Journal of Intellectual Capital

A knowledge-based theory of the firm to guide in strategy formulation

Karl-Erik Sveiby
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JIC
2,4
344
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Journal of Intellectual Capital,
Vol. 2 No. 4, 2001, pp. 344-358.
# MCB University Press, 1469-1930
The current issue and full text archive of this journal is available at
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A knowledge-based theory of
the firm to guide in strategy
formulation
Karl-Erik Sveiby
Swedish School of Economics and Business Administration,
Helsinki, Finland
Keywords Organizational theory, Information, Strategic management, Intangible assets,
Publishing
Abstract 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. 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.
Towards a knowledge-based theory of the firm
In the last two decades of the twentieth century the resource-based theory of
the firm has received attention as an alternative to the traditional product-
based or competitive advantage (Porter, 1980) view (Blackler, 1995; Wernerfelt,
1995). It is a perspective on organisation and strategy formulation inspired by
epistemology and suggesting a knowledge-based theory of the firm.
Venzin et al. (1998) make a distinction between three epistemologies that
may guide practice and research under such a perspective: the cognitivist
(represented by Simon, 1982), the connectionist (represented by Zander and
Kogut, 1995) and the autopoietic (introduced by Maturana and Varela, 1980).
The cognitivist perspective assumes organisations to be open systems, which
develop knowledge by formulating increasingly accurate ``representations'' of
the world. The more data and information organisations can gather the closer
the representation will be. Hence most cognitivist perspectives equate
knowledge with information and data. The connectionist epistemology the
organisation still ``represents'' its outside world, but the process of
representation reality is different. As in cognitivist epistemology information
processing is the basic activity of the system.
Autopoietic epistemology provides a fundamentally different understanding
of the input into a system. Input is regarded as data only. Knowledge is private,
This was a plenary presentation at ANZAM conference, Macquarie University Sydney,
December 2000. It has been edited slightly to suit a journal publication.
 a notion, which comes close to Polanyi's (1958) concept of ``personal'' A knowledge-
knowledge. Autopoietic systems are thus both closed and open. Open to data, based theory of
but closed to information and knowledge, both of which have to be interpreted the firm
inside the system. Autopoietic systems are self-referring and the world is thus
not seen as fixed and objective; the world is constructed within the system and
it is therefore not possible to ``represent'' reality. An organisation can be seen as
a group of individuals who have created an emergent common frame of 345
reference.
Both Nonaka and Takeuchi (1995) and Sveiby (1997) come close to such an
epistemology. Building on Plato et al. (1995) and von Krogh et al. (2000) define
knowledge as a justified true belief: when somebody creates knowledge, he or
she makes sense out of a new situation by holding justified beliefs and
committing to them (von Krogh et al., 2000). The emphasis in this definition is
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on the conscious act of creating meaning.

Building on Polanyi (1958) and Wittgenstein (1995), Sveiby (1994, 1997)
defines knowledge as a capacity-to-act (which may or may not be conscious).
The emphasis of the definition is on the action element: A capacity-to-act can
only be shown in action. Each individual has to re-create his or her own
capacity-to-act and reality through experience ± a view which is akin to
constructivism (von Glaserfelt, 1988).
Knowledge is dynamic, personal and distinctly different from data (discrete,
unstructured symbols) and information (a medium for explicit communication).
Since the dynamic properties of knowledge are most important for managers,
the notion individual competence[1] can be used as a fair synonym to a
capacity-to-act.

