The Impact of Co-Location on Innovation: A Framework using the Mediators of Trust and Knowledge Sharing

*Written in Fall 2020 for a class in Organizational Psychology

There couldn't be a better time to look at how the co-location of employees facilitates innovation and why employees need to come together in shared spaces to establish trust and transfer knowledge. With many companies planning to work from home for the foreseeable future (Hadden et al., 2020), or indefinitely, we need to understand the impacts that this will have on their overall growth through reduced innovation. Although information and communication technology is rapidly advancing, it hasn't made up for the loss of face-to-face interactions when employees are co-located (Morrison-Smith & Ruiz, 2020). Studies have shown the significance of co-location on trust development (Morrison-Smith & Ruiz, 2020; Nilsson & Mattes, 2015) and the frequency that knowledge is shared (Appel-Meulenbroek, 2010; Khazanchi et al., 2018; Morrison-Smith & Ruiz, 2020). Others have expressed how trust and knowledge sharing are requirements for creativity and innovation (Elsbach & Stigliani, 2020; Khazanchi et al., 2018; Lei et al., 2019). Therefore, co-location increases innovation through the mediators of trust and knowledge sharing.

Successful organizations recognize the importance of knowledge, at both the individual and organizational levels, on their ability to innovate and grow (Alsharo et al., 2017). During the rapid pace of innovation of the 21st century, organizations have evolved new ways of working that emphasize the importance of teams and collaboration over the individual worker. Realizing that knowledge is an asset within individuals emphasizes the importance of sharing knowledge to optimize performance (Alsharo et al., 2017). The need for knowledge to be shared has revealed the critical value of culture and relationships within the workplace and how the relationships formed at work increase trust, facilitate knowledge sharing behaviors, and stimulate motivation for innovative ideas (Khazanchi et al., 2018). Teams of knowledge workers are being asked to solve many complex problems. The solutions often require frequent face-to-face interactions to build trust, collaborate, and communicate many diverse perspectives (Khazanchi et al., 2018).

Literature Review

To understand how co-location impacts innovation, a wide range of research needs to be reviewed: sociology, human geography, management, commercial real estate, facilities, human relations, and organizational behavior. This paper looks at many of these fields of research to discover the various connections between co-location, trust, knowledge sharing, and innovation. To address how these variables relate to each other, we first discuss the types of trust and how they are impacted in virtual teams; then we describe types of knowledge sharing; then we review the impact of awareness and dive into a case study; then finally, we discuss the framework that connects the variables.

Types of Trust and Their Impacts

A team's ability to derive new insights depends on their ability to collaborate, which requires the team to develop trust. Trust allows the team to put their collective success above their own personal advantages (Alsharo et al., 2017) and therefore is the foundation of a successful collaboration. Trust has been defined as the openness to show vulnerability with an expectation that there will be positive reciprocation (Breuer et al., 2019). There are many ways to break down the types of trust. Trust within teams can be seen at a dyad level between two individuals or at the team level. Costa et al. (2018) describe a two-factor model that includes both affect-based trust and cognitive-based trust. Cognitive-based trust is built from observing the behavior of colleagues to assess their trustworthiness, whereas affect-based trust comes from perceived reciprocal care, concern, and positive feelings. Both cognitive- and affect-based trust are forms of gradual trust built over time and are more resilient than initial trust (Nilsson & Mattes, 2015). Although face-to-face communication is considered essential for gradual trust, it is unnecessary to create an initial trust (also called 'swift trust') (Nilsson & Mattes, 2015). The type of trust formed impacts how teams engage, share knowledge, or even utilize it once received (Holste & Fields, 2010).

The importance of co-location of teams is revealed through the analysis of trust within virtual teams. Initial trust does not require co-location or direct communication. It can be built from reputation, perception of commonalities due to being part of the group, and the organization's social norms (Nilsson & Mattes, 2015). This type of trust is referred to as 'swift' trust as it occurs with knowledge already held about an individual, so it is the type of trust seen most frequently in virtual teams. Although information and communication technology has been rapidly advancing, video communication often lacks body language, the subtle changes in one's voice, and the nuances of facial expression (Morrison-Smith & Ruiz, 2020). These missing elements hinder the ability for teams to develop gradual trust (Morrison-Smith & Ruiz, 2020). Informal communication about non-work topics also facilitates the development of trust. While co-located employees may spend up to 75min per day engaged in these informal exchanges, virtual teams tend to engage in more formal work-related communication (Morrison-Smith & Ruiz, 2020). Affect-based gradual trust is dependent on sharing feelings and emotions, which are difficult to interpret over information and communication technology. Hence, virtual teams are more likely to experience a cognitive-based trust (Alsharo et al., 2017). Although Nilsson & Mattes (2015) found a four-fold increase in the amount of time it requires virtual teams to share the same amount of knowledge as face-to-face teams. One of the behaviors that Alsharo and colleagues (2017) expressed to be a foundation in cognitive-based trust for virtual teams is sharing knowledge, yet the willingness to share knowledge often requires vulnerability and trust.

