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KNOWLEDGE MANAGEMENT AS A LEARNING CHALLENGE
Pirjo Ståhle
Lappeenranta University of Technology
P.O.Box 20, FIN-53851, Lappeenranta, Finland
[email protected]
Knowledge is power in the new economy
Knowledge management helps organisations to find, share and
benefit from what it knows, as well as enhances knowledge creation and
innovativeness.
The logic of doing business and creating value has changed fundamentally. The
marketplace is global and increasingly turbulent, with innovations altering the
business landscape every so often. Information and communication technologies
enable new kinds of relationships, and virtual network partnerships and organizations
are becoming recurrent. Knowledge has taken the place of land, labor and economic
capital as the main source of corporate wealth creation, and innovations have become
the principal drivers of competitiveness. (E.g. Drucker, 1993a; Drucker, 1993b;
Castells, 1996; Quinn & Anderson, 1996; Quinn et al., 1997; Stewart, 1997; Cohen,
1998; Ståhle & Grönroos, 1999; Romer, 2000.)
Peter Drucker (1993a; 1993b; 1997; 1999) argues that the fact that knowledge has
become the main economic resource will fundamentally change the structure of
society. Drucker uses the term post-capitalist to portray the uprising society, but also
concepts of information or knowledge society have been used in recent macrosociological discussion to depict the societal changes springing from the changes in
meaning and importance of knowledge). These changes will entail new social,
economical and political dynamics and challenges.
Companies that make profits by converting knowledge into value are called
knowledge companies (Sullivan, 1999). The success of a knowledge organization
depends on its ability to gather information and knowledge, to integrate it into
existing organizational knowledge, to share and leverage it, and to apply it to
create value for clients. Knowledge workers, i.e. highly educated employees who
apply theoretical and analytical knowledge to developing new products, services,
processes or procedures, are the fastest growing segment of the workforce in
developed countries (Castells, 1996; Drucker, 1999).
In addition to being a resource, knowledge can also be interpreted as a strategic asset
and as a capability. These intertwined viewpoints accentuate the difference between
knowledge as a property of separate individuals within the company, and knowledge
as a property, process and characteristic of the company as a whole. While subjective
knowledge of individual employees may be seen as a building block for the
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organizational knowledge, to draw conclusions of the performance potential of a
company, it is mandatory to focus on the organizational level. Furthermore, they
emphasize the knowledge company as a strategic, goal-oriented entity, rather than a
free-floating collection of stocks and flows.
According to the dynamic capability view, the market performance of the firm
depends on the combination of its capabilities with its strategic objectives or
intentions (Teece et al., 1997; Ståhle & Kyläheiko, 2001). The competitive advantage
of firms lies in dynamic capabilities, which are “the capacity to sense opportunities,
and to reconfigure knowledge assets, competencies, and complementary assets so as
to achieve a sustainable competitive advantage” (Teece, 2000). Dawson (2000)
claims, “It is far more useful to think in terms of developing the organization’s
dynamic knowledge capabilities than about knowledge as a static asset which needs to
be managed. In terms of developing knowledge capabilities, the key aspect of
organizational context is the flow of information and knowledge, which is
fundamental to how an organization comprised of many individuals can create greater
value than those individuals working separately.” Furthermore, the capability for
constructing and implementing organizational strategies is itself “a knowledge
capability of the highest order”.
Knowledge management has been understood in many different ways: For instance, in
America, knowledge management strongly emphasizes the role of information
technology (Quinn et al., 1997). The Japanese viewpoint has mainly been interested in
knowledge creation (Nonaka & Takeuchi, 1995), and the Scandinavian tradition
concentrates on intellectual capital perspective of knowledge management (Sveiby,
1997; Edvinsson & Malone, 1997, Ståhle & Grönroos, 2000). In Finland a strong
interest has been put on innovativeness of organisations, not only in businesses, but
also in relation to improving regional and national competitive edge (Alasoini et al.,
1997; Ståhle & Grönroos, 2000).
