Here is a situation many can identify: a firm prides itself on designing products that are unique and popular with consumers. To sustain that advantage, it strives to come up with new ideas and build on its achievements. But to do that, it has to convince employees it is worth their while to invest their skills and development in this specific company. And there's the rub.

If employees commit to the firm's unique product lines and technologies, their skills become less easily transferable to another company. They could end up stuck with the firm, which may in turn play its hand to press staff to work longer hours or even at less than market rates. Why would employees invest themselves in the firm if they see this coming?

That question is at the heart of a study by Heli C. Wang, Jinyu He and Joseph T. Mahoney, who argue that while firm-specific knowledge can be a competitive advantage, it may not be sufficient on its own without employee commitment. Governance mechanisms could plug that hole, in particular through employee stock ownership and firm-employee relationship building.

"Firm-specific knowledge can generate a competitive advantage for a firm, but it's also likely to give rise to reluctance by key employees to invest the necessary firm-specific capital because such investment can put them in a potentially vulnerable position," the authors say.

"Effective governance mechanisms in a firm can reduce those employees' concerns and align their goals with that of the firm."

The mechanisms they look at are not problem-free, though. Employee stock ownership can be costly to implement and is not a safeguard against shirking, while firm-employee relationship building can entail costs for such things as training, team-based appraisal and long-term employment benefits.

The authors conclude the mechanisms therefore are more attractive mainly to companies that have a higher stake in retaining employee commitment - in this case, firms with a greater degree of firm-specific knowledge resources as reflected in their patents.

They argue that firm-specific knowledge is more likely to lead to greater firm economic performance when these governance mechanisms are in place, although with the expectation that the effect will be lessened in larger firms where it is more difficult to measure the contributions of particular employees.

Tests on 211 firms from 1994-2002 upheld these ideas. Firms with higher levels of firm-specific knowledge resources were more likely to adopt the stock or relationship based mechanisms to keep their employees in line, although employee stock ownership was rather less impactful than firm-employee relationships. When such mechanisms are in place, firms can gain greater economic benefits from their firm-specific knowledge resources. Again, relationship building had a bigger impact than stock ownership. Larger firms also showed smaller benefits.

So, while firm-specific knowledge resources can give a company a competitive advantage, they do not work best effect in isolation from governance. The authors suggest research in future should put more emphasis on how these two factors jointly affect economic performance.