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BOOK OF THE QUARTER 221 Book of the Quarter Reviewed by Tudor Rickards Christine Rollo and Thomas Clarke (2001), Inter...

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BOOK OF THE QUARTER

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Book of the Quarter Reviewed by Tudor Rickards Christine Rollo and Thomas Clarke (2001), International Best Practice – Case Studies in Knowledge Management, HB 275 Supplement 1, ISBN 0-7337-3934-2, 207 pages, sback, A4 format, bibliography (mostly electronic citations), Standards Australia, Sydney NSW Australia.

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his work is a survey completed at the University of Technology, Sydney, Australia in support of a document with the lessthan-catchy title HB 275 – 2001 Knowledge Management: A Framework for Succeeding in the Knowledge Economy. I have not had access to the latter document, but the survey has value as a stand alone report, and merits stand alone comment. The document is of a format that appeals to a commercial audience in search of up-to-date and reliable information, presented in concise and readable form. It also includes many appealing coloured graphic illustrations. This provides a format that is worth studying by academic researchers who may well be interested in generating such materials. The temptation is to write in traditional rather dense and annotated mode, with too great a concern for one’s academic peers. The authors have largely avoided that pitfall. Yet, the clarity and simplicity of format derives from an under-stated conceptual understanding of the state-of-the-art issues of the topic. The book has two main components. The first of these is a general overview of knowledge-based business. This is followed by the bulk of the material, presented as case studies which are arranged in chapters across thirteen major commercial sectors.

Managing knowledge management Increasingly, in the management paradigm, knowledge is treated as packages to be managed. In managing this particular knowledge package, it seemed inappropriate for me to read it from cover to cover. Instead, I wandered around its pages, first trying to understand how the authors had set about their task, and what they had then done. # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

I looked carefully at the overview to learn what this knowledge management stuff is believed to be all about. Then I looked at samples of industries in which I have worked or studied, to learn about knowledge management practices, perhaps with advantage of some prior contextual experience. To begin at the end (why not?) I can report that the bibliography is thoroughly consistent with the book’s intentions. It is made up of roughly two hundred references, the vast majority of which are to web-sited materials. Inevitably, the materials are of recent origins, with most of then from 1999–2000. This gives the book a valuable immediacy. Without doubt, it offers a comprehensive and accurate view of the ‘best-practice’ knowledge management claims of leading international companies. The review summary indicates the conceptual preferences of the authors. ‘In the knowledge economy the basis of competitive advantage is the effective utilisation of knowledge resources’ (p1). The usual suspects of globalisation, accelerating technological change, shorter product life-cycles, and mass customisation are paraded as drivers towards a knowledge-management approach to organisational life. The equally unsurprising symptoms of poor knowledge management are also cited: knowledge hoarding, and ignoring; and information overload in strategic and operational activities. The remedies are better integration of knowledge management with business strategy; and better regard for the behavioural issues required to permit the changes to take place. There is a coherent argument here, although one I would like to examine a little more closely in this review. At one level, it seems to be rather widely accepted. I have sat in on several presentations from management consultants who offer the same broad picture,

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CREATIVITY AND INNOVATION MANAGEMENT

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while indicating the ways in which their particular approach has special merit. I have come across a similar set of assumptions and beliefs expressed or implied in reports on corporate change activities. IT follows the broad resource-based view of knowledge management found in various texts and in a survey of knowledge management by Fiddis (1998), (reviewed in CAIM Vol 8, No 2). At this level, then, the book is ‘fit for purpose’. It succeeds in capturing and summarizing a widespread set of beliefs about knowledge management.

Critique: For innovation read knowledge? As knowledge gurus Nonaka and Teece recently note ‘As research [on knowledge management] advances, it ought to be especially sensitive to preserving and building on the already significant literature concerning the management of technology, entrepreneurship, innovation and business strategy’ (Nonaka & Teece, 2001: 330). While there are differences in emphasis, a great deal that is being written here (and elsewhere) on knowledge management has a strong connection with the field of innovation management. The knowledge growth model suggested here could be neatly re-examined as an example of a stage model of innovation. Even the rationale for its growing importance (globalisation, accelerated technical change, etc) is familiar to readers of innovation articles and textbooks. The two fields of practice even have the shared ultimate difficulties associated with implementation. Here, the implementation of knowledge management is described as its embodiment. So much for the much venerated models traced to Nonaka & Takeuchi, (1995); & Nonaka, Takeuchi, & Umemoto, (1996). These models express knowledge management as a process within which embodiment and disembodiment progresses as in some Eastern creation myth of continuous improvement. It seems likely that knowledge management has similar grounds for appeal to those found within innovation writings. It can be reduced to principles and best-practice elements with the promise of corporate success. It has a near-universal reach for organisations. Indeed, perhaps knowledge management has an even wider reach into non-economic institutional groupings. Additionally, it can be conceived of as consistent with a rational

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planning and control paradigm, even if other perspectives are possible. Perhaps inevitably, the style leaves to the more critical reader any attempt to challenge the basis for claims of best practice. Suspicions remain that the authors have a great deal of faith in the structures they have established. The academic is left floundering in the wake of intranets that connect up employees worldwide, delivering up-to-date and reliable information. As I write, I am listening to a tale from UK 2001 in which such a system failed to provide accurate clinical information of diagnostic screening. Admittedly, knowledge workers are now familiar with the notion that information is only a basic building block from which knowledge is derived. However, the effective management of information still seems to me to be a necessary if not adequate step towards effective knowledge management systems. This, and other issues have been recently summed up by Nonaka and Teece (2001). They encourage work of the kind reported in Rollo, Clarke, and their colleagues. They warn, however, of over-optimism. They warn that more evidence is needed ‘to test the proposition that firm-level competitive advantage in open economies flows from difficult-toreplicate knowledge assets’ (p. 330). They also point to difficulties in quantifying intangible assets. This is one of the key theoretical points made to justify the costs of activities falling under a knowledge management budget, and presented as such by Rollo and Clarke. Despite these reservations, I believe the supplement delivers an intelligent and upto-date account of a topic of considerable practical and theoretical importance. As such, it is to be warmly welcomed.

References Fiddis, C. (1998) Managing knowledge in the supply chain, London, Financial Times Retail and Consumer. Nonaka, I. and Teece D. (eds.), (2001) Managing Industrial Knowledge: Creation, Transfer and Utilization. Sage, Thousand Oaks, CA. Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation. Oxford University Press, Oxford. Nonaka, I., Takeuchi, H. and Umemoto, K. (1996) A theory of organizational knowledge creation. International Journal of Technology Management, 11, 833–845.

# Blackwell Publishers Ltd 2001

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EDITORIAL Navigating the Knowledge Economy

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mploying the phrase knowledge management strategies is likely to have the ancient philosophers of just about every civilisation turning in their graves. How can you manage knowledge? Is not management about order, control and certainty and the production of knowledge about originality, freedom and creativity? And while some astonishing things have been claimed for strategy in recent years, to have a knowledge strategy seems to be stretching the imagination a little far. Will knowledge management join military intelligence as one of the finest oxymorons in the English language? It is possible this fate will befall knowledge management, and the energetic efforts of software salespeople to promote their new knowledge management tool or system as the answer to every organisation’s problems are definitely heading in this direction. However another more optimistic interpretation is possible. As the knowledge economy emerges the determination and resourcefulness with which companies are attempting to become more knowledge based is impressive. Ironically as universities – the traditional depositaries of knowledge – are being insistently pushed into becoming more like businesses, businesses as fast as they are able to are becoming more like universities. It would be wonderful to believe this was a result of a sudden discovery of the virtues of knowledge creation, but it is likely to have a lot more to do with the attractions of an inflated NASDEQ quotation.

# Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

The authors of the papers in this special issue survey the dimensions of knowledge management as one of the most powerful movements of contemporary organisations. Tim Ray and Steve Little consider how the Japanese approach to shared experience in the work place provides a foundation for the exchange of tacit knowledge. Michael Lester examines the legacy of experience of innovation systems in Australia, and the implications for the development of knowledge management systems. How knowledge management initiatives relate to the development of the core capability of organisations, and can stimulate the development of communities of practice is discussed by Christine Rollo and myself. As the search for knowledge extends far beyond the organisation’s boundaries, Antoine Hermens outlines the rapid proliferation of strategic alliances that sustain collaborative knowledge creation. Taking a more critical look at some of the implications of knowledge management, Roger Jenkins investigates the precursor to knowledge management of Enterprise Resource Planning (ERP). Will knowledge management allow multiple interpretive frames, or enforce rigid frameworks of acting and thinking? Finally Carter and Scarborough recognise in the attempt to manage knowledge how the knowledge capabilities of organisations are interwoven with relations of power. Thomas Clarke

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Communication and Context: Collective Tacit Knowledge and Practice in Japan’s Workplace ba Tim Ray and Steve Little In contrast to Schumpeter’s ‘‘perennial gale of creative destruction’’ (Schumpeter 1976: 84), government-coordinated economic development in post-1945 Japan has owed more to informal (but binding) ‘‘rules of the game’’ (North 1990) that situate working, learning and innovation within the spaces delineated by tightly bounded company-as-family workplace organisations or ‘ba’ (which roughly means ‘place’ or ‘interaction field’). Horizontal keiretsu groupings, together with fixed trading-patterns in supply and distribution chains, continue to support an interlocking ‘steady state’ economic structure in which new technologies tend to emerge from existing organisations. Shared experience within workplace ba generates tacit knowledge that is held in common by colleagues and retained as a potent tool for shaping future practice. It plays a vital role in facilitating ‘friction free’ communication amongst insiders, who can act as a group to ostracise and retaliate against agents who break their code. Long-term obligations link salaried male employees to their workplace ba. Consequently, autonomous boundary-spanning communities of practice, together with industry-university collaboration and other transient associations with outsiders, lack legitimacy. Cook and Brown’s (1999) pluralist epistemology is used to compare Western interpretations of Mode 1 and Mode 2 knowledge1 (Gibbons et al 1994) with the privileged role that Japan’s workplace ba accord to insider collective-tacit knowledge, which we tentatively call ‘Mode 3’ knowledge.

Introduction

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uch of the Western literature on national systems of innovation treats knowledge as if it were, ultimately, all of one kind and can be moved – in an unproblematic way – from one context to another. Similarly, the recent enthusiasm for Knowledge Management (KM) as a fashionable weapon in the unequal struggle with information (Scarbrough and Swan 2001), often presupposes that all relevant knowledge can be represented in explicit terms and ‘managed’. Although Nonaka and Takeuchi’s (1995) landmark study of Japan’s knowledge-creating companies drew Western attention to the importance of tacit knowledge, their focus on tacit-explicit ‘‘knowledge conversion’’ is often associated with a monist epistemology that somehow ‘captures’ tacit knowledge by making it explicit. But the process of ‘getting things done’ in the course of purposeful activity (hereafter referred to as ‘practice’) depends

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on many types of knowledge – such as intuition, emotion, judgement and skilled action – that are situated in specific contexts and cannot be objectified in a scientific sense (Spender 2001). As Michael Polanyi famously observed, ‘‘we can know more than we can tell’’ (Polanyi 1967: 4, emphasis in the original) and, while tacit knowledge cannot (by definition) be explained in explicit terms, it can be revealed in practice. By moving from a view of ‘knowledge as an object’, to a consideration of the processes by which practice is situated in particular contexts, it is possible to consider how explicit knowledge (held by individuals and groups) and tacit knowledge (held by individuals and groups) mutually enable practice. Whereas Western cultures have tended to accord a privileged status to individual thinkers and the scientific method, practice in Japanese society is heavily mediated by collectively held tacit knowledge. Although the ontological status of the group remains # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

COMMUNICATION AND CONTEXT

controversial, we adopt the stance that not every action by a human collective can be usefully or meaningfully reduced to an account of actions taken by individuals within them (Cook and Brown 1999). In part, the limited attention devoted to group tacitknowledge reflects expectations about hiring individual agents to do specific jobs. This is especially apparent in Anglo-Saxon business cultures, where managers routinely assume that any suitably qualified person could do the job. If the person fails, immediate options might include more training, more instructions, or the introduction of an individual who can rise to task in hand.2 Although the notion of knowledge held in common by a collective is sometimes sensed (for example when a team surprises itself with good performance in a crisis or when new staff make old mistakes), a failure to recognise what is being sensed can be frustrating. ‘‘If TI only knew what TI knows’’ – Jerry Junkins, when CEO of Texas Instruments ‘‘I wish we knew what we know at HP’’ – Lew Platt, chairman of Hewlett Packard (O’Dell and Grayson 1998: 154) In contrast, Japan’s workplace organisations typically ‘know what they know’ or, to be more precise, have a collective sense of what might be achieved in practice. Implicit expectations about long-term mutually binding links, between Japan’s more prestigious employers and their salaried male employees, are reinforced by a stigma against job-hopping and the lack of a significant labour market for specialists. Minimal labour mobility supports the ability of Japan’s workplace ba to act as leak-proof ‘social containers’ for collective-tacit or Mode 3 knowledge. This is a ‘‘free resource’’ (Penrose 1995: 78)3 that can be reused and strengthened, without extra cost, to enable economically significant practices. Although Japan leads the world in per capita R&D, most of this takes place in private companies, which represent largely self-contained spaces for continuous incremental innovation and collective learning as the corporate team conquers new challenges (such as in the shift from camera to photocopier technologies). Within the ba, intraorganisational communities of practice or micro-ba emerge and collide in a process of ‘generative churning’. This helps to prevent ossification, while organisational boundaries contain the energy of emergent micro ba and reflect it back into the generative churning process. Workplace ba insiders (us) deal with outsiders (them) as a collective and Western-style


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Mode 2 boundary spanning communities of practice initiated by individuals (acting as if they were free agents) lack legitimacy. And there are few signs that Japan is about to develop Mode 2 knowledge trading zones or ‘‘agora’’ (Nowotny, Scott and Gibbons 2001). As Michael Porter once noted, ‘‘University research is limited, and interchange between companies and universities is modest compared to a number of other nations’’ (Porter 1990: 397). Established mindsets and residual regulatory barriers (which constrain academic involvement in industry) suggest that this is unlikely to change quickly. Furthermore, first degree students who graduate from a highranking university are reluctant to jeopardise their chances of a permanent position with a leading employer through spending unnecessary years at graduate school; by international standards Japan produces few PhDs and MBAs. Like Mode 1 knowledge, Mode 3 knowledge is ‘remembered’ from the past. But the processes by which it acquires legitimacy and interacts with Mode 2 practice are wholly different. Whereas Mode 1 knowledge is carefully validated by peer review and might be used later (if indeed, it is ever used) by others, Mode 3 knowledge is generated by shared experience amongst its eventual users. Unlike the conscious selection or rejection of Mode 1 knowledge, Mode 3 knowledge is preconscious; tacit knowledge cannot be consciously ‘turned off’. Although distractions or attention paid to other activities might overshadow the impact of tacit knowledge, it has an ever-present ‘here and now’ quality. In the case of Japan’s workplace ba, Mode 3 knowledge kicks in automatically to facilitate collective working, learning and innovation. Far from being an oxymoron (Weick and Westley 1996), the Japanese learning organisation is a way of life. But what are the processes that situate practice, and hence emergent Mode 3 knowledge, in Japan’s workplace ba? In Japan, institutions – defined as ‘‘rules of the game’’ or humanly devised constraints that create order and reduce uncertainty in exchange (North 1990: 3) – are dominated by informal constraints (sanctions, taboos, customs, traditions, codes of conduct), rather than formal rules (constitutions, laws, property rights). Although Japan has an Americanstyle constitution (imposed by the Allied Occupation) and a legal framework that appears to guarantee individual rights, recourse to the law remains rare; there are few lawyers4 and a collective reluctance to acknowledge failures in the implicit code. Japan’s low crime rate and methods of doing business typically owe more to tacit conventions about how to read the intentions of

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others and act accordingly. These implicit rules are comprehensive; there is an established etiquette for dealing with every recurring aspect of daily life. They are also highly aligned (a common set of values ensures that the Japanese are rarely surprised by each other’s interpretation of the moral code) and binding (third-party enforcement is superfluous where repeated in-group interactions ensure that ‘the nail that sticks out gets hammered down’). Moreover, these implicit rules pre-empt recourse to explicit discussion; established practices forestall the evolution of new practices. The default option is to maintain the status quo according to contextspecific collectively held tacit constraints. And deeply ingrained implicit rules enable upper-level employers to engage male graduates for career-long periods. Accordingly, the principal-agent conflict interface (Jensen and Meckling 1976) is effectively displaced from the workplace ba by Japan’s institutional framework. More generally, everyone in Japan is on the same side; the discontinuity is between Japanese insiders and outside people.5 Advocates of global convergence, who cite advances in information communication technologies to support the idea that no formal organisation need or should come between the empowered individual and Marshall McLuhan’s ‘‘global village’’ (Brown and Duguid 1998: 90), often fail to acknowledge the nature and significance of Japan’s informal constraints. In some ways, the problem resembles trying to look through a slightly imperfect two-way mirror from the wrong side; outsiders might perceive that Japan is somehow different but, overwhelmed by their own reflections, dismiss dissimilarities as merely exotic or quaint. Possibly many of the Westerners, who once rushed to discover the secrets of Japan’s miracle growth, were bewildered by a society that does not conform to Anglo-Saxon expectations about objectivity, individual accountability and explicit reasoning. Japan’s social etiquette stresses the subtle art of indirect communication, ritualised understatement about one’s own achievements, and the significance of what is not said. Consequently, access to good translators does not necessarily provide visitors with access to meaningful conversations. Hard-hitting questions from outsiders – and especially the desire to know ‘why?’ – are typically countered by a polite search for more neutral topics of conversation. Solace for the new army of confused Japan watchers started to emerge in the early 1990s, when the country’s miracle growth faltered, just as the United States began to recover.

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Suddenly, it no longer seemed to matter that Japan’s differences remained largely incomprehensible and concerns that the country had perfected a superior form of capitalism gave ground to Anglo-Saxon triumphalism; its recovery would depend on becoming ‘more like us’. But the normative, teleological view of history as a march towards the market-rational ideals of individualism, impersonal market dealings and entrepreneurial innovation, is not consistent with Japan’s circumstances. It is the only G-7 economy whose traditional social values owe almost nothing to Mediterranean origins; the others share Judaeo-Graeco-Roman traditions and differences amongst them appear less pronounced when they are compared to Japan (Dore 1973: 419). Throughout its governmentcoordinated 150-year transition from latefeudalism to economic superpower, Japan has been effective at learning from abroad and re-engineering Western science and technology according to Japanese precepts; but it has done so without allowing Western institutions to interfere with a distinctly Japanese way of doing things. After reviewing the evolution of Japan’s steady state post-war economic development and the concept of ba as a way of interpreting Japan’s workplace practices, subsequent sections consider the distinctive nature of Japanese universities and Japan’s Mode 1 knowledge production. Finally, we consider how Cook and Brown’s (1999) pluralist approach might be used to reinterpret and extend the Mode 1 and Mode 2 debate to incorporate Mode 3 knowledge.

A Different Industrial History When Anglo-Saxon market-rational capitalism led the world into an industrial age, Japan was isolated from the international community. In 1603, the Tokugawa Shogunate established a government in Edo (now Tokyo) and in 1639 closed the country. Thereafter, it presided over a stable social order, without serious opposition, until 1853, when Commodore Matthew Perry delivered US demands for trade relations. The threat of military superiority implied by Perry’s ‘black ships’ (which have since become ingrained in Japan’s collective psyche as a potent icon of unjustified foreign interference) precipitated events that led, in 1868, to the Meiji Restoration, which many take to mark the birth of modern Japan. But this was neither a Norman Conquest nor a French Revolution; dominant groups in the old regime weakened, while subordinate or similar elements moved into



their place (Mason and Caiger 1972: 217). Under the slogan, ‘rich nation, strong army’ ( fukoku kyoˆhei), the Meiji government sought to build a prosperous nation that remained free from colonisation by a Western power. It took the initiative in almost every major industry; wasteful parallel investment was minimised and government control over the economy became automatic (van Wolferen 1990: 493). From the outset, Japan’s industrialisation was ‘‘plan-rational’’ ( Johnson 1992); instead of simply setting the rules of play (as in market-rational Anglo-Saxon economies) the Japanese government has been intimately involved with shaping the structure of industry and setting goals for innovation. In the early days of Japan’s industrialisation, there was a high rate of labour mobility amongst factory workers. But hire-and-fire contractual arrangements offended against implicit understandings about the Japanese way of doing things. Gradually employers started to strengthen links with their employees; providing various welfare benefits, company houses at nominal rent, and other payments in kind. By the end of the First World War, large companies had established a system of taking on boys leaving school each spring. Such recruits exhibited the cherished qualities of loyalty and a willingness to accept the workplace rules. In the 1920s and 1930s, uniforms for workers appeared along with badges and insignia denoting rank. Meanwhile, the war machine responsible for military expansionism accentuated the trend. It also pushed small and medium sized enterprises towards particular zaibatsu, thereby curtailing much of their freedom to negotiate business arrangements (Miyashita and Russell 1996: 117) as they became locked into fixed supply and distribution chains. Like a fixed formation of swimmers treading water, each workplace ba could work harder to improve its fitness, but do little to shift its relative position. After the Second World War, the Allied Occupation removed Japan’s military interests and unwittingly strengthened its ability to operate as a ‘‘plan-rational’’ state by freeing the civilian bureaucracy from its greatest rival (Johnson 1995: 29). When the occupation ended in 1952, the Ministry of International Trade and Industry was able to engineer the reformation of the military-era zaibatsu groups of companies (each of which had been owned by a single family) as bank-based keiretsu that are bound together by crossshareholdings, interlocking directorates, intragroup trade, and periodic meetings of member company presidents.


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Since James Abegglen coined the term ‘‘lifetime employment’’ in the 1950s (but later suggested would be better described as ‘‘career employment’’ or ‘‘social contract’’), it has emerged as one of the most misunderstood aspects of Japanese business practice. Many in the West have been apt to dismiss Japan’s lifetime employment as a luxury for ineffective workers or a threat to managerial efficiency that can no longer be afforded; but this misrepresents obligations that do not translate into the logic of hire-and-fire marketrational economies (Fingleton 1995, 1997). To be sure, not everybody in Japan works for life. Most women remain peripheral to core business conducted in the workplace ba. A decade after the introduction of legislation to guarantee equal employment opportunities for women, Lorriman and Kenjo (1996: 74) reported that women occupied less than 1 per cent of managerial posts, compared to 35 per cent in the United States. Japanese employers also rely on various categories of temporary employees who might, for example, work full-time alongside regular employers on a de facto permanent basis, but with lower status and pay. Nevertheless, the long-term employer-employee implicit commitment does apply to regular male workers in upperlevel organisations who would only be dismissed in extreme circumstances. During the first few years of a permanent job, it might be possible to ‘start again’ on the bottom rung of another firm’s salary ladder (despite much talk of merit-based careers, the number of years served continue to shape remuneration and promotion for most male salaried workers). Thereafter, even the most promising workers find it difficult to negotiate comparable employment with another Japanese organisation. Notwithstanding Japan’s recent increase in labour mobility from a very low base, it is difficult to sustain the position that Japan’s traditional values are about to melt down and be recast in the hire-and-fire image of Silicon Valley or similar icons of market-rational entrepreneurship.

The Japanese Concept of ba Although the Chinese character representing ‘ba’ roughly means ‘place’, the concept of ba is concerned with the interaction space (which might be real, virtual or a mixture of the two) within which purposeful activity is situated. The seeds of ba are derived from interaction amongst people who have something in common, together with an ability and willingness to communicate. Hence, Western notions of team spirit, camaraderie, esprit de

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corps (that arise when people interact with colleagues at work, communities of practitioners, or strike up a chance conversation with those who share a common interest) are consistent with the Japanese sense of emergent ba. Hiroyuki Itami (1992) has argued that ba comprise a bounded interaction field within which insiders develop their own ‘‘interpretation code’’ that gives meaning to information that might be conveyed by ‘‘information carriers’’ such as spoken language, documents, tone of voice or whatever. Hence, silent machines or excited engineers can become effective information carriers for those who share the necessary ‘‘interpretation code’’. And in a Japan’s workplace ba, much of this interpretation code relies on tacit knowledge that is held in common by organisational insiders. The Japanese anthropologist, Chie Nakane (1970: 4), argued that English words such as ‘company’ or ‘enterprise’ do not convey the meaning that the corresponding Japanese word ‘kaisha’ has for Japanese. In an extreme case, a company may have a common grave for its employees, similar to the household grave. With groupconsciousness so highly developed there is almost no social life outside the particular group on which an individual’s major economic life depends. The individual’s every problem must be solved within the frame. Thus group participation is simple and unitary. It follows then that each group or institution develops a high degree of independence and closeness, with its own internal law which is totally binding on members (Nakane 1970: 10). Nakane proposed that a kaisha’s bounded frame-of-reference could be understood in terms of ba, which may be a locality, an institution or a particular relationship that binds a set of individuals into one group: ‘‘in all cases it indicates a criterion which sets a boundary and gives a common basis to a set of individuals who are located or involved in it’’ (Nakane 1970: 1). Recently, Ikujiro Nonaka and his colleagues have adopted ba as the basis for a unified model of knowledge creation in Japanese organisations. . . . ba sets binding conditions for the participants by limiting the way in which the participants view the world. And yet it provides participants with a higher viewpoint than their own (Nonaka, Toyama and Konno 2000: 15). Despite writing three decades after Nakane and in an entirely different genre, notions of

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‘‘higher viewpoints’’ bear some similarity with the kaisha’s ‘‘internal law.’’ People in any culture tend to appreciate the ease of communication that can occur with ‘‘like minded’’ companions or ‘‘kindred spirits’’ who have an intuitive understanding of their thoughts. Most stable marriages do not need explicit rules about who puts the dog out. Likewise, Japanese employees – for the most part – do not have to be told what to do; they understand it implicitly. The sense of joint enterprise, mutual engagement and repertoire of communal resources (language, routines, sensibilities, artefacts, tools, stories, styles and so on) that is evident in Western style communities of practice (Wenger 2000: 228) are contained and amplified through years of generative churning inside Japan’s workplace ba. Long hours and after work socialising amongst colleagues foster the possibility of exploiting telepathy (ishin denshin) as an effective management tool. Within the bounded collective of insiders, the barest nuance of body language might convey more than strings of emails bounced amongst comparative strangers. In recollecting his experiences of being beaten by a Japanese team in a race to build an identical chemical plant, Harvey-Jones observed that: the Japanese plant built by a team which shared a single large office and lived, worked and dreamt together, twelve hours or more a day, during the whole time of the development and planning of the plant. They were each in each other’s minds and did not have to send a memo, or make a telephone call, to check the effects of, for example, locating a valve somewhere else. Any one of them could cover for anybody else exactly the same team which had done the designing were also involved in the construction. There was no hand over, no communication problems – the thing just flowed (Harvey-Jones 1993: 178). Achieving the effect of working and dreaming together embodies both the predisposition to act in a certain way and the ability to interpret the slightest of signals in a meaningful manner. Within Japanese organisations, age-based promotion enables managers to share information with colleagues without fear of being overtaken by subordinates. Age-related hierarchy contributes to a mental map of who should be treated with what degree of respect. This map guides the evolution of mutual understanding between senior managers and



their understudies. Over time the latter develop an instinctive sense of what finds favour with their boss and, by presenting him with a range of options, it is possible to execute his ‘instructions’ without anyone being told to do anything. The workplace ba’s collective sense of intention (we are all in this together) and ‘friction-free’ communication (facilitated by the insider’s near-perfect interpretation code) underpin many of Japanese management’s virtues. The challenge for Japanese management arises when wholly unexpected happens and, in the absence of consensus, practice is frozen by a fear of doing the wrong thing.

