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strategy and business
 / Summer 2003 / Issue 31(originally published by Booz & Company)


Recent Studies

Although Professor Grey does not claim that organizational learning is in itself bad, he warns of the danger in presenting prescriptive education as a completely open opportunity to learn: “However well-intentioned or innocent sounding, any invocation of learning entails an abdication of the capacity to think.”

Knowledge Inside and Out

Tanya Menon ([email protected]) and Jeffrey Pfeffer ([email protected]),
“Valuing Internal vs. External Knowledge: Explaining the Preference for Outsiders,”
Stanford Graduate School of Business Research Paper Number 1776, January 2003.

Many organizations are familiar with the “not invented here” (NIH) syndrome — the unspoken understanding that ideas from the outside can’t possibly be as valuable as those developed internally. But research by Tanya Menon, an assistant professor of behavioral science at the University of Chicago’s Graduate School of Business, and Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior at Stanford Graduate School of Business, shows that “organizational reality” is quite different and more complex than meets the eye.

The authors support their findings with two case studies. The first involves Fresh Choice Inc., a chain of self-service restaurants offering an extensive salad bar and other food stations, and its acquisition of another salad chain called Zoopa. Initially, managers at Fresh Choice were impressed by Zoopa’s operations and service; they saw this expertise as an important rationale for acquiring Zoopa. But once the merger had occurred, First Choice managers appeared to be dismissive of Zoopa’s service and operations knowledge. Professors Menon and Pfeffer conclude that the perceived value of this knowledge within Fresh Choice decreased once the outsider, Zoopa, became an insider. “It is also possible that Fresh Choice stopped valuing Zoopa’s knowledge over time, not because it valued external knowledge more, but because it had already learned all it could from Zoopa,” the professors write. Or perhaps, they add, defenders of the status quo within Fresh Choice were resisting change.

The second case shows how a technology, originally developed at Xerox’s Palo Alto Research Center (PARC), became more highly valued by PARC researchers when they saw the same technology being developed by someone else. In 1995, researchers at Xerox PARC began work on, a project to develop an advanced Internet-based document management technology. But by 1999, funding for the project was stopped; Xerox lacked confidence in its own technology. Then several years later, attitudes changed when Xerox saw another company, Impresse, was developing a similar technology, and doing well. Eventually, Xerox approached Impresse with a view of possibly partnering with or even buying the firm.

These cases, the authors argue, suggest some common features of organizational life. Market competition can make external knowledge seem more valuable, and organizational constraints (budgets, politics, resistance to change, etc.) can make internal knowledge seem less valuable. As one PARC scientist said, “Xerox was not an early adopter of four years ago and could have been setting a precedent by being able to offer the services. Now that we have competition, it’s perceived to be of genuine value.”

The authors also observe that the proximity of internal knowledge can make its flaws more visible. Conversely, because external knowledge is less accessible and harder to scrutinize, it may seem more valuable and desirable to those who don’t control it. These forces typically outweigh the effects of NIH syndrome. Consider how, in the 1980s, U.S. managers and commentators venerated Japanese management practices. Yet W. Edwards Deming, an American credited with inspiring Total Quality Management, was largely ignored in his own country until Japanese companies adopted his ideas.

The tendency to overvalue knowledge outside a company may also help explain the corporate predilection for management fashions. “Even while managers chase after fads, copy what other companies do, engage in competitive benchmarking, and seek the help of outside consultants,” Professors Menon and Pfeffer write, “they often ignore or resist good internal ideas.”

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