282 Ahonen, Engeström & Virkkunen Chapter XV Knowledge Management— The Second Generation: Creating Competencies Within and Between Work Communities in the Competence Laboratory Heli Ahonen, Yrjö Engeström and Jaakko Virkkunen University of Helsinki, Finland Copyright © 2000, Idea Group Publishing. Knowledge management is in transition. The first theories of knowledge manage- ment used the knowledge-carrying individual as the unit of analysis and defined knowl- edge in terms of discrete skills that can be codified and measured. The key idea of the second-generation theories is that knowledge is embedded in and becomes constructed in collective practices. The challenge is to support the generation of new knowledge and competencies. In this chapter, we will develop further the second-generation competence- management ideas by applying cultural historical activity theory. We will present a new method, the Competence Laboratory, and report the results of its pilot use in a telephone company. With this method, a team of technicians managed to create new forms of joint learning and expand its network of cooperation for learning. INTRODUCTION: KNOWLEDGE MANAGEMENT IN TRANSITION In the latter half of the 1990s, knowledge management has become arguably the most dynamic issue in literature on management and organizations. The important books by Nonaka and Takeuchi (1995) and Leonard-Barton (1995) were followed by a number of others, including those by Allee (1997), Boisot (1998), Choo (1998), Davenport & Prusak (1998), von Krogh & Roos (1996) von Krogh, Roos & Klein (1998), Myers (1996), Ruggles (1996), and Sanchez & Heene (1997). The key message of these works is that “the