Mode 1 Knowledge in Japan The Western traditions that established Mode 1 positivist science as a superior form of knowledge are not commensurate with developments in Japan. By European standards, Japan’s higher education sector is a comparatively recent innovation. It began with the establishment of the University of Tokyo in 1877, which was initially modelled along European lines, with a Faculty of Science and no separate Faculty of Engineering. But, by the early 1890s, it had developed a strong base in engineering and agriculture. The formation of new universities replicated this emphasis on applied subjects, rather than science. However, these universities were essentially agencies for training bureaucrats and not equipped for research (Itakura and Yagi 1974: 166). Since the Second World War, the number of universities in Japan has increased by an order of magnitude and well over 40 per cent of 18-year-olds enter higher education (Barker 1996). But the idea that Japanese universities are Ivory Towers that underpin Japan’s networked basic research activities is problematic (Ray 1998). The higher-ranking universities have harder entrance exams and thereby select the country’s male elite for careers shaped by on the job training. Graduation is assured to those who pass the entrance exams, with the result that quality of teaching and research is not immediately relevant to a university’s status. . . . Japan’s universities are not places conducive to doing profound basic research. Most have rigid, hierarchical structures. Elderly faculty heads dominate the research programmes and publishing process. Intellectual dissent is discouraged. And in addition to having their ideas stifled, younger researchers often find themselves carrying out the grunt work


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that is done in America or Europe by technicians. Lack of money for support staff means that many people who would be better employed doing experiments are doing the washing up instead (The Economist 1996: 102). Writing after a decade of faltering economic growth, Michael Porter, together with Japanese co-authors Hirotaka Takeuchi and Mariko Sakakibara, posed the previously unimaginable question ‘‘Can Japan Compete?’’ and lent their voice to calls for significant reforms in Japan’s university system. Japan’s advanced education system has long left much to be desired. Not only is university and graduate-level training uneven in quality, but Japanese universities also fail to produce enough students in important disciplines, such as computer software and biotechnology. The number of Japanese college graduates who majored in biology-related subjects was 1,875 in 1996, versus 62,081 in the United States. The number of graduate students per 1,000 population was 1.3 students for Japan in 1996 compared with 7.7 in the United States (1994) and 3.5 in France (1995). The percentage of graduate students relative to undergraduate students in the same year was 6.9% in Japan, 16.4% in the United States, 21.3% in the United Kingdom, and 17.7% in France. (Porter, Takeuchi and Sakakibara 2000: 144) The authors argue that a vibrant university research system is fundamental to a nation’s research and comment that Japan is starting to show some signs of change. But the emergence of a research driven higher education sector and Mode 1 achievements of the type reflected in Nobel prizes remains limited. From the point of view of male graduates, the chance of securing a permanent job with a prestigious employer can be undermined by years spent attending graduate school. The possible career trajectories of permanent employees are largely predetermined by the status of the university where they gained their first degree, while salaries are a matter of years served with the organisation. A specialist skill does not command a premium salary; in the course of a career, employees will do many jobs and the ability to be a longterm team player is more important than a skill that might, in any case, be eclipsed by events as the group collectively conquers the ability to master new competencies. Despite having less than half the population of Japan, the United Kingdom produces about

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eight-times as many science doctorates per year. In social science, which is by far the largest single category of British doctorates, Japan’s output is negligible. Although Japan’s higher education profile is changing, as illustrated by rapid recent increases in MBA education (Okazaki-Ward 2001), this is not being accompanied by the emergence of labour-market that is capable of translating these qualifications into propellants for Western-style job-hopping and building a career by moving between organisations. Much of Japan’s success with the exploitation of Mode 1 knowledge been achieved by exploiting collective judgements in consensusbuilding exercises aimed at targeting exploitable areas of Mode 1 knowledge. When a desirable research goal looks possible, Japan’s coordinated policy process is typically able to ensure that resources are hanging in wait to exploit the possibilities. Although it takes time to build a consensus, extensive consultation makes it relatively easy to implement policies once they have been agreed. The consensus has value precisely because it is a consensus; powerful forces would act against any subsequent attempts to highjack or destroy the consensus. Certainty the decision by the United States Congress not to construct a super-conducting super-collider after such a flagship project was underway would be difficult to envisage in a Japanese context. During the early twentieth-century, the rise of the US electrical and German chemical industries focussed Japan’s attention on the need to develop an indigenous capability in these areas. In 1917, the Institute of Physical and Chemical Research or ‘RIKEN’ (which is an abbreviation of its Japanese title Rikagaku Kenkyuˆ-jo) was established as Japan’s first research institute. Despite a chequered history, RIKEN has emerged as Japan’s premier centre for basic research. In 1992, Nature referred to RIKEN as Japan’s leading light and a ‘‘remarkably dynamic research organisation that is fast becoming a truly international centre of excellence’’ (Nature 1992: 578). RIKEN has been at the vanguard of Japan’s efforts to increase public sector basic research. Its history incorporates domestic links that are interleaved with developments in government policy making processes, private companies and the university sector, while its reputation as a contributor to international progress in basic research6 enables it to act as an effective gate-keeper organisation for Japanese science. Its intimate connections with policy-making processes provide a space for pragmatic judgements from scientific, bureaucratic, and political circles to intermingle and shape policy. Meanwhile, RIKEN

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has expanded its original base in physics and chemistry to include engineering, biology, and medical sciences and – amid concerns about Japan’s ageing population – a Brain Science Institute was added in 1997. Throughout Japan’s so-called ‘lost decade’ of economic downturn, public sector research expenditure has continued to increase dramatically and, in the second half of the 1990s, it doubled. The total now represents about 1 per cent of GDP, which is on a par with allocations in Europe and the United States (Goto 2000: 107). But Mode 1 knowledge-production in Japan has emerged in tandem with practice according to agendas that are shaped by the need to add a new dimension of understanding to specific areas of practitioner experience.

Pluralist Epistemology While the scientific method and objective knowledge can be productive, JC Spender (1998) has developed the idea of pluralist epistemology as a valuable way of recognising that we know things in many different ways: visual, spatial, musical, kinesthetic, emotional, moral, erotic, spiritual, carnal, empathic, psychic, etc. – more than positivism, or any other philosophy that argues for a monist epistemology, dare admit (Spender 1998: 237). Writing in a similar vein, Cook and Brown (1999) have argued persuasively that different types of knowledge can be divided into four distinct types, on two intersecting dimensions, namely tacit (as opposed to explicit) and group (as opposed to individual) – see Figure 1 (a). They contend that each of the four categories is distinct and stands on an equal footing – ‘‘none is subordinate to or made up of any other’’ (1999: 382) – but these different knowledge types can be ‘‘mutually enabling’’ in the ‘‘active process of knowing’’ or practice. New knowledge is produced in a ‘‘generative dance’’ between knowledge tools that are possessed by individuals and groups (as indicated by, but not limited to, the examples in each of the quadrants) and the active process of knowing. Cook and Brown illustrate their vocabulary of concepts by re-interpreting and strengthening the insights Nonaka and Takeuchi’s (1995) insights. For present purposes, we borrow three points from Cook and Brown’s complex argument: (1) tacit knowledge is distinct from explicit knowledge, ‘‘it is not possible, under any circumstances, for tacit knowledge to become explicit (or vice versa)’’



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(a) - Knowledge and Knowing Adapted from Cook and Brown (1999)

(b) - Mode 1 knowledge as a tool, Mode 2 knowing as practice

(c) - Mode 3 knowledge as a follective tacit tool of knowing

Figure 1. Knowledge types and modes (Cook and Brown 1999: 397)7; (2) knowledge held by an individual is distinct from knowledge held in common by a group and; (3) all four types of knowledge in Cook and Brown’s typology interact to enable practice and, in the process, generate new knowledge. Whereas Nonaka and Takeuchi propose that tacit knowledge is something that ‘‘cannot be articulated very easily’’ (1995: 8), Cook and Brown (1999: 397) remain faithful to Polanyi’s idea that it cannot be expressed at all; hence they comment that ‘‘it is not possible, under any circumstances, for tacit knowledge to become explicit (or vice versa)’’ (Cook and Brown 1999: 397). For example, the


tacit knowledge required to ride a bicycle can be used, in practice, without any sense of tacit knowledge becoming explicit. An emergency stop can be initiated before the driver is conscious of seeing a child running into the road; waiting for tacit-explicit ‘‘knowledge conversion’’ would imply a higher accident rate. Tacit knowledge acts directly on practice in a pre-conscious way and cannot be captured in KM-style ‘knowledge audits’. An orchestra might retain the collectively held tacit knowledge to play to a certain standard when all of its members are asleep, but an indication of what they have remembered is only revealed when they play.

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Cook and Brown’s recognition of the ontological status of the group also contrasts with Nonaka and Takeuchi’s idea that ‘‘knowledge is created only by individuals’’ (1995: 239). In Nonaka and Takeuchi’s model of a knowledge creating ‘‘spiral’’, modes of tacit-explicit knowledge conversion involve a growing number of individuals: ‘‘organizational knowledge creation is a spiral process, starting at the individual level and moving up through expanding communities of interaction that crosses sectional, departmental, divisional, and organisational boundaries’’ (1995: 72). Hence, they posit an ontological continuum from the individual to the wider community, with the implication that (given sufficient effort) different types of knowledge can converted into a common currency and moved from one context to another. But what about the ‘‘interpretation code’’ (Itami 1992) that renders information comprehensible and meaningful in a particular context? Japan’s group-oriented society encourages a highly developed awareness about who is inside and who is outside each of its myriad nesting and overlapping collectives. And as Nakane (1970) argued, the boundaries of the workplace organisation or kaisha are especially formidable. But Nonaka and Takeuchi’s spiral metaphor implies that knowledge generation spans boundaries as if they were a seamless continuum. Thus, they appear to assume away (1) the role that Japan’s institutional framework plays in situating knowledge-generating practice inside Japan’s workplace ba and (2) the possibility that (through a complex dialectical process) groups influence the personal knowledge created by their members. Although Nonaka and his colleagues subsequently adopted ba as a platform for knowledge creation, they retained a spiral-style approach that does not engage with Japan’s wider institutional context as a factor in delineating insider-outsider boundaries. the knowledge creating process is not confined within the boundaries of a single company. The market, where the knowledge held by companies interacts with that held by customers, is also a place for knowledge creation. It is also possible for groups of companies to create knowledge. If we further raise the level of analysis, we arrive at a discussion of how so-called national systems of innovation can be built. For the immediate future, it will be important to examine how companies, government and universities can work together to make knowledge creation possible (Nonaka, Toyama and Konno 2000: 30).

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As we have discussed, Japan’s firms, governmental processes and university sector operate in a way that differs from other G-7 countries; but to understand why this is the case, it is important to consider the institutional context in which Japanese firms, universities and firms are situated. Figure 1(b) illustrates how the Mode 1 and Mode 2 debate might relate to Cook and Brown’s typology. While Mode 1 knowledge can be understood and used by individuals, its validity is determined by peer review and a collective understanding of the scientific method. The ability to use an aspect of a science does not privatise that knowledge, although it might leverage personal concepts in the privacy of an individual personal thought processes. In ‘‘the active process of knowing’’ or Mode 2 practice, different types of knowledge mutually enable practitioners to solve problems framed ‘‘in the context of application’’ (Gibbons et al 1994) and generate new knowledge. But in Western contexts, the types of new knowledge that tend to be valued lie in the explicit quadrants (depicted by darker shading in Figure 1). Many KM techniques aim at representing different types of knowledge in terms of an explicit story that carries across contexts. Indeed the use of stories to explain one thing in terms of another is receiving considerable cross-contextual attention as a springboard to leverage communication (Denning 2001). Clearly, story telling or any other communication process relies on tacit knowledge, but this contribution is often misrepresented as ‘knowledge conversion’ or ‘knowledge capture’. Moreover, the particular case of Mode 3 (or group tacit-knowledge) – shown in Figure 1(c) – is often disregarded. A pluralist approach suggests a useful way of recognising that different types of knowledge can contribute to practice without losing their intrinsic identity because of ‘conversion’; insisting that knowledge is all of one type can have severe consequences.

Conclusion By the late-1990s, the US knowledge-based ‘productivity miracle’ reassured many Westerners who, a decade earlier, had been concerned that Japan’s miracle growth embodied a new and superior form of capitalism. Suddenly, it appeared as if Japan’s incomprehensible differences were no longer an issue; Anglo-Saxon capitalism had established knowledge as the engine for a new era of growth. Meanwhile, progress in information communication technologies and KM threatened



to dissolve the barriers associated with contextspecific knowledge. According to Porter, Takeuchi and Sakakibara, Japan’s abililty to compete can be understood according to universal principles. Our study of Japan’s competitive and uncompetitive industries has generated findings that are consistent with what we know to be universally true about the competitiveness of nations: vigorous competition in a supportive business environment free of government direction is the only path to economic vitality. Japan is not a special case after all (Porter, Takeuchi and Sakakibara 2000: 100) Nevertheless, their conclusion sounded a less strident note: To develop a comprehensive solution, Japan will need to embrace some elements of the Western approach, much as it has done in the past. The result, however, will not be a clone of American capitalism but a new and distinctly Japanese conception of competition. Where will the uniqueness lie? (Porter, Takeuchi and Sakakibara 2000 188), Our stance is that Cook and Brown’s (1999) use of a pluralist epistemology to reinterpret and strengthen Nonaka and Takeuchi’s (1995) many agenda-setting and important insights provides a useful way of avoiding the problems of trying to reconcile interpretations of Japan in terms of what is ‘‘universally true’’ or ‘‘unique’’. The search for universal truth according to the scientific method has been intellectually and economically productive, but it only represents one way of resolving uncertainty and improving practice. By applying Cook and Brown’s framework to the Mode 1 and Mode 2 debate, it is possible to identify different tools of Mode 2 knowing. In this respect, situated group-tacit or Mode 3 knowledge would appear to be particularly important as a tool for enabling practice within Japan’s workplace ba. In contrast to Western concerns about better exploiting Mode 1 science in Mode 2 knowing, Japan is building on practice to target rapid increases in expenditure on Mode 1 science. But the selection process is heavily mediated by Mode 3 judgements about the type of Mode 1 science that would best improve subsequent economic and social benefits. Arguably, the challenge for improved interpretations of working, learning and innovation lies in relating a pluralist representation of the different types of knowledge that mutually enable practice to a pluralist representation of the institutions that shape


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the evolution of choice sets. Informal constraints are distinct from formal rules and neither can become the other. Although they might achieve similar outcomes, they do so by different means. Japan illustrates a context in which the informal constraints dominate; it also provides reasons for questioning assumptions about the normative teleological march towards Anglo-Saxon capitalism.

Notes 1. Mode 1 knowledge production is conducted according to the disciplinary structure associated with traditional universities, whereas Mode 2 knowledge involves the reflexive production of trans-disciplinary knowledge to solve problems framed in ‘‘the context of application’’ (Gibbons et al 1994). 2. Herbert Simon took the extreme view that: ‘‘All learning takes place inside individual human heads; an organization learns in only two ways: (a) by the learning of its members, or (b) by ingesting new members who have knowledge the organisation didn’t previously have’’ (Herbert Simon 1990: 125). 3. The resource is ‘free’ to those who hold it in common, but it cannot be traded with outsiders. In this sense, Mode 3 knowledge equates to Spender’s (1998) notion of a ‘‘public good’’ in a bounded context. Its value lies in enabling insiders to interpret the public good’s meaning as a tool of purposeful activity. 4. In 1999, Japan had 16,800 licensed lawyers compared to 900,000 in United States. 5. The differences between inside and outside, along with related dichotomies represented by differences between the public fac¸ade and true feelings or outward appearance and inner reality are deeply ingrained in Japan’s language and social behaviour (Doi 1986). The Chinese characters used to write the popular Japanese term for foreigner (gaijin), literally mean ‘outside person’. 6. RIKEN has constructed major research facilities in the UK and US. It has concluded research collaboration agreements with institutes across the world and in 1999 was host to some 600 overseas scientists who spent an average of oneyear at the institute. 7. Each type of knowledge does work that the other cannot, but neither is consumed or diminished by its use, as might be implied by ‘conversion’ (for example, converting pounds into dollars consumes pounds). Knowledge is generated through purposeful activity, as connoted by the metaphor ‘practice makes perfect’.

References Barker, B. (1996) Japan: A Science Profile. The British Council, London. Brown, J. and Duguid, P. (1990) Organizational learning and communities of practice: towards a

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unified view of working, learning and innovation. Organization Science, 2, 1, 40–57. Brown, J. S. and Duguid (1998) Organizing knowledge. California Management Review, 40, 3, 90–111. Cook, D. and Brown, J. S. (1999) Bridging epistemologies: the generative dance between organisational knowledge and organisational knowing. Organisation Science, 10, 4, 381–400. Denning, S. (2001) The Springboard: How Storytelling Ignites Action in Knowledge-era Organizations. Butterworth Heinemann. Doi, T. (1985) The Anatomy of Self. Kodansha (First English edition). Dore, R. (1973) British Factory Japanese Factory: The Origins of National Diversity in Industrial Relations. George Allen & Unwin. Economist (1996) Science and technology: back to basics in Japan. 25 May, 102.. Fingleton, E. (1995) Jobs for life: why Japan won’t give them up. Fortune, 20 March, 79–84. Fingleton, E. (1997) Blindside: Why Japan is Still on Track to Overtake the U.S. by Year 2000. Kodansha International, (First edition, Houghton Mifflin, 1995). Gibbons, M., Limoges, C., Nowotny, H., Schwartzman, S., Scott, P. and Trow, M. (1994) The new production of knowledge: The dynamics of science and research in contemporary societies. Sage. Goto, A. (2000) Japan’s national innovation system: current status and problems. Oxford Review of Economic Policy, 16, 2, 103–113. Harvey-Jones, J. (1993) Managing to Survive, Mandarin. Huff, A. (2000) 1999 Presidential Address: changes in organisational knowledge. Academy of Management Review, 25, 2, 288–293. Itakura, K. and Yagi, E. (1974) The Japanese research system and the establishment of the institute of physical and chemical research. In Nakayama, S., Swain, D. and Yagi, E. (eds.), Science and Society in Modern Japan. MIT Press. Itami, H. (1992) Firm as an informational ‘ba’ (interactive field). In Ijiri, Y (ed.), Information and Internationalization. Carnegie-Mellon University Press. Jensen, M. and Meckling, W. H. (1976) Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. Johnson, C. (1992) MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975. Charles E. Tuttle. Johnson, C. (1995) Japan: Who Governs? The Rise of the Developmental State W. W. Norton and Company. Lorriman, J. and Kenjo, T. (1996) Japan’s Winning Margins. Oxford University Press. Mason, R. and Caiger, J. (1972) A History of Japan. Charles E. Tuttle, Tokyo, p. 217. Nakane, C. (1970) Japanese Society. University of California Press. Nature, (1992) RIKEN - Japan’s leading light, 359, 578, 15 October. Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company: How Japanese companies Create

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the Dynamics of Innovation Oxford University Press. Nonaka, I., Toyama, R. and Konno, N. (2000) SECI, Ba and leadership: a unified model of knowledge creation. California Management Review, 33, 5–34. North, D. (1990) Institutions, Institutional Change and Economic Performance. Cambridge University Press. Nowotny, H., Scott, P. and Gibbons, M. (2001) ReThinking Science: Knowledge and the Public in an Age of Uncertainty. Polity Press. O’Dell, C. and Grayson, C. J. (1998) If only we knew what we know: identification and transfer on internal best practice. California Management Review, 40, 3, 154–74. Okazaki-Ward (2001) MBA Education in Japan: Its current state and future direction. Journal of Management Education, 20, 3, 197–234. Penrose, E. (1995) The Theory of the Growth of the Firm. Oxford University Press. Polanyi, M. (1966) The Tacit Dimension. Routeledge & Kegan Paul. Porter, M. (1990) The Competitive Advantage of Nations. The Free Press. Porter, M, Takeuchi, H. and Sakakibara, M. (2000) Can Japan Compete? Macmillan. Ray, T. (1998) Collaborative research in Japan and the west: a case study of Britain’s response to MITI’s fifth generation computer initiative. In Hemmert, M. and Oberla¨nder, C. (eds.), Technology and Innovation in Japan. Routledge, pp. 151– 169. Scarbrough, H. and Swan J. (2001) Explaining the diffusion of knowledge management: the role of fashion. British Journal of Management, 12, 1, 3–12 Schumpeter, J. A. (1976) Capitalism Socialism and Democracy. George Allen and Unwin. Simon H. (1992) Bounded rationality and organisational learning. Organization Science, 2, 1, 125– 134. Spender, J. C. (1998) Pluralist epistemology and the knowledge-based theory of the firm. Organization, 5, 2, 233–256. Spender, J. C. (2001) Knowledge management, uncertainty, and an emergent theory of the firm. In Bontis, N. and Choo C. (eds.), The Strategic Management of Intellectual Capital and Organizational Knowledge. Oxford University Press. van Wolferen, K. (1990) The Enigma of Japanese Power: People and Politics in a Stateless Nation. Macmillan/PAPERMAC. Weick, K. and Westley, F. (1996) Organizational learning: affirming an oxymoron. In Clegg, S., Hardy, C. and Nord, W. (eds.), Handbook of Organization Studies. Sage, pp. 440–458. Wenger, E. (2000) Communities of practice and social learning systems. Organization, 7, 2, 225– 246.

Tim Ray and Steve Little are at the Open University Business School


INNOVATION AND KNOWLEDGE MANAGEMENT

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Innovation and Knowledge Management: The Long View Michael Lester The challenge of the e-Economy is one of technological change and the innovation process affords insights into how this new knowledge can be harnessed across the economy to increase productivity and generate wealth. The conceptual framework for this paper is National Systems of Innovation (NSI) as applied to Australia Edquist (1997); Freeman (1995). NSI allows us to take a holistic view of innovation that realistically blends technology with institutional elements, particularly including issues of collaboration. Taking a Long View (Schwartz (1991), that is, looking back on the legacy of experience with the innovation process, will also facilitate looking forward strategically from Australia’s current practices, and to speculate on the prospects. This paper illustrates selectively and not comprehensively1, from my own direct experience, the evolution of innovation policies in Australia and speculates on their implications for collaboration in the e-Economy by drawing on selected case studies in Research and Development, Industry and Trade, and the e-Economy. It also draws upon work for my doctorate in knowledge management at the University of Technology. The selection and synthesis of theory inevitably also reflect, however idiosyncratically, my academic training in engineering, politics and economics.

National Systems of Innovation

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echnological change and innovation have traditionally been seen as a linear process of diffusion of knowledge, from basic, to applied research, to development and commercialisation of product and process improvements. More realistically, it is recognised that there is a high degree of feedback along this spectrum, involving interaction and relationships between many different parties. Science push from the laboratory needs to be matched by pull from the market. Firms never innovate in isolation and in fact, interact with other organisations, including other firms (suppliers, customers, competitors, allies), and organisations such as educators, financiers, manufacturers, regulators, and consumers. NSI sees innovation as emerging from within these specific institutional frameworks, which variously constrain and provide incentives for the creation and use of knowledge, and treats them in a holistic, non-reductionist manner. While not yet a fully developed theory, the NSI conceptual framework, caught on fast during the 1990s. The term was first coined in the late 1980s by Lundvall (1992). For an earlier path breaking attempt reviewing and # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

integrating the literature on innovation and technology policy see Rothwell and Zegveld (1985). and more recently, OECD (1997). The framework also provides an alternative to the conventional neo-classical economic growth theories. Capital and labour are the main drivers in standard growth theories, leaving technological change as an unexplained residual contributor. So called new growth theories (Romer 1994), place innovation at the centre of what has so colourfully been described as ‘‘the creative gales of destruction’’ (Schumpeter 1953) which drive capitalism. NSI emphasises the interactive learning that takes place between the networks of organisations and institutions within the innovation system, particularly between users and producers. Such systems of innovation operate in a complementary manner at various levels of spatial aggregation, global, national, state, regional and local. In part for that reason and because they permit comparisons of differing systems they have provided a useful analytical construct and resource allocation framework for policy makers at all levels of governments. But arguably, and consistent with Porter’s framework for the competitive-

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ness of nations, it is still at the national state level that they operate at their most influential. In summary, NSI provide a holistic institutional framework for considering innovation as a process of interactive learning, or collaboration, in the emergence and diffusion of knowledge.

Research and Development Australia historically has a world class reputation for its research in agriculture and medicine, both largely funded and conducted by government, through CSIRO, the teaching hospitals and universities in general. During the late 1970s the debate focused primarily on the negative impact of technological change on employment, particularly in the crucial publicly owned telecommunications sector in response to union action that was addressed at the request of government by Sir Rupert Myers Committee of Inquiry (1979). In the mid 1980s there emerged an active debate on R&D policy in Australia and a number of significant policy changes were made, particularly in pursuit of improved competitiveness for the economy through innovation Later in the 1980s the focus shifted to promoting international competitiveness as reflected in ASTEC (1985a). As a result, government research agencies were restructured, most notably, the CSIRO to more closely align their research priorities with national economic priorities. CSIRO was for the first time required to achieve a mandated level of selffunding from its users, set according to international benchmarks, at around 30%, in part to bring it into closer collaboration with the private sector (ASTEC 1985b). A tax concession for R&D was introduced for the first time in 1986, set at 150% with an estimated revenue foregone of about $100m, making it the most attractive in the OECD. The rationale was based on Australia’s low international rankings for R&D expenditure as a percentage of GDP, and its relatively high proportion of government funding and conduct of R & D, at about the average for OECD countries (About 0.4:1 compared to an average of 0.5:1 for OECD countries at the time). The logic was that the low levels of private sector spending needed to be addressed through government incentives, which in part were structured to shift the balance towards more costly development expenditure. They were also designed to lift the profile of R&D with corporate boards and to provide an incentive for the outsourcing of applied research to public sector agencies, thereby improving the linkages and co-operation between them.

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Issues related to basic research and its infrastructure, particularly in the universities, were addressed through reviews of the principle granting mechanism the Australian Research Grants Committee (ARGC). It was recognised that not only was the supporting infrastructure of equipment and facilities running down, but that the grant allocation procedures based solely on peer review were not reflecting national economic priorities and that Australian research lacked the critical mass it needed to match the quality of the best research in the world. Among the subsequent policy innovations was establishment of the Australian Research Council (ARC) in place of the ARGC with enhanced funding and re-focused priority setting processes for resource allocation. The Cooperative Research Centres (CRC) program was launched later designed to build critical mass of a world class in key areas of research activity at universities. Substantial new, additional funding was provided to CRCs which established national networks among research facilities, supported by the rapid emergence of computer and communication technologies that facilitated virtual collaboration. To access government money CRCs were also required to attract matching private sector corporate funding and involvement in and ownership of the research programs undertaken. These R&D initiatives were taken in a policy context that sought to enhance the international competitiveness of the Australian economy by harnessing its scientific brains and know how through the innovation process. They represented a significant rhetorical and practical shift away from earlier debates about government research funding, which often gave the appearance of self-interested calls for more public money for government and university researchers. An interesting early exception was the government funded Research Associations program established just after the war. Their objective was to conduct co-operative research and technology programs among firms in a given industry to promote industry competitiveness. See Bureau of Industry Economics (BIE) (1986) for a review of the Research Association and other programs undertaken in the light of the announcement of the introduction of the 150% tax incentive for R &D during the coming financial year 1986/87. They recognised the importance of linking research to the end user and the market place, and the crucial role of private sector firms in capturing the economic benefits of new technology and knowledge. In those respects they moved beyond simple-minded ideas of



science push, recognising the importance of demand pull factors and the benefits of interactive learning and collaboration between the various organisations. Although based on neo-classical economic constructs of market failure, externalities and public and public goods as reflected for example in BIE (1986) they arguably move beyond that to a more sophisticated appreciation of issues of collaboration and complexity as reflected in NSI models. Institutional factors and indeed politics loomed large in these debates. Barry Jones as Minister for Science, backed by his Department, was an early, visionary and articulate advocate in the cause of the new ‘‘sunrise industries’’, calling upon the ‘‘sleepers to wake’’ to the new postindustrial technology paradigm of electronics, computers and telecommunications (Jones 1982;1986). There were failed attempts to construct and launch a National Technology Strategy by the Department of Science. The Department issued a Discussion Paper but a Policy was never put in place by government. Interestingly in the context of this current paper, they earlier released a discussion paper on the ‘‘Information Society’’. In his preface to Department of Science (1982) A National Information Policy for Australia, Minister Barry Jones says: ‘‘I must emphasise that it is not a Government policy document and has no immediate budgetary implications’’. The Department of Industry, Technology & Commerce under the influential industry Minister, Senator John Button was overseeing a fundamental review of industry policy. The government’s Chief Science Adviser, Professor Ralph Slatyer, Chairman of ASTEC, reported directly to the Prime Minister, and was supported by an independent secretariat within the Prime Minister’s department (Stocker 1997). The Treasury was a significant player in regard to science funding and of course, in regard to the tax-concession which it opposed. The government budget for science and technology became the focus of close public debate, facilitated by a new special Science & Technology Statement supplement published with budget papers. The Department of Science prepared detailed Science and Technology indicators, based in part on OECD definitions and guidelines which broadened progressively beyond the initial narrow definitions of R&D expenditure. The scientific community itself became more active in the public debates, through its existing scientific associations and bodies, such as the Academies. It came together in a new Federation of Australian Science and Technology Societies (FASTS) to broaden its


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constituency, and participated in new annual science and technology in the budget forums for which they prepared analyses and critiques. National Science & Technology Analysis Group (NSTAG) (1986). This was the first budget analysis prepared jointly by the key grouping of the Australian Academy of Science, Australian Academy of Technological Sciences, Federation of Australian Scientific and Technological Societies, and Institution of Engineers, Australia. It sought to ‘‘open up a new discussion’’ between government, industry and scientists and technologists in the face of budgetary pressures for government deficit reduction, and ‘‘to avoid emphasis on particular sectional interests’’ in an ‘‘awareness of fundamental structural changes in Australian relationships with the global community, the role of S&T in other economies in bringing about those structural changes, and the role which Australian S&T may play in redressing trade imbalances’’, (NSTAG 1986:1). The OECD (1985) conducted an independent review of Australia’s science and technology policies. That review formally cemented the broader innovation perspective by placing the issues of competitiveness, collaboration between government and industry on research, as well as education and taxation clearly on the national science policy agenda. In summary, this potted history of R&D policy in Australia illustrated by selected examples from my experience with the Department of Prime Minister, ASTEC and the OECD, attempts to demonstrate there was a move towards appreciation of the elements of a national system of innovation. Although not necessarily invoked as a concept in itself at the time it was driven by the growing pressures for global competitiveness of industry and the economy and emerged from a complex interplay of domestic politics and institutions making up that complex system. It facilitated the creation and diffusion of knowledge and technological change through linkages, collaboration and learning between a wide range of firms, organisations and institutions. You could call it an exercise in knowledge management at a national level.

