isolate and highlight their differences in managing process-related and outcome-related knowledge. We take this approach in order to understand the information processing capabilities of each control type. It is important to keep in mind, however, that organizations typically use more than one type of control, and they employ a variety or combination of control mechanisms to achieve multifaceted goals. In addition, a firms overall set of controls develops in an evolutionary manner, making its control system highly difficult to imitate by other organizations (Itami, 1987; Nelson & Winter, 1982). For these reasons, a firms control system tends to be unique to that firm. The relationships between controls and knowledge attributes relating to processes and outcomes are summarized in Figure 1 and discussed in depth below.

Outcome Controls The attributes of knowledge associated with outcome controls. Outcome controls are those mechanisms that focus on the outcomes of tasks or the specific outputs desired by the organization. The most distinctive feature of outcome controls is their specification of explicit outcome requirements for employees work (Eisenhardt, 1985; Sitkin & Roth, 1993; Thompson, 1967). Outcome controls rely on the use of incentives that are clearly aligned with a desired outcome or level of effort. Such incentives are typically in the form of a clearcut reward for each sale made, the number of products produced, or the level of profits generated. Mechanisms in this category include performance-related contracts, bonus and profit-sharing plans, pay per piece, commissions, and suggestion programs that provide compensation based on amount of cost savings. Since outcome controls specify outcome requirements but not the type of behavior or processes that produce the desired outcome, the use of such controls is therefore most appropriate when process-related knowledge is difficult to specify or is less programmable (Eisenhardt, 1985). This occurs when such processes are fully understood only through experience or learning-

egorization in just the past decade alone. It appears, therefore, that the process/outcome approach has become quite accepted in the literature. The term behavior control is often used in the literature in a manner consistent with our use of process control (Cardinal, 2001; Gupta & Govindarajan, 1991; Kirsch, 1996; Rowe & Wright, 1997). The notion of outcome control is synonymous with that of output control (Cardinal, 2001; Snell, 1992).

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by-doing. Outcome controls are also useful when the appropriate processes for achieving a desired outcome are not constant and, instead, vary owing to environmental or other changes that are difficult to predict. The inability to know in advance what type of process will result in a desired outcome indicates that the knowledge regarding the relevant process is incomplete. Individuals will need to engage in search modes for additional knowledge to help them achieve the requisite outcomes. Doing so necessitates increased reliance on the individuals discretion and judgment over the process. Since outcome controls do not mandate a detailed process to be followed, the requisite flexibility is present for identifying new and unique solutions for problem solving. Finally, outcome controls are also suitable when process-related knowledge is diverse. The multidimensionality of the knowledge makes the underlying process more difficult to characterize, again requiring reliance on the individuals judgment (see Figure 1, upper right-hand corner). In contrast to processes, outcome controls specify outcomes in a manner that affords little uncertainty over the ideal outcome. As Snell notes, they spell out crystalized performance standards that convey unambiguous and explicit knowledge regarding organizationally desired outcomes (1992: 297). Such unequivocal specification suggests that the knowledge relating to the outcome is stable and not subject to change. Individuals know the sought-after outcomes in advance, which indicates that the outcome-related knowledge is complete. In addition, goals associated with outcome control are highly conducive to measurement, suggesting a lack of complexity in their specification. For example, a salesperson has the understanding that the goal of his/her job is to maximize sales for the company, and, accordingly, his/her compensation is based on each sale made. While the knowledge required for making each sale (i.e., process-related knowledge) may, in fact, be quite diverse, owing to the unique circumstances under which each sale is made, the goal itself is not complex at all (which is simply to make as many sales as possible).6 In sum, as

indicated in the upper right-hand section of Figure 1, outcome controls are best suited for process-related knowledge that is tacit, incomplete, and diverse and outcome-related knowledge that is explicit, complete, and not diverse. To illustrate the relationship between outcome controls and the nature of a firms knowledge, we consider their use in a R&D project in a pharmaceutical firm. The employment of outcome controls mandates that the pharmaceutical researcher be given goals that are clearly understood (e.g., to create a new drug that reverses the progression of Alzheimers disease). The outcome requirements include a time line by which the project is to be completed and evaluated by the FDA, the extent to which the drug meets its goals, and the profit potential of the drug. Both financial and nonfinancial rewards will be based on the extent to which these three goals are met. Since the specific processes that will result in a viable drug of this kind are not mandated by the use of outcome controls, the researcher is allowed to use his/her own discretion in terms of processes that will result in meeting the goals. Because the processes are unknown, or at least uncertain, the researcher can be creative in the course of action taken for achieving the requisite outcome. To further illustrate the effect of outcome controls on knowledge, we examine their use in a very different settingthe production of, say, jewelry items. In this case as well, the organization provides compensation and other types of rewards based on its desired outputs, such as the production of a certain number and type of jewelry items within a certain amount of time. The sole use of outcome controls indicates that the organization believes the processes that will lead to the best outcomes should be left to the individuals discretion. Thus, the processes followed by workers will vary considerably as they individually try to achieve the requisite goals. The highly unique and intricate jewelry pieces seen in the jewelry markets of India, Indonesia, and Thailand, for example, are characteristic of such individualized processes.