A knowledge-based theory for strategy formulation

It follows from the discussion above that strategy formulation should start
with the competence of people. People are seen as the only true agents in
business; all tangible physical products, assets as well as the intangible
relations, are results of human action and depend ultimately on people for their
continued existence. People are seen to be constantly extending themselves into
their world by tangible means such as craft, houses, gardens and cars and
through intangible associations with corporations, ideas, and other people.
McLuhan (1967), calls these intangible extensions ``media''. Inspired by
McLuhan, Sveiby (1997) suggests that people in organisations create external
and internal structures in order to express themselves. The structures are not
objects. Structures should be seen as constructed in a constant process by
people interacting with each other (Weick, 1977, 1983). If one looks for a
structure one will not find it. What one will find are events linked together.
These sequences, their pathways and their timing are the forms we tend to
make into objects. Most ``things'' in organisations are such relationships, so
verbs such as ``knowing'' and ``organising'' are better descriptions than the
nouns knowledge and organisation.
 JIC People in an organisation can use their competence to create value in mainly
2,4 two directions: externally or internally. If the managers of a car or soap
company direct the efforts of their people internally, they may create tangible
structures such as machinery and tools and intangible structures such as better
processes and new designs for products. When they direct their attention
outwards, they can create, in addition to tangible things, such as cars or soap,
346 intangible structures, such as customer relationships and new experiences.

Three families of intangible assets

The external structure family[2] consists of relationships with customers and
suppliers and the reputation (image) of the firm. Some of these relationships
can be converted into legal property such as trademarks and brand names. The
value of such assets is primarily influenced by how well the company solves its
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customers' problems, and there is always an element of uncertainty here.

Reputations and relationships can be good or bad, and can change over time.
They are partly independent of individuals.
When people work internally they create an internal structure. The internal
structure consists of patents, concepts, models, and computer and administrative
systems. These are created by the employees and are thus generally ``owned'' by
the organisation. The structure is partly independent of individuals and some of
it remains even if a large number of the employees leave.
Also, the informal organisation, the internal networks, the ``culture'' or the
``spirit'' belongs to the internal structure. It is useful to include also the support
staff, accounting, IT, HR and management in the internal structure family,
since they are the keepers of the organisation.
Even if the most valuable individuals leave a company that depend heavily
on individuals, such as a consultancy firm, at least parts of both the internal
and the external structures will probably remain intact and can serve as a
platform for a new start (Sveiby and Risling, 1986; Sveiby, 1992).
The individual competence family consists of the competence of the
professional/technical staff, the experts, the R&D people, the factory workers,
sales and marketing ± in short, all those that have a direct contact with
customers and whose work are within the business idea.
The distinction between professional/technical staff and support/managerial
staff is made because their different roles determine how they relate to each
other so it is useful for strategy formulation and action planning. The common
divide between professional experts and administrative staff in knowledge-
intensive firms (Sveiby and Lloyd, 1987; Sveiby, 1992, 1997) is, for instance,
explained by the theory as lack of knowledge sharing between the two.

Leverage knowledge transfers to create value

To appreciate why a knowledge-based theory of the firm can be useful for
strategy formulation let us consider some of the features that differentiate
knowledge transfers from tangible goods knowledge transfers. In contrast to
tangible goods, which tend to depreciate in value when they are used,
knowledge grows when used and depreciates when not used. Competence in a
 language or a sport requires huge investments in training to build up ± A knowledge-
managerial competence takes a long time on-the-job to learn. If one stops based theory of
speaking the language it gradually dissipates.
The manufacturing and transportation of physical goods from suppliers, via
the firm
a factory to a buyer, gave birth to the concept of the value chain. If we see the
organisation as creating value from knowledge transfers together with its
customers the value chain collapses and the relationship should better be seen 347
as a value network (Allee, 2000); an interaction between people in different roles
and relationships who create both intangible (knowledge, ideas, feedback, etc.)
and tangible $-value.
In contrast to the value chain the intangible value in a value network grows
each time a transfer takes place because knowledge does not leave the creator.
The knowledge I learn from you adds to my knowledge but does not leave you.
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Thus, from an organisational viewpoint the knowledge has effectively doubled.

