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Journal of Knowledge Management

Building knowledge: developing a knowledge-based dynamic capabilities typology


James S. Denford
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Building knowledge: developing a
knowledge-based dynamic capabilities
typology
James S. Denford

Abstract
Purpose The purpose of this paper is to synthesize existing knowledge-based dynamic capabilities
research into a single typology for managerial and academic use.
Design/methodology/approach Based on the resource-based and knowledge-based views, this
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study conducts a theoretically grounded typology development exercise based on an extensive review
of the existing dynamic capabilities literature.
Findings The paper identifies seven frameworks presented in the literature that showed some
James S. Denford is an consistency in underlying concepts but conflict in nomenclature and application. Identifying over 80
Assistant Professor in the uses of knowledge-based dynamic capabilities in the literature review, three complementary
Business Administration dimensions that are common amongst the frameworks are identified and integrated into a consistent
Department, Royal Military typology of eight knowledge-based dynamic capabilities to encompass the extant literature.
College of Canada, Originality/value Addressing fragmentation in the knowledge-based dynamic capabilities discourse,
Kingston, Canada. the paper advances the concept of knowledge-based dynamic capabilities by organizing the existing
literature and frameworks into a comprehensive and consistent typology. Moreover, this integrative
typology allows managers and researchers to identify those capabilities in use and the commonalities
between them. Finally, the paper identifies a new knowledge-based dynamic capability that has not yet
been identified in any existing framework.
Keywords Dynamic capabilities, Knowledge-based dynamic capabilities, Knowledge-based view,
Typology, Literature review, Knowledge management, Organizational effectiveness
Paper type Conceptual paper

1. Introduction
Dynamic capabilities are defined as the firms ability to integrate, build, and reconfigure
internal and external competencies to address rapidly changing environments (Teece et al.,
1997, p. 516). They can be conceptualized as tools that manipulate resource configurations
and capabilities, and include value-creating processes such as building alliances and
developing products (Eisenhardt and Martin, 2000). Firm knowledge is considered a main
contributor to the creation of dynamic capabilities and value for the firm (Grant, 1996b;
Kogut and Zander, 1992, 1996; Nelson and Winter, 1982; Zollo and Winter, 2002). Heeding a
call to examine how different categories of resources contribute to the strategic competitive
advantage in a different ways, particularly in dynamic capabilities (Kraaijenbrink et al.,
2010), this paper synthesizes existing work and propose an integrative typology of
knowledge-based dynamic capabilities to guide both researchers and managers in their
The author would like to use.
acknowledge the outstanding
research assistant support from In examining the literature, over 80 examples of knowledge-based dynamic capability use
Sarah Karagianis in the were identified, but with a fragmented nomenclature and no dominant conceptual
development of this paper.
organizing framework. In addition, seven frameworks presented in the literature were found
Received 6 November 2012 to show some consistency in underlying concepts but evident conflict in nomenclature and
Revised 21 January 2013
22 January 2013
application. To provide a comprehensive view of knowledge-based dynamic capabilities,
Accepted 22 January 2013 three complementary dimensions were identified that were common amongst the

DOI 10.1108/13673271311315150 VOL. 17 NO. 2 2013, pp. 175-194, Q Emerald Group Publishing Limited, ISSN 1367-3270 j JOURNAL OF KNOWLEDGE MANAGEMENT j PAGE 175
frameworks and integrated them to prove a new typology that encompasses the extant
literature and provides a roadmap for future research. This framework identifies a set of eight
knowledge-based dynamic capabilities that can be employed by firms to integrate, build
and reconfigure their organizational capabilities.
In this paper, the knowledge-based dynamic capabilities will first be put in context by
identifying key conceptual antecedents in the resource-based view, knowledge-based view
and operational capabilities discussions. Next key extant frameworks will be identified, key
dimensions and types will be extracted from each, these dimensions and types will be
reintegrated into a comprehensive typology and the resultant ideal types of
knowledge-based dynamic capabilities will be explored. Finally, the implications of the
typology will be explored and future research opportunities will be examined.

2. Evolution of dynamic capabilities


Dynamic capabilities claim in its intellectual heritage the resource-based view of the firm
(RBV) and the knowledge-based view of the firm (KBV) (Teece et al., 1997). RBV suggests
that resource position barriers (Wernerfelt, 1984) or resource endowments (Conner, 1991)
can lead to competitive advantage where a firms resources are valuable, rare, imperfectly
imitable, and non-substitutable (Barney, 1991). KBV suggests that an increase in knowledge
can increase productivity independently of other inputs (Penrose, 1959) and that
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organizational knowledge resources grow through the recombination of existing


capabilities and the exchange of knowledge within and external to the firm (Kogut and
Zander, 1992). These two theory-bases are briefly explored, leading into a discussion of
dynamic capabilities.

2.1 The resource-based view of the firm


A resource is an asset or input to production (tangible or intangible) that an organization
owns, controls, or has access to on a semi-permanent basis (Helfat and Peteraf, 2003,
p. 999). Certain resources are superior to others due to market imperfections, resulting in
different levels of efficiency (Barney, 1991; Dierickx and Cool, 1989; Peteraf, 1993). The
idiosyncratic combination of these resources in firms is the source of competitive
heterogeneity (Helfat and Peteraf, 2003; Lockett et al., 2009). Resources can include not
only tangible physical capital, but also intangible resources embedded in human and
organizational capitals such as knowledge (Amit and Schoemaker, 1993; Barney, 1991).
Considering resource-based value retention, if an asset or idea is easily replicated and does
not require special resources to exploit, then there are not supernormal profits available from
it. However, if the asset is tightly protected by copyright or mechanistic means, then the firm
should retain economic gains (Teece et al., 1997). Isolating mechanisms are implemented
by organizations to prevent the diffusion of firm-specific resources and capabilities
throughout the industry (Barney, 1991). This concept of resource position barriers stems
from the ownership of resources that affect the cost and/or revenues of those who attempt to
acquire the resources later (Wernerfelt, 1984). Piccoli and Ives (2005) specifically note two
fundamental dynamic processes that contribute to resource barriers:
1. organizational learning; and
2. asset stock accumulation.
The two concepts also contribute to the KBV, particularly if the asset being accumulated is
knowledge.

