Valuing Internal vs. External Knowledge: Explaining the Preference for Outsiders

Abstract

This paper compares how managers value knowledge from internal and external sources. Although many theories account for favoritism toward insiders, we find that preferences for knowledge obtained from outsiders are also prevalent. Two complementary case studies and survey data from managers demonstrate the phenomenon of valuing external knowledge more highly than internal knowledge and reveal some mechanisms through which this process occurs. We found evidence that the preference for outsider knowledge is the result of managerial responses to 1) the contrasting status implications of learning from internal versus external competitors, and 2) the availability or scarcity of knowledge - internal knowledge is more readily available and hence subject to greater scrutiny, while external knowledge is more scarce, which makes it appear more special and unique. We conclude by considering some consequences of external knowledge preference for organizational functioning.