Knowledge shared is knowledge doubled. The key to value creation lies in how
effective these communications and conversions are and the major issue
strategy for formulation is: how can the leverage be used to create value for the
firm? The value creation is primarily determined by the tacit/explicit transfer
of knowledge between individuals and in the conversion of knowledge from
one type to another (Nonaka and Takeuchi, 1995), see Figure 1[3].
The choice of the words ``knowledge transfer'' may suggest a one-directional
movement of knowledge. This is not true. Knowledge transfer between
individuals tends to improve competence of both individuals and team work
tends to be a team co-creation of knowledge. However, it helps strategy
formulation and action planning to distinguish directional components of the
activities, hence the term. Since knowledge cannot be managed the knowledge
strategist looks at enabling (von Krogh et al., 2000) activities rather than
command-control activities.
An organisation's boundaries become irrelevant if the customers and
suppliers are included as one of the families of the ``firm''. The importance is

Figure 1.
The firm from a
knowledge-based
perspective
 JIC placed on how effective the value creation is in the whole system, thus the issue
2,4 of whether an individual is a formal employee or a customer or a contractor is
not important as long as the relationship generates value. An ex-employee can,
for instance, be more valuable as a customer, a fact long exploited by the
professional services firms.

348 The nine knowledge strategy questions

Given the framework above, we can distinguish nine basic knowledge
transfers, which create value for the organisation. Enabling activities that form
the backbone of a knowledge strategy, are to be aimed at improving the
capacity-to-act of people both inside and outside the organisation. These
involve knowledge transfers:
(1) between individuals;
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(2) from individuals to external structure;

(3) from external structure to individuals;
(4) from individual competence into internal structure;
(5) from internal structure to individual competence;
(6) within the external structure;
(7) from external to internal structure;
(8) from internal to external structure; and
(9) within internal structure.
The nine knowledge transfers exist in most organisations. However, they tend
not to be coordinated in a coherent strategy, because management lack the full
perspective that a knowledge-based theory may give them. Most organisations
also have legacy systems and cultures that block the leverage. From an
individual viewpoint, knowledge shared may be opportunity lost if the effect of
the sharing is lost career opportunities, extra work and no recognition.
Therefore many of good initiatives go to waste or neutralise each other.
Investing in a sophisticated IT system for knowledge sharing is, for
instance, a waste of money if the organisation's climate is highly competitive ±
only junk will be shared. Reward systems that encourage individual
competition will effectively block efforts to enhance knowledge sharing. Lack
of standards and poor taxonomies reduce the value of document handling
systems. A program for knowledge sharing with customers are neutralised by
red tape prohibiting sharing of commercial secrets. Efforts to use ex-employees
for building marketing relationships are useless if alumni programs are
delegated to the administrative function. Data repositories do not improve
individuals' capacity-to-act unless the databases are made highly interactive.
The AffaÈrsvaÈrlden case (see Figure 2) illustrates how important it is to
integrate all activities in a strategic framework, so they leverage each other and
do not neutralise investments made in other areas.
 A knowledge-
based theory of
the firm

349

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Figure 2.
The nine knowledge
transfers

1. Knowledge transfers between individuals

Knowledge transfers between individuals concern how to best enable the
communication between employees within the organisation. The strategic
question is: how can we improve the transfer of competence between people in
our organisation? The most important issue is probably about trust in the
organisation (see, for instance, Huener et al., 1998). How willing are people to
share what they know? Answers to such questions lead towards activities
focussed on trust building, enabling team activities, induction programs, job
rotation, master/apprentice schemes and so forth.
One example is Oticon, the Danish hearing-aid manufacturer established in
1905, redesigned whole work areas to create an atmosphere of openness,
flexibility, and sharing. The company emphasizes ``live'' interaction. Stand-up
coffee bars encourage impromptu meetings, and ``dialogue rooms'' with a table
and chairs help employees relax while solving problems or sharing knowledge.
Oticon even locked up elevators so there would be more ``accidental'' meetings
in the stairwell. The company believes that paperwork hampers the exchange
of information because it is slower and more formal than oral communication.
The company therefore designated a ``paper room'', the only room where paper
is ``safe''. Even electronic mail is discouraged in favor of face-to-face
communication. These tactics have contributed towards live dialogue
becoming an integral part of Oticon's business, so much so that other forms of
communication are almost non-existent (LaBarre, 1994).
Personnel rotation programs expose employees to expertise held locally and
tacitly and are common. For instance, every executive including the CEO at
 JIC Southwest Airlines spends at least one day every quarter as a baggage handler,
2,4 ticket agent, or flight attendant. This ``shop-floor'' experience keeps the
knowledge of the operation fresh in the minds of all people. It also improves
communication across all levels (Fambare 1989).

