The world can be local
Professional service firms or PSFs are a rich source of information, as they acquire ample knowledge about the industries their clients work in. Businesses may decide to access this knowledge, before they plan on using more costly and less efficient ways to gather the intelligence they need.
A common theme in literature on organizational learning is the importance of learning from sources outside an organization’s boundaries. Unfortunately, organizations tend to collect external knowledge mostly within their geographic and technological proximity – a trend that may lead to path dependency and hence the failure to adapt to changing business trends and competitive conditions. This means that most organizations fail to acquire the distant knowledge they need.
By using a dataset based on roughly 545,000 pairs of European patent applications, Wagner et al found out that contracting a PSF is an efficient way to overcome the limits of localized learning; PSFs, including consultancies, engineering-, design-, and law firms, typically maintain an extensive network of technologically and geographically diverse clients and for this reason aggregate delocalized knowledge in their knowledge repositories, or organizational memory.
Take a patent law firm as an example. Its services to clients depend heavily on the knowledge repository they build when interacting with (prior) customers. This does not mean that PSFs willingly transfer confidential information, but that the success of their work per se depends on the reservoir of their expert knowledge on both technology and the competitive situation. In the case of patent law firms the knowledge with regard to their client’s business area stems from analyzing competitors’ prior patents, contacts with potential licensees or licensors, the drafting of patent applications, defending infringed patents in courts, and developing overall patent strategies. A PSF’s client may have difficulties in acquiring this complex knowledge, especially when it is beyond their expertise and reach.
If clients use this repository for their own “intelligence”, it not only means acquiring vital new knowledge, but that they are able to store the acquired information in their own knowledge pool. In fact, as Wagner et al showed, to hire a PSF can be a comprehensive strategic decision, considering that external learning through these firms may be less costly than learning with the help of inter-firm alliances, acquisitions or hiring specialists. The latter may even be less efficient, since firms tend to search for alliance partners and acquisition targets predominantly close to their technical and geographical field.