Since outcome controls do not give subordinates discretion over the goals they must pursue, Snell (1992) notes that they can elicit myopic behavior wherein subordinates pur-

sue specified targets to the exclusion of other important although untargeted goals.

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In light of the above, we propose the following propositions relating to outcome controls.7 Proposition 1a: The more tacit, incomplete, and diverse the process-related knowledge, the more effective the use of outcome controls will be. Proposition 1b: The more explicit, complete, and nondiverse the outcomerelated knowledge, the more effective the use of outcome controls will be. Now that we have identified the knowledge attributes associated with outcome controls, we can determine how the use of outcome controls influences the knowledge management process of a firm. Table 2 shows the effect of this control on process-related and outcome-related knowledge for each of four stages of the knowledge management process. We discuss this in detail below. Outcome controls and the stages of the knowledge management process. As noted earlier, the knowledge management process has four important stages, initiated by the acquisition of new knowledge that is either internally developed or externally acquired. As suggested by the two examples given earlier, outcome controls are highly amenable to the knowledge at7 Note that it is not our intention to argue for a particular causal direction between controls and knowledge. Thus, if a firm uses a certain control, the nature of knowledge managed will be consistent with that control. By the same token, if the firm requires a particular type of knowledge, it should use the type of control consistent with this knowledge.

tributes associated with new knowledge development. The ability to generate new knowledge relies a great deal on the use of open-ended search strategies, ongoing trial and error, subjective judgment, and continuing reevaluation of existing knowledge in light of new information uncovered (Nonaka, 1994). Such unsystematic processes for discovering new knowledge depend on reasoning that is difficult to codify or clearly convey to others. These highly internalized methods for new knowledge acquisition reveal its tacit nature. The impetus for new knowledge acquisition is also driven by the inadequacy or incompleteness of existing knowledge for achieving organizational ends. There is a need to add to existing knowledge so that it has more meaning or relevance. Despite this, the source of the new knowledge is not obvious, its validity is unproven, and success is unassured. The uncertainty associated with the knowledge acquisition process highlights the incomplete nature of such knowledge (Galbraith, 1974). Finally, the greater the diversity of existing knowledge, the better the assimilation of new knowledge will be. As Cohen and Levinthal (1990) have noted, for new knowledge to be absorbed into the firm or by the individual, it must be related to what is already known. When individuals have diverse knowledge, they are better able to identify meaningful relationships between new and existing information and to develop new connections between types of knowledge that otherwise appear to be unrelated.

TABLE 2 The Impact of Organizational Controls on the Stages of the Knowledge Management Process
Knowledge Management Process Knowledge Acquisition Knowledge Transfer Knowledge Interpretation OutcomeRelated Knowledge Common interpretation Unshared interpretations Common interpretation Knowledge Application ProcessOutcomeRelated Related Knowledge Knowledge Originality Precision Adaptability

Control Type

ProcessOutcomeProcessOutcomeProcessRelated Related Related Related Related Knowledge Knowledge Knowledge Knowledge Knowledge Negligible Low Significant Diverse interpretations Negligible Unshared interpretations

Outcome Significant Negligible Process Clan Negligible Moderate Negligible Moderate

Significant Significant Common interpretation

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Since outcome controls are well suited for handling knowledge attributes of processes associated with tacitness, incompleteness, and diversity, we expect that the acquisition of knowledge is critical to the effectiveness of outcome controls. The explicit and complete outcome standards associated with outcome controls play an important role in this regard as well. As Simons (1994) has noted, when processes are underspecified and uncertain, the establishment of clear and indisputable boundaries has the effect of energizing and focusing the individuals creative process-related efforts toward desired goals. The result is fewer instances of misalignment between the search activities engaged in and the end results desired. In light of this, we propose the following proposition. Proposition 2a: Greater use of outcome controls is associated with greater acquisition of new process-related knowledge and is not associated with the acquisition of new outcomerelated knowledge. We noted above that outcome controls rely significantly on an individuals internalized processes for acquiring new knowledge. The embeddedness of such knowledge in the individual, though, makes it sticky and difficult to communicate to other individuals (Szulanski, 2000). The variability of the processes owing to knowledge incompleteness and their inherent complexity also reduce transferability. Because of these internalized processes, once processrelated knowledge is acquired, it will typically remain within the individual. Although there may be limited spillovers (which may occur, for example, during vicarious observation or conversation), there are no established avenues created by outcome controls through which such experiential knowledge can be systematically transmitted to others. However, this is not the case for outcome-related knowledge. The reliance of such controls on explicit, complete, and nondiverse outcome knowledge allows this knowledge to be easily transmitted to other parts of the organization. Not only is knowledge explicitness a feature that promotes transferability (Polanyi, 1967), but the lack of complexity of the underlying knowledge promotes ease of understanding. Thus, we have the following relationship.

