Knowledge Management In Global Firm

Knowledge management in a global knowledge-based firm Dr. Robin Teigland Stockholm School of Economics September 2007 robin.teigland@hhs.se

A world of increasing knowledge flows…. Growth Time Output of information and knowledge Human absorptive capacity Cohen, WM och Levinthal, D A, Absorptive Capacity: A new Perspective on Learning and Innovation, Working paper, Carnegie Mellon University and University of Pennsylvania, October 1989

… that is increasingly connected. Nodes are individuals and colors represent organization s Casper & Murray 2002

What is globalization? The extent to which networks of individuals and organizations, markets, and technologies are interconnected across geographic and cultural boundaries Beech and Chadwick 2004, Friedman 2002

What is your company’s global strategy?

From a multi-domestic company to a successful global firm Multi-domestic Global Integrated Sub7 HQ Sub10 Sub9 Sub8 Sub13 Sub11 Sub3 Sub5 Sub4 Sub1 Sub2 Sub6 Sub14 Sub14

Aligning operations increases success Global strategy Competence Management Motivation Management Knowledge Management

Profitable growth through higher efficiency and innovation Preventing the waste of valuable resources - avoid reinventing the wheel Ensuring the use of leading-edge technology and thinking across the firm Increasing customer satisfaction through shorter lead-times and consistent behavior Creating a competitive cost structure Facilitating breakthrough and incremental innovations through combination of technologies and ideas from across and outside the firm An attractive workplace that encourages cross-functional co-operation across the globe Attracting and retaining key individuals What are the benefits of knowledge management?

From tacit to articulate knowledge “ We know more than we can tell.” Michael Polanyi, 1966 Tacit Articulated High Low Codifiability MANUAL How to play soccer

The knowledge management challenge The majority of a company’s valuable knowledge is tacit and resists being articulated

An organization’s structures, systems, and practices that facilitate.. … with the goal of enhancing the organization’s competitiveness What is knowledge management? C reating knowledge E mbedding knowledge D isseminating knowledge O rganizing knowledge C C O D E KM

Who does your company target as customers? What products or services does your company offer these targeted customers? How does your company do this efficiently? KM must be aligned with strategy Global strategy CODE KM What knowledge supports this strategy? Do we have this knowledge? ( C reate) How should we organize this knowledge? ( O rganize) Who needs this knowledge, when, and how? ( D isseminate) How do we ensure we get value from this knowledge? ( E mbed)

Information technology for KM Stocks of knowledge: Database and database management systems to collect and hold information Flows of knowledge: Communication channels to connect individuals independent of location IT is an enabler!

Challenges to knowledge databases Time consuming and difficult Takes times for writer to document experiences Takes time for reader to search through databases, information overload Often weak incentives to contribute golden nuggets Difficult to understand Difficult for writer to explain context, tacit ->explicit Difficult for reader to interpret experience and use in own situation Data becomes out-of-date very quickly Difficult to maintain, especially in fast moving industries

Avoid creating information junkyards Building knowledge repositories Information junkyards or Empty libraries

Physical layout Appropriate KM functions and units Cross-functional and cross-location teams Centers of excellence Institutionalized, recognized areas of expertise Socialization measures Job rotation, cross-office training programs, etc. Organizational structure for KM

Physical layout An organization’s office layout reflects a company’s knowledge flows

Creating centers of excellence COE HQ

San Francisco Stockholm London Brussels Helsinki Madrid Copenhagen Improving knowledge transfer through job rotation Rotated from Stockholm

Where do individuals go for help in solving problems? Co-located colleagues Intranet Non-electronic documents Internal electronic networks Contacts in other offices Firm boundary External electronic networks Internet Non-electronic documents Other contacts

Knowledge networking through communities of practice Connecting people so that they collaborate, share ideas, and create knowledge

One of the things that we’re struggling with is moving towards a more consistent way of doing business around the world. I think the knowledge communities are a vehicle to speed up that process. President, Montgomery Watson Harza Americas

What are communities of practice? Groups of people who come together to share and to learn from one another face-to-face and/or virtually. They are held together by a common interest in a body of knowledge and are driven by a desire and need to share problems, experiences, insights, templates, tools, and best practices. Members deepen their knowledge by interacting on an ongoing basis . This interaction leads to continuous learning and innovation

