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EDITORIAL 67 EDITORIAL SPECIAL ISSUE: INNOVATION THROUGH KNOWLEDGE MANAGEMENT A few years ago we had the opportunity...

Author: Tudor Rickards and Susan Moger (Editors)

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EDITORIAL

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EDITORIAL SPECIAL ISSUE: INNOVATION THROUGH KNOWLEDGE MANAGEMENT

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few years ago we had the opportunity to visit a newly opened manufacturing plant in the famous North Carolina `golden triangle'. Like others in the visiting party we had become obviously fascinated by the shiny new process machinery. Yet the most interesting innovations were probably the self-directed work groups that the company had instituted. A supervisor made the point cogently. `Honey, it's the intangibles drive this place' she commented rather sharply. This special issue is about intangibles, under the rubric of knowledge management. Make no mistake: knowledge management has become an important way of approaching the management of innovation and change at the level of the organization. Arguably, its gain in importance reflects a failure of earlier theories and practical recipes to satisfy demand for explanations and advice. For Taylor, the inefficiencies in the newly emerging organizations could be overcome by a scientific approach, which happened to fit nicely with the notion of a top-down control and command organizational form. The emphasis on the supply-side issue of production was gradually replaced by the demand-side notions of the market, accompanied by ideas that management required attention at the level of strategy as well as operations. As has been well-documented, in the second half of the 20th century, corporate life became increasingly intangible. The processes of management were mediated through information systems, and these became more electronic and distributed across space. Not only that, but the most dynamic growth came from products that were themselves less tangible. The information revolution had arrived, and demanded new explanations of organizational change. Regular readers of Creativity and Innovation Management will find common cause in the experts in knowledge management whose contributions make up this special issue. If we consider the supporters of creativity # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

and innovation management as a loosely assembled paradigm, we can also regard knowledge management as a related and overlapping paradigm. The paradigms share a concern for rescuing theories of management from the tyranny of an over rational economic perspective that always had trouble dealing with the forces that generated corporate excellence. Creativity and Innovation Management has tended to support the search and testing of models in which creative processes and products were enhanced through contextual processes and leadership interventions. In the vocabulary of this issue, our interests have tended to be directed towards the discovery of self-imposed belief systems, and the mechanisms for transcending them. For example, the techniques of creative problem-solving may have been òur' way of grappling with the very nature of tacit knowledge. George Huber, in Facilitating project team learning and contributions to organizational knowledge arrives at a similar set of conclusions for project teams. He also indicates the importance of ìnstitutionalizing' the learning gains, a point that is well taken in light of the writings on creativity management. Professors Bowonder and Miyake in Japanese LCD industry: Competing through knowledge management they continue to provide case accounts of innovation at the level of the organization. These workers have already shown the cultural components that provide strong connections between effective organizational innovation and knowledge management in Japanese manufacturing firms. By concentrating on the technological and strategic features within a knowledge processing and management framework they bring life to notions of core competencies. The British team of researchers from Edinburgh and Manchester also continue its reports on process innovations. In The management of knowledge during design and implementation of process technologies they indicate the potential

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CREATIVITY AND INNOVATION MANAGEMENT

difference in the organizations studied between espoused theories of change and theories in use ± particularly regarding the desirability of learning through examining and confronting errors. Ysanne Carlisle and Alison Dean are also interested in designs for learning. Their paper Design as knowledge integration capability addresses the tricky issue of working with two paradigmatic perspectives. In this paper, the two paradigmatic notions are those of the rational model, and the reflective action model. We support the notion that `paradigm hopping' is one example of creative gestalt switching, and welcome this effort to follow the creative notion of `the genius of the and'. Within design, there will be a need to address issues rationally, while bearing in mind the way in which design is a sense-making discovery process that informs and is informed by what some refer to as òbjectifiable' entities. Joe Tidd and Simon Taurins have examined the corporate venturing process in a range of ventures. In Learn or leverage: Strategic diversification and organizational learning through corporate ventures they find a potentially valuable distinction between those structures and strategies supportive of existing competencies, and those supportive of new (to the firm) competencies. They indicate the dichotomy as leverage and learning approaches, respectively. In Individuals' responses to change: the relationship between learning and knowing, Elena Antonacopoulou confronts continued diffi-

culties in the relationship between learning and knowledge within current organizational discourse. She suggests that the enacted theories in her case sample restricts notions of learning to a narrow focus of acquisition of approved task knowledge on training programmes. This sustains a gap between the company's rhetoric of learning and creativity (to be encouraged) and a sustained culture of complience to rules and regulations. She concludes that the cases support learning by `knowing the same' but effectively oppose `learning by knowing differently'. There is a striking similarity between her proposal, and Tidd and Taurin's analysis into leverage and learning strategies. Paul Sparrow, in Strategy and cognition: Understanding the role of management knowledge structures, organizational memory and information overload examines the forces leading to a new cognitive paradigm in which `less tractable areas of cognition' such as intuition and creativity as well as affective dimensions play a part. In the Book of the Quarter, Understanding, managing and measuring knowledge, edited by Georg von Krogh, Johan Roos, and Dirk Kleine we receive a tripartite analysis of paradigms within knowledge management, namely cognitive, connectivist, and autopoietic paradigms respectively. The major contributions deserve a deeper content analysis than we have been able to give them. However, we summarize themes that began to emerge from our reading in Table 1.

Table 1. Emerging themes in the Innovation through Knowledge Management special issue Author

Context

Themes

Huber

Project teams and organizational knowledge; Low vs high change environments

Bowonder & Miyake

Japanese LDC industry

Smart, McCosh, Barrar & Ward Carlisle & Dean Tidd & Taurins Antonacopoulou

Process technologies; knowledge deployment and learning retention Design processes; biotechnology, multimedia, and banking Corporate venturing; Financial services

Sparrow

Strategy and cognition

Krogh Roos, & Kleine (Book of the Quarter)

Organisational knowledge

Planned renewal of expertise; networking; structured knowledge capture; enhanced learning; absorptive capacity Knowledge management internalization and leverage; networks and alliances Generic and local knowledge differences; learning by `doing, trying and using' Ideological and technological influences; rational and reflective conceptual models Leverage and learning motivations Learning and knowing; Learning by knowing the same; learning by knowing differently Cognitive competencies; coping with information overload Cognitive, connectivist, and autopoietic paradigms of knowledge management

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# Blackwell Publishers Ltd 1999

EDITORIAL

We are grateful to all our contributors, who responded to a call for papers with remarkable enthusiasm, and efficiency as well as erudition. Their efforts seem to be a considerable contribution to state-of-the-art thinking


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on knowledge management, likely to influence thinking in this field for some while to come. Tudor Rickards and Susan Moger

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Facilitating Project Team Learning and Contributions to Organizational Knowledge George P. Huber Innovative products, services, and processes are consequences of knowledge integration. Often the integration is of newly generated knowledge with other knowledge that the firm already has available. Especially in firms where long run performance depends on innovation, it behooves managers to think about how newly generated knowledge can be transferred quickly, effectively, and reliably, and thereby can be integrated with the firm's current knowledge for early exploitation or captured as organizational knowledge in the form of practices, procedures, or files. New knowledge frequently originates in the context and activity of project teams ± e.g., R&D teams, design teams, and re-engineering teams. In order to carry out their tasks, such teams frequently need to learn things already known to other organizational units, i.e., they need to acquire and assimilate organizational knowledge. Theoretically then, project teams both draw on the firm's knowledge and contribute to the firm's knowledge. The more effectively they carry out these actions, the more effective they are and the more effective their parent firms will be. This article identifies project team and organizational design practices that facilitate project team learning and contributions to organizational knowledge.

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Knowledge as an asset

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ore and more it is recognized that knowledge is a critical organizational asset and that the ability of a firm to increase and effectively employ its knowledge is a major determinant of the firm's success. These beliefs are pervasive in the managerial literature and probably require no authentication. What is also becoming apparent is that, as now constituted, knowledge-related processes in business firms are not fulfilling organizational needs or management expectations. For example, in a study of 431 U.S. and European organizations conducted in 1997 by the Ernst and Young Center for Business Innovation, only 13 percent of the responding executives thought that their firms were adept at transferring knowledge held by one part of the organization to other parts of the organization. Few executives were satisfied ± 94 percent agreed that `ìt would be possible, through deliberate management, to leverage the knowledge existing in my organization to a greater degree'' (Ruggles, 1998: 81). Given that project teams are users of organizational knowledge (broadly defined)

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and are potentially generators of organizational knowledge, an important question naturally arises ± ``Which organizational and project-team design features are most likely to lead to a team's effectiveness in drawing on and contributing to the organization's knowledge?''

Meta-Management of Project Team Members Let me begin with a ``cornerpoint'' on the map that portrays project teams and their practices ± namely, the point where teams are located, whose members at the very start of the project possess nearly all of the knowledge needed to perform the team's task. Such a team has little need to learn while engaged in its assignment. Examining a minimal-learning team early on in our discussion eases our overall task of identifying the design features that facilitate project team learning and contributions to organizational knowledge ± an important topic that is seldom touched on in the managerial literature. # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

CONTRIBUTING TO ORGANIZATIONAL KNOWLEDGE

In the ideal case, the congenital knowledge within a project team is sufficient to complete the team task. That is, all of the knowledge necessary is brought to the team in the minds of the team members or is embedded in other within-team repositories, such as equipment or procedures. The team is largely born with what it needs. Because the team members (at least as individuals) have no need to acquire additional technical knowledge from the organization, the team leader tends to be pretty much the only information channel between the team and its parent organization. The leader is the person dealing with whatever contingencies arise, these being mostly matters of resources and politics. Dealing with such matters generally requires high trust or a strong prior bond between the team leader and the project sponsor, social relationships not likely to have previously existed between the sponsor and the majority of the team members ± many of whom the sponsor may not even know. What design features (broadly defined) facilitate the short and long term effectiveness of such teams and of their parent firms? Early on, team members need to be identified, selected and made available. In most firms today, identification and selection are done on an informal ``who do we know who can help'' basis. The need for trust and good personal relationship within project teams will cause such a process to be always an important component of the team-staffing process. Nevertheless, computer-supported human resource information systems (HRIS) will continue to become more effective and widespread, and as the Internet becomes a major medium in the high tech and professional labor markets, the use of organizational data and extra-organizational data concerning the qualifications of potential team members will be more commonly available and more frequently used.1 The above description is standard for large firms. It is also static. But by their very nature, project teams are dynamic and embedded in dynamic firms. For large and dynamic firms, advanced HRIS should also include information about the current or forthcoming availability of the personnel inventoried in the system. (This availability feature has been in use in the HRIS of the U.S. military for decades.) Of course, in the context of industrial project teams, availability dates are often and necessarily imprecise ± with the consequence that team members often have temporally overlapping assignments. So, organizational design features that can facilitate project team effectiveness by ensuring congenital knowledge are (1) an advanced HRIS and (2) an Internet-


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based labor market search engine and communication system. I view both these features as complements to the informal network system commonly used to staff project teams. One of the very troublesome characteristics of organizational structures characterized by the use of project teams (as contrasted with the specialized functional organizational structures now generally out of favor) is the considerable potential for technological obsolescence of team members. Especially in teams where the primary process is merely to integrate knowledge already available in the minds of the team members, there is no guarantee that members will learn much of value to add to their personal bank of technical knowledge. Maybe relevant new-to-them technical knowledge is generated from accomplishing the team task, but not if the maximally efficient situation ± of merely integrating team members' prior knowledge ± is present. Even if a person acquires new knowledge as a result of participating in the team, it is often less than what would have been acquired if the person had been in a functional department, routinely reading technical materials, attending technical conferences, and in general interacting with others who know more than he or she does about certain matters in the person's area of expertise. To maximize organizational efficiencies, project teams often have only one person from each area of expertise. So how do individual team members acquire new technical knowledge and thereby, as components of the organization's repository of knowledge, add to the store of organizational knowledge? An organizational design feature that would address this problem would be a human resource scheduling policy that occasionally interrupts the stream of projects to which a person is assigned with an assignment that virtually guarantees the person's acquiring new technical knowledge in the area of his or her expertise. This concept of planned renewal, or expertise enhancement, would fit easily into a human resource planning and scheduling system that enables individual organizational members, human resource professionals, and higher level managers to look at the history of the member's assignments and plan at least one assignment beyond the current assignment. If this system were an integral part of the firm's HRIS, all the better.

Expertise enhancement

Learning in Teams Requiring Knowledge Not Available Within the Team Let us move now from the ``minimal learning'' cornerpoint into the more commonly

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Three repositories of organizational knowledge

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observed parts of the project-teams-and-practices-map, where teams are located whose members in aggregate initially possess only a portion of the knowledge needed to carry out the team task. A design feature that addresses the need to import technical or procedural knowledge is a staffing practice that intentionally assigns, to this type of project team, people who are well networked in the technical communities, both the firm's and the industry's. This ``well-networked'' qualification need not include everyone. To the contrary, it may be that a high ratio of ``locals'' to ``cosmopolitans'' will lead to the focused effort needed to accomplish the team's primary task. Well-networked team members can often provide the team with (newly-seen-to-be-needed) technical knowledge more effectively than can a highly technical expert who is not well networked.2,3 Certainly, it is important for project teams to be able to acquire and draw upon extrateam knowledge. We also have to consider organizational and team design features that facilitate intra-team development of new knowledge (either technical or procedural) and post-project transfer of such newly created knowledge to other of the firm's teams and organizational units. What might these features be? All teams have experiences. Whether or not they learn correctly from these experiences is another matter. The obstacles to learning in complex environments are well documented, and remedies are available or implied in the organizational learning literature (see, for example, Cohen and Sproull, 1993). A design feature that can contribute to correct and communicable team learning is the institutionalized practice of sharing and explicating evolving knowledge within the team and of subjecting it to examination, critique, and revision as it takes form. One benefit of this practice is that it reduces the likelihood of incorrect assumptions about causality, e.g., interpreting correlations as if they were outcomes of causal relationships. Another benefit is that the practice reduces the likelihood of (generally implicit) mistaken assumptions about generalizability of the new knowledge. Closely related to this practice is a design feature that can facilitate the transfer of evolved and explicit team knowledge to the organization. This feature is the institutionalized practice of the team's creating and delivering a ``lessons learned'' file, a document that the team creates and passes on to other teams or units in the firm. (In addition, of course, the team members will carry in their minds some of the new knowledge, both explicit and tacit, when they move on to other assignments). It

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is important to recognize that the sensemaking and articulation efforts involved in these two practices contribute greatly to converting tacit knowledge into explicit, communicable knowledge. Before moving on to a discussion of some obstacles to team learning and knowledge transfer, it seems worthwhile to briefly note the three repositories where organizational knowledge is maintained and into which newly acquired team knowledge is deposited for later use by other project teams or units in the firm. One of these repositories is, of course, the minds of the team members who go on to other projects, carrying what they have learned with them and thereby spreading the newly created knowledge to the minds of their new coworkers. I noted the importance of making this knowledge as explicit as possible in the minds of the learners, so that it is easily and readily communicated, rather than allowing it to remain implicit or tacit and therefore only minimally available to others in the firm. The second repository is the firm's files, where lessons learned can be stored and retrieved in creative ways. Management consulting companies are leaders in capturing for the use by other of their personnel the lessons learned by project teams. Each consulting team, at the conclusion of its assignment, is directed to contribute to a database what it thinks it learned when carrying out a particular assignment on a particular problem type for a particular customer. Until very recently, the means of creation, maintenance, and use of such organizational memories were very problematic, but considerable progress has been made in the last couple of years. (e.g. Ruggles, 1998; O'Dell and Grayson, 1998). Of considerable consequence is the fact that much of the really important newly learned knowledge is too complex to abstract or summarize in a file, so it is critical that lessons learned are accompanied by directory information that enables potential users to contact those who were involved in the knowledge-creation and knowledge-codification processes. The third repository of organizational knowledge is the organization's features themselves. New products and services, equipment built or improved, protocols established, management practices altered, patents owned, myths and stories created, and policies enacted are all forms of organizational memory (Nelson and Winter, 1982). All are likely products of project team learning.



Obstacles to Intra-Organizational Knowledge Transfer, and Solutions Many managers are quick to attribute the notorious lack of intra-organizational knowledge transfer to lack of motivation on the part of the potential learner unit or potential knowledge-sharing unit, or both. For example, and here I borrow from Szulanski (1996 p. 37), ``Porter (1985: 352) blames both the recipient, who can 'rarely be expected to seek out know-how elsewhere in the firm,' and also the source, who 'will have little incentive to transfer [know-how], particularly if it involves the time of some of their best people or involves proprietary technology that might leak out. (p. 368). . . Unless the motivation system reflects these differences [in perspective], it will be extremely difficult to get business units to agree to pursue an interrelationship and to work together to implement it successfully. (p. 386)'' My conversations with researchers and consultants in the areas of organizational learning, knowledge management, and organizational memory suggest to me that this ``the problem is motivation'' view is widely held. Certainly transferring new knowledge in a way that it causes it to have an impact on the receiving unit takes a significant amount of team member time and effort on the part of both the transferring and receiving teams. Thus resources are expended that members or their superiors might see as better applied to other tasks. Without doubt, these disincentives to knowledge transfer exist. Besides the time and effort involved, there are the demotivators of inter-unit competitiveness, due dates on other tasks, resistance to new tasks, and the not-invented-here syndrome. What can be done? Creating an organizational culture where free and full knowledge transfer is actively pursued as a matter of course, is a giant step forward and incurs only modest cost. ``Celebrating'' knowledge transfers that paid out, and publicly ``crediting'' those team members and managers who made it possible, are positive culture-building actions. They call attention to knowledge-management actions that are valuable to the firm and valued by the firm. Another quite different approach to dealing with the motivation problem is gaining favor in some US consulting firms, where the within-the-firm transfer of knowledge (about clients and consulting tactics and tools) is clearly of high value to the firm. This approach involves the need for consultants to ``re-qualify'' every few years, in order to be eligible for future compensation increases, promotions, or even to retain status as a


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consultant. Re-qualification depends in part on earning a certain number of re-qualification points since the previous re-qualification. An important source of points is contributing to the firm's computer-resident consulting knowledge base, or successfully using this knowledge base. In some circumstances a minimum number of re-qualification points must be earned in this way. It seems highly likely that the importance of leveraging technical knowledge will cause technologydriven firms to introduce similar approaches, perhaps with modifications that include other mechanisms for re-qualification. In addition, a properly designed version of the re-qualification approach can achieve the added and important benefit of engaging the firm's personnel in ongoing professional or technical learning. The re-qualification approach does not, of course, reduce the disincentives to involve oneself or one's subordinates in knowledge transfer. Rather it creates an offsetting incentive ± conceivably strong enough to overcome the disincentives that create ``the motivation problem.'' It has long been established that most people, including managers, overweight the motivation explanation when attempting to analyze or deal with the poor performance of others.4 Taking this widespread finding to the context of knowledge transfer, Szulanski's research indicates that ``knowledge-related barriers clearly dominate motivation-related barriers'' (Szulanski,1996, p. 37) in explaining the inability of most firms to transfer best practices within firms. Three knowledgerelated obstacles each individually dominated the motivation-related obstacles: lack of absorptive capacity, causal ambiguity, and arduousness of the relationship. If we believed that these knowledge-related barriers were critical inhibitors to the transfer of knowledge, what would we do to enhance inter-team or team-to-organization knowledge transfer? Let's begin with absorptive capacity. A team's absorptive capacity (Cohen and Levinthal, 1990; Lane and Lubatkin, 1998) refers to the team's ability to recognize the value of new, external information, assimilate it, and apply it. It is largely a function of the team's level of prior knowledge. Given this, it seems that two design features might be useful. One would be the practice of transferring a member of the knowledge-generating team to the team or other organizational unit with a need to know what has been learned elsewhere. Thus the transferred member is not simply a carrier of knowledge, but is also a teammate in the team needing to absorb the newly found knowledge. That is, the transferred member

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enhances the absorptive capacity of the unit needing to learn. This re-framing of the person's role, from alien messenger to teammate, can help to reduce the not-inventedhere source of resistance to new ideas. The second potentially fruitful design feature for enhancing knowledge transfer in the face of a generally low absorptive capacity would be the practice of identifying the member of the need-to-know unit who, as an individual, seems to have the most absorptive capacity for the kind of knowledge to be transferred, and use this person as a knowledge conduit and as an interpreter and disseminator within the need-to-know unit. (In many cases this practice changes the labeling of the to-be-transferred knowledge from ``Not invented here'' to `Ìt's our invention now.'') If the need for the specific transfer of knowledge is recognized before the knowledge-generating team finishes its work, involving this conduit person in the codification of the knowledge-generating team's ``lessons learned'' can greatly increase the chances of successful inter-team transfer. Causal ambiguity exists when the exact causes of high (or low!) team performance are not clear. Much learning in organizations is incorrect; the learned associations are not causal but merely correlational. The problem of causal ambiguity is one for which two of the earlier-mentioned design features seem well-suited as possible solutions. These are: (1) the institutionalized practice of sharing and explicating evolving knowledge within the team, subjecting it to examination, critique, and revision as it takes form, and (2) the institutionalized practice of the team's creating and delivering to other organizational units a ``lessons learned'' file. Both of these features are quite congruent with authoritative thinking on how to reduce causal ambiguity in organizational learning (see, for example Daft and Weick, 1984; March, Sproull, and Tamuz, 1991). The third barrier to knowledge transfer, an arduous relationship, refers to a relationship where the effectiveness of communication is significantly impeded by physical, technological, or social factors. It is hardly surprising that such factors would limit the effectiveness of inter-team or team-to-organization learning. Not much needs to be said about this matter, as most solutions would be contextdependent and would be readily available within the solution repertoire of most experienced managers.

Summary Project teams learn; they create knowledge. Firms that capture and leverage more of this

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knowledge have a competitive advantage over those that capture and leverage less. The following team and organizational design features can enhance project team learning and contribution to organizational knowledge.

Meta-Management of Project Team Members (1) an advanced HRIS (2) an Internet-based labor market search engine and communication system (3) a human resource assignment scheduling policy that occasionally interrupts the stream of projects to which a person is assigned with an assignment that virtually guarantees the person's acquiring new technical knowledge in his or her area of expertise (4) a human resource planning and scheduling system that enables individual organizational members, human resource professionals, and higher level managers to look at the history of the member's assignments and to plan at least one assignment beyond the current assignment

Enhancing Learning in and by Teams (5) a staffing practice that assigns, to this type of project team, people who are well networked in the technical communities, both the firm's and the industry's (6) the institutionalized practice of sharing and explicating evolving knowledge within the team, and of subjecting it to examination, critique, and revision as it takes form (7) the institutionalized practice of the team's creating and delivering to other organizational units a ``lessons learned'' file

Solutions to the Problem of Transferring Team learning (8) an organizational culture where free and full knowledge is actively pursued as a matter of course (9) the practice of transferring a member of the knowledge-generating team to the team or other organizational unit with a need to know what the team has learned (10) the practice of identifying the member of the need-to-know unit who, as an individual, seems to have the most acceptable absorptive capacity for the kind of knowledge to be transferred, and use this person as a knowledge conduit and interpreter and disseminator within the need-to-know unit.5



Acknowledgement This article benefited from the helpful comments of Dr. John C. Huber.

Notes 1. Poorly managed HRIS contain out-of-date information or contain entries (such as skills entries) that are decidedly non-uniform in their veracity or verbosity. These problems tend not to be present if managers at all levels motivate the HRIS's use (perhaps by publicizing their own use of the system, or by personally enforcing standards of its content rather than by delegating all enforcement of content standards). 2. The not-new idea that porous team boundaries are efficacious (when the team task is knowledge development) has received renewed attention and increased credence in recent years, as the roles of organizational learning and knowledge transfer have gained in importance. The need to include well networked members in teams needing to acquire extra-team knowledge builds on the old but still relevant literature on informational roles in R&D organizations (see for example, Katz and Tushman, 1979; Tushman, 1977). Unresolved is the issue of how many boundary spanners and the scope of their individual networks. Is it better to have just one (or two) boundary spanners especially well networked in a given field, or is it better to have more boundary spanners who individually may not be so well networked in a field but who access different fields of knowledge? Given the limited resources to which most team designers have access, this is generally not a relevant issue. It does become relevant, however, when the team's task seems to involve several disciplines. 3. It has long been the case and is even more so today that project teams operate not only in a scientific/technical environment, but in a resource-constrained political environment as well. In most firms today, these environments are complex, multi-faced, and unpredictable, and generate at a rapid rate both threats and opportunities. Threats to project teams include changes in organizational priorities (that may diminish the value of the team's current task or require task completion ahead of schedule), withdrawal of resources that were assumed to be available when needed, and actions by other organizational units that may generate the team's "product" before the team does. Opportunities for project teams include new organizational problems (that the team's efforts are likely to solve without much additional effort and that therefore generate more recognition or other payoffs to the team) and newly found organizational resources that make easier accomplishment of the team's task. The possibility of a project team being blind-sided by threats and opportunities such as those just mentioned


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is, I think, more imaginable than real. Especially the sponsors, and often the leaders, of project teams tend to be savvy, well-informed managers, who fully recognize the need to be watchful for threats and opportunities and accept this task as their organizational responsibility (see, for example, Burgelman, 1983). In addition, managers in these positions invariably have a stake in the success of the project. Altogether then, it is quite rare that there is a need for additional structural or motivationrelated design features to ensure that changes in the team's situation relevant to its parent organization are well monitored. 4. See Nisbett and Ross (1980) for a review of supporting work 5. This article has focused on learning in project teams, and the transfer of knowledge by project teams. For an analysis of the relationships between (1) organizational learning and (2) creativity and innovation in organizations, see Huber (1998). For a rich documentation of the relationship between inter-unit communication and innovation, see Brown and Eisenhardt (1997).

References Brown, S.L. and Eisenhardt, K.M. (1997) `The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organizations', Administrative Science Quarterly, 42, 1±34. Burgelman, R.A. (1983) À process model of internal corporate venturing in the diversified major firm'. Administrative Science Quarterly, 28, 223±224. Cohen, M.D. and Sproull, L.S. (1995) Organizational Learning. Sage, Thousand Oaks. Cohen, W.M. and Levinthal, D.A. (1990) Àbsorptive capacity: a new perspective on learning and innovation'. Administrative Science Quarterly, 35, 128±52. Daft, R.L. and Weick, K.E. (1984) `Toward a model of organizations as interpretation systems'. Academy of Management Review, 9, 2, 284±295. Huber, G.P. (1998) `Synergies between organizational learning and creativity and innovation'. Creativity and Innovation Management, 7, 1, 3±8. Katz, R. and Tushman, M.L. (1979) `Communication patterns, project performance, and task characteristics: An empirical evaluation and integration in an R&D setting'. Organizational Behavior and Human Performance, 23, 139±162. Lane, P.J. and Lubatkin, M. (1998) `Relative absorptive capacity and interorganizational learning'. Strategic Management Journal, 19, 461±477. March, J.G., Sproull, L.S. and Tamuz, M. (1991) `Learning from samples of one or fewer'. Organization Science, 2 1, 1±13. Nelson, R.R. and Winter, S.G. (1982) An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, MA. Nisbett, R. and Ross, L. (1980) Human Inference. Prentice Hall, Englewood Cliffs, NJ.

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O'Dell, C. and Grayson, C.J. (1998) Ìf only we knew what we know: identification of internal best practices'. California Management Review, 40, 3, Spring, 154±174. Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press, New York. Ruggles, R. (1998) `The state of the notion: knowledge management in practice'. California Management Review, 40, 3, Spring, 80±89. Szulanski, G. (1996) Èxploring internal stickiness: impediments to the transfer of best practices within the firm'. Strategic Management Journal, 17 Special Issue, Winter, 27±44.