Proposition 2b: Greater use of outcome controls is not associated with the transfer of process-related knowledge and is associated with greater transfer of outcome-related knowledge. The third stage of the knowledge management process involves interpretation of new knowledge in a manner useful to the organization. Since outcome controls rely considerably on individual initiative in searching out and bringing in knowledge from external sources, process-related knowledge will be overwhelmingly specific to the individual. Each individual uses unique search capabilities and processes that, when aggregated across all individuals in the organization, help to amass heterogeneous knowledge for organizational purposes. This role of the individual generates more varied interpretations of knowledge within the organization (Nonaka, 1994). Wide-ranging interpretations of organizational knowledge enhance the ability of the organization to address new contingencies and reduce tendencies toward groupthink (Janis, 1972). In contrast to the highly varied interpretations associated with processrelated knowledge, outcome controls will have the opposite effect on outcome-related knowledge. The explicit, complete, and nondiverse nature of outcome-related knowledge conveys information that is not open to individual interpretation. Instead, its unambiguous specification of desired outcomes will help to promote a highly understandable set of objectives that drive the behavior of organizational members. In doing so, we expect that the use of outcome controls will rise to a commonly shared understanding of organizational goals. Proposition 2c: Greater use of outcome controls is associated with more diverse interpretations of processrelated knowledge and with more common interpretations of outcomerelated knowledge. We argue that the combination of attributes relating to both process-related and outcomerelated knowledge with the use of outcome controls gives rise to the use of knowledge in highly original or novel ways. Given that the exact processes that result in a desired outcome are not specified by the organization, or known a priori, individuals will be motivated to engage

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in experimentation and to change their approaches in order to attain desired outcomes. Because the target outcome is clearly and completely specified, decision makers can consider any number of possible approaches for achieving acceptable outcomes (Simons, 1994). They are not limited to existing organizational knowledge but, instead, are free (and encouraged) to search for new knowledge and ideas based on their own unique experiences and perspectives. The knowledge they draw on can vary as necessary, giving rise to the development of new knowledge. This notion is consistent with the findings of prior studies that show that more innovative R&D projects draw on greater amounts of external information in comparison to less innovative projects (Katz & Tushman, 1981; Lee & Allen, 1982), and that outcome controls are used when originality is the goal in systems design (Henderson & Lee, 1992) and radical pharmaceutical discoveries (Cardinal, 2001). We therefore argue the following. Proposition 2d: Greater use of outcome controls is associated with greater originality in the use of knowledge. The relationship between outcome controls and the four knowledge stages is shown in Table 2. Process Controls The attributes of knowledge associated with process controls. Process controls are defined here as mechanisms that clearly specify the appropriate behaviors and processes in which employees must engage. Such controls hold the individual accountable for explicitly delineated processes rather than outcomes of these processes (Kirsch, 1996; Snell & Youndt, 1995). The use of process controls is most appropriate when the organization can reduce the domain of each individuals job into clearly specified and specialized tasks. Process controls encompass highly formalized standard operating procedures and rules, clearly established routines, specialized job descriptions, hierarchical supervisor-subordinate relationships, and highly structured groupings and settings (Jaeger & Baliga, 1985; Nonaka & Takeuchi, 1995; Sitkin & Roth, 1993). This form of control establishes rules or norms for the behavior of individuals and utilizes the surveillance method in overseeing

their work (Eisenhardt, 1985). Jaeger and Baliga describe process or bureaucratic controls in the following manner:
Bureaucratic control systems operate under norms of rationality and are characterized by a high degree of formalization. Standard operating procedures (SOPs) are the central elements of a bureaucratic control system. SOPs constitute behavior repertoires that are available to members of the organization and are written down in the form of company manuals or rule books (1985: 118).

The use of process controls implies a high level of understanding by the organization regarding the appropriate behaviors and sequence of events during the transformation process (Eisenhardt, 1985; Snell, 1992; Thompson, 1967). The necessary behaviors can be communicated clearly to the employee. Individuals are typically observed and their behaviors measured and compared to explicit prescribed operating procedures (Jaeger & Baliga, 1985; Ouchi, 1979). The knowledge is complete, since most or all of the information required by the individual to carry out his/her responsibilities is provided by the organization. In addition, the organization will use process controls only when the specific process to be followed by the individual can be characterized by less complexity. As the behaviors or activities that need to be programmed become increasingly complex, there is greater chance of error on the part of the organization in indicating the tasks or steps that lead to the required outcome. In all, processrelated knowledge associated with process controls will tend to be explicit, complete, and nondiverse (see Figure 1, lower left). The highly specialized tasks engaged in by any given individual typically will contribute only partially to the finished product.8 It will be difficult, therefore, for one individual to understand or influence the effect of the aggregated efforts of all individuals. Since each engages in only part of the overall transformation process, it becomes problematic to hold the individual responsible for the outcome of the entire process. For this reason, process controls do not rely on clearly specified outcome-related knowledge to be effective. Process controls are instead conducive to outcome-related knowledge that is dif8 Management has the more complicated responsibility of coordinating the specialized activities of each individual.

