Building the Knowledge-Based Organization: How …

1 CENTER FOR BUSINESS INNOVATIONSM 1997 Ernst & Young LLP. All Rights PAPERB uilding the Knowledge-Based Organization: How Culture Drives knowledge BehaviorsDavid De LongMay 1997 CENTER FOR BUSINESS INNOVATIONSM 1997 Ernst & Young LLP. All Rights Reserved. This knowledge initiative is not a culture change project. It sjust that our culture is in the way of what we want to do, sowe ve got to change it. knowledge manager, manufacturing companyAny 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 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.

2 Ourpremise is that organizational knowledge and culture areintimately linked, and that improvements in how a firm creates,transfers, and applies knowledge are rarely possible withoutsimultaneously altering the culture to support new 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 organization sculture to support the behaviors FOR BUSINESS INNOVATIONSM 1997 Ernst & Young LLP. All Rights 1 Work processes,key activities,core competenciesTechnologyInfrastructureBeha viors Culture(Values, Norms, & Practices) BusinessPerformanceBusinessStrategyStrat egyOrganization Elements MgtKnowledge ImprovedCreation, Transfer & Use KnowledgeAn Overview of knowledge management ElementsWhether 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.

3 TheCEO of Buckman Labs, a specialty chemical company, learnedthis when his firm installed a knowledge network to supportglobal sales and marketing efforts. Reflecting on the experience,CEO Bob Buckman said, What s happened here is 90% culturechange. You need to change the way you relate to one another. Ifyou don t do that, you won t succeed. 2A 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. Thefirm s 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.

4 As4we 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 they re 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 soft factors critical to performance is essential for encouraging thenew behaviors needed in a Knowledge-Based CultureMattersLeveraging knowledge is not an end in itself. Experience hasshown that successful knowledge management strategies arealways driven by clear links to business 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.

5 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 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 , in part, to facilitate knowledge sharing amongCENTER FOR BUSINESS INNOVATIONSM 1997 Ernst & Young LLP. All Rights , the system failed because of the firm s rigidhierarchy and it s competitive and individualistic Third, many firms today rely heavily on the quality,experience, and expertise of their technical and professionalworkforce.

6 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 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 firm s abilityto compete based on knowledge and 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.

7 But, withoutdefinitions, both terms just become buzzwords, which promote muddy and ineffective thinking. To develop an action plan foraligning culture with knowledge management objectives, theremust be some shared understanding about what the terms mean, ifonly so progress can be measured. We offer some practicaldefinitions below as a starting 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 it s 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 at6the individual, group, or organizational levels. The focus ofknowledge management is primarily to improve use at theorganizational second dimension of knowledge is usually characterized asexplicit or tacit, or structured and unstructured or structured knowledge is represented in documents,databases, products, and processes.

8 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, how to:negotiate a contract, identify critical competitive intelligence,assess an individual s potential, or build a cross-functional these different types of knowledge is importantbecause culture affects each type Culture is a term that also needs definition to make it the concept of knowledge , researchers have defined organizational culture in many 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 organization s members believe isworth doing or having. They indicate preferences for specificoutcomes or behaviors, or what the organization aspires toachieve.

9 It is important to differentiate espoused values,which are talked about but that don t 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 employeesactually create, share, and use knowledge in their work. Practices are the formal or informal routines used in theorganization 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 FOR BUSINESS INNOVATIONSM 1997 Ernst & Young LLP. All Rights exists at different levels of the organization . Values aredeeply embedded, tacit assumptions that are difficult to talkabout and even more difficult to change.

10 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 the other hand, values should not be the focus of the changeeffort, 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).FIGURE 2 KNOWLEDGEPRACTICES NORMS VALUESBEHAVIORS VALUEADDED FROM USEL inking Behaviors and Elements of CultureThe most direct way to change behaviors around knowledgeuse is to change the practices that generate them (see Figure 2).