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Tushman, M. (1977) `Special boundary roles in the innovation process'. Administrative Science Quarterly, 22(4), 587±605.

George P. Huber is Charles and Elizabeth Regents Chair in Business Administration at the Department of Management, University of Texas at Austin, USA.


COMPETING THROUGH KNOWLEDGE MANAGEMENT

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Japanese LCD Industry: Competing through Knowledge Management B. Bowonder and T. Miyake Introduction

F

lat panel displays represent a strategic technology in the era of computer ± communication ± media convergence. It is the main man-machine interface today which has become a major growing industry (Borrus and Hart 1994). Originally driven by a vision of a large, thin television screen to hang on the wall, the flat panel display industry took off in the eighties with the advent of the laptop PC (DeJule 1997). Japanese suppliers dominate the flat panel industry with more than 90 percent of the market (Bowonder, Rao, Sarnot and Miyake 1994). The paper analyses the strategies used by the dominant players for sustaining the competitive edge. The framework used for the analysis is knowledge management. The paper discusses the following aspects namely: . elements of Japanese industrial competi. . . . . . .

tiveness overview of flat panel display industry display industry characteristics knowledge management as a framework knowledge management and display industry strategies of the Japanese firms firm strategies and knowledge management, and lessons from the Japanese industry experience.

. . . . . . . . . . . . . . . .

turing and end use applications (Langlois, Pugel, Haklisch, Nelson and Egelhoff 1988) rapid knowledge creation (Nonaka and Takeuchi 1995) interfirm networks (Edwards and Samimi 1997) adaptation (Fruin 1997) aligning technology trajectory for future (Bowonder, Miyake and Butler, 1997) horizontal coordination structures (Aoki 1990) use of low transaction cost options (Williamson 1985) intensive use of interfirm alliances (Gerlach 1992) intrinsic technology competence (Bowonder and Miyake 1994) comprehensive forward looking (Gregory 1986, Irvine and Martin 1984) strategic centralisation and operational decentralisation (Gerlach 1997) comprehensive long term planning (Tatsuno 1990) focusing on core competence (Prahlad and Hamel 1990) precompetitive R&D cooperation (Eto 1985) lean production system (Womack , Jones and Roos 1991) interfunctional coordination (Bowonder and Miyake 1991), and corporate entrepreneurship (Fransman 1995) These factors can be broadly classified into

Elements of Japanese Industrial Competitiveness Before analyzing the Japanese display industry an overview of the reasons attributed to the Japanese industrial competitiveness is presented. The sources of Japanese industrial competitiveness have been attributed to a variety of factors, namely . vertical integration combining chip manufac# Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

. . . .

industrial organisation framework cognitive framework learning framework, and capabilities framework.

In fact, a knowledge processing and management framework can provide an integrated approach for understanding the interrelationship among structural organisation, long term focus, learning orientation and capabilities approach. The paper attempts to

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explain the competitiveness of Japanese display industry which has evolved over the years using a knowledge management perspective.

A detailed assessment of Display Technologies in Japan (Tannas 1992) carried out by Japanese Technology Evaluation Centre, USA indicates that . Japanese firms are active in the develop-

Flat Panel Industry Overview Displays represent a technology driven market segment which is highly competitive (Werner 1997). Some of the new technologies which are becoming economically attractive are . large, bright and relatively power efficient

plasma display panels (DeJule 1997)

. high resolution active matrix displays . low cost STN displays and . high image quality field emission displays

(Courreges 1996).

This trend is likely to accelerate because of new applications which are emerging. According to Stanford Resources the total display market is likely to be 40 billion US$ by 2000 and about 50 percent of this is likely to be LCD displays (DeJule 1997). The World LCD market was 1135 billion yen ($9.8 billion) in 1996 and this is likely to reach 4200 billion yen ($ 36.2 billion) by 2005. According to market estimates LCD is likely to remain as the main display for the laptop segment. CRT is under pressure from thin displays for use in PCs (Tannas 1994). Recently, large global players like Matsushita and Sharp have been pushing technology in the direction of thin and flat non CRT based displays. Display application is challenging not only because of the many available choices, but because displays have to be integrated in two directions (Werner 1997). The strategic integration of the electrical and mechanical systems into one host system is making display an integral part of many equipments. In United States, Department of Defence (DOD) has started an initiative. By merely maintaining the status quo of R&D and manufacturing test bed funding would not lead to the development of a domestic capability to guarantee early, assured and affordable access to leading FPD technology and that foreign firms were not willing or able to offer such access (OTA, 1995). DOD has started an initiative namely: National Flat Panel Display Initiative (NFPDI). The NFPDI uses three strategies for inducing growth, namely . foreign access . developing products for niche markets,

and

. developing higher volume production.

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ment of all major types of displays

. Japanese firms are competitive in basic

research and gaining in research strength through sharply focusing the programmes . Japanese firms are leading in product development and they are increasing production capacity continuously to meet the market needs and . Japanese firms are dominating in investment and implementation in manufacturing for flat panel displays. The comparative strengths of USA and Japan in flat panel displays are summed up in Table 1. An analysis of the Japanese Electronic Display Industry carried out for identifying the strategies used for creating and sustaining competitiveness indicated that Japanese firms prepare and implement long term strategies for dominating the global display market (Bowonder, Rao, Sarnot and Miyake, 1994). The Japanese firms dominate the market through a combination of innovation, globalisation, alliances and diversification of applications of displays. The major features which are the sources of competitive strength are: . strong competence for microminiaturis. . . . .

ation of devices and integrating displays with other electronic equipments strong manufacturing base of components needed for displays strong forward looking practices strategic alliances among equipment makers and electronic device makers horizontal information sharing arrangements and R&D consortia for the development large and thin displays.

With this background, the display industry characteristics are analysed.

Display Industry Characteristics The display industry and its business context in Japan have some specific characteristics. An analysis of the interaction of these helps us in understanding the operation of the knowledge management system in the Japanese display industry. The characteristics explained below along with the Japanese national innovational system stimulate the growth of the Japanese display industry. The working of the Japanese national innovation



79

Table 1. Comparison of Display Technology Capabilities: Japan and USA

Passive LCD Super Twist Ferro-LCD ECB Active LCD Metal-Insulator - Metal Amorphous-Si TFT Poly-Si TFT (Low Temp) Poly-Si TFT (High Temp) Polymer Dispersed Emitters Electroluminescent DC Plasma Display AC Plasma Display + = Japan ahead O = Japan even 7 = Japan behind

Research

Development

Production

Max Size

+ O +

H H H

+ + +

H H H

+ + +

17 " Japan 15 " Japan 14 " Japan

+ O 7 7 O

H 1 ? ? 1

+ + 7 O O

H H 1 H H

+ + NONE + NONE

H H

+ + O

1 H H

7 + O

: H H

7 + +

: H H

H H * H *

H = Japan gaining ground 1 = Trend remains the same : = Japan losing ground

system is not explained here as it has been analysed by a number of scholars (Nonaka and Takeuchi 1995, Fransman 1997, Odagiri and Goto 1993, Kodama 1991, Eto 1993). The characteristics of the Japanese display industry is examined briefly:

Rapid Technological Change The global display industry is a dynamic industry in which changes are induced both by technology push and market pull. These changes make it an industry in which both technological uncertainty and market uncertainty are comparatively high.

Tight Environment The Japanese display industry is a highly competitive one with low monopolistic barriers. For example, there are a number of strong players for component manufacturing as well as equipment manufacturing as indicated in Table 2. The growth of firms in such an industry is determined by a combination of the speed of technology transfer and of the imitative efforts of rivals (Kogut and Zander 1992). This has enormous bearing on speed of new product development as well as adaptive efficiency.

Predominance of Entrepreneurial Firms The Japanese display industry is characterised by small entrepreneurial firms searching


H

13" Japan 15" Japan NOT KNOWN 10" Japan NOT KNOWN 18" USA 33" Japan 31" Japan

Source: Tannas [1992]

for new windows of technological opportunity and then rapidly realising it. Many of the innovations in the display industry especially supplier induced manufacturing innovations have been relatively high. This is true of display industry in Taiwan as well (Liu and Lee 1997).

Trust Based Networks Japanese firms have tried to manage the instances of technological discontinuity and more generally of market disequilibrium using supplier networking and spin off subsidiaries (Gerlach 1997). This mode of working has helped Japanese display firms to overcome inertia through operational independence and flexibility of suppliers and subsidiaries. These factors have helped the Japanese display industry in many ways, namely: . limiting the size and scope of the enterprise . adaptability by relying on networks of

cooperation, and

. minimizing the coordination costs

Japanese networks are bound together through trust. Trust based transactions have lower enforcement costs (Casson 1997). Normally technology transactions are imperfectly traded in the market place and they do not operate efficiently (Geroski 1995). In networks where relationships are maintained through trust and personal exchanges, technology transfer is facilitated and also the costs are

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Table 2. Major Firms in the Japanese Display Industry Category

Major Firms

Product

Display material manufacturers

Corning, Nippon Soda, Asahi Glass, Matsuzaki Shinku, Hoya Corp Sumitomo Cement, Hoechst Japan, Mitsui, Asahi Chemicals Tokki, Shibaura, Nikon, Canon, Hitachi

Glass substrate for LCDs Display materials

Display equipment manufacturers

Display component manufacturers

Display device manufacturers

Display user firms

Anelva, Ulvac, NEC, Shimadzu, Hitachi, Tokki, Kokusai Electric Lasertec, Sigmatec, Morikawa, Applied Comatsu, Advantest, NTN, Nikon, Seiko, Osaki, Olympus Toppan Printing, Sanyo, Kyocera, Toray, Nihon Dempa Kogyo, Dai Nippon, Nippon Paint, JAEI Sharp, Fujitsu, TI Japan, Oki, Hitachi, Ricoh, Fuji Electric Nikko Tab Matsuzaki Shinku, Sony Chemicals, Nilto Denko, Polatechno, Casio, Tosoh, Kuraray, Sony, Japan Synthetic Rubber Toppan Printing, Mitsubishi Electric, Hitachi Ltd Sony, Toshiba, Matsushita NEC, Matsushita, Mitsubishi, Hosiden, Hitachi, Sharp, Toshiba Sharp, Seiko, Canon, Sanyo, Stanley Hitachi, Sony, Mitsubishi, Matsushita, Sanyo, Toshiba IBM Japan, Apple Computers, Honeywell, Toshiba, Hewlett Packard, Next Computers, Hitachi, NEC, Mitsubishi, Sony, Fujitsu, Matsushita, Sanyo, Sharp, Nippon Denso, Toyota

lower. Trust based networks also supported faster technology diffusion.

Continuous Renewal of Competencies Another characteristic of Japanese display industry is the centralisation of strategic decisions, whereas the operational decisions are made at the supplier end or subsidiary end. Corporate headquarters ensures that critical strategic decisions are implemented so that the core competence of a firm is not eroded through imitations. For example, large players ensure that core competence is re-

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Substrate polishing LCD steppers CVDs, sputtering Inspection systems Colour filters Display drivers ICs Tab tape for LCDs Thin polymer films for LCDs Shadow masks and resist masks HDTV tubes Displays for PCs Watches, calculators, games, pages CRTs PC displays, laptop PCs, workstations, factory automation displays, automotive displays

newed and long term interests are not sacrificed for short term profitability. Short term profitability and building long term capabilities are marked by trade off relationships (Kogut and Zander 1992). Corporate headquarters maintains the delicate balance between short term gains and long term interests. These five distinct characteristics facilitate the process of sustaining competitive edge in the Japanese display industry through a series of knowledge management procedures. Next section, analyses the knowledge management framework.



Knowledge Management Four distinct knowledge management perspectives have been used for analysing the competitive strategies:

Knowledge Based Theory of the Firm This perspective (Liebeskind 1996) proposed that firms differ in aspects of knowledge based approach to strategy, namely: . existence of the firm as an institution for

the organisation of production

. nature of coordination within the firm . distribution of decision making authority

and

. boundaries of the firm.

Organisations sustain their competitive edge by integrating knowledge creation processes and business processes.

Knowledge Creating Company Nonaka and Takeuchi (1995) proposed that firms differ in terms of knowledge acquisition, knowledge processing, knowledge internalisation and knowledge utilisation. The four ways in which tacit and articulate forms of knowledge are processed in a firm form the basis for creating and sustaining the competitive edge.

Competence Based Competition The earlier theories of the firm have neglected the cognitive elements of knowledge processing. Competition is a contest between managerial cognition or managerial vision (Sanchez and Heene 1997). Competence leveraging and competence building are the two modes used by high tech firms to manage competition. Manager's cognitive processes are at the head of a chain of causality that can eventually reshape the nature of competition in an industry (Sanchez and Heene 1997). The central concern of competence theory is developing better insights into the ways managers conceptualise and communicate about new possibilities for competing and cooperating. Winning firms are the ones which are able to create a vision and through competence building they realise the vision.

Knowledge Management In high technology industries where boundaries of technology extend continuously the knowledge management methods are vital, as knowledge is the major commodity which


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is traded asymmetrically (Grant 1996). In an integrated global economy, knowledge is likely to be the major commodity which is traded asymmetrically because of the inherent difficulties in both valuing and transferring knowledge. Because of this, ways and means of managing knowledge will determine the ability of a firm to compete in a globally competitive context. To understand a firm's value creating process, potentially resulting in competitive advantages, one might need to begin with understanding the competencies of the firm and then the application of these competencies to various tasks through knowledge management processes (Krogh and Roos 1996). The Japanese firms use a variety of knowledge management processes for leveraging the available competence and building newer competencies for meeting the competitive pressures. Next section, analyses the knowledge management issues in relation to the five industry characteristics.

Leveraging available competence

Knowledge Management and Display Industry This section analyses the knowledge management processes used in the Japanese display industry given the five industry characteristics discussed above.

Responding to Technological Change Competitive intelligence is a major input for analysing technology dynamics (Kahaner 1996). The most critical element of the knowledge management process is the anticipatory intelligence as shown in Table 3 which goes beyond the competitive intelligence. It involves creating visionary options for the future which is more cognitive and less data oriented. For example, the suppliers have to search, monitor and analyse the competitors moves in advance to create new options which others have not been able to envisage. Canon developed ferroelectric liquid crystal displays since they can store information with less power. Also, ferroelectric liquid crystal displays can be fabricated easily compared to thin film transistor LCDs. The second knowledge management process used by Japanese display manufactures is knowledge codification through standardisation. Ten LCD Japanese manufactures (Sharp, Toshiba, NEC etc) evolved the standards for glass substrates for LCD in February 1996. Codification benefits both suppliers and manufacturers and advances technology diffusion. The establishment of technical standards can

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Table 3. Cognitive Knowledge Evolution INTELLIGENCE FOCUS Competitor Strategic option creation

Future

Competitive intelligence

Anticipatory intelligence (Cognitive)

Random search

Technology monitoring

APPLICATION Problem search

assist the adoption of new technologies, since they can reduce uncertainties concerning the performance the costs of customizing a piece of equipment to be connected to other devices and may facilitate the production of a new technology, thereby lowering prices (Mowery 1995). Ministry of International Trade and Industry has been actively pursuing standardisation of display panel substrates. Knowledge codification through standards is important to information and electronics based technologies such as displays since they are often applied in networks and require the interconnection of numerous devices that are often produced independently, by individual suppliers. Knowledge codification through standardisation helps in transforming certain tacit elements of knowledge into articulate elements thereby facilitating technology diffusion. Standardisation also reduces the component supply costs through variety reduction.

Managing the Competitive or Tight Environment In a tight environment economies of scope accrue through knowledge internalisation and its rapid leveraging. Knowledge internalisation in the display industry manifests itself as process innovation and incremental innovation. Ulvac developed the glass substrates for large displays (8356635 mm) substrates in October 1996. By April 1997, they were able to bring out a 100061000 mm glass substrate producing equipment. Experimentation, trial and error processes and incremental innovation facilitates knowledge internalisation and reduces the development

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Figure 1. Evolution of Component Manufacturing for PDP cycle time. The tight environment has facilitated the evolution of a strong PDP component manufacturing base through rapid learning as shown in figure 1. The second mechanism used for coping with the tight environment has been the multiple learning mechanisms adopted for lowering the cost of innovation. The learning process is triggered through steps such as



. . . . . . .

analysing customer requirements interacting with suppliers experimenting with new configurations working with partners facilitating horizontal coordination globalising the research process implementing frequent small group interactions . examining failures, and . exchanging information. Each of these triggers provide inputs for learning. For example, Fujitsu displayed the first 42 inch PDP in the New York Stock Exchange. This helped Fujitsu not only in analyzing customer reactions but in creating user awareness, user interaction and group learning through the analysis of user feedback. Knowledge internalisation and learning can also induce imitation. Creative destruction has to be used in such a manner that speed of learning is faster than that of imitation by the competitors. Horizontal coordination has been the main process linking learning and knowledge internalisation (Aoki 1990).

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Entrepreneurial Innovation The tight environment and rapidly changing technological conditions induce firms to create new knowledge, new configurations or new platforms. Knowledge creation in the Japanese display industry is facilitated by highly decentralised specialised R&D labs as well as intra firm horizontal new product development groups. Specialised groups have used horizontal coordination to reduce the idea to product realisation cycle time. In 1992, NEC has closed down its PDP display development initiatives. As soon as it became evident that PDP is emerging as a large and thin flat panel display option it created a group for PDP development. In September 1996, it announced the development of 42 inch PDP displays. Some of recent innovations of Japanese firms in the area of flat panel displays are presented in Table 4. This illustrates that innovation through new knowledge creation has been a major knowledge management strategy. The organisations continuously create new win-

Table 4. Process Innovation in the Japanese Display Industry: 1996 and 1997 Firm

Innovation

Dai Nippon Printing

improves LCD colour filter production

ULVAC

develops low temperature polysilicon TFT panel production equipment

Toshiba

develops simulation technique for easy to produced LCD panel

Asahi Chugai Ro

develop liquid crystal for brighter displays develops equipment for improving picture quality of large screen PDPs

Mitsubishi Gas Canon

develops production process for antiferroelectric liquid crystals develops LC substrate exposure system for 20 inch LCD panels

Seiko Epson and Sony Sanyo Electric

develops high temperature polysilicon TFT LCD develops high speed LCD panel tester

Nissan Chemical

develops resin black matrix for LCD colour filters

NTN and Fuji Film Fujitsu Kasei

develop system for automatically fixing LCD colour filter defects develops new type LCD back lighting system

Plasma Systems

develop next generation LCD etching system which uses high density plasma develops LCD driver system which conserves power use by 60%

Toshiba Mitsui NSG

Petrochemical develops small transformer for boosting LCD backlight emission efficiency develops glass renders itself to submicron processing by laser

Kowa Electric

develops cold cathode tubes for LCD back light

ULVAC Coating

produces half tone phase shift mask blanks


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Table 4 (cont.) Firm

Innovation

Sony

develops low temperature poly silicon TFT colour LCD

Sanyo Electric Fuji Film

develops PDP discharge maintaining driver hybrid IC develops LCD colour filter glass substrate coater

Fujitsu

develops low temperature polycrystal silicon TFT LCDs

Japan Energy ULVAC

develops LCD circuit use aluminium alloy develops LCD production sputtering system capable of accommodating 650 X 830 mm substrates

Kimoto Sharp

moves into LCD back lighting brightness enhancing prism sheet develops LCD driver ICs for chip on glass

Solar Research Lab Mitsubishi Rayon

develops non contract system for PDP glass substrates develops technique to increase LCD backlight panel brightness by 50%

Toshiba Toshiba

develops computer simulation for analysis of behaviour of liquid crystal molecules develops small high performance LCD substrate cleaning system

Sanyo

develops low temperature polysilicon TFT colour LCD

Omron ULVAC

develops LCD with bright backlight develops TFT LCD sputtering and etching capable of handling 1 & 1 meter substrates

Kuraray Sony

develops acrylic pellets with improved transmission for LCD back light component develops high resolution 1.8 inch polysilicon TFT LCD

Sony Yamagata University

constructs plasma addressing LCD production system develops technique to manufacture organic EL devices

Asahi Glass

commercialises CRT use coated panel with low reflection and electromagnetic radiation introduces TFT LCD panel production laser annealing system

Sumitomo Heavy Industries NTN introduces Solar Research Lab

plasma and LCD pattern repair system develops non contact glass substrate inspection device

Toppan Printing

develops colour filter production line that can process 161 m glass substrates

Hitachi Electronic Engineering

develops large LCD glass substrate inspection equipments

Asahi Glass develops

light, high strength, no alkali glass

NTN

develops high precision air slide for use in large screen LCD inspection

Yokogawa Electric

to introduce LCD driver IC capable of testing 1000 pins simultaneously

Asahi Kasei Electronics

develops very large pellicle for LCD substrates

Ricoh

develops polymer coated LCD production

Source: ATIP Information Systems

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dows of opportunity in emerging areas. These consist of small entrepreneurial firms, R&D institutions, universities as well as corporate R&D groups. This process of knowledge creation and its wide dissemination in a tight environment, will ensure `survival of the fittest' technology. Multiple actors innovating in the area of flat panel displays ensures that there is no `lock-in' mechanisms hindering the knowledge evolution process. Multiple sources of innovation reduces the path ± dependent behaviour. Production and marketing externalities always favour existing and more widely used variants, all success conditions seem to come down to one and the same prerequisite ± the capacity to pass a critical mass theshold or more precisely, to attract a critical number of potential adopters who then make an adoption decision (Witt, 1997). The tight environment and prevalence of a large number of players with almost equal cost advantage in a given technology, ensures that only innovative firms can grow. New knowledge creation is the crux of this process. The knowledge creation and evolution for LCD manufacturing is schematically presented in figure 2. Multiple players continuously evolving new knowledge have facilitated in sustaining the competitiveness in the display industry through the continuous advancement of a strong component manufacturing base.

Networks and Knowledge Externalisation Knowledge internalisation, knowledge creation, learning and knowledge codification have to be supported by knowledge externalisation. The Japanese corporate networks consisting of corporate complexes, corporate groups and suppliers networks ensure that knowledge externalisation is achieved through the network. The availability of parts supply from independent suppliers or from large group suppliers has great significance with regard to increased production expansion on the part of middle and lower ranked suppliers (Gerlach 1997). Knowledge externalisation process in the display industry has two broad implications. . first, normally technology is imperfectly

traded. The combination of an entrepreneurial supplier and a large group help in insulating the small supplier from the uncertainties of the market forces. By becoming a supplier to the large firm, in exchange of technology the large firm ensures that the market expands for the small firm. In a rapidly changing industry, a network relationship of this nature on the


85

part of the supplier and the corporate user facilitates the externalisation of knowledge. This ensures assured supply of new technology for insuring the supplier of the innovative firms from market uncertainties. Market uncertainty and technology uncertainty is traded through the transaction between the innovative firm and a large player in the network. As trust forms the basis of relationship the enforcement cost for the large firm and the intelligence cost for the small firm are minimised. . second, knowledge exchanges help network partners for facilitating incremental innovation. The relationship between NEC and Anelva Corp helped Anelva to start producing the vapourisation and sputtering equipment needed for large PDP displays through exchange, interaction, experimentation and feedback both the supplier and the PDP manufacturer benefit. Similarly, Fujitsu and Tokyo Electron interacted to develop dry etching techniques for developing the manufacturing equipment for the production of LCDs. Ulvac Corp was the first firm to develop TFT LCD sputtering and etching systems capable of handling 100061000 mm substrates, as shown in figure 2, by jointly working with one of its suppliers, Idemitsu Kosan for producing TFT panel transparent conductive film for large substrates. Networks are vehicles for knowledge externalisation. Networks have enormous positive externalities. From the knowledge perspective, networks support knowledge evolution by recombinations of existing knowledge of the involved partners. The positive externalities arise both from the accumulation of knowledge as well as its diffusion.

Continuous Renewal of Competencies By whatever name, activities, core competencies or value chain elements, firms which define their competitive advantage based on structural superiority in the discrete activities they perform are more often long term winners; these companies turn their core competencies into competitive weapons, not competitive traps (Synder and Ebeling 1992). The Japanese display firms derive the competitive advantage in thin film transistor (TFT) LCD manufacturing through their core competence in semiconductor manufacturing, namely low defect high yield production and design of complex integrated circuits. A flat display becomes useful only if the corresponding circuity can be designed, en-

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Figure 2. Evolution of Component Developing Competence for LCD gineered, tested and fabricated. Major display manufacturing firms derive competitive advantage by continuous renewal of their critical competencies. For example, Sharp which has the largest market share in LCD displays focuses on accumulating and sharp-

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ening its competencies on improving the resolution of displays. The strategy of Sharp is discussed in detail in the subsequent section. Similarly, Hitachi which has enormous competence in integrated circuit design developed a high resolution LCD driver



integrated circuit and marketed it in August 1996. Within a month it developed, again, 64 gradation 384 output dataline driver IC for high resolution TFT-LCD. Critical knowledge elements which cannot be easily appropriated by the imitators are held within the firm and developed through continuous nurturing, evolution and renewal along with rapid internalisation. The knowledge creation, evolution, accumulation and diffusion processes are at the core of the competitiveness of the Japanese display industry. Complacency, imitation, leakage and failure to learn from mistakes are factors which can weaken the competitiveness. The ability of Japanese firms to continue its leadership will come from their ability to buffer internal ventures from an immediate market survival so that they are able to create new capabilities by trial and error learning faster than the imitators. The leadership of Japanese display market is under two major threats . competition from low cost players such as

Korea and Taiwan and

. competition from new displays such as

field emission displays from France and USA.

New learning such as innovations, are products of a firms combinative capabilities to generate new applications from existing knowledge (Kogut and Zander 1992). The survival of Japanese display firms will depend upon three major abilities . combinative capabilities to evolve knowledge faster through interweaving the knowledge network or the national innovation system . using existing capabilities to expand the markets faster than their competitors (though Japanese have the support of large trading houses it is lagging behind Korea in capturing new markets) and . sharpening the knowledge base so that the economies of digital convergence can be exploited. The weakness in software has made Japan a laggard in multimedia. Losing this market can be a major loss since regaining it is likely to be difficult because of path dependency of certain technology platforms. Networks are a source of strength in display industry, but cognitive biases have to be eliminated since path dependence can have severe consequence when there are discontinuous changes. The speed of replication of knowledge determines the rate of growth but control over its diffusion deters competitive erosion of the market position. Japan's ability


87

to expand its display market will determine its ability to compete in the global market. Globalisation requires aggressive investment programmes so that market strength and technology strength can be balanced in the emerging world economy. Next section, analyses the corporate strategies used by selected major players from a knowledge management perspective.

The Strategies of Japanese Firms The strategies used by Japanese firms for dominating the display industry can be characterised by the following knowledge management processes, namely: . extending the cognitive boundaries of

knowledge

. using internal knowledge for creating

entry barriers for new players

. using strategic networks with low knowl-

edge processing cost and

. creating new knowledge and keeping

multiple options.

The Japanese display firms in the display industry can be characterised as: opportunity seeking, knowledge leveraging virtual networks.