Whether our perspective is technological, diagnostic or human, it is not a question of
right or wrong; they can all be of benefit depending on the company strategy and
targets. Knowledge management as such forms a core of a company’s compatibility,
especially in rapidly changing and knowledge-intensive businesses. However, its
methods can be totally different, depending on business environment and the main
source of added value.
To understand the benefit knowledge management can offer, we need to recognise
that even the most gifted employee is only a possibility for a company. A company’s
knowledge capital is never based only on individuals, but instead the crucial thing is
how these individual competencies and skills work together and create synergy and
thus become an organisational capability.
A systemic view on organisations
What is crucial when speaking about knowledge management, is to understand an
organization as a pace for knowledge creation. An organisation is a functioning entity,
a system or an instrument that actually makes the business.
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The systemic view emphasizes connections among the elements of the system, rather
than the elements’ attributes per se, as other approaches in social and economical
sciences tend to do. Business organizations belong to a distinct subtype of systems,
namely social systems (Luhmann, 1995, 2). As a social system, a business
organization can be characterized as a coherent entity that is capable of target-oriented
action.
The decisive argument made in this article is that the crucial factor that determines a
company’s renewal ability and thus also its potential for future success is its systemic
efficiency. Systemic efficiency consists of a business organization’s ability 1) to
function as a system in general, and 2) to guide its functioning according to a chosen
strategy.
The systemic view of organizations is widely spread these days. Morel and
Ramanujam (1999) argue, “Organizations are now routinely viewed as dynamic
systems of adaptation and evolution that contain multiple parts which interact with
one another and the environment. Such a representation is so common that it has
acquired the status of a self-evident fact.” Some of the current authors address the
systemic nature of organizations directly, whereas some of them deal with other issues
departing from a viewpoint that is grounded on implicit systemic presumptions. Of
especial interest is the natural occurrence of patterns in systems and the emergence of
new forms. The key concepts used in recent literature include dynamic change,
adaptation to complex environments and evolution. (See e.g. Eisenhardt and Tabrizi,
1995; Ehin, 1995; Brown & Eisenhard, 1997; 2000; Black, 2000; Ashmos et al.,
2000.)
To mention a few examples, for instance Sanchez and Heene (1997a; 1997b) have
created a competence-based approach of strategic management in which organizations
are viewed as “goal-seeking open systems of interrelated intangible and tangible asset
stocks and flows”. According to them, competencies must be seen as arising from a
system of interdependent resources and processes, and as such, they must be managed
as a system. Also, Gary Hamel’s views about strategy innovation imply that to be
strategically innovative on a sustained basis, companies should adopt systems
thinking in two respects. Firstly, conceiving the entire field of business as a system
enables modification of the operational rules of this complex web of interrelationships
(Hamel, 1998a). Secondly, in addition to markets at large, the individual organizations
should be conceived as complex systems, whose internal operations, including
strategy making, should ideally be “poised on the border between perfect order and
total chaos, between absolute efficiency and blind experimentation, between
autocracy and complete adhocracy” (Hamel, 1998b). Moreover, Eisenhardt and
colleagues deal with organizations as complex adaptive systems in several articles.
One of their main arguments is that achieving fast adaptation in unpredictable
environments requires balancing order and disorder by creating organizational
structures that is not too rigid to undermine change, but not too loose to create chaos
(Eisenhardt & Tabrizi, 1995; Brown & Eisenhardt, 1997; Eisenhardt & Brown, 1999).
The systemic approach in the more recent literature on organizations as systems
differs from the earlier works in many respects. The current views tend to depict
organizations as complex and dynamic systems, whereas the former ones emphasize
internal regulation and feedback processes. In addition to these two views, a third
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approach to systems can be found: the mechanical view, which considers systems as
static entities that operate according to predetermined rules. These three views
actually depict different system types, namely mechanical, organic and dynamic
(Ståhle, 1998). Each system type represents a distinct facet of organizational
functioning, and all of them are present in every business organization. Furthermore,
each of the system types serves different purposes in the organization’s strive towards
efficiency and survival in competition with other organizations.
