Building the Knowledge-based Organization

7/28/2019 Building the Knowledge-based Organization

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C E N T E R F O R B U S I N E S S I N N O V A T I O N S M1997 Ernst & Young LLP. All Rights Res erved.

W O R K I N G P A P E R

Building the Knowledge-Based Organization:How Culture Drives Knowledge Behaviors

David De Long

May 1997


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This knowledge initiative is not a culture change project. Its

just that our culture is in the way of what we want to do, soweve got to change it. knowledge manager, manufacturing company

Any knowledge management strategy designed to improvebusiness performance must address three components: (1) thework processes or activities that create and leverageorganizational knowledge; (2) a technology infrastructure tosupport knowledge capture, transfer, and use; and (3)behavioral norms and practices often labeled organizationalculture that are essential to effective knowledge use.

Even though the economic incentives are becoming clearer andtechnological capabilities now exist to support knowledge-based organizations, 1 pioneers in knowledge management arefinding the behaviors supported by their existing organizationalcultures to be a major barrier to this transformation. Ourpremise is that organizational knowledge and culture areintimately linked, and that improvements in how a firm creates,transfers, and applies knowledge are rarely possible without

simultaneously altering the culture to support new behaviors.Although we recognize that culture also affects technologysystems and work structures, as indicated in Figure 1, thispaper focuses on how culture impacts behaviors related toknowledge use. Specifically, our purpose is to propose fourways in which culture and knowledge are linked. Byunderstanding how culture influences knowledge in theirorganizations, managers can then ask diagnostic questions thatwill suggest specific actions for adapting the organizationsculture to support the behaviors needed.


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F I G U R E 1

Work processes,key activities,

core competencies

TechnologyInfrastructure

Behaviors

Culture(Values, Norms, & Practices)

BusinessPerformance

BusinessStrategy

Strategy

OrganizationElements

MgtKnowledge Improved

Creation, Transfer& Use

Knowledge

An Overview of Knowledge Management Elements

Whether the objectives of a knowledge management strategy areto improve operational efficiencies, enhance organizationallearning, intensify innovation, or speed up response to themarket, a culture change strategy designed to shift behaviors andpractices is a critical part of almost any knowledge initiative. TheCEO of Buckman Labs, a specialty chemical company, learned

this when his firm installed a knowledge network to supportglobal sales and marketing efforts. Reflecting on the experience,CEO Bob Buckman said, Whats happened here is 90% culturechange. You need to change the way you relate to one another. If you dont do that, you wont succeed. 2

A multi-billion dollar international engineering andconstruction company invested hundred of thousands of dollarsmaking knowledge management a centerpiece of its newbusiness strategy. However, while designing new cross-functional business processes and installing technology tosupport them, senior management only paid lip service to theneed for culture change. As a result, the initiative failed. Thefirms dominant engineering culture refused to support the newprocesses proposed by the strategy and, as a result, there waslittle behavioral change in how knowledge was shared globallyacross projects. One manager responsible for theimplementation concluded, The culture is a huge problem. As


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we roll out the system, we find we lack a culture that supportscollaborative work because people still view knowledge as amethod of securing their job, so theyre reluctant to share.

Other organizations have recognized the importance of culturein reinventing themselves as knowledge-based businesses, andhave taken steps to align their norms and practices to supportthe new behaviors needed. At Skandia, a $7 billioninternational financial services firm based in Sweden, thedirector of intellectual capital, has worked to create measuresthat drive employee behavior by introducing a new method formeasuring intangibles, such as customer relations andorganizational knowledge. Raising the visibility of these softfactors critical to performance is essential for encouraging the

new behaviors needed in a knowledge-based economy.

Why CultureMatters

Leveraging knowledge is not an end in itself. Experience hasshown that successful knowledge management strategies arealways driven by clear links to business objectives. 3 But simplyimplementing a more knowledge-oriented business focus andinstalling the necessary technological infrastructure will notproduce the changes necessary in behavior and culture toenable more effective knowledge use. There are several reasonsfor this:

First, organizations that are currently profitable and ridinghigh in the financial markets will have a hard timeconvincing senior management, much less employees, thata revolution in how people create, share and use knowledgeis necessary or worth the organizational pain. Thus, theshift to a more knowledge-driven business is likely to beincremental, which means the existing culture will have amajor impact on the implementation of any knowledgestrategy.

Second, the essential technologies supporting knowledgemanagement will be adopted and shaped by the existingorganization. 4 This means the technology will beimplemented and used effectively only to the degree that aculture is aligned to support the objectives for knowledgemanagement. This point was illustrated in a study of aLotus Notes implementation in a professional services firm.Designed, in part, to facilitate knowledge sharing among


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consultants, the system failed because of the firms rigid

hierarchy and its competitive and individualistic culture.5

Third, many firms today rely heavily on the quality,experience, and expertise of their technical and professionalworkforce. For these organizations, human intellectualcapital has become one of their most valuable, albeitintangible assets. Assuming these employees are expectedto be valuable in the future in more knowledge-centeredbusinesses, management cannot afford to alienate ordemotivate them by ignoring their existing values andnorms when implementing a knowledge managementstrategy.