2.2 The knowledge-based view of the firm


Knowledge is a key intangible resource that is the primary source of a sustainable
competitive advantage (Acedo et al., 2006; Conner and Prahalad, 1996). The role of the firm
is not simply to acquire an assortment of resources and capabilities, but rather to develop its
organizational knowledge to produce a sustainable competitive advantage (Grant, 1996a).
The primary task of management is then to devise and establish routines necessary to

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integrate this knowledge (Grant, 1996b). The knowledge-based theory rests on the
assumption that resource and capability-based advantages are derived from superior
access to and integration of specialized knowledge (Grant, 1996a).
Knowledge is created and held by individuals, but can become embedded within the
organization as organizational processes and routines are performed repeatedly (Grant,
1996a; Conner and Prahalad, 1996). These organizations can be considered social
communities in which individual and social expertise and knowledge is transformed into
valuable products and services (Kogut and Zander, 1992). Firms can, therefore, be viewed
as bundles of knowledge, where knowledge is an asset that serves as a source of
differentiation and competitive advantage (Dierickx and Cool, 1989). Two critical knowledge
processes in firms associated with the bundling of knowledge are creation and transfer (von
Krogh et al., 2001).
Organizational knowledge creation can be considered the process of making available and
amplifying knowledge resources created by individuals as well as crystallizing and
connecting it to an organizations knowledge system (Nonaka et al., 2006). Once created,
knowledge must be either brought into the firm or moved within it. The transfer of knowledge
within organizations is not a trivial problem as the same complex technologies that are proof
against imitation are also difficult to codify and teach to others (Kogut and Zander, 2003).
External knowledge transfer challenges include different levels of knowledge transfer
abilities between alliance partners, where those more effective at transferring knowledge
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outperform those less adept (Dyer and Singh, 1998).

2.3 Operational and dynamic capabilities


It is important to differentiate between resources and capabilities. Capabilities are the firms
capacity to deploy resources using organizational processes and routines which develop
over time through complex interactions with resources (Cepeda and Vera, 2007; Grant,
1991; Helfat and Peteraf, 2003; Sirmon et al., 2007). In general, capabilities are intangible
embedded routines that are not easily separable from the firm and, as such, cannot be
exchanged in factor markets (Kogut and Zander, 1992). Capabilities are not a single type,
but rather can be categorized primarily into operational and dynamic capabilities (Zollo and
Winter, 2002; Helfat and Peteraf, 2003).
An operational capability is a high-level routine (or collection of routines) that, together with
implementing input flows, confers upon an organizations management a set of decision
options for producing significant outputs of a particular type (Winter, 2000, p. 983).
Operational capabilities allow firms to produce significant outputs using a predefined routine
that corresponds with the activity at hand through the combination of different firm resources
(Helfat and Peteraf, 2003). In essence, operational capabilities turn inputs into outputs and
support the current operations of the firm.
In contrast to operational capabilities that act on resources, dynamic capabilities act on
operational capabilities by changing and reconfiguring them (Zahra et al., 2006). A variety of
definitions have been given for dynamic capabilities, but common across them is that
dynamic capabilities are future-capability oriented and shape a firms resource positions
(Eisenhardt and Martin, 2000), routines (Nelson and Winter, 1982), capabilities (Kogut and
Zander, 1992) and knowledge (Zollo and Winter, 2002). From the knowledge-based view
perspective, one of the most effective mechanisms for changing an operational capability is
the introduction of new or different knowledge through dynamic capabilities to reshape it
(Cepeda and Vera, 2007). Firms therefore need to understand knowledge-based dynamic
capabilities in order to remain relevant and competitive in fast-moving environments.

3. Typology development
The development of theoretically grounded typologies is an important form of theorizing
(Doty and Glick, 1994). The basic rule of classification into typologies is that the classes
formed must be both exhaustive and mutually exclusive (Hambrick, 1984). Typologies are
often based on multiple dimensions to meet this rule (Bailey, 1994). The development of

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typologies is theorizing, as typologies contain constructs, hypothesize relationships
between constructs and are falsifiable (Doty and Glick, 1994). The constructs introduced are
ideal types, which are conceptually pure accentuations of entity characteristics that do not
exist in the real world (Weber, 1949). The hypothesized relationships between constructs
take the form of internal consistency of among the hypothesized ideal types (Doty and Glick,
1994). Evaluation of the success of a typology is based on the category labels being
meaningful, the logic of the dimensions being clear, and the ability to completely and
exhaustively classify being demonstrable (Gregor, 2006). Seven existing frameworks
provide the basis for the dimensions and types of a knowledge-based dynamic capabilities
typology.

3.1 Identification of existing frameworks


Teece et al. (1997) include in their initial definition of dynamic capabilities the capacity to
integrate, build and reconfigure internal and external competences. The building
component of dynamic capabilities is seen in the process of learning through
experimentation, which has a joint combinative or additive function resulting in new
knowledge, routines or logic. Integration is seen as a coordinating function that generates
competitive advantage and new products or services through the sourcing, transfer and
internalization of information from the breadth of the firm. Reconfiguration is seen as
reorganizing the firms existing asset structure and combining existing capabilities to
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address changing environments. The importance of duplicating firm capabilities through


