Knowledge Risks in Organizational Networks. An Exploratory Framework

Journal of Strategic Information Systems 21 (2012) 117
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Journal of Strategic Information Systems

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Knowledge risks in organizational networks: An exploratory framework

Peter Trkman a,, Kevin C. Desouza b,1
a
b
University of Ljubljana, Faculty of Economics, Kardeljeva ploscad 17, 1000 Ljubljana, Slovenia
Metropolitan Institute, Center for Public Administration and Policy, Virginia Tech., 1021 Prince Street, Suite 100, Alexandria, VA 22314, United States
a r t i c l e
i n f o
Article history:
Received 24 October 2010
Received in revised form 2 November 2011
Accepted 2 November 2011
Available online 26 November 2011
Keywords:
Organizational networks
Knowledge
Knowledge sharing
Risk management
Management frameworks
Transaction cost economics
a b s t r a c t
In a networked environment, it is essential for organizations to share knowledge among
themselves if they want to achieve the global objectives such as collaborative innovation
and increased effectiveness and efciency of operations. However, sharing knowledge is
not risk-free. An organization might lose its competitive edge if it shares too much or certain key knowledge. In addition, an organization might suffer if its intellectual property is
improperly handled by its business partners. While the literature has touted the value of
knowledge sharing within networks, there is a conspicuous absence of studies examining
the risks of sharing knowledge. To address this gap, we develop an exploratory framework
that categorizes knowledge-sharing risks across multiple dimensions. Such a framework is
a structured approach to knowledge risk management and complements the practicebased approach to knowledge risk management that is presented in (Marabelli and Newell,
2012). Our framework outlines the various kinds of knowledge risks that organizations are
facing. We use a combination of knowledge-based and transaction cost theories to show
how knowledge risk impacts knowledge transfer among entities in the network, the whole
network, and the risk mitigation options.
2011 Elsevier B.V. All rights reserved.
1. Knowledge sharing is not risk-free

Todays competitive environment calls for organizations to focus on their core capabilities (Gupta et al., 2009). To this
end, most organizations participate in networks to satisfy their ancillary needs. Some organizations (e.g., Amazon, Dell) also
rely on their networks for their core needs. For example, Amazon relies on the logistical capabilities of its business partners
(e.g., UPS, FedEx) to attain its core business objectives.
As organizations become more dependent on these networks, it is clear that these networks are more than just a vehicle
to acquire physical resources (e.g., raw materials) or operational capabilities (e.g., logistics) (Davis and Spekman, 2003). Networks are also critical vehicles for acquiring knowledge-based resources and capabilities. Consider the case of the Boeing
Dreamliner (787). Boeing is utilizing a network of 15 business partners from Japan to Italy. For example, Mitsubishi Heavy
Industries from Japan designed the wing box, while Vougut and Alexia collaborated in the building of the horizontal stabilizer and the fuselage (Baloh et al., 2008).
As noted by Grant (1996b), a rms role is to integrate the disparate pieces of knowledge in its midst and leverage them to
help attain its organizational objectives. Today, we can extend this thinking to networks. Unless networked organizations
leverage the disparate and diverse collection of the knowledge found across the organizations in networks they belong
Corresponding author. Tel.: +386 1 5892 400; fax: +386 1 5892 698.
E-mail addresses: peter.trkman@ef.uni-lj.si (P. Trkman), kev.desouza@gmail.com (K.C. Desouza).

URL: http://www.kevindesouza.net (K.C. Desouza).
Tel.: +1 206 859 0091.
0963-8687/$ - see front matter 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.jsis.2011.11.001
P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117
and participate in, they will fail to meet their objectives (Agterberg et al., 2010). Consider the case of one of the most information- and knowledge-intensive networks, the US Intelligence Community (USIC). USICs inability to share effectively information and knowledge has led to several disastrous consequences, as for example, its inability to prevent the attacks of
September 11, 2001 and its incorrect assessment of Iraqs so-called weapons of mass destruction capability amply demonstrate (Desouza, 2009).
While knowledge sharing is valuable it cannot be done in a haphazard fashion. The improper sharing of knowledge and a
loss of knowledge during transfer can have disastrous results (Hackney et al., 2008). In addition, knowledge sharing requires
an organization to be dependent on another vital entity: for example, while major multinational pharmaceutical organizations are improving their performance through knowledge sharing via outsourcing arrangements, in the long run they may
be eroding core competencies like drug discovery and clinical research (Gupta et al., 2009).
A critical challenge organizations face within networks is, therefore, how to manage the risks associated with knowledge
sharing. This involves balancing between too much and too little knowledge sharing and knowing how to protect and secure
the knowledge that is being shared in the network. The optimal management of these risks requires a careful consideration
of the nature of the risks, the types of collaborative relationships, and the context of the network. Unfortunately, the literature on inter-organizational networks provides little theoretical or practical guidance on how to do this. Most emphasizes
the importance of the exchange of information (e.g., designs, client lists, prices, customer proles, sales forecasts, and order
history) among rms in a network (Altay and Ramirez, 2010; Gunasekaran and Ngai, 2004; Zhou and Benton, 2007). Competency in information exchanges does not necessarily imply competency in knowledge transfer, however (Tarafdar and
Gordon, 2007).
Moreover, while the literature on supply chain management has witnessed swift growth, a vast portion of this research
focuses on a single (focal) rm managing the risks in its environment. Most often, only risk due to adverse events, either from
a single rm within the network (e.g., partner non-performance) or from outside (e.g., low-probability high-impact events
such as terrorism, natural disasters) are addressed (Chopra and Sodhi, 2004; Faisal et al., 2006; Finch, 2004; Hallikas et al.,
2004; Ritchie and Brindley, 2007; Trkman and McCormack, 2009). Most of this research focuses on risks in purchasing and
supply behavior. Little has focused on the importance of managing the risks that can arise from sharing knowledge in a network setting.
Given these gaps in the literature, the goal of this paper is to construct an exploratory framework that may facilitate the
study of the various kinds of knowledge risks that emerge within networks. The framework is derived from the premise that
different types of risk are perceived differently by decision makers and carry considerably different perceived costs for their
mitigation. Thus, the impact of different types of risks on knowledge transfer, the networks operation and risk mitigation
activities can vary considerably. While this premise may be reasonable, the practice-based approach presented in (Marabelli
and Newell, 2012) provides a complementary account. The blind use of our framework could lead managers to believe that
knowledge transfer is a fully manageable process that could cause them to neglect important issues such as the role of mediators in translating knowledge given its stickiness (Szulanski, 1996). Our framework is meant to be used as a sensitizing
device in combination with the practice-based view articulated in Marabelli and Newell (2012).
The structure of the paper is as follows: in the next section we rst dene the term network. Next, we outline the knowledge-based view of organizations and the role of transaction cost economics in managing risks. Then, knowledge risk management is discussed. Following this, we develop our theoretical framework to classify knowledge risks and demonstrate its
implications.
2. Theoretical background
2.1. Networks
The term network is often used casually (Cova et al., 2010). Various kinds of networks are postulated (Cova et al., 2010),
such as alliance network (Baum et al., 2000); alliance partners (Becerra et al., 2008); business net (Mller and Svahn, 2006);
cluster (Liao, 2010); collaborative or cooperative arrangement (Provan et al., 2007); co-opetition (Li et al., 2011); external
knowledge sourcing (Carayannopoulos and Auster, 2010); innovation outsourcing (Baloh et al., 2008); inter-organizational
knowledge network (Dawes et al., 2009; Hackney et al., 2008); knowledge-sharing network (Dyer and Nobeoka, 2000);
network of practice (Agterberg et al., 2010); strategic alliance (Connell and Voola, 2007); supply network (Krkkinen
et al., 2003; Straub et al., 2004), and vertical partnership (Kotabe et al., 2003) to mention just a few.
In this paper, we conceptualize a network as a group of three or more organizations connected in ways that facilitate the
achievement of a common goal (Provan et al., 2007). It includes a set of actors connected by a set of ties (Borgatti and Foster,
2003) and consists of the tangible and intangible investments that comprise the connected relationships (Hakansson et al.,
2009). A network is characterized by sets of purposeful and connected exchange relationships which evolve over time
(Andersen and Christensen, 2005). It is a coalition of autonomous but interdependent organizations that are willing to exchange information and coordinate some of their actions, and sometimes even to submit part of their activities and decision
domains to centralized control, in order to achieve benets that are greater than any single member of the network can create independently (Mller and Svahn, 2006; Straub et al., 2004). A network serves as a locus of innovation because it provides
timely access to knowledge and resources that are otherwise unavailable (Powell et al., 1996).
Relationships among network members are primarily nonhierarchical, and participants often have substantial operating
autonomy. Connections may be informal and completely trust-based, or more formalized, as through a contract (Provan
et al., 2007). The partners in such networks are heterogeneous and may cover vertical and horizontal collaborations along
the entire value chain (Hutzschenreuter and Horstkotte, 2010). Innovation is no longer the product of a single person or
group within an organization, but a collective effort of groups of people in different organizations (Erden et al., 2008).
2.2. Knowledge, knowledge transfer and knowledge based theory

