Knowledge Management: Managing knowledge in the learning company

Knowledge management' has become the latest technique, an essential part of the 'learning company'. The latter absorbs and acts on proven knowledge and feedback to provide a basis for action. Linked over the internal and external networks, people exchange, incorporate and apply knowledge to achieve shared, brilliant results. That sounds fine. Yet, probed more deeply, 'knowledge' seems 'very complex, difficult to define, difficult to hold on to, slippery'.

The words are those of Dr Myrna Gilbert, who goes on to ask, very reasonably, 'how then are we going to manage knowledge?' A visiting professor at Cranfield University. Gilbert has been closely involved in a joint research project between Cranfield and British Telecom. That research has developed a new diagnostic tool that maps information flows at the operational level. The idea is to highlight the main channels and to identify and remove the constrictions and blockages.

As Gilbert says, 'knowledge management is about people and processes...interactions, acquiring and transferring knowledge'. Some companies confuse this with databases and communication, which sets them off in the wrong direction. Other managements worry, naturally enough, about whether, in this soft environment, they can get answers to hard-nosed questions like:

• What are the competitive advantages?
• What are the tangible benefits?
• How much does it cost?
• Can I justify the cost?

The hard-heads also worry wbout what frameworks, methodologies and approaches are available, and, very important, whether the knowledge managers will meet a receptive environment. Will the future take too long to happen? There are many cases like that of one British database company which observed the rise of the Internet and concluded, like other businesses, especially in publishing, that the future lay in cyberspace. Unlike most others, though, this management took decisive action.

At great expense, the database information was converted from hard to soft: a comprehensive web site offered users facilities going far beyond the loose-leaf binders, updated twice-yearly, on which the business had been built. The clients loved the idea. But when the project started in the late 1990s, there was a catch. Very few large UK companies were Internet-friendly. They might have a Web site themselves, but they had not gone interactive.

Even as the Millennium neared, the idea of using the net for transactions of daily business mostly stayed where it was - as an idea. So pioneers like the database firm have been running fast up the down escalator. Yet everybody, from customers to IT suppliers, recognises that one day the digital revolution will take over the bulk of transactions - just as it has already seized communications. A yawning gap has opened up between present-day potential and practice. But it will close.

In 1997, a seminar on the business uses of the Internet (which are to all intents and purposes infinite) was packed with assembled information systems and other managers who had plainly been attracted by that potential. But hardly any of their companies had even a single Internet project in hand. In fact, every day thereafter more and more companies (including, no doubt, some of the attendees) got wired up and wised up. But the remaining, numerous present gaps are not even half the story.

Present-day potential without question runs far behind future developments: the technology is still ramifying at mind-boggling speed. According to Richard Howard, director of wireless research at Lucent Bell Laboratories, 'The pace of change is actually accelerating now.' The next two decades, he feels, will 'see explosive growth of communications, computing, memory, wireless and broadband technology.' Inevitably, this will have powerful impacts on business.

THE UNIVERSAL LINKAGE
Internally, intranets will become the universal electronic linkage for organisations, not only bringing great improvements to basic functions, like communication, database use and reporting, but opening the door to the decisive corporate power: knowledge. That means, to quote Chuck Lucier of Booz Allen Hamilton, getting managers and others to (1) share best thinking, (2) use other people's ideas, (3) collaborate with other experts, and (4) evolve their thinking.

Lucier was talking to Simon Caulkin about managing knowledge. Management is required because the four above elements, while brilliantly facilitated by networks, don't come naturally. The breakdown of departmental and disciplinary barriers, and their replacement by a horizontal, fluid, organic culture, is a test of management. The companies that pass that test to exploit their internal accumulation of knowledge, plus their access to external sources, will win in the marketplace.

That, too, may require major adaptation. Many current operations will become endangered species. For instance, Bill Joy, who heads research for Sun Microsystems, told Business Week that the trends will 'carve middlemen out of transactions.' In PCs, as noted earlier, firms like Dell Computer have already carved away the intermediaries. But Joy's other predictions have become fact: 'online auctions' in real time, for example, undermine the differential pricing which forces business travellers to pay more for airline tickets than occasional fliers. Networks give people access to what things are really worth, defined by what people will pay at that minute.