replication and imitation are extensively discussed where the former is the internal aspect of
the externally oriented latter.
In refining the concept of dynamic capabilities, Eisenhardt and Martin (2000) identified core
types surrounding the gain, integration and reconfiguration of resources supporting
competitive advantage. Knowledge creation routines to build new thinking and capabilities
in firms are a specific form of knowledge-based dynamic capability focused on gaining new
knowledge. Integration involves the pooling of resources and coordination of skills from
various parts of the organization to provide a base for innovation. Reconfiguration is seen as
a knowledge brokering function that combines various existing knowledge and resources to
address a changing environment. Alliances and other mechanisms for external resource
acquisition are also discussed.
In their reconceptualization of absorptive capacity, Zahra and George (2002) identified
knowledge-based dynamic capabilities in the areas of acquisition, assimilation,
transformation and exploitation. Acquisition is defined in terms of identifying and
acquiring externally generated knowledge. Assimilation is a process of understanding
and interpreting external information. Transformation is the refinement of routines that allow
the combination of existing knowledge with newly acquired knowledge. Exploitation is a
routine that allow firms to leverage existing competencies by harvesting and redeploying
knowledge and routines into different parts of the organization. An important differentiation in
their view of absorptive capacity is the incorporation of a potential form, which includes
acquiring and assimilating types, and a realized form, which includes transforming and
exploiting types.
In their study of product innovation, Verona and Ravasi (2003) defined three core
knowledge-based dynamic capabilities: creation and absorption, integration and
reconfiguration. Creation is seen as reflecting investments in basic science through
creation of new knowledge. Integration is defined as stimulating innovation through
absorption of latent knowledge from various parts of the organization. Reconfiguration is a
combinatory process that allowed for the redefinition of systems and the reorganization of
existing knowledge in a flexible manner. The role of absorptive capacity in understanding
knowledge and then later in combining it with other knowledge was stressed.
In their examination of the branches to a capabilitys lifecycle, Helfat and Peteraf (2003)
studied the potential paths that capabilities can take once they reach maturity. The four
branches examined that do not lead to extinction have similar neutral to positive trajectories,
and although the underlying mechanisms are different, they all provide new opportunities

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for capability growth or change (Helfat and Peteraf, 2003, p. 1005). Recombination is a
process of mixing capabilities in order to create a new capability and new knowledge.
Renewal is a process by which firms search for and develop new alternatives.
Redeployment involves the development of existing capabilities into new but related
products and services. Replication is the complete or partial transfer of a capability from one
geographic market to another.
Rothaermel and Alexandre (2009) combined the concept of absorptive capacity with
ambidexterity and technological and organizational boundaries, proposing absorptive
capacity as a moderator between known versus new technologies and intra-firm or inter-firm
sourcing of knowledge. They identify that trade-offs must be made in the firms technology
sourcing strategy in whether the firm sources technology internally or externally and whether
it engages in exploitation or exploration. While they do not name the types that emerge from
these trade-offs, Quadrant I is the internal sourcing of known technology, Quadrant II is the
external sourcing of known technology, Quadrant III is the internal sourcing of new
technology and Quadrant IV is the external sourcing of known technology.
In examining the impacts of dynamic capabilities and innovation in networked environments,
Zheng et al. (2011) operationalized knowledge-based dynamic capabilities as being
acquisition, generation and combination types. Generating is primarily viewed as an internal
activity such as R&D to create new knowledge. In comparison, combination is the internal
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exploitation of knowledge in new configurations. Recognizing knowledge acquisition as


occurring through identification and transfer of knowledge from external sources, it is heavily
reliant on absorptive capacity.
These seven frameworks are summarized in Table I, including the types within the
framework, the definition of dynamic capabilities followed and the key concepts underlying
the conceptualization of knowledge-based dynamic capabilities in the framework.

3.2 Identification of typology dimensions


Three complementary dimensions emerge from the examination of the framework, key
concepts in the seven extant frameworks that aid in the classification and creation of the
typology. Internal and external sourcing describes whether the firm is inward- or
outward-looking in its knowledge renewal and transfer efforts. Exploration and exploitation
focus describes whether the firm is more intent on discovering new knowledge or applying
existing knowledge. Combinative and absorptive capacities define additive and integrative
knowledge processes. Each of these will be examined in terms of the seven existing
frameworks and then applied to a wider sample of literature.
3.2.1 Internal versus external sourcing (Table II). A key management decision and
differentiator between dynamic knowledge capabilities is whether to renew knowledge
resources internally or externally. In their search for alternative resource configurations and
operational routines, firms can choose between external imitation and internal
experimentation, with the decision driven by timing, cost and learning ability (Zott, 2003).
Those firms that focus on external sourcing of knowledge will often develop robust alliancing
capabilities (Kale and Singh, 2007) while those that focus on internal sourcing will often
develop strong R&D capabilities (Helfat, 1997). Reasons for entering into external
arrangements include lack of internal capacity in industries where required knowledge to
compete is very deep (Young et al., 2003), inability to maintain internal capacity in all areas
where there is a breadth of knowledge required (Lawson and Samson, 2001) or voluntary
entry where there is sufficient internal capacity but strategic reasons for doing so
(Appleyard, 1996). Conversely, when the market is munificent or the firm is in a strong
resource position (Eisenhardt and Schoonhoven, 1996) or if the perceived transaction costs
of knowledge transfer are too high (Kogut and Zander, 1992) a firm is unlikely to seek an
alliance and will rely on internal knowledge.
3.2.2 Exploration versus exploitation focus (Table III). In implementing the organizational
strategy, the firm can utilize existing knowledge through exploitation, a replicative process,
or search for new knowledge through exploration, a generative process (Crossan et al.,

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Table I Framework comparison
Knowledge-based dynamic
Study authors capabilities Dynamic capabilities definition Framework key concepts

Teece et al. (1997) Build The firms ability to integrate, build and Internal or external sourcing
Reconfigure reconfigure internal and external Combination/experimentation
Integrate competences to address rapidly Coordination/transfer
Replicate/imitate changing environments (p. 516) New or existing knowledge
Eisenhardt and Martin Gain The firms processes that use resources Internal or external transfer
(2000) Reconfiguration specifically the processes to Combinative processes
Integration integrate, reconfigure, gain and release New or existing knowledge
resources to match and even create
market change (p. 1107)
Zahra and George (2002) Transformation Dynamic capabilities are geared Internal/external sourcing
Exploitation toward effecting organizational change; Absorptive capacity
Acquisition they are essentially strategic in nature Combination or transfer
Assimilation and, therefore, define the firms path of Exploitation or innovation
evolution and development (p. 188)
Verona and Ravasi (2003) Creating The subset of competence/capabilities Transfer of latent knowledge
Reconfiguring that allows the firm to create new Combinative processes
Integrating products and processes, and respond Absorptive capacity
to changing market circumstance New or existing knowledge
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(Teece et al., 1997, p. 510)