Industry and Trade The history of Australian trade and industry policy post the second world war was dominated by a highly protectionist import tariff regime for a small, inward looking, manufacturing sector and attempts to gain market entry concessions under the GATT

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regime for Australia’s highly competitive agricultural and mineral commodity exports. Reform to a more competitive domestic environment was slow for many years and undertaken through a long series of industry specific public inquiries undertaken by the Tariff Board and its successor the Industries Assistance Commission (IAC), which made transparent the costs and inefficiencies of protection. Lloyd (1978) provides a short history of protection policy and reviews the early work of the Tariff Board and its successor the IAC established in 1973. See also, for example, Industries Assistance Commission (IAC)(1981) and IAC(1983), the IAC was subsequently succeeded by the Industry Commission and then by the Productivity Commission as it is currently known, reflecting its ever-changing mandate and role. Reform accelerated following the floating of the dollar and the opening up of banking to foreign competition in 1983. Keating (2000) provides an account by the Labor Prime Minister and Treasurer at the time of these initial deregulatory reforms in response to the forces of globalisation. It created an environment for the development of new, more proactive trade and industry policies, focused in part, on enhancing industry and national competitiveness through technology and innovation. In a series of three influential books published between 1980 and 1990, Michael Porter of Harvard articulated a conceptual framework for competitive advantage at the industry level, for competitive strategy at the level of the firm and for competitive advantage of nations (1980; 1985;1990). At the level of the firm his key construct is that of the generic value chain, which provides a systematic way for examining all the activities of a firm and how they determine competitive advantage. It does this by dis-aggregating the firm into strategically relevant activities to understand behaviour of costs and existing and potential sources of competitive advantage, by performing these more cheaply or better than the competition. At the national level he seeks to explain the role in the innovation process that drives or constrains competitive strategy at the firm level. His key construct is the so called ‘‘Porter Diamond’’ showing the interaction between the four broad groups of factors that determine national advantage in a given industry: factor conditions; demand conditions; firm strategy, structure and rivalry; and related supporting industries. These factors interact dynamically and are mutually dependent; in the process they determine how well the economic, social, historical, institutional and cultural features

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create and transmit the forces of competitiveness to firms. The Australian Trade Commission (AUSTRADE) was established in the mid 1980s as an independent statutory body to support Australian exporters, within the Industry portfolio, taking over from the long established Trade Commissioner Service arm of the Department of Foreign Affairs. Austrade subsequently put in place a number of industry sector specific activities designed to bring together key firms in collaborative and pro-active strategies for export market development, particularly into the Asian region, then growing very rapidly on the back of their own export-oriented development strategies. For example, a number of sector specific export groups were constituted within the broad scope of engineering related industries, such as railways (ARIC), energy (AUSTENERGY), agricultural technology (AGRITEC), marine, environmental, and infrastructure projects. These brought together on a national basis the key players, including large and small, private and public, domestic and multinationals, in a collaborative and knowledge sharing environment, to develop agreed strategies and put in place coordinated activities of marketing and policy advocacy. The underlying concept was to offer an integrated Australian-supplied ‘‘solution’’ (rather than just isolated products) to the needs of overseas clients. The aspiration was to bring together specific purpose consortia on a project basis, that spanned the full value-chain of planning, design, financing, construction, equipment, training, and operation and maintenance. The membership and network also included related specialist, business service providers such as financiers, lawyers and researchers. These groups had mixed success. They were largely successful in sharing knowledge and learning in the form of market intelligence and experience in overseas markets, and in cooperating in a united front to make representations to government for assistance in overcoming barriers to market access and competitiveness. Their shortcomings stemmed largely from the internal difficulties they faced in overcoming normally competitive relations between member firms and achieving true commercial collaboration based on relationships of enduring trust, for example, contractors v suppliers, domestic v multinational companies, big v small companies, even inter state rivalries. From the mid 1990s, state governments became increasingly pro-active in economic development issues, including infrastructure projects involving private sector financing



and operation attraction of investment in the form multinational regional Asia Pacific headquarters, or major events, and to a lesser extent, industry development, export promotion, and innovation policies. Their principle objectives were job retention and creation, particularly involving small business and regional areas. They became engaged in high profile ‘‘bidding wars’’, championed by Premiers and Treasurers, offering financial incentive packages, usually in the form of foregone state tax revenues, and facilitation in cutting red-tape approval processes, especially for planning and environment (Industry Commission 1996). At that time, the NSW Premier’s Department Office of Economic Development and subsequently the Treasurer’s Department of State and Regional Development put in place a series of pro-active industry specific sector strategies designed to stimulate development as measured by jobs, investment, exports and innovation. These included strategies for a number of high-technology, knowledge-based sectors such as defence and aerospace; information technology, computers and communications; health, medical and biotechnology; and environmental services. The institutional mechanisms and types of activities put in place varied widely according to the particular characteristics of the industry represented within the state. The underlying concept was value-chain integration and cluster development Although hampered by a lack of data on inter-firm linkages at the state industry level strategic clusters of capability were identified (DSRD 1996). These were placed in a relevant national industry sector context, in terms of measures such as size, number of firms, employment, exports, R & D, etc. It was also possible usually, from local data to identify local geographical clusters of related and supporting activities of suppliers and customers in the metropolitan, suburban or regional areas. Generic industry value chains were used to locate and assess strategic capability, competitiveness and relationships of firms. National econometric projections dis-aggregated to the industry and state levels formed a basis for assessing development and investment opportunities, supplemented by project specific opportunity identification. Using the Porter diamond framework, the key determinants of strength and weakness were identified as a basis for development activities. In retrospect, the achievements from a clustering theory point of view were modest. Porter (1996) invokes a new competitiveness paradigm for geographic clusters based on a


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capacity to innovate. Brown (1996) reviews experience overseas and concludes ‘‘policy makers in Australia have not fully appreciated the potential benefits of clustering’’. Mortimer (1997) called for adoption of a high growth objective to respond to the lack of ‘vision’ for Australia’s economy and the lack of a cohesive industry policy to integrate and guide the proliferation of uncoordinated business programs. The potential benefits of agglomeration economies, technology diffusion, positive externalities and technology spill-overs and collaborative learning in general were rarely realised. In a few instances, groups were formed of a general and issue specific nature, to drive particular initiatives, such as lobbying government procurement or the IT&C industry, developing export plans for health education services, and bringing together biotechnology start ups with financiers. Major events, such as Australian Fashion Week and the Australian Film Institute Awards, were staged acting as a nucleus for industry show-casing and networking. Major investment projects, often Asia Pacific Regional Headquarters (RHQs) attracted and facilitated by a joint Program between the Commonwealth and State governments, were the most visible achievements. To varying degrees these fostered and brought together linkages between numbers of firms in collaborative clusters, eg, the Fox Film Studios, and especially defence related projects with a strong regional focus such as the Minehunters and Lead in Fighter at Newcastle and Navy Helicopters at Nowra where an aviation park facility was developed. There were spontaneous clusterings aound the city and suburbs in places such as Epping Macquarie high technology, pharmaceuticals and media, and North Sydney’s software and computers cluster. The Australian Technology Park (ATP) at the old Redfern railway yards was the only pro-active attempt to create a high tech university industry park. Overall, the Australian experience of the selected and illustrative trade, industry and innovation policies and programs over the period surveyed here underlines the underlying lack of a clearly articulated and widely shared vision of the future role and contribution of business, technology and exports to the economy. The attempts at developing such strategies canvassed in this paper highlight the challenges encountered in articulating an underlying conceptual approach rooted in new dynamic models of competitiveness and innovation and requiring extensive linkages, collaboration, and co-operation among the various agents, in the private sector and among governments. The opportunities

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offered by the new information economy, and particularly by digital technologies and the internet, pose similar albeit enhanced challenges of innovation and collaboration, particularly in the much touted but often poorly understood arena of knowledge management. The next section selectively illustrates some recent experience in these emerging areas in attempt to answer whether Australia has learnt anything from its previous experience that might enhance our prospects for participating fully in the emerging global on-line economy.

The Information Economy and e-Commerce In 1998 the National Office of the Information Economy (NOIE) was established within the Communications and not within the Industry and Technology portfolio. This represented a formal recognition by government of the significant economy wide potentially transformational effects of the new digital technologies represented by the convergence of computing and communications, most visibly in the form of the internet. It had been preceded by an ASTEC report on the networked nation focusing particularly on the importance of the internet for researchers and the national research effort (ASTEC 1994). It followed on the heels of a key report on information policy commissioned by the Minister for Communications (IPAC 1997). That report identified the emerging global online economy and characterised it as creating a new political economy. This had been a longstanding concern of the local ICT industry reflected in reports such as the Goldsworthy enquiry commissioned at virtually the same time by the Minister for Industry. Goldsworthy et al (1997; Charles 1997) argued that Australia needed a national information industry strategy and that ICT are transformative and strategic technologies. The significance of this wave of technological change was not lost on the broader service sectors of the economy either, who commissioned their own report from the consultants McKinsey (ACSI 1997). Only now and in the wake of the dotcom market crash of April/May 2000 are the effects of this emerging long wave upswing of technology driven innovation beginning to be realised. Contemporary commentary on the fall in the value of the Australian dollar suggests that this is due to the perception that Australia is an old not a new economy, that we do not have a significant capability in the manufacture of new technologies. Arguably,

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however, the weak Australian dollar has more to do with the strength of the US dollar than the lack of an indigenous high technology manufacturing base. As a small, export oriented, service economy, our challenge is how quickly and successfully we can adopt and adapt the new digital technologies, by innovation across our whole economy. The following small case study of the dot com boom may be suggestive. Over 900 incubators of dot com start ups sprang up during calendar year 2000 in the United States, and among the thirty or forty established in Australia was the ebizAccelerator, a joint venture between Booz Allen & Hamilton management consultants, N M Rothschilds investment bankers and Blake Dawson Waldron lawyers. The Accelerator offered blue chip business advice and services to selected dot coms against equity, and with a view to accelerating their access to a major injection of funding by way of trade sale, venture capital or float. The concept was to draw on the skills of servicing well established, successful businesses and to transfer that knowledge on commercially accessible basis to the new start-ups, who typically could not afford to learn the lessons of business in any other way than the hard way, in the market. A secondary objective was to provide a channel for the transfer of the learning experience of the high risk, innovative start-ups to the established corporate client base, through alliances, joint ventures or trade-sales. This was designed inherently as an innovative, collaborative, learning exercise During it’s first 12 months of operation it screened about 140 proposals from which were selected about 4 with whom a continuing relationship was sought. The proposals covered a wide array of business models, across a range of industries, in varying stages of development and with management teams of varying capabilities and experience. Initially the focus was on business to consumer (B2C), advertising revenue based concepts seeking to dis-intermediate established businesses by clicks-based on line strategies. Large corporations sought defensively to emulate similar innovative strategies either by spinning off their own dot coms or by establishing in house dot com units charged with destroying their own existing traditional bricks and mortar based businesses. Every one was experimenting, there were no templates or well-accepted academic theories and there was little collaboration and knowledge sharing. That first wave of e-commerce innovation crashed on the rocks in April 2000 when the NASDAQ index collapsed from the



speculative heights of irrational exuberance. Subsequently, the supply of high risk equity capital dried up and so did the flow of proposals to the Accelerator. Those that subsequently came through were generally of better quality and showed a trend towards business to business models, an awareness of the need to generate positive cash flows and a willingness to operate collaboratively as clicks and mortar operations. Major corporates are now investing large sums in taking their businesses on line while conscious of the need to keep shareholder’s satisfied. They are also experimenting with on line business exchanges, vertical and horizontal, although sound value propositions and solid revenue models are proving elusive. The best returns appear to be available in re-configuring individual corporate business supply chains for procurement savings, enhancing customer service offerings through customer relationship management (CRM) systems, and more ambitiously, by integrating CRM with straight through procurement systems. This emerging corporate main-streaming of e-commerce activity is the next crucial step in the innovation cycle for the ultimately transformational and disruptive digital technologies. Collaboration in the form of alliance formation is a key component of these corporate strategies (Harbison and Pekar 1998). Until recently, most firms were relatively inexperienced in forming and managing alliances, they were restricted to a narrow range of forms and industries, and there was little institutionalised learning taking place on the issue. Corporate alliances are not new but what is new is their accelerating proliferation, their scope and how they differ in form from earlier cartels, keiretsu and joint ventures. A key driver is the urgent search for capabilities as rapidly developing digital e-commerce technology blur or converge traditional industry boundaries and value chains, on a global basis. ‘‘If you think you can go it alone in today’s global economy, you are highly mistaken,’’ says Jack Welch, CEO of GE. Absorbing new knowledge and capabilities to strengthen competitiveness has become a necessary corporate survival skill. Strategic alliances that lie between shorter term, transactional alliances and more permanent acquisitions, are the key. Their objectives typically include, risk sharing, economies of scale, market access, technology access, geographic access, overcoming funding constraints, skills leverage, etc. A primary driver behind alliances in the e-Economy is speed; companies no longer have the time to secure the crucial capabilities internally or by acquisition, eg, in the case of


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electronic banking, brokering and other financial services. In the case of on-line business exchanges traditional competitors are grouping together, for example, to procure core or non core business supplies, eg, the CITE the construction industry portal, or Cor-procure the general office equipment and business services portal formed by many of Australia’s leading corporations. In the case of individual corporate procurement, CRM or integrated systems, alliances are crucial with suppliers as well as enhanced customer intimacy. In the emerging e-Economy the epitome of such a corporation is Cisco, ‘‘The Virtual Corporation’’ which relies on the internet to do everything. Key to these real time-alliances is the gathering, sharing and utilisation of information and knowledge among the parties, and internally.

Knowledge Management Let’s start with a small case study by way of example. The major Australian law firm Blake Dawson Waldron (BDW) Legal Technology Group develops browser based products which deliver legal services across many areas of law such as trade practices, insurance, privacy, and environmental, to its clients on line. The latest versions of these products which utilise expert system software are styled as ‘‘virtual lawyers’’; they enable clients, including non lawyers, to themselves tailor the on-line advice they receive to the particular business situation with which they are faced, thereby obviating the need to consult a lawyer. Technological change holds out the prospect for transforming the conventional model of legal profession service delivery by enabling the capture of legal knowledge from the lawyer’s minds and potentially by commoditising the service (ALA 2001). Law firms are quintessentially knowledge based businesses and have always practised knowledge management albeit by other names. Typically this has involved close collaboration among individual lawyers as professionals, in the form of partners mentoring, junior apprentice lawyers, sharing information about case rulings in specialist legal libraries, creating standard precedent documents, and collaboration with clients in understanding their business problems and developing legal solutions. They have increasingly captured information electronically about their servicing of clients, typically for matter billing, reporting and analysis, and their client service requirements, expectations and satisfaction, as well as developing en-

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hanced ways for their clients to access such information as well as their advice, directly on line. These have to date been largely incremental innovations through the application of new technology, working within the existing legal services business paradigm to achieve improved services at lower costs and higher profitability. In his landmark book The Future of Law, Susskind (1996) posits the emergence of a new legal paradigm driven by the impact of new technology which will challenge the adaptability and culture of the profession and ultimately the very role of law in society. The law will be re-engineered from an advisory to an information service; from dispute resolution to anticipatory pre-emption; from problem solving to risk management; from hourly fee rates to customer value pricing. Not only will this create a whole new currently latent legal market but it will see the emergence of a new breed of legal information engineer supporting a range of legal information services. Is this a vision of pure knowledge management? According to Sveiby (1997) the ‘‘new organisational wealth’’ will come increasingly from an enterprises intangible assets rather than from its tangible assets, conventionally valued on its balance sheet. Successful knowledgebased companies already command market capitalisation premiums which are substantial multiples over and above the book value of their assets, reflecting the valuation of their intangible assets. These are made up of employee competence, external relations with customers and suppliers, and internal processes and systems of management, administration and marketing. They can only be managed if they are measured and currently most firms do neither properly. Managing knowledge is not like managing information, it involves focusing on, nurturing and winning the trust of the professional knowledge workers and the confidence of customers and suppliers. It involves relationships, freely sharing knowledge which increases in value as a result of interactive learning and is difficult for competitors to copy. According to Choo (1998; Senge 1990), the ‘‘knowing organisation’’ is an innovative, adaptive, learning, social process that views knowledge as an activity rather than as an object to be manipulated. The objectification of knowledge assumes that it is universal and permanent, to be obtained by transferring it from experts or documents. The activity view operates by sensing and understanding its environment and then successfully adapting to it by acting intelligently. It engages in continuous learning and innovation by apply-

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ing learned decision rules and routines. At its heart is the management of integrated information processes that underpin sense making, knowledge building, and decisionmaking within a knowing community. Peter Drucker observes that the essence of management is about how existing knowledge can best be applied to produce new knowledge. Organisations contain tacit, explicit and cultural knowledge. New knowledge is created by conversion from tacit to explicit knowledge in a process of knowledge sharing; knowledge building which involves strengthening core capabilities by shared problem solving, experimentation and import of market and technology knowledge; and by knowledge linking whereby intimate learning alliances are formed with other organisations to transfer specialised knowledge from suppliers, customers and other partners. Many of these principles of knowledge management are not new and have been practised by organisations in the past, to varying degrees, depending upon the nature of their business. Its roots lie in many antecedent management theories and fads such as the quality movement and as far back as Taylorism and scientific management. It is the advent of the wave of new digital technology, and particularly the internet and the emergence of the e-Economy, which has brought a new and more urgent imperative to the issue for all businesses. Knowledge management has been the latest buzz in management circles for the past few years but is still in its early stages on the way to maturity. The first round of hype was generated by the computer, systems and software supply industries; they went in hard selling the benefits of their new technology wares. The realisation soon set in among managers that this is not just another quick technology fix but an approach requiring significant accompanying focus on people and cultural and organisational change. There is currently a substantial gap between corporate talk and action on knowledge management; the paradox is that they know it is important but they are not sure what to do about it. There is also a lag in the development and application of an effective theory of knowledge management (Ruggles 1998; Teece 1998) which commonly finds many practical initiatives and experiments being undertaken well ahead of any generally accepted theory, as we also saw in the case of many of the now failed dotcom business models. The contention in this paper is that there is much to be learned from past experience with R&D, innovation, trade and industry policies and the underlying developments,



discussed in earlier sections. The underlying issues relate to the processes of technological change, innovation and diffusion and the sharing of information. Like all business activities and investment, knowledge management will be driven by the bottom line. The e-Economy is transforming both the potential for economic returns in business and at the same time is the fundamental driver of the need to investment so as to stay competitive in an increasingly global environment, changing continuously at a seemingly accelerating speed. It is the new digital technologies that will transform the use of information in business and drive us towards the knowledge economy. Individual firms, industries and indeed countries, will move faster than others to respond, adapt and innovate in response to these new opportunities for information and knowledge management. The nature and timing of those responses can best be appreciated from an NSI perspective: this takes full cognisance of supply and demand, technological and institutional, competitive and collaborative interactions between the various organisations involved. This paper speculates that there is a synergy between knowledge management and e-commerce, a mutual dependence that neither can fully succeed without the other, as measured by their combined impact on bottom line performance. It speculates also that inter-firm and inter-sectoral differences in knowledge management activities and prospects might best be understood as essentially the working out of the innovation processes considered within an NSI framework.2

Economics in the e-Economy The confusion and lack of clear models for knowledge management and indeed for the e-Economy will continue until the underlying transformation in economics effected by digital technology is clearly understood, articulated and accepted. Not only do we need to revisit the fundamental assumptions of conventional neo-classical economics but we may also need to contemplate a completely new economic paradigm. The mid 1990s saw the emergence of ‘‘new growth theories’’ building on the earlier insights of grappling with R&D and innovation in the context of global competitiveness, and with a view to developing strategic trade and industry policies, as illustrated in the earlier section of this paper. One of the leading theorists in this field was Paul Romer, an economist at the University of


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California, Berkeley who spoke of endogenous growth theories (Romer). Conventional neo-classical theories of growth invoke exogenous technical change, ie, technology and innovation external to the economic system, to explain growth. The new growth theories internalise technological change as an endogenous growth factor, driven by innovation and diffusion of knowledge. They opened the door on a more positive debate about the role of policy in economic success. The information revolution, especially the arrival of the internet capitalised on that emerging policy debate, heightened the issues and provided a new impetus and sense of urgency to the new growth theories policy debate. Information does not behave like other goods. For example, when consumed by one person is still available for consumption by others; it has the characteristics of a ‘‘public good’’, displaying ‘‘positive externalities’’, conferring social benefits beyond those captured by it direct consumers. It can be reused without its value depreciating like most re-used second-hand goods. In fact, its value increases with its production and use. At its heart, the sharing of information, which constitutes knowledge utilisation, is premised on accessibility and collaborative processes. Conventional theories of economics and the economic and business systems upon which they are based are premised on scarcity and competition and have not come to terms with accessibility and collaboration. With internet technology the efficiency of markets can be radically improved through frictionless transfers of information, incurring virtually zero transaction costs; we face the prospect of purely competitive markets once only assumed in the economics text books. Even central bankers, most notably Alan Greenspan, have begun to speak of the ‘‘new economy’’, a high growth, high productivity, high employment, low inflation economy underpinned by the digital technology revolution. Conventional neo-classical economic theory, while recognising the particular characteristics of information in principle, has not addressed or elaborated them. Standard economic theory is even more primitive when it comes to the treatment of knowledge and competence, as distinct from information. Its focus is on the individual economic unit and upon the maximisation of individual utility. This is hardly surprising since in the key phase of its development during the industrial age, it was tangible manufactured goods rather than intangible services that dominated the economic landscape. Now knowledge is

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set to become the world’s dominant resource. The particular attributes of information, knowledge-based activities were not regarded as important. They were assumed away as economists went on to develop models of economic behaviour based on marginal cost pricing and decreasing economies of scale. Marginal cost pricing of information would result in prices tending to zero, given they are characterised by high costs of initial production, fixed costs, and very low costs of subsequent provision, zero marginal cost. The emerging knowledge economy calls for a review and re-conceptualisation of underlying theories of micro-economics, the role of the firm and the innovation process. Elements such as accessibility, trust, joint responsibility, shared ownership and equitable distribution of returns are important in this new framework and for development of the organisational forms required for successful leading-edge knowledge firms. Complexity and chaos theory is a multidisciplinary approach developed in recent years and founded initially on the insights of the physical sciences, which is now re-examining the fundamental assumptions underlying social sciences, including economic theory. From an economics perspective, it highlights the radically different implications for organisations based on increasing rather than decreasing returns of demand, including early-mover advantages, benefits of clustering, network effects and a multiplicity of possible equilibria solutions each satisfying economic efficiency, depending upon where you started from. Much of this inter-disciplinary work on complex systems was undertaken at the Sante Fe Institute, see for example Arthur, (1990; 1989). Economic systems are shown to act as self-ordering and optimising, complex adaptive systems not unlike those displayed in the biological realms of living organisms and the nano-technology realms of modern physics and chemistry. Within this framework, the spotlight is once again thrown on theories of innovation and entrepreneurship, on feedback loops and on learning and adaptation. Collaboration and networking take on a whole new meaning within this new conceptual framework. In their recent book Information Rules, Schapiro and Varian argue that in the new information economy durable economic principles can provide a guide through today’s frenetic business environment (Schapiro and Van 1998). Information is anything that can be digitised. The economics of information goods call for value-based pricing strategies, where the price charged varies according to each individual user’s value and not in

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relation to production costs. This leads naturally to differential pricing of which ‘‘versioning’’ is a key example: price is set according to individual user value and time/delay of delivery is a critical variable, eg, hardback/ softcover, air/sea newspaper, on-line streaming/archive. Information is an ‘‘experience good’’: you only know its value when you use it. The problem is that information is an ‘‘experience good‘‘ every time you consume it! Techniques of introductory pricing, samples and use testimonials are of limited sustainable value; it can be overcome by ‘‘branding‘‘. There is also the endemic information overload problem that we all live with: ‘‘A wealth of poverty creates a poverty of attention’’. Accordingly, there is potential value in customising information for individual customers by filtering and screening to their profiles. There are also important related opportunities with information on the internet to match buyers and sellers of information quickly and effectively; the challenge is to let people know about your offerings. The moral is that being an ‘‘infomediary’’ or indeed a distributor is potentially far more profitable than being a content provider. The economics of information technology infrastructure is different again. In particular, internet web technology provides value not as an information store but as a means for ready access to and ease of manipulation of relevant data at any time. It enables you to do more with the same information. The economics has to do with the inherent systems nature of infrastructure competition and its requirements for compatibility of component standards. In a systems-rich and standards-rich environment lock-in and switching costs are significant barriers to competition: eg switching from vinyl to cd equipment involves replacing a whole library. Lock-in to historical legacy systems is commonplace in a network economy, at individual, corporate or society levels, eg, Microsoft windows operating system. Positive feedback, network externalities, and standards are important economic features when the value of a product to one user depends on how many other users there are, just think of the value, or indeed lack of value, of a telephone or fax in the days before everyone had one. Network technologies exhibit long lead times and explosive growth once results from positive feedback lead to critical mass demand and takes over the market. in providing such network infrastructures, growth is a strategic imperative to achieve not only economies of scale in production but also demand side economies of scale. In network systems you need aggressive marketing tools such as ‘‘penetration



pricing’’ to ignite positive demand feedback. In competing to become the standard, selffulfilling expectations and bandwagon effects are central. Expectations management, eg, competitive pre-announcements, termed ‘‘vapourware’’, and the timing of strategic moves are vital for business development. Another strategy for achieving critical mass is joining with a powerful group of strategic partners, customers, complementors or competitors, including in formal standard setting efforts. If going it alone with your own intellectual property you go for broke to set the standard or commit to openness to achieve critical mass; there is no real viability in being number two or three; ‘‘winner takes all’’! Traditional rivalry to achieve cost leadership by scale economies and experience are tame in comparison to strategies for standards battles to achieve critical mass and positive feedback effects on demand; as we have seen exposed in the Microsoft anti-trust action.

