Knowledge and the boundaries of the firm : design and permeability

Organisational boundaries can be analysed via a variety of lenses – organisational design principles, transaction cost economics, property rights and agency theory, amongst others. We review these before taking a knowledge-based perspective to firstly explain how the boundaries of the firm are determined by the knowledge resources present, and second, to highlight how conceptualising the drivers of competitive advantage in terms of knowledge and learning create a backdrop for understanding the move towards intermediate or hybrid organisational forms most commonly characterised by strategic alliances. We subsequently propose that the exact location of these naturally more fluid boundaries of the firm that exist in conjunction with strategic alliances are not as important as the level of permeability of the organisational boundaries. Permeable organisational boundaries allow for more efficient use of key knowledge resources; for firms to make and buy the same activity simultaneously and for learning to occur – a key driver of competitive advantage for those that subscribe to the knowledge-based view or the dynamic capabilities view of competitive advantage.