Helfat and Peteraf (2003) Recombination The firms ability to integrate, build and Combination or mixing
Reconfiguring reconfigure internal and external Search and development
Renewal competences to address rapidly Redeploying knowledge
Replication changing environments (Teece et al., New or existing knowledge
1997, p. 516)
Rothaermel and Alexandre Quadrant I The firms ability to integrate, build and Internal or external sourcing
(2009) Quadrant II reconfigure internal and external Absorptive capacity
Quadrant III competences to address rapidly Exploration or exploitation
Quadrant IV changing environments (Teece et al., New or existing knowledge
1997, p. 516)
Zheng et al. (2011) Generation The firms ability to integrate, build and Internal or external sourcing
Combination reconfigure internal and external Absorptive capacity
Acquisition competences to address rapidly New or existing knowledge
changing environments (Teece et al.,
1997, p. 516)

Table II Key characteristics of internal versus external sourcing


Source Description Mechanisms Requirements

Internal Unique, specific and tacitly held Produced through internal learning, Required knowledge is internal to firm
knowledge generated and distributed experimentation, and reorganization (Zott, 2003); good mapping of internal
within firm boundaries (Bierly and (Brown and Eisenhardt, 1997; Kogut and knowledge domain (Zollo and Winter,
Chakrabarti, 1996; Zack, 1999) Zander, 2003; Lampel and Shamsie, 2002); knowledge in firm is specific and
2003; March, 1991) deep (Zack, 1999)
External Abstract, packaged and Acquisitions, equity joint ventures, Lower cost of external acquisition
widely-available knowledge acquired licensing agreements, research (Appleyard, 1996); broad and complex
from the environment (Bierly and contracts, research networks, joint knowledge (Lawson and Samson,
Chakrabarti, 1996; Zack, 1999) production (Madhok and Osegowitsch, 2001); knowledge unavailable internally
2000; Tripsas, 1997; Verona, 1999) (Young et al., 2003)

1999; March, 1991; Winter and Szulanski, 2001). Exploration is defined as the pursuit of
new knowledge, of things that might come to be known, whereas exploitation is defined as
the use and development of things already known (Levinthal and March, 1993). While
organizational ambidexterity, a balance between exploration and exploitation, has been
suggested as an ideal within the firm, firms may apply greater emphasis to exploration or
exploitation given the scarce resources of the organization (Lavie et al., 2010; Raisch et al.,

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Table III Key characteristics of exploitation versus exploration focus
Focus Description Mechanisms Requirements

Exploitation Refinement, production, efficiency and Capabilities concerning the Mechanistic structures, path
implementation, where knowledge identification, acquisition, employment dependence, routines and controls,
resources are used to develop a and dissemination of existing tightly coupled systems and stable
competitive position (March, 1991; knowledge (Verona, 1999) markets and technologies (He and
Zack, 1999) Wong, 2004)
Exploration Variation, experimentation, discovery R&D and manufacturing competencies Organic structures, finding new paths,
and innovation for the creation or (Verona, 1999), strategic alliances, improvisation, loosely coupled systems
acquisition of new knowledge (March, experimentation, joint ventures and and emerging markets and
1991) development technologies (He and Wong, 2004)

2009; Rothaermel and Alexandre, 2009). For typology purposes, the ideal categories that
differentiate between the two extremes in the ambidexterity discussion are retained for
theory development purposes.
3.2.3 Absorptive versus combinative capacity (Table IV). Absorptive and combinative
capacities are proposed in this paper as distinct and complementary concepts. Creation
and transfer of knowledge are two critical functions that are argued to be supported by
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combinative and absorptive capacities, respectively (Kogut and Zander, 1996). Moran and
Ghoshal (1996) argued that new knowledge is created through the processes of
combination and exchange, which align with combinative and absorptive capacities,
respectively. Combinative capacity and absorptive capacity also correlate to
Cegarra-Navarros (2005) constructs of transformation and transfer within his model of
organizational learning through strategic alliances. Zahra and George (2002) differentiate
between assimilation routines of potential absorptive capacity and the transformation
routines of realized absorptive capacity, where the former is most closely aligned with Cohen
and Levinthals (1990) original formulation of absorptive capacity and the latter to
combinative capacity. Combinative capacity is a mechanism for change through
transformation, building and modification whereas absorptive capacity is change through
transfer, exchange and internalization.

3.3 Integrating extant frameworks within the dimensions


The types of dynamic capabilities that are identified by Teece et al. (1997) include build,
integrate and reconfigure, which align with Eisenhardt and Martins (2000) gain, integrate
and reconfigure and Verona and Ravasis (2003) creating, integrating and reconfiguring.
Building or gaining resources focuses on creation processes, whereby managers and
others build new thinking within the firm (Eisenhardt and Martin, 2000, p. 1108). The
integration and reconfiguration capabilities map directly between these three frameworks.

Table IV Key characteristics of absorptive versus combinative capacity


Capacity Description Mechanisms Requirements

Absorptive The ability to recognize the value of Cumulative learning with sufficient Path dependency producing an
new information, assimilate it, and intensity of effort required to deeply organizational history held by the firm
apply it (Cohen and Levinthal, 1990; process information (Cohen and (Kor and Mahoney, 2005); the ability to
Lane and Lubatkin, 1998) Levinthal, 1990) apply and link knowledge (Capron and
Mitchell, 2009; Cohen and Levinthal,
1990; Lenox and King, 2004)
Combinative The ability of the firm to recombine and Shared codes and languages; shared Able to understand and see
redeploy knowledge to new purpose narratives allowing for information combinations of complementary
(Kogut and Zander, 2003; Moran and exchange and combination (Nahapiet resources that will further incrementally
Ghoshal, 1996) and Ghoshal, 1998), aided by or radically produce intellectual capital
transparency and receptivity (Larsson (Nahapiet and Ghoshal, 1998)
et al., 1998)