To avoid confusion, we rst clearly discriminate between the three distinct constructs data, information, and knowledge
(Galliers and Newell, 2003; Wadhwa and Saxena, 2007). Data are observed, raw, unanalyzed and uninterrupted patterns
with no meaning; they are an input to an interpretation process (Aamodt and Nygrd, 1995). Information is created through
the aggregation of data via the application of mathematical, statistical, or logical processing techniques, and made sense of
by the application of knowledge. Knowledge is the collection of experiences, know-how, expertise, and gut instincts that
help us make sense of information (Choo, 1996; Nonaka, 1994). Knowledge is a uid mix of framed experience, values, contextual information, and expert insight. Knowledge often becomes embedded, not only in documents or repositories (that
are easily shared among organizations), but also in organizational routines, processes, practices, and norms. Knowledge
helps in the interpretation of data and information as it provides the necessary context.
Knowledge-based theory, an extension of the resource-based view (Barney, 1991), postulates that knowledge is a rms
key resource for creating and sustaining economic rent (Chen et al., 2006; von Krogh, 2009). Knowledge-based resources that
are difcult to imitate and are socially complex may produce long-term sustainable competitive advantage (Alavi and Leidner, 2001). The knowledge-based view of the rm thus sees a rm as a knowledge-creating entity, and argues that knowledge and the capability to create and utilize it, are the most important source of a rms sustainable competitive advantage
(Nonaka et al., 2000). The rm is then an institution which exists to permit individuals to specialize in developing expertise,
while establishing mechanisms through which individuals coordinate to integrate their different knowledge bases in the
transformation of inputs into outputs (Grant, 1999).
Various epistemologies bring unique, and contradictory, views on what is (and is not) knowledge (Popper, 1972; Russell,
1912; Swain, 1981); whether knowledge can be managed (Alvesson and Krreman, 2001; Merali, 2000; Polanyi, 1958; Wilson, 2002); processes for sharing knowledge (Desouza, 2003; Galliers, 2006; McLure Wasko and Faraj, 2000; Nonaka, 1991;
Brown and Duguid, 1998; Swan et al., 1999), and even the issues of how appropriations from knowledge are allocated (Adler,
2001; Cowan and Foray, 1997; Teece, 1998). In this paper, we subscribe to the view that knowledge is socially constructed
(Cook and Brown, 1999). Specically, we assert the following: within each rm, organizational knowledge is generated from
the combination of knowledge that exists within individuals, processes, and their interactions (Grant, 1999). In the same
vein, in a network setting, network-level knowledge is generated from the combination of knowledge that exists within each
organization. To this end, it is critical that knowledge is transferred between the organizations participating in the network
to enable its combination, synthesis, and utilization beyond the boundaries of an individual rm.
Knowledge transfer involves the sharing of experience, expertise, know-how, and learning from one member of the network to another (Christopher and Gaudenzi, 2009; Connell and Voola, 2007). Since each organization has only limited knowledge and resources to leverage knowledge, the sharing of knowledge is essential for the development of new products,
services, and practices (Choo, 1996; Desouza and Evaristo, 2003; Easterby-Smith et al., 2008). Knowledge transfer can occur
between two parties (where one is a source and the other a recipient) or in a multi-party arrangement (where one or more
rms are sources, and one or more rms are recipients); thus our framework distinguishes between risks in dyadic relationships and in a network setting.
We acknowledge that the above discussion is relevant only if one applies a structural/cognitive perspective on knowledge, where knowledge is treated as a resource than can be transferred across sites. However, regardless, it is not sufcient
for organizations to merely focus on leveraging the knowledge within their midst. Instead, they need to leverage knowledge
found outside the organization (i.e., the knowledge other entities have or may have access to) (Leidner, 2010; Straub et al.,
2004). Knowledge transfer is time- and resource-intensive for all parties involved (Modi and Mabert, 2007). To this end, it
becomes critical that the organization has sound mechanisms in place to seek, evaluate, and share knowledge with the external entities with which it engages. In this paper, we focus on knowledge sharing with external entities that belong to the
networks in which an organization participates. The diffusion of knowledge can enable the successful management of partner relationships and consequently enhance the productivity of partners (Giannakis, 2008). Therefore, the competitive performance of each organization, and the entire network, depends on effective knowledge sharing and the reuse of collective
knowledge (Bogner and Bansal, 2007; Erden et al., 2008; von Krogh, 2009).
The lack of knowledge sharing has consistently been found to be the most critical failure factor in networks (Ke and Wei,
2007). Nevertheless, while the importance of effective knowledge management for mitigating other (e.g., nancial) risks is
well established (Andersen, 2008), it is surprising that the management of knowledge risks is rarely mentioned in the literature. If we assume that knowledge is a rms most important resource (Grant, 1996a), then the effective identication and
management of risks connected with this resource are crucial. We argue that, within networks, knowledge and related risks
should be managed with the same care as with tangible assets (Connell and Voola, 2007). The criticality of managing knowledge risks in these environments increases as knowledge ows between organizations intensify.
Thus, previous literature has focused on whether to share knowledge and how to manage the sharing relationship (Ke and
Wei, 2007) and much less on management of the risks arising from this sharing. The literature on supplier relations tends to
focus on transaction costs, assets and location specicity, and the like and not on supplier-focused knowledge management
(Lakshman and Parente, 2008). Today we are witnessing the growing infusion of information and communication technologies (ICT) into networks. Typical examples are collaboration platforms such as Covisint (see Howard et al., 2006, for a discussion of changes in the automotive industry due to Covisint and the barriers to its full development/implementation). ICT is
thus expanding opportunities for knowledge sharing in networks. Yet, as we have noted, little research exists on the management of knowledge risks and no classication of these risks, and approaches to monitoring them, exist. This represents a signicant gap in our understanding of the underlying structures and processes for knowledge dissemination (Giannakis, 2008).
2.3. Risk management and the role of transaction cost economics
Knowledge risk management needs to be economical. Many rms have spent enormous amounts of time and resources to
manage their knowledge resources better (Watson and Hewett, 2006), and this can greatly interfere with effective knowledge networks (Dawes et al., 2009). Different types of risk can have considerably different risk proles, consequences of
events and transaction costs of knowledge sharing/risk mitigation. Thus, the risks and costs of the three main ways of acquiring knowledge (in the market, through networks or by building knowledge internally (Reus et al., 2009)) should be
considered.
In classical decision theory, risk is most commonly conceived as reecting a variation in the distribution of possible outcomes, their likelihoods and their subjective values (March and Shapira, 1987). However, risk is not a single, quantiable
construct but depends on the perception of a decision-maker (Sitkin and Pablo, 1992). This is even more true of knowledge
risks which are harder to quantify, since knowledge is both sophisticated and widely dispersed. Further, an investment in
knowledge is a specic asset (Aubert et al., 2004), and hence wrong investments in knowledge sharing are harder to recuperate (an investment in, for example, physical assets can be at least partly regained by selling the assets); this further amplies the risks.
Accordingly, different types of risk will lead to varying perceptions and labeling of situations by decision-makers (Sitkin
and Pablo, 1992). In complex situations, decision-makers are subject to cognitive limitations (Williamson, 1996), and so it is
likely that the knowledge risk management approach will depend on the perception of the decision-maker; mainly the perceived risks and perceived transaction costs of taking a different approach to managing knowledge. For instance, the risks
and consequences in a proximate relationship may be the same as in a non-proximate one, but decision-makers would
be more inclined to ignore them. Managers perceptions of risks in the network may therefore inuence their preference
for a governance structure and control mechanisms (Langeld-Smith, 2008).
In terms of costs, the importance of transaction costs connected with the acquisition of knowledge and the management
of its risks has to be underlined. In line with Desouza and Awazu (2004), transactions include the creation, modication,
deletion and transfer of a knowledge object. Transaction cost economics (TCE) is as a useful approach to examining management control issues (Covaleski et al., 2003) and is the most common theoretical framework used to study strategic alliances
(Langeld-Smith, 2008).The main costs of knowledge management are the purchasing/development costs for knowledge
acquisition in alternative modes, such as network, market, or internal (Reus et al., 2009). In this article, we focus on management of knowledge in networks. If knowledge is obtained through networks, the additional costs are the costs of creating/maintaining the ties in the network and managing the risk of the knowledge transfer. While acquisition costs in a
network are lower, the costs of maintaining ties and managing knowledge risk can be higher, especially due to the high xed
costs of establishing the relationship (Ellram et al., 2008). However, importantly, the higher costs involved in maintaining the
network can reduce the costs of managing knowledge risks, due to the early detection of potential issues (Blome and
Schoenherr, 2011).
The common focus of TCE is about control structure choice that serves purposive control in organizations (Chen and Chen,
2003). Yet, control structure choice and the manner in which purposive control is carried out is more nuanced than a mere
instrumental focus on efciency (Covaleski et al., 2003). Managers perceptions of trust and risk may inuence the choice of
the governance structure (Langeld-Smith, 2008).
According to TCE, the choice of a network as an alternative to a market or hierarchy is explained by coordination and
appropriation costs (Chen and Chen, 2003). In line with TCE, networks are useful when market and/or technological uncertainty is relatively high, knowledge is fairly generic or codied and, hence, hard to appropriate (Hallikas et al., 2004). The
appropriate investment in knowledge risk management may depend on the type of knowledge transferred and its potential
to impact the proper operations of the company (cf., Blome and Schoenherr, 2011).
To summarize: both risks and transaction costs are either different, or at least perceived to be different, for various types
of knowledge risks. Consequently, both the responses/mitigation activities concerning risks and the impact on the supply
network vary for different types of risk. For example, while binding contracts may be a viable option for treating knowledge
risks in a dyadic relationship, the transaction costs of such mitigation in networks are prohibitively high. Similarly, the type
of risk importantly denes the transaction costs rms are prepared to cover. On one extreme, some rms bring their business
partners completely into the design process while, on the other, we have rms (like defense organizations) that have strict
controls, and even split the coding work up by components so that no single supplier holds all of the knowledge. In this way,
they are prepared to bear considerably higher transaction costs of knowledge risk management.
2.4. Knowledge risk management