CPs are not teams or personal networks McDermott 2001 -Obligation -Job requirement -Value -Commitment - Friendship Glue -Planned -Actively discovered -Serendipitously discovered Value Creation -Organize tasks -Meetings -Informal communications -One-on-one Activity -Assigned -Defined boundary -Mostly volunteers -Permeable boundary -Friends & acquaintances -No boundary Members -Accomplish goal -Solve problems -Share info. & ideas -Expand knowledge -Share information -Friendship Purpose Team Community of Practice Personal Network

Communities are the grease in the KM wheel C reating knowledge E mbedding knowledge D isseminating knowledge O rganizing knowledge C C O D E KM

Role of communities of practice Create: Own & develop knowledge Develop & manage good practice Build organizational competence Organize: Develop & manage materials Develop tools, guidelines, templates Manage databases Disseminate: Connect people across boundaries Who knows what Home in changing organization & an uprooted society Embed: Share ideas & insights Share tacit, complex ideas & insights Help each other solve problems & find innovations

Communities can have a different primary purpose Helping Best-practice Innovation Knowledge stewarding

Community membership and roles Coordinator Peripheral Core Group Active

Two extreme communities of practice Face-to-face Virtual

Communities cross all boundaries Company Suppliers Customers Competitors

Don’t forget to support informal external networks at the individual level! Organization Electronic communities Partners Customers and suppliers Previous work and school colleagues External Large portion of new ideas and formal collaboration relationships come from personal external contacts

Encourage an open innovation attitude Not all the smart people work for us. We need to work with smart people inside and outside the company. The smart people in our field work for us. If you create the most and the best ideas in the industry, you will win. If you make the best use of internal and external ideas, you will win. Closed attitude Open attitude Chesborough 2003

Examples of communities of practice at Ericsson Magnusson & Davidsson 2004 - Primarily face-to-face -Ensure sharing of best practices and commonality Intra-organizational 200 members in 14 countries Competence Groups Primarily face-to-face Facilitate inter-project learning and innovation Retain key individuals - Intra-organizational 20 members from 14 countries Ericsson System Architect Program, ESAP - Virtual and face-to-face - Think tank on emerging trends in society, technology, & consumers - Inter-organizational including universities, experts, & institutions - 600 with core of 40 Ericsson Foresight -Virtual -Use internet to design joint e-business platform Inter-organizational 1400 members in 10 countries eRelationship Vodafone Communication channel Objectives Type and Members Community

Ericsson Competence Groups Background and objective To improve knowledge sharing between Flow Control centers worldwide that responsible for order fulfillment and complete order flow Organization 14 Competence Groups focused on one Flow Control function each, e.g., forecasting, invoicing, consisting of one member from each of 14 Flow Control Centers worldwide Each CG headed by one leader who devotes 30% of time to CG Activities 14 CG leaders meet once a month and all CG members meet 3-4 times a year at 2 day seminar Develop common terminology and processes Discuss process improvements and how can be implemented Monthly phone conferences to discuss ongoing work Critical success factors Well designed organization All allowed to contribute and suggest improvements Magnusson & Davidsson 2004

Ericsson Competence Groups for worldwide Flow Control Centers Country 1 Country 2 Country 14 1. Process & IT 2. Order mgt 14. Customer care Function Countries 3. Forecasting CG Function Leaders 14 leaders meet monthly Work 30% on CG CG Function Members 2 day seminar 3-4 xs/year Monthly phone conference Work 3-5 days/mth on CG Program Manager Coordinator Web Assistant Magnusson & Davidsson 2004

Cap Gemini – NCN MS Electronic Community Background and objective To provide programmers working with Microsoft products a forum to help each other solve problems Organization 345 programmers across Nordic countries Activities Helping each other through posting questions and responses on listserv nicknamed “L2A2L” (Learn to ask to learn) Critical success factors “ Eldsjäl” – one who burned for community and walked the talk High level of reciprocity

An organization’s structures, systems, and practices that facilitate .. ..with the goal of enhancing the organization’s competitiveness What is knowledge management? Global strategy C reating knowledge E mbedding knowledge D isseminating knowledge O rganizing knowledge C KM CODE

What is your organization’s KM vision? British Petroleum’s KM Vision BP knows what it knows, learns what it needs to learn, and uses knowledge to create overwhelming sustainable advantage.

