Managing knowledge in loosely coupled networks: Exploring the links between product and knowledge dynamics

This paper explores the implications of specialisation in knowledge production for the organisation and the boundaries of the firm. It argues that the definition of boundaries of the firm in terms of the activities performed in-house does not recognise that decisions to outsource production and other functions are different from decisions to outsource technological knowledge. In particular, multitechnology firms need to ‘know more than they do’, in order to cope with imbalances caused by uneven rates of development in the technologies they rely on, and with unpredictable product-level interdependencies. By knowing more than they do, multitechnology firms co-ordinate loosely coupled networks of suppliers of equipment, components and specialised knowledge, and maintain a capability for systems integration. The networks enable them to benefit from the advantages of both integration and specialisation. Developments in aircraft engine control systems are the basis of these propositions, which also apply to other products.