Knowledge risk, as a subset of general risks in a company, needs to be further explored, specically the role of perception
and transactions costs in knowledge risk management. Knowledge risk is dened as a likelihood of any loss from an event
connected with the identication, storage or protection of knowledge that may decrease the operational or strategic benet
of any party involved in the network (cf., Perrot, 2007). The study of knowledge risks is critical due to the prominence of
alliances and networks in which organizations participate, and the inuence of external entities on product development
(Araz and Ozkarahan, 2007). While collaboration across rms is becoming increasingly necessary, whenever two or more
different organizations share knowledge, the possibility of a security breach arises (Majchrzak, 2004). Therefore, there
may be an unwillingness to share knowledge for fear of losing control, and consequently rents from the resource (Ensign
and Hbert, 2009). At times, the risks can even outweigh the benets of knowledge sharing or even of joining the network:
rms pursuing above-average levels of focused commitment may be subject to risks that offset the benets if other parties
do not perform at the same level (Swink and Zsidisin, 2006).
Even the most comprehensive literature reviews/theory-building papers in the knowledge and supply network management domains (Alavi and Leidner, 2001; Baskerville and Dulipovici, 2006; Grant, 1999; Nonaka, 1994; Nonaka et al., 2000;
Scheepers et al., 2004) do not tackle the issue of knowledge risks. Occasionally, only the risks connected with knowledge
deciencies are studied (Drew, 1999; Perrot, 2007). Others even directly ignore the issue, claiming that the value grows each
time a knowledge transfer or conversion takes place because knowledge does not leave the creator (Sveiby, 2001). Put another way, the assumption here is that knowledge is an innite resource that does not depreciate, whose value is not diminished if it not handled with care and that no transaction costs arise from its handling.
While appropriate for knowledge that is of a public nature (i.e., knowledge that is common across parties), this thinking does not hold true for knowledge that is of a private nature (Larsson et al., 1998; Smith, 1910) and which is a source
of economic rents (Argote and Ingram, 2000; Desouza and Vanapalli, 2005; Garud and Karne, 2001). In a network setting, unless organizations have knowledge risk management strategies in place, the chances are high that a knowledge
transfer will not lead to a competitive advantage. On the one hand, the organization might share its most valuable knowledge without protecting itself. On the other, it might not share the knowledge needed to foster collaborative innovation
that could in turn benet its operations. The presence of strategies to address knowledge risks will not only protect the
organization, but also send a clear signal that the organization is taking a deliberate approach to its knowledge transfer
strategy and mechanisms. This, in turn, will help with building trust and establishing clear expectations of how the organization conducts transactions with its business partners. Organizations need to protect and monitor ows of their valuable knowledge assets throughout the network if they hope to maintain, and advance, their long-term competitive
positions (Soper et al., 2007).
3. A framework for classifying knowledge risks

Different types of knowledge risk may have similar probability distributions of risk; however, the perceived risks and
transaction costs connected with different approaches towards management of that risk may be considerably different. Thus,
the impact on knowledge transfer is different for different types of risk. In light of this, the proposed framework of risks (Table 1) classies them according to ve dimensions: the nature of collaboration; the nature of the network; proximity; the
type of action, and the range of risk.
These ve dimensions are the most popular issues/concepts being studied in the organizational network research space.
Further reasons for their inclusion in line with TCE are as follows:
1. Nature of collaboration (symmetric, asymmetric) is included due to role of asymmetry in describing characteristics of
inter-rm alliances and a different role of TCE in symmetric and asymmetric networks (Papadopoulos et al., 2008).
Wen and Chuang (2010) go even further to connect the knowledge-based view and TCE to show that both knowledge
and symmetry affect the governance structure in knowledge sharing.
2. Nature of the network (functional, agile, risk hedging, innovative): different types of supply networks (Lee, 2002) have
differences in terms of coordination costs and appropriation concerns. Further, the types of transaction costs vary across
the factors of production and over the stages of the production process (Alston and Gillespie, 1989). Different types of
network can have different transaction costs for knowledge risk management. Thus, and in line with Gulati and Singh
(1998), we argue that the magnitude of controls in supply networks is inuenced by anticipated coordination costs
and by expected appropriation concerns. The extent of the anticipated interdependence between partners can vary substantially and depends on the tasks included and the likely division of activities (Gulati and Singh, 1998); this division is
considerably different in different types of networks. Thus the nature of the network affects both transaction costs and
risk mitigations. For the purpose of our paper we selected the types most often met in the supply chain/supply network
literature.
3. Proximity (proximate, non-proximate): the transaction costs in non-proximate relationships are not only higher but also
differently structured. Transactions types and the associate costs inuence the selection of efcient governance modes for
the relationship or network (Buvik and Andersen, 2002). Further, transaction costs are a primary motivation to vertically
Table 1
Knowledge risk framework.
Dimension
Type
Risk example
Impact on knowledge
transfer
Impact on the network
Mitigation possibilities
Nature of
collaboration
Symmetric
One rm in a network can