The relatively gradual shift to more knowledge-centeredbusinesses, the mutually influential relationship betweentechnology and culture, and the need to respect theoccupationally-defined values and norms of a highly-skilledprofessional workforce all combine to make organizationalculture a central factor in effectively improving a firms abilityto compete based on knowledge.

DefiningKnowledgeand Culture

One of the barriers to understanding how knowledge and cultureinteract is that they are two of the most intangible elements anymanager must deal with. It is not surprising, therefore, to find thatboth terms knowledge and culture are used inside mostorganizations in multiple ways to mean many things. But, withoutdefinitions, both terms just become buzzwords, which promotemuddy and ineffective thinking. To develop an action plan foraligning culture with knowledge management objectives, theremust be some shared understanding about what the terms mean, if only so progress can be measured. We offer some practicaldefinitions below as a starting point.

What is Knowledge?

The debate about what is knowledge, has a long and torturoushistory in the social and natural sciences. For our purposes,however, the concept of knowledge can be narrowed down toseveral key dimensions. In its most basic form, knowledge isthe combination of information and human context that enhancesthe capacity for action. There are two dimensions that managersmust keep in mind, however. First, knowledge may be viewed at


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the individual, group, or organizational levels. The focus of knowledge management is primarily to improve use at theorganizational level.

The second dimension of knowledge is usually characterized asexplicit or tacit, or structured and unstructured knowledge.Explicit or structured knowledge is represented in documents,databases, products, and processes. This is knowledge that canbe codified and shared in formal, systematic languages orobjects. Tacit or unstructured knowledge is more dependent onaction, context and personal experience, which makes it difficultto formalize and communicate. Tacit knowledge is oftendescribed as what we know but cannot explain, e.g. how to:negotiate a contract, identify critical competitive intelligence,

assess an individuals potential, or build a cross-functional team.6

Recognizing these different types of knowledge is importantbecause culture affects each type differently.

CultureCulture is a term that also needs definition to make it useful.Like the concept of knowledge, researchers have definedorganizational culture in many ways. 7 Although there is nowidespread agreement on exactly what culture is, there is someconsensus that organizational cultures can be described in termsof values, norms, and practices. Values indicate what an organizations members believe is

worth doing or having. They indicate preferences for specificoutcomes or behaviors, or what the organization aspires toachieve. It is important to differentiate espoused values,which are talked about but that dont influence behavior,from values that truly motivate behavior in a firm.

Norms are the shared beliefs about how people in theorganization should behave, or what they should do toaccomplish their work. Norms represent the expected patternsof behavior. For example, they describe how employees

actually create, share, and use knowledge in their work. Practices are the formal or informal routines used in the

organization to accomplish work. Practices include projectimplementation processes, team meetings, time sheets, careerpaths, compensation plans, as well as Friday afternoon beerblasts. Each practice formal or informal has specific rolesand rules (often unspoken) guiding how they are carried out.


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Culture exists at different levels of the organization. Values are

deeply embedded, tacit assumptions that are difficult to talk about and even more difficult to change. Norms and practices, onthe other hand, are more directly observable and easier foremployees to identify. Thus, norms and practices aroundknowledge use are more amenable to change. In fact, practicesare the most visible symbol of culture, and they provide the mostdirect levers for changing behaviors needed to supportknowledge management objectives. Changing behaviors aroundknowledge use is the most direct way to alter organizationalnorms, which will reinforce the necessary behaviors over time.On the other hand, values should not be the focus of the change

effort, since they are too deep seated, tacit, and difficult totransform, unless the CEO and other senior managers in theorganization are personally driving the implementation of theknowledge strategy, believe strongly in the need to changefundamental knowledge-related values of the firm, and arewilling to lead a long term culture change project (3 to 10 years).

F I G U R E 2

KNOWLEDGE

PRACTICES

NORMS

VALUES

BEHAVIORS

VALUE

ADDED FROM

USE

Linking Behaviors and Elements of Culture

The most direct way to change behaviors around knowledgeuse is to change the practices that generate them (see Figure 2).New behaviors resulting from new practices will change normsover time, which will provide long term support for moreeffective knowledge use. Values are an ever present andpowerful force shaping behaviors, but they are usually toocomplex to change directly.


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Knowledge is

Important

organization and, indeed, if knowledge is important at all to the

business. A printed circuit board design team was supposed to becapturing lessons learned in its part of the product developmentprocess. But the groups members were so concerned with beingable to account for their time in the government-funded work thatthey initially refused to document their learning. The barrier tocapturing this new knowledge was removed only when theknowledge manager found an accounting code to which time forextracting lessons learned could be charged. Local norms andpractices determine the priority that knowledge and learning havein every organization. In the case of this design team, beingbillable was such a powerful norm that it had to be accommodated

before new knowledge could be captured. This example suggestsseveral questions to uncover how your culture is shapingassumptions about knowledge: How are the cultures (or subcultures) priorities likely to

support or undermine more effective knowledge use arounda particular activity? For example, is making the next salescall always more important than looking for patterns in lostcustomers? Is going to a skill-building training class alower-status activity than performing daily tasks?

