Innovation Diffusion in the New Economy

The Tacit Component

Barbara Jones, Bob Miller

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9780415310475
• eBook ISBN: 9781134388257
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book unites discussions of the philosophical and scientific basis of tacit knowledge.The authors give an overview of the theories of tacit knowledge and explain how these relate to a background of philosophical, neurological and pedagogic literature. The importance of tacit knowledge for evolutionary models of innovation is analyzed raising qu

1
Introduction

Why tacit knowledge?
Why this book?

The argument

This book will attempt to establish three clusters of assertions:

• That Michael Polanyi’s theory of personal knowledge and tacit knowing, which has become widely known under the unfortunate and misleading rubric of ‘tacit knowledge’, is an important contribution to an evolutionary, bottom-up understanding of all human knowledge and action. That attempts to make his work immediately relevant have resulted in a number of unfortunate dichotomies of knowledge, as if Michael Polanyi were only claiming the existence of a newly discovered area of knowledge alongside those already recognised. That this in turn has led to unnecessary and fruitless attempts to generate new knowledge by establishing channels for the conversion and communication of knowledge between supposedly different types of knowledge. That we need to escape this impasse by accepting that knowledge is always contextual and is always used as part of a skill. Our conclusions lead to the suggestion that we should abandon the much-abused terminology of ‘tacit knowledge’ and equally not stop at Polanyi’s more used term ‘tacit knowing’, but that from the point of view of skills we should speak, still in Polanyi’s words, of the ‘tacit component’ or ‘tacit coefficient’ of all skill, including the skills of formulating and communicating ideas. We suggest that the successful identification and diffusion of new skills is inseparable from identifying and mapping the tacit component of these skills. Polanyi’s work already identifies a number of the elements of this component, on the basis of which we should be able to begin to classify those active in different kinds of skill.

• That Joseph Schumpeter’s theory of innovation as the only source of economic growth is becoming increasingly relevant as globalisation opens all markets to new entrants and competition eats away at all quasi-rents and market niches. That the resource-based theory of the firm and of competitive advantage associated with Edith Penrose and Michael Porter captures much of the reality of the processes by which all inputs available on the market become interchangeable while only those generated within the firm itself ensure a precarious competitive edge. That, as Peter Drucker later emphasised, the only asset of the firm which cannot be easily replicated by competitors is knowledge. That, as argued by Nelson and Winter (1982), the most valuable knowledge of a firm is that which is embodied in routines and in teams which can both carry out and replicate, develop and innovate routines. That since ultimately even routines can be replicated by competitors – by poaching staff, by reverse engineering and by industrial espionage – the only secure form of competitive advantage is that embodied in constant incremental improvement and innovation. That Polanyi’s understanding of knowing as a continuous process of discovery becomes especially relevant in processes of continuous incremental innovation. That mapping the tacit coefficient and tacit component evolving in new forms of work, developed at the site of ongoing incremental improvement, is important both for the effective diffusion of new skills and for their further improvement.

• That Polanyi’s ideas have another quite different field of application in the simultaneous processes of despatialisation brought about by the advent of cyberspace. Polanyi’s concepts of physiognomic recognition, the prosthetic function of heuristics, the indwelling of our contexts, the turning around of established schemas as the basis for new conceptualisations, and the tacit integration of all of these processes have enormous relevance for the ways in which the flood of information which we absorb through cyberspace can begin to make sense to us. The servicing and use of the hardware and software of cyberspace in itself creates enormous new bodies of so-called ‘tacit knowledge’ embedded in skills. More important than this is the contribution which Polanyi can make to understanding how the cyber-mediated world can be real for us. This is relevant to information about markets, products, fashions and the effect of wider social trends on the economy. The active integration of information absorbed through new media will lead to a revolution in sensibilities comparable to that produced by the printing press and mass literacy. The way in which this active integration is achieved by experience and in Polanyi’s terms by indwelling, in combination with the drive towards constant innovation within businesses, means that there is a problem with the encapsulation of new knowledge within firms and the creation of ‘skills escalators’ which exclude those without access to these ongoing developments. However, a counter-vailing trend is present in the technical imperatives to restandardise systems to ensure interconnectability, and in the commercial processes which lead to the emergence of new standard products and techniques (an aspect of Schumpeter’s ‘creative destruction’). The identification of the generic skills which will be at the core of future skills landscapes is therefore of great significance to those bodies which wish to achieve national, regional or sectoral competitive advantage by taking advantage of clustering and spillover.