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ficult to stipulate. By the same token, the individual cannot exercise complete control over the outcome, since he/she engages in only part of the process. Because final outcomes may vary, despite following outlined procedures, individuals knowledge related to outcomes will remain incomplete. At the same time, outcomerelated knowledge is expected to be less diverse, since the individuals knowledge about the outcome only relates to his or her own part of the overall set of operations. In all, the properties of outcome-related knowledge associated with the use of process controls will be mostly tacit, incomplete, and nondiverse (see Figure 1, lower left).9 Previously, we examined two settings, a pharmaceutical research project and a jewelry manufacturer, both using outcome controls. We now consider how the nature of the knowledge changes in both of these settings when process controls are used. In these as well as any other work-related context, the use of process controls implies knowledge of the process in which the employee must engage. In the pharmaceutical research project, the specification of the process reduces the domain of the task, as well as the discretion of the individual. In her study on pharmaceutical innovations, Cardinal (2001) found that a high level of formalization and centralization improved the efficiency of information processing by focusing on tried-and-true procedures. However, since an established knowledge base is the primary source of knowledge for the R&D project, there will be little potential for significant knowledge creation. The role of new knowledge will therefore be relatively minor. To ensure that individuals are engaging in known procedures, there will be a
9 An example of process controls given by Siegel-Jacobs and Yates (1996) relates to the medical profession. These researchers note that doctors are careful to follow a detailed and highly specified protocol (a decision treelike procedure) for treating patients, to assist them in considering every major contingency and to obtain the desired outcome (i.e., the patient gets well). However, patients are different, and the treatment may not be appropriate for every patient. Even though the treatment may not be correct, the protocol is believed to represent the best knowledge associated with the treatment at this time. Therefore, doctors will avoid lawsuits if they can show that they stuck closely to the accepted protocol for treating the patient, no matter the actual outcome. In this context, even if the doctor believes an alternative approach will benefit the patient more, he or she will not use it since it violates acceptable practice.

hierarchical relationship in which senior and more experienced scientists will direct junior scientists to engage in the requisite steps. When process controls are used for manufacturing jewelry, work can be organized more easily in terms of an assembly line, with greater mechanization. A particular process is mandated, and deviation from this process is not allowed. Workers now specialize in very specific tasks associated with the stages of making a given jewelry item, as indicated in their job titles and clearly delineated descriptions. Thus, numerous job categories will exist that relate to very specific and individualized tasks. Examples of such tasks include the various stages of design, metal preparation, cutting, stamping, polishing, assembly, and packaging. By focusing on one specific task, such as polishing, the individual will have competence only in this activity. This individual will not be held accountable for meeting particular performance targets, such as producing an established number of jewelry items (since he or she is not responsible for the work performed by others), but only for his or her ability to accurately engage in his/her own job. Instead of workers being held accountable, managers will be held accountable for creating the appropriate work flow so that desired performance targets are achieved. Workers compensation is based on the number of hours worked and not the number of items produced. The jewelry outputs will be highly standardized and similar. In light of this, we argue the following. Proposition 3a: The more explicit, complete, and nondiverse the processrelated knowledge, the more effective the use of process controls will be. Proposition 3b: The more tacit, incomplete, and nondiverse the outcomerelated knowledge, the more effective the use of process controls will be. Process controls and the stages of the knowledge management process. We noted earlier that the knowledge attributes associated with outcome controls are highly conducive to new knowledge acquisition. As seen in Figure 1, the attributes associated with process controls are the opposite of those associated with outcome controls, suggesting that they will not be as appropriate for significant new knowledge ac-