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Zheng et al. (2011) have three similar capabilities, but focus generation and combination as
internal combinatory activities and acquisition as an external absorptive activity. A fourth
capability is replication, which is identified by Teece et al. (1997) as methods of transferring
competences while Eisenhardt and Martin (2000) group it with reconfiguration. Both
frameworks recognize that there are external versions of replication in the form of imitation.
The parallels between the remaining three frameworks require more detailed elaboration.
Zahra and George (2002) view exploration to be an external function that is linked to
potential absorptive capacity and exploitation to be an internal function connected to
realized absorptive capacity. While all of these functions are deemed supported by the
absorptive capacity of the firm by Zahra and George (2002), the retention of Kogut and
Zanders (1992) concept of combinative capacity is argued to better map the capabilities,
particularly when noting that the definition of transformation makes explicit reference to
combination. As an explicit example, acquisition is the equivalent to development, in that it is
externally focused, combinative as it is knowledge applicable to firm operations, and
exploratory as it is a search for novel knowledge.
In contrast, Helfat and Peteraf (2003) focus on internal paths of capability change only. Two
paths draws on combinative capacity to create new products and capabilities while the
other two use absorptive capacity to search for, assimilate and transfer knowledge within the
organization. Additionally, two paths exploit existing knowledge while two focus on new
knowledge exploration. As an example, recombination draws directly on the concept of
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combining internal knowledge and capabilities to create new knowledge and capabilities in
order to produce innovation (Kogut and Zander, 1992), making it equivalent to the creating
type.
Similar to Zahra and George (2002), Rothaermel and Alexandre (2009) span the internal and
external dimensions; however, their four quadrants fall along the absorptive capacity axis
with the resultant allocation of types. For example, Quadrant II focuses on the external
sourcing and absorption of existing technology and knowledge, making it the equivalent of
imitation, as often seen in licensing arrangements. As these frameworks can be situated
within the single set of dimensions, their relationships to each other can be illustrated in
Table V.

3.4 Identifying knowledge-based dynamic capability types


The knowledge-based dynamic capability typology integrates three dimensions
internal/external sourcing, exploration/exploitation focus and combinative/absorptive
capacity to form eight dynamic capabilities. A representative sample of the literature

Table V Mapping extant frameworks


Internal External
Exploration Exploitation Exploration Exploitation Source framework

Combinative capacity
Build Reconfigure Teece et al. (1997)
Gain Reconfiguration Eisenhardt and Martin (2000)
Transformation Acquisition Zahra and George (2002)
Creating Reconfiguring Verona and Ravasi (2003)
Recombination Redeployment Helfat and Peteraf (2003)
Rothaermel and Alexandre (2009)
Generation Combination Zheng et al. (2011)

Absorptive capacity
Integrate Replicate Imitate Teece et al. (1997)
Integration Eisenhardt and Martin (2000)
Exploitation Assimilation Zahra and George (2002)
Integrating Verona and Ravasi (2003)
Renewal Replication Helfat and Peteraf (2003)
Quadrant III Quadrant I Quadrant IV Quadrant II Rothaermel and Alexandre (2009)
Acquisition Zheng et al. (2011)

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following Teece et al.s (1997) original work was used to populate the framework. The
majority of work in dynamic capabilities, RBV and KBV has appeared in the strategic
management literature. In order to identify key contributions, the initial search was restricted
to three Financial Times 45 journals oriented to publishing dynamic capabilities research
including Strategic Management Journal, Organization Science and Academy of
Management Review. A secondary literature search was based on the references
identified in these articles, expanding the list of papers with key contributions from outside
these three journals, particularly in the knowledge management (KM) domain, resulting in a
sample of over 80 papers. This section defines and describes each of the categories, with a
selection of papers from the sample illustrating the knowledge-based dynamic capabilities
in Table VI.
3.4.1 Creating. While Teece et al. (1997) use the term build and Eisenhardt and Martin
(2000) use the term gain, the creating knowledge-based dynamic capability reflects a
firms internal exploration for new knowledge through combination. It has been long held that
the recombination of previously existing components provides the source of novelty,
innovation and new knowledge (Schumpeter, 1939; Nelson and Winter, 1982; Fleming,
2001). Intra-firm knowledge combination produces opportunities for mutual learning
between organizational groups, which stimulates the creation of new knowledge and the
firms ability to innovate (Pemberton et al., 2002; Pitt and Clarke, 1999; Tsai, 2001). Ongoing
interaction between organizational members facilitates mutual learning so that learning
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occurs in an evolutionary cycle (Zollo and Winter, 2002). Organizations with a strong creating
knowledge-based dynamic capability will produce a competitive advantage by leveraging
the knowledge within the firm to produce new knowledge and organizational value.
3.4.2 Integrating. The integrating knowledge-based dynamic capability reflects a firms
exploration for new knowledge through the recognition, transfer, absorption and application
of internal knowledge into new organizational activities. This produces unique patterns of
shared knowledge within firms that are difficult to purchase from markets, time-intensive to
develop, and complex in its application (Hoopes and Postrel, 1999). In examining extant
frameworks, renewal involves internal search for and absorption of new knowledge to modify
and improve capabilities (Helfat and Peteraf, 2003) whereas Quadrant III describes a
process of internally sourcing new technology and absorbing it (Rothaermel and Alexandre,
2009), which are both forms of integration. An organization with a superior integrating
knowledge-based dynamic capability will be better at utilizing the knowledge gained in the
search for new information (Grant, 1996a; Verona and Ravasi, 2003). Conversely, a firm with
a weak integrating knowledge-based dynamic capability will be unsuccessful in
understanding the value of new information and will not deploy it to generate a
sustainable competitive advantage (Hoopes and Postrel, 1999; Iansiti, 1995; Szulanski,
1996).
3.4.3 Reconfiguring. Reconfiguration can be seen as the recombination of components
focused on exploitation of previous successes (March, 1991; Fleming, 2001).
Reconfiguration allows the firm to change its knowledge asset position by combining
different resources to transform in the face of environmental changes (Teece et al., 1997).
This dynamic capability coordinates the accumulation of knowledge by combining,
extending and exploiting pre-existing firm know-how from related technical processes and
businesses to build bundles of knowledge (Helfat, 1997; Luo, 2000). As reconfiguration
focuses on the exploitation of recombined knowledge, parallels can be seen with Zahra and
Georges transformation and Helfat and Peterafs redeployment. Specifically, the ability to
combine different sets of existing knowledge to create a new schema to apply to existing
markets (Zahra and George, 2002) and to combine process knowledge from one domain
with market knowledge of a new domain (Helfat and Peteraf, 2003) are core to
reconfiguration. Firms that have a depth of pre-existing knowledge will use this
knowledge-based dynamic capability to produce bundles of knowledge that can be
utilized in producing a competitive advantage (Bierly and Chakrabarti, 1996).
3.4.4 Replicating. Replication involves internal exploitation of knowledge to be absorbed into
the firm. For a firm to grow, it must be able to effectively duplicate its knowledge and