Conclusion Knowledge management is the key process by which the full, potential gains of the transforming digital, internet technologies will be realised by enterprises, by industries and ultimately by countries to the economic betterment of their people. It is essentially a process of innovation and diffusion that depends on a high degree of collaboration and co-operation between all parties to achieve the necessary information sharing and learning through network synergies, feedback loops and increasing returns. From an economic theory perspective it is best understood in post neo-classical economic terms, drawing on the work of the new growth theorists and the related scientific theories of chaos, complexity and self-ordering, adaptive systems. A new theory of knowledge management will be as potentially radical for organisation and management theory as the new theories of economics and science. It will be transforming and can only be fully appreciated and acted upon within a broad institutional framework such as the NSI. The question is: whether Australia can capitalise on these new technologies and the opportunities of the information economy by adopting appropriate innovative business practices and government policies for knowledge management. The track-record as illustrated in the selective examples canvassed in this paper dealing with R&D, innovation, trade and industry policies is at best very patchy. There is much to be learnt from that


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experience, from the modest successes achieved, but particularly from the mistakes and the lost opportunities. Fundamentally, in Australia we do not appear to be able to agree upon and to act collectively upon an agreed vision. We do not appear able to adjust our thinking away from the competitive economic models of the past industrial age, premised on scarcity, towards the new economic models of the information age, premised on abundance. We have many of the necessary innovative skills and capabilities at the individual, corporate and government levels as shown in some of the examples in this paper. But without that shift towards becoming a true ‘‘knowledge-based’’ nation, recognising the complex institutional interdependencies implicit in the NSI approach, we are unlikely to be among those societies that will enjoy the fruits of the new global information economy (ABL 1997).3

Notes 1. Drawn from my own direct experience with organisations and agencies such as the Department of Prime Minister and Cabinet (PM&C), the Organisation for Economic Cooperation and Development (OECD), the Australian Science and Technology Council (ASTEC), the Australian Trade Commission (AUSTRADE); the incubator (ebiz-Accelerator) alliance between Booz Allen & Hamilton management consultants, Rothschilds investment bank, and Blake Dawson Waldron (BDW) lawyers and their Legal Technology Group (LTG). 2. My current research on knowledge management issues seeks to identify and emphasise, the complex patterns and networks of linkages, relationships, collaboration, participation and co operation as well as competition that takes place within the firm, between firms, within industries and between industries at the national level. It will be operationalised by development and application of a knowledge management index across industries at the firm level. 3. Australian Business Foundation Limited (1997), The High Road or the Low Road: Alternatives for Australia’s future, A report on Australia’s industrial future, August, ABL, Sydney

References Australian Business Foundation Limited (ABL) (1997) The High Road or the Low Road: Alternatives for Australia’s Future, A Report on Australia’s Industrial Future. ABL, Sydney. Arthur, B. W. (1990) Positive feedbacks in the economy, Scientific American, February, 80–85. Arthur, B. W. (1989) Competing technologies, increasing returns, and lock-in by historical events. The Economic Journal, 99, 394, 116–131.

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Australian Coalition of Service Industries (ACSI) (1997) Australia.com: Australia’s Future Online. McKinsey Consultants, Melbourne Australian Law Council (ALA) (2001) The Future Challenge for the Legal Profession. Discussion Paper, ALA, Sydney, September. ASTEC (1985a) Public Investment in Research and Development in Australia, A Report to the Prime Minister. AGPS, Canberra. ASTEC (1985b) Future Directions for the CSIRO, A Report to the Prime Minister. AGPS, Canberra. ASTEC (1994) The Networked Nation: National Research Data Networks, Report to the Prime Minister. AGPS, September. Brown, R. (1996) Industry Clusters: A New Approach to Economic Development in Regional Australia, Occasional Paper Number 2. PSMC, AGPS, Canberra, December. Bureau of Industry Economics (BIE) (1986), Evaluation of Public Support for Industrial Research and Development, Conference papers and proceedings, May. AGPS, Canberra Charles, D. et al (1997) Spectator or Serious Player? The Competitiveness of Australia’s Information Industries. Background paper for Goldsworthy. DIST, Canberra, March. Choo, C.W. (1990) The Knowing Organization: How Organizations Use Information to Construct Meaning, Create Knowledge and Make Decisions. Oxford University Press: New York. Department of Science (1982) A National Information Policy for Australia: Discussion Paper. Canberra. Department of Science (1985) Summary of Symposium Meeting on OECD Examiners’ Report, 3 April. Canberra. Department of State and Regional Development (DSRD) (1996) The Defence Industry; The Pharmaceutical Industry; The Health Industry. New South Wales Government, Sydney. Edquist, C. (1997) Systems of Innovation: Technologies, Institutions and Organisations. Pinter, London. Freeman, C. (1995) The national system of innovation in historical perspective. Cambridge Journal of Economics, 18, 463–514. Goldsworthy, A. (1997) The Global Information Economy: The Way Ahead. Report of the Information Industry Taskforce chaired by Goldsworthy at the request of the Minister for Industry, Science & Tourism, DIST, Canberra, July. Harbison, J.R. and Pekar, P. (1998) Smart Alliances: A Guide to Repeatable Success. Jossey-Bass, San Francisco CA. Industry Commission (1996) State, Territory and Local Government Assistance to Industry. AGPS, Canberra. Information Policy Advisory Council (IPAC) (1997) A National policy Framework for Structural Adjustment within the New Commonwealth of Information. A report to the Minister for Communications and Arts, DOCA, Canberra July. Jones, B.O. (1982) Sleepers, Wake: Technology and the Future of Work. Oxford University Press. Jones, B.O. (1986) Living by Our Wits. AGPS, Canberra. Lundvall, B.A. (1992) National Systems of Innovation. Pinter, London. Mortimer, D. (1997) Going for Growth: Business Programs for Investment, Innovation and Export.

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Report of the Committee for Review of Business Programs to the Minister for Industry, Science and Tourism, 30 June, Commonwealth of Australia, Canberra Myers, R. et al. (1979) Technological Change in Australia. Report of Committee of Inquiry, Canberra. National Science & Technology Analysis Group (NSTAG) (1986) Science & Technology in Australia: A Review of Government Support: Report to Forum. Canberra. OECD (1985) Examiners’ Report on Australia’s National Science Policies. OECD, Paris. OECD (1997) National Innovation Systems. OECD, Paris. Porter, M. (1980) Competitive Strategy: Techniques for Analyzing Industries & Competitors. Free Press, Macmillan, New York. Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, Macmillan, New York. Porter, M. (1990) The Competitive Advantage of Nations. Macmillan, London. Porter, M. (1996) The Competitive Advantage of Regions. Harvard Business School, Mimeo, 8 February. Romer, P. (1994) The origins of endogenous growth. Journal of Economic Perspective, 8, Winter, 3–22. Rothwell, R. and Zegveld, W. (1985) Reindustrialization and Technology. Longman, Harlow. Ruggles, R. (1998) The state of the notion of knowledge management in practice, Special Issue. California Management Review, 40, 3. Schapiro, C. and Varian, H. R. (1998) Information Rules: A Strategic Guide to the Network Economy. Harvard Business School Press, Cambridge, MA. Schumpeter, J. (1953) Capitalism, Socialism and Democracy. Harvard University Press. Schwartz, P. (1991) The Art of the Long View. Currency Doubleday, New York. Senge, P. (1990) The Fifth Discipline: The Art and Practice of the Learning Organization. Doubleday, Currency: New York. Stocker, J. (1997) Priority Matters: A Report to the Minister for Science and Technology on Arrangements for Commonwealth Science & Technology by the Chief Scientist. Canberra, June. Susskind, R. (1996) The Future of Law: Facing the Challenges of Information Technolog. Clarendon, Oxford. Sveiby, K.E. (1997) The New Organisational Wealth: Managing & Measuring Knowledge-Based Assets. Berret-Koehler, San Francisco. Teece, D. (1998) Research directions for knowledge management, Special Issue. California Management Review, 40, 3, Spring.

Michael Lester has worked extensively on industry innovation policy for the Department of the Prime Minister in Australia, the OECD in Paris, and as an Industry Director for the New south Wales Government. Presently he works for the World Bank Group, though this is a personal analysis, and does not in any way reflect the views of the World Bank.


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Capitalising Knowledge: Corporate Knowledge Management Investments Thomas Clarke and Christine Rollo Knowledge is increasingly recognized as the key resource of business. Digital networks provide access to vast amounts of data and information but knowledge management tools and systems are required to translate this in a meaningful way. Knowledge management initiatives are unlikely to be successful unless they are integrated with business strategy, and related to the development of the core capabilities of the organisation. Sharing the discovery and synthesis of intellectual activity involves the creation of knowledge communities of practice. There is much evidence of commercially inspired corporate initiatives in this direction across all industrial sectors: leveraging existing intellectual capital; sharing best practice across multiple locations; data mining to build customer relationships; and creating knowledge networks to allow state-of-the-art solutions in professional services.

Introduction

K

nowledge is becoming recognised as both the foundation of competitive advantage and the basis of market capitalisation of companies. Knowledge management is called many different things, and every company has its own distinctive approach, but connecting all of these initiatives is a commitment by companies to developing the production and flow of knowledge, the transmission and use of knowledge to create economic value. The immediate practical reason why knowledge management has risen to the top of the business agenda is not hard to ascertain: IBM estimates the amount of corporate data in the world doubles every 12 to 18 months and only 15% of this is structured. The rest is digitised and stored, and remains unstructured (Knowledge Business 2000). Over three hundred million people now use the Internet, compared to three million in 1994. They can access more than a billion web pages, with an estimated three million new pages added every day (Department of Commerce 2000). As the OECD perceptively comments, ‘‘knowledge and information tend to be abundant; what is scarce is the capacity to use them in meaningful ways’’ (1996:11). # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

The Emergence of the Knowledge Economy The emergence of economies based on the production, distribution and use of knowledge and information was charted by the OECD in their report The Knowledge-Based Economy: The knowledge-based economy places great importance on the diffusion and use of information and knowledge as well as its creation. The determinants of success of enterprises, and of national economies as a whole, is ever more reliant upon their effectiveness in gathering and utilising knowledge. Strategic know-how and competence are being developed interactively and shared within sub-groups and networks, where know-who is significant. The economy becomes a hierarchy of networks driven by acceleration in the rate of change and the rate of learning. What is created is a network society, where the opportunity and capability to access and join knowledge and learning intensive relations determines the socio-economic position of individuals and firms (1996:14). The OECD is concerned with the institutions and processes for

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. knowledge production – the research and

development of new knowledge; . knowledge transmission – education, training and development of people; . knowledge transfer – the diffusion of knowledge and innovation. Different kinds of knowledge are distinguishable in the knowledge-based economy including know-what, know-why, know-how and know-who. Knowledge is a deeper concept than information, which refers to the most accessible elements of the know-what and know-why components of knowledge. Some types of knowledge come closest to being market commodities, while other types of knowledge, particularly know-how and knowwho are more tacit and difficult to measure, but often are the most valuable to possess. The OECD describes these as follows: . Know-what – represents an accumulation of

facts, and is closest to information, in that it can be broken down into bits. . Know-why – refers to scientific knowledge of the principles and laws of nature, that underlies technological development and product and process advances. . Know-how – suggests the skills of capability to do something, typical of the knowledge developed and kept within a company, and the reason for the formation of industrial networks to enable firms to share and combine elements of know-how. . Know-who – involves information about who knows what, and who knows how to do what, and implies the formation of special social relationships to secure access to experts, which is particularly necessary in response to acceleration in the rate of change (OECD 1996). The development and sharing of new knowledge is so rapid in the new economy, the OECD suggests innovation has developed from a linear model to a more complex, relationship-based model of innovation. Instead of discovery and innovation proceeding along a fixed and linear sequence of phases, innovation is the result of numerous interactions of many players: In the knowledge-based economy, firms search for linkages to promote inter-firm interactive learning and for outside partners and networks to provide complementary assets. These relationships help firms to spread the cost and risk associated with innovation among a greater number of organisations, to gain access to new research results, to acquire key technological components of a new product and process, and to share assets in manufacturing,

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marketing and distribution. As they develop new products and processes, firms determine which activities they will undertake individually, in collaboration with other firms, in collaboration with universities or research institutions, and with the support of government (OECD 1996:15–16).

Knowledge as a Resource Knowledge as a resource causes great confusion for economists, as it is the only resource which increases with use rather than diminishing. Knowledge may be expensive to generate but there is little cost to diffusion. Unlike physical goods that are consumed as they are used, providing decreasing returns over time, knowledge provides increasing returns as it is used. The more it is used, the more valuable it becomes, creating a selfreinforcing cycle (Zack 1999). As Joseph Stiglitz, the chief economist of the World Bank (which is rapidly transforming itself into a knowledge bank), argues, ‘‘The properties of dynamic processes driven by knowledge seem to ultimately derive from the scarcitydefying expansiveness or non-rivalrous aspect of knowledge. Once knowledge is discovered and made public, there is essentially zero-marginal cost to adding more users’’ (1999:8). But this is knowledge in the abstract. ‘‘It is the process of embodying knowledge in people (learning) and things (applications) that is costly in time and resources’’ (1999:9). This new economy has produced a growing knowledge intensity of goods and services, referred to as the weightless economy, in the memorable phrase of Alan Greenspan, the Chairman of the US Federal Reserve. Greenspan argues that the icons of the industrial might of the past – steel mills, petrochemical plants, car assembly plants and skyscraper office blocks, are being replaced with ‘‘economic value best symbolised by exceedingly complex, miniaturised, integrated circuits and the ideas – the software – that utilise them. Most of what we currently perceive as value and wealth is intellectual and impalpable.’’ (http://kmmagn2/km199912/featal.htm) The view that knowledge embodied in new products and services has become the primary source of wealth creation and the source of sustainable competitive advantage is driven by a number of inter-related, apparently irresistible impulses of the new economy: . Geographical dispersion associated with

the globalisation of open goods, capital and technology markets.



. New information technology that speeds

information and knowledge flows. . New distributed organisational structures including the growth of networked organisations. . The growing knowledge intensity of goods and services. Most convincing of all these, in terms of its direct impact, is the growing knowledgeintensity of goods and services. In particular, the role of software in adding features and functions to products and services – as well as reducing the costs associated with producing these products and services – is rapidly expanding in industry after industry (Cole 1999).

The Digital Economy The information and communications technology revolution and knowledge revolution fuel each other as it is only in the fusion of: i)

the electronic network infrastructure of the Internet and other digital systems and services and

ii) the rapidly developing knowledge tools and systems in the knowledge-driven economy that the full implications of electronic business and knowledge management to transform our lives can be fully realised. It is out of the critical combination of the technological infrastructure and the consequent knowledge revolution that e-business is emerging. It is the twin forces of electronic digital speed and the suddenly explosively enhanced capacity to utilise and leverage knowledge that provide the excitement and the potential of e-business. Though he dismissed the inflated anticipated returns on investment in e-business as ‘‘irrational exuberance,’’ Alan Greenspan acknowledged a new economy is emerging of knowledge-based businesses competing in an electronic digital knowledge-driven economy. As a Department of Commerce report on the Digital Economy 2000 demonstrates, the strength of the US economy during the sustained growth of the 1990s was built on a new digital infrastructure: the synergistic convergence of dramatic increases in computer power, an explosion in connectivity, and increasingly powerful new software. These advances in technology have produced sharp declines in the prices of computer processing, data storage and retrieval, and communications, that are in turn driving both the surge


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in Internet activity and the increases in business investment in IT hardware and software: The advances in computer power overwhelm imagination. Since the 1960s, the number of transistors per microprocessor chip has been doubling roughly every 18 to 24 months, resulting in a massive increase in processing capability and sharply declining costs. Technologies associated with computer use, such as data storage technologies, have also shown dramatic improvements in performance and even more dramatic cost reductions. The capacity of today’s hard-disk drives is doubling every nine months and the average price per megabyte for hard-disk drives has declined from $11.54 in 1988 to an estimated $.02 in 1999. As a consequence of technological advances in microprocessors, storage, and other components, already steep annual declines in computer costs from 1987 to 1994 accelerated sharply beginning in 1995. Similar improvements have occurred in communications technologies. In recent years, for example, wavelength division multiplexing, digital subscriber lines, and cable modems have produced exponential increases in the speed of data communication and the carrying capacity of the communications infrastructure. The carrying capacity of fiber is currently doubling every 12 months (Department of Commerce 2000). The doubling of the processing power of computers every 18 months, known as ‘‘Moore’s Law’’ after Gordon Moore the co-founder of Intel in 1965, is the equivalent of computing power increasing by a factor of 100 every 10 years. But it is when this is combined with the networking impact of the Internet that the potential to transform business is realised. As networks expand towards infinity they become more useful and cost effective. Web sites, databases and on-line services reach the critical mass required to capture markets as the cost to service these networks decreases to zero. This is sometimes known as ‘‘Metcalfe’s Law’’: the cost of a network expands linearly with increases in network size, but the value of a network increases exponentially. Electronic connectivity provides a new imperative to manage knowledge better: The new economy is being shaped by developments not only in computer hardware and software, but also in electronic connectivity. Larger businesses have been increasing efficiencies through standardiz-

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DEMAND

SUPPLY

. Exponential increase in production, transmission, storage and use of data, information and knowledge

. ‘‘Moore’s Law’’ – doubling of computer processing power every 18 months . ‘‘Metcalf’s Law’’ – the cost of computer networks expands linearly with increase in network size, but the value of a network increases exponentially

. Growing knowledge intensity of processes, products, services and markets . Increasing prevalence of knowledge workers, knowledge-intensive industries, and knowledgebased economy

Knowledge Management

. The doubling of global corporate data every 12 months (IBM estimate) . A billion web pages on the internet with three million more pages added every day (US Department of Commerce)

. Rapid increase in information overload . Rapid obsolescence of data, information and knowledge . Demand for easier and quicker access to relevant structured data, information and knowledge

. Increase in bandwidth enabling use of multimedia in growing number of work and business environments . Growing availability of knowledge management software tools and systems

~

~

E-Commerce / e-Business

Figure 1. What is driving knowledge management ing and automating routine transactions electronically for some time. Until recently, however, most small and medium-sized businesses found that the costs of necessary hardware, software, and communications service for these systems exceeded the benefits. The advent of the Internet as an instrument of commerce fundamentally altered this equation by cutting the costs of software and communications services needed to conduct electronic transactions. Beginning in the mid-1990s, as a result of the convergence toward digital formats and the development of de facto standards for digital networks, such as the Internet’s technical specifications, the expansion and commercialization of the Internet made connecting computers and communications devices easier and cheaper. Commercial opportunities on the Internet and the falling costs of computer and communications hardware created an extraordinarily fertile environment for innovations that are

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creating new value and new efficiencies for businesses of all sizes. The Internet is both an effect and a cause of the new economy. It is, in part, a product of the powerful technological and economic changes that are shaping a new epoch of economic experience. However, the Internet and related networking technologies are also increasingly the new economy’s medium. Networks, like telephone networks or the Internet, are subject to a phenomenon called ‘‘network effects’’ or ‘‘network externalities’’. Establishing a network involves large, up-front fixed costs (e.g., for purchasing equipment, laying new cable, or developing new software), but adding an additional user to an existing network costs very little. Conversely, the value of a network to participants is low when the number of participants on the network is low, but rises rapidly as network participation expands (Department of Commerce 2000).



It is this new technological platform that knowledge management systems and tools are intended to exploit. The technology provides the means to access, process and distribute vaster amounts of data and information than ever before imagined, but this remains an almost meaningless activity without processes of knowledge management to translate data and information into relevant knowledge which can be productively utilised. Knowledge management provides the means to generate, distribute, and use knowledge in ways that add value to business activity and provide new opportunities for enterprise. However, it is unlikely any of these benefits will be realised without an appropriate knowledge strategy.

Knowledge Management Strategies Increasingly knowledge is being recognised as the most strategically important resource and learning the most strategically important capability for business. As Michael Zack argues, ‘‘Business organisations are coming to the view knowledge is their most valuable strategic resource, and bringing that knowledge to bear on problems and opportunities is their most important capability. They are realising to remain competitive they must explicitly manage their intellectual resources and capabilities . . . Intuitively, it makes sense that the firm that knows more about its customers, products, technologies and markets, and their linkages should perform better. However, the link between knowledge man-

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agement and business strategy, while often talked about, has been widely ignored in practice’’. As Figure 2 suggests, knowledge management initiatives are unlikely to be successful unless they are closely integrated with business strategy. Knowledge-based resources and capabilities need to be utilised to develop superior products and services. ‘‘Identifying which knowledge-based resources and capabilities are valuable, unique and inimitable and how these resources and capabilities support the firm’s product and market positions are essential elements of knowledge strategy’’ (Zack 1999:3). To clarify and develop the link between strategy and knowledge Zack proposes an organisation must, on the basis of its existing accumulated knowledge, articulate its strategic intent, then identify the knowledge required to execute its intended strategy, and compare that with its actual knowledge, revealing strategic knowledge gaps (Figure 3). These include internal knowledge gaps – what the company needs to know to successfully commence its strategy – and external knowledge gaps – what competitors know that will be necessary to compete successfully. With regard to required knowledge, every strategic position requires a firm to know certain things to execute the strategy effectively, and the more unique and valuable the knowledge possessed or acquired, the greater the potential strategic advantage. However, in dynamic market environments highly developed learning is necessary in order to keep knowledge current; an organisation’s learning

Figure 2: Knowledge Strategy


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Figure 3: Strategic Knowledge Gaps

capability must keep pace with the changes in the competitive environment. Zack emphasises the following characteristics of strategic knowledge: . Unique – the more rare a set of knowledge

.

.

. .

.

resources, the more potential competitive advantage they may offer. Exploitable – knowledge that can be applied to current or potential products or services for the firm’s current or potential markets. Valuable – knowledge that can be exploited in a way that the marketplace values, and the value can be realised by the firm. Defensible – knowledge that cannot be easily imitated or substituted. Dynamism – knowledge that may be updated and transformed as required by changes in the environment. Learning capabilities – the intensity of learning required to maintain strategic knowledge (Zack, Smith, & Slusher 1999).

capability will provide competitive advantage by supporting the performance and innovation of multiple product lines or processes (1999). The strategic business drivers of knowledge management therefore concern how to protect and develop the intellectual capital of the company, how to improve performance, sustain intelligence, enhance learning, and promote continual innovation. Knowledge management is driven by the need to enhance: . . . . . . . .

Intellectual asset management Operational efficiency Knowledge worker productivity Customer and competitor intelligence Continuous improvement Organisational learning Innovation in products and services Time to market

Knowledge strategy must be related to the core competency of the business. For example: . industries based on innovation will use

Knowledge and Capability In fast moving, innovative environments that increasingly typify a growing number of market sectors, the capacity to generate new knowledge, to integrate and transfer knowledge, to experiment with prototypes, and to import knowledge becomes a core capability of the company (Figure 4). Dorothy Leonard of Harvard Business School defines core capability as a multi-dimensional interactive system of knowledge assets, which encompasses both process and content, has built up over time, is not readily imitated or transferred and is based on shared values. Core

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knowledge management to accelerate the process of research and development, and to manage intellectual property. . companies offering professional services use knowledge management to enhance their expertise. . industries founded on the creation of intangibles such as entertainment or publishing will employ knowledge management to develop creative skills and networks, and to protect intellectual capital. . industries relying on relationships such as retail use knowledge management to enhance customer service and offer greater product and service depth and quality.



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Figure 4: Knowledge Creating and Diffusing Activities . companies dependent upon the value of

brands such as fashion will improve their market intelligence with knowledge management. . companies requiring good coordination of complex activities such as manufacturing will utilise knowledge management to increase control. For every kind of business there are different strategic knowledge management solutions (CIO Communications 2000). Different knowledge management tools might be applied in different types of industry with different kinds of competencies. However most of these knowledge management tools have generic applications which can be useful to any kind of industry or profession. The preference of which tools to adopt, or whether any of these more technical knowledge management tools is necessary to improve knowledge flows depends on how organisations approach knowledge management. Ultimately knowledge management, even as a strategic activity, consists of the systematic management of the intellectual capabilities of people within enabling business, organisational and technical infrastructures. The most effective way to promote these capabilities is by understanding how to discover, organise, share and synthesise intellectual activity. ‘‘Ideas are precious, but they are also fleeting, dispersed and difficult to capture and act on.


The capability to support human creativity and the cycle of innovation – embodied in appropriately integrated processes and technologies – is the primary focus of knowledge management. A primary theme in the literature of knowledge management is of communities, including communities of practice, communities of interest, communities of purpose. Community – shared understanding and access to the work and minds of others – is the principal element in an innovation strategy’’ (Compaq 1999:6).

The Value of Brains The readiness of major corporations to focus on developing intellectual capital and to take knowledge management seriously has been greatly encouraged by the remarkable increase in the market valuation of intangible assets. Margaret Blair of the Brookings Institute calculated the relationship between tangible assets (property, plant and equipment) and the total market value for every US manufacturing and mining company in the Compustat database. In 1982 physical assets accounted for 62.3 per cent of companies’ market value. Ten years later they made up only 37.8 per cent, and these were industrial companies – the physical assets of hightechnology and service companies would be much lower (1995).

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Comparing the recent history of the market valuation of Microsoft and of General Motors in the United States provides a dramatic illustration of the overwhelming significance that equity markets now attribute to intangible assets. Long recognised as one of the greatest manufacturing companies of the world, during this period General Motors had a turnover approximately 15 times greater than Microsoft (for example, GM had a turnover of $160bn in 1997 compared to Microsoft’s turnover of $11bn), yet the market capitalisation of GM was around 12 per cent of Microsoft’s market capitalisation by 1999. At the time Microsoft had net fixed assets of a small fraction of its market capitalisation. ‘‘The difference between the vast market capitalisation of Microsoft Corporation and its small fixed asset base lies in the stock market assessment of the creativity, market position, and consequent revenue flow of the company’’ (Clarke & Clegg 2000). Increasing efforts are being made to account for the value of intellectual assets. Among companies actively attempting to more accurately measure the development of intellectual assets, Skandia, a major international insurance firm based in Sweden, has pioneered promotion, measurement and reporting of intellectual capital. The company

prepared intellectual capital accounts for internal use in 1994, and from 1998 published an Intellectual Capital annual report. Karl Erik Sveiby and Leif Edvinsson were successive Directors of Intellectual Capital at Skandia and both advanced new approaches to focusing upon the value of intellectual assets. Sveiby categorised intellectual assets as people’s competence, the internal structure and the external structure (Sveiby 1996). Edvinsson developed a further categorisation into human capital (personal values, competencies, skills, potential, relationships, attitudes), and structural capital which consists of customer capital (customer base, relationships, potential) and organisational capital (processes, corporate culture, innovation assets) (Strategic Policy Branch 1999). These categories and measures of intellectual capital begin to explain the mystery of the market valuation of Microsoft Corporation, what the huge valuation above the book price of the company represents in reality (Figure 5).

Organisational Knowledge Knowledge produced and carried by individuals only reaches its full potential to create economic value when it is embodied in organisational routines, that is when it has

Figure 5 The Market Valuation of Knowledge

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been converted into organisational knowledge. This conversion is neither automatic nor easy. Companies have a tendency to invest in information technology rather than in developing social relationships, and not many have attempted the cultural and organisational transformation needed to promote knowledge transmission and circulation. As Cole convincingly argues: The gap between data warehousing and knowledge creation can be large indeed. It is one thing to slice and dice information from an integrated customer base to segment markets and conduct more focused sales campaigns. It is quite another to use that information to reorganise work routines in ways that embed knowledge in new products and services that lead to sustained competitive advantage. While informal mechanisms for the effective conversion of information into knowledge may limit wide dissemination, formal procedures packaged in powerful information technologies often inhibit learning. A redoubling of efforts to leverage explicit knowledge through new information technologies is bound to disappoint (1999:19). Problems with an information technology approach to knowledge management include: . Information and knowledge are only

loosely coupled, and decontextualised information is often of little use. . Technical approaches often concentrate on ‘‘low hanging fruit’’, for example efforts to rationalise patents portfolios and licencing contracts, rather than transforming the generation and transmission of new knowledge. . While knowledge is carried in the heads of individuals it needs to be embedded in organisational routines to fully maximise its utility. Information technology is an effective means of moving information around from one head to another; organisational change is required to embed knowledge in routines. Information technology is part of the essential infrastructure of the knowledge revolution, but it is a necessary not sufficient condition: ‘‘Ironically, while the knowledge revolution is inspired by the new information systems, it takes human systems to realise it. This is not because people are reluctant to use information technology. It is because knowledge involves thinking with information. If all we do is increase the circulation of information, we have only addressed one of the components of knowledge. To leverage knowledge we need to enhance both thinking and information. The most natural way to do


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this is to build knowledge communities that cross teams, disciplines, time, space, and business units’’ (McDermott 1999:116). Four key challenges are involved in building such communities in business: . Technical

The technical challenge is to design human and information systems that not only make information available, but also help community members to think together. . Social

The social challenge is to develop communities that share knowledge and still maintain enough diversity of thought to encourage thinking rather than sophisticated copying. . Management

The management challenge is to create an environment that values sharing knowledge. . Personal

The personal challenge is to be open to the ideas of others, willing to share ideas, and to maintain a thirst for new knowledge (McDermott 1999:116).

