Knowledge Management in the Network Mode: The Case of Private Equity

Abstract

There has been an ongoing debate on the changing geographical organization of the financial sector and the decreasing importance of regional financial centres. Our contribution explores a fresh perspective on this issue by looking at knowledge and risk management in different parts of the financial sector with an empirical focus on private equity in Germany. The argument we put forward is that the ways in which providers of finance manage knowledge and risk shape their organizational and geographical structure. In our analytical framework we distinguish between three ideal-type modes of knowledge management: the relationship, the data and the network mode. These modes differ in the types of knowledge exchanged, the actors involved and in the role and nature of relevant contacts and relationships. The shift from relationship to data mode in credit provision in Germany serves an example of how a new mode of knowledge management is associated with changes in the geographical organization of financial actors and activities. To illustrate the network mode we then focus on knowledge management in private equity in Germany, which involves a variety of different actors and links both regional and interregional networks. Our empirical research shows that the resulting organizational and geographical structures are rather complex and have nodes in regional financial centres. While these centres benefit from private equity activities, their chances for re-vitalization and a re-regionalization of financial expertise on the basis of private equity are nonetheless limited. So far, Munich seems to be the (only) one location where private equity – cross-fertilized by other local financial actors – has initiated a self-supported development which strengthens Munich as a financial centre.