Valuing Internal vs. External Knowledge: Explaining the Preference for Outsiders

Abstract

This paper compares how managers value knowledge from internal and external sources. Although many theories account for favoritism toward insiders, we find that preferences for knowledge obtained from outsiders are also prevalent. Two complementary case studies and survey data from managers demonstrate the phenomenon of valuing external knowledge more highly than internal knowledge and reveal some mechanisms through which this process occurs. We found evidence that the preference for outsider knowledge is the result of managerial responses to (1) the contrasting status implications of learning from internal versus external competitors, and (2) the availability or scarcity of knowledge-internal knowledge is more readily available and hence subject to greater scrutiny, while external knowledge is more scarce, which makes it appear more special and unique. We conclude by considering some consequences of the external knowledge preference for organizational functioning.In-Group Favoritism, Learning, Internal Competition, Knowledge Management

Licensing Exchange - Insights from the Biopharmaceutical Industry

“…4 In view of these different benefits, the prior literature would thus suggest a linear and positive (controlling for the number of technological domains covered by past licensing deals). Scarcity and uniqueness of know-how heighten its perceived value (e.g., Menon & Pfeffer, 2003). Hence, potential licensees may be less attracted to dedicated technology firms that are very centrally located.…”

Selection Capability: How Capability Gaps and Internal Social Frictions Affect Internal and External Strategic Renewal

“…Internal development offers an effective way of developing new capabilities that complement firms' existing capabilities (Penrose 1959, Helfat 1994 and are compatible with their internal social context Winter 1982, Scott 1987). In contrast, external sourcing may provide a more effective way of acquiring capabilities that are more distant from the firm's capabilities (Rosenkopf and Nerkar 2001) or create internal friction (Menon and Pfeffer 2003). We expect that firms that appropriately assess both constraints created by their existing stock of capabilities and those that stem from their internal social context will be more effective at developing new capabilities when choosing between internal development and external sourcing and that they will survive longer than firms that do not take those constraints into account.…”

Community Costs? Analyzing the Contingent Association Between Internal Cohesion and External Knowledge Transfer Relationships

“…People who share a demographic characteristic can also compete against each other for attention (Reagans 2005). And the more socially similar people compete against each other for attention, the more willing they should be to engage in activities that put their relationships with each other at risk in the pursuit of status, including utilizing ideas and information developed outside the group (Menon and Pfeffer 2003;Menon et al 2006). This line of thinking provides a point of integration across the two perspectives and suggests that a key moderator for the cohesion effect on external ties is the extent to which similar people identify with their shared characteristic or compete against each other for attention, which in turn should shape the extent to which cohesion in a neighborhood either curtails or encourages external relationships and activities.…”