The quest for identifying and assimilating knowledge that is useful to innovation poses a very real challenge for today’s firms. Knowledge is now recognized as a key competitive asset that forms the basis of firm growth and sustainable competitive advantage (Grant, 1996). Since organizational innovation can be viewed as a result of the combination of existing and new knowledge (Kogut and Zander, 1992), firms that are adept at both sourcing and integrating knowledge are likely to be successful innovators in research and development, marketing, and operations.
Firms themselves are crucibles of knowledge—managerial, operational, and technical. However, they must exploit this internal knowledge in conjunction with external knowledge to compete successfully, gain profitability, and grow. Yet, which firm can claim to harness the potential of its knowledge fully and effectively? Which firm can find (within the organization or outside it) all the knowledge needed for innovation? Few, if any. Until the answers to these questions are in the affirmative, there will always be opportunities for firms to increase their operational efficiency, manage risk, and learn by further developing the capabilities to manage knowledge available within the organization or within their environment.
Previous research has extensively studied the various external sources of firm knowledge (including competitors, universities, and government bodies) and the formal mechanisms used to acquire knowledge (including strategic alliances and acquisitions) (Ahuja and Katila, 2001; Contractor and Lorange, 2004; Inkpen, 2002; Mowery, Oxley, and Silverman, 1996; Ranft and Lord, 2002; Schweizer, 2005). The literature on knowledge spillovers suggests that inter-organizational knowledge flows that are not captured by market contracts contribute to the competitive dynamics of regions and the success of organizations. Until the last decade, comparatively little attention had been paid to understanding informal knowledge flows across organizations especially those facilitated by the development of inter-organizational social communities. Individual actions such as mobility across firms, participation in consortia, and various geographically local, professional, or ethnic activities lead to the development of social communities. These communities provide individuals with potentially useful knowledge for innovation. Our chapter seeks to examine these informal, and often individual, sources of external knowledge. The study provides a review of the literature, both conceptual and empirical, on informal knowledge flows and assesses the impact of informal knowledge flows on organizational innovation. We examine how firms can scan for, absorb, and integrate knowledge obtained from informal sources. Thus, this chapter attempts to unbundle the process of knowledge absorption from informal and individual sources and analyzes its components to determine how firms can develop capabilities in search, transfer, and integration that enhance innovation and create competitive advantage.