Combining Stocks and Flows of Knowledge: The Effects of Intra‐Functional and Cross‐Functional Complementarity

• Author: Torben Pedersen,Phillip C. Nell,Tina C. Ambos
• Published date: 01 November 2013
• DOI: http://doi.org/10.1111/j.2042-5805.2013.01063.x
• Date: 01 November 2013

COMBINING STOCKS AND FLOWS OF

KNOWLEDGE: THE EFFECTS OF

INTRA-FUNCTIONAL AND

CROSS-FUNCTIONAL COMPLEMENTARITY

TINA C. AMBOS,1* PHILLIP C. NELL,2and TORBEN PEDERSEN2,3

1Department of Business and Management, University of Sussex, Brighton,

U.K.

2Department of Strategic Management and Globalization, Copenhagen

Business School, Frederiksberg, Denmark

3Department of Management and Technology, Bocconi University,

Bocconi, Italy

While previous research has mostly focused on either knowledge stocks or knowledge flows,

our study is among the first to integrate these perspectives in order to shed light on the

complementarity effects of different types of knowledge stocks and flows in the multinational

corporation (MNC). This study investigates intra-functional as well as cross-functional

complementarity effects from the perspective of the knowledge recipient and tests their impact

on the benefit created for MNC units. Based on a comprehensive sample of 324 relationships

between MNC units, we find that both types of complementarity create benefits for these units,

but that the effects from intra-functional combinations of knowledge stocks and flows are

significantly stronger than from cross-functional combinations. Copyright © 2013 Strategic

Management Society.

INTRODUCTION

About two decades ago, proponents of the differenti-

ated view of the firm (Bartlett and Ghoshal, 1989;

Nohria and Ghoshal, 1997; Doz and Prahalad, 1991)

suggested that units of multinational corporations

(MNCs) can be distinguished on the basis of their

diverse knowledge stocks that may eventually build

the basis for a firm’s competitive advantage (e.g.,

Wernerfelt and Montgomery, 1988; Barney, 1991;

Grant, 1996; DeCarolis and Deeds, 1999). Scholars

have also argued that firms exist to share and capital-

ize on their knowledge (Teece, 1982; Spender, 1996;

Kogut and Zander,1993). As a consequence, in recent

years a large number of studies have focused on the

question of how knowledge flows within the MNC

create benefits for the recipient and ultimately lead to

value creation in the MNC (e.g., Szulanski, 1996;

Simonin, 1999; Tsai, 2001; Minbaeva et al., 2003;

Martin and Salomon, 2003; Ambos, Ambos, and

Schlegelmilch, 2006). Many of these studies (implic-

itly) assume that the benefit created from knowledge

flows is a function of how much knowledge an orga-

nizational unit receives, and the studies have disre-

garded knowledge stocks (Simonin, 1999; Tsai,2001;

Foss and Pedersen, 2002; Hansen and Lovas, 2004).

Collectively, the MNC literature has mainly taken

either a stock-based view or a flow-based view

and rarely discussed the mechanisms behind the

combination of knowledge stocks and flows (Doz,

Santos, and Williamson, 2001; Foss, 2006; Foss and

Pedersen, 2004).

Keywords: knowledge flows; multinational corporation;

complementarity; value chain

*Correspondence to: Tina C. Ambos, Department of Business

and Management, University of Sussex, Brighton BN1 9SL,

UK. E-mail: T.Ambos@sussex.ac.uk

Global Strategy Journal

Global Strat. J., 3: 283–299 (2013)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1111/j.2042-5805.2013.01063.x

Copyright © 2013 Strategic Management Society

In this article, we seek to shed light on the

intra- and cross-functional complementarity effects

of knowledge stocks and flows in MNC units. The

main logic of our study (and the formulated hypo-

theses) rests on the argument that the combination

of knowledge stocks and flows should provide

increased benefits for the recipient units. Wepropose

two general options for complementarity effects: (1)

intra-functional complementarity, where knowledge

combination takes place within value chain func-

tions; and (2) cross-functional complementarity,

where knowledge is combined across value chain

functions.