In global organizations KM is increasingly complicated … Three types of boundaries Internal Geographical (physical & cultural) Organizational (horizontal & vertical) External Organizational (formal & informal relationships)

…and difficult to achieve. Gupta & Govindarajan 2000 Number of subsidiaries providing and receiving knowledge and skills

Challenges to successful KM processes Individual level Subsidiary level

Two departments within the same firm Department 1 Department 2 Higher degree of learning & knowledge sharing Poorer degree of learning & knowledge sharing

Unawareness and power games Icon programmers – Stockholm Surprise!! Bottleneck 

Islands of competence despite intensive KM efforts San Francisco Stockholm London Brussels Helsinki Madrid Copenhagen Icon programmers – Worldwide

Biggest difficulties to successfully managing knowledge in organizations Culture Top management’s failure to signal importance Lack of shared understanding of strategy Organizational structure IT / Communication restraints Incentive system Lack of problem ownership Ruggles 1998

Biggest difficulties to knowledge transfer Changing people’s behavior Measuring value/performance of knowledge assets Determining what knowledge should be managed Justifying use of scarce resources for KM initiatives Making knowledge available Attracting and retaining talented people Mapping organization’s existing knowledge Ruggles 1998

So, why should I share? You gotta remember that we’re hired to be stars here and not team players. - Researcher at one high technology firm with poor knowledge flow Sometimes I get calls from other offices. It feels weird if I don’t know the person. I like to help them only if I know them. - Programmer at software multinational

What are some barriers to successful knowledge management? Lack of awareness Not-invented-here Lack of incentive Time constraint Knowledge is power Lack of understanding Lack of incentive Time constraint

Challenges with external networks Everybody knows that if you recruit one talented programmer, you’ll get twenty for free… - Support manager with a larger Swedish Telecom company Lundkvist 2003

Loyalty Loyalty Individuals often have conflicting loyalties Organization Profession Firm boundary

Is knowledge trading good or bad for a firm? We pass over the nondisclosure agreements of different companies and trade company secrets all the time.

Who owns the knowledge? Organizational information vs. Personal expertise

What about individual performance? A high degree of participation in local communities of practice + On-time performance – Creative performance

But here we see the reverse A high degree of participation in dispersed electronic communities - On-time performance + Creative performance

In summary, individuals have choices about how they use their knowledge… Knowledge resides in the minds of individuals Individuals make own choices about knowledge Share openly for the benefit of the organization Protect and use only in work practice Perception that an individual’s value is diminished if share knowledge Knowledge is power Protect and use only in external relationships for own benefit Knowledge leakage Leave the firm and take knowledge with them

…and most importantly, management cannot mandate social relationships John Eva Hans Miguel Paul Jan Lars Pia Anna Nils Bill Erik Mike Al Alex

A constant local vs global tension We do not want to be managed in our choice of competence elements. We would want to select those elements that we need. Line Manager, Ericsson Norway Spontaneity and creativity could be the losers in some areas by implementing global solutions. However, the “Best Practice” policy in Ericsson concerns capturing good ideas, which of course may come from other areas in the organization. HR Manager, Ericsson Norway Hustad & Munkvold 2005

Conflicting demands on subsidiaries lead to resistance to global KM processes Opportunity cost of time Opportunity cost of resources Not-invented-here Knowledge is power Sub7 HQ Sub10 Sub9 Sub8 Sub11 Sub3 Sub5 Sub4 Sub1 Sub2 Sub6 Sub14 Sub14 Sub13

Internal turf wars It would have been much easier for me to transfer from the New York office to the California office if I had just quit the organization in New York and then reapplied for a job in the California one. Researcher, Xerox California

The challenge of knowing what is best practice Here one knows Here one does not know Arvidsson 2002 Evaluation of Market Practices Firm A Subsidiaries' self-evaluations 3 2 1 0 -1 -2 -3 Corporate management's evaluations 3 2 1 0 -1 -2 -3 Evaluation of Market Practices Firm B Subsidiaries' self-evaluations 2 1 0 -1 -2 -3 -4 Corporate management's evaluations 3 2 1 0 -1 -2 -3

Aligning operations increases success Global strategy KM CODE KM CODE Competence Management Motivation Management

Supporting global KM processes Competence Management Motivation Management Providing the organization with the right mix of talent to meet existing and future needs Creating an open, knowledge sharing culture with a high degree of company loyalty

