Knowledge Leadership: The Art and Science of the Knowledge-based Organization

CHAPTER 1

Although the vast majority of knowledge management experts stress the importance of knowledge processes and investing in people’s capacity for creating new knowledge, most corporate leaders have instead chosen to invest heavily in the information technology (IT) aspects of knowledge management (KM) and virtually ignore the advice of these experts. This tendency reflects the fact that information has become increasingly viewed in the business world as being synonymous with knowledge. However, as we demonstrate in this book, there is often a high cost to be paid when companies blur the lines between information and knowledge. We suggest that leaders who fail to see the important distinctions between knowledge and information will be unable to effectively help their organizations capitalize on the power of knowledge for sustaining high performance.

How did knowledge become a synonym for information? What is going on? Some critics might argue that KM has taken a wrong turn along the way. We propose in this book that this is not exactly the case. Rather, many versions of KM are being practiced in the world today because KM has evolved in a self-organizing way. As a result, many interesting KM variations have developed, ranging from the simplest to the most complex strategies. Some organizations have made knowledge the focus of their business strategy, whereas other companies view knowledge as being simply a tool for improving profits.

What is most important to note is that a new and very exciting kind of knowledge-based strategy has evolved in elite companies— one that is providing them with increasing competitive advantage. This is not to say that other forms of KM are useless; that is hardly the case. However, we contend that companies that limit their use of knowledge to low-impact forms of KM will be progressively less able to remain viable when locked in head-to-head competition with companies that have mastered a more “pragmatic” knowledge strategy.

Pragmatic knowledge is situation-specific knowledge, developed over time, that helps leaders understand what actually works in practice—and also why it works, and under what circumstances. One of the major theses of this book is that leaders must use both “science” and “art” to develop and improve the pragmatic knowledge that will enable them to become well-balanced knowledge leaders who can build knowledge-based organizations (KBOs). Unfortunately, although many leaders try to manage their companies scientifically, they have been taught so-called “scientific” management theories that are often based in ideas long abandoned by modern scientists. Indeed, most leaders today still manage their organizations based on the 19th century “scientific management” principles of Frederick Taylor (1865–1915) who was a mechanical engineer, not a scientist. In Knowledge Leadership we present a more contemporary scientific knowledge-based approach to managing that is founded upon the principles of pragmatism. Pragmatic knowledge is the product of a scientific approach to learning from experience, employing various methods of reasoning, and interpreting the meaning of situations. Using this knowledge-based way of making business decisions transforms managing into an ongoing experiment of discovering the underlying patterns of cause and effect that reveal what is likely to work best in practice. This is the foundation of developing pragmatic knowledge in organizations. By developing this kind of high-quality knowledge, over time and through experience, leaders are able to give their companies a significant competitive edge—in other words, a knowledge advantage.

In this book we also provide several ways to develop the art of knowledge leadership. In particular, we help leaders to assess their current knowledge leadership style so that they can attain the balance they will need to both develop and manage knowledge in their organizations. To this end, we introduce readers to two colorful, distinctly different leadership styles that are personified by two memorable characters: the action-oriented “infrared” Commissar (who prefers to design systems for managing knowledge in organizations) and the introspective “ultraviolet” Yogi (who prefers to help others develop new knowledge). We will also provide leaders with a new way of interpreting problem symptoms. Pragmatists believe that this is the most essential part of problem solving, and that it is vital to understand what the problem really is before taking actions to improve any kind of performance.

In 1990, Peter Senge published the book The Fifth Discipline: The Art and Practice of the Learning Organization. This best-selling book significantly increased interest worldwide in the topics of organizational learning, business dynamics, and systems thinking. The book deftly integrated the scientific method of policy analysis (through the use of the system dynamics method) with the art of learning from experience.

It is no accident that this book provided a major breakthrough in both leadership and managerial thinking. In Knowledge Leadership, it is our intention to provide a framework for an even deeper analysis that will fuel further improvements in personal and organizational performance. We call this next level of leadership development the art and science of the knowledge-based organization. We will approach this challenge by “standing on the shoulders of giants”—by building on the work of the intellectual leaders who have preceded us in the fields of management, philosophy, and science. We will draw on the insights gained over the past century in diverse fields, such as philosophical pragmatism, Total Quality Management (TQM), knowledge management (KM), systems theory, organizational learning, science, history, political theory, and the social sciences. In the upcoming pages, we will provide you, the reader, with a guide that will take you forward into what is likely to be an exciting, unexplored territory. However, the decision to take this learning journey will require some degree of “heroism” on your part. It requires you to depart from the well-beaten paths of accepted management practices so that you can step into lesswell charted leadership territory. We invite you to join us on this journey. We believe you will be well rewarded with new insights and ways of thinking about what it means to lead a business.

