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Know What You Know

Know What You Know

All healthy organisations generate and use knowledge. As organisations interact with their environments, they absorb information, turn it into knowledge and take action based on it in combination with their experiences, values and internal rules. Without knowledge, an organisation could not organise itself; it would be unable to maintain itself as a functioning enterprise. We will consider five modes of knowledge generation: acquisition, dedicated resources, fusion, adaptation and knowledge networking. In each case, the conventions of language force us to discuss knowledge as a thing that can be managed. We want to emphasise, however, that knowledge is as much an act or process as an artefact or thing.

Acquisition

Acquired knowledge does not have to be newly created, only new to the organisation. British Petroleum gives a Thief of the Year Award to the person who has "stolen" the best ideas in application development. The company recognises that, when it comes to organisational knowledge, originality is less important than usefulness. Texas Instruments has created a Not Invented Here, but I Did It Anyway Award for borrowing a practice from either inside or outside the company. The Spanish proverb "Well stolen is half-done" sums up this idea succinctly. The knowledge-focused firm needs to have appropriate knowledge available when and where it can be applied, not to generate new ideas for their own sake.

The most direct and often most effective way to acquire knowledge is to buy it - that is, to buy an organisation or hire individuals who have it. Of course, not all corporate purchases are knowledge acquisitions. Companies buy other companies for various reasons: to generate additional revenue, to achieve a strategic size or product mix, to get access to new markets or to gain the skills of a senior management team (this last reason, however, borders on knowledge acquisition). Increasingly, firms acquire other companies specifically for their knowledge. They are often willing to pay a premium over the market value of the company purchased because of the value they expect to get from adding that new knowledge to their own knowledge stock. One recent example of this is IBM's 1995 purchase of Lotus. IBM paid $US3.5 billion, which was 14 times Lotus's book valuation of $US250 million. Clearly, IBM did not pay that amount of money for the current revenue generated by Notes and other Lotus products or for Lotus's manufacturing and sales capabilities. The $US3.25 billion premium IBM paid represents its appraisal of Lotus's unique knowledge of Notes and other collaborative software applications. The minds that invented Notes are more valuable than the software itself.

In addition to being purchased, outside knowledge can be leased or rented. A common type of leasing is a firm's financial support of university or institutional research in exchange for the right to first commercial use of promising results. The drug company Hoechst, for example, supports research at the Department of Molecular Biology at Massachusetts General Hospital in hopes that it will lead to the development of profitable new drugs. R&D efforts are always speculative, and it is not easy to predict when or if research will pay off. However, it should be possible over time and in the aggregate to calculate the value of leased knowledge in terms of the eventual returns that are derived from the funded research.

Renting knowledge really means renting a knowledge source. Hiring a consultant for a project is an obvious example. Unlike rentals of equipment or facilities, knowledge rentals are likely to involve some degree of knowledge transfer.

Although the knowledge source is temporary, some of the knowledge is likely to stay with the firm. Some clients we have worked with now specify in their consulting contracts that consultants' knowledge be made available in some structured, codifiable format. And consultants are beginning to market their services partly on the basis of transferring knowledge to clients. For example, more than one high-tech consulting firm now offers technical training in the software package SAP if the client employs these firms to implement the package.

As with so many investments in knowledge generation, intentions are important: A firm needs to know what it wants in order to have a good chance of getting it. High-level consultants are sometimes surprised at how little clients ask of them in terms of knowledge transfer. Firms that hire them for a day or a week at considerable expense might be expected to squeeze as much knowledge out of them as possible. But they usually do not ask the questions that would help them absorb that expertise in practical ways.

Dedicated Resources

A customary way to generate knowledge in an organisation is to establish units or groups specifically for that purpose. But since the financial returns on research take time to materialise and may be difficult to measure when they do come, a focus on near-term profits may create pressure to cut costs by cutting R&D. While no part of a business can be funded indefinitely if it generates no measurable value, a narrow bottom-line view of that return can lead to "savings" that deplete vital knowledge-generating resources.

The premise behind separating R&D from other parts of the firm is to give researchers the freedom to explore ideas without the constraints imposed by a preoccupation with profits and deadlines. However, this distance may be difficult to bridge when the time comes to transfer the results of R&D to the wider organisation. Knowledge creators and users may not even speak the same language.