utilize the knowledge of
others to improve its
competitive position
Firms will be careful to

balance the receiving and
sending of knowledge
Firms will play a quid-proquo game which will slow

down the progress of
knowledge sharing
Asymmetric
The focal rm within the

network can exploit others
in knowledge transfers
The focal rm will only

receive knowledge that is
in demand. Other rms in
the network will have no
incentive to share
knowledge with the focal
rm.
The focal rm will be

unable to engage in
collaborative innovation
with other members of
the network. The network
will be unstable and
opportunistic in nature.
Formal reciprocity
agreements
A non-redeployable,
relationship-specic
investment
Increasing the
dependency of the
focal rm (a move
towards the symmetric
type)
Functional
The use of knowledge to

squeeze the prot margins
of suppliers
Firms will be reluctant to

share production-related
knowledge (unless forced
to)
Agile
Reconguration of a
network/replacement of
one link
Risk hedging
Use of knowledge about

demand in the network to
increase market share
Innovative
The commercialization of a
new patent by one rm
Firms withhold some of

the knowledge to avoid
the possibility of being
replaced
Firms may withhold
customer-related
knowledge to avoid losing
demand/customers to
competitors
Knowledge is hoarded and
there is little collaborative
innovation that could
benet all organizations
Knowledge sharing will

mainly be on the surface
level (more information
than knowledge),
enabling efcient
operations but not
continuous improvement/
joint projects/innovations
Agility will be impeded as
rms will attempt to
reduce their replaceability
Proximate
Stealing experts from

other rms
If rms perceive this risk

they might prevent their
experts fully participating
in network activities
Non-proximate
Other rms may use

knowledge to develop their
more proximate suppliers
Knowledge sharing will

likely be limited
Deliberatecompany
A rm selling know-how to
competitors
An individual selling the

know-how to competitors
The rm uses legal

instruments for all
arrangements;
transaction costs are high
Knowledge sharing
depends on inter-personal
relationships
Contracts
Deliberateindividual
Non-deliberate
Unintended knowledge
transfer in informal
conversations
If a rm perceives such a
risk it will stop all formal
and informal know-ledge
sharing
Informal knowledge
sharing will be limited to
cases with interpersonal
trust
Employees unwilling to
share anything in fear that
it may be condential
The culture of fear

preventing individuals
from developing their
ideas
Training employees; an
appropriate
organizational culture
and rules
Single
Other departments use

knowledge to reduce the
role of a department/
employee
Partner selling condential
knowledge to a competitor
One rm in the network
appropriating the
knowledge to offer a
product themselves or as a
part of another network
Creation of a silo culture

within an organization
Poor cooperation between

departments
Similar to deliberate
(company)
Firms not making
complete contributions to
the network
Similar to deliberate
(company)
The network is operating
sub-optimally since rms
seek a local instead of a
global optimum
Employee
development, a
decrease in employee
turnover
Contracts
Nature of the
network
Proximity
Type of action
Range of risk
Dyadic
Network
Demand/supply chainconnected risks will be

higher; the supplied
quantity exceeds the
demand
The network remains
focused on meeting
operational needs and not
on gaining strategic
advantages
Knowledge sharing will be
both formal and informal;
close interaction without
formal contracts is
possible
The focal rm will receive
standardized products
from its partners
Long-term contracts; a
joint capital
investment
Revenue-sharing
agreements
Formal agreements on
sharing the revenue/
volume of transactions
Trust, intellectual
property sharing
agreements,
collaborative
experimentation
spaces
Trust
Contracts, on site visits
Socialization activities
The culture of a virtual

