What's Your Strategy for Managing Knowledge
Title: What"s Your Strategy for Managing Knowledge
Authors: Hansen, Morten T., Nohria, Nitin, Tierney, Thomas
Subject: Knowledge management
Publish: 1999
Status: full text
Source: Harvard Business Review, 00178012, Mar/Apr99, Vol. 77, Issue 2
پابگاه علمی مدیریت و حسابداری منبع: mba20.blog.ir
Abstract:
The rise of the computer and the increasing importance of intellectual
assets have compelled executives to examine the knowledge underlying
their businesses and how it is used. Because knowledge management as a
conscious practice is so young, however, executives have lacked models
to use as guides. To help fill that gap, the authors recently studied
knowledge management practices at management consulting firms, health
care providers, and computer manufacturers. They found two very
different knowledge management strategies in place. In companies that
sell relatively standardized products that fill common needs, knowledge
is carefully codified and stored in databases, where it can be accessed
and used - over and over again - by anyone in this organization. The
authors call this the codification strategy. In companies that provide
highly customized solutions to unique problems, knowledge is shared
mainly through person-to-person contacts; the chief purpose of computers
is to help people communicate. They call this the personalization
strategy. A company"s choice of knowledge management strategy is not
arbitrary - it must be driven by the company"s competitive strategy.
Emphasizing the wrong approach or trying to pursue both can quickly
undermine a business. The authors warn that knowledge management should
not be isolated in a functional department like HR or IT. They emphasize
that the benefits are greatest - to both the company and its customers -
when a CEO and other general managers actively choose one of the
approaches as a primary strategy.
Introduction
Some companies
automate knowledge management; others rely on their people to share
knowledge through more traditional means. Emphasizing the wrong
approach-or trying to pursue both at the same time-can quickly undermine
your business.
Knowledge management is nothing new. For hundreds of
years, owners of family businesses have passed their commercial wisdom
on to their children, master craftsmen have painstakingly taught their
trades to apprentices, and workers have exchanged ideas and know-how on
the job. But it wasn"t until the 1990s that chief executives started
talking about knowledge management. As the foundation of industrialized
economies has shifted from natural resources to intellectual assets,
executives have been compelled to examine the knowledge underlying their
businesses and how that knowledge is used. At the same time, the rise
of networked computers has made it possible to codify, store, and share
certain kinds of knowledge more easily and cheaply than ever before.
Since
knowledge management as a conscious practice is so young, executives
have lacked successful models that they could use as guides. To help
fill that gap, we have recently studied the knowledge management
practices of companies in several industries. We started by looking at
management consulting firms. Because knowledge is the core asset of
consultancies, they were among the first businesses to pay attention
to-and make heavy investments in-the management of knowledge. They were
also among the first to aggressively explore the use of information
technology to capture and disseminate knowledge. Their experience, which
is relevant to any company that depends on smart people and the flow of
ideas, provides a window onto what works and what doesn"t.
Consultants,
we found, do not take a uniform approach to managing knowledge. The
consulting business employs two very different knowledge management
strategies. In some companies, the strategy centers on the computer.
Knowledge is carefully codified and stored in databases, where it can be
accessed and used easily by anyone in the company. We call this the
codification strategy. In other companies, knowledge is closely tied to
the person who developed it and is shared mainly through direct
person-to-person contacts. The chief purpose of computers at such
companies is to help people communicate knowledge, not to store it. We
call this the personalization strategy. A company"s choice of strategy
is far from arbitrary-it depends on the way the company serves its
clients, the economics of its business, and the people it hires.
Emphasizing the wrong strategy or trying to pursue both at the same time
can, as some consulting firms have found, quickly undermine a business.
The
two strategies are not unique .to consulting. When we looked beyond
that business and analyzed computer companies and health care providers,
we found the same two strategies at work. In fact, we believe that the
choice between codification and personalization is the central one
facing virtually all companies in the area of knowledge management. By
better understanding the two strategies and their strengths and
weaknesses, chief executives will be able to make more surefooted
decisions about knowledge management and their investments in it.