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Table VI Knowledge-based dynamic capability types

j
Type Dimensions Purpose Mechanisms Role of management Impact on firm Benefits Limits Exemplars

Creating Internal Exploration of new Experimentation; Encourage culture of Involves the New knowledge held Internal culture Pisanos (1994)
Exploration knowledge within the intra-firm knowledge experimentation and combination of only by the firm issues and learning pharmaceutical
Combinative firm by search and innovation internal resources to myopia (Levinthal industry study;
recombination combination create new and March, 1993) Gupta and
knowledge within the firm Govindarajan
(2000a) Nucor Steel
case study; Miller
et al.s (2007) patent
study

j
Integrating Internal Recognize sources Knowledge-building Recognize sources Allows the firm to Utilization of existing Barriers include lack Hoopes and Postrels
Exploration of knowledge, processes; of knowledge and leverage and deploy resources to of absorptive (1999) study of a
Absorptive absorb and integrate integration groups; facilitating internal original knowledge generate economic capacity, capacity of scientific modeling
within the firm to fuse lateral and vertical knowledge transfer rents indefensible recipient and and simulation firm;
knowledge socialization configurations arduous Lenox and Kings

PAGE 184 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 17 NO. 2 2013


source-recipient (2004) study of the
relationship information and
communications
industries
Reconfiguring Internal Combine and deploy Organizational Scan the Allows the firm to Use of familiar Difficulties in Helfat and
Exploitation existing resources learning; knowledge environment for produce unique or components and encouraging internal Raubitscheks (2000)
Combinative within the firm to reuse, renewal and opportunities to new bundles of knowledge knowledge sharing study of Canons
produce a recombination reuse existing resources decreases in rapidly changing AE-1 camera;
competitive resources in new uncertainty in environments Helfats (1997) study
advantage combinations innovation of coal gasification;
Rindova and Kothas
(2001) examination
of Yahoo!
Replicating Internal Recognize, Duplication of Package knowledge Allows the firm to Organizational Codification through Winter and
Exploitation assimilate and apply resources and within the firm to replicate success growth based upon replication increases Szulanskis (2001)
Absorptive existing resources processes; boundary maximize across knowledge risks of external study of Banc One;
elsewhere within the spanning knowledge exploitation of value organizational redeployment imitation by Raffs (2000)
firm transfer environments competitors examination of
Borders and Barnes
and Noble; Szulanski
and Jensens (2006)
study of
cross-border
franchising

(Continued)
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Table VI

Type Dimensions Purpose Mechanisms Role of management Impact on firm Benefits Limits Exemplars

Developing External Generate new Equity joint ventures; Develop alliances to Enables the firm to Mutual firm learning Joint ventures are Dyer and Nobeokas
Exploration knowledge outside joint R&D maximize value of generate new resulting in new subject to many (2000) study of
Combinative the firm through agreements; knowledge knowledge with a knowledge for both dilemmas with trust, Toyota; Heimeriks
recombination of firm collaborative exchange and partner partners knowledge sharing and Duysters (2007)
and partner creation of combination and transfer survey of strategic
knowledge knowledge alliances; Inkpen
and Crossans (1995)
study of automotive
supplier joint
ventures
Assimilating External Search for Acquisitions; Seek and internalize Enables Growth of the firm Difficult to access Lane and Lubatkins
Exploration information outside networks of new knowledge understanding of through acquisition information; hard to (1998) study of the
Absorptive the firm to absorb collaboration; search brought into the external environment or inclusion in internalize acquired pharmaceutical and
into the firm and for and internalization organization though changes and the industry networks knowledge biotechnology
apply it to of joint knowledge partnerships ability to react to industries; Tripsass
commercial means them (1997) study of
alliances; Powell
et al.s (1996) study
of the biotechnology
industry
Synthesizing External Combine and Joint production and Acquire external and Allows firm to exploit Leverage partner Challenge to find Eisenhardt and
Exploitation redeploy existing marketing coordinate internal partner knowledge resources to better matching resources Schoonhovens
Combinative firm and partner agreements; joint resources in new and identify learning exploit own in new to engage partner (1996) study of the
knowledge to create development and combinations opportunities configurations firms semiconductor
a competitive application industry;
advantage Macpherson et al.s
(2004) study of a
British firms supply

j
network
Imitating External Recognize and Licensing Identify opportunities Allows learning of Recover or gain Lack of partners to Lampel and
Exploitation duplicate existing agreements; reverse to learn from partners lagging firms and market share by share through Shamsies (2003)
Absorptive knowledge of other engineering; voluntarily and reduces dominance skipping the path licensing; opaque study of the
firms within the firm decoding path targets involuntarily in the industry dependent journey processes due to Hollywood motion
dependencies of first-mover firms path dependence picture industry;
Cockburn et al.s
(2000)
pharmaceutical
industry study; Noda
and Colliss (2001)
study of Baby Bell