Entering the Second Decade of the KM Movement

It has been more than a decade since Karl Wiig’s (1993) pioneering book, Knowledge Management Foundations, was first published. Over the past dozen years, KM has become a critical strategy used by many companies to improve their performance and adaptability. KM’s rise to prominence reflects the leading edge of a major shift in the way leaders view organizations. Leaders are much less likely to regard their workforce as being simply a collection of individuals charged with executing a set of management directives. Rather, employees are increasingly being seen as knowledge workers and potential problem solvers. In companies where problem solving is considered to be the most valuable kind of work, knowledge is the coin of the realm.

Astutely, many leaders have also discerned that it is not sufficient to simply provide employees with just any knowledge. They have realized that there is a need to provide workers with easy access to as many kinds of knowledge as possible. In many organizations, there has been a rush to acquire technologies that will assist employees of all sorts in gaining access to knowledge as well as in sharing it. This new worldview mirrors a sea change in conventional managerial wisdom that is no less significant to organizations than was the adoption of electricity and machinery in the industrial factories of Western Europe and America at the start of the 19th century.

Corporate leaders of household names such as 3M, Best Buy, BMW, BP Amoco, Canon, Fuji-Xerox, Hewlett Packard, Intel, Nokia, Siemens, Royal Dutch Shell, Sony, Toyota, UniLever, and Xerox routinely speak of the importance of knowledge to their long-term success. Some of these businesses, such as 3M, Toyota, and Xerox, have become much more than companies that use KM. They have transformed themselves into elite knowledge-based organizations (KBOs). Leaders of KBOs do not seek to manage knowledge within their companies; rather, they seek to knowledgeably manage for competitive advantage. This is a critical distinction for knowledge leaders of KM’s second decade to understand if they are to transform their organizations into KBOs that use knowledge to achieve performance than cannot easily be duplicated by their competitors.

This distinction may seem subtle at first. However, the consequences of making this shift of mind are critical for success. Now that we are entering “daybreak” of the new knowledge era, the rules for using knowledge in business are changing. KM initially became popular because it was seen as being a useful tool for leveraging existing assets and increasing profits. Leaders who recognized the potential of this strategy to boost profits invested heavily in KM technologies because the return on investment seemed compelling to them. Other leaders, however, saw the potential role of knowledge in their companies more broadly—for example, as the basis for a comprehensive strategic approach to managing that could be integrated with TQM, lean manufacturing, innovation, and organizational learning initiatives to form the foundation of a powerfully distinctive business strategy.

Companies that employed this more comprehensive strategy used knowledge differently than the way it was being used in most companies that had jumped on the KM bandwagon. Instead, they embraced philosophies, practices, and strategies that would be considered heresy among their competitors. However, as a result of taking this alternative knowledge path, they are now achieving performance results that their rivals can only dream about. The chief example of this new breed of knowledge-based organization is the Japanese automobile manufacturer Toyota. Toyota has achieved mind-boggling performance results that are, in part, attributable to the way the company uses organizational learning and pragmatic knowledge.

Although the pragmatic knowledge strategy is a powerful one, we estimate that it is being used by less than 5% of all major corporations. However, without exception, these are elite businesses whose leaders understand the value of knowledge in a profound way, and who therefore have made long-term commitments to mastering the use of knowledge for gaining strategic competitive advantage. Though it can be argued that these companies are elite in many respects (such as customer relationship management, product and process innovation, managing quality, and strategy analysis), we propose that what differentiates these companies from their rivals is their proven capacity for knowledge leadership.

Knowledge leadership extends well beyond KM. Knowledge leaders integrate KM with knowledge development (KD) and make certain that knowledge is woven into the very fabric of an organization —its operations, management systems, and infrastructures. Because knowledge can significantly improve a company’s performance and viability, we ask: Why have so few leaders chosen the path of knowledge leadership?

Can’t Get There From Here

The simple answer to this question is that most leaders are not fully aware of the potential of knowledge for transforming organizations. Another answer is that new KM strategies often require greater capacity or a higher level of sophistication than is found in many companies. Yet another answer, probably the most important one, lies in the way the field of KM has developed.

The word knowledge often conjures up images of the ivy-covered walls of academe and esoteric theories of long-forgotten philosophers. Not surprisingly then, the gut reaction of many managers upon hearing proposals for knowledge-based initiatives is to raise a yellow flag of caution. Fortunately for the field of KM, computers, software, and support technologies (such as optical scanning devices, the Internet, and telecommunications technologies) had evolved by the end of the 20th century. These sophisticated tools facilitated a brand of KM that was very structured, easy to implement, and low risk. In conjunction with process-oriented approaches that evolved out of the TQM and project management movements (such as sharing best practices and post-project review sessions), the necessary infrastructure had emerged to make KM an attractive method for tapping into a company’s intangible assets in a way that made sense to executives. That is, it appeared to give them more bang for the buck. The idea of drilling for intellectual oil or prospecting for knowledge gold was made even more palatable as computer and software companies developed full lines of products to fulfill this need.