What behaviors would demonstrate that knowledge was

critical to your business? What existing norms andpractices may be barriers to these behaviors? Can they bechanged to support new behaviors?

Subcultures Differentiate KnowledgeIn one major electronics firm, the engineering subculture wasentreprenurial and encouraged lots of experimentation andfrequent, informal interactions. Thus, engineers viewedknowledge sharing and personal relationships as integrallyrelated and believed any attempts at knowledge managementmust facilitate interactions. The firms MIS subculture, on the

other hand, was procedurally-oriented and heavily rule-bound,placing a high value on standardized processes. Thedepartments managers valued knowledge that was embeddedin processes, software programs, and documents.

This is an example of how subcultures can define meaningfulknowledge differently. 9 Some cultures will only value


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objectified knowledge that can be embedded in processes andsystems, while others will recognize and favor knowledge thatis the product of social interactions. These different views of knowledge often lead to miscommunication and conflictbetween functions, as subcultures apply different criteria in

judging valid knowledge. For example, the criteria forknowing that a new marketing information system issuccessful will be different for marketing, finance, and MISdepartments. And these differences will often produce distinctstrategies and goals in knowledge management initiatives thatsuggest the following questions: What are the distinct subcultures involved in this initiative,

and how are they likely to define knowledge differently?

Can we achieve some level of shared understanding aboutthe types of knowledge most important to the business? Does our units orientation to knowledge suggest biases and

blindspots that might lead us to overlook critical knowledgemanagement opportunities? For example, are we toofocused on capturing objects in a knowledge repository,while ignoring cultural barriers to absorbing and applyingthe knowledge?

Are we making realistic assumptions about the newbehaviors needed to leverage knowledge given the different

subcultures involved? For example, is an informal,entrepreneurial engineering group expected to use a formal,procedurally-oriented knowledge repository? Can thesystem be adapted to fit the culture? Or should managementinvest in culture change?

Knowledge and BoundariesEmployees at Chaparral Steel constantly scan the world foremerging technical knowledge that could improve its steelproduction processes. When British Petroleum reorganizedaround its core activities, it outsourced the generation and

processing of seismic data to several outside companies.However, the knowledge and experience of BPs staff was stillcritical for evaluating the seismic data, and these activities werekept within the organization. In a related example, IKEA, theSwedish furniture manufacturer, educates its customers toassemble its products after purchase. In a sense, the companyviews its customers as an extended workforce, and knowledge


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sharing about proper assembly techniques is an important part

of the strategy.Cultures define not only what knowledge is valued, but alsowhat knowledge must be kept inside the organization tosupport a core competency, and what should be transferredoutside or shared to create strategic advantage. Culture plays apart in making these decisions, and this raises questions formanagers such as: How effectively do our norms and practices support

aggressive scanning and integration of external knowledgecritical to the business?

Do our values, norms, and historical practices lead us tooverlook opportunities to reconfigure knowledgedistribution across organizational boundaries? Are thereunexamined beliefs and assumptions we need to explore inthis regard?

How are our attempts at outsourcing or redistributingknowledge affecting our ability to create, capture, share,and apply new knowledge around our core competencies?What are the unanticipated positive and negative impactson knowledge-related norms and practices?

II. CultureMediates the

RelationshipsBetween

Individual andOrganization-

LevelKnowledge

Rules Dictating Knowledge DistributionCulture embodies all of the unspoken rules about how knowledgeis to be distributed between the organization and the individuals init. It legitimates what knowledge belongs to the organization andwhat knowledge remains in control of the individual. The head of atoxicology lab in a pharmaceutical firm refuses to participate in aknowledge mapping project but is not censured by managementbecause norms allow him control of the knowledge in hisdepartment. Cultural rules determine who is expected to have what

knowledge, as well as who must share it, and who can hoard it.Unless management understands the current distribution of knowledge in the organization, and how their strategy proposes tochange it, altering behaviors around knowledge use becomes veryproblematic. Some of the questions that are surfaced when weview culture as the arbiter between individual and organization-level knowledge include:


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Is there shared agreement about who owns the specificknowledge to be managed?

Who are the organizations most valued experts?

To what degree do individuals trust the organization with theirknowledge?

What strategically critical knowledge is embedded in ourprocesses and systems and what is in people?