2. Knowledge transfers from individuals to external structure

350 Knowledge transfers from individuals to external structure concern how the
organisation's employees transfer their knowledge to the outer world. The
strategic question is: how can the organisation's employees improve the
competence of customers, suppliers and other stakeholders? Answers to such
questions lead towards activities focussed on enabling the employees to help
customers learn about the products, getting rid of red tape, enabling job
rotation with customers, holding product seminars, and providing customer
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education. For example, consultants at McKinsey, the US-based consulting

firm, are encouraged to spend time on publishing their research and methods in
order to build the reputation of the firm.
Baxter International markets healthcare products and has extended its
offering to include service to hospitals. Baxter employees now mix drugs in
intravenous solutions and act as brokers for other vendors (Harari, 1994).

3. Knowledge transfers from external structure to individuals

Employees learn a lot from customer, supplier and community feedback: ideas,
new experiences, feedback and new technical knowledge. Knowledge transfers
from the external structure to individuals concern how the organisation's
employees can learn from the external structure. This is the counterpart of
section 2. Organisations tend to have systems that capture such knowledge (see
section 7), but they are scattered, not measured and hence not systematically
influencing strategy formulation. The strategic question is: how can the
organisation's customers, suppliers and other stakeholders improve the
competence of the employees? Answers to such questions lead towards
activities focused on creating and maintaining good personal relationships
between the organisation's own people and the people outside the organisation.
Examples: Adding a knowledge dimension to traditional dollar-based sales and
revenue reporting, enables an organisation to follow up such intangible
revenues (Sveiby, 1998). Employees at Betz Laboratories, in Trevose,
Pennsylvania, frequently participate in its customers' quality management
teams in order to gain a better understanding of, and even anticipate, customer
needs. This knowledge is used to develop products that will boost customer
sales. Betz measures value added from this knowledge by tracking its
customers' return on investment, and its own employees receive awards for
outstanding efforts to increase these returns (Garvin, 1993).

4. Knowledge transfers from competence to internal structure

Huge investments were made in the 1990s in order to convert (often tacitly
held) individual competence into data repositories. The idea was that
information in such repositories would be shared with the whole organisation.
Indeed, the manufacturers of such database software have been so successful
 that many managers believe that such approaches are equal to ``knowledge A knowledge-
management''. The strategic question is: how can we improve the conversion of based theory of
individually held competence to systems, tools and templates?
Answers to such questions lead towards activities-focused tools, templates,
the firm
process and systems so they can be shared more easily and efficiently. My
argument in this paper is that this is only one of nine possible strategic
activities and to focus one's investments on databases and document handling, 351
etc., will not by far realise the full value of a more strategic approach based on a
knowledge-based theory of the firm balancing all nine knowledge transfers.
Examples abound and are beyond the scope of this paper: AI systems for
medical diagnostics, intranets, document handling systems, databases, etc.

5. Knowledge transfers from internal structure to individual competence

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This is the counterpart of 4, above. Once competence is ``captured in a system''

it needs to be made available to other individuals in such a way that they
improve their capacity to act, otherwise the investment is a waste. The
strategic question is: how can we improve individuals' competence by using
systems, tools and templates?
Answers to such questions lead towards activities focused on improving the
human-computer interface of systems, action-based learning processes,
simulations and interactive e-learning environments. Examples: IKEA, the
Swedish furniture company, uses customised simulations for speeding up the
learning of its warehouse employees. The Copeland Corporation, a
manufacturer of compressors, changed its entire manufacturing approach based
on the results of a single demonstration effort, in which a multifunctional team
designed a demonstration factory to manufacture a new product line.
Experimentation, whether an ongoing program or a demonstration project,
helps individuals move from superficial knowledge to a more basic
understanding of its processes ± from knowing about something to learning
how and why. The corporation was able to transform from a high-cost operation
with marginal quality to a 25 percent market share in two years (Garvin, 1993).