An efficient business organization needs to balance mechanical, organic and dynamic
modes in its operations according to its overall strategy. The three-dimensional view
of systems deepens the understanding of organizations and gives more effective tools
for organizational management (Ståhle & Grönroos, 2001).
An organisation as a three-dimensional system
To understand organisations and their needs in rapidly changing, turbulent and
knowledge-intensive environment, means understanding them as systems with
mechanistic, organic and dynamic features. The core of all the three types of
environments, however, is knowledge and how it is exchanged between people.
In a mechanistic environment, knowledge is explicit, possible to put in manuals and
procedures, and easy to handle with the help of information technology. The
mechanistic environment operates with mature products, it produces stability and
controlled quality, it emphasizes the economy of reuse. The flow of information is
mainly top-down: hierarchy matters. People have defined roles, they know what is
expected of them, and fulfill their part of the common pie in accordance with defined
standards and rules. The outcome will look basically same each time; there is no need
for continuous improvement and customization. The manager’s task is to control and
ensure that the machine functions in the most efficient manner possible in line with
the objective set for it in advance.
The most important characteristics of this kind of an organisation are predictability,
continuity and manageability. For example, a company’s finance management or
logistics systems are good examples of the mechanical functions of an organisation.
Likewise, many crisis organisations – such as a fire department, hospital or an army –
are partly mechanical in nature. In case of emergencies, they have to be able to act
extremely effectively, fast and in a routine-like manner – like pre-programmed
machines.
In the organic environment, focus is on continuous and controlled development. The
main interest is no longer targeted at finding regularities, but instead at understanding
the nature of change. The organic environment builds on non-standardized products,
and it produces continuous, self-directive development, which is mainly based on
expert economy. Organisations are complex and competition is intense. A lot of
dialogue is needed and the flow of information has to be interactive. Expressions are
shared and shared meanings are sought for. This is the world of self-assessment,
interest groups, processes and cooperative quality work. By managing and activating
these information flows, it is possible to manage change – i.e. to keep the organisation
both in constant motion and in balance.
The dynamic corporate environment is clearly seen at present: work tasks and roles
are constantly changing; organisational structures are being renewed at three, six- or
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twelve-month intervals; and it is more and more difficult to predict the future. In order
to succeed in this kind of a hectic environment, the company’s top management must
understand and tolerate continuous change and development; i.e. know how to live
with unpredictable events.
The chaotic character of an organisation, however, is seen in all development that
aims at achieving a strategic competitive edge (such as creating a totally new kind of
product, image or operating method). The chaotic nature of an organisation is also
reflected in the breaking down of organisational barriers and in the convergence of
different lines of business. The dynamic business environment builds on new ideas
and strong R&D. It produces self-organization, innovations and radical renewal, and
is based on innovation economy.
A dynamic operating environment is filled with possibilities – some of which cannot
be realized by the organisation’s own resources. Therefore, organisational boundaries
blur and new kinds of alliances are formed: projects or virtual companies to achieve a
shared objective. The operations aim at creating innovations, i.e. the kind of
development that cannot be easily copied. The operations are also risky since it is not
possible to control or predict innovations. Nevertheless, when successful, the
company ends up a winner and gains formidable profits.
The dynamic environment is the only possible basis for innovations. Knowledge is
intuitive and potential, and intensive networking inside and outside the organisation
serve in the process of creating new knowledge. The system is a spontaneous, fastreacting, high-tempo and even chaotic entity. Chaos does not refer to total disorder:
there is a relationship between disorder and order – the ability of chaos to organize
itself is being used there.