Understanding Knowledge Sharing

The importance of this vulnerability is that it leads to employees being more willing to take risks in the form of "asking questions, admitting mistakes, seeking help or sharing and seeking feedback" (Breuer et al., 2019, p.8). These risks often lead to a transfer of, or generation of, knowledge. Appel-Meulenbroek (2010) reviewed the five categories of knowledge sharing to be descriptions, actions, questions, proposals, and evaluations. Questions, proposals, and evaluations can be seen to overlap with the forms of risk-taking described by Breuer and colleagues (2019). The trust that is required to take a risk and express the vulnerable behavior of proposing a new idea establishes how essential interpersonal trust is in an organization's innovation activities (Lei et al., 2019). Social exchange theory is considered as an explanation when reviewing how the co-location of individuals increases risk-taking and knowledge sharing behaviors as there is greater social pressure and expectation that it will be reciprocated (Khazanchi et al., 2018). Face-to-face interactions can strengthen relationships and trust, which will increase the likelihood of risk-taking, generating novel ideas, and future collaborations (Khazanchi et al., 2018). Unlike the virtual environment where knowledge sharing is shown to build trust, trust is proposed to lead to knowledge sharing as the mediator to innovation abilities (Lei et al., 2019).

The types of knowledge we share depends on the context. Knowledge can be broken down into explicit knowledge and tacit knowledge. Explicit knowledge is easily codified and can be shared in a written document. Organizations invest significant time and finances to gather and store knowledge, typically of the explicit variety (Holste & Fields, 2010). However, tacit knowledge is based on experiences and values and often requires face-to-face interactions to be shared (Holste & Fields, 2010). Tacit knowledge is unique to the individual and remains embedded unless they decide to share by demonstrating how to do a task, sharing a story about why a strategy was executed the way it was, or even sharing an experience with a mentee (Holste & Fields, 2010). Previous studies have already shown how trust is required to share knowledge (Nilsson & Mattes, 2015); however, Holste & Fields (2010) reveal more profound insights into the requirements. Their study showed that "affect-based trust has a greater influence on willingness to share tacit knowledge, while cognition-based trust has a larger influence on willingness to use tacit knowledge" (p.135). The personal relationship ties between employees, represented by affect-based trust, is also essential for tacit knowledge to be used once received. These forms of resilient, gradual trust require co-location, face-to-face interactions, and direct communication to develop (Nilsson & Mattes, 2015).

The Role of Awareness

In addition to trust, a common antecedent to knowledge sharing is awareness (Appel-Meulenbroek, 2010). Regional planning and human geography have studied how spatial proximity influences innovation for decades; they refer to it as the propinquity principle (Harorimana & Harebamungu, 2013). When people are within spatial proximity, they are more likely to experience chance encounters and share knowledge, which stimulates innovation (Harorimana & Harebamungu, 2013). The office environment impacts the frequency of face-to-face interactions, how long the interactions last, and what the communication is about (Khazanchi et al., 2018). Fundamental to all relationships is communication. Appel-Meulenbroek (2010) analyzed where knowledge sharing occurs and found that 78 percent of the interactions happen at a workspace, such as a desk. Although more workplaces are being designed to encourage serendipitous encounters, their case study found that 72 percent of the interactions were intentional. In a case study of 138 employees, researchers found that intentional incidences of knowledge sharing behavior occurred more when employees were within overhearing distance (less than 7 meters) with a ratio of 784 to 232 (Appel-Meulenbroek, 2016). Even at greater distances of proximity (up to 30 meters), there was a ratio of 218 to 124 occasions of knowledge sharing (Appel-Meulenbroek, 2016). These intentional interactions were shown to occur more within visual proximity and audible proximity, which implies that being co-located brought about an awareness that sparked a question or idea that led to the encounter.

Elsbach and Stigliani (2020) reviewed a case study of toy designers to demonstrate the relationship between the physical work environment and innovation. Working at large tables in common areas would often lead to serendipitous interactions with designers "merely passing by." They also found that the designers would post sketches of current and previous projects on their cubicles, which led to impromptu conversations. The co-location of the designers promoted awareness of what each designer was working on and demonstrated their individual knowledge. This awareness then led to knowledge sharing in the form of brainstorming, made up of the knowledge sharing categories of questions, descriptions, proposals, and evaluations. Both knowledge transfer and generation occur in these serendipitous encounters. This type of collaboration, the willingness to share knowledge, and the motivation to generate new ideas require a culture of openness and trust (Lei et al., 2019). When new knowledge is shared, employees are able to combine and transform it with their unique individual knowledge, which facilitates innovation (Lei et al., 2019). The toy designer case study shows that for organizations wanting to promote innovation, they can intentionally design their workspace in a way that facilitates impromptu interactions (Elsbach & Stigliani, 2020).