Codification or Personalization?
Some large
consulting companies, such as Andersen Consulting and Ernst & Young,
have pursued a codification strategy. Over the last five years, they
have developed elaborate ways to codify, store, and reuse knowledge.
Knowledge is codified using a "people-to-documents" approach: it is
extracted from the person who developed it, made independent of that
person, and reused for various purposes. Ralph Poole, director of Ernst
& Young"s Center for Business Knowledge, describes it like this:
"After removing client-sensitive information, we develop "knowledge s"
by pulling key pieces of knowledge such as interview guides, work
schedules, benchmark data, and market segmentation analyses out of
documents and storing them in the electronic repository for people to
use. This approach allows many people to search for and retrieve
codified knowledge without having to contact the person who originally
developed it. That opens up the possibility of achieving scale in
knowledge reuse and thus of growing the business. Take the example of
Randall Love, a partner in the Los Angeles office of Ernst & Young.
Love was preparing an important bid for a large industrial manufacturer
that needed help installing an enterprise resource planning system. He
had already directed projects for implementing information systems for
several manufacturers in other industries, but he hadn"t yet worked on a
manufacturing project in this one. He knew other Ernst & Young
teams had, however, so he searched the electronic knowledge management
repository for relevant knowledge. For help with the sales process, he
found and used several presentations on the industry-documents
containing previously developed solutions-as well as value propositions
that helped him estimate how much money the client would save by
implementing the system.
Because Love reused this material, Ernst
& Young won the project and closed the sale in two months instead of
the typical four to six. In addition, his team found programming
documents, technical specifications, training materials, and change
management documentation in the repository. Because these documents were
available, Love and his team did not have to spend any time tracking
down and talking with the people who had first developed them. The
codification of such knowledge saved the team and the client one full
year of work.
Ernst & Young executives have invested a lot to
make sure that the codification process works efficiently. The 250
people at the Center for Business Knowledge manage the electronic
repository and help consultants find and use information. Specialists
write reports and analyses that many teams can use. And each of Ernst
& Young"s more than 40 practice areas has a staff member who helps
codify and store documents. The resulting area databases are linked
through a network.
Naturally, people-to-documents is not the only way
consultants in firms like Ernst & Young and Andersen Consulting
share knowledge-they talk with one another, of course. What is striking,
however, is the degree of emphasis they place on the codification
strategy.
By contrast, strategy consulting firms such as Bain, Boston
Consulting Group, and McKinsey emphasize a personalization strategy.
They focus on dialogue between individuals, not knowledge s in a
database. Knowledge that has not been codified and probably couldn"t
be-is transferred in brainstorming sessions and one-on-one
conversations. Consultants collectively arrive at deeper insights by
going back and forth on problems they need to solve.
Marcia Blenko,
for example, a partner in Bain"s London office, had to consider a
difficult strategy problem for a large British financial institution.
The client wanted Bain to help it expand by offering new products and
services. The assignment required geographic and product-line expertise,
a broad understanding of the industry, and a large dose of creative
thinking. Blenko, who had been with Bain for x2 years, knew several
partners with expertise relevant to this particular problem. She left
voice mail messages with them and checked Bain"s "people finder"
database for more contacts. Eventually she connected with nine partners
and several managers who had developed growth strategies for financial
services institutions. She met with a group of them in Europe, had
videoconferences with others from Singapore and Sydney, and made a quick
trip to Boston to attend a meeting of the financial services practice. A
few of these colleagues became ongoing advisers to the project, and one
of the Asian managers was assigned full time to the case team. During
the next four months, Blenko and her team consulted with expert partners
regularly in meetings and through phone calls and e-mail. In the
process of developing a unique growth strategy, the team tapped into a
worldwide network of colleagues" experience.
To make their
personalization strategies work, firms like Bain invest heavily in
building networks of people. Knowledge is shared not only face-to-face
but also over the telephone, by e-mail, and via videoconferences.
McKinsey fosters networks in many ways: by transferring people between
offices; by supporting a culture in which consultants are expected to
return phone calls from colleagues promptly; by creating directories of
experts, and by using "consulting directors" within the firm to assist
project teams.