j
regional holding
companies

VOL. 17 NO. 2 2013 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 185


reproduce it within subunits of the firm (Kogut and Zander, 1992). The ability to transfer or
deploy competences between settings is seen in exploitation where knowledge is harvested
from one location and routines redeployed and absorbed in another (Zahra and George,
2002), in replication, where capabilities are transferred geographically (Helfat and Peteraf,
2003), or in Quadrant I, where known technologies are sourced internally and absorbed
elsewhere within the firm (Rothaermel and Alexandre, 2009). Replicators firms that transfer
or deploy competences between settings are one of the dominant organizational forms,
with replication defined as the creation and operation of a large number of similar outlets
that deliver a product or perform a service (Teece et al., 1997; Winter and Szulanski, 2001,
p. 730). Organizations with a strong replicating knowledge-based dynamic capability will be
able to transfer existing knowledge into other organizational units and subsidiaries without
having knowledge spillovers to other firms (Helfat, 1997; Levinthal and March, 1993; Rivkin,
2001). Firms with weak replicating dynamic capabilities will be less successful in duplicating
knowledge and will have a lower understanding of which knowledge is worth replicating.
3.4.5 Developing. The creation of knowledge in an alliance context is termed developing
to denote joint R&D agreements, a prevalent vehicle for cooperatively creating new
knowledge. The developing knowledge-based dynamic capability involves organizational
learning from combining compatible knowledge from outside the firm to produce new
knowledge that can be deployed by the organization (Grant, 1996b). Strategic alliances
allow firms to procure assets, competencies, or capabilities not readily available in
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competitive factor markets, particularly specialized expertise and intangible assets (Oliver,
1997). In industries where innovation is prevalent, knowledge development is critical for
growth and depends on cross-company knowledge through reciprocal learning and partner
knowledge transfer within the alliance framework (Appleyard, 1996; Heimeriks and
Duysters, 2007; Inkpen, 2000). A firm with a strong developing capability will have a better
understanding of the market direction, and how the resources of other firms can be
leveraged with the resources of the firm (Anand and Khanna, 2000; Escribano et al., 2009;
Inkpen and Dinur, 1998). An organization with a weak developing knowledge-based
dynamic capability will have a lower understanding of the external environment and will be
less able to apply external resources towards the production of new knowledge.
3.4.6 Assimilating. The assimilating capability involves external exploration for new
knowledge to be absorbed into the firm. As such, it is closely related to assimilation in that
they mirror the processes needed to analyze, interpret and understand external information
(Zahra and George, 2002). Similarly, the sourcing and absorption of external knowledge
defined by Quadrant IV follow the same basic premise (Rothaermel and Alexandre, 2009).
Acquisitions and networks of collaboration are two primary mechanisms for realizing the
value of external knowledge through absorption, as these allow the firm to obtain new
knowledge by transcending organizational barriers (De Clercq and Dimov, 2008; Jones and
Miskell, 2007; Wernerfelt, 1984). Acquisition is an extreme form of absorption, where the
knowledge provider becomes part of the knowledge acquirer. In this context, horizontal
acquisitions where firms have complementary skills and knowledge assets are seen as
providing value to the firm (Jones and Miskell, 2007). Firms with a strong assimilating
knowledge-based dynamic capability will be able to recognize which knowledge to retrieve
from the external environment and how to utilize the knowledge to produce economic rents.
Firms with a weak assimilating knowledge-based dynamic capability will be unsuccessful at
recognizing and applying external knowledge.
3.4.7 Synthesizing. Unlike the other seven dynamic knowledge capabilities that are related
to at least one extant type, while synthesizing is supported in the literature, it has not
previously been situated in such a framework. Firms lacking in internal knowledge resources
for a particular task can leverage external knowledge using relationships with other firms (De
Clercq and Dimov, 2008; Meyer et al., 2009). Synthesizing involves external exploitation of
knowledge to be combined in the firm within the context of an alliance. The synergies
between firms can be seen in terms of flexibility of knowledge integration, which Grant
(1996a) defines as the extent to which an organizational capability can access additional
knowledge and reconfigure existing knowledge (p. 380). Interorganizational learning can

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PAGE 186 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 17 NO. 2 2013
be seen as the combinative learning synergy that would not have occurred in the absence of
interaction between partners (Larsson et al., 1998). Firms with a strong synthesizing
knowledge-based dynamic capability will more successful at harvesting value from the
knowledge of the two firms through their combination, while firms with a weak synthesizing
knowledge-based dynamic capability will not recognize the opportunities that exist in the
arrangement of the two firms (Pemberton et al., 2002).
3.4.8 Imitating. Imitation draws external knowledge into the firm by allowing the organization
to absorb another firms knowledge without undertaking the same history as its competitors
(Rivkin, 2001). Successful imitators are seen to have a capacity to overcome the path
dependency that protects competitors knowledge and capabilities either voluntarily
through licensing or involuntarily through observation (Collis, 1994; Fosfuri, 2006). These
firms must be receptive to external information, often over their own experiences (Gupta and
Govindarajan, 2000b; Lane and Lubatkin, 1998; Noda and Collis, 2001). Some late-comer
firms will have lower imitating skills, and will be slow to achieve any kind of competitive
advantage from imitating another firm (Cockburn et al., 2000; Li and Kozhikode, 2008;
Makadok, 1998). Other late-comer firms will be quick to absorb the knowledge of other firms,
and will sustain an advantage within the industry even as the other laggard firms struggle to
catch up (Lawson and Samson, 2001; Li and Kozhikode, 2008; Li et al., 2010; Rivkin, 2001;
Winter and Szulanski, 2001). Ultimately firms with a low imitating knowledge-based dynamic
capability will only re-level the playing field and take away the competitive advantage of
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other firms, while firms with a strong imitating knowledge-based dynamic capability will
achieve a competitive advantage.