Knowledge Stocks and Flows When knowledge is equated with information to be delivered by technology, it is conceived of principally as a stock rather than a flow. It is viewed as a thing or an object that exists on its own and may be captured and transmitted among individuals and stored in multiple databases in an organisation. The notion of knowledge as a flow suggests a radically different conception of knowledge. It is constant flux and change. It is central to day-to-day doing and being. Individuals create it and it is largely selfgenerating. Moreover it connects, binds, and involves individuals. In short, it is inseparable from the individuals who develop, transmit, and leverage it. The prevalent view of knowledge as stock is grounded in large measure in the thrust of every educational system from school through university: learn the facts and regurgitate as required in the relevant examination. This orientation is in turn reflected in and reinforced by the pervasive information technology approach to the management of data and information: capture, store, retrieve and transmit. Although organisations obviously need to manage their data and information using these technology-centred models, knowledge is a substantially different thing and thus needs different models. In many

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firms, knowledge simply becomes another object to be managed. It is viewed as something separate from the organisational processes that help generate and nurture it (Fahey & Prusak 1998). This approach influences how efforts to manage knowledge are assessed, and the measurement of the results achieved. An increasing number of organisations seek to measure knowledge directly rather than through its outcomes, activities, and consequences. They emphasise the scope, depth and number of databases and the number of people connected technologically; the number of ’hits’ on intranets; and the number of knowledge projects. ‘‘Yet . . . such indicators do not provide any sense of an organisation’s stock or flow of knowledge or its contribution to decision-making and organisational performance. This vain pursuit of metrics . . . misconstrues what knowledge is, it consigns human intervention to a secondary role, it further disconnects knowledge from its uses, and stock is given prominence while flow, because it is so difficult to measure, receives minimal attention’’ (Fahey & Prusak 1998: 274). Yet it is the dynamic process of knowledge generation and sharing that will determine the future success of companies.

other organisations with significant sunk investment in research and development, seek to leverage the intellectual capital they already possess, by for example utilising existing patents more effectively and speeding up the process of patent application. A second group of companies engaged in manufacturing in highly competitive international markets such as Texas Instruments in consumer electronics, or Ford and General Motors in automobiles, seek to use knowledge management techniques to enhance and speed up the process of best practice sharing across multiple international production sites. (In this mode knowledge management partly represents a further advance of total quality management). A third group of companies with large client bases such as banks and insurance companies utilise knowledge management to improve data mining and exchange between different functions and managers of the company in order to develop customer relationships and pursue further business opportunities with existing customers. Finally professional service companies such as the large accountancy and management consultancies employ knowledge management to create knowledge networks that allow the ready sharing of knowledge from complex assignments to allow the application of stateof-the-art solutions to particular client problems.

Knowledge Management Framework In a survey of international best practice in knowledge management in leading international corporations conducted by Christine Rollo and myself for Standards Australia in support of their publication of a knowledge management framework, we were surprised to discover the range of knowledge management initiatives across industry sectors (Table 1). Knowledge management is called many different things, and every company has its own distinctive approach, but connecting all of these initiatives is a commitment by companies to developing the production and flow of knowledge, the transmission and use of knowledge to create economic value. From the many corporate approaches to knowledge management it is possible to discern several distinct strategies. Firstly chemical and pharmaceutical companies and

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Conclusion Technology platforms may assist, but no technology will stimulate the flow of knowledge without attention to the cultural and organisational context in which people are encouraged to develop and share their knowledge. Creating knowledge communities presents a challenge to business the results of which will determine corporate success in the new economy. Conceived and implemented more carefully in alignment with organisational objectives and core competencies, knowledge management retains the promise to become one of the most significant management movements of the present century, enabling the release of the knowledge resources of enterprises competing in the knowledge economy.



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Table 1. Companies Developing Knowledge Management Strategies Agro-K Corporation Amazon.com Arthur Anderson AT & T Bank of Montreal Boeing BP Amoco Buckman Laboratories Canadian Imperial Bank of Commerce Charles Schwab & Co Chase Manhattan Corporation Chevron Cisco Systems DaimlerChrysler Dow Chemicals Ernst & Young FedEx Ford Motors General Electric General Motors Hewlett-Packard Hoffman LaRoche IBM KPMG McKinsey & Co Microsoft Motorola Pfizer PriceWaterhouseCoopers Rolls Royce Seimens Shell Skandia Telstra Texas Instruments United Technologies US Department of Defence Westpac World Bank Xerox

Agricultural Knowledge Internet Customer Capital Knowledge Consultant Group Internet Enabled Knowledge Business Intelligence Digital Cooperative Work Multimedia Collaborative Network Customer Knowledge Bases Leveraging Human Capital Knowledge Systems Relationship Knowledge Management Industry Best Practice Leveraging Intangible Assets Automotive Intelligence Intellectual Capital Network of Knowledge Centres Internet Intelligent Commerce Leveraging Intellectual Capital Boundaryless Learning Culture Knowledge Network Learning Communities Knowledge Map Intellectual Capital Management Knowledge Web Client Knowledge Repository Digital Nervous System Knowledge Leadership Collaborative Intelligence Empowering Employees With Knowledge Knowledge Engineering Communities of Practice Learning Centres Human and Intellectual Capital Information Velocity Best Practice Sharing Communities of Practice Knowledge Network Knowledge Transfer Knowledge Bank Integrating Knowledge

References

Cole, R.E. (1999) Introduction to special issue on knowledge and the firm. California Management Review, 40, 3, 15–21. Compaq (1999) Knowledge Management: Approaching Solutions. White Paper, Compaq Computer Corporation. Davenport, T.H. and Prusak, L. (1998) Working Knowledge: How Organisations Manage What They Know. Harvard Business School Press, Boston, MA. US Department of Commerce (2000) Digital Economy 2000. US Department of Commerce Washington DC.

Blair, M.M. (1995) Ownership and Control. Brookings Institute, Washington DC. Chun Wei Choo (1998) The Knowing Organisation. Oxford University Press, New York. Clarke, T. and Clegg, S. (2000) Changing Paradigms: The Transformation of Management Knowledge for the 21st Century. HarperCollinsBusiness, London. CIO Communications (2000) Knowledge Management: Collaboration for a Competitive Edge, http:/ www.cio.com/sponsors/0600_km


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Empson, L. (1999) The challenge of mastering knowledge, mastering strategy, Part Two. Financial Times, 4 October. Fahey, L. and Prusak, L. (1998) The eleven deadliest sins of knowledge management. California Management Review, 40, 3, 265–276. KnowledgeBusiness (2000) KM Resource Guide. http://www.knowledgebusiness.com/resource/ news_all_public.asp Leonard, D.A (1999) Innovation and Knowledge Management. Institute for Knowledge Management, Willaimsburg, VA. McDermott, R. (1999) Why information technology inspired but cannot deliver knowledge management. California Management Review, 41, 4, 103– 117. Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company. Oxford University Press, New York. OECD (1996) The Knowledge-Based Economy. OECD, Paris. Rollo, C. and Clarke, T. (2001) International Best Practice: Case Studies in Knowledge Management. Standards Australia, Sydney.

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Standards Australia (2001) Knowledge Management: A Framework for Succeeding in the Knowledge Economy. Standards Australia, Sydney. Stiglitz, J.E. (1999) Public Policy for a Knowledge Economy. Department of Trade and Industry London. Sveiby, K.E. (1996) Tacit Knowledge (http://www. sveiby.com.au) Zack, M. (1999) Developing a knowledge strategy. California Management Review, 41, 3, 125–144. Zack, M., Smith, D.E. and Slusher, J.A. (1999) Knowledge and Strategy. Insitute of Knowledge Management, Williamsburg, VA.

Thomas Clarke is Professor of Management and Head of School of Management and Christine Rollo is a Research Associate in the Faculty of Business, University of Technology, Sydney City Campus, Haymarket, PO Box 123 Broadway, NSW 2007 Australia.


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Knowledge Exchange in Strategic Alliances: Learning in Tension Antoine Hermens The proliferation of corporate strategic alliances is explained by the opportunities this provides for the exchange of knowledge and more rapid learning than any other factor. Exploiting complementarities among products and services, strategic alliances enable value creation by capturing the benefits from leveraging knowledge, and discovering complementarities among technologies, and among the activities of the participants. This paper explores the relevance of factors, which may influence the relationship involving the imbalances of internal tensions and alliance instabilities. It is assumed that the objective in a strategic alliance partnership is to maintain the collaborative relationship and to prevent unplanned alliance dissolution. Factors such as availability of resources, bargaining power, alliance type, alliances with specific goals and stages of industry life cycles, and changing market conditions can influence internal tensions and therefore alliance stability. This article argues that alliance partners should balance the conflicting forces to maintain the collaborative knowledge creating and learning relationship.

Knowledge and the Global Business Environment

T

he contemporary worldwide business environment is characterized by intensified competition; pressures of globalization; short product lifecycles; a high degree of technological change; market turbulence; an increased expectation of corporate responsibility; and customization. These conditions have accentuated the fundamental importance of leveraging and sharing knowledge. Knowledge is the fundamental basis of competition (Zack, 1999). Birchall & Tovstiga (1999) suggest the future success of organizations indeed their very survival is dependent on the ability to learn and create knowledge. Accordingly, in an uncertain competitive environment it is the intelligence of an organization that will produce a sustainable competitive advantage, specifically the capacity to anticipate change rather than react to change for success and survival (Prahalad and Hamel 1990). One dimension of the ‘technology revolution’ is that the speed with which knowledge can be transferred and converted into new products and services has facilitated the growth of strategic alliances globally (Badarocco, 1991; Davenenport & Prusak, 1998). Kogut

# Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

(1991) argues that strategic alliances can be a faster and more effective strategy of acquiring specific knowledge. Similarly, Gulati, Khanna & Nohria (1994) insist the ability to extract knowledge and competencies through alliances are vital to a firm’s survival in today’s complex business environment. Alliances build on the concept of mutual learning that ensure a cooperative environment and enable the open transfer of information, resources and knowledge will gain advantage over their competitors by developing the capacity to continuously learn and improve the effectiveness and intelligence of their operations (Nonaka, 1994).

Dimensions of Collaborative Knowledge Successful collaborations combine the strength of two or more companies and create a core competence that cannot be attained by one company alone. Key success factors include (a) mutual trust, (b) offering first class complementary capabilities to create competitive core competencies and (c), continuous mutual learning to enhance the core competencies. Successful companies are those that consistently create new knowledge, dissem-

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inate it throughout the organization and embody it in new technologies and innovation. Cisco’s Global Alliance Networked Business Model has enabled the company to build interactive knowledge-based relationships with potential clients, customers, partners, suppliers, and employees whilst saving more than $372 million annually in business expenses on an investment of less than $15 million. Cisco focuses on its core competencies in product design and process development and outsourcing the execution of these processes to its key partners. Cisco’s manufacturing partners handle more than fifty five percent of product fulfillment without Cisco’s direct involvement. Another dimension of strategic alliances is that they have enabled many companies to take their new ideas to the very limit of the technological spectrum (Cullen, Johnson & Sakano 1995). For instance major pharmaceutical companies continue to develop a wide network of alliances with universities and small research and development biotechnology companies. The strategic objectives of these strategic R&D networks in the pharmaceutical industry are aimed at diffusing the cost of research and development and accelerating new product development. Strategic alliances are also being formed in low technology industries such as the food industry where for example Nestle has signed alliances with Coca Cola, General Mills, and Disney. Increasingly the source of sustained competitive advantage for the worlds leading companies lies in their ability to create and manage a web of formal and informal strategic alliance networks.

Learning and Competitiveness Competition is not a straightforward battle of the survival of the fittest but a complex interchange of strategies of competition and co-operation. Porter (1986) suggests that alliances involving access to knowledge or ability are more likely to dissolve as the party gaining access acquires its own internal skills through the coalition. The benefits associated with a ‘Business Alliance Network’ strategy is that the individual company’s resources and the competitiveness of their prices will be less important than the costs and benefits that accrue across the spectrum of the alliancing network. The ability of an organization to form and manage strategic alliances therefore is a critical measure of a firm’s ability to compete in the New Economy. Strategic alliances are frequently described (somewhat simplistically) as partnerships

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between firm where partners pool, exchange or integrate business resources for mutual gain with the aim to learn and acquire from each other the technologies, products/services, skills and knowledge that would not otherwise be available to them. The literature does not define the term strategic alliance succinctly, nor is it an exclusive term. A relationship can be said to be strategic if the company is dependent on its partner for vital resources such as raw materials, as a source of technology, or if the relationship opens access to a new market. These types of relationships make a contribution to core competence (Hamel & Prahalad, 1994). It is also argued that for a relationship to be strategic it must enhance the partners’ competitive edge, and the alliance as a whole must be greater than its partners put together (Dollinger, Golden & Saxter, 1997). Parkhe defines strategic alliances as ‘‘relatively enduring inter-firm cooperative arrangements, involving flows and linkages that utilize resources and/or governance structures from autonomous organizations, for the joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm’’ (Parkhe, 1996:74). Aaker defines strategic alliances a ‘‘a long term collaboration leveraging the strengths of two or more organizations to achieve strategic goals’’ (Aaker, 1991:319). Other terms, which refer to similar concepts, include strategic alliances, strategic partnerships, collaborative arrangements, co-operative agreements, joint ventures and coalitions. These terms can be found throughout the literature and have often been used interchangeably (Yoshino & Rangan, 1995; Bleeke & Ernst, 1991). New knowledge is vital for creativity and growth. Firms frequently encounter barriers to innovation embedded in their bureaucratic structures. These businesses are stuck in a time warp of status quo and hide behind the fear of upsetting the hierarchy and social systems that have contributed to past successes. These barriers deliver a need to reevaluate organisational forms, structures and business models. A transitional trend is evidenced by the formation of strategic alliances and networks in response to this need. Examples of this trend include Qantas-Telstra Visa Card (Qantas Airways Limited, Telstra Corporation and ANZ Banking Corporation) and Ezybanking (Woolworth’s Limited and The Commonwealth Bank of Australia Limited). A survey of the knowledge and learning literature confirms that the two most frequent cited reasons for firms entering into coalitions with other firms is in the first instance to obtain access to knowledge resources that are



either held by or can be acquired via other firms. Generating new knowledge through collaborating actions with alliance partners is the frequently cited motivator for entering alliance networks. Fundamental for knowledge creation in the first instance is an organizational climate that facilitates the effective implementation and utilization of the knowledge management processes (Inkpen, 1996). The effectiveness of alliances as a learning channel depends on the nature of the business activity shared i.e core or noncore, the type of knowledge involved tacit or explicit and the type of reward system used, performance or hierarchy based (Brown & Duguid, 2001). In order to facilitate the transfer of knowledge the alliance networks must develop a common process, including customs, priorities and approaches that produce new knowledge and insights across a number of boundaries and dimensions, . Internal – Internal knowledge transfer: the

learning that results of having to deal with multiple partners. . Internal – External knowledge transaction: when partners actively contribute to the learning process by transferring competencies to each other. . Internal – External – Internal knowledge cycle: mutual transfer of tacit knowledge and the joint development of tacit knowledge. A high degree of knowledge is a major barrier to the diffusion of knowledge (Birchall & Tovstiga, 1999). Transferring tacit or implicit knowledge requires close interaction and involvement in a community of practice, and requires an awareness of each alliance partners existing practices. Accordingly the transaction cost and behavioural risks (trust and opportunism) associated with knowledge transfer is inherently high. Alliance arrangements have advantages in transferring tacit knowledge and are more efficient in facilitating the exchange of explicit or codified knowledge when there is high uncertainty or radical changes in the market environment due to fundamental technological changes or the emergence of new industries (Jarillo, 1993).

The Knowledge Economy Search-and-retrieval software, databases, work flow software, data warehousing, push technology and the proliferation of intranets have revolutionised the ability of organizations to find, accumulate, organise and access information. This technology combined with


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the ability to intelligently model customer and mine market data has given birth to the knowledge economy. The knowledge economy has developed through significant advances in technology solutions. These solutions provide the platform for information to be analysed and utilised to extrapolate an understanding of the marketplace. In the new economy, the diffusion of this information throughout an organization creates an environment where the knowledge derived from applying expertise to the information expands the boundaries of any one industry alone. This opens up or exposes opportunities that can be exploited by innovative minds (Zack, 1999). Organizations focused on incremental application of knowledge management instead of fully integrating the process throughout the organization will not be successful in the new economy. In spite of the fact that companies have a large stock of knowledge or a means to develop their intellectual property, it is only an assumption that this will lead to increased efficiencies, profits and best practice. As noted by Joskow (1991), this presumption is often not valid. In the new economy, the organization that effectively leverages knowledge will be more effective than those organizations that merely consolidate land, labour and capital (Harari, 1994). In the new environment, lower entry barriers exist through the use of strategic alliances, networking and outsourcing. Consumer expectations are influenced by experiences in unrelated industries and competition is not limited by domestic boundaries. While successfully competing within this environment is dependent on the development of a new strategic mindset that embraces knowledge, innovation and value, it is important to remember the lessons from the past. Strategy should be based upon developing a new economy approach whilst being able to maintain the deliverable tangible qualities of the old economy – logistics, infrastructure, production and people. The new strategic game plan is shifting towards leveraging knowledge to redefine the rules by placing the emphasis on value. The ‘‘emphasis on value places the buyer, not the competition, at the centre of strategic thinking; emphasis on innovation pushes managers to go beyond incremental improvements into totally new ways of thinking and doing things’’ (Kim & Mauborgne; 1999a).

The Alliance Business Model Exploiting complementarities among products and services, an alliance business model

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enables value creation by capturing the benefits from leveraging knowledge, complementarities among technologies, and among the activities of participants in the business model. In an alliance business model a company needs to enable transactions that create value for all participants, including partners, suppliers, and customers. In this model, partnering companies need to focus on the key value drivers, efficiency, complementarities, lock-in and novelty. Adopting the customer paradigm, optimising the value chain, achieving time to market, creating effective governance mechanisms, and measuring progress and effectiveness, requiring continuous adjustment in moving forward, will determine success in the business alliance model (Means and Faulkner, 2000). It processes the inputs of environmental, market and customer knowledge and expertise to ensure that the strategy will respond to constant change, delivering barriers that ‘‘lock-out competitors’’ (Hamel, 2000). The architecture of the business model (figure 1) needs to ensure that it doesn’t work just for today but is flexible enough to adapt to tomorrow’s needs and, particularly, that it is not easily replicated. To execute the strategy, it is critical for the organization to take a dualistic approach. The development of innovation through revolutionary change followed by the application of evolutionary incremental learning ensures return on investment. As the organization integrates and consolidates, it drives towards maximum returns

and its new inflexion point. Inflexion is the point at which a new innovation process begins. Deflexion occurs when the company sees profit diminishing or greater opportunities in a new market space. To continue to deliver perpetual value, the above process must become cyclical, constantly evolving around the delivery of innovation (see figure 2). The alliance business network as an opensystem model incorporating innovation and entrepreneurship will not only span the boundaries between industries but also will blur the line between suppliers, customers and the firm. Companies all around the world are thus faced with the challenge to change and adapt their once successful strategies (Hamel, 2000) in order to meet the challenges presented by an uncertain globalised and digitalised environment where only world class standards will satisfy customers.

Paradoxes and Collaborative Knowledge If the alliance business model has any chance of long-term success certain key ingredients must be present and managed effectively. These include strategic symmetry; complementary capabilities; shared expectations; commitment and trust. It is for that reason that effective collaboration requires a shift in management thinking and is difficult to achieve. Difficulties include conflict in balancing individual partners and the alliances interests; possible creation of future competitors; skill

Figure 1. E-business collaboration

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Figure 2. Inflexion and Deflexion Points depreciation; increased costs; the difficulty in assigning costs; lengthy purchasing decisions; problems with motivating staff and potential consumer dissatisfaction. Alliances attain value by virtue of the information they carry, they are intertwined with markets and connected markets promote innovation. Paradoxically inter-firm differences (knowledge, skills, technologies, core competencies, resources, etc.) form the underlying strategic motivations for entering into alliances (Contractor and Lorange 1988) and are essential to the formation and maintenance of an alliance. Conversely differences in partner characteristics may have a negative impact on the longevity and effectiveness of collaboration (Parkhe 1993). The process of knowledge creation, innovation and wealth creation are not necessarily synonymous or synergistic. The dynamics and nature of collaborative knowledge generation, diffusion and practical application necessarily involve divergence. The resultant organizational tensions and conflicts are both embedded and emergent at the network at the individual firm level. The nature of these paradoxical forces are such that one set of forces and dynamics are necessary for the creation of knowledge and innovation and different forces and dynamics introduce the very structure that transforms this new knowledge into wealth. The erosion or convergence of these differences or the isolation of these tensions may destabilise the alliance relationship or ultimately may lead to the destruction of either the firm or the alliance network (Hermens, 1998). Notwithstanding timing and the achievement of the appropriate balance between creativity and innovation i.e, the practice of knowledge generation and on the other hand wealth generation i.e,


the process of diffusing knowledge is difficult. Practice without process often becomes unmanageable; processes without practice tend to result in the loss of creativity and subsequent innovation .

Knowledge Transfer, Dialectics and Tensions An organization’s ability to create, transfer and protect knowledge within a framework of inter-organizational relationships and collaborations becomes a key source to survival (Inkpen and Dimur, 1997). The knowledge creation process grows from three elements; the conversion of tacit and explicit knowledge; shared context for knowledge creation; and knowledge assets. There is a strong conceptual link between knowledge creation systems and alliance networks and dialectic thinking. Nonaka, Toyama and Konno (2001) propose that the key to knowledge creation is dialectic thinking. Kogut’s (1991) definition of alliances is ‘‘dialectic systems whose stability is determined by balancing multiple conflicting forces’’ effectively conceptualises these complexities as a system comprised of a mix of contradictory forces of firms (knowledge, rigidity, cooperation, long term orientation and common benefits) and markets (wealth, flexibility, competition, short term orientation and private benefits). We propose that this conceptual link provides the rationale for the hypothesis that alliancing can be an effective means of transferring knowledge. Flexibility is the degree to which alliance partners are able to modify the structural arrangements in the alliance in order to adapt to changing economic and market conditions. A flexible alliance arrangement enhances the

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capacity of the alliance partners to capitalise on market trends with greater speed and efficiency. The alliance also bestows on members heightened market powers and enables them to exercise combined and collective strength, increasing their competitive leverage over other companies. The structurally more flexible alliances are non-equity alliances, or alliances with no equity change or equity creation between the partners. Some alliances have been criticised for being too flexible, resulting in a situation where individual partners may possess insufficient details on how to collaborate, little irreversible commitment, unclear property rights, and weak authority structure. Consequently the bond between the collaborative partners can weaken and the alliance viability may be threatened as alliance partners join competing alliance groups. The advantages of a high level of rigidity, especially through equity investment, include increasing incentives and commitment, aligning the partners’ interests, and deterring opportunistic behaviour. (Parkhe, 1993, Williamson, 1983). Cooperation and competition are essential for a sustainable and successful alliance. Cooperation ensures the smooth working relationship needed to meet the objectives of the alliance. Competition can be described as one alliance partner pursuing its own interest at the expense of others. Cooperation is the pursuit of mutual interests and common benefits in the alliance. A lack of understanding of partners’ operations, culture, strategic intent and ideology can lead to resistance and conflict. If cooperation is lacking, opportunistic behaviour will become the norm. Competition protects a partner from losing its firm-specific advantage through inattention. Alliance partners may relinquish their competitive position by loss or transfer of core competencies as a result of the sense of security or rationalisation pressures created through the strategic partnership. In any organization there is a constant tension when formulating and implementing an alliance strategy between short-term and long-term orientations (Mockler, 2000). A short-term orientation emphasises quick and tangible results that can yield a more focused strategy aimed at achievable prompt performance. Alliance duration is often uncertain (Kogut, 1991). Consequently a short-term orientation may limit the capital, resource and time exposure of individual partners to a collaborative relationship. Alliance agreements with a short-term orientation often involve non-equity arrangements and tend to be more exploitative in nature. A long-term orientation regards the alliance more as a

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semi-permanent structure: it is about relationship building. Long-term alliance agreements often involve equity arrangements and tend to discourage opportunistic behaviour among the strategic alliance partners. Nevertheless, a long-term orientation may tend to ignore short-term tangible performance, which may make the alliance vulnerable.

Knowledge Tensions: Private or Common Benefits Many of the major disagreements within the field of strategic management are rooted in the different assumptions made about coping with strategy tensions. Alliance stability is determined by balancing these multiple conflicting tensions of firms and markets. As an organizational form, a strategic alliance is located somewhere between a market and hierarchy and is arguably only viable when neither a market nor hierarchy structure is preferred. It is when the forces of markets and hierarchies are in equilibrium and the cost benefit trade offs are equal that the alliance is most stable and arguably most effective. Similarly collaborative dissolution will follow a process of accelerating imbalance amongst the internal competing forces between partnering firms. Particularly those at alliances characterised by initial imbalances are more likely to be unstable. A shift in balance towards domination of cooperation, rigidity and long-term orientation may result in partners loosing their firm-specific resources and make them vulnerable to merger or acquisition. An alliance relationship dominated by competition between the partners and characterised by loose flexible structural arrangements governed by a short-term time orientation resembles a traditional marketplace type of relationship. Consequently this may severely limit or negate the benefits of the alliance partnership and can result in the termination of the collaborative relationship. Tensions are most severe when the ratio of private benefits (the opportunity for a firm to apply knowledge acquired in the course of the alliance to operations and business opportunities outside the scope of the alliance) exceeds common benefits, the magnitude of the opportunities within the scope of the alliance for example the ratio of private to common benefits is a factor that determines the stability of a strategic alliance venture (Gulati, Khanna & Nohria, 2000). These competitive tensions lead firms to deviate from what alliance theory may describe as optimal behaviour patterns.



The Global Airline Industry This gives rise to several questions, what are the long-term benefits and risks of a collaborative strategy to a firm’s performance, and which alliance management strategy will succeed and which will fail in the knowledge economy? Specifically in what ways and under what circumstances does each tension individually or collectively translate into collaborative effectiveness/alliance performance? In a study of four international airline companies from 1994 – 2000 from two competing alliances’ senior managers and alliance managers were interviewed and surveyed annually. The objective of the interviews and observations was to seek out information on the various levels of tension at different points in the alliance life cycle. Primary data was gathered through several rounds of face-to-face interviews. The study involved multiple site visits during various stages of alliance operation. Each tension was measured using several questions and the value of each measure was the average of these items. The scales of the independent variables measure each tension individually, including the levels of the various competing forces when the alliance was formed. The gap between each individual variable indicates the level of alliance stability. The global airline industry is faced with strategic challenges as a result of the industry moving towards consolidation and competition between alliance networks. Evidencing this trend is the Star and Oneworld alliance networks which accounted for 80.3 percent of international passengers entering the Australian market in the financial year 1997–98 (Sandilands, 1999). Historically airlines have traditionally cooperated both multilaterally and bilaterally to facilitate the movement of passengers and cargo between their respective networks. As a result of the transition from national regulation to the more liberal international competition in the early eighties has witnessed the consolidation of airline carriers through strategic alliances (Mockler 1999). The alliance strategy is the airline industry’s response to ‘‘strong customer preference for a single carrier service; economies of scope, density, and scale available from multi-hub operating systems; restrictions placed by domestic laws on cross-border ownership of airlines; and the forces of globalisation, technology and legislation’’ (Holloway, 1998:125). Since the early 1990s a more advanced form of cooperation, ‘alliance networks’, has emerged. In the period


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between 1990 and 1996, airline operators entered into 389 new airline alliances, this number had increased to more than 500 airline alliances by 1998. The majority of airline operators, for example American Airlines, British Airways, Lufthansa, Singapore Airline and Qantas, are involved in various cooperative partnerships. These collaborative relationships incorporate multiple and wideranging linkages and can either be equity or non-equity based. One perspective argues that firms are seeking access to network alliances to access tangible and intangible knowledge resources. Individual companies joining an alliance can promote technical and operational efficiencies with those with larger networks and more passengers (Youssef & Hansen, 1994). Production costs may be spread across a larger base, decreasing overall unit costs. Maintenance bases, for example, may be consolidated between partners. Alliance partners may also attract more passengers due to the merging of frequent flyer schemes. A second perspective proposes that alliance formation is a strategy to limit competition with other airlines (Youssef, 1994) or blocking rivals (Doz and Hamel, 1998). A more realistic view is that globalisation and technology have changed the rules of the game (Hamel, 1991). Alliance networks that have complementary objectives and learning are vital to the success of the airline in the contemporary business and economic environment.

Behavioural Tension – Cooperation Versus Competition Competition can be described as one airline alliance partner pursuing its own interest at the expense of others. Cooperation is the pursuit of mutual interests and common benefits in the alliance. Cooperation and competition are essential for a sustainable and successful airline alliance. Cooperation ensures the smooth working relationship needed to meet the objectives of the alliance. A lack of understanding of partners’ operations, culture, strategic intent and ideology can lead to resistance and conflict. For example: one carrier in the alliance might be more concerned about network synergies and improved access to distribution channels, whereas another might expect capital injection. If cooperation is lacking, opportunistic behaviour will become the norm. Competition protects a partner from losing its firm-specific advantage through inattention. Alliance partners may relinquish their competitive position by loss or transfer of core competencies as a result of the sense of

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security or rationalisation pressures created through the strategic partnership. The most desirable alliance arrangements are with partners that are approximately equivalent (in terms of their size, profitability and status in their own industry) and possess complementary know-how and resources (Brouthers, Brouthers & Wilkinson, 1995).