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quisition. The explicit and nondiverse nature of process-related knowledge supports the highly specialized nature of job functions associated with process controls, while the completeness of knowledge points to a low need to search for new information. Such attributes suggest that process-related knowledge is readily available within the organization, and to the individual. In contrast, the outcome-related knowledge attributes suggest that knowledge relating to outcomes is less clear and less understood. Without such clear standards to guide behavior, individuals will be uncomfortable in changing the unambiguous processes that have been established by the organization. Thus, the underspecified nature of outcome-related knowledge in the case of process controls discourages the search for additional knowledge. Proposition 4a: Greater use of process controls is not associated with the acquisition of new process- or outcomerelated knowledge. While not as useful for significant new knowledge acquisition, the attributes of knowledge associated with process controls are much better for transferring process-related knowledge across the organization. Standard operating procedures, job descriptions, and rules are highly codified and, therefore, easy to transmit across the organization. The consistency and lack of diversity in the processes suggest that the knowledge can be readily distributed among individuals and organizational units. However, the specialized nature of process-related knowledge limits the need to transfer it to other individuals or parts of the organization. At the same time, outcome-related knowledge is also specific to the individual and, therefore, not necessary to transmit to others. The incompleteness and tacitness of outcome-related knowledge also inhibit its transferability. Moreover, since organizational members have specialized tasks and responsibilities, they cannot fully comprehend the relationship between others tasks and outcomes. This lack of understanding makes the distribution of outcome-related knowledge difficult as well. Proposition 4b: Greater use of process controls is associated with marginal transfer of process-related knowledge

and is not associated with the transfer of outcome-related knowledge. Since process controls rely on already existing organizational knowledge that relates to the individuals particular job, the domain of knowledge for that individual remains narrow. In light of this, we would expect the use of process controls to support diverse interpretations. Because the relevant knowledge is specialized, those individuals within the same specialized job responsibility can share their interpretations of both processes and outcomes, but this will not necessarily extend to the entire organization. The limited distribution of outcome-related knowledge suggests that individuals will maintain their own interpretations without necessarily taking into account those of others. Therefore, there may be multiple interpretations of outcome-related knowledge that are not shared among the organizational members. In all, we propose the following. Proposition 4c: Greater use of process controls is associated with multiple unshared interpretations of both process- and outcome-related knowledge. Thus far, we have noted that process controls rely on task-specific information that is readily available within the firm. There is little need to acquire new knowledge or to exchange knowledge beyond ones own task, which is clearly defined. We argue that the high level of focus on the individuals own task, almost to the exclusion of other knowledge, is conducive to creating a high degree of precision in that task. The primary benefit of using process controls, then, is to reduce the variance in methods employed in the transformation process (Grant, 1996a; Nonaka & Takeuchi, 1995; Ouchi & Maguire, 1975). Close adherence to prescribed methods and repetition reduce errors and enhance precision. Proposition 4d: Greater use of process controls is associated with greater precision in the use of knowledge. The relationship between process controls and the four knowledge stages is shown in Table 2.

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Clan Controls The attributes of knowledge associated with clan controls. Clan controls are defined here as the informal socialization mechanisms that take place in an organization and that facilitate shared values, beliefs, and understandings among organizational members (Govindarajan & Fisher, 1990; Ouchi, 1979, 1980; Rowe & Wright, 1997). Examples of such controls include the use of rituals, ceremonies, or other socialization processes and the use of transfers, meetings, teams, and task forces (Barker, 1993; Kirsch, 1996; Makhija & Ganesh, 1997). Clan controls require organizational members to have a high amount of interaction and communication (Barker, 1993; Flamholtz, Das, & Tsui, 1985).10 The social mechanisms used in the clan form of control inspire high goal congruence and common interests among organizational members. According to Floyd and Lane:
Clan control conveys information through traditions and assumes that members commitment is driven by organizational identification and common culture. . . . This communality reduces opportunism and equivocality due to the greater similarity of norms, beliefs, and priorities between members. Clan controls create the maximum tolerance for ambiguity in social arrangements, making them appropriate for conditions where behavioral specificity or output measurement is not possible (2000: 167).

Clan controls are therefore most appropriate when knowledge of the transformation process is imperfect and when the ability to measure outcomes is also low (Flamholtz et al., 1985; Ouchi, 1979). We noted above that teamwork or other forms of high employee interaction play an important role in managing knowledge for tasks that are not particular to the individual, or when individuals are highly dependent on one another to complete tasks. Clan-related mechanisms manage knowledge that is less codifiable by having individuals interact with one another, which facilitates a shared understanding of the use of the particular knowledge. The exchange of information through socialization and inter-

10 Note that process controls also may lead to some goal congruence, but what renders them effective is the specification of behaviors that can be monitored. As such, process controls can operate effectively without goal congruence, but not without written guides for behavior or without the surveillance of those behaviors.

