Tacit knowledge and intra-firm teams: reaping the benefits of co-operation in a networked world

Tacit knowledge is gaining importance in the productive capability of many modern firms, yet the conditions under which the ability to share this form of knowledge between individuals or teams are yet to be resolved. Tacit knowledge is embedded in individuals, but is often most productive when combined with other forms of capital assets into firms. Transaction cost economics has been a useful tool in explaining the boundary of the firm, as well as the formation of teams within firms. The extent to which intra-firm teams compete or co-operate is analyzed by examining the network effects between teams in situations where tacit knowledge exists. We examine the costs and benefits that can be expected from “learning” in a multi-team firm and conduct a simulation to demonstrate the effects. Two scenarios are considered: one when there is almost no specialization between teams, and the second when specialization is extreme. We are able to demonstrate that only in cases of very large differences in tacit knowledge between teams is the transfer of such knowledge profitable. Thus the existence of separate silos within firms (i.e., non-networked teams) should not be condemned out of hand.