Extending Cognitive Boundaries of Knowledge Cognitive aspects of knowledge is inimitable as it involves representations of the world through assimilating new experiences (Krogh, Roos and Yip 1996). It has low appropriability by competitors. In the beginning of 80s many of the large US firms closed their research activities on flat panel displays whereas the Japanese firms recognised the importance of displays. Fujitsu was one of the early developers of PDPs and has worked on PDP technology for the last 25 years. Fujitsu has remained at the forefront of this technology with its proprietary AC technology and was awarded a US patent (US patent number 5541618). The first commercial product was a 21 inch grey scale PDP display marketed in 1991. By then the customers demanded colour panels and production of 21 inch colour PDP started in1993. The new generation of 42 inch plasma panel displays were announced in 1995. Fujitsu became the world's first company to mass product 42 inch Colour Plasma Display panels in October 1996. From 21 inch colour PDP it quickly moved to 42 inch PDP. Based on Fujitsu's proprietary colour plasma display panel technology, it developed the

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Fujitsu gets a major PDP patent in US Fujitsu increases 42 inch PDP production Fujitsu announces plan for large screen PDP Releases 42 inch PDP TV First in the world to start mass production Fujitsu wins US patents for PDP Fujitsu announced decision to supply 42 inch PDP toTV makers Initiates production of 25/26 inch PDP displays Starts building a mass production facility for 42 inch PDP Announces decision to produce 42 inch colour PDP 21 inch PDP displays for personal computers Sample shipping of 21 inch PDP displays Announces decision to mass produce 21 inch colour PDP

Figure 3. Technology Trajectory of Fujitsu for PDP world's first commercial large screen colour PDP ± `Ìmage Site''. The manufacturing facility is capable of processing glass panels bigger than 70 inches which are likely to be produced by 2000. The technology trajectory of Fujitsu for PDP given in figure 3 shows knowledge evolved through incremental innovation and rapid knowledge internalisation. Fujitsu recognised, much before the emergence of multimedia, the importance of flat display panels. Through its technological and product commecialisation leadership and through aggressive investment it pushed the Ìmagesite' as the defacto industry standard. Fujitsu was the first to develop full colour 21 inch PDP display. The strategy has been to bring out a variety of products through innovation and rapid knowledge externalisation. Fujitsu has commercialised a 21 inch VGA PDP for information devices and 42 inch PDPs for large screen TVs. Large size SXGA display monitors for personal computers and

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workstations in the 20-25 inch range and 42 to 55 inch HDTV displays for wall hanging televisions are already under development. In August 1996, Fujitsu has been awarded a US patent for driver technology used in manufacturing plasma display panels used to make large screen wall mounted colour televisions and multimedia display units. Fujitsu intends to demand patent usage fees from Japanese and Korean companies manufacturing PDPs and will attempt to strike a broad range of cross licensing agreements. In September 1997 Fujitsu has been awarded another patent for a basic structure of colour plasma display panels, known as stripe structure. Fujitsu stated that most PDP makers adopt this structure and therefore they will have to pay Fujitsu royalty when they sell PDPs imported from Japan or manufactured in US. The example of PDP development highlights the knowledge evolution and knowledge leveraging strategies used by Fujitsu, namely



. it has identified a generic technology . .

. .

.

which has long term growth opportunities (knowledge envisioning) it has rapidly evolved the knowledge ahead of others to gain competitive advantage (knowledge evolution) it has internalised the knowledge to become the first firm in the world to mass produce plasma display panels (knowledge internalisation) it has evolved a variety of products using the same knowledge to derive scope economies (knowledge externalisation) it has obtained 300 patents on plasma display panels to make its proprietary technology the defacto standard (knowledge protection) and it has joined with Ashahi glass to produce large glass panels so that 100,000 large panels can be produced a month (knowledge complementing).

The synergistic knowledge management which is responsible for the evolution of plasma display panel at Fujitsu is schematically presented in figure 4.

Internal Knowledge Management One of the major strategies used by Japanese firms is internal knowledge processing:

89

. rapidly evolving new knowledge through

knowledge search and creation

. rapidly combining internal knowledge for

leveraging existing knowledge so as to repeatedly use the same knowledge as a platform for creating a variety of new products . introducing new products rapidly through knowledge leveraging so that competitors cannot catch up in terms of speed and variety of offerings and . continuously offering new features along with an existing technology so that competitors cannot match the cost effectiveness. This is illustrated taking the example of Sharp Corp. Sharp Corp has the largest global market share in LCD displays. Knowledge Evolution Sharp developed and marketed the world's first electronic calculator with an LCD display in 1973. Through its own R&D efforts Sharp was maintained its leading position in displays. Sharp developed high contrast, wide viewing angle and large screen technologies and introduced in 1987 the worlds first 14 inch TFT colour LCD and 100 inch LCD video projection system. Continued market growth, lowering of production cost and higher production yields have lead to an increasing number of LCD applications and these include word processors, office equipment, LCD TVs and other video devices. The knowledge evolution and creation trajectory is schematically given in figure 5. Sharp made breakthroughs in LCD technology in four areas, namely: . advancing alphanumeric to graphic capa-

bilities

. advancing beyond monochrome . advancing beyond only still images to

moving pictures, and

. advancing beyond the use of small screen

displays to using large screens.

The basis of competitive advantage of Sharp is the competence to rapidly evolve knowledge along with new knowledge creation. Product Platforms Sharp has used LCD as a technology platform and developed a variety of new products. Some of these are: . LCD display TVs: Thin profile and light-

Figure 4. Knowledge Management for PDP at Fujitsu # Blackwell Publishers Ltd 1999

weight designs with amazing high picture quality . Car navigation LCD TV: High definition displays

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Introduction of 3 inch TFT LCD CTV at electronics show

TVs


Successful development of 100-inch LCD color projector

Successful development of technology for the industry's first 14 inch TFT LCD TV

Mass production of 4 inch TFT color LCDs


Introduction of 10-inch TFT color LCD prototype for office equipment at electronics show

Color LCD video cameras Video monitors LCD video projectors

Development and exhibition of 110-inch highdefinition LCD video projectors at electronics show

PCs

Mass production of 10 inch color LCD units for office equipment

Development of multimediacompatible 10/14-inch TFT color LCDs (16.7 million colors)

Car mount TVs

Introduction of 20-inch 50-inch, 650,000-pixel, high-resolution LCD video projectors

Development of 11.8-inch high definition color TFT LCDs

Mass production of 14-inch digital drive TFT color LCDs for audiovisual/office equipment

Development of 16.5-inch wide/ 17-inch EWScompliant/ 10.4-inch XGA-compliant TFT color LCDs

Wall-mount TVs (LCD Museum)

Introduction of 200-inch large-screen LCD video projectors

Figure 5. Evolution of LCD Development Trajectory of Sharp Corp.

Mass production of 8.6 inch color LCD units for audio-visual equipment, and 8.4 inch color LCDs for office equipment

LCD ViewCam

Development of high-brightness reflective LCD video projectors

Development of plastic STN LCDs

Development of wide viewing angle TFT LCDs suitable for mass production

Development of 21-inch directviewing full color TFT LCDs

LCD display TVs ProStation HDTVs

Development of compact HDTVs employing 2-inch p-Si TFT LCD

Start of constructing the world's largest TFT LCD plant in Takicho, Mie prefecture, Japan

Start of mass production at TFT LCD plant in Mie Development of high aperture LCDs

Development of 28-inch directviewing full color TFT LCDs Development of lowtemperature polymer Si-TFT LCDs

Rear-projection TV system ``Mebius''color LCD notebook computers Digital ViewCam

Development of LCD video projectors without color filter

Development and introduction of rear-projection TV system


Exhibition of 4 inch and 5 inch LCD CTV prototype at electronics show



. Rear projection TV system: Super large . . . . . . . . . . .

screen LCD video projector: High brightness projection system Hi vision LCD projection: TFT panel with high vision images LCD miracle screen system: Combination of LCD projection and instant photosensitive glass TFT colour LCD notebook computer: Thin and light weight lower consumption systems STN colour LCD displays: Convenient and vivid colour reproduction STN LCD displays: Personal information systems Large screen colour STN LCDs: High picture quality with a simple matrix system Sharp addressing STN LCD driver: New driver ICs for reducing on screen shadow Reflective colour LCDs: Double metal guest host method reflective colour LCDs for high brightness without a backlight Reflective STN colour LCD displays: High definition LCD based on electrically controlled birefringence and LCD input/output panel.

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Using two or three basic display technologies and combining it with its competencies in IC technologies a variety of new products have been generated. The product offerings of Sharp given in figure 6 indicates this. Sharp has evolved amorphous silicon TFT as the base for the fourth generation LCDs. The fourth generation LCD will induce further growth of the LCD market. Futuristic Products By anticipating the potential customer requirements emerging technology trends and then superimposing these with the internal technological competencies Sharp has bought out a number of new products as well as new applications. Some of the technologies under development are . antiferroelectric LCDs . system on panel . wristwatch type multimedia compatible

equipment

. virtual reality home shopping system . LCD viewer multimedia compatible note-

book and

. panel computers.

Dot-matrix (characters, graphics) Simple matrix STN

Low-temperature polysilicon LCDs Dot-matrix (characters, graphics, multicolor) Active matrix TN Type of display: Segment (numeric) Drive system: Static Type of liquid crystal: DSM

Segment (alphanumeric) Simple matrix TN

Dot-matrix (characters, graphics, color) Simple matrix TSTN

``Mebius'' Color LCD Notebook Computer Dot-matrix (characters, graphics, moving pictures, full color) Active matrix TN

Dot-matrix (moving pictures, full color) Active matrix TN Dot-matrix (moving pictures, full color) Active matrix TN

Dot-matrix (moving pictures, full color) Active matrix TN

Figure 6. The Evolution of LCDs # Blackwell Publishers Ltd 1999

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Virtual networks

Speed, variety of offerings, economies of scope by bundling knowledge and leveraging competencies for new product development helped Sharp to compete based on tacit knowledge, internal capabilities and accumulated experience. These combinations evolve rapidly through horizontal internal knowledge processing and it is difficult imitate these. Incremental Innovations The most important strategy which Sharp used is to ensure that an existing technology platform can meet the emerging needs. For example, STN displays cannot be used for rapidly changing multimedia images. Sharp developed and patented a technology capable of supporting video pictures in STN displays. The high contrast addressing LCD supports the SVGA Super Video Graphic Array 8006600 resolution displays capable of 260,000 colours with a contrast ratio of 40:1. The response speed is 150 ms, twice as fast as the conventional ones and a luminance of 80Cd/sq meter. The STN colour LCD modules of this were shipped in 1997. Such a strategy allows Sharp to manufacture low cost displays using incremental innovation, but this option may not be easily feasible for the competitors. Sharp has been able to benefit in two ways through this. First, the existing manufacturing facilities can be used for producing an upgraded product with minimum changes in production equipment, except changes in the addressing system and driver ICs. Second, these are innovations derived through internal learning, discussions and accumulated tacit skills. These cannot be easily appropriated by the competitors since most of these are scope economies derived through recombination of knowledge, experiences, skills and procedures which have strong embeddedness. This makes some of the innovations inimitable and difficult to replicate elsewhere. Economies of scope is the major method by which major display players derive competitive advantage and this involves using an innovative idea and using it in many ways or in a number of fields. The major prerequisite for the success of such an option involves generation of the following capabilities through knowledge management, namely: . cognitive capabilities for looking ahead . capabilities to generate innovative ideas . capabilities to transfer a field specific idea

to other segments through horizontal transfer, and

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. capabilities to combine and protect the

knowledge so that it cannot be easily appropriated by others.

Strategic Networks The third kind of strategy used by the Japanese firms is to create virtual networks of suppliers and customers such that the firm can concentrate on its core competence. Low asset specificity transactions are through alliances. This kind of a strategy helps a firm to focus on its core competencies while relying on the alliance partners for its non core competencies. The main advantages of this mode of working are . flexibility in operations . low focus non core competencies, and . low transaction costs for making changes.

The strategy of Toshiba in LCD business is an example of this approach. Toshiba has alliances with LCD users. Toshiba has a joint venture with IBM Japan for manufacturing display panels for computers. Toshiba, Toyota and Nippon Denso have formed an alliance for the development of LCDs for automotive displays. Toshiba, Applied Materials, Photon Dynamics, and Insystems have formed an alliance for developing equipments for TFT LCD manufacturing. Toshiba and Photon Dynamics is jointly developing LCD panel inspection systems. Alliances with users and suppliers allows Toshiba to focus on development of LCD technology needed for the next decade. In September 1997, Toshiba announced that it has developed a low temperature polysilicon LCD. Toshiba plans to sample a 12.1 inch XGA (10246768 pixel) LCD for use in notebooks PCs and several 6 to 8 inch models for use in car navigation systems LCD projectors and PDAs. Toshiba is also planning to construct a mass production facility for the manufacture of next generation low temperature polysilicon LCD. In October, 1997 Toshiba delivered its first 12.1 inch low temperature polysilicon TFT LCD. The LCD uses 0.24mm pixels, features 10246768 pixel resolution, achieves a luminance of 140 cd per square meter and a contrast ratio of 250 : 1 and consumes 3.5W. It started a pilot line at its Kumagaya plant since July 1997 and it plans to install a new mass production line in November. It will have a capacity of 100,000 units per month. The ``focus on core'' type of a generic strategy allows the firms to make substantial investments in LCDs. The knowledge management strategy of Toshiba is schematically shown in figure 7. A strong core and multiple alliances for knowledge



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intersection of the capability of the firm to exploit its knowledge and the unexplored windows of new emerging technological opportunities. `Focus on core' strategy allows it to innovate more closer to the core and also benefit more through alliancing relationships. Japanese firms benefit more from alliances because the relationships are more dependent on trust, especially reliance on informal processes of trust in transactions. Informal relationships, continuous exchange, reliance on trust and dominance small group activities help Japanese firms to leverage more from the knowledge processing. It is the combination of horizontal relationships within the firm, multidimensional alliances and trust based transactions which makes Japanese firms agile, cost effective and innovative.

Creating New Knowledge and Keeping Multiple Platforms Figure 7. Knowledge Evolution Through Networking evolution and its combination is the strategic thrust. The announced investments by LCD makers for the year 1997 given in Table 5 indicates this. Virtual networking strategy allows fast response and low transaction costs. Japanese firms are characterised earlier in this paper as: opportunity seeking ± knowledge processing virtual networks. This makes it possible for Japanese firms to compete with other firms. New learning is a product of a firm's combinative capabilities to generate new applications from existing knowledge (Kogut and Zander 1992). Combinative capabilities are

One of the major problems in a knowledge intensive industry like display industry is the simultaneous existence of high degree of market uncertainty and technological uncertainty. Japanese display firms handle this by keeping multiple options. US display consortia is investing in R&D for making field emission display (FED) FED as the standard display whereas Japanese firms are focusing on LCD and PDP as the technology platforms for flat panel displays. To ensure that none of the future options are closed, Japanese firms use a knowledge management strategy in which a firm has access to more than one display technology platform so that it can take care of the future uncertainties. The technology trajectory of Sharp consists of three platform technologies, TFT LCD, STN

Table 5. Investments by LCD Makers Company

Sharp NEC Toshiba Hitachi Matsushita Electric Mitsubishi Electric Sanyo Electric Fujitsu Casio

Announced Investments for 1997 Billion Yen Million US $ 55.0 25.0 20.0 25.0 35.0 4.0 55.0 19.0 25.0

474.1 215.5 172.4 215.5 301.7 34.5 474.1 163.8 215.5

Growth Rate over 1996 Investment: Percentage 35.1 25.0 66.7 13.6 560 33.3 900 113 38.9

Source: Nikkan Kogyo, Nikkei Sangyo, Nihon Keizai, Friday, May 30, 1997, Digitized Information Inc, Tokyo


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Figure 8. Technology Trajectory of SHARP for Flat Panel Displays

LCD and ELD, as shown in figure 8. Most of the active firms plan the knowledge management strategy so as to ensure competence for handling a combination of multiple technology platforms such as CRTs, LCDs, FEDs, PDPs, SEDs or ELDs. The use of four generic knowledge processing strategies are the source of competitiveness of Japanese display firms. These are analyzed subsequently.

sional analysis. The dimension is time focus, present competence orientation or future competence orientation. The second dimension of strategy is the mode of strategy realisation i.e. competitive or cooperative mode. Four strategic options emerge for knowledge based competition, as shown in figure 9. The first option basically is a knowledge leveraging option, using existing knowledge competitively through

Firm Strategies and Knowledge Management

. realising scope economies using same

The strategies adopted by major Japanese players such as Sharp, NEC, Toshiba, Hitachi, Mitsubishi etc are analysed using a two dimen-

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knowledge for creating new products or diversification into new markets . creating entry barriers using learning effect and product enhancement, and . rapid knowledge evolution internally.



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Figure 9. Knowledge Management Options The strategy for Sharp Corp for LCD highlights this strategy, namely . producing car navigation displays, high

resolution, personal digital assistants (PDA) . rapid capacity addition of STN LCDs and improving STN LCD performance through its core strength, and . rapid learning to continue to be leader in the TFT LCD segment, as shown by the fact that Sharp became first in the world to fabricate 40 inch TFT LCD. In the second quadrant the strategy is to evolve knowledge through network so that current capabilities can be rapidly evolved. This involves use of customer networks, supplier networks, equipment manufacturer networks and product diversification through alliances. For example, Toshiba and IBM Japan manufacturing jointly through Display Technologies Inc large LCD panels for laptop and notebook computers, apart from PCs. Anelva and NEC are working together to develop PDP manufacturing equipments, through combination of knowledge internalisation and externalisation. In the third quadrant, the strategy is to create a joint technology trajectory through alliances. Sony, Sharp and Philips are working together to make LCD the preferred displays for large TVs. All the three have not been active in PDPs, hence, the cooperative strategy of creating a new platform. Sony and Philips are strong in the CRT market.


In the fourth quadrant the strategy is to insure against future uncertainties by having a technological backup. Hedging is insuring from risks from market uncertainties. The strategies of selected firms for sustaining multiple platforms are given below: 1. Sharp Corp which is an active player in LCDs have been building capabilities in ELD as an alternative. It is also strengthening the FED option by investing in FED research. 2. Matsushita which is active in CRT and LCD had acquired Plasmaco so that it can have the PDP option. Earlier, Matsushita had tried to extend the CRT option for thin display panels but now it has become active in the LCD and PDP market. 3. Toshiba has been active in CRT and LCD. It has initiated work on realising FED panels. This is to ensure that it will have a flat panel option other than LCD in the future. 4. Fujitsu which is a pioneer in PDP is also an active player in LCD. It has recently entered into FED since US firms have become active in patenting FED. 5. Sony which is active in CRT through its proprietary Triniton technology has recently developed a new planar display technology known as Surface Emission Technology. Sony is also initiating an alliance with Toyota to enter the LCD segment. These will ensure that it will have a variety of flat panel technology

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options for the future or windows of opportunities. In other words, Japanese display majors are continuously looking and planning ahead to keep their supermacy. Every firm have evolved a portfolio of technologies apart from the one in which it is currently strong. In knowledge management perspective, the four strategies are summarised in figure 10. The strategic portfolio of Sharp given in figure 11. This indicates that it is ensuring its leadership in display market through a series of knowledge management processes, namely: . continue aggressively its lead in TFT LCD

through learning and new knowledge creation, for example development of back light free low power reflectance type LCD . continue its lead in STN LCD both through innovation and learning. It has introduced a new STN LCD for displaying moving images . continue working with suppliers and manufacturers for new display applications through rapid knowledge internalisation and quick knowledge externalisation, for example LCDs such as car navigation high resolution LCDs

. pursue process innovation or incremental

knowledge evolution such as low temperature polycrystal TFT LCD to ensure lowering of costs and leveraging accumulated knowledge on LCDs . evolve new options through knowledge evolution and reuse, for example high resolution small LCD displays for hand held devices games, telephones etc . continue working on new display platforms for creating new windows of opportunities. Recently Sharp has introduced a nine colour ELD which is easy to fabricate. ELD is likely to capture the non TV, non computer display segments such as defence displays, automotive displays etc. Sharp is the first in the world to announce mass production line for ELDs, and . continue looking ahead for evolving new displays needed for the future through cognitive knowledge creation. The strategy and knowledge management portfolio of Sharp given in figure 11 indicates that it is working in a variety of ways of accumulating the knowledge, diffusing the new knowledge, leveraging existing knowledge and combining knowledge in multiple ways to drive economies of scope.

Figure 10. Knowledge Management Strategies

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j

Figure 11. Strategies of Sharp Corporation The strategy of Fujitsu can be summarised in terms of four generic knowledge management options it is pursuing, namely: . it is making PDP as a defacto standard

display for TVs and computer monitors. It is offering PDP to TV producers to ensure that they will have a path dependency and start developing PDP TVs. It has about 300 major patents on PDP to ensure its dominance (cognitive knowledge creation and internalisation) . Fujitsu Labs has announced that it had developed a technique to extend life span of FED and increase its brightness. Keeping this future option through new patents is also being pursued (multiple option generation) . Fujitsu has developed vertically aligned LCD for better resolution displays and large panels (knowledge internalisation and leveraging) and . Fujitsu interacting with many suppliers to induce process innovation so that it can reduce the cost of production of LCD panels especially TFT LCDs (knowledge evolution through network) Its competence in integrated circuit technology has given a lead in designing driver


ICs for LCDs. From the examples, of Sharp Corp and Fujitsu it is evident that multiple knowledge management processes form the basis of competitiveness of the Japan display industry.

Conclusions Japanese flat panel players are using extensively various knowledge management options to ensure that their market share will not adversely come down. A number of generic option are being pursued to ensure that they do not foreclose any future options. The existing dominant option is being protected through a variety of alternatives such as . economies of scope by reusing same

knowledge in multiple ways and recombining them . cost reduction through process innovation and knowledge internalisation so that TFT LCD can become a viable alternative to CRT so that future PCs will use either STN LCDs, FLCDs, TFT LCDs or PDPs. Already new STN LCDs have altered the price performance ratio in the mid ranges and TFT LCDs and PDP LCDs in the high end. Also

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accumulated knowledge is being leveraged for developing low cost high resolution LCDs which can take over the workstation markets and . insuring against technological discontinuities by having multiple options for pursuing new flat panel options such as FEDs, SEDs, ELDs etc. American Display consortia is actively devising ways in which it can enter the flat panel market. Japanese domination of the consumer electronic market and its reentry in the computer market will make display technology battle a fiercely fought one. Standardisation and the strong component supply base will reinforce the knowledge exchange networks in the case of Japanese firms. The future will depend upon the ability of Japanese firms to aggressively penetrate other high growth markets through rapid knowledge externalisation. Japanese firms have strong knowledge internalisation mechanisms, but they have been rather weak when it comes to knowledge externalisation. In spite of their innovative capabilities they have not been able to penetrate the high growth markets, as has been done by Korea and Taiwan. First, Japanese display firms have to aggressively develop market penetration mechanisms. Second, it has to sharpen its national innovation system by strengthening the university firm linkages. Because of weak linkages it has not been able to leverage many of the new innovations. Third, Japanese firms have to develop managers who can exploit the globalisation synergies or scope economies. Though Japanese firms operate internationally there has to be better integration among its operational and strategic thrust. Fourth, Japanese firms have to improve the linkages with the trading houses for inducing better market growth and penetration as well as technology diffusion. The entry of Korean and Taiwanese firms without support of large trading houses shows that the Japanese corporate houses have to redefine the role of trading houses for meeting the competitive challenges through an integrated knowledge leveraging and knowledge building strategy.

Acknowledgements The authors would like to thank the firms Sharp Corp, NEC, Toshiba, Canon, Hitachi and Fujitsu for providing the necessary information. The authors would like to acknowledge the help of ATIP, COMLINE, New Technology Japan, Techno Japan and

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Display Devices for providing the latest information. The study has been made possible through the Chair Endowment by ITC Ltd in the form of a Research Chair on Strategic Management of Technology. The authors would like to express their sincere thanks to Dr. Poh-Kam Wong for encouraging the submission of the manuscript and giving suggestions for preparing the paper. The authors would like to express their gratitude to Mr. T.L. Sankar, Principal, Administrative Staff College of India for the encouragement and institutional support.

References Aoki, M. (1990) The Participatory Generation of Information Rents and Theory and the Firm. In Aoki, M., Gustafson, B. and Williamson, O.E. (eds), The Firm as a Nexus of Treaties, Sage, London, pp. 26±52. Bowonder, B., Rao, M.S., Sarnot, S.L. and Miyake, T. (1994) Creating and Sustaining Competitiveness: An Analysis of the Japanese Electronic Display Industry. World Competition, 18 (1), 17±69. Borrus, M. and Hart, J.A. (1994) Display is the thing: The Real Stakes in the Conflict over High Resolution Displays. Engineering Management Review, 22 (3), 98±115. Bowonder, B. and Miyake, T. (1994) Innovations and Strategic Management. Technology Analysis and Strategic Management, 6 (1), 55±81. Bowonder, B. and Miyake, T. (1991) Industrial Competitiveness: An Analysis of Japanese Electronics Industry, 18 (2), 93±110. Bowonder, B., Miyake, T. and Butler, J. (1997) Strategic Alignment Through Technology Management: An analysis of Toshiba Corporation. Technology Management (to appear). Casson, M. (1997) Information and Organisation, Oxford University Press, Oxford. Correges, F. (1996) Parameters in FED Product Design. Information Display, 12 (11), 10±12. De Jule, M. (1997) Flat Panel Technologies. Semiconductor International, 20 (1), 59-66. Edwards, C.T. and Samimi, R. (1997) Japanese Interfirm Networks: Exploring The Seminal Sources of their Success, 34 (4), 489±510. Eto, H. (1985) Research and Development in Japan. In Monden, Y. (ed.), Innovations in Management, Industrial Engineering and Management Press, Atlanta, pp. 145±178. Eto, H. (1993) R&D Strategies in Japan, Elsevier, Amsterdam. Fransman, M. (1995) Japan's Computer and Communications Industry, Oxford University Press, Oxford. Fransman, M. (1997) Is Technology Policy Obsolete in a Globalised World. In Archibugi, D. and Michie, J. (eds), Technology, Globalisation and Economic Performance, Cambridge University Press, Cambridge, pp. 50±82. Fruin, W.M. (1997) Learning to Work Together: Adaptation and the Japanese Firm. In Shiba, T.



and Shimotani, M. (eds), Beyond the Firm, Oxford University Press, Oxford, pp. 274±295. Gerlach, M.L. (1992) Alliance Capitalism: The Social Organisation of Japanese Business, University of California Press, Berkeley and Los Angeles. Gerlach, M.L. (1997) The Organisational Logic of Business Groups. In Shiba, T. and Shimotani, M. (eds), The History and Structure of Business Groups in Japan, Oxford University Press, Oxford, pp. 245±273. Geroski, P. (1995) Markets for Technology: Knowledge, Innovation and Appropriability. In Stoneman, P. (ed.), Handbook of the Economics of Innovation and Technological Change, Basil Blackwell, Oxford, pp. 90-131. Grant, R.M. (1996) Toward a Knowledge Based Theory of the Firm, Strategic Management Journal, 17, 109-122. Gregory, G. (1986) Japanese Electronics Industry, Wiley, Chichester. Irvine, J. and Martin, B.R. (1984) Foresight in Science, Frances Pinter, London. Kahaner, L. (1996) Competitive Intelligence, Simon & Schuster, New York. Kodama, F. (1991) Analysing Japanese High Technologies, Pinter, London. Kogut, B. and Zander, U. (1992) Knowledge of the Firm, Combinative Capabilities and the Replication of Technology, Organisation Science, 3 (3), 383±397. Krogh, G.V. and Roos, J. (1996) Imitation of Knowledge. In Krogh, G.V. and Roos, J. (eds), Managing Knowledge, Sage, London, pp. 32±54 Krogh, G.V., Roos, J. and Yip, G. (1996) A Note on Epistemology of Globalising Firms. In Krogh, G.V. and Roos, J. (eds), Managing Knowledge, Sage, London, pp. 203±217. Langlois, R.N., Pugel, T.A., Haklisch, C.S., Nelson, R.R. and Egelhoff, W.G. (1988) Microelectronics: An Industry in Transition, Unwin Hyman, London. Liebeskind, J.P. (1996) Knowledge, Strategy and the Theory of the Firm, Strategic Management Journal, 17, 93±108. Liu, S. and Lee, J. (1997) Liquid Crystal Display Industry in Taiwan, International Journal of Technology Management, 13 (3), 308±325. Mowery, D. (1995) The Practice of Technology Policy. In Stoneman, P. (ed.), Handbook of the


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Economics of Innovation and Technological Change, Basil Blackwell, Oxford, pp. 511±567 Nonaka, I. and Takeuchi, H. (1995) The Knowledge Creating Company, Oxford University Press, New York. Odagiri, H. and Goto, A. (1992) The Japanese System of Innovation. In Nelson, R.R. (ed.), National Innovation System, Oxford University Press, Network, pp. 76±114. OTA (1995) Flat Panel Displays in Perspective, Office of Technology Assessment, Washington D.C. Prahlad, C.K. and Hamel, G. (1990) The Core Competencies of the Corporation, Harvard Business Review, 63 (3), 79±93. Sanchezz, R. and Heene, A. (1997) Reinventing Strategic Management, European Management Journal, 15 (3), 303±317. Synder, A.V. and Ebeling, H.W. (1992) Targeting a Companys Real Core Competencies, Journal of Business Strategy, 13 (6), 26±32. Tannas, L.E. (1992) Display Technologies in Japan, Japtech Evaluation Centre, Baltimore. Tannas, L.E. (1994) Evolution of Flat Panel Displays, Proceedings of IEEE, 82 (4), 499±509. Tatsuno, S. (1990) Created in Japan, Harper and Row, New York. Werner, K. (1997) The Flowering of Displays, IEEE Spectrum, 34 (6), 40±49. Williamson, O.E. (1985) The Economic Institutions of Capitalism, Free Press, New York, 1985. Witt, M. (1997) Lock-in vs Critical Masses: Industrial Change Under Network Externalities, International Journal of Industrial Organisation, 15, 753±773. Womack, J.P., Jones, D.T. and Roos, D. (1991) The Machine That Changed the World, Harper Collins, New York.