6. Knowledge transfers within the external structure

What do the customers tell each other about the services of an organisation? A
knowledge perspective adds a richer range of possible activities to the
traditional customer satisfaction surveys, by focussing on how the competence
of customers is transferred between the stakeholders in the external structure.
The strategic question is: how can we enable the conversations among the
customers, suppliers and other stakeholders so they improve their competence?
Answers to such questions lead towards activities focused on partnering
and alliances, improving the image of the organisation and the brand equity of
its products and services, improving the quality of the offering, conducting
product seminars and alumni programs. Examples: Danish biomedical
producer, Novo, actively engages in building local communities to improve the
image of its products. Book publisher, Berrett-Koehler, runs seminars for its
book buyers featuring its authors as speakers.
 JIC 7. Knowledge transfers from external to internal structure
2,4 Knowledge transfers from external to internal structure concern what
knowledge the organization can gain from the external world and how the
learning can be converted into action. The strategic question is: how can
competence from the customers, suppliers and other stakeholders improve the
organisation's systems, tools and processes and products?
352 Answers to such questions lead towards activities focused on empowering
call centres to interpret customer complaints, creating alliances to generate
ideas for new products, R&D alliances, etc. Example: Frito-Lay, the US potato
chips maker, uses its sales force to collect data about their customers. The data
are analysed and fed back to their sales people empowering them with superior
customer knowledge and competitive intelligence.
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8. Knowledge transfers from internal to external structure

This is the counterpart of 7, above. The strategic question is: how can the
organisation's systems, tools and processes and products improve the
competence of the customers, suppliers and other stakeholders?
Answers to such questions lead towards activities focused on making the
organisation's systems, tools and processes effective in servicing the customer,
extranets, product tracking, help desks, e-business, etc. Examples: Ernst &
Young allows its clients to tap into its own tax and legal database, ``Ernie''. Ritz
Carlton, the hotel chain renowned for its service, has installed a customer
information database with global access. All staff are required to fill in cards
with information from every personal encounter with a guest. These data plus
guest profiles are stored and printed out to all staff in order to ensure personal
treatment of all guests.

9. Knowledge transfers within internal structure

The internal structure is the supporting backbone of the organisation. The
strategic question is: how can the organisation's systems, tools and processes
and products be effectively integrated? Answers to such questions lead
towards activities focused on streamlining databases, building integrated
IT systems, improving the office layout, etc. Example: KnowledgeCurve,
PricewaterhouseCooper's intranet integrates several thousands of databases
previously held individually or locally.
In summary, the nine knowledge questions are now illustrated in Figure 3.
To illustrate the application of the knowledge-based perspective and the
concepts discussed above, I will now provide a brief illustration of the
application of these concepts in which I was personally involved.

AffaÈrsvaÈrlden: knowledge strategy gives runner-up advantage

The competition between the two weekly Swedish business magazines
AffaÈrsvaÈrlden (AFV) and Veckans affaÈrer (VA) offer a vivid illustration of the
value of a knowledge-focussed strategy in publishing, one of the oldest
industries on earth. There are substantial advantages of scale in the printing
process, because loading the press with plates and paper and adjusting it
 A knowledge-
based theory of
the firm