organization
coordinate via nonmarket arrangements (Frank and Henderson, 1992) this is only possible in proximate relationships.
Thus, increasing proximity will affect coordination and appropriations concerns.
4. Type of action (deliberatecompany; deliberateindividual; non-deliberate): different types of action can expose companies to risk. While trust is a substitute or a complement for formal control mechanisms in the management of appropriation concerns (Dekker, 2004), both individual and inter-rm trust in economic transactions should be considered (Gulati
and Singh, 1998; Pavlou 2002; Shankar et al., 2002). Thus different trusts (inter-personal, inter-company) between individuals and companies will differently affect the appropriation concerns. Coordination between individuals and between
organizations and the transaction costs of this coordination are also considerably different. Further, trust has several components: most importantly benevolence (the extent to which a party is believed to want to do good for the trusting part)
and ability (group of skills, competencies, and characteristics that enable a party to inuence/decrease knowledge risks)
(Mayer et al., 1995; Schoorman et al., 2007). Thus, we distinguish between deliberate (as a consequence of a lack of
benevolence) and non-deliberate (as a consequence of a lack of ability).
5. Range of risk: while TCE focuses mainly on dyadic relationships, this is insufcient, since transaction costs in networks
may vary considerably (Provan, 1993). The way dyadic transactions are embedded in network structures inuences their
transaction costs and risks (Kim, 2009). Because of the extraordinarily complex nature of networks, effects of their
embedded network context should be considered (Anderson et al., 1994). Networks are different in terms of coordination
as well if a company fails to actively inuence relations in networks, it faces the risk of losing a signicant portion of its
control (Wilhelm, 2011). Thus, the single, dyadic and network types of knowledge risks are considered in our framework.
For each of the types of knowledge risk, the impact on knowledge transfer, impact on network and possible mitigation
activities, are discussed. These categories broadly follow those suggested by Bahli and Rivard (2003) in their research on
information technology outsourcing risks that studied scenarios; the likelihood of each scenario; its consequences, and
the risk mitigation mechanisms.
The development of this framework is important in the context of strategic information management for three further
reasons. First, the identication of risks is vital for their communication and management in the network. In general, such
frameworks provide a common language that all of the participants can use to describe the basic elements. If partners do not
share the same understanding of risk they may disagree over what may or may not be shared (Dawes et al., 2009). Second, a
proper approach to either proactive or reactive risk management may differ considerably for various types of risk. Third, the
potentially prohibitive effect on the trust building needed for continuous organizational collaboration and knowledge sharing may vary for different types of risk.
Notwithstanding, since knowledge risk management is a highly complex area, this or any other attempt to develop a
framework cannot encompass all possible dimensions of knowledge risk types. Like Goh (2002), we do not contend that
these are the only factors that need to be considered when managing knowledge risks. We do contend, however, that they
are important elements that may inuence the accomplishment of effective knowledge risk management.
Before outlining our framework, let us be clear as to its limitations. Every framework is based on a narrow interpretation
of economic objectives; the same critique applies for TCE on which this framework is partly based (Ghoshal and Moran,
1996). Further, the use of such a framework can lead to misleading consequences if managers make the assumption that
knowledge and associated risks in knowledge sharing can be fully managed, or that any such framework can encompass
all potential situations in practice, as noted in greater depth in Marabelli and Newell (2012).
3.1. The nature of collaboration
Collaboration can be dened as two or more entities working together towards a common goal (Tarafdar and Gordon,
2007). The two main types of collaboration found in networks are symmetric and asymmetric. With symmetric collaboration, relative dependence exists when both partners are equally dependent on each other. Interdependence is positively related to information sharing and a general strategic partnering orientation (Mentzer et al., 2000). By contrast, asymmetric
relationships are more dysfunctional, less stable, less committed and less trusting (Mentzer et al., 2000).
The literature has examined how information asymmetries impact transaction risks that result from the stronger integration of decisions and operations (Kim and Umanath, 2005). While information asymmetries play a critical role in arriving at
decisions, especially day-to-day and tactical decisions (for example demand planning), knowledge asymmetries may impact
the nature of collaboration. Specically, we argue that greater knowledge asymmetries between organizations within a network increase the transaction costs of knowledge exchange.
Knowledge risks will thus differ considerably depending on the nature of the interdependence in the relationship (Ryu
and Eyuboglu, 2007). In asymmetrical relationships, the weaker party guards itself against exploitation, while the stronger
party tends to identify exploitation opportunities (Ganesan et al., 2009). The focal rm in asymmetric collaborations may
seek to obtain the lowest possible price by creating strong competition between suppliers and negotiating with them.
The relationship is usually adversarial (Bayraktar et al., 2009), and the focal rm will seek to maintain a central network position to enlarge and control the acquisition of new knowledge from other rms (van Wijk et al., 2008). In such an arrangement it is likely that the transaction costs of knowledge risk management would be high and knowledge sharing may be
limited. As shown by Xu and Beamon (2006), asymmetric and cooperative networks will have little knowledge sharing since
the risks are high for the less powerful rm; thus the transaction costs to protect against these risks are also high. In
asymmetric and competitive networks, the less dependent rm will seek to exploit its power, again increasing the risks for
the less powerful rm. In asymmetric relationships, the focal rm will only improve its operational performance and will not
be able to engage in a collaborative innovation with other members of the network. The overall network will be unstable and
opportunistic in nature. A typical example of risks in an asymmetric relationship is Wal-Mart (Crook and Combs, 2007). It has
a reputation for being a tough negotiator when it comes to pricing and delivery, and often uses reverse auctions and bidding
when negotiating with competing suppliers, thus changing the structure of the network (Blanchard et al., 2008). (See also,
Webster (1995) for a similar example.) Suppliers may therefore be unwilling to share knowledge with either Wal-Mart or
other partners in the network. On the other hand, the Wal-Mart mandates may cause vendors and trucking companies to
cooperate more closely in order to meet the increasing demands from Wal-Mart (Cassidy, 2010) since they are involved
in symmetric collaboration with each other.
Nevertheless, even with a symmetric collaboration, it can be expected that rms will play a quid-pro-quo game that will
make the progress of knowledge sharing slower. Formal reciprocal agreements may increase knowledge sharing but would
not considerably lower transaction costs. Thus, non-redeployable, relationship-specic investments are a better option for
building trust. Writing binding contracts prior to rms making relationship-specic investments is as a result difcult or
even impossible (Taylor and Plambeck, 2007). A typical example of such a relationship-specic investment in a symmetric
relationship is the collaboration between the Whitbread Beer Company and Anheuser Busch in implementing a co-managed
inventory and the just-in-time principle. This required a considerable amount of knowledge sharing, while suppliers also had
to invest considerable funds in a fully automated inter-organizational information system. Such suppliers later received extended contracts, more than compensating for their investment in the technology (Christopher and Jttner, 2000). In such a
way, each rm has shown its commitment and further increased the symmetry of the relationship, thereby decreasing the
risks and increasing knowledge sharing.
3.2. The nature of the network
We consider four main types of networks, namely efcient, agile, risk hedging and innovative (adapted from Lee, 2002).
Efcient networks aim at creating the highest cost efciencies (Marabelli and Newell, 2012). Agile networks strive to
improve the ability of an organization in responding rapidly to changes in demand. They are appropriate for volatile markets
with short life cycles (Christopher, 2000). Risk hedging networks pool and share resources to reduce and share risks. They are
appropriate for situations of low demand and high supply uncertainty (Neher, 2005). Such networks can also be used to reduce a rms exposure to uncertainty, risk and opportunism (Borgatti and Foster, 2003).
Innovative networks are problem sharing networks and comprise parties that exchange problems and solutions. An
example of such a network is Procter and Gamble (P&G)s Connect + Develop network. Instead of using formal alliances to
nd the best research and innovations, P&G now circulates problem stories throughout a network. The sources of innovation
in the network are technology entrepreneurs around the world, suppliers and open networks (e.g., NineSigma, YourEncore,
and Yet2.com) (Huston and Sakkab, 2006). The problem stories are presented to these groups and anyone with an answer can
respond. The traditional R&D department on site does not have the answers, but can formulate the problem. The goal of
connect and develop, as this networking strategy is called, is not to replace but to supplement internal innovators. The
top customers needs are turned into science problems that are sent out to the network for solution. These science problems are ways of simplifying big questions so that knowledge can be more easily transferred. The strategy is to turn crucial
R&D problems into visible, solvable problems that can be given over to a network of researchers without damaging the originating organization (Anthes, 2004). Other rms, such as NineSigma, act as knowledge brokers, helping organizations identify which particular scientists might be best able to solve a problem on a contractual basis (Anthes, 2004).
This classication is important because the focus of the network determines the underlying business model of the network.
In turn, this inuences the risk prole of the network (Christopher and Lee, 2004) and the transaction costs of risk management.
More specically, each strategy type requires a different knowledge development capacity and intellectual capital to create
superior rm performance (Craighead et al., 2009). The costs, benets and risk of knowledge sharing in different types of networks may thus differ considerably. For example, an agile network requires the teaming and free ow of knowledge across the
entire network to take both reactive and proactive actions given changes in the environment (Yusuf et al., 2004). An innovative
network requires a high degree of trust and the sharing of not only solutions but also problems. The exposition of knowledge
problems reveals an organizations knowledge deciencies, which could prove to be costly (e.g., if a competitor can then identify how to take advantage of the knowledge gaps). Functional networks are focused on efciency, thus mainly the exchange of
data and information may be benecial with a limited exchange of knowledge. This also applies to risk hedging networks,
where the exchange of information on available supply capabilities for the efcient pooling of resources is needed.
The main risk of knowledge transfer in a functional network is the use of knowledge to redistribute rewards. A typical
example is the suppliers to US automotive producers who did not want to share their cost data in fear that the manufacturers
would use it to squeeze their margins (Narayanan and Raman, 2004). In an innovative network, as discussed earlier, knowledge risks can arise from exposure to knowledge deciencies. In addition, as the focal organization may not be in a position
to evaluate a solution to a knowledge problem, the provider has an opportunity to act with guile (e.g., by installing a Trojan
horse on a software program) or even to charge abnormal fees for the knowledge.
Conversely, failure to share knowledge can also have detrimental consequences. For example, due to the lack of sharing of
knowledge on market trends, members of a risk hedging network may produce too many products at short notice (Naylor
et al., 1999). The most typical example is Ciscos risk hedging network of distributors. While the sharing of knowledge on
production was sufcient, the lack of sharing of customer-related knowledge let to too many double orders and consequently overproduction, which brought a write-off of billions of inventories (Armony and Plambeck, 2005). Inadequate
knowledge sharing, coupled with a misalignment of incentives produced this (Narayanan and Raman, 2004).
The main mitigation approaches also depend on the type of the network. In a functional network, a variety of contractual
and legal mechanisms may be imposed to protect specic knowledge from unwanted appropriation (Norman, 2001). This
can be coupled with a joint capital investment that can assure each rm will acquire part of the benets generated through
continuous improvements. In an agile network, an agreement about the sharing of revenues generated from sales to the nal
customer may be benecial. In a risk hedging network, rms may reach a formal or informal agreement on sharing the volume of transactions. In an innovative network, in addition to trust building mechanisms, it is important to focus on the
development of exible intellectual property sharing agreements. Moreover, the development of a trusted collaborative
space, where the credentials of the partners participating in the network are veried (as in the case of the Connect + Develop
program of Procter and Gamble), is critical.
An important point is that, despite the risks associated with knowledge sharing, some networks, especially those focused
on innovation and agility, do not have the option to hoard knowledge and not share. Failure to share knowledge in an effective and efcient manner will call into question the very premise on which the network exists (Husler et al., 1994; Tripsas
et al., 1995).
3.3. Proximity
Geographical proximity can be dened as a spatial separation and relations in terms of distance (Lemarie et al., 2001),
meaning the physical closeness of the partnering rms and the measures taken by the rms for improved, synergistic performance (Narasimhan and Nair, 2005). However, proximity is not measured simply by the geographical distance between
rms. Geographical proximity is different to organizational proximity, which is based on afliation and similarity (Davenport, 2005; Lemarie et al., 2001). Boschma (2005) goes further and denes ve types of proximity: cognitive; organizational;
social; institutional, and geographical. These are interrelated since, for example, geographical proximity can help to facilitate
social proximity in the form of greater information and personnel exchange (Handeld and Bechtel, 2002). In general, socially proximate actors have an advantage over distant actors in knowledge sharing, and the compatibility between the partners enables a more open and easy exchange (Cheung et al., 2010; Sorenson et al., 2006).
Proximity between rms is also important when it comes to the classication of risks since transaction costs of knowledge sharing between rms separated by either geographical or social distance may be considerably higher. Thus, we have
two types of risk, namely risk between proximate and between non-proximate rms. Inter-rm trust between geographically close partners is higher than between distant partners (Bnte, 2008), and strong ties lead to greater knowledge transfer
(van Wijk et al., 2008). Different local cultures, languages, and practices reduce the effectiveness of knowledge sharing (e.g.,
for demand forecasting and material planning, Meixell and Gargeya, 2005), and can thus increase risk while at the same time
decreasing the benets of sharing. Without proximity, even supplier development programs may be ineffective since suppliers aim to produce evidence that the program was effective (e.g., by using previously identied solutions as evidence
of success) (Rogers et al., 2007). This decreases the benets of the attempt to share knowledge. Conversely, proximity (especially geographical) tends to intensify the problem of coincidental knowledge spillovers to competitors (Liao, 2010); the distinction between deliberate and coincidental actions is discussed in the next section.
Being distant in terms of organizational proximity can also increase knowledge risks. Consider a simple case: some industries (e.g., pharmaceuticals or medical) have stringent rules and regulations that govern the sharing of knowledge within and
across their entities. Hence, if two medical institutions were to exchange knowledge, it might be expected that the two entities would have an appreciation for knowledge protection rules and transfer protocols. This may not be true in knowledge
exchanges across industries, where the governance frameworks for knowledge sharing are incompatible. As an example, a
medical rm will be hard pressed to have its knowledge protected if it is dealing with a rm in the news industry. Hence,
the closer the proximity of organizations in terms of the frameworks governing their knowledge exchanges, the greater the
potential for smooth knowledge transfer. This does not mean that knowledge transfer will actually take place: The two entities may choose not to share any knowledge as either or both deem the risks to be too high.
To summarize: it is likely that the extent of knowledge sharing is considerably higher among proximate actors. While
both the likelihood of knowledge risks and transaction costs connected with sharing may be considerably lower, the impact
of a knowledge breach may be greater due to a high level of sharing. The main mitigation possibilities in non-proximate relations are based on either formal actions (e.g., contracts) or activities to increase the proximity (e.g., on site visits, socialization
activities). In proximate relations, trust is the main factor reducing risk, while a special emphasis should also be put on nondeliberate actions that can lead to considerable damage due to high levels of knowledge transfer.
3.4. The type of action
The effect of risk can differ considerably if the perceived risks arise due to a systematic deliberate action (e.g., using or
selling the acquired knowledge to create a competitive product or using the knowledge to replace a partner); the deliberate
action of an individual (e.g., quitting a job and joining a competitor), or a non-deliberate action of an individual (also called a
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knowledge leak; for example, accidentally transferring know-how at a trade fair or through an Internet-based personal
knowledge exchanges (Gosain, 2007)). This distinction is important because interpersonal and inter-organizational trust
are two distinct constructs that play different roles in affecting exchanges between organizations (Zaheer et al., 1998).
Knowledge leakage frequently depends on the choices made by individuals who work within the network on a daily basis
and come into regular contact with network partners (Norman, 2001).
A typical example of a companys deliberate action was Microsoft which was engaged by Apple to develop several applications for Mac computers. In the process, Microsoft acquired critical knowledge about Apples graphical user interface, and
this enabled its engineers to develop the Windows operating system (Norman, 2001). A typical example of an individuals
deliberate action is a former employee of Cadence who took six megabytes of source code before leaving the rm. The employee was hired by a rival rm, which was thereby able to steal hundreds of engineering hours of work (Helms et al., 2000).
However, knowledge leaks can also occur without opportunistic actions, and in this case the donor would often perceive
risks associated with the unintended transfer of such knowledge (Easterby-Smith et al., 2008; Norman, 2002).
While mitigation activities to decrease the deliberate actions of rms were discussed in other sections, more informal
ways need to be used to reduce the risks of individual knowledge breaches. Since individual knowledge is hard to codify,
the transaction costs of formal ways of mitigation (e.g., contracts) may be prohibitively high. As mentioned, trust building
is one of the most important activities to reduce perceived risks. The socialization of rm employees in a network increases
interpersonal trust and has a positive impact on knowledge sharing routines (Cousins and Menguc, 2006). Typical examples
to develop closer relationships are the use of cross-functional teams, social events and supplier conferences (Cousins and
Menguc, 2006). In addition, at the organizational level, it becomes critical for entities to have appropriate service-level agreements that govern how the knowledge will be used, exchanged, and protected while in transit and in possession of the allied
organization (Desouza, 2007).
In order to decrease individual knowledge risks, educating personnel is a key factor in effectively protecting knowledge
without limiting the benets (Norman, 2001). The main challenge is how to motivate employees to participate and openly
share valuable knowledge while preventing undesirable spillovers to competitors (Dyer and Nobeoka, 2000). A typical action
would be to make it clear to all employees that some things cannot be discussed in any circumstances outside the work environment (Helms et al., 2000). However, employees often may not know which knowledge is critical for the rm. At Alpha
Computers, managers from different functional areas identied diverse core competencies. Consequently, a marketing manager was willing to share knowledge that an engineer considered critical and would not share (Norman, 2001). Another option is to decrease the informal knowledge sharing to decrease the risks. As an extreme example, Compaq did not attend the
popular Comdex computer convention due to a heavy information compromise that occurred at a previous attendance
(Helms et al., 2000). While such actions decrease the knowledge risks they may also signicantly decrease the benets of
sharing.
3.5. The range of risks