4. Discussion and conclusion


This paper has synthesized existing work in dynamic capabilities by focusing on its
application knowledge resource in order to propose a typology of knowledge-based
dynamic capabilities to guide future study and practice. The framework integrates three
dimensions i.e. internal versus external sourcing, exploration versus exploitation focus
and combinative versus absorptive capacity to form eight capabilities that inclusively map
all existing frameworks and typologies identified in the literature.
The key contribution of this paper to the literature is the integration of the three capability
dimensions into the eight proposed knowledge-based dynamic capabilities, including the
positioning of the synthesizing capability, which has not previously been framed in dynamic
capability typologies. Within the KM literature, exploration and exploitation have been
identified as key contributors to innovation (Donate and Guadamillas, 2011) and internal
knowledge resources have been demonstrated to mediate the effect of external knowledge
resources (Belso-Martnez et al., 2011) but these dimensions have rarely been examined
together and never in the context of absorptive and combinative capacities. The complete
typology, with its underlying dimensions, can be viewed as a new lens of analysis for KM
studies examining the impacts of knowledge-based dynamic capabilities in organizations.
While each of the types has been identified individually in the literature, a future research
opportunity is the empirical validation of the complete typology in organizations.
This work synthesizes a wide range of research on dynamic capabilities for knowledge
creation and transfer and provides a framework for future discussion and research. For
example, using three of the eight types identified in this paper, Zheng et al. (2011) linked
generation (creating), combination (reconfiguring) and acquisition (assimilating)
knowledge-based dynamic capabilities to firm innovation within networked environments.
A further research avenue could be the identification of how the full set of knowledge-based
dynamic capabilities could impact firm innovation. By mapping previous research and
extant categories into a knowledge-based dynamic capabilities framework, this paper
builds on and extends current theorizing on dynamic capabilities.
As each knowledge-based dynamic capability type shares several underlying dimensions
with other types, there may be interrelationships between the types that bear investigation.
For example, the replicating and imitating capabilities both rely on exploitation and

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VOL. 17 NO. 2 2013 JOURNAL OF KNOWLEDGE MANAGEMENT PAGE 187
absorptive capacity, but firms applying them acquire knowledge from internal and external
sources respectively. Teece et al. (1997) noted that there are different challenges with
imitation and replication and not all replicators are effective imitators and vice versa. The
degree to which each dimension separates and differentiates the types is a possible area of
research activity. Similarly, stemming from the relationships between knowledge-based
dynamic capabilities, a balance may be required in investing in a portfolio of capabilities to
ensure they operate effectively. For example, capabilities may reinforce each other, as where
internal exploitation capabilities can make external exploration more effective (Hoang and
Rothaermel, 2010). Additionally, capability development may not be independent, as
categories can be blurred due to co-evolution, which suggests that sequential
interdependencies may cause more than one dynamic capability to change at a time
(Lampel and Shamsie, 2003). Finally, future research may seek to examine ambidexterity in
knowledge-based dynamic capability types in addition to their underlying dimensions
(Rothaermel and Alexandre, 2009).
One practical implication of this framework is in the area of managerial preference and
organizational investment. Dynamic capabilities require investments to maintain them,
making development of knowledge-based dynamic capabilities a strategic decision (Teece
et al., 1997). Additionally, as they strengthen with use or atrophy with disuse, the investment
or lack thereof into dynamic capabilities can have long-term impacts for the firm (Zahra et al.,
2006). The requirement to invest in long-term capability development would make it difficult
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to maintain capability in all areas, leading to firms cultivating a limited number of


knowledge-based dynamic capabilities. A countervailing force to specialization is the call
for balance and ambidexterity between internal and external sourcing (van Wijk et al., 2008),
exploitation and exploration focus (Raisch et al., 2009) and absorptive and combinative
capacities (Zahra and George, 2002). Applying the typology to organizational investment
decisions into different dimensions of the framework, managerial preference can be seen to
lead to different portfolios of knowledge-based dynamic capabilities for the firm. A practical
application of this research would be the development of a diagnostic instrument for
managers to assess their knowledge-based dynamic capability position.
A theoretical implication of the paper focuses on linking the set of knowledge-based
dynamic capabilities to outcomes such as innovation, organizational climate or
performance. Focusing on the latter, Eisenhardt and Martin (2000) argue that dynamic
capabilities are not the source of competitive advantage, but rather it results from using
dynamic capabilities sooner, more astutely, or more fortuitously than competitors while
conversely, Zahra et al. (2006) challenge whether dynamic capabilities are necessarily
associated with higher performance. Empirically, Hoang and Rothaermel (2010) found that
combinations of external and internal competencies are important to address rapidly
changing environment, although only certain combinations are beneficial to performance.
Similarly, Bierly et al. (2009) found that the incorporation external knowledge within firms is a
means of improving organizational performance and innovative capabilities and that
exploration and exploitation are differing predictors. An important test of the framework
developed in this paper would be to determine if particular knowledge-based dynamic
capabilities are more or less strongly linked to a performance construct or other outcomes of
interest.
Two limitations of this typology are noted. First, while Teece et al. (1997) focus on the creation
and renewal of dynamic capabilities, Eisenhardt and Martin (2000) identify the importance of
the release of resources. This paper takes the former viewpoint, but acknowledges the fact
that resources can decrease in importance to the point that the value of holding them can be
exceeded by the value of releasing them. Similarly, while this paper uses the capability
lifecycle branches that lead to growth and renewal, the two branches proposed by Helfat
and Peteraf (2003) that pose threats to capabilities, namely retirement and retrenchment,
were not addressed by the typology. The importance of these two paths is not intentionally
minimized, but the focus of this paper was on renewal, modification and transfer of
knowledge. This choice of exclusion can be considered a limitation of this paper and an
opportunity for future study.

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PAGE 188 JOURNAL OF KNOWLEDGE MANAGEMENT VOL. 17 NO. 2 2013
A second limitation is the use of arbitrary categories based upon a single set of selected
dimensions. There is a balance required within firms for both exploration and exploitation
focus (Raisch et al., 2009), absorptive and combinative capacities (Zahra and George,
2002) and internal and external sourcing (Larsson et al., 1998). So while these categories are
depicted as cohesive, there may be conceptual and temporal overlap between them. For
example, replication is conceptually one of the cleanest categories the internal
exploitation of existing knowledge resources. However as Winter and Szulanski (2001) note,
there is an exploration view of replication as firms learn not only more about their own
processes, but about the replication of their own processes. The use of conceptually pure
types for theory development (Weber, 1949) was a conscious choice, but opens up future
research opportunities in the impacts of ambidexterity in dimensions and balance between
types.

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About the author


James S. Denford is an Assistant Professor and Head of the Business Administration
Department of the Royal Military College of Canada. He holds a PhD in Management from
Queens University and MBA and BEng degrees from the Royal Military College of Canada.
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His major research interests include knowledge strategy and capabilities, knowledge and IS
strategic alignment, and knowledge and IS leadership. James S. Denford can be contacted
at: jim.denford@rmc.ca

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