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Valuing Internal vs. External Knowledge: Explaining the Preference for Outsiders

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  • Tanya Menon

    () (Graduate School of Business, University of Chicago, 1101 East 58th Street, Chicago, Illinois 60637)

  • Jeffrey Pfeffer

    () (Graduate School of Business, Stanford University, Stanford, California 94305-5015)

Abstract

This paper compares how managers value knowledge from internal and external sources. Although many theories account for favoritism toward insiders, we find that preferences for knowledge obtained from outsiders are also prevalent. Two complementary case studies and survey data from managers demonstrate the phenomenon of valuing external knowledge more highly than internal knowledge and reveal some mechanisms through which this process occurs. We found evidence that the preference for outsider knowledge is the result of managerial responses to (1) the contrasting status implications of learning from internal versus external competitors, and (2) the availability or scarcity of knowledge-internal knowledge is more readily available and hence subject to greater scrutiny, while external knowledge is more scarce, which makes it appear more special and unique. We conclude by considering some consequences of the external knowledge preference for organizational functioning.

Suggested Citation

  • Tanya Menon & Jeffrey Pfeffer, 2003. "Valuing Internal vs. External Knowledge: Explaining the Preference for Outsiders," Management Science, INFORMS, vol. 49(4), pages 497-513, April.
  • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:4:p:497-513
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    File URL: http://dx.doi.org/10.1287/mnsc.49.4.497.14422
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    References listed on IDEAS

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    1. Pascale, Richard Tanner & Athos, Anthony G., 1981. "The art of Japanese management," Business Horizons, Elsevier, vol. 24(6), pages 83-85.
    2. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
    3. Eric von Hippel, 1994. ""Sticky Information" and the Locus of Problem Solving: Implications for Innovation," Management Science, INFORMS, vol. 40(4), pages 429-439, April.
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