Finally, the impact of knowledge risks can vary considerably if knowledge sharing is taking place in a single company, as
part of a dyadic relationship or in a whole network. Risks due to sharing, or the lack of sharing, within a single company are
discussed at great length in the literature (Alavi and Leidner, 2001; Lee and Choi, 2003; McDermott and ODell, 2001), and are
deemed to fall outside the scope of this paper. In dyadic relationships, risk can arise either due to a lack of knowledge concerning the actions of the other company (e.g.,e lead in the suppliers paint for childrens toys, Raiborn et al., 2009) or a lack
of knowledge and/or response to available information (e.g., Ericssons non-reaction to a re at a Philips plant, Chopra and
Sodhi, 2004). An example of dyadic risk due to knowledge sharing is a supplier who uses a rms knowledge of products and
processes for its own forward integration attempts (Giunipero and Eltantawy, 2004).
However, knowledge risks can also materialize across the whole network. Previous research and practice have mostly addressed the rst tier of partners, neglecting the implications for other partners in the network (Meixell and Gargeya, 2005).
The whole network is considerably harder and more costly to control and the position in the network is vital: organizations
that occupy central positions have better access to the new knowledge developed by other members (Tsai, 2001). Networks
are hence increasingly complex, often short-term, and possess an ever increasing quantity and specicity of knowledge,
while the networks internal capacity to deal with complexity is limited (Krkkinen et al., 2003; Shaw and Holland,
2010). Recipients are often in a position to receive knowledge in a network and use this knowledge elsewhere (Sorenson
et al., 2006), something that can be problematic for the knowledge sender.
The risks in the whole network are particularly important since knowledge is often viewed as the property of the network
(Dyer and Nobeoka, 2000). Strategic alliances are inherently incomplete contracts in which the property rights associated
with alliance output and prots may not be well dened (Baum et al., 2000). The risks concerning the whole network are
further exacerbated by the exibility in conguring and reconguring the network (Agterberg et al., 2010). Selected partners
may be brought in for short periods for very focused tasks. The sharing company can limit the source from sharing its knowledge with other rms while they are alliance partners. However, this constraint evaporates once the alliance comes to an end
(Carayannopoulos and Auster, 2010). As a consequence, companies may attempt to extract as much knowledge from the others while contributing as little as possible (Baum et al., 2000), leading to the sub-optimal operation of the network, with each
member looking for a local instead of a global optimum.
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The main activities to mitigate the risks of knowledge sharing in a single company relate to employee development a
decrease in staff uctuations and an increase in the process view of employees who should understand how the activities of
others contribute to performance (Trkman, 2010). If employees understand their role in the business process, it is more likely
that they will realize when/if the benets of knowledge sharing exceed the risks. An increase of training costs should lead to
lower transaction costs (due for example, to lower levels of monitoring required) of every-day sharing.
For a dyadic relationship, most of the mitigation activities discussed in the previous sections also apply here; the importance of the risks depends on the type of dyadic relationship. The risks of knowledge sharing in a multi-rm environment are
considerably more complex and can only be efciently mitigated by developing a cooperative knowledge sharing and development platform along with adequate intellectual property agreements. As discussed in the next section, such an approach
can only develop over time and therefore the development of proper knowledge risk management in alliances is a longitudinal process. In addition, there is a need for overall governance rules that both incentivize desirable knowledge sharing
behavior and penalize rms that act with guile and seek to hoard knowledge or share less knowledge than they receive.
In line with our previous discussion, such rules need to have low transaction costs. The transaction costs of searching for,
screening, and selecting contributors grow as the network becomes larger and can become prohibitive (Pisano and Verganti,
2008). Thus, governance in innovative networks is often informal with orientation toward highly socially embedded, normbased interactions with a substantial amount of technology sharing and deliberate spillovers (Boudreau and Lakhani, 2009).
A typical example of such a network is Innocentive, where the problem holder broadcasts their solution requirements to the
whole world. Deliberate efforts are made to reduce the transaction costs of knowledge risk management. For example, Innocentive does not do any pre-screening of solvers and anybody with internet access can register as a potential solver. Further,
there is no cost of examining the contents of the problem statement and thus a solver may examine several statements before picking the appropriate one (Jeppesen and Lakhani, 2009).
4. Implications for knowledge sharing and risk management