Dr B. Bowonder is ITC Chair Professor of Strategic Management, Administrative Staff College of India, Hyderabad, India. Dr T. Miyake works with the Investment and Technology Promotion Division, United Nations Industrial Development Organisation, Vienna, Austria.

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The Management of Knowledge during Design and Implementation of Process Technologies Alison U. Smart, Andrew M. McCosh, Peter Barrar and Ashley D. Lloyd Knowledge and learning play a major part in the successful implementation of process technologies. We suggest that managers of implementation projects can improve the initial performance levels of the process in which a new technology resides by ensuring that useful knowledge, present in the organization at the start of the implementation project, is employed to greatest effect during the design of the modified process and that new learning is not lost. This does not necessarily require major investment in computerized systems ± merely exploring what potentially useful knowledge is already available within the organization, or can readily be obtained from external contact, may improve the efficiency of technology implementation. Use of available knowledge can also help to speed up the implementation process by reducing the number of, and time required for, the adaptations necessary to get the process to the desired performance level.

Introduction

A

s part of a major research programme looking at management innovation a team of researchers from the Universities of Edinburgh and Manchester have been investigating the changes that occur in business processes when companies invest in new technologies. Some of these studies have afforded the opportunity to look at how companies utilize and generate knowledge during the design and implementation processes. This paper starts by looking at how adaptations and learning are necessary components of the implementation process. We then look at how the use of existing knowledge has the potential to reduce implementation time and expense. Finally, taking a process view of the organization, we look at possible sources of knowledge for implementation projects. We first outline our terminology and define three words: knowledge, learning and implementation. Knowledge has become difficult to define, particularly in the context of knowledge management, because of the wide variety of contexts in which it is used. Many authors, perhaps wisely, do not attempt a

Embedded knowledge

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definition. Within philosophy the theory of knowledge is a major subject area: clearly this is too complicated for the purposes of day-today management. However, even within the management area different definitions abound. One definition of knowledge is `justified true belief' (Nonaka, Takeuchi, and Umemoto 1996). A second definition is given by Davenport and Prusak (1998): Knowledge is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organizations, it often becomes embedded not only in documents or repositories but also in organizational routines, processes, practices and norms. This rather more comprehensive definition, whilst not contradicting the first, gives a key to how knowledge fits into organizations, and is the definition employed here. Therefore in our context it follows that knowledge, as defined in its organizational context, is qualitatively quite different from what we might think of as `best' or `good' practice. # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

MANAGING KNOWLEDGE IN PROCESS TECHNOLOGIES

Voss (1988) describes implementation as `the process of adoption of process innovations'. This fits well with the process view taken in the current research project. Implementation bridges the gap between initial design and full use. It is thus more than simple installation of technology, and includes preinstallation issues (for example training staff in the required skills), installation and commissioning, and post-commissioning activities (making the required changes to the organization, developing appropriate control systems, managing the learning process). The technologies referred to in the paper are new to the organizations in which implementation takes place, but may have been used in other contexts. Fleck's fundamental implementation equation (Fleck 1994) indicates the importance of knowledge in implementation: successful implementation requires generic technology knowledge + local practical knowledge Finally, it is necessary to define learning in an organizational context (Huber 1996): Àn organization learns when, through its processing of information, it increases the probability that its future actions will lead to improved performance.' (emphasis added) These definitions enable us to assume (i) that the purpose of any organization in implementing new process technologies is to improve performance; (ii) that design and implementation are not part of a linear innovation process in which all the learning has taken place before implementation commences (Rickards 1996); and (iii) that at least some of the knowledge to improve performance exists already, in a variety of forms, within the organization. Whilst each of the definitions will no doubt have its detractors, they serve to identify the areas of interest linked by this paper.

Adaptation during implementation Leonard-Barton (1988) has stated that implementation requires `mutual adaptation of technology and organization' as the result of an initial `misalignment' between the technology and the organization. The misalignment can be one of three types: (i) technical ± the technology does not conform to its original specification or does not fit the process into which it has been introduced; (ii) delivery system ± the technology is not compatible with the infrastructure of the organization; and (iii) value ± the technology does not


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match the job performance criteria in the user organization. It is possible for all three types of misalignment to be present in any one implementation project. For example, a delivery system misalignment can occur when new software, designed to run on the latest computer systems is installed on a five year old computer. Anyone who has tried running the latest version of a web browser on an ageing computer and had the system crash repeatedly will be familiar with at least some of the problems that a delivery system misalignment can cause. Misalignments lead to losses in productivity, which are often higher than anticipated, and organizations have to make changes in order to reach the performance level desired from the new technology. Figure 1 shows a series of ìmplementation trajectories'. The first shows the ideal (and possibly idealistic) scenario, in which a new piece of process technology is implemented and, over a short space of time, process performance improves steadily from the preimplementation level to the desired level. In this case the improvement in performance results only from moving along the learning curve so that operators become more efficient as they practice use of the technology. The second trajectory in Figure 1 represents a more realistic implementation trajectory; it takes several attempted modifications in order to reach the desired performance level, and some modifications may actually lead to a decline in performance. The modifications may be associated with any, or all, of the misalignment types. Our initial observations tend to suggest that companies will address technology and delivery system adaptations first and value misalignments last. The third trajectory in Figure 1 is, unhappily, also not unrealistic. Despite many adaptations the new process never achieves the desired performance level. This has happened all too frequently with technologies such as Advanced Manufacturing Technology and Information Technology (see for example Senker 1983; Bessant 1985; Strassmann 1990). Although misalignments can clearly lead to problems, this should not be used as a reason for not making process changes (LeonardBarton 1988). Process technologies are usually introduced or substituted in order to bring about improvements in productivity, quality or efficiency. Such improvements rely on introducing `more systematic order' into the process. It is highly unlikely that anyone will be able to foresee all the means of doing this before the technology is installed. Indeed, believing that you have done so is likely to lead to potential improvements being over-

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Figure 1. Implementation Trajectories

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looked. Therefore, although trajectory 1 in Figure 1 has been described as idealistic, situations in which no adaptations are required may not be the ideal, as these do not lead to further learning about how the process can be improved. However, as trajectory 3 shows, there has to be a limit to the number of adaptations that are required if implementation is to be successful. The problem of estimating the optimum level of adaptation required is highly contingent on both the process and the organization, and is not considered further.

Learning during Implementation During implementation the project group and operators of a new technology learn about the technology and its interface with the process. They also learn where adaptations are required in order for the desired performance level to be reached. Two modes of learning, `learning by doing' (Arrow 1966) and `learning by trying' (Fleck 1994) have been identified as important during the implementation of new process technologies. A third mode of learning, `learning by using' (Rosenberg 1982) takes place during the subsequent use of technology and can play an important part in discovering adaptations which could usefully be employed in future generations of a technology. Learning by doing occurs as the operators within a process get to know a new technology and/or process, and can be thought of as progression along a learning curve: operators become more skilled at doing things without making any changes to the technology or to the process. The knowledge acquired in the process of learning by doing is largely tacit knowledge and is therefore difficult to communicate. When learning a new skill, such as rock climbing, it is possible for two novices to start together and to learn solely by climbing until they fall off and kill themselves, or until they get to be very good. Alternatively, they may get to an àverage' performance level after a lot of hard work and not get any better. This `novice with novice' experience does not represent the most efficient means of learning. At the very least it would be a good idea to read a few books, in which skilled practitioners' knowledge is made explicit, so that they know the basics of how to tie themselves onto a rope. Then, if one falls off, their partner can stop them from hitting the ground at high speed. The books may even give a few hints on how to climb efficiently. However, it would be better still to climb with someone who knows what they are doing and who can


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observe and offer helpful suggestions on technique and the basic mechanics of moving around on rock. Instead of trying all the wrong ways before arriving at the right answer, less experimentation will be required by the novice climber. Although the èxpert' cannot climb for the novice they can provide guidance as to what works well for them. In the same way, an operator experienced in using a piece of equipment should be able to help someone using a similar piece of equipment or type of equipment to learn how to use it more effectively by sitting alongside them and guiding them. Learning by trying (`learning through the struggle to get the overall system to work') (Fleck 1994) is the second major mechanism by which a company can learn during implementation. This type of learning is commonly observed during the implementation of what Fleck terms configurational technologies, which require high user input if they are to be successful. Changes to the technology and/or to the process result from the learning. A system which seems to involve a lot of learning by trying is the new air traffic control system for the South of England, which has been due to start operation for a number of years and which still has major computer problems that are delaying its implementation. A further example of learning by trying is the recent history of the private finance initiative (PFI). This is a new (1992) scheme for enabling the UK government to provide socially desirable projects at a cost which is paid over a large number of years instead of in a single large payment at the start. The rules for PFI projects are that (i) there must be clear value for money in the project, and (ii) some of the risks associated with the project should be borne by that partner enterprise that is best able to bear that risk. For instance, when a prison is built under the PFI system, the risks of construction over-runs are borne by the construction company partner. The risks of security of containment are borne by the security management company partner. The risks that the prison will not be utilized at a sufficient volume to make it profitable are borne by the prison service partner, which can control volumes more or less at will. The government went through about five years of trial and error and dozens of different kinds of PFI contract models before reaching the present situation in 1999, where the Treasury PFI Taskforce now feel reasonably comfortable that the technology of drawing up a set of PFI agreements is known. One investment that we studied was carried out by a manufacturer of flavourings

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Maximizing success

whose previous technology investment had been handled by external contractors. As a result of the problems the company experienced with this investment it was decided to do the next project ìn-house'. The project required the installation of mixing tanks significantly larger than those already in use, and of equipment for transferring products to road tankers. This had not been done anywhere in the organization prior to investment. The investment was staged, and one of the tanks installed in phase two was designed to mix large quantities of flavouring. The properties of these mixtures were such that the volume in the tank could not be measured using the same technology that was being used to measure the volumes of more dilute solutions in the other large tanks. Other tanks in which similar materials were mixed were small enough for volumes to be measured using a dipstick. In the new tank this would have necessitated the use of a very long stick and a hole in the roof of the plant to enable the stick to sound the tank. It took the company several months, and several failed attempts, to come up with an alternative means of measuring. In the process they learnt a great deal about volume measurement in turbid liquids. Fortunately this tank was not important in the success of the rest of the project and everything else worked sufficiently well for the company to make a significant profit from the investment. Rosenberg (1982) has described an example of learning by using. As familiarity with the characteristics of the 727 and increased confidence in its performance increased, Boeing made many modifications that they would not have risked before its initial production. The flavouring company investment described in the previous paragraph was carried out in two phases, and lessons learnt during the implementation of phase 1 led to adaptation of equipment during the design of phase 2, including installing pumps capable of much faster transfer between mixing vessels and into the road tanker. Learning by using the phase 1 equipment led to knowledge which resulted in phase 2 being implemented with a higher performance level than would have been achieved without the learning from phase 1.

The application of learning and knowledge during implementation As we have described, learning takes place during the implementation process, and this learning can take two forms. In the design phase, learning acquired from previous use of a technology can also be employed. However,

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learning takes time and can result from failure as well as success. During implementation organizations wish to minimize the time and expenditure required and to maximize success. One way of helping to reach these goals is to try and capture as much relevant and useful knowledge as possible before the implementation process begins. In other words, companies should aim to re-use what they already know, rather than relearning what is already known elsewhere in the organization. Referring to Figure 1, this can help the implementation process in up to three ways: 1. maximize the initial performance level, thereby reducing the gap between it and the desired performance level, and hence the number and/or `performance magnitude' of adaptations required in order to reach the desired performance level; 2. reduce the number of adaptations and experiments required to select a suitable solution to a problem requiring adaptation; 3. reduce the desired final performance level, either by not starting with such high expectations or, once the implementation process has started, by using previous experience to recognize that the target performance level was unrealistic.

Improving the initial performance level of the new technology By discovering as much as possible about how current processes work, and about how it is anticipated a new technology will fit into the processes, it may be possible to bring about improvements in the initial performance level by careful design. Knowledge of particular technologies and/ or processes may be held within an organization, but because the holder is not within the core implementation team the knowledge is not retrieved and put to good use. As a result, when companies implement new technologies they frequently `re-invent the wheel'. Even after a problem has been solved several times during different projects, a problem may be solved yet again simply because those involved never communicate about the problems that they encountered. This was exemplified in projects at a major chemical company. At one site there was a need to analyse for the cyanide ion in the presence of several other chemicals which interfered with many of the potential tests. A chance meeting with another chemist from the same organization at an external conference revealed that the laboratories at the second site had spent



some time wrestling with the same problem and had come up with a solution, identical to the one discovered independently at the first site, at about the same time that the first site started their hunt. This analysis step was key to getting a potential new product to the trial manufacture and a number of weeks would have been saved had the analysis been available earlier. This organization would have benefited from a means of storing, retrieving and communicating knowledge about previous implementation projects.

Reducing the time to carry out adaptations Whilst maximizing the initial performance of the technology might be considered to be putting into practice what has already been learnt, making adaptations is very much about learning. Minimizing the time required to make adaptations can be achieved either by carrying out the adaptations faster or cycling through fewer potential adaptations until an adaptation that works is found. This requires the organization to either be capable of very fast planning or to have strong improvizational skills (Moorman and Miner 1998). Many of the adaptations that are carried out can reasonably be considered to be improvizations because they are not thoroughly planned before being put into place. Moorman and Miner have suggested that organizational memory plays an important part in the success of improvization. Procedural memory (how things are done, tacit knowledge) and declarative memory (memory of facts, events and propositions) are both important in increasing the speed, coherence and novelty of improvizations. Where novelty is not required, and frequently it is not in process technology implementation projects, procedural memory is key in implementation. In the rock climbing example given earlier, an important part of tacit knowledge is knowing not only climbing techniques in general but also which techniques are potentially useful in a particular situation. Similarly, when improvizing solutions to problems encountered in implementation, a knowledge of what has worked in similar situations in the past can help to reduce the time required. Having someone who has already `learnt by doing' to stand alongside someone who is learning a new skill is a mechanism for knowledge transfer which is frequently overlooked during the implementation of new technology. In one of the implementation projects that we observed, the pre-investment process required operators to remove bottles from lines and apply labels using either (i) machines which required the operator to be skilled in


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aligning things by eye or (ii) no machine at all and applying the labels by hand. Similarly, bottles were placed onto the line one-by-one. After investment, pallets of empty bottles were loaded onto the line, individual bottles were automatically fed onto the line and all labelling was done by a machine with no operator intervention. The setting up of the line became key: it was no longer possible for a slight error in machine adjustment to be compensated for by the operators. In addition, the operators became responsible for setting up the lines themselves, rather than specialist line-setters being used. Although there were operators in the factory who had lots of experience in working with `low intervention' lines, none were involved in the implementation project. Instead, only operators from the old line, used to actually handling the bottles, were used. They underwent training before the line was installed, and had some further opportunity to quiz the equipment makers' representatives during commissioning, but were very much on their own after that. The time taken to get the new line running at the required efficiency was a great deal longer than expected, and the first year after installation was only saved from being a financial disappointment because of a higher than expected demand for the products bottled on the new line. In this case the company seems to have overlooked a mechanism for knowledge transfer, using operators experienced in using technology similar or identical to the new equipment who were readily available in their own organization. In the terms of the fundamental implementation equation given in section 1 the organization failed to maximize their `local practical knowledge', if they used it at all. The ability to call on people's memory of what has previously been tried, both successfully and unsuccessfully, in reconfiguring technologies and processes can also play a part in reducing the time and the number of adaptations required. Where it is possible to call upon knowledge of learning by trying, the ability to improvize successfully by drawing analogies between past problems and the current performance gap can help reduce or eliminate unsuccessful attempts and focus efforts on adaptations which have a greater chance of success. Using the knowledge of those who have previously learnt can help to reduce the time taken to move along the learning curve. Knowing what has previously been tried and succeeded, or failed, can help to eliminate unsuccessful adaptations. Both have the potential to speed up and improve the success

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Corporate repositories of knowledge

of implementation. Some corporate repository of knowledge is essential if this is to work. The UK Treasury PFI Taskforce in one example of such a repository.

Changing the final desired performance level Improving the initial performance level and reducing the number of adaptations are obviously positive moves in an implementation project. However, changing the final desired performance level to reduce implementation time or effort, whilst not uncommon during implementation projects, can rarely be regarded as a good thing. If it is done before the implementation starts, or early in the project, it can at least save a lot of time and effort, but the effect on morale may be somewhat damaging. A change in the final performance level may come about because the process becomes less important within the business and the final performance level, as initially set, is now deemed to be excessively high, or because it may be politically expedient to curtail an increasingly expensive project. In one packaging organization a technology investment was justified in terms of the cost savings that could be made if thirteen fewer people were employed in the process. In the end, six of the thirteen had to be used on a part-time basis because the new process was less flexible and some of the packaging produced had to be reconfigured by hand to enable it to be used in one application. The company readjusted its expectations for the new process and regarded the investment as a success. Of course it may be that the final performance levels are so inadequately defined that almost any outcome is claimed as a success. This reluctance to set explicit challenging targets from the outset can be seen to be a risk avoidance strategy at best and an abrogation of their duty by senior mangers at worst. It is certainly difficult to see how any improvement in performance can be realistically assessed if the target is not clear. The interaction of adaptations and learning has pointed to the desirability of reusing knowledge when implementing process technologies. The three mechanisms to assist in improved performance all rely on trying to reduce the level of relearning and increasing the reuse of available knowledge.

Knowledge and the Process View of the Organization The examples discussed here have shown that there are at least two major challenges for

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`knowledge management' during implementation of process technologies: 1. how to discover and use the knowledge relevant to the implementation process which currently exists within the organization; and 2. how to ensure that what is learned during the implementation process is retained within the organization so that it can be recalled during future projects. Our research takes a process view of an organization, where the process is something with identifiable inputs and outputs. The literature of Business Process Re-engineering has raised the profile of the process view of businesses and this view has the advantage, when implementing new technologies, of showing not only the individual technologies and the activities in which they are place, but also other interactions that should be considered in the search for knowledge. Let us start with a quick overview of the general role of information and knowledge within a process view of the company. Figure 2 is drawn to show several organizations, several layers within our organization, several kinds of knowledge, and several repositories of knowledge. We will come back to look at these separately, but consider the entire picture first of all. We are organization B in the picture. We are receiving inputs, perhaps a raw material, from Organization A, and we are generating an output, perhaps a product or partially completed product, which we ship to organization C. In order to do this properly, we need knowledge, which we will call Level 4 knowledge, which describes the role of our business in the commercial world at large. It is very important that the top management team, probably including the purchasing and marketing managers, should have this knowledge at their fingertips, and they are the natural repositories of Level 4 knowledge. The business may be looked upon as a series of processes, each of which moves the product closer to completion. For example, there may be order taking, production and despatch processes. Some processes, such as invoicing, may not be part of direct production but exist in parallel. They are, nonethe-less, important. Knowledge should exist within the firm about how each of these processes affects each of the others, and it would be normal for middle managers to be the repositories of such Level 3 knowledge. For reasons of corporate security, however, it is also advisable for at least some of this information to be written down, not necess-



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Figure 2. The Process View of the Organization and Associated Knowledge arily in formal manuals, but somewhere accessible. At the lowest level in the organization are individual activities. In Figure 2, Process 1 is made up of activities A, B and C. In this case, each activity carries out a small part of the transformation process of raw materials into product. The interactions of these activities can be thought of as Level 2 of the organization. Level 2 knowledge will generally reside with junior managers and individual oper-


ators. Level 1 refers to knowledge about individual activities and may reside with operators. Levels 1 and 2 represent the `component knowledge' of Matusik and Hill (1998). Component knowledge can be held both collectively and individually, and can be both tacit and explicit. Knowledge associated with Level 3 is the àrchitectural knowledge' of Matusik and Hill, relating to organization-wide routines for co-ordinating the components of the

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organization. Architectural knowledge, in an organization of any size, will be held collectively and will, again, be both tacit and explicit. Level 4 knowledge moves beyond the organization and understands the way in which the organization interacts with the world. When trying to identify and harness the useful knowledge already present in the organization the implementation team needs to be mindful of not only where the knowledge may reside, but also in what form it is held. Table 1 outlines knowledge types associated with each process level, and also gives some suggestions of who may possess knowledge associated with that level, or where such knowledge may be recorded. The table is designed to assist project managers by drawing attention to the types of knowledge available and suggesting potential repositories for that knowledge. In drawing up the table we have taken account of the fact that few companies make an effort to store, formally, what is learnt during implementation projects and routine running of machinery. Individuals in the implementation project team will personally possess relevant knowledge, and this ìnternal' knowledge is usually readily accessible as long as it is not too political. Knowledge that resides outside the

team requires more work to access. Some of this knowledge may be available through the directories of individual team members (Anand, Manz and Glick 1998): even though the knowledge is not known to team members, someone within the group does know where to find it. For example, in the case of knowledge required to improve the initial performance level of a process after technology implementation, appropriate knowledge is likely to be associated in particular with Levels 1 and 2 of the process-view organization. Sources of knowledge could include maps of the existing process, simulation of the anticipated process, people who have used or built the technology (engineers and technicians who may work for suppliers and competitors as well as within the organization), equipment manuals, people who know and understand the existing procedures which support the process (supervisors and middle managers as well as operators) and process manuals. Whilst some of this knowledge may be formally recorded, a large proportion is likely to exist only in people's memories. Level 3 knowledge, of how the process interacts with other surrounding processes should also not be discounted. People may possess more than one level of knowledge, although different levels may be

Table 1. Process Levels and the Location of Knowledge

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Level

Associated Knowledge

Possible `Location'

1. Activity

How equipment work Idiosyncrasies of machines Interaction of one activity with next activity

2. Whole Process

How all process activities interact Impact of changes in one activity on all others in process

3. Inter-process

How changes in one process will affect other processes

4. Organization ± world

How the organization's processes interact with the world

Individual operators Supervisors Technicians Engineers/Machine Setters Equipment suppliers Equipment manuals Standard operating procedures Supervisors Middle management Engineers Standard operating procedures Supervisors Middle managers Senior engineers Standard operating procedures Senior managers Sales and Marketing teams Customers

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concentrated in layers that reflect the organizational hierarchy. In a sole trader organization, with a small number of business processes, one person should possess all four levels of knowledge whereas in a major organization with many different processes it is highly unlikely that senior executives will possess detailed knowledge about individual component activities of all, or even a few, processes. In order to optimize the use of existing knowledge, the manager of an implementation project needs to work out which knowledge is relevant to a project (what it is desirable to know) and to discover if, and where, that knowledge resides in the organization. In most organizations the majority of relevant knowledge about the individual activities in a process (Level 1 knowledge) is likely to reside with operators and technical staff. Much of the Level 1 knowledge is incorporated in Fincham et al.'s informal, tacit and contingent knowledge categories (1994) and includes manuals and guidebooks, `rules of thumb', familiarity with idiosyncrasies of machines and systems and is based on practical experience. It is this knowledge that is most likely to be undervalued by the organization when implementing new technologies, and this is seen in the example given above where operators who `knew' about running various automatic machines were not included in the implementation process. The knowledge that they held and could have transmitted to their colleagues was not held to be important. Level 2 knowledge is more likely to reside with middle managers who, whilst not possessing detailed knowledge of every activity within the process, will know a lot about the process and how the different parts hang together. This can be important when considering the impact of potential adaptations in one area of the process on other areas of the same process. For example, if an operator decides to increase production by ramping up a machine in activity B, what impact will this have on activity C? Similarly Level 3 knowledge will be of value in assessing how changes in Process 2 will impact Processes 1 and 3, with which it also interacts. Knowledge at all of these levels is likely to be important in the implementation process, but Level 1 knowledge in particular is often regarded as trivial and is overlooked or is discounted by senior managers who do not understand the technical detail. An estimate of the worth of the knowledge to the project versus the cost of its acquisition will be needed in order to determine whether or not it is worth collecting. For example, in the example of the bottling line operators discussed earlier, it must be recognized that


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there is an opportunity cost associated with moving experienced operators. The cost can be felt at an organizational level ± `Ìs it better to take Fred off what he is doing to work on the new project?'' ± or at an individual level ± ``Do I (Fred) want to work on the project to help those involved? Is there enough in it for me?''. Equally, the quest for knowledge from other sources must make a balance between the risk of inadvertent transfer of competitive knowledge and the need to know information held by external sources.

Knowledge storage and retrieval The above points to the need for a systematic approach to retrieving and using relevant knowledge during the implementation process. A careful search for what is already known within the organization has the potential to save a lot of time and effort. In order to assist in this process, it would seem sensible to make what is learnt during the implementation project accessible to future implementors. Often existing processes embody `what works', but do not show the many modifications that were tried and found not to provide a satisfactory solution. There are many scientists who claim that the most useful dissemination journal, which of course no one will ever publish, would be `The Journal of Failed Experiments'. Whilst major successes are frequently well documented, part success and downright failure are usually forgotten, together with the reasons for the lack of success. However, knowing what has worked in the past and what has not can play a major part in the success of an implementation project. Yet many organizations' only formal record of an implementation project is a financial analysis aimed at discovering whether or not the investment met the financial targets set. Sometimes, when organizations become really sophisticated, technical reports indicating performance against project-based targets may also be produced. Few companies yet go to the trouble shown by the design and construction company described by Coombs and Hull (1998) who employed people specifically to extract `project experience'. Yet, without some effort to formally record what has happened, much of the organizational learning risks being lost as people move around jobs. Explicit knowledge can be recorded fairly easily, tacit knowledge is hard to record ± making it explicit can result in significant loss of content, but explicit knowledge is at least readily recordable using a number of different media.