These firms have also developed electronic document
systems, but the purpose of the systems is not to provide knowledge s.
Instead, consultants scan documents to get up to speed in a particular
area and to find out who has done work on a topic. They then approach
those people directly.
When we initially looked at how consulting
companies manage knowledge, we found that they all used both the
codification and the personalization approaches. When we dug deeper,
however, we found that effective firms excelled by focusing on one of
the strategies and using the other in a supporting role. They did not
try to use both approaches to an equal degree.
Different Strategies, Different Drivers
A
company"s knowledge management strategy should reflect its competitive
strategy: how it creates value for customers, how that value supports an
economic model, and how the company"s people deliver on the value and
the economics.
Creating Value for Customers. Randall Love"s approach
to implementing the information system is typical of consulting
companies where the efficient reuse of codified knowledge is essential
because they are dealing with similar problems over and over. In such
firms, the service offering is very clear: the customer benefits because
the consultants can build a reliable, high-quality information system
faster and at a better price than others by using work plans, software
code, and solutions that have been fine-tuned and proven successful.
That"s not to say that the process operates on automatic pilot. It"s
like building with Lego blocks: consultants reuse existing bricks while
applying their skills to construct something new.
Strategy consulting
firms offer customers a very different kind of value. Consultants like
Marcia Blenko tackle problems that don"t have clear solutions at the
outset. They seek advice from colleagues to deepen their understanding
of the issues, but in the end they must create a highly customized
solution to a unique problem. Because their clients" problems are
difficult and one of a kind, the consultants can charge high fees for
their services.
Turning a Profit. Companies that follow a
codification strategy rely on the "economics of reuse." Once a knowledge
asset-software code or a manual, for example -is developed and paid
for, it can be used many times over at very low cost, provided it does
not have to be substantially modified each time it is used. Because the
knowledge is contained in electronic repositories, it can be employed in
many jobs by many consultants. Many consultants can be assigned to a
project; big projects will have a high ratio of consultants to partners.
For example, there are more than 3o consultants for each partner at
Andersen Consulting.
The reuse of knowledge saves work, reduces
communications costs, and allows a company to take on more projects. As a
consequence, firms such as Andersen Consulting and Ernst & Young
have been able to grow at rates of 20% or more in recent years. Ernst
& Young"s worldwide consulting revenues, for example, increased from
$1.5 billion in 1995 to $2.7 billion in I997.
By contrast, the
personalization strategy relies on the logic of "expert economics."
Strategy consulting firms offer their clients advice that is rich in
tacit knowledge. The process of sharing deep knowledge is time
consuming, expensive, and slow. It can"t truly be systematized, so it
can"t be made efficient. That means, first, that the ratio of
consultants to partners in these firms is relatively low-there are
approximately seven consultants for each partner at McKinsey and Bain.
And second, it means that it"s difficult to hire many new consultants in
a short period because every new person needs so much one-on-one
training. For those two reasons, strategy consulting firms find it
difficult to grow rapidly without sacrificing the customized approach.
Nevertheless,
their highly customized offerings allow them to charge much higher
prices than firms offering more standardized services can. In 1997, for
example, daily fees for a McKinsey consultant were on average more than
$2,000, at Andersen Consulting, the figure was slightly more than $600.
Managing
People. Not surprisingly, the two kinds of firms hire different kinds
of people and train and reward them differently. Ernst & Young and
Andersen Consulting hire undergraduates from top universities and train
them to develop and implement change programs and information systems.
Andersen"s recruits are trained at the firm"s Center for Professional
Education, a 150-acre campus in St. Charles, Illinois. Using the
knowledge management repository, the consultants work through scenarios
designed to improve business processes. They are implementers, not
inventors; the "not invented here" attitude has no place in a reuse
firm.