Probably the most notorious case of a costly transfer gap occurred at Xerox's Palo Alto Research Center in the mid-1970s. The knowledge workers at Xerox PARC invented key elements of the graphical interface computer, including the mouse, graphical icons and menus. Ironically, the independence that made this breakthrough possible probably contributed to Xerox's inability to understand its importance and potential value. They were not close enough to the research to evaluate the newly created knowledge. Steve Jobs, on the other hand, was prepared for those new ideas by his work at Apple (as well as by culture and temperament) and quickly grasped their significance. A brief tour of Xerox PARC was all he needed to gather the fruits of research funded for years by Xerox.

He went back to Apple and built the Macintosh.

Fusion

Whereas the R&D approach is predicated on reducing the pressure and distractions that can stifle productive research, knowledge generation through fusion purposely introduces complexity and even conflict to create new synergy.

It brings together people with different perspectives to work on a problem or project, forcing them to come up with a joint answer.

In The Knowledge-Creating Company (Oxford University Press, 1995), [Ikujiro] Nonaka and [Hirotaka] Takeuchi cite Matsushita's development of the first automatic breadmaking machine as an example of diversity and creative chaos in action. Matsushita combined three product divisions with different cultures to develop a successful breadmaking machine, realising that it needed the variety of knowledge possessed by groups that had previously made rice cookers, toasters and coffeemakers, and food processors. The new product combined the computer-control expertise of the first group, the second's experience with induction heater technology and the third's knowledge of rotating motors. The creative chaos came from a breakdown of old assumptions and ways of working, an intentional shake-up of the status quo that, as conventionally portrayed, is not innovative. The combined groups (a total of 1400 employees) initially almost "spoke different languages".

Although fusion can lead to powerful results that are unobtainable in other ways, it is not a shortcut to knowledge generation. A significant commitment of time and effort is required to give group members enough shared knowledge and shared language to be able to work together. Careful management is also necessary to make sure that the collaboration of different styles and ideas is positive, not merely confrontational.

Here are five knowledge management principles that can help make fusion work effectively:1. Foster awareness of the value of the knowledge sought and a willingness to invest in the process of generating it.

2. Identify key knowledge workers who can be effectively brought together in a fusion effort.

3. Emphasise the creative potential inherent in the complexity and diversity of ideas, seeing differences as positive rather than sources of conflict and avoiding simple answers to complex questions.

4. Make the need for knowledge generation clear so as to encourage, reward and direct it toward a common goal.

5. Introduce measures and milestones of success that reflect the true value of knowledge more completely than simple balance-sheet accounting.

Adaptation

In "Microcosmic God," a 1941 science fiction story by Theodore Sturgeon, the main character creates a miniature world of beings who live and evolve extremely rapidly. He forces them to innovate by imposing various environmental threats on them. They react to storms, heat, drought - even a metal plunger moving inexorably down from their "sky" - with a steady stream of inventions and discoveries, from new insulating materials to power sources to super-hard aluminium. The crises in their environment act as catalysts for knowledge generation.

"Adapt or die" is their fate; so they adapt and advance.

The story provides a vivid metaphor for the way external (and sometimes internal) changes cause businesses to adapt. New products from competitors, new technologies, and social and economic changes drive knowledge generation because firms that don't change in response to changing conditions will fail.

Success is often the enemy of innovation; it has been called the winner's curse. Lulled by past success, companies sometimes fail to see that change is happening or to acknowledge that it can affect them. The appearance of low-cost, high-quality Japanese cars on the US market changed the automotive world, but decades of dominance blinded American automakers to the magnitude of the threat. Similarly, Sears ignored the changes that Wal-Mart was making in the retailing environment until shrinking sales forced it to face reality.

A firm's ability to adapt is based on two principal factors: first, having existing internal resources and capabilities that can be utilised in new ways, and second, being open to change or having a high "absorptive capacity". The most important adaptive resources are employees who can acquire new knowledge and skills easily. Since the best predictor of mental nimbleness is proven experience in taking on new tasks, firms should seek out employees who have already mastered a variety of roles and skills. After they've been hired, employees should also be encouraged to change jobs often, to build and manage their own skill portfolios, and to take "learning sabbaticals" to master new work-related disciplines.

Networks

Knowledge is also generated by informal, self-organising networks within organisations that may over time become more formalised. Communities brought together by common interests usually talk in person, on the telephone, and via e-mail and groupware to share expertise and solve problems together. When networks of this kind have enough knowledge in common to be able to communicate and collaborate effectively, their ongoing conversation often generates new knowledge within firms. Although it may be difficult to codify, this process can add to the knowledge of the entire company.