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Cultural issues involved

Even when knowledge is recorded it does not constitute a `memory' unless it is recalled. Any recorded knowledge therefore has to be catalogued in a way which makes it possible for future potential users to retrieve it. One major chemical organization issued laboratory notebooks to its staff for use in projects. At the end of a project these books were returned to the library and stored. However, because the only detail recorded, in any search system, about the project was its often obscure title, a great deal of knowledge was lost to future potential users. The only people who would know where to look were those involved in the project: in a company with a high staff mobility this meant that a great deal of work was repeated. A cataloguing system which captured keywords from the projects and èxpert' names would have given a starting point for future workers in related areas. At the end of implementation projects, detailed reports describing what went wrong as well as right, the names of èxperts' utilized on the project and other relevant details, with the contents catalogued in a sensible way, would start to build up a knowledge-base which could be accessed by future implementation teams. Experts would not only be the project managers and engineers, but also those with tacit skills who could sit alongside operators as they learnt. In this way, Level 1 knowledge, although not always formally captured, could be found.

Conclusion This article has looked at how implementation involves adaptation, and how these adaptations lead to learning. Some adaptations lead to improvements in performance, some make no difference, and others result in a deterioration. The chances of successful implementation can be increased if efforts are made to improve the initial performance level of a process after installation of a technology, and if the number of adaptations can be minimized. The reuse of knowledge can play an important part in these factors. Too often, companies relearn what is already known in the organization, increasing both the time taken to get to full production and the cost of putting in a new technology. Taking a process view of the organization it is possible to identify sources of knowledge that managers can utilize in the implementation process. Some will be useful in the design phase and other sources of knowledge can be brought in to assist in training and running the new technology during the implementation process. The value of those with tacit

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knowledge is often overlooked, despite the fact that they potentially have a great deal to contribute in training users of the new technology. Knowledge management is becoming a major area of interest within the management literature: a 1998 survey by the Boston-based Delphi Group suggested that the implementation of knowledge management structures is expanding rapidly, with many respondents describing knowledge management as a `major new initiative for staying competitive' (Shipside 1998). Shipside also suggests that knowledge management might also be a business process, rather than a `technology'. This agrees with the view taken here, that knowledge management is not some remote function but part of the responsibility of project managers and workers. The issue is certainly not simply one of installing the right `knowledge technology'. There are also cultural issues to consider. One of the authors can recall working with a group of senior managers from a major corporation looking at the simple `do, review and do again' model of experiential learning. The managers refused to review, and pointed to their success in meeting all their targets, despite some very close calls. They were keen to get on with the next challenge and could see little point in picking over the entrails of the last one. They would not accept that throwing resources at a problem was wasteful, or that there could be a `better way'. `High blame' cultures are also likely to encounter problems learning from past mistakes: in such organizations being too honest can be very bad for one's health. Although what has been suggested may seem like common sense our observations, and the general history of technology management, point to numerous examples of the failure to learn from experience when implementing process technologies within organizations. The approach advocated here needs a willingness to learn and share that may require a change in attitude of managers. We do not underestimate the difficulty of doing this but, as competitiveness and accountability to shareholders increases, the `relearning organization' could find its failure to improve performance leading it into serious difficulties.

References Anand, V., Manz, C.C. and Glick, W.H. (1998) An organizational memory approach to information management. Academy of Management Review, 23, 796±809.



Arrow, K.J. (1966) The Economic Implications of Learning by Doing. Review of Economic Studies, XXIX 80, 155±73. Bessant, J. (1985) The integration barrier; problems in the implementation of advanced manufacturing technology. Robotica, 3, 97±103. Coombs, R. and Hull, R. (1998) 'Knowledge management practices' and path-dependency in innovation. Research Policy, 27, 237±53. Davenport, T.H. and Prusak, L. (1998) Working Knowledge: How organizations manage what they know. Harvard Business School Press, Boston, Mass. Fincham, R., Fleck, J., Proctor, R., Scarbrough, H., Tierney, M. and Williams, R. (1994) Expertise and Innovation: Information Technology Strategies in the Financial Services Sector. Clarendon Press, Oxford. Fleck, J. (1994) Learning by trying: the implementation of configurational technology. Research Policy, 23, 637±52. Huber, G.P. (1996) Organizational learning: a guide for executives in technology-critical organizations. International Journal of Technology Management, 11, 821±3. Leonard-Barton, D. (1988) Implementation as Mutual Adaptation of Technology and Organization. Research Policy, 17, 251±67. Matusik, S. and Hill, C.W.L. (1998) The utilization of contingent work, knowledge creation and competitive advantage. Academy of Management Review, 23, 680±97. Moorman, C. and Miner, A.S. (1998) Organizational improvization and organizational memory. Academy of Management Review, 23, 698±723. Nonaka, I., Takeuchi, H. and Umemoto, K. (1996) A theory of organizational knowledge creation. International Journal of Technology Management, 11, 833±45.


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Rickards, T. (1996) The Management of Innovation: Recasting the Role of Creativity. European. Journal of Work and Organizational Psychology, 5, 13±27. Rosenberg N. (1982) Inside the Black Box: Technology and Economics. Cambridge University Press, Cambridge. Senker, P. (1983) Some problems in implementing computer-aided engineering ± a general review. Computer-Aided Engineering Journal, 25±31. Shipside, S. (1998) Keepers of Knowledge. Financial Times Mastering Management Review, Issue 15, August, 8±9. Strassmann, P.A. (1990) The Business Value of Computers: An Executive's Guide. Information Economics Press, New Canaan, Connecticut. Voss, C.A. (1988) Implementation. A key issue in manufacturing technology: the need for a field of study. Research Policy, 17, 55±63.

Alison Smart is a Research Fellow in the Department of Business Studies at the University of Edinburgh. Andrew M. McCosh is a University Fellow and Professor of Finance in the Department of Business Studies at the University of Edinburgh. Peter Barrar is Professor of Operations Management at Manchester Business School. Ashley D. Lloyd is a Lecturer in Information Management in the Department of Business Studies at the University of Edinburgh.

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Design As Knowledge Integration Capability Ysanne Carlisle and Alison Dean The design literature offers two design process models as alternatives for acquiring and using knowledge in design. The best established is the rational problem solving model which calls for technical recommendations. The reflective practitioner model is appropriate to softer, controversial issues that call for ideological prescriptions. We view these models as complementary, not alternative, strategies which can assist in understanding knowledge integration in the design process. This paper offers a more holistic perspective upon design than that commonly found in the Design Studies literature. Our conceptualisation of design as knowledge integration capability suggests that effective design decision making integrates knowledge contributions and reconciles disparate values to a common purpose. The quality of design decision making increasingly depends on the effective integration of knowledge from a range of sources. This is especially true in the knowledge intensive sectors which we have studied. We offer illustrations from biotechnology and note that technical knowledge inputs can not alone ensure a successful outcome. This has implications for the management and practice of design in multidisciplinary project teams.

Introduction

I

Oversights are costly

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t has always been important for designers to acquire and process information (Oakley, 1990; Cooper and Press, 1995) and to be informed by an understanding of the firm's competitive and market environment (Hollins and Pugh, 1991). However, as products, processes and services have become more complex and knowledge intensive, the primary focus for successful design has also needed to progress. Lorenz (1986), Gorb and Dumas (1987), and Dumas (1994), argue that companies must incorporate a wider range of knowledge contributions into design decisions than was previously common. These writers prompt us to consider the vast array of technical knowledge and tacit know-how in the context of an organisation which can have a bearing upon design success. A key lesson to be drawn from their work is that organisations typically do not make full use of their knowledge resources in the design process and that oversights can subsequently prove costly. For example, line managers can possess crucial know-how concerning the manufacture of a product or the provision of a service which technical specialists in project teams can neglect. We take one step further

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than this in suggesting that firms need to be alert to the risks of neglecting both technical and non technical sources of knowledge in reaching design decisions. Grant (1996) has proposed that knowledge integration capability is key to organisational survival and prosperity in dynamic environments. We suggest that this capability is especially crucial to the design process. Our own recent work in the biotechnology, multimedia and banking sectors highlights the way in which many potentially exciting new developments are founded upon the successful integration of technical knowledge inputs from different fields. This is the process which Nonaka (1994) terms `combination' in the context of his spiral model of knowledge creation. The integration of knowledge from different fields in design depends upon a marriage of differing technical perspectives in design decision making. But this can not readily be achieved without the development of common perspectives on design, which requires a reconciliation of the differing priorities of values which specialists with different backgrounds and experiences hold. It is clearly important for companies concerned with new knowledge intensive products to develop a capability for knowledge # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

DESIGN AS KNOWLEDGE INTEGRATION CAPABILITY

integration in design, but we suggest that this capability has wider significance. It can potentially foster streams of innovations in companies striving to meet customer requirements in turbulent and changing markets where product life cycles are shortening. Some events are accidental, others are designed. Distinctions drawn in the strategy field between planned and emergent strategy (Mintzberg and Waters, 1985) reflect this fact. A useful discovery is a significant accidental event for an organisation; an invention, a designed event. Original discoveries, like original inventions, have often in the past created initial sources of competitive advantage, but in many organisations they are rare compared with the continuous innovation, incorporation, and adaptation of existing designs effected by people with common perspectives and objectives. This kind of continuous innovation has become a primary means of sustaining competitive advantage in product, process and service design activities in many firms. Continuous improvement leads to product, process and service innovations, which are largely path dependent. Organisations sustain their competitive advantages in design through continuous knowledge accumulation, retention, and application. In doing so they usually build upon existing technological knowledge taking design decisions in the light of established company values. Product and service re-designs and process retrofits may provide examples of path dependent continuous improvement exercises of this type. However, as LeonardBarton (1992) notes, this manner of building upon existing strengths can prove to be a double-edged sword. It may sustain excellence in established fields, but hamper the development of new ones. Different products and services and different skills and competencies may be required to sustain competitiveness in changed future markets. Striving for excellence in established areas of strength can lead companies to neglect or undervalue perspectives which are seemingly incompatible with the assumptions upon which those strengths are based. In this manner some established firms can be found to have an inbuilt cultural disposition for precluding the possibility of initial incommensurability proving to be the source of creativity. Many of the new products and processes that are being developed in biotechnology are combining technological knowledges which were formerly considered to be discrete. This process of combining knowledge from different disciplines invariably leads to developments which would not be compatible with


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established assumptions about best ways to proceed within any one. Biotechnology companies therefore confront the problems associated with the different basic assumptions and values of the separate specialists in their multidisciplinary teams. Their experiences demonstrate that when multiple perspectives are brought to bear on a problem they may be incommensurable, but they need not be incompatible in the context of given projects. In the drug industry, organic chemists, medical specialists and biologists possess different technical knowledges and tend to prioritise different values on account of their different disciplines and professional identities. In the biotechnology sector, these different perspectives do not preclude the emergence of common goals, purposes and standards for evaluating contributions. We believe that the design capability exhibited by such firms is of wider interest. It is a capability for integrating different types of knowledge and reconciling different values to a common perspective on design. This is the kind of capability which could conceivably sustain the process of discovery and innovation elsewhere as a more than infrequent event. Biotechnology is only one example of an industrial sector in which seemingly incommensurable bodies of knowledge are integrated in design. For example, the principles of electrical and mechanical engineering are incommensurable. One cannot assimilate the other, but their applications are compatible in the design and performance of the internal combustion engine. The study of knowledge integration in design therefore has important implications for development of design capability. Design problems are non-routine and complex and, despite their resemblance to past problems, are necessarily time and context specific. Requirements for success have changed as recent changes in the wider economy have impacted upon all types of organisation. In many industries design decisions take place in the context of rapid technological change, more demanding customers and increasingly fierce global competition. The processes through which design strategies are formulated, implemented and realised have become more concerned with the creative management and integration of intangible organisational assets. We propose that: One: Two:

Path dependent innovations

Ideology and technology are two key integrational mechanisms in design. Knowledge is integrated in the interplay between ideological and technological reasoning.

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Three: The rational problem solving and reflective practitioner models are both integral to effective complex design decision making. They are not alternatives.

Ideology and Technology

Importance of design

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Before developing our broader design concept and its implications for knowledge integration in design, we briefly elucidate our understanding of the terms ideology and technology and how they can be considered integrational. We understand ideological convictions to be formative of mental attitudes which lend themselves to commitments entailing obligation on the adherents' part to perform some distinctive form of self-enactment. Such self-enactment discloses a person's identity as a member of a group of similarly disposed people. They may have a common work motivation; or they may have a common negative attitude towards futures which differ from that most likely to bring selffulfillment. Other writers have noted the importance of the designer's self-identity as an influencing factor in design (Fisher, 1997). Ideological reasoning expresses this identity. Ideological conviction may be contrasted with technological know-how which is the acquisition of useful information about how inanimate energy systems can be designed in accordance with production engineering requirements. The ethical character of ideological reasoning distinguishes it from instrumental technological reasoning. This precludes the possibility that the rationale of an ideological commitment is instrumental in the same sense that a technical recommendation is purely instrumental in an artefact's design and production. However, it does not preclude the influence of ideological values on both. An artefact's value in use or exchange is primarily derived from the convenience it contributes to human life. In contrast, an ideology's value lies in the ethical/artistic meaning it gives to that life experience. Ideological and technological understandings are practical in that both call for premeditated organisation and design to be effective. Ideological prescriptions are concerned with what is desirable and technological recommendations with what is possible. Thus designing products, services and organisations, is an activity which integrates the rationale of ideological prescription and the rationality of technological recommendation. Effective design must be capable of bringing rationale

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and rationality into material form as artifice and artefact. The members of design project teams bring specialised technological understandings to the design situation. These understandings enable them to conceptualise possibilities. However, in the context of their working lives, they also gain training and experience. As a result they acquire ideological values which constitute their ethical perceptions of what is to be considered desirable. The relevance of ideology and technology to design is therefore direct, not contingent.

Four Senses Of Design Design has increasingly been recognised as important in the creation and maintenance of global economic success (Stewart, 1987; Gorb and Schneider, 1988; Roy and Potter, 1990; Walsh et al., 1992; D.T.I., 1994; 1995; 1996). It contributes to UK economic competitiveness and is especially important in industrial organisations which draw on technological knowledge and expertise (Sentance and Clark, 1997). We propose an holistic perspective on design as a capability for integrating a range of technological understandings into the creation of competitively successful products and services. The design process's main thrust is the `synthesis' of different knowledge types (Owen, 1998) but its outcome must also be reconciled with dominant ideological values. We argue that an effective design process integrates ideological and technological reasoning which are manifest in the design process outcomes. A review of Design Council publications, the Design Management Journal, Design Studies, Creativity and Innovation Management and the Journal of Product Innovation Management, reveals four ways of defining design: 1. 2. 3. 4.

As an outcome; As a profession; As a process; As a situation or context experienced by participants.

Considerations of design as an outcome focus on quality, functionality, aesthetics and, crucially, the incorporation of an understanding of consumers, markets and competitive environments (Hollins and Pugh, 1991). In this sense of design, `good' design has always been important in commercially successful product, process and service development. Today, it has also become increasingly important to reconcile design outcomes with the ideological values of powerful consumer



groups. The response of German consumers to Shell's petrol in the light of its original decision to dump the defunct Brent Spar oil platform at sea, illustrates the dangers of neglecting to reconcile key decisions with the values of consumers in the market place. In some fields, such as biotechnology, ethical issues have a higher profile than in others. The second sense of design, as a profession, highlights the variety of design professionals' problem solving, technical and artistic skills (Design Council 1988; McAlhone, 1987) which contribute to the success of design as an outcome. Designers are knowledge workers and in many industries, the range of skills and knowledge required to effect successful design outcomes is increasing. Kodama (1995) has emphasised that many of today's complex products are based upon a fusion of technologies. Their design requires multidisciplinary skills and knowledge inputs, but specialists from different backgrounds bring to the design situation different sets of assumptions about the best ways to proceed and can prioritise different values in considering what is desirable. The third sense of design, as a process to be managed, relates design to organisation. Two contrasting models of organisational processes, both prevalent in design studies, may be identified. The first, `rational problem solving', approach derives from Simon (1962). It has been the dominant design studies paradigm. Simon's (1992) applications of rational problem solving theory are centrally linked to design issues and are well known in design studies. The second, social constructivist, approach (Berger and Luckman, 1966) was popularised by Schon's (1983) description of design as a process of `reflection in action'. Schon's model has increasingly commanded attention in the recent design studies literature. Dorst and Dijkhuis (1995: 263) present

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these two paradigms for design process study in Table 1. These two models need not be considered as alternatives. We argue that they are both integral to effective design. The `rational problem solving' model characterises the technological reasoning process in which technical recommendations of what is possible are made. In the `reflection in action' model the rationale of ideological prescription has a formative place in the construction of reality and in the reflective conversation through which the design process is conducted. It allows for reflection on what is, and is not, desirable, thereby providing a means of appreciating ideological reasoning's role in design. In design, as in other complex decision-making arenas, conclusions about what is desirable and what is possible must be reconciled in an eventual decision. This leads to the fourth sense of design, as a situation experienced by those involved (Dorst and Dijkhuis, 1995). It is in the design situation that different knowledge claims and ideological prescriptions are made and ideological and technological reasonings integrated in the eventual outcome. Focusing on design situation experiences directs attention to the perceptions of requirements and possibilities, the framing of issues, and how design decisions and outcomes may be constrained by path dependent forces. These forces guide the design process in which decisions are reached about what is possible and desirable, thereby integrating the technological reasoning of rational problem solving with the ideological reasoning of reflection in action. Good individual designers may intuitively harmonize the ideological and technological domains in reaching design decisions. But in multidisciplinary teams, this can mean surfacing some of the underlying, unchallenged, assumptions which lead

A fusion of technologies

Table 1. Two Paradigms of Design

Designer Design Problem Design Process Design Knowledge Model


Rational Problem Solving

Reflection In Action

Information Processor in an objective reality Ill-defined and unstructured Rational search process Knowledge of design procedures and scientific laws

Person constructing his or her reality Essentially unique A reflective conversation Artistry of design/ when to apply which procedure or piece of knowledge Art/social sciences

Optimization theory, the natural sciences

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different types of specialist intuitively to harmonize these two domains in different ways. Different perspectives need not be incommensurable if common understandings of purposes can be reached. This can only be achieved in a milieu in which different types of contribution are seen to be equally valued.

Design As Knowledge Integration Capability The nature of the design situation has changed over time, reflecting the modern competitive environment's changing demands. Traditionally, industrial design was seen as a support activity, not as an integral one. Industrial designers supported engineers' and marketers' technical efforts by giving functional products a style, simplicity and aesthetic appeal which could make them rise above the competition (Petroski, 1993). This design perspective was stated explicitly by Loewy (1951) who established a reputation as a top designer in 1920s USA. Design came to be seen as a market- and customer/useroriented add-on to enhance products which depended upon engineers' and technical specialists' skills for their development. Designers were middlemen who provided the link between the engineers and technical specialists and the customers. Design is no longer a customer-focused optional extra. The designer has a key integrational role in new product development (Fujimoto, 1991). In modern design studies literature there is a growing awareness of the multifaceted nature of modern design problems. Success often requires a synthesis of different design perspectives (Thakara, 1997) which, combined, hold the key to a commercially successful outcome. It has long been accepted that `the more complex a project, the more nearly inevitable that it be a group activity' (Caplan, 1982: 94) and that `design decisions are constantly being made everywhere' (Sparke, 1986: xxiii). However, in the 1970s' and early 1980s' literature it was frequently assumed that the professional designer's potential contribution as a core resource was neglected in many firms. In this period writers like White (1973), Oakley (1984) and Lorenz (1986) did much to raise the profile of the design professional, by emphasising that professional design skills and knowledge were as important as those of engineers and marketers; that design could offer more than a consumer-oriented add-on. They argued that companies which regarded design as peripheral neglected a potential source of competitive advantage.

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From the mid-1980s the importance of design skills was taken more for granted. Emphasis shifted from how best to incorporate the professional designer's specialised skills (McAhlone, 1987) into new product development procedures, to how to use those skills more effectively within a broader range of inputs. These include the contributions of non-design technical specialists and operational managers (Gorb and Dumas, 1987; Dumas and Mintzberg, 1991; Bruce and Morris, 1994). Modern designers are often seen as catalysts in identifying design issues and developing design solutions which draw on a range of technical specialists' expertise and creativity. This change in emphasis partly reflects the increasing complexity of many industries' products and services. These are designed in more volatile competitive environments in which decision-making contexts are becoming more knowledge intensive. Eckert and Stacey (1998) argue that managers need a better understanding of design and recent research (Design Council, 1997) has specifically highlighted the need to develop a better understanding of how to manage diverse knowledge resources effectively in the design process. Deployed in the context of new product, process or service design, this capability may be a source of core competence in the firm. Our holistic definition of design as knowledge integration extends the perspective offered by Gorb and Dumas (1987), Dumas and Mintzberg (1991), and others cited above. Various researchers have established the requirement for the design process to integrate different perspectives. Integration is an important focus in the current literature (Buijs, 1998). Creatively integrating knowledge is a complex process (Tan, 1998). Gorb and Dumas (1987) and Dumas and Mintzberg (1991) stress that the frequently unacknowledged `silent' contributions of middle managers can be as important as the high profile `seen' contributions of design professionals and project teams. Good ideas can come from unexpected sources, but they can fail at the point of implementation if crucial perspectives, on manufacturing or marketing for instance, are not included. However, as we have already pointed out, integrating and reconciling the design participants' different technical contributions is but one side of the coin. The other is the need to reconcile the range of ideological prescriptions of those different participants. Design's synthetic thrust (Owen, 1998) is directed at the integration and reconciliation of conclusions arising from different modes of technological and



ideological reasoning. Success depends in part upon a willingness to confront and challenge assumptions held at societal, group and individual levels. This point can be illustrated in the context of case research in a small biotechnology company (McNamara and Carlisle, 1998). New developments depend upon individuals and teams generating good ideas, but individuals and teams with good ideas do not always possess the knowledge to develop them effectively. In the words of the CEO: Ideas merchants in a team need to be able to access the human data bases. Ideas merchants may not be in possession of all the information, but the human data bases, some of whom rarely have ideas, are a vital part of the process. Building effective working links between these two types of people involves giving explicit recognition to the equal importance of the contributions of both, but this confronts a tendency in western cultures generally, implicitly to value the contributions of ìdeas merchants' over `human data bases'. At the group level, any tendency for individuals to defer to more experienced and senior people has to be challenged. In this biotechnology company, people were explicit about the fact that the hierarchy was `suspended' while teams were `doing science' when working on projects. Finally, specialists from different disciplines do not necessarily share assumptions about the most important things to do and the best ways to proceed. What is required here is a clear agreed purpose and standard procedure against which contributions from different perspectives can be pragmatically evaluated. These may be quite broad. In the biotechnology company already cited the primary purpose towards which efforts were directed was `to get developments through to the bedside.' In another (McNamara, Baden-Fuller and Howell, 1998) people were motivated `to improve human health' which meant that developments had to be potentially commercially viable. At the analytical level of the individual designer, the integrational properties of ideological reasoning are more readily appreciated in the context of the `reflective practitioner' model and those of technological reasoning in that of the `rational problemsolving' model. In considering the organisation of knowledge in design, Muller and Pasman (1996) refer to the distinction between image and test information made by Korobkin (1976) ten years earlier. This distinction corresponds to the types of information used in ideological and technological modes of


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reasoning respectively. Both are required for effective design along with the contributions of both ideas merchants and human data bases. Professional designers offer a variety of different specialist technical design skills which can be applied to different design applications (The Design Council, 1988). The designers' specialised skills have been identified and categorised (McAlhone, 1987) and distinctions drawn between different generic skill types used to assess design requirements in different types of design problem (Shirley and Henn, 1988). Design problems and skills are amenable to categorisation, yet most writers agree with Muller and Pasman (1996) that design situations are unique. No homogenous sets of knowledge can be generally applied. Particular design problems are part of a ùniverse of one'. Participants draw upon pre-existing understandings and values, a connoisseurship developed from previous experiences, which they apply to new situations. To be effective, this involves a process of reflection in action which must be accessible in a project team context by being communicated to others. The literature notes that design situations, while unique, are amenable to the application of general rules. Schon highlighted this ambiguity by asking a number of questions about design judgements:

Design situations are unique

If practiced designers . . . treat each design situation as a unique ùniverse of one' how shall we explain design reasoning? Reasoning seems to require the use of general rules and . . . general rules never decide concrete cases. If we argue . . . that the premises of design reasoning consist in particular judgements . . . how shall we describe the bases of the judgements? If we treat design judgments as acts of perception in which we recognize that something is matched or mismatched to its environment . . . then match or mismatch by reference to what? (Schon, 1988: 181±2) Schon's questions can be answered using our framework for understanding knowledge integration as a function of the interplay between ideological and technological reasoning such as occurs in design. Ideological reasoning concerns desirability and deploys reflection in action to determine the match or mismatch. Technological reasoning concerns possibilities and deploys the general rules of rational problem solving. The case of Dolly the Sheep (Fransman, 1998) offers a clear illustration. The work of the Roslin Institute and its sister company PPL highlights technical possibilities. The techniques used to

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produce Dolly could be used in designing animals that are better suited to commercial and therapeutic purposes. However, when we consider the desirability of the range of possible designs and developments, ethical issues are unavoidable. Here ideological reasoning comes into play in reflection in action. At the societal level of analysis, ideology and technology can be viewed in Wittgenstein's (1974) terms as two of the principle language games which reveal the epistemological structures integrating knowledge in the creation of social reality. One could cite others, for example theology, but in this current era we suggest that these are less influential than ideology and technology in the design context. In considering organisational and design knowledge, ideology and technology are two of the most prominent knowledge integrating mechanisms. Understanding how ideology and technology operate at individual levels of analysis involves understanding them as `modes of reasoning'. Understanding their operation at societal, inter-organisational, organisational and group levels of analysis, involves understanding them as `language games' played out in particular situations. This involves understanding how ideological and technological language games are framed and played in practical situations such that of design. In that design outcomes integrate technological knowledge from a variety of disparate sources and accommodate a range of ideological prescriptions effecting the choice of blue print for an end result, design can be defined as knowledge integration capability.