Discussion

The pace of innovation is accelerating rapidly. Organizations need to continue to innovate for future growth. The framework in Figure 1 was conceived to connect the variables that were reviewed in the research. Due to the regional planning studies of the influence that proximity has on innovation, the direct connection of co-location of employees to innovation has been studied via the same pathway of awareness, leading to chance encounters. Yet, as Appel-Meulenbroek (2016) demonstrated, the more robust pathway is through intentional interactions, which require trust as it is an act of vulnerability to walk up to a colleague to ask a question or a risk-taking behavior to provide a critique or evaluation of a team member's work. The framework has kept trust and knowledge sharing as single entities for readability despite knowing that each can be broken down further. This general framework emphasizes the importance of employees in knowledge- or innovation-based organizations returning to a workplace once it is safe to do so. Although both knowledge sharing and trust can occur in a virtual environment, we have seen how face-to-face interactions encourage the growth of these activities. Co-location has also been shown to positively impact our work relationships, communication, and creativity. Yet there is a tension in the workplace between these benefits and the adverse side effects of co-location. Employees have complained about crowding, inability to focus due to distractions (both visually and audibly), and lack of privacy.

Implications for Future Research

An area for future research is to explore this tension of co-location and how it relates to the social density of space. At what social density do we see the benefits of increased knowledge sharing and idea generation occur? If there are too few people in the office, there may be no social benefits to being in the space. What is the critical mass for the benefits? Once we hit that critical mass, are we seeing the adverse side effects, or do they occur as density increases to a tipping point where the negatives outweigh the positives? Considering that many organizations are proposing a hybrid strategy moving forward, research will need to look at these specific impacts. Beyond the scope of this paper were the studies showing how teleworkers impacted those still in the office. Another strategy considered for the post-pandemic workplace is temporal, which suggests that employees work remotely most of the time, but then come together regularly to share ideas and to build trust. Studies on eventisation of workshops, charettes, and conferences address the impact of temporal proximity in novel spaces on innovation. Yet, a longitudinal study would be required to understand how this affects an organization's long-term goals. As organizations look to returning to the office, these answers will guide their design decisions to create an optimal space for employees to be co-located to increase their innovation and growth.

References

Alsharo, M., Gregg, D., & Ramirez, R. (2017). Virtual team effectiveness: The role of knowledge sharing and trust. Information & Management, 54(4), 479-490.

Appel-Meulenbroek, R. (2010). Knowledge sharing through co-presence: Added value of facilities. Facilities (Bradford, West Yorkshire, England), 28(3/4), 189-205.

Appel-Meulenbroek, R., De Vries, B., & Weggeman, M. (2016). Knowledge Sharing Behavior: The Role of Spatial Design in Buildings. Environment and Behavior, 49(8), 874-903.

Breuer, C., Hüffmeier, J., Hibben, F. & Hertel, G. (2019). Trust in teams: A taxonomy of perceived trustworthiness factors and risk-taking behaviors in face-to-face and virtual teams. Human Relations (New York), 73(1), 3-34.

Costa, A., Fulmer, C., & Anderson, N. (2018). Trust in work teams: An integrative review, multilevel model, and future directions. Journal of Organizational Behavior, 39(2), 169-184.

Elsbach, K., & Stigliani, I. (2020). The physical work environment and creativity. In Organizational Behaviour and the Physical Environment (1st ed., pp. 13-36). Routledge.

Hadden, J., Casado, L., Sonnemaker, T., & Borden, T. (2020, July 27). 14 major companies that have announced employees can work remotely long term. Business Insider. https://www.businessinsider.com/companies-asking-employees-to-work-from-home-d ue-to-coronavirus-2020

Harorimana, D., & Harebamungu, M. (2013). Innovation, proximity, and knowledge gatekeepers - is proximity a necessity for learning and innovation? International Journal of Innovation and Learning, 14(2), 177-196.

Holste, J. & Fields, D. (2010). Trust and tacit knowledge sharing and use. Journal of Knowledge Management, 14(1), 128-140.

Khazanchi, S., Sprinkle, T., Masterson, S., & Tong, N. (2018). A spatial model of work relationships: The relationship-building and relationship-straining effects of workspace design. The Academy of Management Review, 43(4), 590-609.

Lei, H., Nguyen, T., & Le, P. (2019). How knowledge sharing connects interpersonal trust and innovation capability. Chinese Management Studies, 13(2), 276-298.

Morrison-Smith, S., & Ruiz, J. Challenges and barriers in virtual teams: a literature review. SN Appl. Sci. 2, 1096 (2020). https://doi.org/10.1007/s42452-020-2801-5

Nilsson, M. & Mattes, J. (2015). The spatiality of trust: Factors influencing the creation of trust and the role of face-to-face contacts. European Management Journal, 33(4), 230-244.