In the absence of formal knowledge policies and processes, networks act as critical conduits for much innovative thinking. Consider, for example, a series of events that occurred recently at a US subsidiary of Hoechst that makes polyester fibres. During a lunch with colleagues, a Hoechst R&D technician who had recently come back from a conference on synthetic fibre manufacturing in Europe mentioned a particular presentation regarding a new material. One of his colleagues passed on some details of the lunchtime discussion to about 18 global peers via an informal e-mail network. Three weeks later, one of these networked researchers mentioned the e-mail message to a company executive during a flight they took together to visit a client. The executive brought the matter up with a team he was on whose mandate was to look at new business opportunities. Soon Hoechst formed a small executive group to look further into this promising material.

This story resonates with readers familiar with how knowledge gets around in organisations. It shows how extensively an informal network can generate knowledge when each participant adds an incremental portion. At the same time, it is obvious how large a role chance played in getting the knowledge where it could be used in this particular instance. How easily the knowledge brought back from the conference might never have reached the group that needed it!The common denominator for all these efforts is a need for adequate time and space devoted to knowledge creation or acquisition. In companies committed to dedicated resources, space not only means the laboratories and libraries in which discoveries can be made but also the meeting places where knowledge workers can congregate. In some instances, the shared space may be electronic, but meeting places of some kind must exist. Unfortunately, time, not physical space, is the corporate resource most likely to be begrudged to knowledge activists. It is the scarcest of all resources, the one impossible to replicate and yet most essential to genuine knowledge generation.

Management: The Oral Art

By Perry Glasser

If you tell a good story, your assets at the favour bank will soarOh sure. Knowledge management. What will they think of next? Some egghead awakens at midnight and shouts, "Eureka!" at the brilliant notion that information shared is better than information hoarded. So what else is new?Actually, according to Larry Prusak, quite a bit. Prusak, a managing principal of the IBM Consulting Group in Boston and co-author with Tom Davenport of Working Knowledge: How Organisations Manage What They Know (Harvard Business School Press, 1998), has been asking executives the same question for three or four years: "Where do you get the insight you need to run your business?" He says the answer is almost always: "We talk.""Management has always been an oral art, but perfect information has never meant perfect decisions," Prusak says. He points to IBM, a company that in 1987 knew all it needed to know to realise that desktops indeed posed a threat to the glass-house mainframes on which the company had built a fortune but which nevertheless flirted with financial disaster. "What has changed is that technology has made 'distributed cognition' possible. Space and time have been diminished as inhibitors to teams, groups and the distribution of collected intelligence."What's more, in their book, Davenport and Prusak put forward the proposition that knowledge is subject to the same market forces as any other asset or commodity. When knowledge is plentiful, like talk, it gets cheap. When knowledge is scarce, it rises in value. But since knowledge is, by its nature, usually scarce, a set of players skilled at buying, selling and even brokering what there is to know have always been around. Just because there is no exchange that measures value in dollars and cents, don't make the mistake of believing there is no price. In terms of in-house knowledge distribution, Prusak likes to point to what Tom Wolfe in Bonfire of the Vanities, his novel about heavy-hitting Wall Street bond marketeers, calls "the favour bank", that hypothetical cosmic mechanism that distributes justice to those who have cast a bit of bread upon the waters.

Prusak expects that knowledge brokers and arbiters Ð those people who know who knows and where to find them Ð will soon be more valued. While informal arrangements have generally been the modus operandi for knowledge brokers, such professionals as company librarians may come into bigger compensation packages soon. They have been marginalised until now because, Prusak says, they are too democratic. "They're nice people and treat everyone the same. That's no way to build a balance at the favour bank," he explains. "Business interaction has always relied on reciprocity, and people have always calculated their expenditure in time in terms of a possible future reward."Indeed, he concedes that a quick calculation was why he granted CIO (US) the time for an interview.

Tom Davenport is a professor and director of the Information Management Program at the University of Texas at Austin. He welcomes reader comments at davenport@mail.utexas.edu. Larry Prusak is managing principal of the IBM Consulting Group and can be reached at 617 895-2320Reprinted by permission of Harvard Business School Press. Excerpt of Working Knowledge: How Organisations Manage What They Know, by Thomas H Davenport and Laurence Prusak. Copyright 1998 by the president and fellows of Harvard College; all rights reserved ($59.95; ISBN:0875846556).

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