The Design Situation Design is a social process. Some design situations rely upon participants from inside the firm. Others also depend upon inputs from outside. For example regulatory and ethical perspectives, along with those of collaborators, investors, and potential customers can all have a bearing upon future success. However, Schon's (1988) notion that different participants in the design process inhabit different worlds inevitably highlights the question of potential incommensurability. In the introduction we argued that the path dependent nature of organisational development trajectories normally serves to preclude the intrusion of incommensurable perspectives. True incommensurability implies that there are no standards or procedures which can be accepted to overcome obstacles to cooperation. In the previous section we saw

Prototyping cultures

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that a pluralism of technological perspectives need not prevent the acceptance of such standards. Seemingly incommensurable technological perspectives can co-exist. Compatible insights can be integrated into design, as the insights of electrical and mechanical engineering have been incorporated into the design of the internal combustion engine. Ideological incommensurability need not preclude technological cooperation in relation to a given project. Different reasons for participation need not intervene so long as at least one common objective can be agreed. For example, the Dneiper Dam was built in the early 1930s. The USA was fiercely anticommunist and the Dneiper was one of the projects in Stalin's first five year plan for the USSR. The project was owned, operated and directed by the Soviet state. The dam was nonetheless designed by the American Colonel Hugh Cooper and Ford, International Harvester and other American firms participated in its construction. Pfeffer (1993) has pointed out that competing perspectives are a necessary, but not a sufficient condition for incommensurability. Furthermore, ideological and technological perspectives may be incommensurable without being incompatible in the context of a given design project. In the design process conventions either exist or can be formulated during the early stages to frame the context in which cooperation can take place. Earlier we described how members of teams in a biotechnology company `suspended the hierarchy' for the purpose of `doing science' to develop a project. This is an example of such a convention. At the organisational level of analysis, the concept of organisational culture encompasses those conventions which frame how the language games of ideology and technology are typically played out. Schrage (1993) highlights how an organisation's ability to succeed in design and development depends largely on the company design and development culture. The questions a company does not ask are often as important as those it does. Schrage illustrates this by considering `prototyping cultures'. `Companies that focus their creativity and budgets on `looks-like' prototypes have wildly different priorities from firms that invest heavily in `works-like' prototyping' (Schrage, 1993: 59). When designers ask questions about the relationship the company attempts to create between product and customer, they are asking as much about culture as about technology or economics. The only answer to cultural questions is ideological. At the level of the individual specialists and professionals constituting the design



community, while some knowledge will be explicit, much will be tacit and context dependent. The acquisition of practical knowledge enables us to progress through a taxonomy of human skill levels such as that outlined by Dreyfuss and Dreyfuss (1986). Experience is formative of technical knowhow in specific areas of expertise and of beliefs about what ought to be. Even though an accountant, an engineer and a marketing executive may work in the same organisation and be socialised into the same company culture, the technical knowledge they possess and the assumptions and beliefs they hold as a result of being of those professions will lead each to emphasise different aspects of the design problem. These differences will affect their perceptions and evaluations of what is possible and desirable. They may, as Schon (1988) states inhabit different `design worlds'. Their range is the starting point in multidisciplinary design teams, but within the context of organisational conventions and a given objective, such differences can be accommodated. Within a design team familiarity with different idealised `types' can vary, even among those of the same profession, leading them to construe their tasks in different ways. Those with different professional backgrounds and experiences distinguish between situational `types' on a criterial basis. Different knowledge bases inform and guide their technological reasoning and different values are prioritised in their evaluations of the desirable. Nevertheless, in relation to any given problem, participants will reason ideologically and technologically from premises which can be understood from the conclusions they express. As Schon (1988) notes, `The logic by which [participants pass] from premises to conclusions [are] indistinguishable from the logic of everyday discourse.' The logic which guides the ideological and technological discourse of everyday interaction is framed by the parameters of convention operating at different analytical levels. In considering design, Muller and Pasman (1996) highlight those which operating at a societal level. Schrage (1993), in identifying two design culture types, exemplifies design situations bound by conventions operating at the organisational level. Schon (1988) highlights the importance of rules and types at the professional community level, stressing that individual differences in perception, judgement, and rule application occur, but they occur within certain parameters. The ideological and technological discourse within which the design process takes place is constrained by conven-


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tions of what is acceptable at a variety of different analytical levels. In the design situation group-specific conventions are formed in constructive interaction and dialogue. The design milieu allows the interplay between ideological and technological reasoning and the social construction of a shared design world relative to particular design problems. The design situation is thus one in which rational problem solving and reflective practitioner approaches are applied simultaneously.

Conclusion To date, the bulk of research in the knowledge management field has been theoretical, taking as its starting point the categorisation of knowledge types. Such categorisations may be relatively simple and straightforward dichotomies (e.g., Ryle, 1949; Polanyi, 1966). Alternatively they may be elaborations encompassing the different nuances of particular organisational contexts. Faulkner (1994), offers a typology of fifteen different types of knowledge deployed in innovation. We need to move beyond this if we are to identify and develop more generalised hypotheses about knowledge integration capability in design which will help managers to develop contexts to which promote it. We offer a perspective on the reasoning mechanisms and frameworks within which the knowledge of different participants in a knowledge intensive process is integrated and how interdependencies between different knowledges are accommodated. Both the rational problem solving and reflective practitioner approaches are required for these processes to operate effectively. Conventions operating at a variety of levels of analysis frame the context within which it is possible to achieve this. However, some conventions or assumptions, such as the cultural tendency to value ìdeas merchants' more than `human data bases' are unhelpful. When they constrain these dual processes from operating and interacting freely, we suggest they must be surfaced and questioned. Our paper does not provide a checklist of actions, but given that design decisions are essentially ùniverses of one' we would question the feasibility of such a project. We have attempted to indicate some of the ways in which design situations can themselves be designed to benefit more fully from plural perspectives, but we hope more particularly that we have taken a step towards building a firmer conceptual foundation for knowledge management in design. We suggest that our

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work is especially significant in the context of multidisciplinary design team management, but it is also our belief that effective knowledge management in design is likely to become increasingly significant into the new millenium. We therefore hope that managers who share our belief will find some useful thoughts in our paper to help them find ways of tackling this issue more effectively.

Acknowledgements We acknowledge the support of The Design Council in funding the research which has enabled us to produce this paper and thank everyone involved in the project. We are grateful for the comments received from Charles Baden-Fuller (City University Business School) and for suggestions given by colleagues at the Open University Business School and City University Business School. We especially thank Peter McNamara (City University Business School), Susan SegalHorn, Geoff Mallory and Leslie De Chernatony (all from the Open University Business School), John Howell (University of Bath), and David Manning.

References Berger, P. and Luckmann, T. (1966) The Social Construction of Reality, Doubleday, New York. Bruce, M. and Morris, B. (1994) `Managing External Design Professionals in the Product Development Process', Technovation, 14, 585±599. Buijs, J. (1998) `Viewpoint: Towards a New Theory X', Creativity and Innovation Manangement, 7 (1), 17±22. Caplan, R. (1982) By Design, St. Martins Press, New York. Cooper, R. and Press, M. (1995) The Design Agenda: A Guide to Successful Design Management, John Wiley and Sons, Chichester. Design Council (1997) Research Workshop 1997, The Design Council, London. Design Council (1988) Designer Directory, The Design Council, London. Dorst, K. and Dijkhuis, J. (1995) `Comparing Paradigms For Describing Design Activity', Design Studies, 16, 261±274. Dreyfuss, H. and Dreyfuss, S. (1986) Mind Over Machine: The power of human intuition and expertise in the era of the computer, Free Press, New York. D.T.I. (1994) Helping Business To Win, H.M.S.O., London. D.T.I. (1995) Competitiveness: Forging Ahead, H.M.S.O., London. D.T.I. (1996) Manufacturing Winners, H.M.S.O., London. Dumas, A. and Mintzberg, H. (1991) `Form, Firm and Function', Design Management Journal, 2 (3), Summer.

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Dumas, A. (1994) `Building Totems: Metaphor Making in Product Development', Design Management Journal, Winter, 71±79. Eckert, C. and Stacey, M. (1998) `Fortune Favours Only the Prepared Mind: Why Sources of Inspiration are Essential for Continuing Creativity', Creativity and Innnovation Management, 7 (1), 9±16. Faulkner, W. (1994) `Conceptualising knowledge used in innovation: A second look at the sciencetechnology distinction and industrial innovation', Science, Technology and Human Values, 19 (4), 425±458. Fisher, T. (1997) `The Designer's Self-IdentityMyths of Creativity and the Management of Teams', Creativity and Innovation Management, 6 (1), 10±18. Fransman, M. (1998) `Designing Dolly: The interactions between economics, technology and science', case research presented in`The Value of the Design Approach in Newly Emerging Products, Firms and Markets: Case Studies', City University Business School/The Design Council, London. Fujimoto, T. (1991) `Product integrity and the role of designer as integrator', Design Management Journal, 35±39. Gorb, P. and Dumas, A. (1987) `Silent Design', Design Studies, 8, 150±156. Gorb, P. and Schneider, E. (Eds) (1988) Design Talks, The Design Council, London. Grant, R. (1996) `Prospecting in dynamically competitive environments: Organisational capability as knowledge integration', Organisation Science, 7, 375±387. Hollins, W. and Pugh, S. (1991) Successful Product Design, Butterworth, London. Kodama, F. (1995) Emerging Patterns of Innovation, Harvard University Press, Boston, MA. Korobkin, B.J. (1976) Images for Design, Architecural Research Office, Harvard School of Design, Cambridge, MA. Leonard-Barton, D. (1992) `Core capabilities and core rigidities: A paradox in managing new product development', Strategic Management Journal, 13, 111±125. Loewy, R. (1951) Never Leave Well Enough Alone, Simon and Schuster, New York. Lorenz, C. (1986) The Design Dimension, Basil Blackwell, Oxford. McAlhone, B. (1987) British Design Consultancy: Anatomy of a Billion Pound Business, The Design Council, London. McNamara, P. and Carlisle, Y.M. (1998) `PolyMASC: Out of the Royal Dree Hospital Medical School and into the Drug Discovery and Development Race', case research presented in`The Value of the Design Approach in Newly Emerging Products, Firms and Markets: Case Studies', City University Business School/The Design Council, London. McNamara, P., Baden-Fuller, C., and Howell, J. (1998) `The Celltech Story: A Jewel in the Crown of the UK Biotechnology Sector', case research presented in `The Value of the Design Approach in Newly Emerging Products, Firms and Markets: Case Studies', City University Business School/The Design Council, London.



Mintzberg, H. and Waters, J.A. (1985) Òf strategies deliberate and emergent', Strategic Management Journal, 6 (3), 257±272. Muller, W. and Pasman, G. (1996) `Typology and the organisation of design knowledge', Design Studies, 17, 111±130. Oakley, M.H. (1990) Handbook of Design Management, Basil Blackwell, Oxford. Oakley, M.H. (1984) Managing Product Design, Weidenfield and Nicholson, London. Owen, C.L. (1998) `Design Research: Building The Knowledge Base', Design Studies, 19, 9±20. Petroski, H. (1993) The Evolution of Useful Things, Pavilion Books, London. Pfeffer, J. (1993) `Barriers to the advancement of organizational science. Paradigm development as a dependent variable', Academy of Management Review, 18, 599±620. Polanyi, M. (1966) The Tacit Dimension, Routledge and Kegan Paul, London. Porter, M.E. (1980) Competitive Strategy: Techniques for analysing industries and competitors, Free Press, New York. Roy, R. and Potter, S. (1990) Design and The Economy, The Design Council, London. Ryle, G. (1949) `Knowing How and Knowing That', in Collected Papers (Vol. 2, pp. 212±225), (1971) Hutchinson, London. Schrage, M. (1993) `The Cultures of Prototyping', Design Management Journal, Winter, 55±63. Schon, D.A. (1983) The Reflective Practitioner, Collins, New York. Schon, D.A. (1988) `Designing: Rules, types and worlds', Design Studies, Vol. 9, pp. 181±190. Sentance, A. and Clark, J. (1997) The Contribution of Design to the UK Economy, Centre for Economic Forecasting, London Business School, London.


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Shirley, R. and Henn, D. (1988) Support for Design, Research and Policy Division of D.T.I., London. Simon, H.A. (1962) The New Science of Management Decision, Harper and Row, New York. Simon, H.A. (1992) Sciences of The Artificial, MIT Press, Cambridge, MA. Sparke, P. (1986) An Introduction to Design and Culture in the Twentieth Century, Allen and Unwin, London. Stewart, R. (1987) Design and British Industry, John Murray, London. Tan, G. (1998) `Managing Creativity in Organizations: a Total System Approach', Creativity and Innnovation Management, 7 (1), 23±31. Thakara, J. (1997) Winners: How Today's Successful Companies Innovate By Design, B.I.S., Amsterdam, The Netherlands. Walsh, V., Roy, R. and Bruce, M. (1992) Winning By Design, Blackwell Business, Oxford. White, J.N. (1973) The Management of Design Services, George Allen Unwin, London. Wittgenstein, (1974) Philosophical Investigation, trans. G. E. M. Anscombe, Blackwell, Oxford.

Ysanne Carlisle is Lecturer in Strategic Management, the Open University Business School, Milton Keynes, UK. Alison Dean is a Research Fellow at the City University Business School, London.

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Learn or Leverage? Strategic Diversification and Organizational Learning Through Corporate Ventures Joe Tidd and Simon Taurins In this paper we examine the corporate venturing process in fifteen UK-based firms, representing the experience of some sixty internal corporate ventures. We focus on the motivation, identification, assessment, structure, and impact on the core business, and identify two sets of motives for corporate venturing. The first, `leveraging', in which firms seek to exploit existing competencies in new technologies or markets. Second, `learning', in which firms seek to develop new competencies, often related to existing technologies or markets. Different organizational structures and management processes are appropriate to each case, and we illustrate a range of successful and less successful design choices from our sample of corporate ventures.

Renaissance of corporate venturing

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Motives for Corporate Venturing

I

nternal corporate venturing (ICV) became popular in the 1970s (Sykes, 1986), but interest and activity declined in the 1980s (Garud and Van de Ven, 1992). This decline was in part the result of the mixed success of ICVs, but more significant were changes in the corporate and market contexts. The success of ICVs varies enormously between firms, but on average around half of all new ventures survive to become operating divisions, and typically an ICV will achieve profitability within two to three years, and almost half are profitable within six years (Block and MacMillan, 1993). Fast (1979) found that there was a strong correlation between changes in corporate profits and the number of new ventures set up. Firms appear to be willing to experiment when corporate profits are high, but reluctant to maintain support when profits are low. Therefore the decline in the popularity of ICVs was associated with an emphasis on greater corporate focus and greater efficiency. For example, the identification and re-engineering of existing business processes became fashionable in the 1990s, but as firms have begun to exhaust the benefits of this approach they have begun to re-examine options for creating new businesses (Tidd et al., 1997). We

June 1999

predict a renaissance of corporate venturing in the years to come. Birley et al. argued that the current literature gave little time to consider why corporate venturing is attempted or how new ventures might be identified, and a decade later little has changed. Consultants continue to refine and develop their policies for successful venture development, yet frequently fail to even question the original motive for such activity. Birley et al. (1988), suggest the venturing rationale is almost founded in some romantic zeal, Èntrepreneurial activity is seen as exciting, a way to harness the energy of young executives, . . . a good thing'. Adouette (1989) takes a different view, and argues that `companies must use all the possibilities that are available to them to maximize their return on commercial assets . . . `return' [however] must be taken in its broadest sense and not only in its monetary sense'. Here he refers to the technological leverage and learning that can result and the long term rather than short term financial returns that can be gained from such action. Similarly, Burgelman and Sayles (1986) state that `corporate venturing is an important avenue for corporate growth and diversification' and an important route to explore in the quest for higher long term profitability. # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

DIVERSIFICATION AND LEARNING THROUGH CORPORATE VENTURES

Conventional analysis of ICVs is based on two dimensions: first, the strategic importance of the venture for corporate development, and second, its proximity to the core technologies and business (Burgelman, 1984). Different organizational structures and managerial processes flow from these considerations (Day, 1994). The strategic importance will determine the degree of administrative control required, and the proximity to existing skills and capabilities will determine the degree of operational integration which is desirable. In general, the greater the strategic importance, the stronger the administrative linkages between the corporation and venture. Similarly, the closer the skills and capabilities are to the core activities, the greater the degree of operational integration is necessary for reasons of efficiency. However, assessment of the second dimension is problematic. On the one hand, a new venture may be driven by the wish to exploit existing skills and capabilities, but on the other hand a new venture may drive the development of new skills and capabilities. These two alternatives have very different structural and managerial implications. This suggests that firms may organize and manage a new venture to leverage existing know-how, or to maximize learning, but not both. In our study of corporate venturing in the UK we examined the implications of these two contrasting strategies. Table 1. Companies whose experiences of corporate ventures were examined Advent International Corporation Advent Limited British Gas Plc British Petroleum International Plc British Technology Group Plc Electra Innvotec Limited IC Consultants Limited Lucas Applied Technology Limited Pilkington Plc Pilkington Micronics Limited Science Connections Limited Severn Trent Industries Limited The Natural History Museum Titmuss Sainer and Webb Welsh Water Enterprises Limited

We examined the corporate venturing process in fifteen UK organizations (Table 1), representing the experience of some sixty


123

corporate ventures. We identified a wide range of motives for ICVs: . . . . . . . . . . .

to invest excess cash; to exploit under-utilised resources; to introduce pressure onto internal suppliers; to divest non-core activities to satisfy managers' ambitions; to spread the risk and cost of product development; to combat cyclical demands of mainstream activities; to grow the business; to diversify the business; to learn about the venturing process; to develop new technological or market competencies.

For the purpose of analysis this wide range of motives can be grouped into two sets: leveraging, in which organizations seek to exploit existing competencies in new markets or technologies; and learning, in which organizations attempt to learn new competencies, which are often needed in existing their markets or technologies (Figure 1). We discuss each of these in turn, and provide examples of good and not so good practice from our research.

2. Leveraging through Corporate Ventures Numerically, if not in terms of strategic significance, the use of ICVs to leverage existing competencies was found to be the most common motive. We identified four specific types of leverage:

Leveraging existing competencies

To Exploit Under-utilised Resources This includes both technological and human resources. An example of a venture based on technological resources was a company which had a billing facility which was only used for perhaps two months in any year. Financially the company had two choices ± either to divest and out-source the process or to generate additional contribution from external clients. In this case the company wanted to retain direct and in-house control of its billing facility and on the basis of this decision a team was used to offer the service to external clients. The under utilization of human resources is the more difficult case to deal with. Where key individuals or teams are under-utilised, but have relevant experience or skills, a corporate venture can be an alternative to òut placing' or redundancy. There was a case where a line manager argued that the skill base of his team was

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critical in the longer term, and therefore the group was encouraged to promote itself internally for additional work, and later for external work.

To Extract Further Value from Existing Resources Here a company audits its existing product/ service base and seeks potential new markets or applications for these to exploit greater synergies. In two case companies units existed to scour the organization for products/services that may be applicable beyond their current use ± the product/services may have only been applied internally, or may have been a concept that was placed on the shelf rejected as beyond current development scope. In these cases new business may be established. For example, at Cadbury Schweppes the Information Technology Division was extracted from Group Management Services to form a separate business unit to supply the internal needs of the group, and to seek and develop external clients. A number of firms are motivated to venture to achieve growth in a corporate whose primary markets are maturing. For example, Severn Trent International has been set up with the task of taking Severn Trent Water's core business capabilities in water and waste water management to new international markets.

To Introduce Competitive Pressure onto Internal Suppliers This is perhaps one of the most difficult motives to satisfy because when a business activity is separated to introduce competitive pressure a choice has to be made ± whether the business is to be subjected to the reality of commercial competition, or just to learn from it. Our research suggests that the question of ownership must be answered. While the (internal) supplier is wholly or partially owned by its parent it is to a large extent shielded from real competition, and there tend to be minimal improvements in efficiency or quality. However, if the corporate centre is able to go so far as to withdraw a contract, which encourages improvements, divestment must occur.

To Spread the Risk and Cost of Product Development Two situations were illustrated by one of the case companies as to when this motive might be pre-eminent: (i) when the technology or expertise needs to develop further before it

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can be applied to the mainstream business or sold to current external markets (ii) where the volume sales on a product awaiting development must sell to a target greater than the existing customer groups to be financially justified. Within one company a leading-edge technology had been developed which would be required by one of its customer groups in perhaps 7±10 years, another of its customer groups may require it in 3±5 years. Faced with this àpplication gap', this innovative company identified a market which could use the technology now. In both cases the challenge is to understand how to venture outside current served markets. Too often, when the existing (internal) customer base is not ready for a product the research will be terminated, but the establishment of a new venture to exploit the technology sooner can contribute to the financial costs of development, and to the refinement of end products.

To Divest Non Core Activities Much has been written of the benefits of focus, out-sourcing, and creating the `lean' organization ± rationalization which prompts the divestment of those activities which can be out-sourced (Tidd and Trewhella, 1997). However, as a result `. . .too many companies have unwittingly surrendered core competencies when they cut internal investment in what they mistakenly thought were just `cost centres' in favour of outside suppliers.' (Prahalad and Hamel, 1990). It is in response to the drive to release peripheral business activities that companies have sought ways to manage divestments better, for example to retain equity or managerial interests in those activities which are spun off. One case company was reducing the number of business areas it was involved in. It had a commercially significant business opportunity opening up within the computer industry but had just pulled out of another business with a similar technology base. The decision was made to set up the venture with a minority interest which facilitated appropriate management to be brought in and engendered a commitment to the operation which would not otherwise have developed.

3. Learning through Corporate Ventures Less common, but arguably of greater strategic significance, were ICVs established with a view to organizational learning. To date much of the literature on organizational learning has been rather abstract and theor-



etical (Tidd, 1997). However, corporate venturing represents an explicit example of organizational efforts to acquire new skills and capabilities. We identified three distinct levels of learning:

To Learn About the Process of Venturing A few of the firms examined had set up `hobby size' ventures, in an effort to learn how better to manage the process of corporate venturing. The classic studies by Kanter identified similar motives in the US: NEES Energy, a subsidiary of New England Electric Systems Inc., was èxpected to be a model for corporate innovation ± a laboratory to help the parent company learn about starting new ventures' (Kanter, 1992). Some of the case companies had developed small ICVs to provide this `learning by doing'. In principle such efforts are laudable and prudent, but in practice the potential for learning was undermined because seldom was a time limit set on the learning stage, and as a consequence, no decision was formally made for the venture activities to be considered `proper businesses'. The implications of this practise are to drain the enterprising managers of their enthusiasm and erode the value of potential opportunities. If a learning exercise is to be undertaken, and a particular activity is to be chosen for this process, it is critical that goals and objectives are set, including a review schedule, and go/no go criteria agreed. This is important not just for the maximum benefit to be extracted from the ventures, but also for the managers of the ventures.

To Develop New Competencies Where the utility of existing competencies is becoming exhausted, an organization must attempt to develop new competencies, sometimes just to survive in existing markets. While the discussion so far has implied that business development would be on a relatively small scale, this need not be the case. The question posed by Kanter (1992) is whether established companies can renew themselves by starting new and different kinds of businesses. Baden-Fuller (1996) provides examples of firms which have successfully renewed themselves by various strategies. The fossil fuel energy sector has been facing for a long time the threat of extinction ± coal, gas, oil reserves being exhausted. BP, Elf, Shell, Standard Oil and Total have all set up corporate venturing initiatives when the oil industry first experienced declining margins and increasing environmental pressures.


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In addition, an ICV can act as a broker or clearing house for the distribution of information within the firm. In practice, large organizations often do not know what they know (Tidd, 1995). Many firms now have databases and groupware to help store, retrieve and share information, but such systems are often confined to `hard' data. An ICV can also act as a repository for nonroutine knowledge, and act as an òrganizational memory'. But there are practical drawbacks. A research engineer at one of the case companies, specialising in the design of logic circuits, commented that documentation and recording of progress was not done regularly as part of his project although this would be a way of transferring the know-how in the future. He suggested that it could be done, but could take up to 50% of the research time, obviously too much when you consider the necessity to accelerate and constantly shorten development times.

Acting as organizational memory

To Develop Managers ICVs can be used to retain and develop managers. Businesses require different management styles and skills at different stages in their development. For example, entrepreneurial skills are of greatest value initially, but later maintenance skills may be more appropriate. If the business subsequently demands re-orientation, an entrepreneurial injection can be provided again. Therefore an ICV can be used to develop entrepreneurial skills, and to act as a reservoir of such skills when the businesses pass to the growth and mature phases. Managed well, ICVs can help retain the commitment of such managers to the corporation, and maintain a pool of potential creators of venture opportunities. Positive effects include: . refreshing of seconded employees from the

parent to the venture;

. excitement of a changing and expanding

company;

. reaping of entrepreneurial managers who

might otherwise leave;

. strengthening of the portfolio of business

activities;

. increased customer focus from develop-

ment centres;

. flow-back of new development ideas and

encouraged diversity of thinking;

. research stimulated by different inputs and

challenges;

Potential negative effects include: . loss of experienced and innovative tech-

nologists to the venture;

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. loss of entrepreneurial managers to the

venture; . break up of development teams within the parent; . distraction of senior managers to business activity which demands much but gives little; . loss of focus of managers and technologists from mainstream to venture development.

4. Examples of Venture Organization and Management The most appropriate organizational structure and management process will depend on a number of factors, including whether the primary purpose is to leverage existing competencies or to develop new competencies (Figure 1). We have identified four alternative structures for corporate ventures:

Learning new knowledge High

Dedicated Venture Unit

CorporateWide Venture Department

Independent Business Unit

Direct Integration

Low

High Leverage of existing knowledge

Figure 1. Motives for Venturing and the Options for Management and Organization . direct integration with existing business; . a dedicated staff function to support efforts

company-wide;

. a separate corporate venturing unit or

department; . independent business unit or spin-off.

Clearly there is no òne best way' to organize and manage an ICV, but our case studies illustrate some of the advantages and disadvantages of different design options.

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Direct Integration Direct integration of the new business directly into the mainstream business operations as an additional mainstream activity is necessary where the venture draws heavily on existing competencies, or where radical changes in product or process would have a significant impact on mainstream operations. Consultancy has been the one activity that virtually every technology-based company has introduced to its trading portfolio, and organizations with large laboratory facilities can also offer sample analysis and testing services (McGee and Dowling, 1994). For example, the Natural History Museum (NHM) began to consider consultancy work in the late 1980s when funding was reduced. One principle aim was to generate sufficient revenue streams to avoid a massive reduction in research capacity, and avoid further redundancies. The NHM's resource of some 300 scientists has been developed in a commercial capacity from ground level up. This researcher to consultant transformation has required a complete cultural realignment. It is the heads of department ('keepers') which have been made responsible for identifying and developing the consultant activity. The whole culture of the scientific body has been shifted through a process of communication, education, practice, all driven by the necessity for survival. Through this transformation both new skills have been learned and natural, latent skills have emerged. With the nature of the resource, and the expertise scattered throughout the organization and across departments, this integrated approach was the only realistic style of development.

Company-wide New Ventures Department In the case of the company-wide new ventures department a group separate from normal line management facilitates external trading. It is suitable when projects are likely to emerge from the operational business on a fairly frequent basis and when the proposed activities may be beyond current markets or the type of product package sold is different (Brauer, 1992). The origins of such units may be different, for instance: . To bring existing technologies and exper-

tise throughout the company together for adaptation to new or existing markets; . To bring together research in different areas or paralleled in different locations, to accelerate the development of new products;



. To purchase or acquire expertise currently

outside of the business for application to internal operations, or to assist new developments; . To examine new market areas as potential targets for existing or adapted products within the current portfolio. Such groups typically will have responsibility for marketing, contracting and negotiation, but the actions of supply and technical negotiation take place at ground level. This is perhaps the most natural way for the trading of existing expertise to be developed when it lies fragmented through the organization, each source is likely to attract a different type of customer. The design is especially applicable where that organization has a large scientific body of knowledge for its operations, rather than research (Haour, 1992). However, to facilitate organizational learning, the flow of know-how has to be two-way (Samsom and Gurdon, 1993). A good example is Imperial College where until recently two separate businesses exist. One for responsibility of patenting and licensing technologies and products that emerge, and the other for contracting out expertise or processes. The latter responsibility is managed by a group call ICON, with a turnover (after two years of operation) of approximately £2m. ICON combs the organization for potential leading edge process orientated technologies, which are supported by available and willing expertise and which would fit with intuitively recognized market opportunities. They also invite and receive problem situations from external bodies for solution. In this way Imperial College maintains a lead because it is continually developing new products and supporting processes. There are important peripheral benefits the college gains through this activity: Companies who initially commission a project may as follow up commission a research project; and implicitly, researchers are brought far closer to the needs of technology users.