(figure 1 to be added here)
All the three perspectives described above are correct, since they reflect the different
operating possibilities open to an organisation. Therefore, any organisation must be
seen as a three-dimensional system where its mechanical, organic and dynamic
features all have their own roles and tasks in providing competitiveness. Accordingly
also the challenges for knowledge management in these different systems are not only
different, but even contradictional with each other.
Knowledge management in a mechanistic environment
Nowadays the management of a mechanical operating environment is no longer based
on a mere “manager’s voice”. On the one hand, quality systems and manuals have
been developed to ensure that the entity is managed in a consistent and comprehensive
manner. And, on the other hand, mechanical work is now being carried out by IT
tools. Information technology supports the effective flow of information in a
mechanical environment. During the past few years, corporate intranet solutions –
which help to provide the entire personnel with the same information at the same time
– have become more and more common. Moreover, different data-warehouse
programs solve the problems related to information storage, and calendar programs
make it easier to manage the schedules of many individuals simultaneously.
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Knowledge management in an organic environment
An organic corporate environment is more open than a mechanical one, since the
amount of relationship- and link-forming and undefined knowledge has increased.
Work tasks closely follow situations and the changes brought about by these different
situations, and there are not always ready-made instructions for or answers to the new
challenges.
An organic operating environment is basically a human environment, and its core is
the human way of processing information. The higher the level of expertise and
professional skills, the more non-linear the thinking that guides the solutions and
operations is. For instance, experts act to a large extent based on the models derived
from their intuitions and experiences. All the elements of knowledge form a
multidimensional data-warehouse in the expert’s mind. Thus, the greater part of a
person’s expertise is based on experientical and tacit knowledge, which means that
the person mostly acts directly on the basis of his/her feelings and skills: i.e. tacit
knowledge which cannot be exactly defined (Nonaka & Takeuchi, 1995).
Tacit knowledge cannot be transferred from one person to another through
information technology channels. Furthermore, since it cannot be specifically uttered,
it cannot be completely transferred in the form of documents or text files. The most
natural form of tacit knowledge is speech, and that is why tacit knowledge becomes an
organisation’s capital only through social interaction.
In a mechanical organisation, the flow of information is one-way and its purpose is
only to reach the employees. An organic environment develops only with the help of
knowledge that arises from dialogue. The more information flows back and forth
between people, the easier the formation of shared interpretation is, and the greater the
renewal capacity for the company (Ståhle, 1988).
The goal of joint discussion is always consensus: a shared idea of the company, its
objectives, strategies, etc. In a constantly developing operating environment,
individual work is always perceived in relation to other people: in other words, it is
not enough for an employee to understand only his or her own individual task.
The basic tools which the organisation can deploy in managing constant development
include:
1. The personnel must have access to specific information about the company’s
values, vision, strategy, goals and processes. This information must be expressed
in a simple manner so that it can be easily remembered and communicated.
2. The personnel must be aware of their co-worker’s objectives, resources and
expertise. The relationships and contacts between the employees must be
sufficiently strong and frequent so that the information is up-to-date. Constant
communication and contact making must be ensured with the help of
organisational structure and practices.
3. The company has to be able to “mirror” its operations. This refers to constant
evaluation of both operations and results. Feedback must be collected and
discussed on a regular basis. This chain, i.e.
measurement -> analysis -> discussion -> conclusions -> follow-up must be an
ongoing practice in which all the employees participate.
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4. All IT tools that support and make the interaction between people easier should be
deployed.
5. The organisation’s discussion culture can be developed by adopting different
kinds of discussion forums, such as: information events; planning and
development meetings; “sparring” meetings; and interest groups.
A company’s competitiveness is based on its ability to function in a real-time and
flexible manner as well as its ability to adjust to the constant changes in its
environment. The organic operating environment makes higher demands on the top
management than the mechanical one. The top management must have the courage to
loosen up control and to increase trust, courage and openness. Therefore, it is
imperative that decision-making is delegated to lower organisational levels, i.e. where
the actual work is done.