F I G U R E 4 Organization-LevelKnowledge

Organization-LevelKnowledge

Unit A Unit B

CULTURE

Individual-LevelKnowledge

Individual-LevelKnowledge

A B

Distributing Individual and Organization-Level Knowledge

Importance of Individual-Level KnowledgeOne manager explained how his companys culture reinforcedthe value of individual-level knowledge:

In divisional reviews the senior manager comes around and says, Show mesomething Ive never seen before. So the whole goal is to blow their socksoff. Nobody ever says, Show me where youve worked together withanother business unit. The assumption is that the value executives add inthese reviews is to cross-fertilize the organization and to connect relatedideas. And the engineers think their role is to show individual engineering

brilliance. Its totally individual. They reward you to be competitive,instead of recognizing team-based performance and collectiveaccomplishments.

Managements attempts at generating more collaborative,knowledge sharing behaviors in this company will fall short untilthey directly address the cultural reinforcement provided forindividual-level knowledge.


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The CEO of Buckman Labs took this challenge on directly when

he implemented a knowledge network to support global salesoperations. At the start, Bob Buckman recognized that culturalnorms condoned hoarding knowledge as a source of power.Bulging file cabinets around the company symbolized individualknowledge banks. But this behavior began to change whenBuckman told the company upon launching the knowledgenetwork:

Those of you who have something intelligent to say now have a forum inwhich to say it. Those of you who will not contribute also will becomeobvious. If you are not willing to contribute or participate, then you shouldunderstand that the many opportunities offered to you in the past will nolonger be available. 10

This was a first step in Buckmans three-year campaign toreshape norms and practices that defined the relationshipsbetween individual-level knowledge and the organization. Herecognized that as long as people benefited from not sharing, theorganizations ability to leverage knowledge would be limited.

Low Trust CulturesWhen one of its mechanical engineers sought cost informationrelated to a design project, an automakers finance department

responded, Youre an engineer. You dont need to know that.Cultural norms made this an acceptable view of knowledgesharing in the company. But the implicit message of holdinginternal information proprietary is We dont trust you. And thelevel of trust that exists between the organization, it subunits, andits employees will have a great deal of influence on the amountof knowledge that flows from individuals into the firm. Firmsthat have recently downsized have a particular problem. Theywill have to rebuild trust levels in their culture before they canexpect individuals to share expertise freely without worryingabout the impact of this sharing on their value to the company.

High Status FunctionsCulture affects knowledge sharing between organizational unitsin another way by establishing and reinforcing status hierarchiesamong different functions or operating units. Managers in onefirm clearly recognized that their culture valued R&D, marketing,manufacturing, and finance in descending order. This shared


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sense that functions were valued differently reinforced a silomentality in the firm and encouraged employees to spendunproductive time defending their units perspective. A culturethat clearly values some units over others is more likely toundermine cross-functional knowledge sharing, in part, bysupporting subcultures that seek to defend their knowledge bases.

If we recognize that culture is the silent broker, or mediatorbetween individual and organizational-level knowledge, then theimportance of renegotiating norms around knowledgedistribution, ownership, and access becomes more evident.Whenever a knowledge management initiative threatens intentionally or not to change patterns of knowledgedistribution and use, then management must address certain

questions: How will our knowledge management strategy shift the

distribution of knowledge? How will our current culture facilitate/undermine the

proposed redistribution of knowledge? What new behaviors must leaders exhibit to communicate a

shift from valuing individual to collective knowledge? What practices need to change to reinforce more

collaborative knowledge use? Given the current level of trust in the culture, how realistic

are our expectations for changing patterns in individual-level sharing? What new practices are needed to generatethe behaviors required to support our strategy?


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III. CultureCreates aContext for

Interaction thatDetermines the

Value DerivedFrom

Knowledge

Supporting Social InteractionWhen knowledge is viewed as a product of social interaction,instead of as an object (e.g., a patent, report, software program),then culture becomes even more central for understanding how toleverage knowledge because it creates the context for interaction inwhich knowledge is created and used. For example, a companywhere it is not normal to share lessons learned across projects orsites does not provide a behavioral context where one groupsvaluable experiences are likely to be passed on to others in thefirm, even if the technology makes it possible to do so. Thus, theadded value of the knowledge for the organization is lost.

F I G U R E 5Or anizational Culture

Contextfor Interaction

ValueDerived From

Knowled e

Creating Interaction Context

By establishing the context for interaction, organizationalculture determines how knowledge will be used in a particularsituation. It does this primarily by dictating the rules,expectations, and penalties that govern social interactionsbetween individuals and groups and shape individuals

perceptions of their range of options acceptable to the firm. If,for example, a firm has no behavioral routines or expectationsfor capturing critical feedback from customers and convertingit into product or service improvements, then no context existsto support the interactions needed to develop and apply newknowledge about the market.


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And, in an organization where interdependent functions (e.g.,R&D and manufacturing) are not expected to continually shareknowledge and collaborate, and where no routine practicesexist to do so, then theres no context for interaction to supportthis sharing. Surely, a new electronic knowledge base orreengineered work process will improve the environment forknowledge sharing, but unless senior management addresseslong-standing interaction patterns and beliefs shaped bydifferent subcultures, the benefits of the knowledge strategywill be limited.