action allows the individual decision maker to have access to diverse knowledge to the extent necessary (Hoopes & Postrel, 1999). For this reason, knowledge related to processes will tend to be tacit as well as diverse. The ability to exchange knowledge of a diverse nature allows individuals to view knowledge from multiple perspectives or interpretations (Cohen & Levinthal, 1990; Fiol, 1994; Huber, 1991). This, in turn, facilitates the ability of organizational members to recombine knowledge, allowing for new insights (Galunic & Rodan, 1998). Although process-related knowledge is both tacit and diverse, it is nonetheless complete, in that all the necessary knowledge for completing tasks can be found within teams or other parts of the organization (see Figure 1, bottom right). Outcome-related knowledge associated with clan controls is also tacit, complete, and diverse. Clan controls, unlike many other controls, have the ability to target and achieve longer-term and broader tasks and goals. Their far-reaching nature and orientation toward the future rely on tacit understandings of how the world works. Mechanisms that develop a strong and enduring sense of organizational identity provide the backbone for this ability. The fact that organizational goals are generally well understood and accepted by organizational members suggests that knowledge will be complete. This is consistent with Floyd and Lanes (2000) observation that, rather than analyzing data or methodically searching for the one right answer, clans reduce uncertainty by inventing both the questions and the answers within their view of the world. Nonetheless, their ability to consider more than one right answer suggests the ability to handle knowledge diversity. When clan controls are used in the pharmaceutical research project, the focus is now on the ability to draw on the groups collective knowledge, rather than that of one individual. The group works to develop a shared understanding of desired outcomes, relying heavily on a common perspective of future directions. For example, the groups aim may be to improve a drug for Alzheimers disease by incorporating knowledge from group members related to this drug. The specific goals may be to limit adverse side effects, reduce dosage, and improve the drugs potency. Although members of the group have a shared understanding of the goals and expected outcomes, each member may possess different

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knowledge, stemming from diverse competencies, experiences, and insights. This broadens the realm of knowledge individuals can draw on in order to produce drug-related ideas. The strong focus on the group reduces the likelihood that members will look extensively for external information; instead, they will rely primarily on internal resources (Cross, Parker, Prusak, & Borgatti, 2001; Nonaka, 1994). By the same token, the shared incentives that clan controls utilize help to create a group culture that ensures harmony of the work processes and the creation of similar outlooks. In the case of jewelry manufacturing as well, the use of clan controls emphasizes group effort in producing jewelry items. In this case, individuals will now be able to engage in multiple tasks related to the jewelry-making process, and to switch tasks as necessary. They can draw on others ideas about how to improve a design or technique, thereby developing an excellent understanding of the entire manufacturing process and outcomes. Processes can be more flexible to take advantage of this broader knowledge, which can be drawn on as necessary to improve designs and techniques used. In particular, designs and techniques will strongly reflect the internal knowledge sources and ideas of the group members. We therefore propose the following. Proposition 5a: The more tacit, complete, and diverse the process-related knowledge, the more effective the use of clan controls will be. Proposition 5b: The more tacit, complete, and diverse the outcomerelated knowledge, the more effective the use of clan controls will be. Clan controls and the stages of the knowledge management process. The knowledge attributes associated with clan controls facilitate new knowledge acquisition, although less so than those associated with outcome controls. Clan controls allow for the use of tacit knowledge, which we noted earlier was critical for various processes important for the acquisition of knowledge. Such controls also facilitate the use of diverse knowledge, which helps employees to accept and understand new knowledge from disparate sources (Cohen & Levinthal, 1990). However, clan controls assume that the broader

knowledge resources of the group are adequate for accomplishing tasks. This assumption of knowledge completeness serves to limit the search for new knowledge. It does not trigger an external search for knowledge, which plays an important role in developing particularly novel connections and innovative relationships between existing and new knowledge. Instead, individuals will rely heavily on the knowledge that is readily available to them within the organization. This will give rise to the development of more incremental knowledge. Proposition 6a: Greater use of clan controls is associated with moderate acquisition of new process- and outcome-related knowledge. Because of their emphasis on socialization and use of rich communication modes, clan controls are particularly appropriate for the internal transfer of tacit and diverse knowledge. The intrafirm transfer of tacit knowledge in particular is typically laborious, time consuming, and intricate (Szulanski, 2000), since it is only revealed through its ongoing application (Polanyi, 1967). For this reason, tacit knowledge is most effectively transferred via exchange mechanisms such as socialization (Nonaka, 1994), through which individuals to whom the knowledge is being transferred are able to interact extensively with those most familiar with the knowledge. In addition, the best organizational settings for such knowledge transfer are those in which individuals are able to experience the knowledge over time, gaining in-depth insight into its nuances and subtleties (Argote & Ingram, 2000). Of the three types of controls discussed in this article, clan controls are the most effective in providing such organizational contexts. Group settings allow knowledge transfer to take place through ongoing observation, face-toface interaction, and learning-by-doing. The interaction of individuals ensures that even sticky knowledge can easily be transmitted and received within the group. The overlapping responsibilities and combined goals of these individuals align their interests for sharing knowledge. The transfer of complex or diverse knowledge is also difficult to accomplish, requiring coordination across multiple individuals, groups, or departments. The complexities associated with knowledge dissemination of