Since the cost of networks is dropping as fast as they spread, no management can afford to stay on the sidelines. As a fascinating survey by Business Week shows, research is exploding in all directions and could result in computers very different from today's boxes, with their windows, icons and often clumsy programs. What these changes promise is much easier use and ubiquity of knowledge at much lower prices: the cost of a given amount of computer power is halving every 18 months.

Business managers can with confidence ask for the moon, so to speak. What information and communication, what knowledge, do you ideally require? Almost certainly, it's yours: if not today, an early tomorrow. The strategic programme is clear. Plan ahead in full awareness of the impact that the digital revolution may have on the business, internally and externally. Ensure that the corporate and information strategies are Siamese twins. Plan future systems to fit the strategic needs, while bringing systems in use to state-of-the-art quality to provide the foundation for the future.

Do all that and you create the ultimate in knowledge management: 'The most successful corporation of the 1990s will be something called a learning organisation, a consummately adaptive enterprise'. That forthright prediction comes from a magazine, Fortune, but it's based on the preachings of the management gurus. Not content with virtual corporations, time-based competition, total quality management, etc., the gurus are now demanding that organisations join their own racket: education itself.

As usual, the trend was first signalled by Peter Drucker, who spotted that information had replaced physical assets as the backbone of business. In today's competition, what you know determines what you can provide and sell, and how: therefore, the competitor which knows most, and uses its knowledge most effectively, must win. More: information is constantly being outdated. So winners will update their knowledge continuously. Otherwise, the lead will be lost.

This general truth is illustrated very specifically by the ups and downs of information technology, where knowledge differentials have led to rapid changes of leader in fields ranging all the way from spreadsheets to super-computers. This isn't just a question of technology. The power of learning affects every activity inside the company, and dominates its ability to succeed outside, in the marketplace, where the customers live.

'Today leading firms seek to understand and meet the "latent need" of the customer - what customers might truly value but have never experienced and would never think to ask for'. The words come from Peter Senge, the MIT professor who has become heavily identified with the concept of the learning organisation. However, he takes issue with the Fortune writer quoted above on one key word. Companies, says Senge, don't only need to be 'adaptive'. They must above all become 'generative'.

To illustrate the difference, he cites the comment of one Detroit executive on Mazda's fun sports car: 'You could never produce the Mazda Miata solely from market research. It required a leap of imagination to see what the customer might want'. That's an example of generative learning, in which the learner 'acquires new ways of looking at the world, whether in understanding customers or in understanding how to better manage a business'.

ADAPTIVE LEARNING
By contrast, the adaptive learner essentially reacts to changing circumstances. Many companies, of course, have failed on that score, some through utterly failing to compete with Japanese rivals which produced new models faster, cheaper and to far higher standards of quality, both in production and use. Now, of course, everybody left in the affected industries has adapted or is adapting: it's do or die. But the stable door is being shut well after the horses (billions in lost sales) have bolted.

Manfred Perlitz of the University of Mannheim points out that Western adapters have been busy winning the last war. The competitive race will now go, not to the most efficient user of 'just-in-time', with the lowest rate of defects and the highest output per man-hour, but to the leaders in creativity. That's the same distinction that Senge makes, and so do the Japanese. They've even invented a perfectly awful word, 'creagement', to describe the creative management processes which are needed.

What does all this mean for management and managers? In the first place, the old targets expressed purely in financial terms have become even more inadequate. Perlitz advises that the necessary high rate of innovation won't be achieved unless companies set specific goals for, say, the annual earnings and sales to be generated by new products. It follows that reward systems must recognise that reality, partly by becoming less systematic. What carefully calibrated yardstick can you put on creating the future of the company?

The learning organisation seeks to generate the future it wants. That philosophy is the opposite of 'that's the way we've always done things round here', 'sticking to the knitting', 'Not Invented Here' and other out-worn defences of the status quo. Senge calls rather for 'creative tension', which means 'seeing clearly where we want to be...and telling the truth about where we are'.

