Abstract for: Stocks of Knowledge and Organizational Performance: A Dynamic Relationship

The relationship between the level of knowledge and organizational performance has been studied by the academic community and is receiving growing attention from decision makers in organizations. However it is not the case of the feedback relationship between performance and the level of knowledge, although this relationship has a dynamic pattern of behavior on both variables. This research poses a conceptual approach that involves a causal model of this feedback relationship, theoretically founded on the resource based view and the behavioral theory of the firm. The methodology involves the design and use of a system dynamics simulation model based on a pharmaceutical company which relates stocks of knowledge, innovation capability, financial performance and investments on knowledge stocks. The concept of “managerial dynamic hypothesis” is defined and used to explain, via the prospect theory, how much managers decide to invest over time on knowledge stocks. Simulations, based on managerial dynamic hypotheses with two different levels of complexity, were carried out. The results show that the more complex the hypothesis is the more stable the investment flow is and a better performance is achieved.