This research extends the knowledge-based view of the firm as it relates to organizational structure. In particular, this research provides evidence that fundamental classifications of knowledge are measurable, in relative terms, as factors of production. It then relates differences in relative quantities of these classifications of knowledge to the presence or absence of inter-firm boundaries. Finally, this study provides evidence that financial performance may be related to the alignment of organizational structure with knowledge-based factors of production. This study contributes to strategic management theory by offering a potential solution to the difficulties of measuring knowledge as a factor of production. The research was motivated by the belief that it is the cost and value of knowledge that determines economic efficiency (Simon, 1999). By surveying professionals in the mutual fund industry for their relative reliance on three classifications of knowledge, this study suggests a set of measures of knowledge-based factors of production. These measures in turn support the testing of hypotheses related to the vertical integration (or de-integration) of adjacent stages of production. Researchers have typically categorized organizational knowledge as either tacit or explicit. This research develops the concept of encapsulated knowledge as a fundamental classification of knowledge. Encapsulated knowledge is neither tacit nor explicit, because it is externalized and implicit. Progress in measuring knowledge is made by distinguishing between knowledge that resides in human minds (tacit), knowledge that is codified as information (codified), and knowledge that is embodied in the design and functionality of physical artefacts (encapsulated). Relative reliance on the fundamentally different knowledge-based factors of production was found to vary between adjacent stages of production, despite the essential overlap of jointly held substantive knowledge. Portfolio managers are generally less (more) reliant on tacit (encapsulated) knowledge than other investment management professionals in the mutual fund complex. In addition, portfolio managers whose firms are de-integrated from the mutual fund management firms were found to be more (less) reliant on tacit (encapsulated) knowledge than their integrated counterparts. Finally, alignment between mutual fund structure and reliance on knowledge-based factors of production was found to affect performance of mutual funds.

This research extends the knowledge-based view of the firm as it relates to organizational structure. In particular, this research provides evidence that fundamental classifications of knowledge are measurable, in relative terms, as factors of production. It then relates differences in relative quantities of these classifications of knowledge to the presence or absence of inter-firm boundaries. Finally, this study provides evidence that financial performance may be related to the alignment of organizational structure with knowledge-based factors of production. This study contributes to strategic management theory by offering a potential solution to the difficulties of measuring knowledge as a factor of production. The research was motivated by the belief that it is the cost and value of knowledge that determines economic efficiency (Simon, 1999). By surveying professionals in the mutual fund industry for their relative reliance on three classifications of knowledge, this study suggests a set of measures of knowledge-based factors of production. These measures in turn support the testing of hypotheses related to the vertical integration (or de-integration) of adjacent stages of production. Researchers have typically categorized organizational knowledge as either tacit or explicit. This research develops the concept of encapsulated knowledge as a fundamental classification of knowledge. Encapsulated knowledge is neither tacit nor explicit, because it is externalized and implicit. Progress in measuring knowledge is made by distinguishing between knowledge that resides in human minds (tacit), knowledge that is codified as information (codified), and knowledge that is embodied in the design and functionality of physical artefacts (encapsulated). Relative reliance on the fundamentally different knowledge-based factors of production was found to vary between adjacent stages of production, despite the essential overlap of jointly held substantive knowledge. Portfolio managers are generally less (more) reliant on tacit (encapsulated) knowledge than other investment management professionals in the mutual fund complex. In addition, portfolio managers whose firms are de-integrated from the mutual fund management firms were found to be more (less) reliant on tacit (encapsulated) knowledge than their integrated counterparts. Finally, alignment between mutual fund structure and reliance on knowledge-based factors of production was found to affect performance of mutual funds.