Knowledge Protection in Firms: A Conceptual Framework and Evidence from HP Labs

This paper proposes a simple framework to examine organizational methods of knowledge protection. The framework highlights a basic trade‐off between improving decision‐making and innovation through communication and mitigating security risks by imposing restrictions on communication flows. The trade‐off is mediated by factors such as the sensitivity of information, the degree to which employees can be trusted to handle sensitive information appropriately, and firms’ investments in legal protection mechanisms. Evidence from HP Labs supports the basic predictions of the model, in particular the importance of employee trustworthiness and internalized codes of behavior in promoting open communication. Our interviews also suggest a potential conflict between two of the most important appropriability mechanisms: secrecy and lead‐time advantage.