Knowledge management in a dynamic environment
There is a high level of unpredictability in a dynamic operating environment.
Therefore, it is of utmost importance that there is the ability to function in a situation
where the field of knowledge is open. When creating new knowledge, one must
abandon as many old patterns of thought as possible. Nevertheless, the new
knowledge does not come out of nowhere; it is largely based on subconscious
information storage. When creating something new, intuition is always an important
form of knowledge, and people’s intuitions should be encouraged. What is of equal
importance is that there is a lot – even a redundancy – of all kinds of information.
New knowledge, an idea, or innovation never arises without chaos: in other words,
chaos is the imperative precondition for a new perspective, product or operating
method. (Ståhle, 1998.) Chaos is created by dialogue, but not led by consensus as in
an organic environment; instead it needs lots of discrepancies and controversies that
are able to create confusion (Nemeth, 1997).
Furthermore, the organisational boundaries blur in a dynamic corporate environment:
subcontractors, partners and cooperation partners form a multidimensional network.
The life of the network is hectic because the speed of development is dizzying. The
company lives in a chaotic reality where the formation of links and connections is
spontaneous, not guided from the outside. When managing a dynamic corporate
environment, the focus is always on networking capabilities. These capabilities are
challenging both to individuals and to the organisation as a whole.
The multitude of connections and contacts is a precondition for operations, and their
maintenance requires both IT and human skills. Information technology may promote
networking since it offers personal tools for information management; tools which not
only seek the required information but also prioritize and sort it out. The information
must be constantly exchanged in the network; otherwise, it is useless. In other words,
connections and relationships become stronger only by processing information and
communicating.
An innovative organisation is in addition capable of continuously giving rise to new
things. When new things come into being the "knowledge" that arises often conflicts
with the older "truths". An organisation with renewal ability is able to make use of the
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potential, which is not yet part of the general expertise base and thus has not yet
appeared in its established processes, practices or systems.
Creating something new often involves venturing into the realm of the irrational or
prohibited. In other words, correct information does not yet exist, but is only in a
potential form. It may take the form of a weak signal, the ultimate significance of
which nobody knows (Nikander & Eloranta, 1997). Whenever progress is made
towards an innovation there will be a great deal of vague, contradictory and even
misleading material to offend the judgement of those working in the legitimate,
established expertise branches of the organisation. The road to innovation always
passes through a zone of non-rational, potential and inadmissible information.
The crucial issue from the point of view of organisation’s renewal capacity is that of
whether such information can generally be aired in the business and what attitude is
taken towards it. If weak signals are suppressed in an organisation and rational
grounds are demanded for all information from the very outset, then the sounding
board, mental space and practical support that is necessary for innovation is denied.
Enterprises of this kind are unable to benefit from the innovative talent of their staff,
no matter how much is available.
Knowledge management in a dynamic organisation (or its part) is actually innovation
management. The real challenge is to understand the nature of chaos, since no
innovation can be created without it. Chaos is a necessary precondition for creativity
and, especially, for innovations. In a business environment and management practice
this is an extremely big change compared to the previous understanding. In a
mechanistic business environment success is created by control and prediction – but
in a dynamic environment, these methods are the worst enemies of innovation.
Challenge for the future
The big challenge for knowledge management in the near future is to understand the
three different dimensions of the organisation and their different challenges for
improving competitiveness. Innovation forms over 50% of the competitive edge of
information-intensive companies today. This translates into a two-fold task for us. On
the one hand, we need to learn to understand the nature of chaos, on the other hand we
need to create methods, practices and a culture that utilize chaos’ ability to selforganize. This is a huge task that will lead us from knowledge management to
supporting the creation of innovation and wisdom. On the other hand, no innovation
can be transformed into business without mastering the mechanistic and organic
modes of function. A competitive organisation is able to master all three and use them
according to its target and purpose. This is a learning challenge for both individuals
and organisations.
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