Michael Polanyi and tacit knowing

Michael Polanyi developed his concept of tacit knowing, usually referred to in business-oriented literature under the rubric of ‘tacit knowledge’ (drawing especially on Polanyi 1966), as part of a much wider philosophy, most of which is not usually referred to by writers who use the concept.¹ He saw tacit knowing as an irreducible part of personal knowledge. The part of his theory which is most widely known and transmitted states that the greatest part of our knowledge of the world is necessarily inexplicit. The reason for this is that we focus on only a small part of the world at any time, while all of our background knowledge of the rest of the world, while necessary for our unconscious and subconscious calculation of our actions in relation to the world, must remain implicit in order not to distract us from the focus of our conscious attention. Whatever we learn about the world, those things which we learn by deliberate instruction, as well as those which we acquire by subliminal familiarity, become part of our fund of personal knowledge. Tacit knowing is therefore not reducible to that part of knowledge which arises within and is drawn on in specific specialist contexts. There is a core of personal knowledge in every life situation and every practice, no matter how ubiquitous and universally applicable it may be. Tacit knowing is sometimes perceived to be specific to special kinds of situations because it is often in the confrontation of individuals with different experience that conflicting assumptions rooted in different funds of tacit knowledge may be exposed.

One consequence of the existence of ‘tacit knowledge’ is that ‘we know more than we can tell’. This means that in many instances there can only be induction of one person by another into a practice, rather than instruction. Polanyi discusses this under a number of different aspects, one of which is that our competent performance is often dependent on not paying direct attention to what we are doing. Whenever we do so, we lose our stride and are unable to perform. Since our learning of the skill may itself have been part of an unconscious process, we may never have access to the process by which we learned it. Under these circumstances, our verbal description of what we do may be a confabulation or the recital of what we were ourselves told before we learned the skill, but which had no real role in our learning it.

We can see this best in the way we possess a skill. If I know how to ride a bicycle or how to swim, this does not mean that I can tell how I manage to keep my balance on a bicycle or keep afloat when swimming. I may not have the slightest idea of how I do this or even an entirely wrong or grossly imperfect idea of it, and yet go on cycling and swimming merrily. Nor can it be said that I know how to bicycle or swim and yet do not know how to co-ordinate the complex pattern of muscular acts by which I do my cycling or swimming. I both know how to carry out these performances as a whole and I also know how to carry out the elementary acts which constitute them, though I cannot tell what these acts are. This is due to that fact that I am only subsidiarily aware of these things, and our subsidiary awareness of a thing may not suffice to make it identifiable.

(Polanyi 1969, pp. 141–2)

There is another aspect of his theory which has been less widely reported and does not appear to be sufficiently taken into account in the uses of his work made by economic and business writers. Polanyi also suggests that when we learn to use tools to carry out an operation, we simultaneously learn to use them as extensions of our senses, providing us with information about the situation in which we are working, as in the case of a screwdriver providing information about the texture and grain of the material into which the screw is driven and about the quality of the material and form of the screw itself. The tool is integrated into the economy of the perception of the user, whose perceptions of the entire process are mediated by their ‘default’ perceptions of their own internal states. The screwdriver is not simply a tool but also a sensory probe like the blind person’s stick. Polanyi argues that ‘interpretative frameworks’ are analogous to physical tools in that they come to function as probes through which we become used to processing all information of a particular type. Polanyi’s ‘tacit knowledge’ and ‘tacit inference’ should therefore not be taken as labels for bodies of mental contents no matter how unconscious. They are also processes and heuristics in which body and mind are tuned and sensitised to generate new knowledge by interaction of body, mind, tools and materials.

Joseph Schumpeter, recent endogenous growth theory and spillover

Equilibrium theories of the market economy describe various mechanisms by which the process of competition results in a convergence of demand and supply. The framework of the economy is taken to be determined by factors external to the economy as a closed system, ‘exogenous’, such as population growth, new technologies and changes in taste. Among the different Austrian theorists of the alternative view of the market as a dynamic process which has its own internal or ‘exogenous’ sources of change, the most relevant for our present concern is Schumpeter.² His phrase ‘waves of creative destruction’ summed up the process by which new technologies make possible the creation of new markets for new products which require whole new infrastructures while simultaneously destroying the value of existing infrastructures. By infrastructures we could mean infrastructures of storage and delivery, of wholesale and retail, of maintenance and repair, or of skills and training. Furthermore, the replacement of one dominant technology by another will lead to the use of new materials and methods in many other areas of the economy. In the first centuries of capitalism these waves were spaced out so that the whole economic life of a single individual could pass within a single wave or paradigm. Today we may have to accept that individuals will have to be adjusted to move from one paradigm to another once or several times during their active lives.