Structural Tension – Flexibility versus Rigidity Flexibility is the degree to which airline alliance partners are able to modify the structural arrangements (duration and availability of aircraft leases, code share and route structures, joint-marketing agreements) in the alliance in order to adapt to changing economic and market conditions. Many Asian airlines dramatically reduced their capacity after the 1997 economic crisis and transferred their aircraft to markets serving North America and Europe. But it is now forecast that the Asia-Pacific region will witness the highest airline passenger traffic growth rates in the world by 2016, with a likely expansion of 7.7 per cent annually (Flint, 1999). A flexible alliance arrangement enhances the capacity of the alliance partners to capitalise on market trends with greater speed and efficiency through increased frequency of flights and a larger route network. The alliance also bestows on airline members heightened market power and enables them to exercise combined and collective strength, increasing their competitive leverage over other airlines. The structurally more flexible alliances are the non-equity alliances, or alliances with no equity change or equity creation between the partners. Some airline alliances have been criticised for being too flexible, resulting in a situation where individual airline partners may possess insufficient details on how to collaborate, little irreversible commitment, unclear property rights, and weak authority structure. Consequently the bond between the collaborative airline partners can weaken and the alliance viability may be threatened as alliance partners join competing alliance groups. One telling example is Air France’s offer to make Bangkok Airport its Asian hub, on condition that Thai break away from Star Alliance and join SkyTeam, which includes Korean Air, Delta and AeroMexico (Sandilands, 1999). Airline equity alliances, which include joint ventures and minority equity investments, often sacrifice flexibility. The advantages of a high level of rigidity, especially through equity investment, include increasing incen-

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tives and commitment, aligning the partners’ interests, and deterring opportunistic behaviour. (Parkhe, 1993, Williamson, 1983). Gunasekera (1997) observed that the greater coordination of activities, services and facilities between alliance partners, the higher the volume of traffic the airline alliance generated. A balance between being flexible and rigid is essential for a sustainable alliance (Daz & Teng 1999a),

Psychological Tension – Short-Term versus Long-Term In any organisation there is a constant tension when formulating and implementing an alliance strategy between short-term and long-term orientations ( Joskow, 1985). A short-term orientation emphasises quick and tangible results that can yield a more focused strategy aimed at achievable prompt performance (Newman, 1992). Alliance duration is often uncertain (Kogut, 1991). Consequently a short-term orientation may limit the capital, resource and time exposure of individual partners to a collaborative relationship. Airline alliance agreements with a short-term orientation often involve non-equity arrangements and tend to be more exploitative in nature. A long-term orientation regards the alliance more as a semi-permanent structure: it is about relationship building. Long-term airline alliance agreements often involve equity arrangements and tend to discourage opportunistic behaviour among the strategic alliance partners. Nevertheless, a long-term orientation may tend to ignore short-term tangible performance, which may make the alliance vulnerable. An example is provided by KLM: the Dutch airline abruptly called off the nearly two-year-old partnership talks with Alitalia in April and blamed the collapse on continuing uncertainty about Malpensa’s future. KLM entered the alliance negotiation looking to Malpensa as a second hub in Europe, but the airport has been plagued with problems, including a poor on-time record and long waits for baggage.

New Organisational Form – Mergers, Acquisitions and Dissolution Airline alliance terminations may transpire through an acquisition of one airline alliance partner by the other. This type of acquisition represents a move toward a hierarchical relationship. Alternatively, alliance termination can take place through the disillusionment of the collaborative relationship. This



type of termination represents a shift towards a market type transaction relationship (Daz & Teng, 1999). This paper hypothesises that alliance dissolution will follow a process of accelerating imbalance amongst the internal competing forces in the alliance and that alliances characterised by initial imbalances are more likely to be unstable. A shift in balance towards domination of cooperation, rigidity and long-term orientation may result in partners loosing their firm-specific resources and make them vulnerable to merger or acquisition. An airline alliance relationship dominated by competition between the partners and characterised by loose flexible structural arrangements governed by a short-term time orientation resembles a traditional marketplace type of relationship. Consequently this may severely limit or negate the benefits of the alliance partnership and can result in the termination of the collaborative relationship.

Operationalising the Frameworks Construct In designing the specific questions, Doz’s (1996) study of open-ended interviews for inductive analysis of alliance cases was used. The questions were pre-tested with a group of alliance managers from various firms and organisations across several industries to ensure acceptable validity and reliability. Cooperation in the framework is operationalized in terms of the degree to which firms seek mutual interests rather than self-interests in alliances. ‘‘To what extent do the partner firms exercise mutual patience in their dealings with each other?’’ (Buckley & Casson, 1988); ‘‘Does either partner makes demands

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that might be damaging to the other partner?’’ (Inkpen & Currall, 1997). Competition is operationalized in terms of the degree to which a firm pursues self interests rather than mutual interests. ‘‘How often did you and your partner firm disagree on who should have control over the key decisions in the alliance?’’ (Cullen, Johnson & Sakano, 1995). Rigidity is the degree of structural formality and connectedness that prevents modifications to alliance arrangements. ‘‘To what extent are the partners precluded from making changes in the alliance relationship?’’ (Daz & Teng, 1999b). Flexibility is operationalized in terms of the degree of adaptability, responsiveness and agility. ‘‘In this relationship, do our firm and our partner firm expect to be able to make adjustments in the ongoing relationship to cope with changing circumstances?’’ (Aulakh, Kotabe & Sahay, 1997: 189). Short-term orientation is operationalized in terms of the degree to which partners focus on quick and tangible results. ‘‘To what extent do the criteria for resource allocation generally reflect short-term considerations?’’ (Venkatraman, 1989: 959). Long-term orientation is operationalized in terms of the degree to which partners focus on developing the alliance rather than concentrate on achieving short-term goals. ‘‘To what extent do the partners focus on long-term goals in this relationship?’’ (Ganesan, (1994:15) Structure and the purpose of an airline alliance influence the partnership towards emphasising certain tensions rather than others (see figure 3). During the study of the equity-based alliance there is evidence to suggest that a process of accelerating

SHORT TERM FLEXIBLE COMPETITIVE

LONG TERM

RIGID

FLEXIBLE

RIGID

Joint

Licensing

Joint

Marketing

COOPERATIVE

Shared Distribution

Production

Long Term Joint R&D

JVs

Sourcing

Figure 3. Alliance Structures and Internal Tensions (Daz, T. K. & B. Teng 1999a)


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imbalance amongst the internal competing forces in the alliance is evolving. In the early stages of the study the gap in the tensions scores was low. Individual scores for cooperation, flexibility and long-term orientation rated slightly higher. In the third year of the study the difference in the tensions scores had increased significantly. Individual scores for cooperation, long-term orientation and rigidity rated significantly higher. The majority of respondents expressed the views that were it not for legislative constraints the alliance would evolve into an acquisition. The second airline alliance studied is a marketing, code-share and non-equity-based agreement. This collaboration is characterised by cooperation, flexibility and a long-term orientation. The initial gap in the tension scores was low. Individual scores for competition, flexibility, long-term orientation rated slightly higher. In the third year of the study the difference in the tensions scores have not increased significantly. The individual score in flexibility has increased. The respondents expressed the view that ‘‘competitive industry forces demand that we employ a marketing alliance strategy and this partnership is currently the best strategic fit’’. The high levels of flexibility and low levels of rigidity suggest that instability is emerging and dissolution will tend to be the end result of this alliance. The third airline alliance is equity based and is characterised by cooperation, rigidity and short-term orientation. During the three

years of the alliance there is evidence that a process of accelerating imbalance evolved amongst the internal competing forces in the alliance. In the early stages of the alliance the gap in the tensions scores was high. Individual scores for cooperation, rigidity and short-term orientation rated slightly higher. In the second year of the study the gap in the tensions scores had increased significantly. Individual scores for cooperation, short-term orientation and rigidity rated significantly higher. During the third year of the study the alliance terminated through the acquisition of one of the alliance partners. The fourth airline alliance is a marketing, code-share and non-equity-based agreement. This collaboration is characterised by cooperation, flexibility and a short-term orientation. Initially the difference in the tensions scores was low. Individual scores for competition, flexibility and short-term orientation rated slightly higher. In the third year of the study the variance in the tensions scores has increased. The individual scores in rigidity and long-term orientation have increased. The respondents expressed the view that the alliance is an integral part of the companies’ global growth strategy.

Limitations This longitudinal study is limited to one global industry and presents analyses of interview data from four airline companies

MARKET

ALLIANCE

HIERARCHY

DISSOLUTION

STABILITY

ACQUISITION/MERGER

HIGH

HIGH

. FLEXIBILITY

. RIGIDITY

. COMPETITION

. COOPERATION

. SHORT TERM ORIENTATION

. LONG TERM ORIENTATION

Figure 4 The Level of Balance

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engaged in global horizontal alliance partnerships. The study limits itself to the analysis of the six dominant internal competing forces. The paper thereby does not suggest that there are no other internal competing forces. The process by which the various internal tensions develop or can be restored to equilibrium needs to be investigated further. The interrelationships between external forces and internal forces have not been discussed.

Conclusion The stability of an airline alliance is related to the level of balance between cooperation and competition, rigidity and flexibility, shortterm and long-term orientation (see figure 4). An airline alliance is more likely to move towards a merger or acquisition when there is a dominance of cooperation, rigidity and longterm orientation. Whereas an airline alliance is more likely to move towards dissolution when there is a dominance of competition, flexibility and a short-term orientation. The key to successful value creation in strategic alliances between knowledge intensive firms is dialectic thinking and managing not elimination strategic tensions. The main contribution of this article is to extend current theory by examining converging and diverging forces/tensions and their impact on alliance outcomes through a dynamic model based in organizational learning and strategy theory. Specifically in what ways and under what circumstances does each tension individually or collectively translate into collaborative effectiveness/alliance performance?

References Aaker, A. D. (1991) Developing Business Strategies. Wiley, New York. Badoracco, J. (1991) The Knowledge Link: How Firms Compete Through Strategic Alliances. Harvard Business School Press, Boston, MA. Birchall, D.W. and Tovstiga, G. (1999) The strategic potential of a firm’s knowledge portfolio. Journal of General Management, 25, 1, 1–16. Bleeke, J. and Ernst, D. (1991) The way to win in cross-border alliances. Harvard Business Review, 69, 6, 127–135. Brouthers, K. D., Brouthers, L. E. and Wilkinson, T. J. (1995) Strategic alliances: choose your partners. Long Range Planning, 28, 3, 18–25. Brown, J.S. and Daguid, P. (2001) Creativity versus structure: a useful tension. Sloan Management Review, Summer 93–94. Buckley, P. J. and Casson, M. (1988) A theory of cooperation in international business. In Con-


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tractor, F. J. and Lorange, P. (eds.), Cooperative Strategies in International Business. Lexington Books, Lexington, MA, 31–53. International Aviation (1994) Bureau of Transport and Communications Economics (BTCE), Report 86. Australian Government Publishing Service, Canberra. Contractor, F.J. and Lorange, P. (1988) Strategic Alliances, Formation Implementation and Evolution, Blackwell, Oxford. Cullen, J. B., Johnson, J. L. and Sakano, T. (1995) Japanese and local partner commitment to IJVs: psychological consequences of outcomes and investments in the IJV relationship. Journal of International Business Studies, 26, 91–115. Das, T.K and Teng, B. (1997) Sustaining strategic alliances: options and guidelines. Journal of General Management, 22, 4, 49–64. Davenport, T.H. and Prusak, L. (1998) Working Knowledg. Harvard Business School Press, Boston, MA. Daz, T. K. and Teng, B. (1999a) A resource-based theory of strategic alliances. Journal of Management, forthcoming. Daz, T. K. and Teng, B. (1999b) Managing risks in strategic alliances. Academy of Management Executive, forthcoming. Dollinger, M. J., Golden, P. A. and Saxton, T. (1997) The effect of reputation on the decision to joint venture. Strategic Management Journal, 18, 127– 140. Doz, Y. L. (1996) The evolution of cooperation in strategic alliances: initial conditions or learning processes. Strategic Management Journal, 17, Summer Special Issue, 55–83. Economist (1995) Airline alliances: flying in formation, 22 July, 59–60. Economist (1998) Business: mergers in mind, 348, 8087, 68. Gulati, R., Khanna, T. and Nohria, N. (1994) Unilateral commitments and the importance of process in alliance. Sloan Management Review, 35, 3, 61–70. Hamel, G. (2000) Leading the Revolution. Harvard Business School Press. Hamel, G. (1991) Competition for competence and interpartner learning within international strategic alliances. Strategic Management Journal, 12, 83–103. Hamel, G. and Prahaled, C. (1989) Strategic intent. Harvard Business Review, 3, 99. Harari, O. (1994) When intelligence rules, the manager’s job changes. Management Review, 83, 7, 33–36. Harbison, J. R. and Pekar, P., Jr. (1998) Smart Alliances: A Practical Guide to Repeatable Success. Jossey-Bass, San Francisco, CA. Harrigan, K. R. (1988) Strategic alliances and partner asymmetries. In Contractor, F. J. and Lorange, P. (eds.), Cooperative Strategies in International Business. Lexington Books, Lexington, MA, 205–226. Holloway, S. (1998) Changing planes, a strategic management perspective on an industry in transition. Strategic Choice, Implementation and Outcome, Vol 2. Ashgate Publishing Company, USA.

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Inkpen, A. C. and Currall, S. C. (1997) International joint venture trust: an empirical examination. In Beamish, P. W. and Killing, J. P. (eds.), Cooperative Strategies: North American Perspectives, Vol 11. New Lexington Press, San Francisco, CA, 308– 334. Jarillo, J. (1993) Strategic Networks Creating the Borderless Organisation. Butterworth-Heinemmann, Oxford. Joskow, P. (1985) Contract duration and relationship-specific investments: empirical evidence from coal markets. American Economic Review, 77, 168–185. Joskow, P. (1991) Asset specificity and the structure of vertical relationships: empirical evidence. In Williamson, O. E. and Winter, S. G. (eds.), The Nature of the Firm: Origins, Evolution, and Development. Oxford University Press, New York, 117– 137. Kim, W. C. and Mauborgne, R. (1999a) Strategy, value innovation, and the knowledge economy. Sloan Management Review, 40, 3, 41–54. Kim, W. C. and Mauborgne, R. (1999b) Creating new market space, Harvard Business Review, 77, 1, 83–93. Kogut, B. (1991) Joint ventures and the option to expand and acquire. Management Science, 37, 19–33. Mockler, R. J. (1999) Multinational Strategic Alliances. Wiley Series in Practical Strategy, Wiley. Newman, W. H. (1992) Focused joint ventures’ in transforming economies. Academy of Management Executive, 6, 1, 67–75. Nonaka, I. and Takeuchi, H. (1995) The KnowledgeCreating Company: How Japanese Companies Create the Dynamics of Innovation. Oxford University Press, New York, NY. Nonaka I., Toyama, R. and Konno, N. (2000) Ba and leadership: a unified model of dynamic knowledge creation. Long Range Planning, 33, 5–34 Oye, K. A. (ed.) (1986) Cooperation under Anarchy. Princeton University Press, Princeton, NJ.

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Park, S. H. and Russo, M. V. (1996) When competition eclipses cooperation: an event history analysis of joint venture failure. Management Science, 42, 875–890. Parkhe, A. (1993b) Strategic alliance structuring: a game theory and transaction cost examination of interfirm cooperation. Academy of Management Journal, 36, 794–829. Porter, P. (1980) Competitive strategy. Free Press, New York. Sandilands B. (1998) Ansett’s plans have rivals wavering. Business Review Weekly, 20, 37, 28/9/98, Age-Financial Review, Melbourne. Sandilands B. (1999) When Oneworld and Star collide. Business Review Weekly, 21, 8, 8/3/99, Age-Financial Review, Melbourne, pp. 30–33. Williamson, O. E (1983) Credible commitments: using hostages to support exchange. American Economic Review, 73, 519–540. Williamson, O. E (1985), The Economic Institutions of Capitalism. Free Press, New York. Yoshino, M. Y. and Rangan, U. S. (1995) Strategic Alliances: An Entrepreneurial Approach to Globalization. Harvard Business School Press, Boston, MA. Youssef, W. and Hansen, M. (1994) Consequences of strategic alliances between the international airlines: the case of Swissair and SAS. Transportation Research – A, 28A, 5, 415–437, Pergamon, Oxford. Zack, M. (1999) Developing a Knowledge Strategy. California Management Review, 41, 3, 125–146.

Antoine Hermens is Senior Lecturer in Strategic Management at the School of Management, University of Technology, Sydney.


ENTERPRISE RESOURCE PLANNING

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Enterprise Resource Planning as the Trojan Horse for New Rules of Operations Management Roger Jenkins The control of operations, for example; the flow of materials, the scheduling of production, the planning of capacity – these are central problem in operations management. A substantial body of technique, with attendant technologies, has been developed to facilitate the problem of control of operations. One such technique is Manufacturing Resource Planning (MRP). This technique has developed in power and scope in concert with the development of power in computer based technology. From the perspective of the operations management literature, MRP has evolved into MRP II, and now into Enterprise Resource Planning (ERP). MRP, and MRP II are systems that are embedded within the operations function, and can be controlled legitimately by the operations function; ERP is fundamentally different. ERP systems in their model implementation are enterprise wide, integrated systems. As an enterprise wide system, ERP has created an opportunity to distance the power to influence operations actions from the location of the function. This change has significant implications for the companies adopting the technology, and more specifically, for the profession of operations management. This paper develops a framework of analysis for this change, presents a set of small cases, and discusses some implications that can be drawn from the analysis. The ‘‘three arenas of information use – sense making, knowledge creating, and decision making’’ (Choo 1998, p.3) must be allowed to energize each other and this can only happen if organization wide information systems, such as ERP, respect and empower situated action, enable ambiguity, and allow the use of multiple interpretive frames as managers interact with the situations of operations management.

Introduction

E

mergent structures enacted as ERP if adopted and used by organizations will distort those historical structures created around the need for actions in the function of managing operations. Distortion will be in part a legitimate outcome of the cross functional perspective of ERP. Distortion will also be motivated by professional jurisdictional contests. New structures enacted as ERP if embedded in organizations will allocate undue legitimacy to canonical knowledge. This will de-legitimise the tacit knowledge, knowledge grounded in situated action, that is essential to effective management of operations. An approach termed ‘Structuration Theory’ (Giddens 1984) can be used to explore potential interactions between ERP and the operations management function. This approach will develop an appreciation # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

of the interaction in terms of three modalities of action: . Modality of communication . Modality of domination . Modality of legitimation

ERP should be conceived as an enclosing device for MRP, subsuming its functionality within an enterprise based communications system, but this communication system can also be construed as an authoritative resource, a resource that can be used to facilitate the control of some agents in the organization by others.

Structuration Theory Structuration theory developed by Giddens (1984, 1993) will be used to describe the interaction of ERP (as a technology and an

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authoritative resource), and the operations management function. Structuration theory is not fully formalized in the context of organization studies, and is not without its critics (for example Clegg 1989, Parker 2000), but is also considered to be ‘‘reasonable and fruitful in many contexts’’ (Kaspersen 2000, p. 158) and offers substantial promise in the area of organizational studies (Hatch 1997). The framework, and vocabulary, of ‘structuration theory’ will be adopted in this paper. Structuration theory has been used, for example, to explain aspects of the application of MBO in organizations (Dirsmith, Heian and Covaleski 1997), to continue the argument that technology can only be understood through its interaction with social systems (Orlikowski 1992), and to develop a theoretical framework for processes of adopting innovation in organizations (Coopey, Keegan, and Emler 1998). The use of structuration theory in operations research and information technology (IT) has been discussed by Walsham and Han (1991) and Walsham (1992). This paper will draw on the primary work of Giddens (1984, 1993), and the work of Walsham and Han (1991) and Walsham (1992) in order to examine the interaction between ERP and the management of operations. The relationship between action and structure, and the potential modalities of this interaction are central parts of structuration theory. Giddens approaches structure as both, an outcome, and a constraint, on human agency. The concept of duality of structure is used to represent the view that social structures influence actions of people in organizations, and these social structures are in a process of reflexive emergence in response to actions of people in the system. Any interaction is transient; structures are traces in the memories of the actors of these transient interactions. Structuration is the approach

developed by Giddens to ‘‘attempt to determine the conditions which govern the continuity and dissolution of structures or types of structure.’’ (Giddens 1993, p.127) This paper will use this structuration approach to explore the impact of ERP on the structures enacted around the operations management function, primarily in commercial manufacturing organizations. In this framework, the duality of structure can be represented using three modalities, each with an Interaction(Modality)Structure relationship. Interaction of some kind, within a particular domain of interaction, a modality, is influenced by, and reconstitutes, structures related to that modality. Three modalities are identified; signification, domination and legitimation. These modalities are analytical devices that are used to make sense of the actions of actors in organizational situations. In practice, modalities are conflated as actors interact within situations. The framework proposed by Giddens is shown in Figure 1. The three modalities have a range of attributes, and these are briefly outlined in the following sections, from the perspective of the operations management function within manufacturing organizations. The first modality, signification, can be examined as a system of conventions or interpretive schemes. The interpretive schemes expected in this modality are akin to the elements of culture as proposed in Schein (1996). An operations manager will make sense of a situation using a schema where, for example people are framed as a means to a solution, in contrast an engineer will frame people as a likely source of the problem. Executive schemas will be dominated by financial indicators in the situation, and will be more sensitive to competitive aspects rather than needs for collaboration. People may simply be framed as a cost to the

Figure 1. Duality of Structure (Giddens 1984, p. 29)

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organization. Interpretive schemes, embedded in technologies by both, unconscious and deliberate, design decisions, will distort the structures of the organizations that adopt the technologies as the organization and technology co-align through interactions of practice (for example, in the operations management area, see Schroeder, Congden, and Gonipath 1995). These interpretive schemas will not only define what is important, they will also influence the range and values of norms within the modality of legitimation (see for example Dutton and Dukerich 1991). The second modality, domination, represents the power interactions, and these can be studied through systems of resources and rules. Rules can be thought of: . . . not as static and idealized as in chess or some other game but will instead be far more fragile, ambiguous, unclear, dependent upon interpretation, and subject to either reproduction or transformation depending on the outcome of struggles to keep them the same or to change them this way or that . . . (Clegg 1989, p. 209) While rules, or a reified concept of them, may be important, they are not observable in this study, and they will be excluded from the appreciation of the situation. Only resources are considered in this paper. This is not because resources are considered to be necessary and sufficient to describe the structures of the organizational situation, but because the focus of the paper is on the way in which ERP will tilt the organizational table (Clegg 1989), an appreciation of the impact of an authoritative resource on this situation. The resources alluded to here are not just the physical technologies of the process, they are also the social resources used to mobilize the transformative capacity of the system. If outcomes are gained by the agency of others then the nature of the power is over these others, and the associated structure is domination. Structures of domination are distorted by new technologies as actions of those who operate the transformative capacity are redistributed. Structures are constituted by actions of agents, not the technology. Two forms of resources are identified by Giddens, allocative and authoritative. These resources ‘‘form the media of the expandable character of power’’ (Giddens 1984, p. 258). Allocative resources. in the context of operations management, are the material resources, the transformed and transforming resources used as the organization adds value to entities as they move through the value chain. The simplest manifestations of this type of resource are the machines, and the


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materials and products of the process. The second category of resource, the authoritative resources, are not tangible. They facilitate control over when and where things happen, the ideologies, the design of organizational structures used to carry out the actions of the organization, and the opportunities available to members of the organization. ERP will be treated as an authoritative resource in this paper. The role of the expert, and jockeying for professional jurisdiction, are two particular areas of interaction that influence structures of domination. These interactions are important as they enable actors in the situation to influence the disposition and nature of control over resources, the media of the domination modality. The power of the expert will be influenced by the expert’s ability, recognized by the organization, to interpret uncertainty. This ability to interpret uncertainty will legitimize authority to direct the actions of others within the organization (Crozier 1964). This is a direct manifestation of power in the sense of ’the power of a person A over a person B is the ability of A to obtain the B do something he would not have done otherwise’ Dahl (1957): the simplest of the manifestations of power identified by Lukes (1974). In situations where the organization has not yet established routine responses to stimuli, a common recourse is to ask an expert for advice. The power of the expert will not be uncontested. Managers will attempt to eliminate the power of the expert by having the expert formalize their knowledge and express it in canonical systems of knowledge. The expert will be expected to conform to a norm of rationality, and this will legitimize the transfer of power to the expert at the leading edge of the change. The norms of the rational approach will facilitate the return of power to managers through the elimination of uncertainty in the field where the rational approach has been introduced. The expert will be expected to develop interpretive schemes, to assist in the development and allocation of resources, and managers will attempt to influence both the nature of the interpretive schemes and the disposition of the allocative and, particularly, the authoritative resources. As these actions are completed the role of the expert will be eliminated. Experts in this schema will develop power at times of high uncertainty, but this power will become diffused through the rationalization of their expertise through development of procedures, or canonical and conscious knowledge (Crozier 1964). The second aspect of the modality of domination important for this discussion is the jockeying for jurisdiction between competing

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professions. Agents in this process will attempt to influence interpretive schemes and norms used by agents in the organization. Power in this situation is conceptualized in the three dimensional framework of Lukes (1974) where, for the issues raised by this paper, the professional will attempt to create a situation where the discourse of rationality (Pfeffer 1981) is the only form of media in which it is considered legitimate for managers and experts to construct meaning. Not only is it likely that there is jockeying for jurisdiction, it is also possible that this jockeying is an unconscious practice by the professionals in the situation (Lukes 1974). The actors who are part of this discussion are IT experts, managers in the financial and accounting functions, and operations managers. Each of these professions are committed to a rational view of the world; and rational management will argue in its primitive form that there will be an optimal solution for a problem, a one best way. If there were actually only one best way to do things, individuals could not maintain any leeway in accomplishing their tasks and in making decisions about other people’s tasks. Their behavior, therefore, would be entirely predictable, and they could in turn, predict and rely on the behavior of all the other protagonists. Power relationships could not develop in a context where no one could change the behavior of anyone else (Crozier 1964, p. 157). By defining power in a single dimensional form, as the ability to change the actions of others, possibly in the presence of resistance, the professionals in the arena can claim that they are disinterested in power, for its own sake. They are simply finding and promoting the sanctioned ‘one best way.’ It is evident, however, that the professions representing operations managers, IT experts and financial managers will attempt to gain legitimacy and power through the control of abstraction, and these abstractions will provide the content for the norms and interpretive schemes of the organization. Mere control of the situated activities, the allocative resources of the organization, will be delegated to a low status. Occupational groups who have gained control over the situated activities, such as auto mechanics and maintenance tradespersons, without the development of an associated set of abstractions, a knowledge base, are unable to develop powerful roles. The ability of a profession to achieve an optimal level of abstraction in its knowledge base determines its jurisdictional power (Abbot 1988, p. 9).

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The third modality, legitimation, refers to sanction interactions, and these take place within a shared set of norms. The modality of legitimation can be examined as systems of moral rules, or sanctions. The terms ‘sanction’ and ‘morality’ have both been used by Giddens (1984, 1993) as part of the structures associated with the legitimation modality. In this paper the term ‘sanction’ will be used. Within the context of this paper, the nature of sanctions are related to levels of financial rewards, status, and ultimately security of tenure within the organization. Norms will be dominated by a need for acceptance of new interpretive schemes as articulated by experts, within a context set by the top managers of the organization.

