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markets, hierarchies, and networks (B. Kogut & Zander, 1996; Nault, 1998; Podolny & Page,
1998; Powell, 1990). In a hierarchy approach of allocation, knowledge is readily available in the
organization, as the organization has complete control over the knowledge process.
Bureaucracies rely on rationalized knowledge
i
that is collected mostly in databases, reports, or
handbooks (Weiss, 1998). In line with Weber’s ([1921]1968) depiction of the ideal-type
bureaucracy, individuals are arranged in a bureaucracy to carry out specialized tasks, based on
explicit rules and procedures (Cohen & Bacdayan, 1994; Cyert & March, 1963). In this formal
organization mechanism, knowledge is likely to be structured with explicit rules of action. A
recent network theory-based explanation for the theory of the firm argues that organizations have
advantages over markets because they can mobilize social capital embedded in human relations
in order to create intellectual capital (Bouty, 2000; Nahapiet & Ghoshal, 1998).
Prior research has shown that, while hierarchies are generally efficient for carrying out
specialized tasks based on explicit rules and procedures (Arrow, 1974; Cohen & Bacdayan,
1994; Cyert & March, 1963; Weber, [1921]1968; Weiss, 1998; Williamson, 1975), informal
networks more efficiently diffuse, utilize and integrate knowledge (Brown & Duguid, 2001;
Grant, 1996; Grant & Baden-Fuller, 1995; B. Kogut, 2000; B. Kogut & Zander, 1996; Nault,
1998; Podolny & Page, 1998; Powell, 1990). Kogut & Zander (1992) propose several
coordination mechanisms for knowledge transfer operating on different organizational levels.
They argue that transfer of knowledge from an individual to a group level occurs through the
development of unique language or code which allows group members to learn who knows what
and to coordinate their activities. On the organizational level the transfer of knowledge within
the same function (horizontally) is realized by boundary spanners. At the same time, a vertical
transfer of knowledge among different organizational functions relies on the use of higher-order
organizing principles through formal and informal structures. Coordinating different units to
share their knowledge is critical to enhance an organization’s capabilites (B. Kogut & Zander,
1996). Similarly, Tsai (2002) suggests that knowledge sharing within a multiunit organization
requires both formal and informal structures as coordination mechanisms. Whereas Tsai
differentiates between formal hierarchical structure and informal lateral relations, Gittell (2002)
proposes a set of coordination mechanisms without specifying their formal or informal character:
routines, boundary spanners, and team meetings.
Convention