The impact of culture on the context for interaction can beassessed on at least three dimensions: (1) patterns and qualitiesof vertical interactions (e.g., boss/subordinate); (2) patterns and

qualities of horizontal interactions; and (3) general behaviorsrewarded or punished that affect knowledge creation, transfer,and use.

Vertical InteractionsCulture shapes vertical interactions in many ways, but two thatare particularly relevant to knowledge use are: (1) normsdetermining the acceptability of discussing hot or sensitivetopics; and (2) perceived approachability of seniormanagement.

Sensitive Topics. At Buckman Labs, shortly after theknowledge network was introduced, the CEO engaged in alengthy electronic debate about the sales compensation system.For weeks, salespeople argued on-line, sometimes directly withthe CEO, about the unfairness of the existing bonus system.The cultural message underlying this open exchange was thatanything is discussible, a norm that builds the trust necessary tosupport vertical knowledge sharing.

Approachability . Norms and practices that make seniormanagement accessible and approachable also help create acontext for effective knowledge use. At Chaparral Steel,

workers lockers are intentionally located next to a vicepresidents office to facilitate informal interactions. 11 Incontrast, executives in one large manufacturing company seemunaware of how intimidating their high levels of technical andbusiness expertise are to subordinates. One knowledge managerexplained, When engineers are put in front of top managementtheyre thinking, Im not going to say a word unless Im


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positive I can say something thats absolutely accurate.

Theres a feeling of intimidation and a fear of looking stupid,so people keep their thoughts to themselves.

Cultures with norms and practices that discourage open andfrank exchanges between levels in the hierarchy create acontext for communication that undermines effectiveknowledge sharing and use.

Horizontal InteractionsCulture also shapes patterns and qualities of horizontalinteractions necessary for knowledge creation, sharing, and use.Three characteristics that differentiate organizational contextsin this area include: (1) the volume of interactions; (2) level of collective responsibility; and (3) orientation to seeking outexisting expertise or knowledge.

Interactivity . Culture determines the frequency andexpectations for interactions needed to accomplish work. Onefirm may rely on formal communication processes andmeetings designed to periodically bring people together, whileanother encourages frequent, unplanned, and unstructuredinteractions among employees. These two companies willcreate and use knowledge differently.

To take advantage of new electronic communicationtechnologies, companies like British Petroleum and BuckmanLabs have actively managed the behavioral norms and practicesneeded to facilitate knowledge sharing. The result is higherlevels of interactivity that greatly facilitate knowledge use. AtBuckman Labs, for example, employees using the firmsknowledge network now expect a different level of interactionwhen looking for help with a sales or marketing problem. If you are in a global company, theres somebody awake andworking all the time. Having KNetix gives us the capability torespond, says one executive. A new mind-set has taken holdat Buckman. Rather than picking up the phone, someone cancommunicate with a mass of people faster. People have becomeaddicted to the speed. 12

Regardless of what technology infrastructure is provided,unless cultural norms and practices support higher levels of


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interactivity over time, new communication channels will haverelatively little impact on knowledge use.

Collaboration. When cooling hoses on the production line atChaparral Steel began to burst, a group of operators, a welder, aforeman, a buyer, and even someone from the trainingdepartment spontaneously began working together to solve theproblem. Explained one senior operator, When something likethat comes up and there seems to be no immediate solution,you go see what the problem is. You dont say, Thats not myarea, or I dont know that much about it. You just showup.13 Another way that culture shapes the context forhorizontal interactions is through norms and practices thatpromote collaboration. A sense of collective responsibility

leads employees to go to great lengths to avoid lettingcolleagues down, frequently offering help to those in otherdepartments, even though it burdens their own work. 14 Cross-functional problem solving is expected at Chaparral whereevery employee carries a business card reading member of thesales force. When norms and practices promote collaborationbetween functions and operating units, interactions are muchmore likely to create new organizational knowledge and applyit more effectively.

Existing Knowledge. Culture also shapes the context forinteraction through norms and practices that determine to whatlengths employees will go to seek out and build on existingknowledge and expertise. It may be creative directors for aglobal ad agency who see each new project as a unique creativeeffort, or design engineers for an automaker who refuse tosearch out lessons from their counterparts working on other carplatforms. Cultures that primarily reward individual creativityand innovation have different patterns of interaction aroundknowledge than cultures where uncovering and leveragingexisting expertise from almost any source is the norm. Toencourage the use of existing knowledge, Texas Instrumentsrecently created an annual Not-Invented-Here-But-I-Did-It-Anyway award to recognize those who borrow good ideasfrom both inside and outside the company.


