Knowledge and the boundaries of the firm : implications for the construction industry

Organisational structure is synonymous with a firm's knowledge – both today and in respect of a firm's future knowledge stocks. For some, this may seem obvious, yet for most scholars (and practitioners) this is not the case, as structure – particularly where the boundaries of the firm lie and what they look like – rarely makes it into any knowledge management discussion. Yet what a firm does today, be it broad in its activities or highly focused to the point of being a virtual organisation, is both a reflection of its existing capabilities/routines (which are based around knowledge) as well as determining its likely learning and transformational opportunities into the future. In addition, the permeability of any organisational boundary and the existence of any mechanism to maximise the inflows of new knowledge are fundamental to developing new or reconfiguring existing capabilities. This paper therefore addresses how knowledge and structure are inextricably linked and, through the use of a case study, illustrates how a public sector organisation has significantly rebuilt its capabilities by rethinking its organisational boundaries, both in terms of location and basic characteristics. The determination of organisational boundaries is a classic theme with theories being developed on the basis of tasks and activities (Katz and Kahn 1966; Lawrence and Lorsch 1967; Thompson 1967), to theories of economic organisation focused on property rights and transaction costs (Alchian and Demsetz 1972; Grossman and Hart 1986; Jensen and Meckling 1976; Williamson 1975), and strategic theories of resources, capabilities and knowledge (Barney 1995; Foss 2002; McGee 2003; Teece, Pisano and Shuen 1997). While these different theories each provide a different lens through which to see how organisations structure themselves to create their boundaries, these theories tend to be weak in linking organisational boundaries to value creation (or competitive advantage). Furthermore, these theories say little about the nature of organisational boundaries beyond their basic location. To counter this perceived weakness, we draw primarily upon the knowledge-based view of the firm which proffers an alternative explanation regarding organisational boundaries and the need for organisational alliances. The knowledge literature simultaneously provides an opportunity to investigate the nature of organisational boundaries in the context of alliances and knowledge transfer. Positing that organisational structure in terms of firm boundaries (location and permeability) fundamentally drive an organisation’s ability to engage in learning and knowledge transfer, we use a case study of Main Roads Western Australia (WA) to illustrate how rethinking their structural boundaries and the nature of these boundaries allowed for a rebuilding of key organisational capabilities.