Why was all this so fortunate for the field of KM? We believe that without these developments, KM would not exist today on such a wide scale, because many companies would have found knowledge-oriented pursuits to be too esoteric and risky to pursue. The problem that most leaders have faced since the beginning of the KM movement is that the most popular KM strategies are self-limiting and rarely confer benefits of sustainable competitive advantage on companies. The relative simplicity and low risk of conventional KM make it a double-edge sword. It is simultaneously attractive to companies because it is low risk, but it also is something that virtually any company can do.

However, sustainable competitive advantage usually comes from being able to execute strategies that are exceedingly difficult for business rivals to successfully duplicate. Unfortunately, most corporate leaders do not view KM from a strategic perspective; therefore, they do not think of the self-limiting tendencies we have described as being a problem. For these companies, KM is accomplished by using a “Cheez Whiz” strategy.

Cheez Whiz, You Say?

Did you know that the myth of Earth’s moon being made of aged cheese is more than 400 years old? This belief, first popularized in the mid-16th century among European peasants, held that the moon was made of aged cheese similar to French bleu cheese or the Italian gorgonzola cheese–because sometimes the lines that crisscross the moon’s surface look similar to the bluish green veins found in these cheeses. Clearly, this was an illusion, but the aged cheese explanation enabled the peasants to make sense of the moon they watched in their night sky. While KM has nothing to do with aged cheese per se, you will learn as you read ahead that it has much to do with myth and illusion.

The success of Kraft Food’s popular Cheez Whiz can reveal much about how knowledge is often viewed by managers in many organizations. In the 1950s, Kraft Foods was well known for its production of cheeses such as Cracker Barrel and Kraft Deluxe sliced American cheese. At the time, cheese processing focused on producing the harder, whiter types of cheeses because they represented the vast majority of the market demand. The soft, formless yellow cheese that was a by-product of the production process was disposed of after the harder cheeses were processed. There was no apparent use for this leftover cheese—and it was difficult to package due to its softness.

All this changed when a Kraft employee had the brilliant idea of selling the cheese by-product in jars under the brand name Cheez Whiz. Because the soft yellow cheese was heavier, it tended to sink to the bottom of the cheese-processing vats, whereas the harder, whiter cheeses stayed at the top of the vat and were the first to be removed. This allowed the remaining cheese to be easily harvested without any further effort. The new product was successfully marketed in a way that emphasized its potential usefulness both for cooking and as a spread. This innovation was a brilliant breakthrough for Kraft, because it enabled the company to utilize and profit from what had previously been waste. In economic terms, this innovation enabled Kraft to achieve greater asset utilization. Through innovative packaging and marketing, Kraft was able to transform an unused asset into a high-performing asset.

What does all of this have to do with KM? The central strategy in both cases is the same. KM is often practiced in a way that is based on the idea expressed by managers that “We have all of this unused knowledge, we might as well tap into it, find an application for it, and recycle it.”

Green KM Strategies

When it comes to preserving the natural environment, there are various initiatives worldwide that are designed to recycle consumer disposables and use them in the manufacture of new products. This enables greater conservation of scarce natural resources, such as wood, and may also limit damage to the environment caused by land-fills. In general, recycling is a component of what is often referred to as a Green strategy for environmental husbandry and conservation.

The concept of recycling plays a critical role in maintaining much of the myth that supports conventional approaches to KM. We will refer to this as the Green KM strategy. The Green KM strategy is to conserve the knowledge that exists within an organization and not waste what has already been created through investments in people. The Green KM strategy relies on such conventional methods as sharing best practices, collect-and-connect systems, and knowledge warehouses. The Green KM strategy is to achieve greater economic utilization of existing intangible assets by leveraging them. To leverage intangible KM assets means to get the greatest possible benefit out of what is already in the heads of an organization’s employees. The essence of the Green KM strategy is to share existing knowledge within a company over the widest possible audience of employees.

However, such strategies are not truly “green” because the emphasis is placed almost solely on the recycling aspects—without really creating anything new. By contrast, in green environmental strategies, recycled newspapers are used to create other paper products, and recycled plastic is reformed to make new plastic containers. Green KM strategies focus on sharing existing knowledge, but not in using that knowledge to create new, higher-quality knowledge. Still, the economics of KM recycling are attractive to managers due to the low marginal cost of sharing the knowledge. The cost that goes into creating the existing installed base of knowledge within a company is essentially a sunk cost. The only variable cost is that related to the cost of extracting and sharing the knowledge. As the rate of recycling knowledge rises, the marginal costs associated with sharing and leveraging intangible assets declines.