353
$
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Figure 3.
The nine knowledge
strategy questions

represents a large fixed cost; after that, the marginal cost of printing the second
copy is no more than maybe 10 per cent of the average cost. Thus the larger the
imprint, the lower the cost per page. The leverage is not as extreme as copying
a CD, but not far from it.
The cost advantage enjoyed by a larger paper enables it to hire good
journalists and maintain a higher overall level of editorial quality. This can be a
ticket to a virtuous circle of more readers who provide more resources, which
enable better quality, which attracts more readers, etc.
Even if the smaller magazine keeps lower prices than the larger, the larger
and (for the magazine) more profitable advertisers tend to prefer to place their
advertisements in a large magazine, because it gives them access to a larger
audience. Publishers know that, once established, the largest newspaper or
magazine in a market is a licence to print money (see Figure 4).
AFV, being less than one-tenth the size of VA was close to bankruptcy in
1977. The printing costs alone were 30 per cent higher for AFV, even though its
pages contained only half as much full-color print as VA's. The journal's new
owners in 1978 thus faced a formidable competitive barrier and had no
alternative but to try a different strategy than VA. AFV adopted a more
knowledge-focused strategy.

AffaÈrsvaÈrlden's knowledge strategy

The knowledge strategy gave AffaÈrsvaÈrlden a distinct competitive advantage
on the market for financial information. The strategy and some of the activities
went against ``common sense'' in publishing, but its ultimate success made it a
``cult publication'' in the 1980s and created a following among other journals
 JIC
2,4

354

Figure 4.
In the 1960s and 1970s
Veckans affaÈrer printed
six times as many pages
as AffaÈrsvaÈrlden.
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Towards the end of the

1980s the difference had
shrunk to twice as many

and publishers in the country. A summary of AffaÈrsvaÈrlden's knowledge

strategy is found in Figure 5.
Sveiby (1994) identified two features that contributed most of the difference
in margin during the period 1980-1993:
(1) High editorial productivity. In 1983-1984, the AFV journalists wrote
twice as many pages as their colleagues on the VA staff (133 compared
to VA's 62). This difference in editorial productivity was sustained for
15 years. Contributing knowledge strategy initiatives were:

Figure 5.
AffaÈrsvaÈrlden
knowledge-focussed
strategy
 . Recruit highly-educated staff. AFV journalists have access to more A knowledge-
expertise in-house because they all had MBAs or higher, whereas based theory of
VA's journalists rarely held such degrees. Higher education also
gives know-how in information processing.
the firm
. Create collaborative climate. No individual by-lines on the articles
reduced the traditional competitive climate among journalists.
Articles written by teams, ``piggy-backing'' at interviews and 355
master/apprentice model supported tacit knowledge transfer. Open
office design (also in sales departments and for managers) supported
informal information knowledge transfers.
. Build flat organisation. Visible managers, employee ownership and
profit sharing contributed to a shared vision and the collaborative
climate.
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. Invest in new editorial technology. AFV was at least one year faster
than the competitor VA, sometimes two years, in implementing the
new technologies that revolutionised publishing during the 1980s.
. Computerise analytical models. AFV's analysts were early in
computerising their analytical models and basic number crunching.
Computerisation freed up time to do more qualified analyses.
(2) Low staff turnover. The financial markets in the 1980s were exploding
(such as the IT markets in the 1990s) and AFV's financial analysts were
prime targets of the investment bankers. The ownership model and the
collaborative culture were the strategic initiatives that worked as
``golden handcuffs'' and kept the staff turnover at 5 per cent to 7 per cent
throughout the whole period, while VA suffered at least twice the turnover.
AFV proved the value of its strategy by being more profitable than VA during
the whole period (see Figure 6).
When the depression of the 1990s hit the Swedish financial markets, both
magazines came under heavy pressure. VA was hardest hit because its
editorial concept involved high fixed costs. AFV had lower fixed costs and a
much more flexible concept and was thus able to adjust rapidly by reducing the
number of pages and cutting down its fixed costs. AFV continued to operate at
a profit while VA went into the red.
Veckans affaÈrer's problems caused its publishers to decide, with effect from
March 1994, to split it into two journals: a smaller, cheaper weekly with a
different concept and a more expensive monthly.
After 18 years (!) of single-minded head-on competition, AFV had forced the
leader to move out. AffaÈrsvaÈrlden continues to this day (year 2000) to be one of
the most profitable weeklies on the Swedish market.