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Knowledge-Oriented Behaviors

Sharing and Teaching. Norms and practices also encourage avariety of behaviors that influence the quality of interactionsand, in the process, the creation, sharing, and use of knowledge. Cultures that explicitly favor knowledge sharingover knowledge acquisition will create a context for interactionthats more favorable to leveraging knowledge. The U.S. Armyis one of a growing number of organizations that formallyconsiders knowledge sharing capabilities when identifyingcandidates for promotion. Teaching is another behavior thatinfluences the social context, even as it enhances a firmsexisting knowledge base. Companies as different as GeneralMotors and Skandia, the Swedish financial services firm, bothrecognize the value of asking managers to teach what theyknow about the business as a way of refining and improvingtheir existing knowledge, even as they share it. An increasingnumber of firms have discovered the benefits of expecting theiremployees to teach others about core aspects of the business.

Dealing with mistakes. One large international engineering andconstruction company trying to build a lessons learned databasefound one legacy of large layoffs after a recent businessdownturn was that engineers in the firm were reluctant to admit

mistakes. This, of course, significantly limited the scope of thelessons that could be captured. Another behavior central to thecontext for interaction is how an organization reacts tomistakes. They may be covered up, explained away, punishedseverely, or ignored. Or norms and practices may dictate thatthey be sought out, clearly reconstructed, and used as a sourceof learning. In either case, the organizations approach willinfluence how people interact and, thus, the quality of knowledge created and applied.

Recognizing this phenomenon, the U.S. Army is moreconcerned with the value of recognizing mistakes and fixingthem than it is with doing things right the first time. Thisattitude stems from battlefield experience where no plan is evercarried out without errors. Thus, the ability to evaluate andcorrect mistakes becomes critical to success. To reinforce theimportance of frank interactions for diagnosing and learningfrom errors, the Army insists on separating its debriefing


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activities from its evaluation processes. Groups wont learnfrom their mistakes if the same interactions are being used tofix blame, keep score, or humiliate those involved. 15

F I G U R E 6

Context ForInteraction

CULTURAL CHARACTERISTICS

Discussability of sensitive topics

Senior mgts approachability

Volume of interactions

Level of collective responsibility

Orientation to existing knowledgeand expertise

Knowledge sharing (vs. accumulation)

Teaching

Attitude toward mistakes

Ability toLeverageKnowledge

How Culture Creates Context for Interaction

These characteristics of organizational culture that shape thecontext for interaction (summarized in the Figure 6) are notintended to be a complete list. Instead, they are designed todemonstrate another way in which culture impacts knowledge,and to suggest diagnostic questions that logically follow fromunderstanding this relationship. These questions include: What norms and practices are barriers to discussing

sensitive topics in our organization? What evidence is there that senior management is perceived

as accessible and approachable? What norms and practices in the firm encourage or

discourage: a high frequency of interaction? an expectation of collaborative problem solving? seeking out existing expertise and knowledge

(instead of reinventing the wheel)?

the practice of teaching others? identifying and learning from mistakes?

The answers to these questions will suggest places thatknowledge managers should focus when designing strategies toalign their culture with knowledge management objectives.


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IV. CultureShapes theOrganizations

Reaction toNew

Knowledge

Validating (or Rejecting) New KnowledgeIn the 1970s, Fords market research produced overwhelmingevidence that the minivan would be a huge success as a newproduct in the automobile market. However, Fords executives,particularly in the finance department, refused to accept this newmarket knowledge, labeling the minivan concept as untested andrisky. Chrysler, of course, went on to capture this major newmarket, with a product that essentially saved the flounderingautomaker. 16

F I G U R E 7NEW

KNOWLEDGE

CULTURE

ORGANIZATIONSINTERPRETATION

RESPONSE

Culture Filters New Knowledge

A firms culture heavily shapes how new organizationalknowledge is captured, legitimated (or rejected), anddistributed throughout an organization (Figure 7). Thedynamics of this process represent a special problem forcompanies today who are regularly confronted by competitiveand technological changes that threaten their survival.Companies must be able to capture, validate, and distribute

new knowledge fast enough to change strategic direction andresource allocations, if they are to prosper in turbulentcompetitive environments. In reality, some firms, such as Wal-Mart, Intel, and Motorola, appear more successful at this thanothers.


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trial-and-error and continually pushing the technologys

capabilities, the equipment was soon producing 14-inch slabs, alevel of performance that led the supplier to try to buy back thenew design. The norm at Chaparral is to expect to build onknowledge acquired from outside the organization, not simplyto absorb it. Among the cultural practices that make this levelof innovation possible are continual experimentation andquick-and-dirty prototyping. But most important is the attitudewithin the company that existing knowledge can and must beimproved on if Chaparral is to remain competitive.