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this kind can only be resolved through careful synchronization in terms of people, place, and time. In this regard as well, the rich communication modes associated with the socialization mechanisms of clan controls are also effective in conveying more complex or diverse attributes of knowledge. At the same time, we expect that sticky knowledge is most effectively transferred once it is complete. Incomplete knowledge creates problems for those receiving it, since its unfinished nature will cause confusion or questions relating to its role or effectiveness in the organization. Proposition 6b: Greater use of clan controls is associated with greater transfer of both process- and outcomerelated knowledge. Clan controls are also noteworthy in the number of cues that are provided to facilitate the interpretation of new knowledge. Clan control mechanisms provide multiple opportunities not only to ensure that the knowledge will be completely understood by the receiver of the knowledge but also to solidify the interpretation in line with the conveyer of the knowledge, and in a faster time frame (Daft & Lengel, 1986). The group setting is also important in that it is able to provide rapid feedback in a way that secures the receivers comprehension of more subtle nuances of the new knowledge (Cross et al., 2001). These features of clan controls are important in that they help to develop a more common interpretation of the knowledge. Thus, while clan controls are similar to outcome controls in that they rely on more diverse knowledge than process controls, they can be distinguished from outcome controls in terms of their reliance on more uniform interpretations of knowledge. Proposition 6c: Greater use of clan controls is associated with more common interpretations of both processand outcome-related knowledge. Since clan controls rely on a larger and more multidimensional body of knowledge than process controls, their use allows individuals to develop a broader understanding of the significance of their work and its relationship to the work performed by others. Such a broader understanding, strengthened by less reliance on highly specified job descriptions and rules, allows individuals to develop greater flexibility in

their work styles. Individuals are free to adapt their procedures or approaches to unanticipated variations in the work setting or to deal with other unscripted issues, as well as to be open to the knowledge of others that can help them do so (Nonaka & Takeuchi, 1993). In fact, a particularly important benefit is the ability to change performance targets, since this requires a change in the methods for achieving the targeted performance. While the knowledge base of clan controls is greater than that of process controls, it is more limited than that of outcome controls. This is due to the fact that this knowledge is based primarily on internal sources and common perspectives, which, in turn, reduce the extent to which this knowledge can be extended in creative ways. In light of this, we propose the following. Proposition 6d: Greater use of clan controls is associated with greater adaptability in the use of knowledge. The relationship between process controls and the four knowledge stages is shown in Table 2. As seen in Figure 1, when knowledge related to both outcomes and processes is perfect, both process and outcome controls are potentially feasible, since either outcomes or processes can be monitored. However, it is important to keep in mind that such decision situations are likely to be extremely simple, given that the knowledge attributes for both processes and outcomes are highly codifiable, complete, and low in diversity or complexity. Such knowledge is not likely to be the basis of any significant firm capability (Badarracco, 1991; Grant, 1996a; Kogut & Zander, 1992, 1993). Knowledge from which firm capabilities can emanate is more likely to exhibit characteristics that include some combination of tacitness, incompleteness, and diversity.11

11 Although we agree with Ouchi (1979) and Eisenhardt (1985) that alternative controls can be used when knowledge of both processes and outcomes is high, we disagree with several examples they use to illustrate this point. For example, the case of the Apollo moon landing is suggested by Ouchi to have equal specification of process and outcome such that either could be controlled for. However, we contend that while the goal in this case is generally defined (the landing of the spacecraft on the moon), it is not sufficiently specified (where it should land, the timing of the landing, taking into account what else might be going on in the atmosphere, etc.). Instead, there is extremely detailed atten-

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CONTRIBUTIONS AND IMPLICATIONS OF THIS RESEARCH We have presented a model explaining how a firms control system plays a fundamental role in the management of the firms organizational knowledge. We have shown how any given control mechanism has the capacity to affect both the nature and flow of knowledge in a firm by the manner in which it processes particular attributes of knowledge. Because of this, we have argued that there is a fundamental hand in glove interplay between controls and knowledge within a firm, in which the firms organizational knowledge has a close relationship to the type of controls it uses. Extending this notion, the choice of controls in turn influences the firms ability to acquire, transfer, interpret, and use knowledge. As summarized in Table 2, specific controls have contrasting implications for each of these four activities, ultimately giving rise to very different knowledge management processes. From this, it also follows that when the firms managers wish to develop and utilize particular types of knowledge, they must use the control mechanism best suited for that knowledge. By calling attention to the knowledge management properties of controls, this research contributes to several streams of management literature at the same time. One such stream relates to the knowledge-based view of the firm. In prior research on the knowledge-based view, scholars have indeed recognized the critical role of organizational features in developing the firms knowledge (Badarracco, 1991; Conner & Prahalad, 1996; Grant, 1996a,b; Henderson & Cockburn, 1994; Kogut & Zander, 1992; Nelson & Winter, 1982; Nonaka & Takeuchi, 1995). Nonetheless, this work has remained vague on how organizational features actually influence the firms internal knowledge flows and create uniqueness in organizational knowledge. Our own approach provides for a more systematic consideration of the ability of organizational mechanisms to affect such knowledge flows. Delineating the properties of control mechanisms in this way extends our under-

tion to procedure, involving hundreds of ground controllers monitoring every step. This is an example of how bureaucratic controls take precedence in the face of incomplete or underspecified goals.

