Encapsulation of Knowledge within a Company, Plus Artificial Intelligence: an Efficient Resource or an Explosive Mixture?

Subject. The given article examines a new direction in the theory of the firm: the knowledge-based approach. The authors proceed with their analysis of the controversial phenomenon of ‘knowledge encapsulation’. Methods. The research analyses the basic forms of knowledge encapsulation within the firm (including instructions, directives, business routines, ‘fool-proofing’ methods, modular product architecture, and outsourcing). In particular, for the first time ‘fool-proofing’ is regarded from an economic (rather than technical) viewpoint, as a tool, which enables employment of extremely lowskilled agents in the production process, thus reducing expenses. Objective. To justify the reasons for the high efficiency of using encapsulated knowledge within the firm, and simultaneously consider the interconnected risks, which are of particular significance in the case of the use of Artificial Intelligence (AI). Scientific implication. A comparative classification  of the costs is conducted to investigate the creation of the main elements of complete vs. encapsulated knowledge. The article has revealed, the most costly components of knowledge in its encapsulated form (incl. comprehensive training, R&D costs, etc.) are either skipped or become cheaper for a similar outcome, however, the primary risk leads to the fusion of AI with encapsulated knowledge. As a conclusion, the weak link in the ‘AI — human’ chain is the human being. If the latter operates without understanding the underlying meaning (a result of encapsulation), using only the AI prompts, the human professional deskills. Incidentally, this process is: a) profitable for the firm; b) not discussed by economists, despite having been empirically identified by biologists (the reverse Flynn effect). The authors suggest, that the solution is not to refuse using AI, but to supplement it with measures to counteract such ‘deskilling’ or ‘dumbing down’ of homo sapiens. 

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