A variety of tools Competence system Recruiting Incentives Networks A visionary organization Competence Management Motivation Management

Creating a competence management system Standardization Create common structure and terminology Define professional, business, and human competencies related to global strategy and KM goals Don’t underestimate this task! Analysis Personal development discussions Mapping of present and future target competence levels for individuals and then for business units Defining competence gap at both levels Planning and implementation Prepare competence development plan Implement and evaluate Magnusson & Davidsson 2004

Creating competence charts at Ericsson Individuals in one unit Comparison of units Professional – Operations, financial, etc. Business – Markets, core business, strategy, etc. Human – Interpersonal, communication, KM attitudes, etc. Magnusson & Davidsson 2004

CM supports KM I think that competence management can play an important role in knowledge management. You can search for persons with certain competencies very easily through that tool. People having the same competencies and interests can be accessed and get together. Competence Manager, Ericsson Croatia Hustad & Munkvold 2005

Recruiting – What should one look for? An experienced professional who has worked extensively in another company with different values and philosophy A young person who lacks professional experience but has the right attitude It is cheaper and easier to develop technical skills than trying to change mentality. HR Manager, Ericsson Russia OR

When you hire someone … … ..you “hire” his or her network.

Aligning incentives with KM Recognize and reward for collaborative behavior At individual, unit, and organizational levels Show management commitment Challenge Satisfaction $$$ Monetary Status and recognition

Examples of incentives Monetary Nucor Steel: Bonuses based on performance of relevant group, e.g., individuals and their workgroup, department managers and their plant Status and recognition McKinsey: Practice Development Flyers Xerox: Tip of the Month Challenge McKinsey: PD Olympics Satisfaction

Encourage experimentation and accept failure Every Nucor plant has its little storehouse of equipment that was bought, tried, and discarded. Just don’t keep making bad decisions. - Chairman, Nucor Steel

But be aware of local differences Global efficiency National responsiveness Worldwide innovation & learning

Working on empowerment is a key challenge in China. Our employees are not used to working in an empowered environment, and it takes a long time and much effort to explain what empowerment is all about. We are working on this and have made some progress, but we have a way to go. General Manager, Tetra Pak Hoyer China Fey, Pavlovskaya, & Tang 2004

O ur headquarters in Sweden provides us with a clear platform... Yet we still adjust it to the Chinese situation. For example, when we design our compensation and benefits, we need to think about what the Chinese government requires us to do for social security and medical insurance and what will motivate Chinese employees best. Thus, some differences exist between the system in China and that found in Sweden HR Director, Electrolux China Fey, Pavlovskaya, & Tang 2004

Cultural differences affect KM behaviors “ Work-to-live” culture Risk avoidance + — + Knowledge acquisition Knowledge sharing

Promote socialization to build networks San Francisco Stockholm London Brussels Helsinki Madrid Copenhagen Rotated from Stockholm Icon programmers – Worldwide

Why encourage socialization? Trust, commitment, and an open environment are essential for knowledge exchange in networks

Socialization examples Cross-office and cross-function training programs McKinsey’s introduction and development training programs Cross-office projects Projects often involve more than one office at Ericsson R&D Job rotation “There are 12 different ways to rotate at HP.” Online career development tool at Novartis Slack shops HP R&D allows time and provides resources to experiment on new ideas with others who have same interests Informal events Plant managers at Nucor Steel organize business meetings throughout year so every employee attends one meeting per year

Myths and reality checks about networks I already know what’s going on in my network. Those who think they know their network the best are usually the ones who know the least. To build networks, we have to communicate more. To build better networks, focus on a structured analysis of them. We can’t do much to help informal networks. Informal networks can be supported through changing the organizational context. How people fit into networks is a matter of personality (which can’t be changed). How people fit into networks is a matter of intentional behaviors (which can be influenced). Adapted from Cross, Nohria, & Parker 2002

Leverage and understand internal and external networks Identify which networks are important to understand E.g., product development, merger integration, etc. Collect network data E.g., observe, interview people, conduct questionnaire, track email, etc. Ask appropriate questions, e.g., advice, trust, innovation, etc. Pretest survey on employee sample for reactions Determine causes of fragmented networks E.g., physical layout, workflow, job description, leadership style, knowledge attitudes, etc. Adapted from Cross, Nohria, & Parker 2002

