Division of labor and division of knowledge: Why the nature of the causality matters for the evolutionary theory of the firm

Abstract

This article considers the role and interrelation of the division of labor and the division of knowledge, and its relevance for knowledge-based and evolutionary theories of the firm. As is well known, Adam Smith focused on the effect of the division of labor, while Charles Babbage focused on the effect of the division of knowledge. We are not the first to argue that both are connected in a loop, the division of labor guiding the division of knowledge via learning by doing, and the division of knowledge, in turn, guiding the development of competences for accomplishing steps of the work process. In this article, our main argument is that even knowledge-based and evolutionary approaches to the theory of the firm have focused more on the Smithian than the Babbagian part of the loop. We argue that the impact of the division of knowledge should not be glossed over and perhaps be considered first. The reason is that in the division of knowledge cognition enters the picture and makes a difference, amongst other things on the division of labor. Taking the division of knowledge into account also helps cast light on such important issues as understanding the emergence of routines. © 2007 Springer-Verlag Berlin Heidelberg.