In addition to the importance of identifying and classifying risks and proper mitigation activities, the main issue is how
the organization manages these risks in the long run and how the structure of its cooperation evolves over time. Obviously,
rms engage in knowledge sharing because they need certain knowledge that is not available in their own organization. The
main alternative to sharing knowledge within a network would be to acquire this knowledge via the market by, for example,
hiring new employees or consultants. Collaboration within a network brings an opportunity to acquire new knowledge from
partners without paying the full price that would need to be paid otherwise. Yet this inevitably brings new risks (Dawes
et al., 2009), and certain transaction costs. For example, if an employee calls a colleague from another company and exchanges experience with him or her, this brings non-deliberate individual risks. Joint projects or alliances between companies bring deliberate risks at the company level.
As a result, the balancing act each rm has to perform to protect its knowledge, whilst trying to share knowledge that
benets the whole network, needs to be investigated. If the benets of sharing are not clear, or if the exchange appears
to be one sided, the sharing is not likely to occur (Dawes et al., 2009). Another important issue is how this balance changes
over time. The company needs to balance the benets and risks; it may share in instances, where the direct tangible benets
of the parts (links, products or services) that are of interest to it outweigh the risks and transaction costs of sharing.
We postulate that the perceived risk depends on the type of risk and the pre-existing trust between the partners. It can
thus be expected that the type of risk in the particular framework importantly affects the initial perceived risk. For example,
the perceived risks in asymmetrical cooperation are higher than in the symmetrical form. This does not mean that knowledge sharing in such an arrangement will not happen, but that the perceived benets for both/all rms need to be higher in
order for the sharing to start. If the initial experience is benecial to both sides, the breadth of knowledge sharing may increase over time.
Trust between partners and its evolution over time is thus one of the key prerequisites of a knowledge transfer in a network (Bnte, 2008; Dawes et al., 2009; Easterby-Smith et al., 2008; Rosenbaum, 2000; van Wijk et al., 2008). Obviously, trust
importantly inuences the perceived risks by reducing the considerable antagonism between network members that may
occur due to mutual distrust and relationship difculties before and during the collaboration (Simatupang and Sridharan,
2002). Further, trust lowers the potential for opportunism between the parties to an exchange and thus lowers the transaction costs of this exchange since fewer control mechanisms are needed (Humphreys et al., 2004). Conversely, the inability to
predict a partners action in future knowledge sharing has the opposite effect (Ke and Wei, 2007).
In addition, the perceived reputation of other companies is a key motivator in any decision to share or withhold knowledge; a longer duration of interaction also positively affects reputation (Ensign and Hbert, 2010). At low levels of experience
(and therefore cumulative collaboration), there is little reputational information on the source, making the knowledge sharing riskier (Carayannopoulos and Auster, 2010). An initial level of trust is therefore needed for knowledge sharing to begin
(Lee and Mellat-Parast, 2009); the expected long-term net benets need to outweigh the perceived risks. Further, the ability
to start the knowledge exchange depends on the redundancy of contributions the perceived ability of the network to create
value in the absence of complete contributions by all partners (McCarter and Northcraft, 2007).
If the initial knowledge sharing is benecial for both/all sides, inter-company trust may increase and lead to a decreased
perceived risk and increased willingness to share more intensively, and more delicate knowledge. One form of trust building
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occurs when each party makes a non-redeployable, relationship-specic investment, signaling a commitment to the relationship (Kim and Umanath, 2005). Another similar form of trust building is clearly initial knowledge sharing; on the other
hand, if rms hide information and actions among network partners, inter-company collaboration is restrained (Yeung et al.,
2009). Generally speaking, cooperative activity is a key factor for facilitating knowledge sharing by creating an interdependent, trustful, mutually helpful and communication-intensive atmosphere between the partners (Li et al., 2011).
In time, the type of knowledge transferred and the nature of the collaboration may also change with its own dynamics
(Hutzschenreuter and Horstkotte, 2010; von Krogh, 2009). For example, the weaker part in an asymmetric relationship
has the opportunity to alter the dependence balance by, for instance, achieving product/process excellence (Matopoulos
et al., 2007). A move towards symmetric collaboration would also happen by increasing the dependency of the stronger rm;
intensive knowledge sharing almost certainly leads to this. It is important to study how different activities may enhance levels of trust between partners, mitigate risk and complement formal controls to form an effective control package (LangeldSmith, 2008).
In contrast, certain risks may also grow if the knowledge sharing is intensied. These risks need to be continuously monitored. If the risks exceed certain thresholds, mitigation activities might be needed to prevent high-impact events. Put another way, a risk might be considered low and, if an appropriate intervention is put in place (e.g., tying key employees to
the rm with long-term contracts to reduce individual deliberate risk), the probability of the risk materializing might be suppressed. Alternatively, if the risk is not attended to in a timely manner, the probability of the risk materializing might be
enhanced.
The need to manage risks should not overburden the operations of the network, or curtail the interactions among the various organizations involved (Agterberg et al., 2010). It is important for a network to be able to estimate the benets realized
from the knowledge sharing. In addition, damage (loss) that occurs from ineffective and inefcient knowledge sharing
should also be estimated, along with the costs of mitigating these risks. In line with TCE, companies will thus search for such
arrangements, where the perceived risk-adjusted transactions costs of knowledge acquisition are lowest. For example, in
proximate companies, it may be cheaper to get the knowledge from the partner; in non-proximate companies, it would
be cheaper to hire a consultant due to perceived risks due to sharing of companys knowledge with its non-proximate
partner.
This analysis may also explain how and why new inter-organizational forms (such as virtual or network organizations
and e-clusters) develop over time. If knowledge sharing is important but a merger is not a viable option for various reasons,
the transaction costs of a knowledge transfer and its risk management may be too high to facilitate a continuous high level of
knowledge sharing. Thus, rms are seeking other arrangements, such as a virtual organization. This decreases risk management costs (although still substantial, and never reaching zero), while not increasing the coordination/transaction costs as
much as a merger could do. Hence, such organizational forms can be expected to form in industries, where it is important
to share knowledge and, where there are high costs of managing a knowledge transfer and its risks. This, for example, explains the role of the Internet/e-business in knowledge sharing it may decrease the costs of sharing, thereby increasing
the net benets. Conversely, it might also increase the proximity between rms, thus lowering the risks.
While planning for risks is diligent and necessary, it is impossible for all networks to account for possible risks a priori; the
use of such frameworks can reduce but certainly not eliminate this problem. It is only natural that the network will also face
unexpected risks. It is, however, important not only to recover from risk incidents, but to use them as learning opportunities
to improve the knowledge risk management strategies or perhaps even the composition of the network. This is important
since, currently, most results-based efforts favor a narrow process improvement (i. e., single-loop learning in other words,
dealing with a single risk while basically using the same process), rather than a broad understanding of current policy
choices and effectiveness and their potential change (i.e., double-loop learning) (Moynihan, 2005). Building knowledge within organizations can thereby help to improve the efciency of knowledge risk management (McDaniels and Gregory, 2004).
Thus, the whole process of knowledge risk management should be rethought in line with the newly identied risks.
5. Conclusion
This paper has reviewed issues connected with risks due to knowledge sharing in networks. Its contribution is in the classication of such risks and the development of a common language for knowledge risk management. It investigated how the
type of knowledge risk affects the perceived risk of knowledge sharing and the transaction costs of sharing/risk mitigations;
this inuences both the decision to begin knowledge sharing and its evolution. Nevertheless, while the framework can help
in identifying, classifying and mitigating risks, it provides only a high level guidance for these efforts. Of course, our framework needs to be integrated with other views and lenses on risk so that a more holistic understanding could be achieved.
This constructivist-based approach may seem contradictory to the practice-based view discussed by Marabelli and Newell
(2012). We believe this not to be the case: we would argue that companies should use the framework introduced herein in
order to put some structure in an inherently unstructured area of knowledge risk management. Managers could use the
framework as a guide/sense-making device in identifying the main types of risk facing their organization, and the potential
detrimental impacts of those risks. Possible means of ameliorating those risks might then be considered. It goes without saying that any framework such as this cannot hope to encompass all possible issues. For example, in a certain situation, managers could decide not to share knowledge since the perceived risks may outweigh the potential benets. However, they
13
should be aware that knowledge management interventions cannot direct change (and promote or restrict knowledge sharing) automatically within a network (Marabelli and Newell, 2012, p. 18). Thus, it is not possible to simply decide not to
share, but interventions that might hinder knowledge translation could be carefully devised.
Notwithstanding, the ndings have several practical implications for both companies and government policy. Companies
should be aware of the risks and analyze the possibilities of mitigating them. Risks that cannot be mitigated should be considered when making decisions to share knowledge and/or commit to various types of networks. In terms of public funding,
it is highly questionable whether fully-funded governmental initiatives (like centers of excellence) aimed at creating virtual
networks will bring the desired benets. Such an approach bypasses the usual way of alliance-building and may not bring
about the desired increase in trust and reputation. According to Kovac (2010), such incentives are only useful if they reduce
the transaction costs of a rm attempting to enter into new collaborations, which it would not otherwise do due to the high
costs involved.
The main limitation of this paper is that the framework has not as yet been empirically validated. Nonetheless, having
now been constructed, this can now be undertaken. As noted, we realize that such frameworks can never be complete
and that certain categories may have been neglected. Further testing will nonetheless facilitate enhancements. Additionally,
the risks may also depend on the industry and type of the organizations included. A longitudinal single case study or multi
case studies are needed to test how risks are changing and how these changing risks are managed in networks. Alternatively,
a retrospective survey of a sample of companies could be conducted to gain insights on cause-effect relationships between
knowledge sharing, risk taking, and benets, transaction costs and nancial losses of such sharing. Different risk types should
be studied in detail, and future research should focus on these dynamics by examining how organizations manage to put
processes and practices in place to manage the evolution of risks. A more detailed study of the possible interventions that
suppress and/or enhance each of the risks is also needed; these will be critical in determining appropriate risk mitigation
strategies.
As we have hinted above, an examination of how appropriate knowledge risk management strategies and approaches
change over time would be benecial. Specically, following the concepts of single- and double-loop learning, the main
question is whether rms merely learn to execute the process of knowledge risk management better or whether they
are also able to improve the process as such. Finally, another promising approach to managing risk based on options is presented by Benaroch et al. (2007). This approach helps in choosing which options to deliberately embed in an investment so as
to optimally control the balance between risks and rewards. A similar approach could also be applied to the management of
knowledge risks.
This wide array of topics for further research is meant to indicate that the proposed framework offers a way to interpret
knowledge sharing in networks and the management of its risks. It should encourage empirical research in applying the
framework, testing its comprehensiveness and assessing the benets to be gained from its use.
Acknowledgments
We would like to thank the editor-in-chief Bob Galliers and both reviewers, and authors, of the complementary paper,
Marco Marabelli and Sue Newell, for their thoughtful comments and ideas that considerably improved the paper. All errors
and omissions remain solely our responsibility.
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Knowledge Risks in Organizational Networks. An Exploratory Framework