Clearly, the economic and financial justification for using the Green KM strategy is compelling to most managers. Relying on the Green KM strategy does not usually pose a problem as long as a company competes within an industry where all other rivals also practice KM in a non strategic way. More to the point, if you are competing against one of the elite companies that employs KM in a more strategic way, either your company is close to going out of business or you are reading this book because you are seeking a miracle cure for your firm’s chronically poor performance.

Drilling for Oil

Now, let us go to the final myth in our knowledge challenge story. We call this the KM oil well myth. For many managers, the greatest breakthrough offered by many so-called KM gurus is to help them see that their companies are literally sitting on top of a “knowledge oil well” that has yet to be tapped. Once a manager accepts this knowledge paradigm, the greatest challenge is to decide which extractive KM technology would be most efficient for getting the most knowledge out of this well at the lowest cost.

The proliferation of KM technologies and consulting firms that specialize in providing extractive processes offers clear evidence to the popularity of this drilling-for-oil approach. The good news for managers employing the KM oil well approach is that these strategies are all potentially supportive of improving profits by leveraging a firm’s unused intangible assets. The bad news is that these strategies are self-limiting, superficial, and incapable of conferring long-term strategic competitive advantage.

Although there are many limitations to this approach, the major one is that it is unsustainable. All oil wells eventually go dry. Successful oil companies are adept at finding new places to drill for oil, but eventually those new wells will run dry too. The strategy of drilling endlessly for knowledge oil in an organization rarely accomplishes more than making employees aware of knowledge that has been previously hidden from their view. This does not mean that these employees will consider this knowledge relevant to their concerns, or that it will make sense to them, or that the knowledge is useful or of high quality.

Not all knowledge is created equal. Nor is knowledge the same as truth. Moreover, the reliability of most knowledge for producing expected results, for improving performance, is unknown. In other words, not all knowledge is good knowledge. The oil well KM notion of discovering unused knowledge in organizations, tapping it, and sharing it is not only overly simplistic, it is potentially confusing to many employees.

In most companies, managers have accepted KM, believing the conventional wisdom that corporate performance can be improved with the prudent use of technology and sharing best practices to get the right knowledge to the right people at the right time. We propose that this is a myth. Even though conventional KM approaches have the potential to improve performance, they usually do so indirectly and coincidently rather than through more pragmatic strategies.

Though some advocates of mythological conventional KM approaches argue that such strategies are benign and do no harm, we take issue with this myopia. We propose that the hyper competition most businesses face demands a more innovative, performance-driven approach to KM. Focusing an organization’s scarce resources and attention on conventional “benign” KM approaches merely diverts leaders from addressing the true challenge of developing a sustainable knowledge-based approach for competing.

What does all of this have to do with knowledge leadership? In our view, making the transformation from using knowledge as a tool to making knowledge the foundation for an enterprise-wide competitive strategy is a decision that must be made and implemented by knowledge leaders.

The Knowledge Leadership Challenge

Although knowledge leadership is not yet a well-known term, we assert that it will become increasingly important as corporations start to see how vital knowledge is to their survival. The new knowledge leaders will bridge the role of managers and leaders by overseeing KM systems and creating supportive workplace environments for knowledge development (KD). Knowledge leaders are needed at all levels in their organizations. Knowledge leaders hold the key to improving future business performance. To achieve this goal, knowledge leaders will need to be well balanced: they will create and use knowledge to improve both their own professional effectiveness and the effectiveness of the organizations they lead.

Knowledge leaders will foster the development of high-quality knowledge, which we define here as performance-driven, pragmatic knowledge that has been created from the lessons learned by employees in the course of working. Happily, knowledge leaders will have the advantage of standing on many great knowledge teachers and leaders who, as we will describe in this book, have already blazed the path for them.

The new knowledge leaders will need to organize their companies to be perpetual knowledge-creating systems. Why is this necessary? In the organizations of the Machine Age, the shelf life of knowledge was relatively long. Things were so simple that a few experts could design brilliant systems that sustained the organization for decades. Those days are gone. The demand for new, high-quality knowledge for companies to remain competitive is no longer the exception—it is the rule.

The knowledge leadership challenge, then, is to lead the design of balanced business systems that continually create and use pragmatic knowledge to gain sustainable competitive advantage. In this way, knowledge leaders will transform their companies into FAST (functional adaptive, sustainable, and timely) KBOs. We invite you to use this book to help you explore the challenge— and the great opportunity—of becoming a knowledge leader.

References
Senge, P. (1990). The Fifth Discipline: The Art & Practice of The Learning Organization, New York, NY: Doubleday.
Wiig, K. (1993). Knowledge Management Foundations: Thinking about Thinking—How People and Organizations Create, Represent, and Use Knowledge. Volume 1 of Knowledge Management Series. Arlington, TX: Schema Press.