Dedicated Venture Unit Dedicated new business units are wholly owned by the corporation. High strategic relevance means strong administrative control is necessary, but at the same time the unit needs to be isolated from the short-term pressures of the mainstream businesses. However, the greatest impediment to such a unit competing effectively in the market is a cosy corporate mentality. If business managers are under the impression that the centre will always assist or provide business, the


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new venture will never appreciate commercial pressures. One case company had been set up as a start up venture where the product had emerged from technologies fused from two different divisions. The project was given a green-field site where the manufacturing facility was to be established. The new business was taken out of the corporate development environment when the technology had been tested and a major client had been secured. While the subsidiary was staffed with key technical people from the internal development environments, the Managing Director was recruited externally ± this has probably been a key contributor to success. The new product was aimed at new markets from those familiar to the company and the new Managing Director had experience within those new markets. This business was made completely independent and forced to develop its own channels to market (principally overseas) and to take most responsibility for product refinement. Research assistance was at hand from the centre and individuals were seconded from the source plants as needed but all other business needs had to be satisfied externally.

Facilitating organizational learning

Independent Business Units In this case a stand-alone venture is formed, and differing degrees of ownership will determine the administrative control over the business (Brown and Wilson, 1994). The reason for spin-off as opposed to divisionalising an activity is usually its low strategic significance for the core business. For the corporate parent there are obvious benefits to this structure: . continued share of financial returns; . independence means less supervisory

opportunity or requirement;

. reduced management distraction; . role limited to board membership, or less; . the potential for flow-back product learn-

ing/development.

and to the business unit: . freedom from corporate dominance; . freedom to make own administrative

policies;

. opportunity for managers to take owner-

ship, enhancing commitment;

. increased commitment from managers

now fully separated from mainstream.

Where the activity is not critical to the mainstream business, nurtured divestment may be the best route. The product or service has most likely evolved from mainstream,

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and while supporting these operations it is not essential for strategic control. The design option provides a way for the corporate to release responsibility for a particular business area. External markets may be built up prior to separation giving time to identify which employees should be retained by the corporate and providing an acclimatization period for the venture. The parent may or may not retain some ownership (Pappas et al. 1990). Bringing in external funding provides several advantages: The sharing of risk with other parties; an insulation from corporate investment policy changes; the option not to disclose minority interests (less than 50%) in accounts. Most importantly, the involvement of external investors forces a more rigorous, and often independent, commercial assessment. For example, CharterRail, the spin-off from GKN, as well as being provided with new sources of capital, was assisted in developing its management team and board, which provided valuable networks to facilitate the business' establishment. Releasing some ownership also allows the possibility for executives of the new business to hold a share of the business, and helps maintain their personal commitment to its commercial success.

5. Summary and Conclusions In this paper we have identified two diverse motives for internal corporate ventures (ICV): the potential for leveraging existing competencies versus learning new competencies. Consideration of these different motives suggests a range of possible organizational structures and management processes. We have demonstrated how ICVs can enhance mainstream activities or be used to create new businesses. The most serious problem we witnessed was the failure of the corporate parent to define a basis for the venturing activity. Motives for ventures were sometimes explicit, and reflected in strategy documents or mission statements, but more commonly they are implicit which often results in conflict between the goals of the corporate parents and the activities of the venture. Such conflicts can be minimized by ensuring that the motives for ventures are made explicit, and communicated to both corporate and venture management. Finally, we believe that ICVs represent a tangible, and therefore researchable, example of organizational learning. The current fashion for capabilities or competence-based competition has so far focused on the development of narrow competencies based on

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prior experience, but fails to address fully how firms cope when existing competencies become obsolete, or how firms acquire new competencies. A focus on the structures and processes which facilitate learning at the level of the organization, rather than the level of the individual, may provide a useful means of examining such issues (Rubenstein, 1992). However, to date there has been almost no empirical work which has attempted to unravel the relationships between learning, innovation and competitiveness (Tidd, 1997).

References Adoutte, R. (1989) `High technology as a commercial assets', International Journal of Technology Management, 4(4/5), 397±406. Baden-Fuller, C. and Pitt, M. (1996) Strategic Innovation. Routledge, London. Birley S., Manning K. and Norburn D. (1988), Ìmplementing Corporate Venturing'. In Lamb R. and Shrivastava P. [Eds.], Advances in Strategic Management, Vol 5, pp. 165±179. Block, Z. and MacMillan, I.C. (1993) Corporate Venturing: Creating New Businesses within the Firm. Harvard Business School Press, Boston. Brauer, K. (1992) `Marketing the by-products of development programmes', Journal of Business Strategy, May/June, 45±48. Brown, M.A. and Wilson, C.R. (1994) `R&D Spinoffs: Serendipity vs. a Managed Process', The Journal of Technology Transfer, 18(3&4), .5±15 Burgelman, R.A. (1984) `Managing the Internal Corporate Venturing Process', Sloan Management Review, 25(2), Winter. Burgelman, R.A. and Sayles, L.R. (1986) Inside Corporate Innovation. MacMillan, London. Day, D. (1994) `Raising Radicals: Different processes for championing innovative corporate ventures', Organization Science, 5(2). Fast, N. (1979) À Visit to a New Venture Graveyard', Research Management, 22(2), 18±22. Garud, R. and Van de Ven, A.H. (1992) Èmpirical Evaluation of the Internal Corporate Venturing Process', Strategic Management Journal, 13, Summer, 93±110. Hamel, G. and Prahalad, C.K. (1990) `The core competencies of the corporation', Harvard Business Review, May-June, 79±91. Haour, G. (1992) `Stretching the Knowledge-base of the Enterprise through Contract Research', R&D Management, 22(2), 177±182 Kanter, R.M. (1992) When Giants Learn to Dance Simon & Schuster. McGee, J.E. and Dowling, M.J. (1994) Ùsing R&D Cooperative Arrangement to Leverage managerial Experience: A study of technology-intensive new ventures', Journal of Business Venturing, 9(1), 33±48 Rubenstein, A.H. (1992) `Research Opportunities in the Study of Technical Entrepreneurship', Journal of High Technology Management Research, 3(1), 83±110.



Samsom, K.J. and Gurdon, M.A. (1993) Ùniversity Scientists as Entreprenuers: A Special Case of Technology Transfer and High-Tech Venturing', Technovation, 13(2), 63±71. Sykes, H.B. (1986) `Lessons from a New Ventures Program', Harvard Business Review, May/June, 69±74. Tidd, J. (1995) `The Development of Novel Products through Intra- and Inter-Organizational Networks: the case of home automation', Journal of Product Innovation Management, 12(4), 307±322. Tidd, J. (1997) `Complexity, networks and learning: integrative themes for innovation management', International Journal of Innovation Management, 1(1), 1±22. Tidd, J. and Trewhella, M. (1997) Òrganizational and technological antecedents for knowledge


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acquisition and learning', R&D Management (forthcoming). Tidd, J., Bessant, J. and Pavitt, K. (1997) Managing Innovation: Integrating technological, market and organizational change. John Wiley & Sons, Chichester.

Dr Joe Tidd is Director of the Executive MBA Programme at Imperial College Management School, University of London, UK, and Simon Taurins is Executive; Corporate Finance for Corporate Strategy at BZW, London.

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Individuals' Responses to Change: The Relationship Between Learning and Knowledge Elena P. Antonacopoulou The emphasis on learning and knowledge as key mechanisms for responding to the uncertainties of the business environment has been a central theme in much current thinking. Despite the interest in both concepts there appears to be little discussion of the relationship between learning and knowledge. More specifically there is currently limited research, which examines how learning and knowledge affect individuals' responses to organisational changes. This paper makes a contribution to this debate by exploring the relationship between learning and knowledge with the individual manager as the unit of analysis. The paper presents recent empirical findings from a study of managers in the Financial Services Sector in the UK to demonstrate how individuals formulate their understanding about organisational changes. Moreover, the paper examines individuals' responses to change in relation to the implicit and explicit messages of the organisation which have an impact on the way learning informs knowledge, as well as the way knowledge fuels learning.

Introduction

I

Key resources for survival Volume 8

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t has become almost a clicheÂ to assert that we live in an age of unprecedented change and transformation in which the rapidity and irreversibility of such changes are said to be fundamentally affecting every aspect of modern life. The business world that managers and entrepreneurs currently inhabit is one characterised by unpredictability, volatility and dynamism. New technologies, shifting political ideologies and cultural attitudes, as well as, the changing face of international relations and economic power bases are transforming markets, products, business processes, and the entire outlook of the global business environment. Managing in such complex webs of diversity necessitates an entirely different mind-set from that of the traditional problem-solving approach. The difficulty of predicting with any certainty what the future will hold is one of the key factors which has raised to prominence the significance of learning and knowledge as a way of dealing with the unknown and the unknowable. The significance of knowledge and learning as key resources for surviving in the changing business context has received a lot of attention in recent years.

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This observation is reflected in the popularisation of concepts such as the `knowledge society' (Drucker, 1993), `knowledge-intensive firm' (Starbuck, 1992), `knowledge workers' (Zuboff, 1988), the `learning organisation' (Senge, 1990), and the `learning society' (Ball, 1993). Despite the promise that much current thinking offers about the role of knowledge and learning, there is yet little by way of a clear understanding of the relationship between knowledge and learning within changing organisations. The emphasis on `managing' knowledge and `creating' a learning organisation, has resulted in what may be described as the development of two separate camps (the knowledge management camp and the learning organisation camp), each with their own focus, who appear to have very little in common and therefore, do not communicate or interact. The distance between the two camps has resulted in the isolation of knowledge and learning as concepts, and consequently a limited attempt to explore their interconnection. There is therefore, a need to examine how learning informs knowledge and how knowledge fuels learning particularly in the context of organisational changes. The relationship between # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

THE RELATIONSHIP BETWEEN LEARNING AND KNOWLEDGE

learning and knowledge may shed some light into the multiplicity of reactions that organisational changes instill, a point, which reflects an on-going concern in the field of organisational change. Current research in the field of organisational changes has highlighted the multiplicity of responses, which range from acceptance and enthusiastic co-operation and support, to active resistance and deliberate sabotage (Kotter and Schlesinger, 1979). Some researchers have explained these reactions on the basis of the identified behavioural, psychological, social and emotional effects of change (Kanter, 1983; Marris, 1986; Lawler, 1988). Depending on the extent to which the effects of change are perceived by individuals to be positive or negative researchers have categorised these reactions as readiness for change (Armenakis et al., 1993) and resistance to change (Clarke, 1994) respectively. A significant contribution in the study of individuals' reactions to change, is that of Isabella (1990), whose work indicates the different interpretations given by individuals at different stages of the change process. Isabella's work and more recently Marchak's (1993), Westenholz's (1993) and Reger et al. (1994a, 1994b) illustrate how individuals' existing mental maps, meaning, perceptions, frames of reference and cognitive structures, influence the way they interpret organisational events. Moreover, they show that at different stages of the change process individuals are likely to be guided by a different set of assumptions and expectations. Therefore, individuals are not simply reacting to the changes introduced by organisations. Indeed, a central aspect of individuals' responses to change lies in our understanding of the dilemmas individuals experience, the perceived level of fit and the perceived implications of the changes introduced. Individual managers are probably the most vulnerable group and are likely to be the ones faced with the most significant challenges. Managers are exposed to unfamiliar practices, which demand new knowledge and skills and often question their personal values and beliefs and more practically their status and job security (Humble, 1973). Jones and Cooper (1980:8) argue that the biggest challenge for managers in the context of change is `òbsolescence''. They define managerial obsolescence as ``the extent to which a manager's knowledge and skills have failed to keep pace with the current and likely future requirements of his job''. Therefore, organisational changes present managers with the need to learn how to cope best and adapt to the pressures and demands for change (Hague,


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1979). The extent to which managers are able to recognise the nature of change and the way they themselves choose to interpret it, is a significant issue. For example, fear of change causes many managers to ignore or fight change, instead of attempting to deal with it constructively (Burgher, 1979). Understanding the cognitive processes through which individuals within organisations construct their reality about the changes experienced, necessitates an exploration of the various formal and informal processes which contribute towards deriving knowledge and understanding which underpins individuals' actions and reactions. This paper makes a contribution to this debate by exploring the relationship between learning and knowledge in relation to organisational changes with the individual manager as the unit of analysis. More specifically, the paper presents recent empirical evidence from a study1 of managers in the Financial Services Sector in the UK. The findings show how the implicit and explicit messages of the organisation about the importance of learning and creativity is shaping individuals orientation to such processes and consequently their response to the changes introduced by the organisation. The analysis is intended to show how learning informs knowledge and how knowledge fuels learning in relation to organisational changes. The paper will conclude with some observations about the significance of the relationship between knowledge and learning in shaping individuals' responses to change.

Organisational Changes and Individuals' Responses in the Retail Banking Sector The Retail Banking sector in the UK and in other parts of the world provides an interesting example of an industry, which has undergone a process of reconstruction, which demanded fast responsiveness to change and a high need for learning. Triggered by a series of external forces (e.g. trends in the world economy) and internal forces (e.g. changes in the market, the intensification of competition etc.), the recent changes have forced a new era of efficiency in the sector and a new orientation towards the basic principles of Banking (Cappon, 1994). In the UK, the various internal and external forces for change are fundamentally transforming the role that staff are expected to play within the organisation. A critical concern for Retail Banks during the 1990s is the ability of the workforce to change and to manage the new

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technology. As a result of the recent changes the nature of managerial jobs have been substantially transformed from managing money and people to `selling'. In response to these changes Banks are moving away from the paternalistic approaches to developing people. Traditionally Banks tended to recruit school-leavers, who they trained internally through a formal disciplined classroom approach and developed through professional qualifications. The lack of certainty as to the precise shape of future jobs and managerial responsibilities has let Banks to increasingly emphasise learning, personal responsibility for development, flexibility and continuous growth. These policies however, are no guarantee that individuals will respond to change more positively. As the findings of the present study will demonstrate, individuals' perceptions of the organisation's encouragement for learning and creativity plays a key role in their propensity and orientation towards learning, sharing knowledge and their response to organisational changes.

A Profile of the Three Banks As a result of the changes in the Financial Services sector the three Banks in the study (Bank A, Bank B and Bank C) have been undergoing numerous operational and strategic changes over the last few years. A common strategy promoted by all three Banks has been a greater focus, on learner-centred strategies for the development of staff and in particular the emphasis on a more active involvement by staff in their development. Self-development is seen by the three Banks as an appropriate strategy for developing staff in the light of the present uncertainties. Self-development allows the necessary flexibility and self-direction in the development process and facilitates a more immediate response to the changing needs of individuals and the organisation (Pedler, 1988; Stewart, 1991). Each Bank has addressed this issue differently, which has consequently resulted in different responses by individual managers. For example in Bank A, the philosophy underpinning the approach to self-development is one of transferring the responsibility for development to individuals, because this is a more economic option. In Bank B a great deal of emphasis has been placed on learning and self-development and the ultimate effort of this Bank is to become a `learning organisation' (Senge, 1990). Finally, Bank C has introduced a wider set of learning resources with an emphasis on individual differences in

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learning needs and styles, including a library of learning materials available to all staff. The various mechanisms adopted by the three banks in communicating the emphasis placed on self-development and learning has had a different impact on managers' perceptions of the level of freedom there is to be selfdirected in their learning and to be creative within the organisation. Managers were asked a series of questions about the learning process, the factors which affect how, what and why they learn, the perceived locus of control to determine their development and the impact of existing training and development programmes on their learning and adaptability to organisational changes. The findings in relation to each of these issues are discussed in more detail elsewhere (see Antonacopoulou, 1998a, 1998b, 1999a, 1999b, 1999c). For the purpose of the discussion in this paper it is important to summarise the following key observations. Firstly, the findings across the three banks show consistently that managers perceive learning in very narrow terms and primarily as equated to attending training events provided within their employing organisation. Therefore, learning is usually defined as the acquisition of information and skills in relation to the current job one performs. Secondly, the findings indicate the dependency and subordination of individuals' development goals in an attempt to fit in and comply with the organisational goals and requirements. In other words, even within the self-development process, individuals seek to pursue learning goals which are in line with the organisational requirements (e.g. relevant to their job) and through methods approved by the organisation (e.g. attend a formal training events). Thirdly, the findings show the inconsistency of the organisation's message and the gap between `èspoused theory'', as reflected in organisational policies, and the ``theory in use'', as reflected in the actual organisational practices (Argyris and SchoÈn, 1974). For example, on the one hand, managers describe the organisational philosophy in relation to the importance of taking responsibility for their self-development and learning and at the same time, they argue that there is limited possibility for self-directed learning. These observations are reflected in Figure 1 and Figure 2 which summarise respectively the proportion of managers across the three banks who perceive that the organisation encourages them to learn and the proportion of managers who perceive that the organisation encourages them to take responsibility for their personal development. It is interest-



ing to observe the diversity in responses across the three banks and more importantly the impact of the organisation's message on individuals' perceptions. Despite the emphasis on learning and self-development across the three banks, the proportion of managers across each bank who perceive they are being encouraged to learn and to develop themselves varies significantly. The analysis of these different perceptions has revealed a great deal of confusion and disorientation among managers regarding what is expected of them and the perceived level of freedom to do things. This confusion and disorientation is also reflected in managers' perceptions of the organisation's encouragement to be creative.

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across the three banks were also asked about the perceived encouragement of the organisation for creativity. Managers' responses to this question reveal additional inconsistencies. Moreover, managers' responses highlight how learning and knowledge may be associated. The findings in relation to this reveal a significantly smaller proportion of managers across the three banks, who perceive that the organisation encourages them to be creative. Figure 3 presents diagrammatically, the proportion of managers in each bank who perceive they are encouraged to be creative.

Figure 3. Comparing managers' perceptions of the organisation's encouragement for creativity across the three banks Figure 1. Comparing managers' perceptions of the organisation's encouragement to learn across the three banks

Figure 2. Comparing managers' perceptions of the organisation's encouragement for self-development across the three banks

Individuals' Perceptions of the Organisation's Encouragement for Creativity In relation to the perceived encouragement for learning and self-development, managers


The findings across the three banks suggest a fairly consistent picture about the role of creativity along side the role of learning and self-development when responding to change. More specifically, a comparison of the proportion of managers in each bank who perceive that they are being encouraged to learn and to develop themselves, with the proportion of managers who perceive they are encouraged to be creative, reveals a very sharp contrast. For example, Bank C has the biggest proportion of managers who perceive they are encouraged to learn (81%) and to develop themselves (100%) and at the same time it has the smallest proportion of managers who perceive they are encouraged to be creative (31%). A number of reasons have been identified to help explain this inconsistency. The most significant factor appears to be the nature of the industry and the culture of the three Banks, which is risk averse. Managers' comments reflect this point most aptly: ``Historically, and culturally creativity is against the rules. Individuals who attempted to be creative were considered as being troublemakers'' (Manager, Bank A).

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`Ìndividuals are tightly controlled and have to follow so many procedures and rules that at the end of the day you can't be bothered'' (Manager, Bank B). ``Generally, there is a historical attitude which expects obedience to rigid rules and procedures which can not easily be changed'' (Manager, Bank C).

`Creativity is against the rules'

The numerous regulations that govern the industry are one of many restricting factors identified by managers. The characteristics of the sector are reflected in the culture of the three Banks, which according to managers is not conducive to creativity. Consequently, there is an inherent conservatism in the three Banks to experiment or to allow mistakes to take place a point, which is in direct opposition to the learning culture sought to be developed by the three banks. Managers describe ``the bureaucratic decision-making process'', ``the limited scope for initiative in the current job specification'', ``the role and example of the line manager'' and `à tendency to discourage free thinking'' as additional factors which explain the lack of encouragement for creativity. Managers also pointed out that:

Table 1. The main factors identified by managers to restrict creativity . The rules and regulations governing the

``Creativity is not in the bank's vocabulary. If the line manager is not creative, it is perceived as a threat for a manager to be creative. Creativity can get you fired'' (Manager, Bank B).

. The steep hierarchical structures of the

``Some feel creativity is autonomy and in a large organisation you have to follow rules and regulations'' (Manager, Bank C).

. The fear of the repercussions of being

``The bank encourages creative thinking within the confines of what can be applied in the banking field'' (Senior Manager, Bank A). ``Creativity comes down to improving sales and processes through quality management techniques one has already been trained for'' (Senior Manager, Bank B). ``Creativity can help competitiveness, but the way we run the business restricts it. Rigorous

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The main factors identified by managers across the three banks in the study to restrict creativity are summarised in Table 1. It is important to note that creativity across the three banks is not aligned to learning and selfdevelopment, which managers are encouraged to pursue. More significantly, creativity appears to be against the rules and in opposition to development and change. Therefore, creativity across the three banks is effectively based on the existing knowledge, which supports what worked well in the past and what lessons should guide future actions. In essence, the three banks are caught in a vicious circle of `single loop learning' (Argyris and SchoÈn, 1978), and `first order change' (Watzlawick et al., 1974) underpinned by specific knowledge and assumptions.

``the rigid and bureaucratic decision making process involves a lot of people which eventually dilutes ideas. Since no opportunities for practice are provided there is little room for change as well'' (Manager, Bank A).

It appears from managers' responses that creativity may be only encouraged at senior levels. The only managers who claimed that the organisation encouraged them to be creative across the three banks tended to be senior managers. However, it is possible to note that creativity is confined within what is perceived to be acceptable in relation to the existing rules and regulations. Managers' comments reflect this observation:

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control of banking business restricts innovation and creativity. Banking requires discipline'' (Senior Manager, Bank C).

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banking sector.

. Historical reasons in the industry and the

nature of the business being risk-averse

. The bureaucratic culture and the rigidity of

the current systems

banks and their size more generally

. The limited scope for initiative in the

current job specification creative

This point supports previous observations in this study about the extent to which the three banks truly encourage managers to learn. The limited scope for creativity reflected in managers' accounts across the three banks, highlights yet again the tension between autonomy and control that organisations face during periods of change, alongside the dilemma of maintaining stability while initiating change in response to the competitive pressures in the market (Antonacopoulou, forthcoming). These tensions are evidently affecting the message of the organisation, which is found to be inconsistent. On the one hand, the organisation encourages managers to learn and to take personal responsibility for their development, and at the same time the organisation defines how individuals should learn and what goals they should



pursue (see Antonacopoulou, 1998b, 1999b). These inconsistencies are further reflected in the limited scope for initiative and the implicit and explicit rules and regulations that managers have to follow which are in direct contradiction to the development that they are encouraged to pursue. The paradoxical nature of organisational reality, as reflected in the competing priorities of the organisation are also a significant mechanism shaping whether individuals learn and how they associate their knowledge with their learning. Managers' responses suggest a strong element of compliance and subordination to the organisation's rules and expectations. Managers are encouraged to learn and develop along the lines defined by the organisation, which has significant implications on knowledge creation and sharing in the three banks. The emphasis on training as the main source of learning (discussed elsewhere ± Antonacopoulou, 1999a) is one indication of the way the three banks control the knowledge individuals possess and the understanding they develop in relation to the expectations and guidelines to be followed. Moreover, the findings suggest that managers' existing knowledge is a key source shaping what managers will learn and how that learning may contribute to their existing knowledge and understanding. It appears that existing knowledge sets the boundaries for development and acts as a mechanism supporting a sense of stability and well being when the changes introduced by the organisation are the cause of disorientation and insecurity. The limited space for creativity within the three banks essentially encourages managers to respond passively to events without seeking to reframe their understanding, nor to reformulate the knowledge they currently have about existing problems and how they can be approached. Instead, the current practices of the three banks encourage a symptomatic response to organisational changes and one that rarely addresses the underpinning causes contributing to the changes experienced. This discussion shows that encouragement for learning and selfdevelopment without encouragement for creativity would lead to limited knowledge and superficial learning on behalf of individuals, because the preoccupation would be to play by the rules of the political game. This observation also has significant repercussions for individuals' responses to organisational changes. This point is addressed in the present study with reference to managers' perceptions of the impact of organisational changes.


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Individuals' Perceptions of the Impact of Organisational Changes Managers were asked to consider how the recent organisational changes affected them personally. Organisational changes are perceived by managers across the three Banks to have had a mixture of effects on individual managers. For some managers change generated `àmbiguity'', `ìnsecurity and fear'', while for others is has generated ``commitment'', `à sense of vision'' and `ènthusiasm''. A noteworthy observation however, is that in Banks A and B the majority of managers in the study, perceive that the negative effects outweigh positive effects. In particular, they argue that change has affected them negatively, because it has generated ``more pressure and stress on the job'', `ìt has increased the expectations of the organisation'' and `ìt has limited promotion opportunities and career prospects''. The lack of job security is for many managers a difficult issue to come to terms with. The realisation that the job is not for life anymore makes managers realise that they cannot be complacent. A manager in Bank A specifically pointed out that: ``the changes around us make you realise that you should stop having the illusion that being a manager is going to be easy''. A manager in Bank B said: `Ì don't fear change, but I feel nervous about not knowing what will happen to me and my job''. The ``job insecurity'', ``the uncertainty of future employment policy'' and ``the lack of clarity about the possibilities for career progression'' are also perceived by managers in Bank C to be the main negative effects of recent organisational changes. However, unlike other Banks the majority of managers in Bank C perceive that the positive effects outweigh the negative effects of change. Managers believe that they have benefited from recent changes mainly, because of the `àdditional opportunities'' that have been created. A manager's comments reflect this point. He said: ``the recent changes created additional opportunities which otherwise would not have been possible''. Managers also argue that organisational changes enabled them to ``have more control over their career and personal life'', `ìncreased motivation and loyalty to the Bank'', because they are ``stimulated by the new challenges and feel happier with the direction the Bank is taking''. Individuals' reactions to the organisational changes reflect their contextual specificity (Pettigrew, 1987). Moreover, the evidence suggest that change may be perceived positively if managers are in agreement with the organisational changes introduced. However, managers' positive reactions to change are not purely driven by their personal needs. The

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Knowledge is socially constructed

findings of the present study suggest that managers' interpretation of the impact of change on them individually is also shaped by the perceived impact on the organisation. Managers' descriptions of the effects of change on the organisation are very similar to the effects of change on them individually. This is a consistent finding across all three Banks in the study. For example, managers across the three Banks referred to issues such as the ``reduction in staff numbers'' and the ``loss of experienced managers'' as the main negative effects of change on the organisation, while becoming ``more competitive'', ``more efficient'' and ``dynamic'' as the main positive effects. The findings across the three Banks suggest that managers identify themselves closely with the organisation and in effect, what is bad for them as individuals is perceived to be bad for the organisation and vice versa. This latter point reflects the impact of the collective on the individual. Essentially, managers in the three banks become so attached to the organisational identity to the extent that they embrace it as their own. This strong organisational identification reflected in the findings of the study is a direct result of the strong culture in the three banks and in the industry at large, which rewards and encourages compliance. Effectively, managers interpret the organisational changes on the basis of the knowledge that has socially been constructed and which acts as the truth/reality which they are willing/motivated to work by. The point, which must be stressed however, is that in responding to the organisational changes through compliance, managers are not necessarily committed to the organisation's purpose. Instead, their underlying motives appear to be their will to survive by playing the political game. Managers' perceptions of the positive and negative effects of change raise awareness of the social and political factors, which influence managers' interpretation of organisational changes and the meaning attached to the events as they unfold (cf. Isabella, 1990). Managers' perceptions of the effects of organisational changes highlight their reluctance to deviate from what is currently known or indeed to challenge what is currently unknowable. Managers perceive that to be politically correct one has to keep quiet, to avoid to take a position and to monitor which direction events will take before reacting to organisational changes. This observation is reflected in the comments made by some managers across the three banks: ``The environment is very important. If there is upheaval then learning is folded and people are

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not prepared to learn, since things change. The trick is knowing which way the wind is blowing and do a lot of anticipating'' (Manager, Bank C). ``Knowing what's going on. How things are planned, how do others perceive you and what place you hold in the organisation affects your receptivity to learning and changing'' (Manager, Bank C). ``Not many managers would speak up, because of the insecurity in the job market. People who expressed freely their disappointment about the sales orientation, they were offered voluntary redundancy'' (Senior Manager, Bank B). `Òften I am afraid to ask my line manager for a refresher course, because I am expected to know it by now'' (Senior manager, Bank B). ``The organisational culture provides the mass motivator to change, the coercion to learn. It provides the necessity to learn and to change (Manager, Bank A). The political nature of organisational changes has commanded the attention of many researchers to-date (Mangham, 1979; Hardy, 1990, Nadler, 1993). The findings of the present study however, provide some new insights, about the way the political games underpinning individuals' reactions to organisational changes reflect the relationship between learning and knowledge. The reactions of managers in the present study to changes introduced by the three banks reveal how their existing knowledge fuels their learning and how their learning results in a restricted form of knowing. Knowledge in the three banks is socially constructed among managers, however, it is created and shared through the specific learning means defined by the three banks. The promise of selfdirected learning as a policy delivers in practice what the organisation expects in the way it controls what, how and why managers know and learn.

