Institute for Empirical Research in Economics
University of Zurich
Working Paper Series
ISSN 1424-0459
published in: ‘Organization Science’, Vol. 11, No. 5, September – October 2000, pp. 538-550
Working Paper No. 27
Motivation, Knowledge Transfer, and
Organizational Form
Margit Osterloh and Bruno S. Frey
November 1999
Motivation, Knowledge Transfer, and Organizational
Forms
Margit Osterloh
Institute for Research in Business Administration, University of Zurich,
Plattenstrasse 14, CH-8032 Zurich / Switzerland
Tel: ++41-1-634 2841/40
Fax:++41-1-634 4942
email: osterloh@ifbf.unizh.ch
and
Bruno S. Frey
Institute for Empirical Economic Research, University of Zurich,
Blümlisalpstrasse 10, CH-8006 Zurich / Switzerland
Tel: ++41-1-634 3731/30
Fax:++41-1-634 4907
email: bsfrey@iew.unizh.ch
Acknowledgments
We thank Iris Bohnet, Gary S. Becker, Jetta Frost, Raymond E. Miles, Felix
Oberholzer-Gee, Oliver E. Williamson, Helmut Willke, Linda Zerilli, and three
unknown referees for the helpful comments during the preparation of this article.
Key Words:
Motivation, Knowledge Transfer, Tacit Knowledge, Crowding Effects, Firm
Theory, Resource-based View
JEL-Codes:
A12, J33, L22, M12
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Abstract
Employees are motivated intrinsically as well as extrinsically. Intrinsic
motivation is crucial when tacit knowledge in and between teams must be transferred.
Organizational forms enable different kinds of motivation and have different capacities
to generate and transfer tacit knowledge. Since knowledge generation and transfer
are essential for a firm’s sustainable competitive advantage, we ask specifically what
kinds of motivation are needed to generate and transfer tacit knowledge, as opposed
to explicit knowledge.
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1. Introduction
Knowledge generation and transfer is an essential source of firms’
sustainable competitive advantage. The question is, which organizational form is
most conducive to knowledge generation and transfer? The most prominent
suggestion for organizing firms is to introduce market elements and prices through
such methods as profit centers, spin-offs, or holdings. We intend to show that such
organizational forms are suitable only under special circumstances defined by
specific aspects of knowledge and motivation. In line with the knowledge-based view
of the firm, we distinguish explicit from tacit knowledge. We ask what kinds of
motivation are needed to generate and transfer tacit, as opposed to explicit,
knowledge. To explore this question, we resort to a well-established and widely
empirically supported social psychological theory of the interaction between intrinsic
and extrinsic motivation. This theory, introduced into economics as crowding theory ,
is applied here to organization theory.
Intrinsic motivation is not simply additive to the motivation induced by prices
(extrinsic incentives). Rather, under some conditions the use of the price system
undermines intrinsic motivation (crowding-out effect), making motivation endogenous
to organizational forms. We argue that knowledge transfer is intimately connected to
motivation and that sustainable competitive advantage requires a corresponding
motivation management. We will demonstrate which organizational forms are
suitable for generating and transferring tacit as well as explicit knowledge. In
addition, we will show the type of motivation, whether intrinsic or extrinsic, these
organizational forms should engender for effective knowledge transfer and
sustainable competitive advantage.
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2. Knowledge as a Source of Competitive Advantage
Increasingly, firms are being restructured by introducing market elements
such as profit centers, divisional units, or holdings. The idea is to exploit the
advantages of the price mechanism by making the exchanges between the actors or
departments more explicit and by rewarding employees according to their contribution
to the firm’s profit. This strategy corresponds to a view of firms as the governance
structure “of last resort, to be employed when all else fails” (Williamson 1975; 1985;
1991, p. 279).
This view, espoused by many economists, has recently been challenged:
Today, we know that . . . to run a firm as if it were a
set of markets, is ill-founded. Firms replace markets
when non-market means of coordination and
commitment are superior. (Rumelt, Schendel, and
Teece 1991, p. 19)
What “non-market” organization means is left unexplored. The resource-
based theory of the firm (e.g., Barney 1991; Prahalad and Hamel 1990; Winter 1995),
which is the leading alternative approach to the economic view, is also vague with
respect to organizational forms. Adherents of the resource-based view generally
agree that the most strategically important resource is knowledge (e.g. Conner and
Prahalad 1996; Grant 1996a, b; Kogut and Zander 1996; Langlois and Foss 1999;
Liebeskind 1996; Nahapiet and Ghoshal 1998; Pettigrew and Whipp 1993, pp. 212–
238; Spender 1996). Knowledge differs from information in that