(2) Intense debate is encouraged on key strategic issues withextensive internal and external inputs? Intels CEO AndyGrove sees this practice as a cornerstone of his companysculture, and a key reason why Intel has been able to adapt andprosper in the turbulent computer industry. 19

Intels ability to understand how its computer memory chipbusiness was being transformed was severely tested in the early1980s. Input from the external environment was unmistakable.The Japanese were developing tremendous new capacity tomanufacture memory chips. Their quality levels were better.They had major advantages in access to low-cost capital. Andthe industry was caught in a downward pricing spiral, so that

Intel was losing money on chips. In retrospect, the obviousstrategic decision was to get out of the memory chip business,given the knowledge of these events. But this externalknowledge had to be interpreted through the firms culture. Inthis case, Intels identity was closely tied to memory chips, tothe point where many employees couldnt imagine thecompany existing without manufacturing them.

To understand what the shifting realities of the marketplacemeant for Intel, Grove orchestrated a broad-based, highly-emotional debate designed to engage the organization andclarify its strategic options. What the Intel culture labeledconstructive confrontation, Grove concedes is reallyferocious arguing with one another while remaining friends.This type of productive conflict is essential to reconciledisparate views on new ideas entering the firm and to generatenew knowledge that will become the basis of action. Of course,executives like Grove recognize that not everyone in the firm


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will accept the perspective ultimately taken by seniormanagement. But the process of engaging and listening tomany views on an issue increases the likelihood of a betterdecision, and broader acceptance of an emerging organizationalperspective.

(3) High levels of participation are expected in capturing and debating knowledge related to important issues for thebusiness. Today, Buckman Labs has 50 percent of itsemployees regularly engaged with its customers in the belief that directly interacting with the market is the key toprofitability. With a goal of 80 percent of its employees on thefront-line, Buckman has created a huge natural network thatfeeds knowledge about customers into the company.

Employees are expected to contribute to the knowledge basesmaintained on all of the firms customers.

Companies whose cultures are most effective at creating andintegrating new knowledge into the organization have normsand practices that demand broad participation in knowledgegathering and distribution. At Chaparral Steel, visitingcustomers and suppliers is a standard practice for employees atall levels of the firm. We send people who can best tell uswhats going on whoever they are, says one executive. 20

Cultures that encourage people to directly experience sourcesof problems, threats, and opportunities are more likely toconvince their employees of the need for new thinking about aparticular issue. 21

(4) Organizations find ways to challenge the existingassumptions and beliefs that shaped the firms earlier successes. At Intel, Grove found that the companysfundamental beliefs about memory chips were inhibiting itsability to accept the mounting evidence that it could no longersurvive in a market where it had once been a major player. Foran organization to question fundamental knowledge about itscompetitive environment or core technologies, it must learn

how to diagnose and correct errors in its existing norms andpractices. This form of double loop learning 22 allows firms tolegitimate and apply new knowledge by questioning currentassumptions. For example, to get out of the memory chipbusiness and move full force into microprocessors, Intel had toabandon the practice of using memory chips as its technologydriver, as well as the expectation that the company had to offer


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a full product line of memory chips, microprocessors, and

other products to remain competitive.23

Questioning cultural beliefs and existing ways of working is aparticularly difficult challenge for leadership, but it is usually akey step in creating new knowledge for the organization. Oneof the reasons Ford decided not to build a minivan, despiteoverwhelming support evident in its market research, was thatHenry Ford himself objected to the use of costly new front-wheel drive technology. Intels Andy Grove observes that if managers today are to accurately interpret the profoundchanges occurring in their competitive environments, they mustadopt an outsiders intellectual curiosity . . . unfettered by anyemotional attachment to the past. 24

Its hard to underestimate how difficult it is to achieve this typeof detachment. And the reflection required to question existingnorms and beliefs is even more at risk where speed is godand quick, decisive decision making is expected frommanagers. As with previous sections in this paper, we make nopretense about providing a complete list of the characteristicsof cultures that support the development of new organizationalknowledge around key strategic issues. Instead, our purpose isto demonstrate this relationship between culture and knowledge

and to suggest diagnostic questions which include: Are there examples of important new knowledge that were

ignored, discounted, or undiscovered by our firm thatproved costly to the business? What norms and practicescreated this knowledge gap?

Do we have norms and practices that lead employees toexpect to build on and extend knowledge acquired from theexternal environment?

How does our culture encourage or discourage intensedebate on key strategic issues? How does conflict play aconstructive or destructive role in our discussions? Whatnorms and practices would support more constructiveconfrontations?

How do our norms and practices encourage or discouragebroad participation in capturing and debating knowledgecritical to the business?


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Endnotes 1 See Stewart, T.A., Intellectual Capital , New York: Doubleday, 1997;

I. Nonaka and H. Takeuchi, The Knowledge Creating Company , NewYork: Oxford University Press, 1995; and S. Davis and J. Botkin, The Monster Under the Bed , New York: Simon & Schuster, 1994.

2 Rifkin, G., Nothing But Net, Fast Company Magazine, June-July,1996, p. 127.

3 Davenport, T.H., D.W. De Long, and M.C. Beers, BuildingSuccessful Knowledge Management Projects, Working Paper, Ernst& Youngs Center for Business Innovation, Boston, MA, January1997.