Enterprise Resource Planning ERP is considered, as noted above, to be an authoritative resource. It is the media through which control is effected over the allocative resources of the organization. Materials are procured, processes are scheduled, labor is allocated, all via the media of the ERP system. The scope of ERP has been described thus: ERP, when successfully implemented, links financial, manufacturing, human resources, distribution, and order management systems into a tightly integrated single system with shared data and visibility across the business. Potential benefits can include breakthrough reductions in working capital, huge bounties of information about customer wants and needs, and – perhaps most important – the ability to view and manage the extended enterprise of suppliers, alliances, and customers as an integrated whole (Escalle and Cotteleer 1999, p. 2). Importantly, from an operations management perspective, ERP has been described as the ‘‘latest, and probably the most significant, development of the basic MRP philosophy.’’ (Slack, Chambers and Johnston 2001, p. 474) MRP, in its original implementation, linked the overall manufacturing schedule with inventory and product bills of materials to produce a materials requirements listing, that was then translated into a materials purchasing plan. MRP did not take into consideration the capacity of the process, it did not respond to variation in the manufacturing process, and did not have an interface to the financial and marketing systems within the organization. Extensions to MRP, termed MRP II, appeared in the late 1960s that responded to these constraints, and software containing



these extensions were available for wide use in the 1980s. At that time the MRP II approach was supported by industry wide associations and computer and software providers. As MRP II, the system linked the internal planning processes of manufacturing to a wider organizational network, particularly through the reporting of data on product costing and inventory evaluation (Scott 1994). In these forms MRP and MRP II were authoritative resources that were used to control actions in the manufacturing function, and power over these resources was embedded within the operations management function. If ERP is framed as the next version of MRP, then operations managers may well expect change initiated by ERP to be relatively minor, an extension of the changes initiated by MRP and MRP II. Given the different nature of the ERP system this is unlikely to be a valid assumption. In order to better understand the potential for change it will be useful to consider some aspects of the operations management role. Operations managers have been regarded, ever since the work of Taylor: not as architects of competitive systems but as custodians of large, capital intensive assets. Their job was to control and coordinate all factors of production so as to minimize costs and maximize output (Skinner 1986, p. 57). This approach is perceived as one that emphasizes the operational, tactical, aspects of the role over the strategic and risk taking aspects. The types of measures frequently used in the function direct cost reduction, machine efficiency, and labor efficiency (Schmenner and Vollmann 1993) are consistent with this caretaker, non-strategic view of the function. This is further supported by a recent survey that indicated in the majority of cases surveyed (61%), the operations function was either not considered important enough to have a strategy, or was managed by someone who was not considered able to contribute to a functional strategy (D’Netto and Sohal 1999). Operations management literature, over the last thirty years, has mounted an attack on the non-strategic orientation of the role. The literature has proposed a range of approaches for thinking about, and implementing, strategy in the operations function (for example Skinner 1978, Voss 1995, Porter 1996). Generally strategy in operations has been defined as a means of linking the decisions of the operations function to the business strategy, and as providing a means for the function to express itself within the strategic arena of the organization. The formal,


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planning, analytical nature of this strategizing process however is not necessarily a valid representation of the approach taken by operations managers to the role. Actions of manufacturing managers, in sites that have been controlled by MRP systems, have been examined in order to explore the validity of the planning, analytical approach to operations management. An orientation to the abstract representations implicit in the MRP approach to controlling operations was found to be an inadequate explanation for the fact that the operations function could be made to work (Johnston 1995). These findings were supported by further work that indicated that operations processes are more effective when they use opportunities to support situated activity approaches to organizing the operations management function. Specifically, systems were found to more effective when reality mediates, such as in JIT systems rather than MRP systems (Johnston and Brennan 1996). Management should be seen as a role of organizing for opportunities of situated activity, rather than developing processes, such as MRP, that require abstract or symbolic systems of planning and control. The organizing function seeks to position agents in effective relationships and to give much thought to the provision of effective communication systems in the overall organization. This will lead to the repudiation of the concept of control by managers, and this will appear to be problematic. The point is, however, that this control is an illusion, plans are not control. That systems do work is due to tacit processes and improvisation at the point where agents are dealing with the world, nominally under the guidance of the ’plan’ (Mintzberg 1993, Johnston and Brennan 1996). As companies adopt ERP, particularly when it encloses the MRP or manufacturing control function, there is some variation in the quality of outcomes. When 40% of participants in one survey fail to achieve business targets one year after implementation, and 75% of respondents experience a moderate to severe ‘‘productivity dip’’ (Conference Board 2001) it is not surprising that there are some problems associated with the adoption of ERP. The imperative of ERP is, however, revealed when another survey reports that while 92% of its sample were dissatisfied with the results of implementing ERP, 80% of that sample were planning post ERP projects (PA Consulting 2000). While the technology has been associated with problems, most organizations are not willing to reject the technology, it has become accepted as a competitive necessity.

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Four short cases are outlined here to in order to illustrate some aspects of the interaction between organizations and ERP.

Born to be ERP The Indian motorcycle, first established in 1901 was at one stage an important brand both in American and world markets. Once manufacturing facilities were established, demand was immediate, with 143 units produced in its first model year, 376 in 1903 and over 1,000 units in 1905. By 1913 production had reached over 30,000 units, but this was to be its best year. Bad business decisions, the rise of the automobile, some unethical decisions ensued; a drawn out decline finally saw the business close its doors in 1953. The brand however still works its magic, so much so, that in 1998 the Indian Motorcycle company again opened for business. Things have changed. The new business has been organized around the structures of a $1.3 million ERP package, Oracle 11.03. Quality management, logistics, work flow control, financial control and reporting and other business processes have been mapped to the processes used in the ERP system. Even with this start, the company has needed to confront problems with culture, and finding people who could operate in this way, has been a major challenge for the organization (Deck 2001). First responses to the bike have been mixed, with some criticism building on the fact that engine components are outsourced; but the company sold more than 5,000 units in 2000, their first year of operation. New models, with times to introduction accelerated through ERP based control systems, are due out in late 2001, and these models will help define the viability of the venture. Support for this business model certainly exists in some sectors, the company has recently gained $45 million new funding from a group specializing in brand management operations (Friedman 2001)

Southcorp Southcorp is the largest Australian producer of wine and a leading international producer. It has set itself the objective of becoming the first global wine producer, and to this end it has achieve a position of being the largest importer of premium wine into the US and UK markets, two major global wine markets. The company has a whitegoods manufacturing heritage and culture but wine is now the largest profit contributor, providing 42% of Earnings Before Tax. Growth in the wine division has been rapid, and this is particu-

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larly true for the export part of the business. This has increased from 35% three years ago, to 50% of current overall revenues of $2.6 billion. This has been achieved with operations in ten countries, and markets in 80 countries. (Southcorp Annual report 2000). Southcorp installed a SAP system at the start of July 2000. A few product lines were not loaded correctly into the new system, and consequently problems occurred when the system was switched to SAP. Ten percent of deliveries were delayed initially, five per cent of deliveries and two percent of invoices were still affected one month later. Sales and distribution staff were required to work around the clock as they attempted to correct and compensate for the system problems (Bryan 2000). One year later, as the company copes with a merger with another major player, Rosemount, costs for the ERP system were reported as having been $100 million, and problems with the implementation having contributed to reduced profits for the group by $17 million in the first six months of operation: unsurprisingly the ERP system is regarded as a flop (Ferguson 2001). The problems associated with the adoption of the ERP system were significant enough to merit the following comment by the company: Overall sales were constrained due to delivery difficulties associated with the implementation of a new computer system in the first half’’ (Media release on the Southcorp Annual report for the year ending June 30 2001).

Hershey In July 1999, after a 30 month implementation program, Hershey Foods Corp. went live with a $112 million implementation of ERP software. By mid September the company was reporting a 29% increase in inventories, with a 19% fall in third quarter profits. By October the company was still struggling to fix order processing problems that were preventing their distribution system from getting product to the market. While the company would not comment on whether the problems were due to the configuration of the software or code, the supplier of the software SAP were of the view that there were no software problems (Stedman 2000). By November 2000, Hershey were reporting that the problems seemed to have been fixed. Profits were up by 23% on the depressed quarter from 1999, order cycle times and other customer service metrics had returned to normal levels. Overall, it appears the company has spent $112 million, and has managed to just hold onto 1998 profit levels,



with no improvement in customer service metrics, and presumably with considerable damage to market confidence in their ability to supply (Songini 2000).

Dairy Farmers Co-operative: One Set of Data Dairy Farmers is a co-operative, owned by a range of Australian milk producers. In May 2000 the Wetherall Park plant went live with SAP. This plant has sales of about $200 million p.a. and has a focus on the production of fermented products, such as yogurt. The production manager in June, one month after the start up date was concerned with the difficulties of start up. Problems were encountered when the system failed to adjust the forecast as material was produced to meet it, and this led to high inventory on some lines. Other problems were noted as data was moved between the three systems used to plan and control production. One year later in August 2001 the mood of the production manager was much more upbeat. Problems with data transfers between different systems still exist but the manager kept returning to positive outcomes from the system. An example of this related to the problem of new product introduction. Traditionally the plant had been unable to demonstrate the consequences of extensions to product range. As marketing kept introducing new products, the plant kept extending, and continued to develop increased complexity in its control systems, until it was considered to resemble a web rather than a process. With SAP, the production manager simply takes the parameters of the new product, for example rates of production and machines, gets the accountant to enter these parameters, and then carries out a simulated production run with the new product entered into the system. Issues such as machine and labor loading are reported, and an evaluation of whole of system impact of the new product can be made, in the actual operating environment of the organization. From the perspective of the production manager, this has facilitated a much more realistic assessment of the full impact of new product introduction, particularly on the existing capability of the process. The implications of this example related to a number of other issues raised by the production manager. Organizational change appears to be occurring around the SAP implementation, but SAP is not seen to be the driving force. The scope of the production manager’s role has changed significantly over the last year and a half. The nature of the change has been an increased focus on the process of transformation, with reduced


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responsibility for distribution, storage, and planning. These changes are also affecting other functions, such as logistics, and a new role, supply chain management, appears to be targeted as a vehicle for further change. Change is also happening within the operations function. Supervisors and the production manager are spending more time on analysis and less time on situated action. The production manager sees this as a very favorable change, but did note that this was only desirable if measurable performance of the various sub-units of operations, such as engineering, were operating satisfactorily. These early indications, at the micro level, suggest that this is a successful implementation of SAP. The catchphrase, used favorably by the production manager, to sum up the system was, ‘‘One Set Of Data’’.

Conclusions In the domain of business the practice of operations management has been a heavily contested area. The profession of mechanical engineering with its responsibility for the day to day operations of manufacturing processes crafted the abstraction of the Scientific Management area through the work of Taylor. Cost accountants on the other hand were applying their abstractions, coming out of the accounting area to the same problem of increased efficiency in the manufacturing process. These battles were being fought in the first half of the 20th Century. The stresses of World War II saw the emergence of techniques that went beyond the traditional areas of data compilation and abstraction. Techniques were forged that enabled quantitative statements on the allocation of resources under conditions of constraint, particularly constraints related to the supply side. These techniques were sufficiently abstract, and effective enough to legitimize early claims to professional status for practitioners in the area of operations research (Abbott 1988). Regression has, however, taken its toll of operations research and it appears that (to use the title of a celebrated paper in the OR field) The Future Of Operational Research Is Past (Ackoff 1979). Increasingly, in the last thirty years, the practice of operations management has been courted by the discourse of strategy. Practitioners appear, however, to have avoided seduction by that ideology, as for the previous suitors. The most recent overtures, within the ERP Trojan Horse, have been made from the IT profession. The Trojan Horse appears to have been accepted, the question now is to what extent senior

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managers accept also, the interpretive schemes and norms of the IT profession. While a number of organizations in the Australian sector, for example, Fairfax, Goodman Fielder, Southcorp Wines have been dissatisfied with the change (Boyd and Conners 2001), there remains a vast silent majority of organizations, such as Dairy Farmers that appear to have accepted the inevitability of ‘One set of Data’, and are simply going to make it work (Osterland 2000). For those companies that survive the initial process of change, then what might be the future of operations management? The dissembedding of operations from the structures of power within the organization, poor performance related to decisions made by managers no longer in touch with the situated reality of operations, may encourage a strategy of outsourcing of production. ERP technology if implemented within an organization, will just as effectively control the flow of product outside the boundaries of the company, as demonstrated in the Indian Motorcycle case (and for many other contemporary businesses, for example Nike). If the role of operations management is reframed to emphasize the situated activity of the role, then the abstract, strategic aspects will be given less emphasis. A negative outcome of this could be the relegation of the role to craft status. If this is to be avoided then the role of IT, as a facilitating function, needs to be reframed. When management is framed as an abstract, strategic process, IT needs to facilitate the supply of data to the analytical planning program. Under management as organizing, the IT needs to be framed as a technology for communication between agents (Johnston and Brennan 1996). The need for IT to operate in the communicative modality is repeated from a perspective of IT design by Winograd and Flores (1987) and from the ethnographic perspective of a service operation by Despres (1996). Legitimization of canonical knowledge drives out a willingness to use the knowledge grounded in practical consciousness (Giddens 1984) or tacit knowledge (Nonaka 1991). Managing operations is enacted through a process of communicative acts. These communicative acts are in the voice of the operations manager historically, but ERP can provide a new location for these communicative acts. The ‘‘three arenas of information use – sense making, knowledge creating, and decision making’’ (Choo 1998, p.3) must be allowed to energize each other; and this can only happen if organization wide information systems, such as ERP, respect and empower situated action, enable ambiguity and discourse and allow the use of

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multiple interpretive frames as managers interact with the system.

References Abbott, A. (1988) The System of Professions. The University of Chicago Press, London. Astley, G. and Zammuto, R. (1992) Organization science, managers, and language games. Organization Science, 4, 4, 443–60. Bancroft, N., Henning S. and Sprengel, A. (1998) Implementing SAP R/3: How to Introduce a Large System into a Large Organization. Manning, Greenwich. Berger, P. and Luckmann, T. (1966) The Social Construction of Reality: A Treatise in the Sociology of Knowledge. Doubleday, New York. Bingi, P., Sharma, M. and Godla, J. (1999) Critical issues affecting and ERP implementation. Information Systems Management, Summer, 7–14. Bougon, M. G. (1992) Congregate cognitive maps: a unified dynamic theory of organization and strategy. Journal of Management Studies, 29, 3, 369–89. Boyd, T. and Conners, E. (2001) Software hard sell that didn’t deliver. Financial Review (Sydney), pp. 1, 32. Boynton, A. (1993) Achieving dynamic stability through information technology. California Management Review, Winter, 58–77. Brown, J. S. and Duguid, P. (1991) Organizational learning and communities-of-practice: towards a unified view of working, learning, and innovation. Organization Science, 2, 1, 40–57. Bryan, M. (2000) ERP fails to deliver for Southcorp. Financial Review, 5, 19 July, 25. Choo, C. W. (1998) The Knowing Organization: How Organizations Use Knowledge to Construct Meaning, Create Knowledge, and Make Decisions. Oxford University Press, Oxford. Clegg, S. R. (1989) Frameworks of Power. Sage, London. Conference Board (2001) ERP Trends, Research Report 1292-01-RR. Conference Board. Coopey, J., Keegan, O. and Emler, N. (1998) Manager’s innovations and the structuration of organizations. Journal of Management Studies, 35, 3, 263–84. Crozier, M. (1964) The Bureaucratic Phenomenon. University of Chicago Press, Chicago. Curran, T. and Ladd, A. (2000) SAP R/3 Business Blueprint: Understanding Enterprise Supply Chain Management. Prentice Hall PTR, Upper Saddle River. D’Netto, B. and Sohal. A. S. (1999) Changes in the production manager’s job: past, present and future trends. International Journal of Operations and Production Management, 19, 2, 157–81. Dahl, R. (1957) The concept of power. Behavioral Science, July, 201–15. Deck, S. (2001) How India got its vroom back. CIO Magazine, 15 June (http://www.cio.com/ archive/061501/indian.html). Deloitte & Touche Consulting (1996) How to Achieve Rapid, Financially Successful, Quality ERP System Implementations: An Executive Briefing Paper.



Despres, C. J.-N. (1996) Information, technology and culture. Technovation, 16, 1, 1–20. Dirsmith, M., Heian, J. and Covaleski, M. (1997) Structure and agency in an institutionalized setting: the application and social transformation of control in the big six. Accounting, Organizations and Society, 22, 1, 1–27. Dutton, J. E. and Dukerich, J. M. (1991) Keeping and eye on the mirror: image and identity in organizational adaptation. Academy of Management Journal, 34, 3, 517–54. Escalle, C. X. and Cotteleer, M. J. (1999) Enterprise Resource Planning (ERP). Technical Note. Harvard Business School, Boston. Fabian, R. (1998) The ERP challenge. CMA Magazine, 72, 5. Ferguson, A. (2001) Southcorp: everything’s coming up Rosemount. Business Review Weekly (Aside http://www.brw.com.au/updates/aside1.asp), Online Update – Aside, 1 March. Frieman, A. (2001) Indian Motor Cycle Roars Away Ahead With $45 Million in New Funding. Media release. http://www.indianmotorcycles.com. Giddens, A. (1984) The Constitution of Society: Outline of the Theory of Structuration. University of California Press, Berkeley. Giddens, A. (1993) New Rules of Sociological Method. 2nd edition. Polity Press, Cambridge. Hatch, M. J. (1997) Organization Theory: Modern, Symbolic, and Postmodern Perspectives. Oxford University Press, Oxford. Johnston, R. B. (1995) Making manufacturing practices tacit: a case study of computer-aided production management and lean production. Journal of the Operations Research Society, 46, 1174–83. Johnston, R. B. and Brennan, M. (1996) Planning or organizing: the implications of theories of activity for management of operations. Omega, International Journal of Management Science, 24, 4, 367–84. Kaspersen, L. B. (2000) Anthony Giddens: An Introduction to a Social Theorist. Blackwell Publishers, Oxford. Li, C. (1999) ERP packages: what’s next. Information Systems Management, Summer, 31–35. Lincoln, A. (2000) Special report: ERP. (http:// www.cfoasia.com/archives/200003-50.htm), March. Lukes, S. (1974) Power: A Radical View. Macmillan Press, London. Mangham, I. L. (1986) Power and Performance in Organizations. Basil Blackwell, Oxford. McCann, G. and Lucas, T. (2000) Making ERP Spell ROI. http://www.anz.dc.com/archive/roi.htm: Deloitte Consulting. Mintzberg, H. (1993) The pitfalls of strategic planning. California Management Review, Fall, 32-47. Nonaka, I. (1991) The knowledge-creating company. Harvard Business Review, November–December, 96–104. Orlikowski, W. (1992) The duality of technology: rethinking the concept of technology in organizations. Organization Science, 3, 3, 398–427.


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Osterland, A. (2000). CFO Magazine http://www. cfo.com/printarticle/1,4580,0|83|AD|1684,00. html, 1 January. Parker, J. (2000) Structuration. Open University Press, Buckingham. PA Consulting (2000) Unlocking the Potential in ERP. http://www.paconsulting.com/: PA Consulting Group. Pfeffer, J. (1981) Power in Organizations. Pitman, Melbourne. Porter, M. (1996) What is strategy? Harvard Business Review, November–December, 61–78. Rajagopal, P. and Tyler, F. (2000) Enhancing manufacturing performance with ERP. Information Systems Management, Summer, 43–55. Schein, E. H. (1996) Culture: the missing concept in organization studies. Administrative Science Quarterly, 41, June, 229–40. Schmenner, R. W. and Vollmann, T. E. (1993) Performance measures: gaps, false alarms and the ‘‘usual suspects’’. IJOPM, 14, 12, 58–69. Schroeder, D. M., Congden, S. M. and Gonipath, C. (1995) Linking competitive strategy and manufacturing process technology. Journal of Management Studies, 32, 2, 163–89. Scott, W. (1994) Manufacturing Planning Systems. McGraw-Hill, Sydney. Skinner, W. (1978) Manufacturing in the Corporate Strategy. John Wiley & Sons, Brisbane. Skinner, W. (1986) The productivity paradox. Harvard Business Review, July–August, 55–59. Slack, N., Chambers, S. and Johnston, R. (2001) Operations Management, 3rd edition. Pearson Education, Sydney. Solomon, M. (2000) Bouncing back. Computerworld (http://www.computerworld.com), 11 September. Songini, (2000) Halloween less haunting for Hershey this year. Computerworld, News and Feature Story. (http://www.computerworld.com), 2 November. Voss, C. A. (1995) Alternative paradigms for manufacturing strategy. International Journal of Operations and Production Management, 15, 4, 5–16. Walsham, G. (1992) Management science and organizational change: a framework for analysis. OMEGA, 20, 1, 1–9. Walsham, G. and Han, C-K. (1991) Structuration theory and information systems research. Journal of Applied Systems Analysis, 17, 77–85. Weick, K. E. (1995) Sensemaking in Organizations. Sage, London. Winograd, T. and Flores, F. (1987). Understanding Computers and Cognition: A New Foundation for Design. Ablex Publishing Corporation, Sydney.

Roger Jenkins is Lecturer in Operations Management at the School of Management, UTS, Sydney. Email: [email protected]

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Regimes of Knowledge, Stories of Power: A Treatise on Knowledge Management Chris Carter and Harry Scarbrough Discussions on Knowledge Management have to date been largely uncritical, ignoring the broader political implications of attempting to manage ‘knowledge’. More recently there have been numerous calls to engage with the issue of knowledge in organizations in a more critical manner. The objective of this paper is to contribute to a critical discussion through unpacking the issue of knowledge in organizations through reference to the empirical data gained from a study of CoastElectric, a regional electricity company. In the paper we argue that organizations can be thought of regimes of knowledge, whereby the capabilities of an organization are interwoven with the relations of power.

Introduction

C

urrent debate around the concept of Knowledge Management (KM) has tended to polarise between those who see it as simply the latest management fad and those who claim that it reflects the changed conditions of competition (see Drucker, 1993; Reich, 1992) in the globalized, (post) modern world. Where one group sees a cynical repackaging of consultancy services and IT products, the other sees a crucially important resource. This paper aims to challenge these oppositional stances (Scarbrough & Swan, 1999), by developing a critical account which relates discursive changes in managers’ apprehension of knowledge to substantive changes in the political and organizational context within which such knowledge is deployed. This analysis will be grounded in an empirical account of changes in the management of knowledge within a privatising utility company in the UK. This is an account which certainly acknowledges the importance of specific forms of knowledge challenging the critical faddist intepretation – but which views them less as an organizational resource, than as a pivotal moment in changing patterns of social and political relations. This account leads us to develop the concept of ‘regimes of knowledge’ as a framework for

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capturing the heterogeneous elements of managerial discourse, political and institutional relations and social and technological contingencies which animate the constitution and appropriation of knowledge in our case organization. As a preamble to this analysis, we will briefly outline some of the theoretical issues which are raised by KM and by our case study in particular. A relevant starting-point for this is acknowledging the recent emergence of the discourse of Knowledge Management. Bracketing for the moment the question of its epistemological validity, from our perspective one of the most striking features of this discourse is the way knowledge is presented as an endogenous, if sometimes elusive, organizational resource. The spread of the discourse seems to be driven by claims that this hitherto hidden but highly valuable resource is now accessible to management and exploitation. Advocates argue, for instance, that the insights of KM mean that the ‘knowledge creating process is no longer an enigma’ (Nonaka & Takeuchi 1995:p236). The root metaphor (Smirchich, 1983) of the discourse exemplified by references to data mining, for example, or ‘drilling down into the knowledge base’ represents knowledge as quasinatural resource which requires conversion into more explicit forms. Through the use of the mental maps and practical tools of KM, # Blackwell Publishers Ltd 2001. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

A TREATISE ON KNOWLEDGE MANAGEMENT

managers are able to achieve the ‘quintessential knowledge-creation process’, namely, ‘when tacit knowledge is converted into explicit knowledge’ (Nonaka & Takeuchi 1995: p230–231). To accept the current mantra of mainstream KM as exemplified by Nonaka & Takeuchi is to accept not only the privileging of tacit knowledge but also this (equally tacit) epistemological assumption. Thus it makes sense to talk about building data warehouses and constructing a knowledge base (c.f. Pettigrew & Whipp, 1991). Moreover, it presumes that knowledge can be abstracted and reified from individuals. This understanding has fuelled the development and growth in intranet facilities and other such data mining techniques. The corollary of the importance of such techniques to the discourse of KM has led to the nascent discipline being largely dominated by technicist approaches which seek to provide the means of making tacit knowledge explicit. As our case-study analysis unfolds below, it will become clear that this mainstream KM approach provides an important referencepoint for debate. This is partly because KM seems at the very least emblematic of changing managerial objectives and concerns. In addition, however, KM’s identification of knowledge as an organizational resource represents an important development in managerial discourse. KM provides a new lexicon through which analysts and practitioners alike can speak of an organization’s knowledge assets, managers’ may well talk of the distinction between tacit and explicit knowledge, while consultants may explain how their tools help to leverage knowledge. The creation of knowledge as an epistemological space (see Knights, 1992) within the realm of organizations must be regarded as a new phenomenon, as must the linguistic register (see Bernstein, 1975), that has accompanied it. Whatever its prominence in current managerial discourse, however, the mainstream KM approach provides at best a highly partial account of the changes that we observe in our case-study of Coast Electric, a regional electricity company. Indeed, our analysis of the management of knowledge at two critical episodes – 1990 and 1997 respectively – in the history of CoastElectric leads us to a critique of the mainstream approach. The latter’s concern with the endogenous conversion of knowledge into more explicit, commodified forms is seen as neglecting the impact of exogenous institutional and technological changes upon the constitution of knowledge in Coast Electric. Though the company’s management had moved by 1997 towards a


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position which is recognizably concerned with KM’s themes of the codification and commodification of knowledge, the longitudinal account highlights the extent to which this position was the result of wider changes in which knowledge, power relations and institutional factors were intimately intertwined hence the notion of ‘regimes’ as outlined below.

Regimes of Knowledge In this paper we present our conceptualisation of a ‘regime of knowledge’ through drawing attention to the way in discourse is circulated, reinforced and sustained within institutional structures and the internal habitus of organizations. In this perspective, the dominant regime of knowledge is instrumental in shaping the conditions for ‘knowing’ (c.f. Blackler, 1993) within a given context. Central to our account is an attempt to demonstrate that discourse is interwoven with the ability of an organization to carry out certain tasks – its structural repertoire (c.f. Clark & Staunton, 1989; Clark, 1999). This in itself marks a contrast with many of the micro-political Foucauldian studies (c.f. Knights & Wilmott; Ball & Wilson 1997) which have been exemplars in demonstrating the role which discourses have played in shaping the subjectivities of organizational actors. We acknowledge this contribution but our aim is to relate discursive shifts not simply to changes within particular departments but to the organization as a whole. As we will see, this inevitably involves developing a broader sense of the political economy of knowledge, and in particular the implications of institutional and contextual change. Implicit to a ‘regime of knowledge’ is the ubiquity of power (see Clegg, 1989; Hardy & Lieber-O’Sullivan, 1998). Though power is inevitably at least in a paper of this scope a provisional and exploratory element of the analysis given the diverse interpretations available in the literature, we have sought to develop a suitably inclusive account of power relations. This draws in particular on the recent work of Hardy (1998) which addresses both the power of meaning (after Lukes; 3rd dimension of power) and the power of the system (after Foucault; 4th dimension of power)1. Her framework is useful in that it opens an analytical distinction between the power of meaning (why do we do what we do? What is taken for granted as commonsensical?) and the power of the system (how is relative performance measured? by what mechanisms and by whom?).

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The power of meaning as described by Steven Lukes is the ability for a dominant group to ‘prevent conflict in the first place’ (1974: p. 23) through shaping the views of other groups. Moving to the substantive the third dimension of power can be regarded as providing the unifying objective within an organization or a society – a raison d’etre. For example, in the British public sector there is the alleged public sector ‘ethos’ of serving the community that bound (and continues to bind) the sector together. Cooper et al (1988) talk about this in terms of an organizational archetype – a dominant mode of organizing – which is a useful illustration of the power of meaning and the way in which it pervades the organization. The relevance of these contributions to the management of knowledge can be identified by means of Blackler’s (1993) account. This suggests that in a given context there will be specific ‘conditions for knowing’. The importance of this observation is basically two-fold. First, by focusing on ‘knowing’ rather than knowledge, Blackler sidesteps the tendency to reify knowledge and abstract it from human agency which we see in much of the KM literature. Second, and reflecting the power of meaning, it suggests that the ways in which things are done in a certain context will make sense to those within it (see Malinowski’s seminal account of the Trobriand Islanders). This is not to suggest a unitary view of either meaning systems or of organizations in general. Rather, attention to the conditions of knowing is likely to expose the multiplicity of legitimate and illegitimate forms of knowledge subsisting in the social relations of the organization. As for the ‘power of the system’, this draws attention to the way in which the techniques of power produce ‘truth’ on subjects be it the performance of an individual in an assessment centre (see Carter, 1996) or the financial performance of an organization. The panoply of such techniques can be seen to pervade contemporary organizational life, for instance, schools, universities and hospitals find their identity in the wider environment constructed through performance measures. Within the private sector, for example, the spectacular collapse of Marks & Spencer has been constructed through the various techniques of power which produce truth on organizational performance such as financial data, customer surveys etc. Immanent to the power of the system is the multiplication of such techniques and the importance that they are afforded. The power of the system is therefore fundamental to the maintenance (or the displacement) of meaning within organizations.