That establishes the gap between 'vision' and 'reality', and is precisely the exercise to which corporate strategists and total quality companies have long been accustomed. The difference is that Senge challenges the realism of most ideas on reality. Managers, like everybody else, focus on isolated events, rather than patterns of behaviour. Even if they look at the latter (which is how you spot trends), they rarely look behind patterns to the 'systemic structure' that is the ultimate reality.

The car industry serves as an excellent (and chilling) illustration. The event that everybody spotted was the rise in Japanese car sales, for which all kinds of irrelevant explanations were offered, from cheating to unfair cultural attributes. Then attention turned to the patterns of behaviour - the common characteristics of the way the Japanese produced and marketed cars. But Westerners have only recently realised that their own defective methods really flowed from rigid corporate systems in which design, marketing, production and finance were separate, warring camps.

In contrast, for its new Omega executive range GM Europe, for the first time in its history, formed thirteen teams for each part of the car, each manned by all ten functions. By working together, people learn from each other. That's one way in which the learning organisation is becoming reality. More and more, managers (and other employees, for that matter) are forming self-directed teams in which knowhow and information are pooled. More and more, too, management development itself is founded on team-working, tackling real-life corporate problems - from strategy downwards.

'SHIFTING THE BURDEN'
Many such problems, on analysis, tend to be of the type that Senge calls 'shifting the burden'. An agonising symptom shows up - say, falling sales. You can treat the symptom in two ways: attacking the sales shortfall directly, or finding the underlying cause and treating that. Human nature being what it is, most managements go for the symptom, the obvious event that comes to view. So they launch a marketing promotion drive to boost the sales. Even if that succeeds, the problem will recur - possibly in more virulent form.

In an actual Senge case, a management team looked beneath the symptom to find the underlying cause of recurrent sales difficulties. Curing the symptom had indeed worsened the disease. The real defect was lagging introduction of new products - the company had never heard the Perlitz message. But, as a side-effect, the reliance on marketing expenditure to save the day had inevitably promoted the saviours to high positions in the company. They knew masses about marketing, but nothing of new product development, which had languished accordingly in a vicious circle.

Three chief executives in succession had come from advertising. The remedy for the firm's decline turned out to lie as far from the consumer as possible - in the boardroom. Even if the side-effects don't worsen the problem directly (as in this case), they always worsen it indirectly by delaying the truly necessary action. All this is self-evidently correct: but what's it got to do with learning? Shouldn't common sense alone have spotted the new product lag, or the advantages of Japanese car-makers?

Common sense alone would not have been enough: informed common sense is the catalyst for effective change. What shocked Xerox into a massive effort to change all its ways was learning, through a team of line managers, that Japanese copiers were winning, not by skulduggery, but by superior methods of production and management. To accomplish the vital change, and reverse its calamitous loss of market share, Xerox had to resort to learning in the traditional sense - and on a massive scale.

At Rank Xerox, every one of 28,000 employees was trained in the principles and practice of total quality. Work on 'continuous improvement', or 'business process reengineering', or any other approach to radical reform of specific activities is a double education. First, the participants have to learn the tools and techniques required to tackle the process and its improvement. Second, they learn from the experience of undertaking the project as a team and driving it to a successful conclusion.

It's a truism of total quality, though, that the emphasis must lie on the total. Unless everybody, from the summit of management to the shopfloor, is involved in learning and improvement, the organisation ends up with pockets of excellence. Its parts will add up to an unsatisfactory whole. In the learning organisation, everybody learns, which means that everyone is taught - an idea which many senior managers find personally uncomfortable.

If they don't learn, the discomfort will eventually prove much greater, for themselves and the organisation. The organisation per se can't learn: it's amorphous and inhuman. But the humans who animate the organisation can create an environment which is both adaptive and generative. Companies need that, no matter which of the gurus or change programmes they pursue. For without that environment of successfully managed knowledge, managers who seek successful change are wasting their time - and their greatest, human assets