standing of how knowledge flows within the firm by taking it from a descriptive direction (i.e., firms use routines to manage their knowledge) to a more analytical direction (i.e., firms use standard operating procedures rather than coordination mechanisms when they require more efficient processors of explicit, nondiverse, and complete process-related knowledge). In this regard, this research also contributes to the control literature, extending the work of such researchers as Ouchi (1977), Eisenhardt (1985), and Snell (1992) by highlighting controls distinct information-processing attributes, which allow firms to manage specific types of knowledge. Finally, we add to the literature addressing the difficulties of managing organizational knowledge (Argote & Ingram, 2000; Nonaka, 1994; Spender, 1996; Szulanski, 2000) by considering in detail the relationship between controls and each of the four stages of the knowledge management process. We have demonstrated how each of these stages can vary significantly owing to the use of controls. Among other conclusions, our analysis indicates that outcome controls excel in the development of new knowledge, clan controls are superior in transferring tacit and sticky knowledge across organizational members, and process controls are most adept at using highly specialized knowledge. These and other insights bring us a step closer to illuminating the black box of organizational knowledge. We believe the model presented here provides an important foundation for future work in a number of areas. One area that requires further research is the relationship between organizational knowledge and firm capabilities. The notion of organizational capabilities remains a critical concept in the management literature, yet there is little understanding, to date, of how such capabilities are created and maintained. Since prior work has suggested that firm capabilities are based on organizational knowledge (Grant, 1996a; Kogut & Zander, 1992), we believe that the model presented here may be the basis of useful insights in this direction. Our analysis indicates that each type of control results in specific proficiencies in the use of knowledge owing to different knowledge management processes. Such proficiencies in knowledge are likely to be critical for the development of its capabilities. Future research can therefore extend the present work to show how organization-

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al knowledge translates into organizational capabilities. In a similar vein, while prior work has indicated that tacitness plays a role in the development of organizational capabilities, other attributes have not been considered in this regard. In subsequent studies researchers should examine how the tacitness, completeness, and diversity of knowledge might vary across different capabilities. In our quest to understand the relationship between controls and knowledge, it was necessary not only to consider the attributes of knowledge but also to delineate four important stages in the development and flow of knowledge within the firm. These features of the model have implications for other knowledge-related issues relating to the firm, including those pertaining to organizational learning and absorptive capacity. As Huber (1991) notes, the processes of knowledge acquisition, transfer, and interpretation also have relevance for learning. Yet the particular organizational mechanisms that give rise to such processes have not been considered much, thereby limiting our understanding of how learning is actually accomplished, particularly at the lower levels of the firm. For this reason, there is considerable potential to develop the relationship among controls, knowledge management, and different forms of learning. We believe that the model presented here may be the basis of understanding the features of the firm that influence a firms knowledge acquisition and assimilation associated with learning. Finally, this research has important empirical implications. There are relatively few empirical examinations of organizational knowledge at this time, which is due to the complexity of such undertakings. Nonetheless, empirical evidence on organizational knowledge would be very helpful in advancing this work. The model presented in this article articulates clear relationships between controls and knowledge attributes, controls and the development of knowledge proficiency, and the impact of controls on the other stages of the knowledge management process. These relationships, as evidenced in the propositions, are amenable to empirical measurement. We therefore hope that researchers will take up the challenge of empirically testing these relationships. To uncover the subtle relationships associated with knowledge flows, we suggest that

qualitative methodologies be employed alongside quantitative techniques. Identifying the knowledge management processes in an empirical setting may require a longitudinal approach as well, since knowledge flows occur over time. Initial empirical studies should examine firms in the same industry, since the nature of knowledge is likely to differ considerably across industry contexts and to create difficulties in making comparisons. However, once we are more comfortable with the control and knowledge relationship, it will also be fruitful to observe if this relationship holds up in contrasting settings and to identify the ways in which it might differ. We therefore suggest that subsequent work focus on firms in different types of industries as well.

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Karynne L. Turner is an assistant professor of strategic management at the J. Mack Robinson College of Business, Georgia State University. She received her Ph.D. from the University of Pittsburgh. Her current research interests focus on understanding knowledge management within firms and the impact of strategic control systems on the development of organizational capabilities. Mona V. Makhija is an associate professor of international business at the Fisher College of Business, The Ohio State University. She received her Ph.D. from the

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Turner and Makhija University of WisconsinMadison. Her research interests pertain to international strategy, including issues relating to knowledge flows within organizations and across national contexts.

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