McKinsey, BCG, and Bain hire top-tier M.B.A. graduates to be
inventors-that is, to use their analytic and creative skills on unique
business problems. These firms also want people who will be able to use
the person-to-person knowledge-sharing approach effectively. To be sure
of obtaining people with that mix of skills, they recruit with
extraordinary care. Partners and senior consultants interview a
candidate six to eight times before making a job offer. At Bain, 1 out
of 60 applicants gets an offer. Once on board, their most important
training comes from working with experienced consultants who act as
mentors.
Any company that depends on smart people and the flow of ideas must choose a knowledge management strategy.
From Health Care to High Tech
The strategies of
codification and personalization do not apply only to the world of
consulting. We found that providers of health care and manufacturers of
computers also need to choose a knowledge management approach that fits
their needs and goals.
Access Health, a call-in medical center,
exploits a reuse model. When someone calls the center, a registered
nurse uses the company"s "clinical decision architecture" to assess the
caller"s symptoms, rule out possible conditions, and recommend a home
remedy, doctor"s visit, or emergency room trip. The knowledge repository
contains algorithms of the symptoms of more than 500 illnesses. CEO
Joseph Tallman describes the company"s strategy: "We are not inventing a
new way to cure disease. We are taking available knowledge and
inventing processes to put it to better use.
Access Health provides a
prime example of the benefits that come from reusing codified
knowledge-in this instance, software algorithms. The company spent a lot
to develop those algorithms, but it has been repaid handsomely for its
investment. The first 300 algorithms that Access Health developed have
each been used an average of 8,000 times per year. That level of reuse
allows it to charge low prices per call. In turn, the company"s paying
customers-insurance companies and provider groups-save money because
many callers would have made expensive trips to the emergency room or
doctor"s office when they could have been diagnosed over the phone.
Contrast
Access Health"s reuse strategy with the highly developed
personalization model used at Memorial Sloan-Kettering Cancer Center in
New York City. The center provides the best, most customized advice and
treatment to cancer patients. A variety of experts consults on each
patient"s case, and managing the experts" collaboration is, in essence,
managing the center"s knowledge. Dr. James Dougherty, its deputy
physician in chief, describes this collaboration as follows: "We
coordinate intensive face-to-face communication in order to ensure that
knowledge is transferred between researchers and clinicians and between
different types of clinicians." Employees work together in 17
disease-specific teams. The breast cancer team, for example, has 40
specialists: medical oncologists, surgeons, radiation therapists,
psychologists, and others-as well as a core of basic scientists.
To
make person-to-person communication easy, a team"s members are all
located in the same area of the hospital. Each team has several
face-to-face meetings per week that everyone attends. The meetings cover
basic science initiatives, clinical findings, patient care, and ongoing
research.
The center"s human resource-policy is aligned with its
knowledge management strategy. Top cancer clinicians are attracted by
Memorial Sloan-Kettering"s state-of-the-art technology and excellent
reputation. These clinicians are highly paid-most receive salaries that
place them in the ninety-faith percentile or above relative to their
counterparts at other academic institutions. The center hires clinicians
from two pools of candidates. Junior people are hired from top
university residency programs and trained as fellows. The best fellows
are moved into an "up or out" pyramid system. The center also hires
senior, nationally recognized clinicians who often bring teams of people
with them.
It is hard to imagine two business models in the same
industry as different as those of Access Health and Memorial
Sloan-Kettering. Yet both assess patients" symptoms and make
recommendations for their care, and both are highly successful. By
providing reliable service at low cost, Access Health has captured 50%
of the call-center market and is growing at 40% a year. One insurer
using its services saw its emergency-room admissions drop by 15 % and
its physician office visits by 11%. For its part, Memorial
Sloan-Kettering is consistently ranked as the top cancer research and
treatment institution in the country.
Medicine, like management
consulting and other services, is built on unique knowledge. But the two
knowledge management models also apply in the industrial sector.
Consider the very different approaches taken by two computer companies,
Dell and HewlettPackard.
Dell"s competitive strategy is to assemble
expensive PCs that are made to order and sell them directly to
customers. A sophisticated knowledge management system lies behind that
business model. Dell has invested heavily in an electronic repository
that contains a list of available components. The system drives the
operation: customers choose configurations from a menu, suppliers
provide components based on their orders, and manufacturing retrieves
orders from the system and schedules assembly. Dell does not deliver
highly customized orders, and it raises its prices considerably for
orders with special components.