Improve connectedness and unplug bottlenecks internally Reevaluate design of teams, roles, etc. Rethink work processes and provide support Reassign tasks, rotate individuals, etc. Shift responsibilities Department 1 Department 2

Nurturing a visionary organization - A framework A well-conceived vision consists of two major components: (2) What we aspire to become, achieve, & create (changing) Collins & Porras 1996 What we stand for & why we exist (constant)

1) Why we exist and what we stand for Mission / purpose The organization’s reason for being – not a goal or a strategy Captures the soul of the organization and should last “a 100 years” Can never be fully realized – but inspires change and progress Is the star on the horizon – seen and to be chased forever 3M To solve unsolved problems innovatively Merck To preserve and improve human life Walt Disney To make people happy Wal-Mart To give ordinary folks the chance to buy the same things as rich people Collins & Porras 1996

1) Why we exist and what we stand for Core values A small set (often no more than 5) of guiding principles with intrinsic value and importance to those inside the organization Stand the test of time , even when circumstances around change Cannot be forced upon people – must be shared at the outset Merck Corporate social responsibility Science-based innovation Honesty and integrity Excellence in all aspects of the company Profit, but profit from work that benefits humanity Collins & Porras 1996

1) Core values You gotta remember that we’re hired to be stars here and not to be team players. - Researcher at a high technology firm Sometimes I get calls from other offices. It feels weird if I don’t know the person. I like to help them only if I know them. - Programmer at software multinational One of our core values is teamwork. 99% of the time if I ask anyone for help anywhere in the company, I’ll get it . - Researcher at a high technology firm

2) What we aspire to become, achieve, and create Big Hairy Audaci ou s Goal A challenging and stretching goal to stimulate progress Serves as unifying focal point of effort and acts as a catalyst for team spirit Has a clear finishing line But takes 10 to 30 years and only 50 to 70 percent probability of achieving “ We can do it” Wal-Mart (1990) Become a 125 billion dollar company by the year 2000 Nike (1960s) Crush Adidas Collins & Porras 1996

But ensuring widespread understanding across the organization is a difficult task Icon Medialab Best function Best global company Vision Responsibility Creating new solutions Professionalism Creative problem solving Values Programmer reality Management’s conception

Cultural differences add yet another challenge An important role of HR is to teach employees the Ericsson way of doing things. In Finland, most people have a similar mindset so this happens naturally. In Russia and China, more attention is needed to using more formal practices to make sure this acculturation occurs. HR manager, Ericsson Corporate Stockholm Fey, Pavlovskaya, & Tang 2004

Hewlett-Packard (1990s) Performance appraisals recognizing and rewarding key networking activities at individual and unit level Management support for informal and formal networking activities including those crossing both internal and external boundaries Extensive socialization : personnel rotation, cross-office teams Management commitment throughout organization A visionary organization Clearly defined mission: ”To make technical contributions for the advancement and welfare of humanity” Pervading core values, e.g., teamwork Company-wide goal of World’s Best Laboratory

Aligned operations provides results 1 - Superior performance 2 - Medium performance 3 - Poor performance

Aligning operations increases success Global strategy Competence Management Motivation Management KM CODE

Interested in learning more or better yet, participating in a research study? Contact me at [email_address] Selected publications by others Hustad, E. & Munkvold, E. 2005. IT-Supported Competence Management: A Case Study at Ericsson. ISM Journal. Fey, C., Pavlovskaya, A., & Tang, N. 2004. Does One Shoe Fit Everyone? A Comparison of Human Resource Management in Russia, China, and Finland. Organizational Dynamics. Magnusson, M. & Davidsson, N. Knowledge Networking at Ericsson: A Study of Knowledge Exchange and Communities of Knowing. Chalmers Working Paper. Cross, R. & Prusak, L. 2002. The People Who Make Organizations Go – or Stop. Harvard Business Review. Cross, R., Borgatti, S.,, & Parker, A. 2002. Making Invisible Work Visible: Using Social Network Analysis to Support Strategic Collaboration. California Management Review. Collins, J.C. & Porras, J.I. 1996. Building Your Company's Vision. Harvard Business Review. Publications by Robin www.knowledgenetworking.org

Knowledge Management In Global Firm

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