In prior literature, investigators of knowledge

flows within organizations have argued for an inher-

ent benefit to a firm from knowledge flows (Hedlund,

1986, Bartlett and Ghoshal, 1989). But it is not clear

which knowledge inflows have to meet what kind of

knowledge stocks in order to create benefits for the

organization (Foss, 2006; Foss and Pedersen, 2002).

Research on knowledge stocks of MNC units has

centered on knowledge assets as a source of capa-

bilities and subsidiary-specific advantages (e.g.,

Kuemmerle, 1999; Rugman and Verbeke, 2001), but

has largely neglected the question of which kind of

inflows may enhance these units’ knowledge cre-

ation potential (see also Ambos and Ambos, 2007).

Notable exceptions include Holm and Pedersen

(2000), Almeida and Phene (2004), and Cantwell

and Mudambi (2005).

In order to be able to empirically test different

complementarity effects in an MNC setting, where

subunits possess a certain level of knowledge stocks

and receive inflows from their peer units and HQ, we

adopt a simple approach to complementarity. We

build on Buckley and Carter’s (2004) idea that

complementary knowledge is dispersed knowledge

whose value is enhanced by combination, and we

present complementarity as a notion of fit between

pieces of the firm’s knowledge structure (Lyles and

Schwenk, 1992). The way in which knowledge is

combined in our context—i.e., flows of Subunit A’s

knowledge to the knowledge stocks of Subunit B—

is similar to what Buckley and Carter (2004) call

‘additive complementarity.’

The contribution of this research lies in showing

that benefits created from knowledge combination

are greatest when stocks and flows are complemen-

tary, as our theoretical understanding of how incom-

ing knowledge is linked to existing knowledge

stocks is, to date, scarce and fragmented (Foss and

Pedersen, 2004). Two broad streams of literature

guide our thinking. First, the literature on absorptive

capacity, which posits that a large repository of

knowledge stocks will make it easier to benefit from

incoming knowledge flows (Cohen and Levinthal,

1990; Zahra and George, 2002; Lane, Salk, and

Lyles, 2001). Second is the idea of value chain inter-

dependencies, which argues that non-substitutive

relationships—where sender and recipient fulfill dif-

ferent functional tasks—are prone to create valuable

combinations of stocks and flows (Porter, 1980;

Buckley and Carter, 2004; Postrel, 2002; Andersson,

Mudambi, and Persson, 2008).

Building on a sample of 324 knowledge relation-

ships between organizational units in 48 European

MNCs, our results demonstrate that knowledge

stocks and flows do indeed complement each other,

as they create greater benefits for the recipient units,

and that both intra- and cross-functional comple-

mentarity have positive impacts. In general, these

findings are in line with the arguments on absorptive

capacity, but also support proponents of value chain

interdependencies. However, the benefits from intra-

functional complementarity (i.e., combining stocks

and flows from the same function) are three to

seven times higher than from cross-functional

complementarity (i.e., combining stocks and flows

from different functions). We conclude that knowl-

edge combination from different functional areas

certainly has value creation potential, but it seems

easier to realize the benefits from knowledge inflows

within the same area. Our results highlight the

important difference between generating knowledge

flows within the MNC and actually realizing benefits

from complementary knowledge (see Ambos and

Ambos, 2009). We also discuss the broader implica-

tions of our findings for the knowledge-based theory

of the MNC (Hedlund, 1994; Kogut and Zander,

1992, 1993; Zander and Kogut, 1995; Grant, 1996;

Easterby-Smith and Lyles, 2003).

THEORETICAL BACKGROUND

The role of knowledge stocks and flows in

the MNC

Knowledge stocks are accumulated knowledge

assets that are internal to an organizational unit, e.g.,

a subsidiary, and flows are knowledge streams occur-

ring between subsidiaries or between subsidiaries

and headquarters (HQ) over a specific period of time

through a wide range of media (DeCarolis and

284 T. C. Ambos et al.

Copyright © 2013 Strategic Management Society Global Strat. J., 3: 283–299 (2013)

DOI: 10.1111/j.2042-5805.2013.01063.x