Dell has to invest a good deal up
front to determine and specify configurations, but its investment pays
off because of the knowledge"s reuse. In I997, Dell shipped 11 million
PCs. Those systems were put together from 40,000 possible configurations
(competitors typically offer only about 100 configurations), which
means that each configuration was used on average 275 times. That level
of reuse allows Dell to lower its costs and charge less than the
competition. Propelled in part by its knowledge reuse model, Dell"s net
income for I997 was $944 million on sales of $12.3 billion; the
company"s revenues have grown 83 % annually over the last four years.
Hewlett-Packard,
by contrast, uses a personalization approach to support its business
strategy, which is to develop innovative products. For that strategy to
succeed, technical knowledge must get transferred to product development
teams in a timely way. The company channels such knowledge through
person-to-person exchanges.
For example, engineers routinely use one of the
company"s planes to visit other divisions and share ideas about possible
new products. Rather than limiting travel budgets, executives encourage
such travel. Every employee has access to the corporate airplanes,
which travel daily between HP offices. Remarkably, the company manages
effective person-to-person knowledge sharing despite its size with
120,000 employees, HP dwarfs the largest consulting company, Andersen
Consulting, which has about 60,000 people.
Consider this example. An
HP team recently developed a very successful electronic oscilloscope
with a Windows operating system and interface. Executives wanted to be
sure that other divisions understood and applied the interface. To keep
the costs of knowledge transfer low, they considered trying to codify
the acquired know-how. They realized, however, that the knowledge they
wanted to capture was too rich and subtle to incorporate in a written
report. And they understood that writing answers to the many questions
that would come from HP"s divisions would take an extraordinary amount
of time. So they took the person-to-person approach and sent engineers
from product development teams to meetings at divisions around the world
and to a company-wide conference.
The executives" decision didn"t
come cheap: by one estimate, the company spent $1 million on
communication costs alone on this process. But the investment paid off
as the interface gained widespread acceptance throughout the company.
In
all the companies and institutions we examined, managers had chosen a
distinct knowledge management strategy. Although their approaches
differed slightly, there was a common pattern among them. Those that
pursued an assemble-to-order product or service strategy emphasized the
codification and reuse of knowledge. Those that pursued highly
customized service offerings, or a product innovation strategy, invested
mainly in person-to-person knowledge sharing.
Do Not Straddle
As we"ve said, companies that use
knowledge effectively pursue one strategy predominantly and use the
second strategy to support the first. We think of this as an 80-20
split: 80% of their knowledge sharing follows one strategy, 20% the
other. Executives who try to excel at both strategies risk failing at
both. Management consulting firms have run into serious trouble when
they failed to stick with one approach.
The strategy consulting firms
we studied all came to grief with document-driven systems. Consultants
were tempted to use the systems to deliver standardized solutions, but
their customers were paying for highly customized services. When the
systems were misused, customers became dissatisfied.
As the CEO of a
major U.S. company told us, "I have been using a particular consulting
company for over a decade now. One of the main reasons I have used them
so regularly is because they have intimate knowledge of my company and
our industry. The firm"s partners who have worked with me also know my
style and my strengths and weaknesses. The advice I have gotten from
them has been sensitive to our unique needs. Recently, though, I have
found that they are trying to push cookie-cutter solutions. It"s almost
as if they are simply changing the names on the same set of
presentations. While some of .their advice is useful, I am not sure if
that"s enough. Frankly I expect more-and they sure as hell have not
reduced their rates.
...
Choosing the Right Strategy
Competitive strategy
must drive knowledge management strategy. Executives must be able to
articulate why customers buy a company"s products or services rather
than those of its competitors. What value do customers expect from the
company? How does knowledge that resides in the company add value for
customers? If a company does not have clear answers to those questions,
it should not attempt to choose a knowledge management strategy because
it could easily make a bad choice.