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The relevance of a discussion of power in relation to knowledge management is that the prevailing relations of power define what counts as knowledge. The rest of this paper seeks to engage with ‘Regimes of Knowledge’ i.e. deconstructing an organization in order to uncover the dominant relations of power and concomitant constructions of knowledge.

Method The empirical data for this paper was derived from in-depth case study research conducted by one of the authors. The research was longitudinal and featured in-depth interviews, observation of company meetings and the use of company documents. A feature of the research was that the access was both formal and informal (see Hardy, 1991) and involved talking to a range of staff from the chief executive through to a cadre of meter readers. Given the nature of this research it would be problematic to make grand claims as to its broader applicability and in that sense it is important to be reflexive about the claims on truth that are being made for the account in this paper. That said subsequent feedback of the ideas to practitioners highlighted that the experience had been mirrored in a variety of other utility contexts, to the point that one employee of another utility was claiming in a most forceful manner that the study was based on his organization! Any such claims are however secondary to our interest in using empirical data to explore analytical insights into regimes of knowledge.

CoastElectric (t1): the Regime of Engineering We begin by outlining the pre-existing regime of knowledge in CoastElectric (T1). CoastElectric, a regional electricity company, was privatised in 1990, the regime of knowledge was characterised by a dominance of the regime of engineering, which was physically embodied (Lam, 1998) in the cadre of professional engineers. In contrast to the typical experience in the UK (see Lee & Smith, 1992; Meiskins & Smith, 1996), engineers in CoastElectric enjoyed a high status and as an occupational group were sharply delineated from other workers. They enjoyed full jurisdiction (see Abbot, 1998) over engineering matters and, for that matter, more general organizational issues, they were legislators (see Bauman, 1987). Given the differences between CoastElectric’s engineers and the more general UK experience how are we to make sense of this ? In our view the starting point of the institution, its founding conditions, have a



vital role to play in explaining the emergence of a particular regime of knowledge (c.f. Whipp & Clark, 1986). As such the surface of emergence (see Foucault, 1972) in which CoastElectric was formed must be located within the broader context of political economy. The post-World War Two wave of nationalisation, by the Attlee Government, was predicated on the notion that ‘state experts’ were required to run the country. This was particularly evident in the influential writing of both the Webbs and that of Beveridge , important social policy influences on the Attlee Government. An application of this technocratic thinking was to have the electricity supply industry run by state employed professional engineers. As such, the engineers in CoastElectric could be considered to be organizational professionals (see Reed, 1996), that is, professionals brought about as a result of the expansion of the state rather than being part of the earlier growth of liberal professions. It was not solely the influence of the exhortations of Fabian social science that shaped the need for engineers; it was also the physical, material demands of establishing an electricity distribution network. The fifty years of development of the network prior to World War Two was based on local municipal and private projects, which led to a sporadic kaleidescope of different system designs. The network as it stood was also extremely limited in its reach. This patchwork tradition was continued in that rather than adopting an American system of manufacture (see Rosenburg, 1969) style approach to engineering, of the type chronicled by Noble (1978). Electricity supply industry professional engineers in the UK were able to rely on their own professional judgement, something that led to idiosyncratic designs across towns and regions. This is illustrative of the arguments about the craft traditions of British engineering (see Meiskins & Smith, 1996), it also questions the whole notion that British electricity boards were in fact the lumbering, inflexible bureaucracies that some theorists have likened them to. These founding conditions help explain the formation of CoastElectric as an organization that was to value and elevate engineering over other concerns. This was sustained by three factors: first, the demand for electricity doubled approximately every seven years between 1945 and 1970; second, the inherited network and the climactic conditions (high rainfall levels and winds) led to a good deal of maintenance and repair work being required; third, the absence of profit expectations above the requirement to generate a profit of 6% return on capital employed. Such were the


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politics of budgeting that the latter factor meant that CoastElectric would make its target but no more, the rest of the resources being redirected into maintenance, training of engineers and the like. The absence of other objectives such as financial performance served to support the centrality of the regime of engineering. This was further evident in the overarching objective of the organization, which was to maintain the electricity distribution network. In theoretical terms the maintenance of the electricity distribution network constituted the power of meaning – the raison d’etre of the organization – while this was enforced through the power of the system, which consisted of techniques for measuring the performance of the system. Our argument therefore is one that highlights the interconnections between the power of the system and the power of meaning and the manner in which they reinforce each other. The power of the system was also evident in the use of the functioning of the engineering nomenclature. For instance engineering terms were widely used in job titles (for professional engineers), including very senior management positions. Thus a successful employee starting out as an associate engineer would proceed up the hierarchy through 3rd, 2nd and 1st engineer positions, a tiny minority (ten out of six hundred engineers) would make it to the position of regional or chief engineer. Promotion was based largely on technical excellence with management positions being totally dominated by engineers. Other manifestations of the centrality included: (i) the high technical content of senior management jobs; (ii) the high engineering content discussed in committee meetings; (iii) the content of training was virtually exclusively restricted to the acquisition of new engineering skills; (iv) there was a postqualification competition for jobs, whereby CoastElectric trained far more engineers than it required, this added to the notion that the engineers that remained were in some way ‘special’; (v) the lengthy training period for engineers (5–7 years post-A level). Under this regime of knowledge the conditions for knowing were such that it was broadly accepted by those within the organization that engineering was CoastElectric’s raison d’etre; therefore, to fulfil this function, a large body of professional engineers were required. That this was taken as axiomatic indicates the hegemonic position occupied by the regime of engineering in CoastElectric. The dominance of the regime of engineering was therefore embodied by the professional engineers who in extending their jurisdiction over the organization were able to define

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organizational requirements primarily in engineering terms. Previous studies into electricity boards (see Hickson et al 1986) have characterised them as being ‘paralytic’ in the sense that historically they have been constrained by the external environment. This perhaps explains why within the everyday operating environments engineers were in a legislative position: externally emasculated, but possessing a mastery over the internal domain. Moreover, it is significant that State control seems to have involved a kind of institutional blackboxing (Scarbrough, 1995). That is, the government did not have to know how they functioned but rather that the electricity was distributed, faults were fixed and financial targets were met. In this way, the organization was broadly insulated against influence from the wider political environment, although not of course the physical environment. Further, our research suggests that this regime of knowledge developed in a recursive way (see Giddens, 1984; Clark, 1996, 1999) since the foundation of the organization in 1948; meaning was manufactured and sustained within the organization by the systemic effect of performance measurement as mobilized through the professional norms of the engineers. The regime of knowledge must therefore be viewed as being constituted by the interplay between language, power and knowledge. Yet thus far this tells us little of the role of the organizational repertoire in sustaining the regime of knowledge. Turning to these issues, and following Clark & Staunton (1989), it is argued that in CoastElectric possessed an elaborate number of structural poses within its repertoire in terms of everyday operational activities of maintenance, establishing new lines and routine repairs. This was bound up with the dominance of the engineering profession and the associated strategic centrality of network maintenance. It was also in part a consequence of the largely rural environment of CoastElectric where the electricity supply was especially vulnerable to faults. This required a work organization that was flexible out of normal working hours, something that was achieved through a call out system, whereby a given number of engineers, technical and manual workers would be ‘on call’ should there be an emergency in the night. This led to an embedded ability to deal routinely with problems occurring in the electricity distribution network. The professional engineer was pivotal to this operation, making engineering judgements as to what needed to be done and conducting safety checks, while the technical workers and labourers would work, often in adverse

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weather conditions, to get the electricity supply back on. A high proportion of junior and mid ranking engineers (3rd & 2nd) were regularly involved in call-outs, having opted for ‘standby contracts’ which involved them being on stand-by for one week in every four, across all groups of ‘operational’ employees it was regarded as a being relatively lucrative. Turning our attention to more extraordinary events, such as gales and other extreme weather conditions, these were an inevitable feature of CoastElectric’s physical environment, yet they were of course relatively infrequent and wholly unpredictable. An examination of such critical incidents revealed that a structural pose did exist within the organization to cope with such exigencies. For instance, in November 1990 – ironically the month of the organization’s privatisation – a hurricane hit the CoastElectric region. Amid scenes of chaos most of the region was without electricity, phone lines were also down so how did CoastElectric deal with such a situation? In the first instance, in the case of natural disasters there was a tradition of CoastElectric operational employees turning up for work, knowing that the organization would be facing a crisis. In 1990, pre cellular phone, a local BBC radio news programme was used for a regional engineer to advise engineers and technical staff. It was on this programme that residents in the area were assured that CoastElectric was doing all that was possible to restore electricity supply, the effort being titled ‘Stormforce 90’. In the regional offices, the staff shifted to a shift system so that work was being done on 12 hour cycles. The engineering challenge was to locate major faults, try and get them repaired, in order to establish a skeleton electricity supply network, this was then followed by working through the smaller faults. At regional office level, engineers were no longer attending to their everyday jobs, but rather they were coordinating the construction of a skeleton network. This necessitated consulting old system designs, while in ‘the field’ the supply was gradually being restored. To set this into a temporal frame, it took about three weeks following the hurricane of this style of working to get the electricity distribution network fully operational once more. ‘Stormforce 90’ was lauded as a success, a number of CoastElectric staff received honours in the honours list of the following year. For the purposes of this paper, the crucial factor in this incident was the evident capability within the organizational repertoire to deal with an extraordinary event. It was dealt with through staff solely concentrating on the situation, through working irregular



hours, through having the ability to plan a skeleton network and repair the faults. In considering the capabilities of the organization we have seen how the organization was able to cope with routine, problems and extraordinary situations. In the latter case, there was no documentation for handling such a situation, yet the capability clearly lay dormant within the organization’s repertoire, waiting to be activated. While there were undoubtably individual acts of heroism, as recognized through the awards, it is not our position to privilege human agency, rather it is our view that the outcomes can be explained through recourse to the specific organizational knowledges within CoastElectric. Linking this, the sense of an organization in action, with our earlier exposition of the regime of knowledge, it is central to our position that the regime of engineering, embodied in professional engineers, reinforced through performance measures and various institutional systems (central to the whole raison d’etre of what the organization was about), was vital to the physicality and materiality of putting the ‘electric’ back on.

CoastElectric (T2): Regime of Managerialism The second cameo looks at the regime of knowledge in CoastElectric some six years later (T2). The regime of knowledge was very different, centred on what has been characterised elsewhere as the discourse of new managerialism (see for instance, Du Gay 1996; Jacques, 1996; Reed, 1999) where the objective of the organization was to provide ‘world class customer service’. The centrality of customers to the regime of managerialism in CoastElectric (t2) requires further consideration. The logic of managerialism held that corporate success was achieved through making customers ‘extremely satisfied’. This at a surface level seems to be axiomatic, a truism for the contemporary organization. Yet the elevation of the customer as a transcendental category disarms our attention from treating the very term, especially in relation to receivers of electricity, as asocial construction specific to a particular time and space. For instance, in CoastElectric (t1), six short years before, it would have made little sense to talk of ‘customers’, for as a linguistic category they simply did not exist. There were of course people whom received electricity, paid bills and if their electricity went off rang up to complain, yet they were not constructed as customers. The drive to deliver customer service is illustrated by the actions of the new chief executive, a former news reader on American television, who implored his staff, through


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presentations and handwritten exhortations, in the company magazine, to ‘think like a customer and act like an owner’. In addition to this he dealt with probably twenty telephone calls from angry ‘customers’ a week. The centrality of this discourse of customer service was institutionalised through a performance management system (see Townley, 1994) which purported to ‘measure’ customer satisfaction. This measurement system, based on monthly questionnaires to customers, acted as a device to construct the reality of how particular work groups were performing: careers, bonuses and reputations depended upon it (see Power, 1994; Tinker, 1988). In the company magazine monthly figures for ‘extremely satisfied’ customers were produced. While these figures as we have suggested have consequences, it is worth once again reflecting upon what is actually meant by an ‘extremely satisfied customer’ in relation to the supply of electricity. The work was now organized through autonomous teams which comprised a team leader and empowered team members. As one of the progenitors of this mode of organization argued: ‘Empowered teams will provide high powered, flexible, customer responsive teams’. Engineers were however remarkable only for their absence, as one senior manager stated ‘In the past we had people that were technically excellent, now we need excellent leaders – we don’t need the technical skills’, while another senior manager commented, ‘if you come into this organization you won’t be able to find an engineer in the structure’. Clearly, CoastElectric (T2) is different from CoastElectric (T1), indeed what is striking is how in a short period of time, one regime of knowledge has been displaced by another; the conditions of knowing had changed radically. The two cameos are clear manifestation of two very different regimes of knowledge, namely that of engineering and that of managerialism. Given the exogenous political context in which the organization was located, characterised by the ascendancy of the New Right, the celebration of the enterprise culture and the dismantling of the state, it is perhaps not surprising that there was a questioning of professional engineering. While the fall from grace of the regime of engineering is interesting, the practicalities of the organization demand that technical tasks be carried out in order to ensure the very running of the organization (imagine an electricity company that was unable to supply electricity). In philosophical terms, the regime of managerialism had established a supremacy over the preexisting regime of engineering.

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While it is not our intention to chronicle the process of the transformation, it is important to note that the philosophical supremacy of the regime of managerialism was extended to the practical running of the organization through the implementation of a management of knowledge programme. The management of knowledge initiative, labelled ‘rule based engineering’, sought to encode (see Dyerson & Mueller, 1999) the expertise of the cadre of professional engineers (cut from 600 engineers to 200, the remaining 200 now acting as managers). The corollary of this was to enable engineering tasks to be carried out by ‘empowered team members’, through following the instructions of a checklist. It was described by a senior manager in the following terms: Professional engineering skill is being turned into a rule based technique. This is like the Automobile Association experience . . . where the recovery man comes and basically has a checklist. Is the battery flat ? Is it the sparkplugs ? If there is a real problem he loads the car up and takes it away. We can deskill what was done by clever people. The rule based engineering programme worked on the assumption that knowledge was codifiable, storable and transferable (see Alvesson, 1998). Consequently, management consultants were able to ‘mine’ and ‘drill’ for knowledge within CoastElectric, the results being an encoded databank which was translated into instructions for semi-skilled workers. In terms of making sense of this case, we propose that the regime of engineering became locked into a violent hierarchy with the regime of managerialism, which inter alia, led to the latter defining the requirements of the former (c.f. Said, 1979; Bauman, 1987) i.e. one senior manager explained during the Rule Based Engineering initiative: ‘Currently we have engineers to check work. We don’t need these checks as a worker is not going to work on a live line as it would kill him. He doesn’t need an Engineer to tell him that. It is against TQM principles, people need to be empowered’. Such a statement in CoastElectric (T1) would have been considered nonsensical, whereas within the regime of managerialism it made sense, thus being emblematic of the changed conditions of knowing. The remaining question germane to our treatment of knowledge is to examine the experience of translating Rule Based Engineering into action, were there the structural poses within CoastElectric’s (T2) repertoire to allow the electricity distribution network to continue working? This question was the

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subject of considerable conjecture, with there being a fundamental disagreement between the two regimes. The argument from within the domain of engineering is summarised in a quote from a CoastElectric engineer: Rule Based Engineering is fine when things are going right but not when things are going badly, this is when you need experience. They are retiring experienced engineers because they are too expensive to keep. The trend will continue to deskill engineers. They think that we don’t need to spend £25K (1996 prices) a year on an Engineer to waggle switch handles . . . anyone can do that. But the problem is these people don’t understand fully what they are doing and you need to understand. A lot of industrial staff can do things by rote – they have seen an engineer do it before. It is OK until there is a subtle change and there can be a disaster. This has happened with a foreman who used to work here with tragic consequences. Another engineer expanded on this theme, arguing: Only so many rules can be written, eventually engineering judgements based on technical knowledge need to be made. These can only be made by engineers. Also our larger customers, and architects etc expect the CoastElectric experts to be able to give rational arguments as to why something has to be like it is. In other words you need to know why as well as how. Nonengineers tend not to know the issues that are important in engineering matters let alone being able to make judgments’. Not surprisingly such arguments were dismissed from within the regime of managerialism, with a very different view of the possibilities of Rule Based Engineering being held, for instance, the Director of Operations argued: From an engineering point of view this (Rule Based Engineering) has been a big success. Another big thing of Rule Based Engineering is to take the people that could operate and work the switching systems, to bring that down to a lower level within the organisation. Historically it was engineers most of whom would have been Degrees. We’ve now taken it down to the craftsmen level the technicians now are people that were once linesmen, and joiners, and its been successful. The suggestion that rule based engineering would be unable to cope with difficult situations (Clark & Staunton’s 1989, extraordinary



events), was dismissed by a senior manager, who argued: If there is something out of the ordinary we will do something out of the ordinary. That’s the way I look at it. We are more focused on what we need to achieve now. Whereas in the past we would go to a problem, find where it was and stay there until it was fixed, we are actually prioritising, what are the issues?

Discussion In this case an electricity company has recast itself as a ‘customer service’ company. We have termed the change as a shift from a regime of engineering to that of managerialism. Central to the regime of knowledge approach that we are developing is the notion that power/knowledge/discourse and practice are interwoven. In this case it is argued that far from being apolitical, the assumptions that underpin KM were essential in terms of enabling the shift from one regime of knowledge to another. Far from being innocuous, KM and associated programmes have potentially far reaching intended and unintended consequences for organizations and occupational groupings alike. In six short years CoastElectric was unrecognizable: the regime of engineering had been displaced by that of managerialism. Such a change was enabled by a management of knowledge programme that sought to objectify and demystify the praxis of the professional engineer. The codification of the tasks of the professional engineer were to become enshrined in the Rule Based Engineering initiative. Its subsequent utilisation by semi-autonomous teams was significant for two prime reasons: first, it marked a total rethink in the mode of work organization operated by CoastElectric; second, it highlighted the shift of power relations away from the cadre of professional engineers. These two points are of course interrelated, with the espousal and subsequent adoption of Rule Based Engineering being symptomatic of a shift of the regime of knowledge within the organization. In terms of explicating the manifest differences that existed between CoastElectric (t1) and CoastElectric (t2), it is worth contrasting the dominant meaning that operated in the organization at different time periods. In 1990 notions of maintaining the electricity distribution network were of central importance to the organization, engineers as a professional group were seen to be so central


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to this endeavour. There was a syncretic treatment of them and the network, and to question this would in the contemporary context of the organization have been considered a profanity. In short, in terms of speech acts, to have claimed that the organization did not require engineers would have been considered an absurdity and therefore was unsayable. It seemed commensical and the ‘natural state of affairs’ that the objectives of the organization centred on maintaining the electricity distribution network and following from this that professional engineers were essential to achieving this end. Six years later, the dominant code of meaning had changed within the organization to such an extent that not only were engineers expendable, but, they also constituted an anachronism: ‘old CoastElectric’. The process of this change is described elsewhere (see Carter & Scarbrough, 2000), although it is important to note that in the privatised era there were a number of key turning points which it is argued are central to understanding the collapse of the regime of engineering. The first of these was marked at the time of privatisation when it was decided that the organization ‘had to change’. The second was linked with the TQM programme, although it was to prove to be underwhelming in achieving its espoused aims, it asked fundamental questions of the organization and was eventually to lead to the formulation of Job Rethink. The third and arguably most significant change was the takeover of the organization by FedCo, bringing with them an articulated managerialist agenda combined with an American sense of temporal reckoning. The power of meaning in CoastElectric was one in which the customer was elevated as being of pivotal importance. The corollary of this was that this established different requirements for the organization, with the regime of engineering being displaced by the regime of managerialism. That such a change happened, in such a short period of time, with so little concerted resistance is worthy of note. The Rule Based Engineering initiative, which so closely resembles contemporary Knowledge Management programmes, directly enabled this shift in the regime of knowledge. The absence of the Rule Based Engineering initiative would have seriously curtailed the possibility of removing the professional engineer from the organization and with it the centrality that engineering enjoyed throughout the organization’s history. Rule Based Engineering, through its alleged capacity of being able to turn tacit knowledge into explicit knowledge, had the

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consequence of leading to the subjugation engineering knowledge, subsuming it into one of a number of objectives to be achieved by autonomous teams. This insight, the very demonstration of the far reaching effects of the initiative highlight the absurdity of treating Knowledge Management as an initiative that is in some way neutral or apolitical. Instead it demonstrates that power is at the heart of KM, in this case enabling the destruction and replacement of one entrenched regime of knowledge by another. An important finding of this paper is that while KM’s focus on the organization’s existing knowledge base can only be achieved i.e. make sense and be seen as politically legitimate – through changes in the broader regime of knowledge. Central to our present thinking on regimes of knowledge is the proposition that organizations constitute knowledge systems which privilege particular forms of knowledge, based on a transcendental idea of the raison d’etre of the organization. In turn, the centrality of a particular form knowledge – the power of meaning is legitimated through the power of the system i.e. a complex means of performance measures and organizational processes. This also manifests itself in the repertoire of the organization i.e. its ability to carry out particular tasks. In our example of CoastElectric we have suggested that CoastElectric (t1) was characterised by a repertoire that was rich in its ability it deal with engineering problems. Moreover we have argued that this ‘knowledge’ was largely ‘embodied’ in the professional engineer as such the expertise was a dynamic interaction between certified ‘explicit’ knowledge and the tacit knowledge produced through experience. In contrast, CoastElectric (t2) possessed a repertoire that was far more limited in its engineering capability, something that was evident even in routine conditions. During the data collection period, the ability of the new repertoire to deal with ‘extraordinary’ circumstances was not tested, but questions were raised as to whether a ‘sword of Damocles’ was poised, ready to strike the organization. However CoastElectric (t2) had developed a relatively sophisticated public relations operation which enabled it to socially construct the organization’s performance through such means as customer satisfaction ratings.

Conclusion This paper has introduced the ‘regime of knowledge’ as a lens through which to study

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the evolving interactions between organizations and forms of knowledge. In the analysis, a case has been made for viewing organization and its structural repertoire as a joint production of the power of the system and the power of meaning. In our study, a complex process of organization change has been interpreted in terms of a regime shift from an engineering to a managerialist regime. Central this change process was the adoption of what can be seen as a prototypical ‘Knowledge Management’ initiative, the rule-based engineering programme. This programme was ostensibly aimed at the conversion of tacit into explicit forms of knowledge. However, by locating it within the wider context of changing regimes, we see its effects less as exploiting knowledge than as constituting knowledge within the Coast Electric organization. Thus, what is important about the codification of engineering expertise is not the explicit attempt to commodify or blackbox technology, but the implicit sublimation of such expertise into a new order in which managerialist constructions of knowledge and performance are key. In this perspective then, the development of Knowledge Management practice is intertwined with the unfolding of organizational power relations. This analysis of the organizational changes at Coast Electric is distinctive in that it stresses the strategic centrality of the operative regime of knowledge. More than a cultural or discursive shift, the development of the new managerialist regime inexorably manifested itself in the repertoire of the organization. Ironically, one implication of our analysis is actually to reinforce one of the key tenets of the mainstream literature on Knowledge Management namely, that organizational knowledge is critical to performance. However, our account also suggests that this performative centrality is only secured through important changes in what we have broadly termed the ‘conditions of knowing’ within an organization. In other words, what we have described is not Knowledge Management on its own terms i.e. a universal management process but as something much more precarious; in short, as a critical moment in processes of organizational change which privilege particular forms of knowledge. This account therefore serves to contextualize the current debate on KM by challenging the view of knowledge as an endogenous resource. Our case has suggested that both the conditions under which KM may be effectively implemented and the means by which it empowers particular effects are not amenable to the technicist ‘conversions’ which are the focal point of the existing literature. In



CoastElectric, the conscious management of knowledge as an organizational resource was only achieved through a seismic change in the institutional and organizational context a change capable of disembedding the longestablished professional regime. Likewise, the effects of KM could only be produced and sustained through political rather than technical interventions which re-defined and re-appropriated knowledge within a ‘customer-driven’ system and ideology. In conclusion, against the backdrop of a burgeoning interest in KM our case-study has sought to relocate knowledge within the social context and political economy of organizations. Our case-study has demonstrated the embeddedness of knowledge within social relations i.e. specific conditions of knowing. In so doing, it has certainly demonstrated the failings of the technicist aspirations of KM, but has also established the validity of a concern with knowledge as of more than purely faddish interest.

Note 1. Hardy’s analytical opening between the 3rd and her 4th dimension is highly problematic in the sense that it ignores the epistemological differences between the claims of false consciousness of Lukes and the denial of an essentialist reality postulated by Foucault and his interlocutors

References Abbott, A. (1988) The System of Professions. An Essay on the Division of Expert Labour. Chicago University Press, Chicago. Alvesson, M. (1998) Knowledge Ambiguity. Paper presented at the BPRC ‘Knowledge Management’ Workshop, Warwick Business School, November. Aronowitz (1999) The Twilight of the Professions. Keynote talk delivered at the International Critical Perspectives in Accounting Conference, Baruch College, City University of New York. Ashburner, L. and Fitzgerald, L. (1996) Beleaguered professionals: clinicians and institutional change in the NHS. In H. Scarbrough (ed.), The Management of Expertise. MacMillan, London. pp. 190–216. Ball, K. and Wilson, D. (1997) Computer based monitoring in organizations. Paper presented at the European Group Organization Studies Colloquium, Budapest. Barnett, C. (1986) The Audit of War: The Illusion and Reality of Britain as a Great Nation. Macmillan, London. Bauman, Z. (1987) Legislators and Interpreters. Polity Press, Cambridge. Bernstein, B. (1975) Class, Codes and Control: Towards a Theory of Educational Transmissions. Routledge & Kegan Paul, London.


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Academy of Management Annual Conference, Aston University, September. Hardy, C. and Leiba-O’Sullivan, S. (1998) The power behind empowerment: implications for research and practice. Human Relations. Jacques, R. (1996) Manufacturing the Employee. Sage, London. Kennedy, P. (1989) The Rise and Fall of the Great Powers: Economic Change and Military Conflict. Fontana, London. Latour, B. (1988) The Pasteurisation of France. Harvard University Press, Cambridge:. Lam, A. (1997) Embedded firms, embedded knowledge: problems of collaboration and knowledge transfer in global cooperative ventures. Organization Studies, 18, 6, 973–996. Lee, G. and Smith, C. (eds.) (1992) Engineers and Management: International Comparisons. Routledge, London. Lukes, S. (1974) Power: A Radical View. Macmillan, London. Malinowski, B. (1954) Magic, Science and Religion and Other Essays. Double Day Anchor, New York. Marquand (1991) Old wine in new bottles. In Keat and Abercrombie The Enterprise Culture. Routledge, London. Meiskins, P. and Smith, C. (eds) (1996) Engineering Labour: Technical Workers in Comparative Perspective. Verso, London. Noble, D. (1978) America by Design. Knopf, New York:. Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company. How Japanese Companies Create the Dynamics of Innovation. Oxford University Press, Oxford. Pettigrew, A. and Whipp, R. (1991) Managing Change for Competitive Success. Blackwell, Oxford. Pettigrew, A., Ferlie, E. and McKee, L. (1992) Shaping Strategic Change. Sage, London. Pollitt, C. (1993) Managerialism and the Public Services: The Anglo-American Experience. Macmillan, London.

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Peters, T. and Waterman, R. (1982) In Search of Excellence. Harper and Row, New York. Power, M. (1994) The Audit Explosion. DEMOS, London. Reed, M. (1996) Expert power and control in late modernity. Organisation Studies, 17, 4, 573–98 Reed, M. (1999) New managerialism in higher education. Paper presented at the Re-Organizing Knowledge Conference. UMASS. September. Reich, R. (1991) The Work of Nations: Preparing Ourselves for 21st Century Capitalism. Knopf, New York. Said, E. Orientalism. Random House, New York. Scarbrough, H. (ed.) (1996) The Management of Expertise. Macmillan, London. Scarbrough, H. and Burrell, G. (date) The axeman cometh: the changing roles and knowledges of middle managers. In Clegg, S. and Palmer, G. (eds.), The Politics of Management Knowledge. Sage, London, pp. 173–189. Smircich, L. (1983). Concepts of culture and organizational analysis. Administrative Science Quarterly, 28, 339–385. Tinker, T. (1985) Paper Prophets: a Social Critique of Accounting. Holt, Rinehart and Winston, London. Townley, B. (1994) Reframing Human Resource Management: Power, Ethics and the Subject at Work. Sage, London. Whipp, R. and Clark, P. (1986) Innovations and the Auto Industry: Product, Process and Work Organization. Pinter, London. Wilson, D.C. (1992) A Strategy of Change. Routledge, London.

Chris Carter and Harry Scarbrough, University of Leicester Management Centre, University of Leicester, New Building, New Road, Leicester LE1 7RH


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