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Knowledge Risks in Organizational Networks. An Exploratory Framework

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Journal of Strategic Information Systems 21 (2012) 117

Contents lists available at SciVerse ScienceDirect

Journal of Strategic Information Systems

Knowledge risks in organizational networks: An exploratory framework

1. Knowledge sharing is not risk-free

E-mail addresses: peter.trkman@ef.uni-lj.si (P. Trkman), kev.desouza@gmail.com (K.C. Desouza).

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

2.2. Knowledge, knowledge transfer and knowledge based theory

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

2.4. Knowledge risk management

3. A framework for classifying knowledge risks

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

Impact on the network

One rm in a network can

Firms will be careful to

Firms will play a quid-proquo game which will slow

The focal rm within the

The focal rm will only

The focal rm will be

The use of knowledge to

Firms will be reluctant to

Use of knowledge about

Firms withhold some of

Knowledge sharing will

Stealing experts from

If rms perceive this risk

Other rms may use

Knowledge sharing will

An individual selling the

The rm uses legal

The culture of fear

Other departments use

Creation of a silo culture

Poor cooperation between

Demand/supply chainconnected risks will be

Contracts, on site visits

The culture of a virtual

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

3.5. The range of risks

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

4. Implications for knowledge sharing and risk management

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

P. Trkman, K.C. Desouza / Journal of Strategic Information Systems 21 (2012) 117

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