4 A growing body of research shows that technology does not determineorganizational behavior. Rather, technology is adapted into anorganization in a way that reflects a kind of iterative dance where both

technology and culture mutually shape each other. For more see S. R.Barley, The Alignment of Technology and Structure Through Rolesand Networks, Administrative Science Quarterly , (1990) v35, p. 61-103; W.J. Orlikowski, The Duality of Technology: Rethinking theConcept of Technology in Organizations, Organization Science ,(1992) v3, p. 398-426; and W.E. Bijker et. al., The SocialConstruction of Technological Systems , Cambridge, MA: MIT Press,1987.

5 Orlikowski, W.O., Learning from Notes: Organizational Issues inGroupware Implementation, in Knowledge Management Tools , R.L.Ruggles (ed.), Boston: Butterworth-Heinemann, 1997.

6 For more on the explicit/tacit knowledge distinction, see Nonaka, I.,

A Dynamic Theory of Organizational Knowledge Creation,Organization Science , v5 n1, February 1994:14-37; S.D.N. Cook andJ. Seely Brown, Bridging Epistemologies: The Generative DanceBetween Organizational Knowledge and Organizational Knowing,January 1996 unpublished paper, Xerox PARC, Palo Alto, CA; M.Polanyi, The Tacit Dimension , Magnolia, MA: Peter Smith, 1983 [origpub. 1966].

7 See The Cultures of Work Organizations by H.M. Trice and J.M.Beyer, Englewood Cliffs, NJ: Prentice Hall, 1993, for a thoroughreview of research on organizational culture.

8 Trice and Beyer, 1993, provided material for defining subcultures;also see Three Cultures of Management: The Key to OrganizationalLearning by E.H. Schein, Sloan Management Review , (Fall 1996):9-20, for an excellent discussion of the role of subcultures as a barrier toimproving organizational effectiveness.

9 Brian Pentland argues this case convincingly in Information Systemsand Organizational Learning: The Social Epistemology of Organizational Knowledge Systems , Accounting, Management, and

Information Technologies (1995) v5n1:1-22.


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10 Rifkin, G., 1996.11 Details about the Chaparral culture are taken from Dorothy Leonard-

Bartons research on the company, which is summarized in

Wellsprings of Knowledge , Boston: Harvard Business School Press,1995.12 Rifkin, G., 1996, p. 127.13 Leonard-Barton, 1995, p. 10.14 See Breaking the Functional Mind-Set in Process Organizations, by

A. Majchrzak and Q. Wang, Harvard Business Review ,September/October 1996, for excellent insights into how companiesare effectively creating collaborative cultures.

15 Sullivan, G. R. and M.V. Harper, Hope is Not a Method , New York:Times Books, 1996.

16 Barabba, V. P., Meeting of the Minds: Creating the Market-Based Enterprise , Boston: Harvard Business School Press, 1995.

17In some cases, powerful elements of the organization will appear toembrace new knowledge or ideas, espousing their importance for thefirm, but a subsequent examination of behaviors reveals absolutely nochange from before the new knowledge was supposedly accepted.

18 Meacham, J.A., Wisdom and the Context of Knowledge: Knowingthat One Doesnt Know, Contributions to Human Development , Vol.8, Kuhn, D. and J.A. Meacham (eds.), New York: S. Karger, 1983, p.120.

19 Insights into Intels culture are taken from Only the Paranoid Surviveby Andy Grove, New York: Doubleday, 1996, and from Grovesrecent speeches available through the Internet on Intels home page.

20 Preuss, G., Chaparral Steel: Rapid Product and ProcessDevelopment, Case Study 9-692-018, Boston: Harvard BusinessSchool Publishing Division, 1994.

21 This idea is adapted from A.H. Van de Ven, Central Problems in theManagement of Innovation, Management Science (May 1986) v32n5: p. 590-607.

22 Argyris, C., Reasoning, Learning, and Action , San Francisco: Jossey-Bass, 1982.

23 Grove, A., 1996.24 Grove, A. p. 93.


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A U T H O R S

A former researcher at both Harvard Business Schooland MITs Sloan School of Management, David De Longis co-author (with Prof. Jack Rockart) of the book Executive Support Systems: The Emergence of TopManagement Computer Use . Daves current research

focuses on the challenges of overcoming cultural barriersto build knowledge-based businesses. His other researchinterests include: (1) productivity problems caused by

communication overload; and (2) effectively organizingand managing database-centered work. Dave is aresearch fellow at Ernst & Youngs Center for Business

Innovation.

Liam Fahey is Adjunct Professor of Strategic Management at Babson College and Visiting Professor of Strategic Management at Cranfield University (U.K.). Heis the author of six books and over forty articles and book chapters. His forthcoming book is titled Learning fromthe Future: Competitive Foresight Scenarios . He is a

frequent consultant to firms in North America and Europe.

Documents

Building the Knowledge-based Organization