Conclusions
In the above paper, I have argued that a knowledge-based strategy formulation
should start with ``the primary intangible resource'', the competence of people.
People can use their competence to create value in two directions, by
 JIC
2,4

356
Figure 6.
AffaÈrsvaÈrlden's focus on
managing the
intangibles enabled it to
maintain a higher
profitability than the
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main contender, Veckans

affaÈrer, during most of
the period

transferring and converting knowledge externally from or internally to their

organisation. The external transfer involves intangible relationships with
customers and suppliers and forms the basis for the reputation (image) of the
firm. Some of these relationships can be converted into legal property such as
trademarks and brand names. The value of such intangible resources is
primarily influenced by how well the company solves its customers' problems.
The internal transfer relates to explicit administrative processes, internal
networks, organisational culture and the competences of individuals.
Using this framework then, nine ``basic knowledge transfers/conversions''
were identified and a number of questions were created around these transfers.
In the final section of the paper, an actual case illustration was provided which
indicated the application of these concepts.
Notes
1. The Latin root competo simply means that an actor has sufficient ability to fulfil his/her goals.
Competence is know-how + the ability of reflection. It is the expertise of mastering the rules of
the profession so well that they no longer need to be obeyed. Competence in Polanyi's sense
implies the ability of know-how within a certain domain and the ability not only to submit to
the rules but also by reflection influence the rules of the domain or the tradition. Competence
is thus not a property but a relation between individual actors and a social system of rules. A
person is competent within a tradition:
In a competent mental act the agent does not do as he pleases, but compels himself forcibly to act as he
believes he must.
Polanyi (1958) also makes an illustration of incompetence:
We draw here a distinction between two kinds of error, namely scientific guesses which have turned
out to be mistaken, and unscientific guesses which are not only false but incompetent.
An individual is thus not competent per se, rather it is the individual in a role and in a context
who is competent or not. In order to change the rules a competent individual needs a social or
communicative knowledge in addition to know-how.
2. The notion of Family was designed by Wittgenstein (1954). A family is a grouping based
on common properties. Its contrast is the Category, which is a grouping based on division
between mutually exclusive properties.
 3. Who first came up with the idea to use a Venn diagram to depict the interactions between A knowledge-
the three components is unclear. I would like to acknowledge Hubert St Onge and Charles
Armstrong. based theory of
the firm
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358

Urgent news . . .
Important information regarding this year's
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prestigious knowledge management event

KMEurope 2001
DON'T MISS this exciting opportunity to meet and discuss current KM issues
at the Emerald stand with Robert Buckman and Hubert Saint-Onge. Both are
keynote speakers at the event and editorial advisory board members/contributors
to the Emerald Knowledge Management publications ± the Journal of Intellectual
Capital and the Journal of Knowledge Management.

We are pleased to announce our attendance at the world's most popular

knowledge event for the second year running as it returns this year to follow the
enormous success of KM2000. Billed as Europe's largest, most informative and
prestigious dedicated knowledge event, KMEurope 2001 is set to attract over 100
of the top KM companies and will include keynote speakers, company
presentations, an interactive cafe and EC projects under the IST programme.
Previous contributors to Emerald Knowledge Management related publications
who will also be speaking at the event are Dave Snowden from IBM and Debra
Amidon from Entovation.

The event is set to take place at The Hague, in The Netherlands, from
27-29 November 2001. If you would like to take advantage of this fantastic
opportunity to meet with our Emerald Representatives and to discuss KM issues
with Robert Buckman and Hubert Saint-Onge at stand No. E16, or if you would
like further information regarding the event, please contact us at info@
emeraldinsight.com

We would also welcome your interest in Emerald and/or your wish to accept a
free 30-day full text trial should you be unable to make the event.
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