Recent endogenous growth theory emphasises the importance of spillover.³ There are different kinds of spillover. One which may not initially seem to be relevant here is the direct effect of the spillover of income. That is to say, in so far as the entire benefit of any particular innovation is not taken as a rent by the innovator, there is some spillover of income benefit to the wider society within which the innovation takes place. This can be seen by taking the extreme case, in which the innovator can keep the full benefits of the innovation only by paying the prior going rate for all inputs. This assumes that there is no demand pressure on any input, in effect that the economy is in a slump. The normal assumption will be rather that the innovator will need to bid up at least some inputs to divert them from other uses.

The most directly relevant form of spillover discussed in endogenous growth theory is technological spillover. This is the basis of the theories of industrial districts, of clustering and of national competitive advantage. By allowing technological spillover, the innovators accept an initial loss of competitive advantage, but when the process works smoothly, the sharing of technologies will enable firms within a district or cluster to maintain a competitive and innovative advantage over firms outside. Technology sharing and skill sharing mean that firms create pools of skilled labour which can move to the most advantageous new use; that development problems can be rapidly overcome due to availability of experience with equivalent problems; and that firms within the cluster become each other’s customers as they require machinery and intermediate products to meet expanding order books. Upward pressure on skilled wages is more than compensated by the gains of productivity as technologies and skills are generalised, while the resultant competitive advantage of the cluster as a whole reduces the overall effect of price competition in comparison with design and innovation competition.

A special case of spillover is that associated with Schumpeter’s concept of ‘creative destruction’. New technologies can lead to the phenomenon of tipping, whereby new sources of power or new materials can produce or enable new technologies which sweep the entire economy, introducing new modalities of transportation, storage, preservation and use, making entire infrastructures obsolete and creating new ones. This gives rise to a meta-level of competition between first movers and followers which may go either way. In this case it is an open question whether cost, design or market dynamics will play the major role in the emergence of new standards. But on a national level there is a strong motivation to use technological spillover as a tactic to achieve market share and thus become the standard-setter on a world scale.

Another type of spillover which is of increasing relevance is the spillover of technology from industrial to leisure use or from public to private use. In pre-modern and early modern societies there was spillover from military innovation to industrial use, as instanced by steamships, railways and civil engineering, but this is now very restricted, some argue because military technologies have lost touch with non-military applications. In the twentieth century the telephone, recorded sound, the automobile, the television, the computer and now the mobile phone are the prime instances of the subversion of technologies developed for public or industrial use for private, social and communicative use. We need to think about the effects on skills. The telephone, the automobile, the computer and the mobile phone are all instances of technologies which have a strong crossover effect between private and employment use. There is spillover both ways in that private and employment uses of these technologies can move following different dynamics and one or the other can be the technology leader for periods of time. We are currently experiencing a period in which private computer use appears to be the leader, with governments hoping that household computer use will produce a broadly computer-literate population which will be able to adapt to information-technology-led innovations at work.

At this point, the first kind of spillover does make a difference because access to new technologies is itself a function of income. In societies where there is spillover or crossover between the technologies of leisure and work, income spillover will play a role in increasing skills by increasing familiarity with work-relevant technologies outside of the work application. Of course, in neglecting income spillover we were in any case neglecting the role of education in the production of skills, since education is also correlated with income. But again the spillover or crossover between work technologies and educational technologies will further amplify the effect of income spillover on skills. This was already the case with the automobile and consumer electronics and its relevance for new information and communication technologies is obvious.

The New Economy and innovation diffusion

We suggest that Polanyi’s ideas are especially relevant to the necessity for innovation di...

Table of contents

• Routledge Advances in Management and Business Studies
• Contents
• Foreword
• Acknowledgements
• 1 Introduction
• 2 The shaping of Michael Polanyi’s philosophy
• 3 Michael Polanyi’s theory of personal knowledge
• 4 Implicit, tacit and explicit components of personal knowledge
• 5 The real and false relevance of economic innovation
• 6 Tacit knowledge in the New Economy
• 7 Tacit knowledge, cyberspace and new imaging techniques
• 8 Conclusion
• Notes
• References
• Index