The Relationship Between Learning and Knowledge: Identifying Different Forms of Knowing A question that clearly arises from the preceding analysis is whether managers can be more receptive to change if all they are allowed/encouraged to learn is what the organisation perceives to be relevant/appropriate. Moreover, if managers are not encouraged to challenge their existing knowledge and to develop a fresh perspective, how far could managers be said to be learning? In



essence, can learning be developed if old knowledge is applied to new situations? Clearly there is a need for further research before these questions can be fully addressed. However, the findings of the present study raise awareness of the different forms of knowing that result from the relationship between learning and knowledge in relation to organisational changes. Two main forms of knowing are proposed in this paper on the basis of the preceding analysis. The first form of knowing could be described as learning by knowing the same i.e. learning which is build on existing assumptions and forms of knowledge. This type of knowing is politically charged and socially defined in relation to the characteristics of the social system (e.g. culture, rules and procedures) which defines and shapes learning and knowledge. This type of knowing also supports stability and it is seen to provide a sense of security in relation to the lack of clarity that surrounds situations of uncertainty. The second type of knowing could be described as learning by knowing differently. This type of knowing is based on ùnlearning' (Hedberg, 1981) and not knowing (in the Socratic sense) which reflect the need to recognise that no form of knowledge or learning is ever complete, and that there is a continuous need to challenge existing assumptions, which support current learning and knowledge. This type of knowing encourages a process of letting go, changing one's perspective, revisiting assumptions, being creative and innovative. This type of knowing is supportive of change and is driven by the willingness to improve. This type of knowing provides security through flexibility, rather than control and is less concerned with maintaining power through knowledge, but instead is based on creating and sharing knowledge as a continuous process of development and growth. The way managers in the present study approach the relationship between knowledge and learning in relation to the organisational changes could be said to be reflecting only a process of learning by knowing the same. Managers in the three banks respond to organisational changes by drawing on their existing definitions of reality fuelled by their current assumptions and frames of references. Managers do not deviate for their current reality, in their efforts to maintain their stability and be politically correct. The existing knowledge is a source of power and control (Foucault, 1980) which managers utilise in order to maintain their security, and which they are also discouraged by the


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organisation to challenge by restricting creativity. Therefore, managers limit their learning to a process which superficially absorbs information and facts, and processes these in relation to existing categories of information which shape their actions and reactions to organisational changes. There is limited indications to suggest that the organisational systems in place in the three banks encourage a relationship between learning and knowledge which may lead to a development of new forms of learning by knowing differently.

Conclusions On the basis of recent empirical findings this paper has sought to examine how the relationship between learning and knowledge may provide new insights about individuals' reactions to organisational changes. The findings presented and the analysis developed highlighted the political nature of learning and knowledge and the impact of the implicit and explicit messages of the organisation on the nature, orientation of such processes, as well as the resulting product of their relationship. The latter point has been captured in the two forms of knowing proposed in the paper which emphasise the significance of aligning knowledge and learning with the process of change and innovation. Enhancing individual receptivity to change is not simply a case of emphasising the importance of learning and creativity, unless these principles are practically acted upon. The case of the three banks reported in this paper, suggest that the development of the learning culture is in direct contradiction to the existing risk-averse orientation in the sector. Managers' receptivity to change in the present study was evidently not enhanced partly because they were only encouraged to learn what the organisation perceived to be relevant/appropriate. Moreover, managers were not encouraged to learn, because they were not allowed to challenge their existing knowledge and to develop a fresh perspective. Finally, managers in this study were learning to respond to changes by applying old knowledge to the new situations. These observations reflect the relationship between knowledge and learning which is clearly in need of further research before we can fully capture the multiplicity of issues which underpin the way learning informs knowledge and the way existing and new knowledge fuels learning. More importantly, an understanding of the relationship between learning and knowledge may help shed some light into the multiplicity of

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reactions reflected in the way individuals respond to organisational changes. As Swain (1990:3) reminds us: ``Learning, knowledge and change form an essential chain. To break it at any point, by missing out one of the three, becomes a non-sense. Learning without knowledge is useless; knowledge without learning is impossible; and change without knowledge is chaos''.

Note The key focus of the study is the way individual managers learn and adapt during periods of change, and the extent to which organisational systems (specifically training and development) facilitate or inhibit such processes. The main strand of the field research was the qualitative interview (semi-structured), while observation, questionnaires and the critical incident technique were supplementary data collection methods employed. The managerial sample (78) in the three retail banks was randomly selected, incorporating managers across a broad spread of age, seniority, specialisation, gender and background. In order to obtain the organisation's perspective apart from organisational records and archive material, a series of interviews were conducted with senior HR managers. A total of six to eight HR managers were interviewed within each bank to obtain data from the perspective of the organisation. A detailed account of the research design and strategy for collecting and analysing the data can be found in Antonacopoulou, 1996.

References Antonacopoulou, E.P. (1996) A Study of Interrelationships: The Way Individual Managers Learn and Adapt and the Contribution of Training Toward This Process. Unpublished PhD Thesis, Warwick Business School, University of Warwick, UK. Antonacopoulou, E.P. (1998a) Why Training has a limited contribution to Individuals' Adaptability to Change: Some New Evidence, Paper presented at the Annual Meeting of the American Academy of Management, San Diego. Antonacopoulou, E.P. (1998b) Reconnecting Management Education, Training and Development Through Learning, Conference Proceedings, Emerging Fields in Management: Connecting Learning and Critique, Leeds. Antonacopoulou, E.P. (1999a) Training does not imply learning: The individuals' perspective, International Journal of Training and Development, 3, 1, 14±33. Antonacopoulou, E.P. (1999b) Can Individual Development be Reconciled with Organisational Development? Issues in the Banking Sector, in Rainbird, H. (ed.), Training in the Workplace, MacMillan, London.

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Antonacopoulou, E.P. (1999c) Developing Learning Managers within Learning Organisations, in Easterby-Smith, M., Burgoyne, J. and Arauso, J. (eds.) Organisational Learning: Developments in Theory and Practice, Sage, London. Antonacopoulou, E.P. (forthcoming) The Paradoxical Nature of the Relationship Between Training and Learning, Journal of Management Studies. Argyris, C. and SchoÈn, D.A. (1974) Theory in Practice: Increasing Professional Effectiveness, JosseyBass, San Francisco. Argyris, C. and SchoÈn, D.A. (1978) Organisational Learning: A Theory in Action Perspective, Addisson Wesley, Cambridge, MA. Armenakis, A.A., Harris, S.G. and Mossholder, K.W. (1993) Creating Readiness For Organisational Change, Human Relations, 46, 6, 681±703. Ball, C. (1993) Towards A Learning Society: Making Sense of the Reform and Restructuring of Education and Training in the UK, London Royal Society of Arts (mimeo). Burgher, P.H. (1979) Changement: Understanding and Managing Business Change, Lexington Books, USA. Cappon, A. (1994) A Life-Cycle View of Banking. Journal of Retail Banking, 16, 1, 33±37. Clarke, L. (1994) The Essence of Change, PrenticeHall, London. Drucker, P.F. (1993) Post-Capitalist Society, Butterworth-Heineman, London. Foucault, M. (1980) Power/Knowledge. Selected Interview and other writings, 1972-1977, Translated by Gordon, C., Marshall, I., Mepham, J. and Soper, K., Pantheon Books, USA. Hague, H. (1979) Helping Managers Help Themselves, Blackwell, Oxford. Hardy, C. (1990) Managing Turnaround: The Politics Of Change, in Wilson D. and Rosenfeld, R.H., Managing Organisations: Text, Readings And Cases, McGraw-Hill, London, pp. 273±280. Hedberg, B. (1981) How Organisations Learn And Unlearn, in Nystrom P. and Starbuck, W. (eds.), Handbook Of Organisational Design, Open University Press, Oxford. Humble, J. (1973) Improving The Performance Of The Experienced Manager, McGraw-Hill, London. Isabella, L.A. (1990) Evolving Interpretations as a Change Unfolds: How Managers Construe Key Organisational Events, Academy of Management Journal, 33, 1, 7±41. Jones, A.N. and Cooper, C.L. (1980) Compating Managerial Obsolescence, Philip Allan, UK. Kanter, R.M. (1983) The Change Masters: Corporate Entrepreneurs at Work, Allen and Unwin, USA. Kotter, J.P. and Schlesinger, L.A. (1979) Choosing Strategies For Change, Harvard Business Review, March-April, 106±114. Lawler, E.E. (1988) Increasing Workers Involvement to Enhance Organisational Effectiveness, Jossey Bass, San Francisco. Mangham, I. (1979) The Politics of Organisational Change, Associated Business Press, London. Marchak, R.J. (1993) Managing the Metaphors of Change, Organisational Dynamics, 22, 1, 44±56. Marris, P. (1986) Loss and Change, Routledge and Kegan Paul, London. Nadler, D.A. (1993) Concepts for the Management of Organisational Change, in Mabey, C. and



Mayon-White, B. (eds.), Managing Change, 2nd Edition, Open University/Paul Chapman, London, pp. 85±98. Pedler, M. (1988) Self-Development and Work Organisations, in Pedler M., Burgoyne, J. and Boydell, T. (eds), Applying Self-Development in Organisations, Prentice Hall, London, pp. 1±19. Pettigrew, A.M. (1987) Context and Action in the Transformation of the Firm, Journal of Management Studies, 24, 6, 649±670. Reger, R.K., Gustafson, L.T., DeMarie, S.M. and Mullane, J.V. (1994a) Reframing the Organisation: Why Implementing Total Quality is Easier Said Than Done, Academy of Management Review, 19, 3, 563±584. Reger, R.K., Mullane, J.V., Gustafson, T. and DeMarie, S.M. (1994b) Creating Earthquakes to Change Organisational Mindsets, Academy of Management Executive, 8, 4, 31±43. Senge, P.M. (1990) The Leaders' New Work: Building Learning Organisations, Sloan Management Review, Fall, 7±23. Starbuck, W. (1992) Learning by KnowledgeIntensive Firms, Journal of Management Studies, 29, 6, 713±740.


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Stewart, J. (1991) Managing Change Through Training and Development, Pfeiffer and Co., USA. Swain, B. (1990), quoted by Mortimer, D. (1991) Change and Quality Management: A Framework of Improvement Through Work-Based Learning, Human Resource Development Conference and Exhibition, London. Watzlawick, P., Weakland, J.H. and Fish, R. (1974) Change: Principles of Problem Formation and Problem Resolution, Norton. N.Y. Westenholz, A. (1993) Paradoxical Thinking and Change in the Frames of Reference, Organisation Studies, 14, 1, 37± 58. Zuboff, S. (1988) In the Age of the Smart Machine, Heineman, USA.

Elena P. Antonacopoulou is Lecturer in Human Resource Management, Manchester Business School, UK.

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Strategy and Cognition: Understanding the Role of Management Knowledge Structures, Organizational Memory and Information Overload Paul R. Sparrow The nature of our thinking about strategic management changed throughout the 1990s, highlighting a number of psychological issues associated with the pursuit of effective strategy. This paper draws attention to new academic thinking from the fields of organizational and cognitive psychology and is intended to bring insights for the reflective practitioner. It is argued that we must think differently about what it means to be intelligent in a modern organization and what it takes to be an effective implementer of strategic change. In the first of two papers, the role of managerial knowledge structures is considered. The strategic risks are problems created by information overload. The need to consider cognitive styles, intuition, creativity and emotional intelligence is highlighted.

Introduction Strategy is emotive

S

trategy in organizations today is generally regarded as a more emotive affair than of old. The world has been turned upside down for managers trying to make judgements and implement change (Sparrow, 1999). As processes of globalization, downsizing, and restructuring herald deep shifts in the pattern of work and society and influence the perceptions that employees and their managers have of work, the problems associated with increased levels of emotionality at work have become an important theme in the strategic management literature. Research on a series of deep emotional issues has taken over the academic headlines, including: . breach of the implicit or psychological

contract (Morrison and Robinson, 1997; Rousseau, 1995) and the human resource management consequences of this (Sparrow and Cooper, 1998); . an endemic lack of trust and change in the nature of trust within organizations (Kramer and Tyler, 1996); . the perception of fairness (or lack of it) and the role of organizational justice in man-

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aging accountability for events that have negative impact on material or psychological well-being (Folger and Cropanzano, 1998); . the need for much better retrospective sense-making and ongoing creation of reality in what is a complex and ambiguous organizational world (Weick, 1995); and . the need for organizations and their managers to make the knowledge and experience of individuals and groups more explicit and understandable (Sparrow, [J],1998). Briner (1999) has pointed out, that until recently two parallel worlds were seen in the way in which we treated the topic of strategic management, the action of managers, and the skills and competencies that we assumed they needed. The first ± and still dominating ± world was rational and precise, in which ``cool strategic thinking is not to be sullied by messy feelings. Efficient thought and behaviour tame emotion and good organizations manage feelings, design them out or remove them'' (Fineman, 1996, p. 545). This is the school of thought that says `let's keep emotion # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

STRATEGY AND COGNITION

out of this and deal with things rationally' (Cooper, 1998). The parallel (and until recently put on the back-burner) world acknowledged emotionality by considering the role of stress, levels of satisfaction, trust and the psychological contract. Emotion at work is discussed in both positive and negative ways. Positive discussion notes that organizations can and must generate feelings of excitement, high personal engagement and positively influence behaviour (what psychologists refer to as èmotional contagion') amongst their employees. Negative discussion notes that much organizational strategy today seems to be making people more angry, resentful, anxious, or depressed. There is still a divide in management thinking between the rational and the emotional, but with a new emphasis (Cassell, 1999). The new orthodoxy argues that emotions cannot be separated out from the managerial thought process and the process of strategic change. Both the thought processes (henceforth called cognition) and the social processes that surround strategic decision making are influenced by emotion (Daniels, 1999). Specifically, the quality of the mental models that managers develop is influenced by their emotional states. This determines the attention that managers give to information processing, the perceived level of stress and threat in the environment, and their ability to recall appropriate information. If managers live in a more emotional world, then the very content of their thought processes becomes more emotional too. This article is intended to show why constructs such as intuition, creativity and emotional intelligence are gaining more legitimacy in the management literature. In this uncertain world, the attention of psychologists is being turned to new concepts of intelligence and analytic ability ± what is called the ìntelligent unconscious'. The strategic management literature is dominated by themes of uncertainty, sense-making, and the need to surface managerial assumptions. As is so often asserted, managers are faced with an environment that is increasingly complex, ambiguous and is changing discontinuously. In theory, the rules of the past rarely guide current action (as we shall see, in practice they do, and there is the rub). Managers now have to absorb, process, make sense of, and then disseminate a bewildering flow of information in order that the organization might make effective decisions and solve problems. They must establish rich questions which redefine the problem, rather than point to immediate solutions. They cannot hide behind economic rationality and analysis, and


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have to admit that they may be as lost as the rest of us, sailing and experimenting in uncharted waters, tentatively seeking answers to what are increasingly loaded questions, and understanding increasingly the limits to their power and the `downside' to their decisions, whilst still having to manage the consequences (Sparrow, 1999). Not surprisingly, psychologists argue that the management of cognition is inextricably linked with the management of strategic risk. Why ? Because this managerial role specification has given rise to concerns about the `cognitive limits' of managers. Are they capable of such skilful thought? It is also leading to calls for new, more intelligent (in the true sense of the word) approaches to management.

The Psychological Agenda Psychologists have studied the cognitive basis for motivation, employee performance and leadership, but until recently, have been reticent to research the field of strategic management (Cassell and Daniels, 1998). Yet, as this paper argues, they can offer organizations many insights into the challenges they currently face when implementing strategy. In part this is because the processes of decision-making and implementation are messy, highly political and continually changing, and therefore not well suited to those disciplines that rely on hypothesis-testing, rational analysis and generalisation of underlying principles from one situation to another. Yet, strategic management lies within the central arena of psychologists ± it is a process that is rich in social and cognitive phenomena. In recent years there has been a blossoming of work that is helpful to managers in enabling them to better understand what happens when they enter into a strategic debate in this messy, uncertain, unpredictable world of global business. Cassell and Daniels (1998) note that psychologists have looked at strategic management from the following perspectives: 1. Strategic analysis is often imprecise, and decisions have to be taken on the basis of incomplete and ambiguous data. The importance of these decisions is reflected in intense debate and negotiation over periods of months. Moreover, the psychological impact of many of the actions that are pursued ± such as downsizing and restructuring ± cause distress to victim, executioner and accomplice. Psychologists contribute by examining the way in which teams of senior and middle managers

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Reality as social construction

undertake the analysis and selection of options. They have looked at how management judgements are arrived at, how inferences are made from patterns of incomplete data, and how various options are weighted in coming to decisions. Psychologists, then, can help organizations understand how to manage the cognitive, emotional and social consequences of strategic decision making. 2. Strategic formation has proved of interest to psychologists. They have looked at how managers make sense of their strategic environments as a precursor to making informed choices. Techniques have been developed to represent managers' mental models of the strategic environment. Techniques such as cognitive mapping have been used to access the underlying assumptions from which managers operate. Often unconscious assumptions are surfaced, which allows them to be debated openly by members of a management team. Psychologists therefore apply creative tools and techniques which have generally been used in other areas of research. In examining the level of cognitive communality, they have looked at the tension between the need to reconcile the cognitive diversity that exists across the minds of managers and the need to achieve consensus within strategic decision making. A central interest has therefore been to understand how managers can be trained to understand another's area of expertise so that they may deliberately encourage dissenting expert opinion and consider options from multiple perspectives.

Strategy as an Imprecise Information World: The Cognitive Perspective Early work on strategic management from an economic perspective assumed individuals were essentially rational. It concentrated on the way they formed expectations about the outcome of their decisions, the beliefs that guided these, and the way in which managers `calculated' probabilities. There was no explicit theory of how knowledge was actually organized, but the metaphor that guided understanding of the mind was one of computation. Individuals calculated the costs and benefits associated with various actions and then maximised, or at least satisfied, their own utility by choosing the most appropriate behaviour. Early studies of the psychology of the managerial mind analysed decision processes and organizational problem solving.

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They began to challenge this view (Simon, 1946; March and Simon, 1958). They showed that the way in which organizations processed information and the quality of managerial decisions in situations when information was either uncertain or too costly to acquire was not a rational process. By the late 1960s, the `constructionist logic' approach focused on the meanings that managers attributed to the world, and the ways in which they constructed managerial and organization knowledge (Berger and Luckman, 1967). Reality was seen as a social construction in which managers actively combined their existing knowledge structures with external information and constructed their own environment. Weick (1979, 1995) developed this approach by pursuing the theme that reality within organizations is relative. Choices cannot be seen as being correct or incorrect against an abstract mathematical equation. The correctness of a decision is dependent on the point of view that is being used to evaluate it. A distinction was made between the downstream choice or calculation process, and the upstream process of sense-making (Porac, Meindl and Stubbart, 1996). The strategic environment is partially dependent on the perceptions of what Weick calls `communities of believers' who have their own `local rationalities' or ìnterpretative stances'. These local rationalities are in turn embedded in a larger `system of meaning' ± some of which are individual and some of which are shared by the group.

Managerial Knowledge Structures and Cognitive Inertia Managerial knowledge structures act as mental templates which can be imposed on an information environment in order to give it meaning (Walsh, 1995). These mental templates have been called many things, including: attentional fields; belief structures; causal or cognitive maps; dominant logic; distilled ideologies; frames of reference; schemas; mindsets; and world views. Whatever metaphor is used, they are felt to act as simplifications. More precisely, they help managers to overcome the limitations of short-term memory when they search long term memory for relevant information (Daniels, DeChernatony and Johnson, 1995). Managers pursue one of two strategies in doing so. First, they may represent their ìnformation world' by employing knowledge structures (or schemata) which serve as top-down or theory-driven aids to information processing. These structures are generated largely from experience



and are felt to affect a manager's ability to attend to, encode and make intelligent inferences about new information. Secondly, they may pursue a bottom-up, or data driven approach, whereby they let current or novel information contexts shape their processing and inform or develop their existing schema. The benefits of this prevailing human information processing system is that it acts as a coping mechanism under conditions of uncertainty. It is also suited to an environment in which strategic decisions are seen to evolve rather than exist in any finite state. However, if such benefits are to be realised these individual knowledge structures must be organized correctly. This means they must contain high quality information, rich and sophisticated linkages, and be built around deep predictive constructs. They also must be utilised by highly competent managers. As is made clear by discussions on emotional intelligence, a manager might have very effective cognition but can still lack the competence to draw the benefits from this. Having rich schemata is only part of the requirement. Having appropriate knowledge structures means that the manager is able to: . attend to the most meaningful events in his

or her environment,

. encode and retrieve information more

effectively,

. produce better interpretations, . make more appropriate and accurate inter-

pretations, and

. solve problems more quickly.

The validity of this logic tends to rely on the researchers showing the negative consequences of poor knowledge structures. Although Weick (1995) argues that reality is all relative and socially constructed, many academics take a more judgmental view that argues that at any point in time knowledge structures may still be more or less functional. Relying on top-down knowledge structures that are not optimal can also produce many negative consequences and actually limit the manager's understanding of the environment. The liabilities include stereotypic thinking, mis-controlled information processing, inaccurate filling of data gaps, rejection of apparently discrepant but important information, refusal to disconfirm cherished hypotheses and inhibition of creative problem solving. The consequence has variously been called blind spots, collective strategic myopia, selective perception, tunnel vision and grooved thinking (Walsh, 1995). These are all problems of `cognitive inertia' ± the inability of strategists to revise their mental models quickly enough ± and they revolve


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around managers using òld maps' to `navigate new environments' (Reger and Palmer, 1996). Research has looked at how managers use mental models to analyse the competitive positioning strategy of their organization, and how they view the structure of their industries and markets (see for example Calori et al., 1994; Hodgkinson and Johnson, 1994). Managers have clear mental models of their competitive worlds and the environment, the boundaries of the competitive arena, who their rivals are, and on what basis they can compete. They use these mental models to determine appropriate strategic action. Moreover, strategists from rival firms can come to develop very similar mental models over time as they frequently exchange information during business interactions and share similar technical problems and problem-solving ideas. The way that strategists see the world is then `socially constructed' and based on common underlying recipes that are seen to be effective (Huff, 1982). In an analysis of the volatile estate agency industry, Hodgkinson (1997) found that both the individual and collective cognitive maps of the industry remained remarkably narrow and insensitive to important cues during a period of rapid industrial restructuring. Cognitive inertia ± unless challenged by periodic in depth reviews that enable managers' world maps to catch up with material changes in the business environment ± can lead to the ultimate demise of whole industries. Work on schematic information processing shows that knowledge structures can be both enabling and crippling (Walsh, 1995). In asking whether managers (and their strategies) are rational or not, the propensity of managers to see the world through blinkered eyes should be seen simply as a source of error (Evans and Swift, 1997). It is another strategic risk that has to be managed.

Loss of Organizational Memory There are two significant strategic risks associated with the modern construction of organizations and jobs: the loss of organizational memory; and the risks associated with dysfunctional decision making by the information-overloaded manager. The field of strategic management is replete with stories of firms repeating corporate blunders, blissfully unaware of any sense of continuity. 3M talks of the `shadow organization'. Strategists refer to it as òrganizational' or `corporate memory'. Organisations are highly dependent on the complex knowledge that

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resides within the net sum of an organization's employees' ± their experiences of events, projects, knowledge of clients and contacts, their awareness of decision making styles and their assumptions about working practices and relationships. In the west, much of this intelligence has recently been èxternalised' or òutsourced'. Today, managers say `Ì don't need to know that, I just need to know. . . who to ask, where to look, where to go to find out, or know that it is known by others''. There is of course also a crosscultural element associated with this lack of attention to the past. In the UK at present, there are only three Professors of Business History. In Japan there are over 400 (van de Vliert, 1997).

Information search takes time

Risks Associated with the Information Overloaded Manager In addition to the risks associated with relying on the knowledge structures of managers and in outsourcing much organizational memory, managers also rarely have the time now even to apply what knowledge they have. Information has been defined as `that which alters or reinforces understanding' (Daft, 1995). When there is too much information around, it has the opposite effect ± information overload. What do we know about information overload and why is it going to be a problem that will affect strategy implementation ? Information load is defined as ``. . . a complex mixture of the quantity, ambiguity and variety of information that people are forced to process. As load increases, people take increasingly strong steps to manage it'' (Weick, 1995, p. 87). It is typically measured in terms of the: 1. number and difficulty of decisions and judgements the information requires, 2. time available to act, 3. quality of information processing required, 4. predictability of the information inputs. Much of the information that managers are faced with is problematic in this regard. Four qualities of information are associated with overload: low quality, low value, high ambiguity, and an ever decreasing `half-life' in terms of the currency it carries (Sparrow, 1998). These qualities ± highly descriptive of much of the information dealt with by managers today ± increase the load in a number of ways: . low quality information requires the man-

ager to add the mental effort to make it of any worth to the issue at hand;

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. low value information requires an assess-

ment of its explanatory power in relation to other sources of information; . contradictory information requires an assessment of what must remain ambiguous and what can be deduced to be certain; and . information that only has a short period of relevance requires quick processing and dissemination. Not only do many of these actions waste time, they also carry negative properties both at the organizational and individual level. At the organizational level, managers become blinded to more important matters and divert attention to irrelevant issues. The ill-conceived actions of over-burdened managers can also generate the potential for unjustified risk-taking and error. The increased volume and load of information forces managers to devote far more time to the process of information search (skills that have become critically important in many roles) and far too little time on processing or learning from the information. A key management challenge is to find ways to utilize the available brain power of the organizations' employees whilst not getting them bogged down under a welter of data. At the individual level, information overload can lead to managers feeling that they are `drowning' in a sea of information (this syndrome is also called communication pollution or information anxiety). At a personal level, information overload is associated with feelings of inability to cope and inadequacy of knowledge and has been identified as a source of stress. The problems associated with this syndrome have not yet received much attention in the strategic management literature. Overload implies an excessive burden and encumbrance that is sustained with difficulty. The potential for dysfunctional decision making is clear to see when the effect that overload has on cognition is outlined. Managers cease to operate effectively as load increases and begin to demonstrate dysfunctional behaviour. In coping with the volume of information (let alone its complexity and ambiguity) they begin to neglect large portions of it and try to `punctuate' its flow in predictable ways. This `punctuation' begins with omission, then greater tolerance of error, mis-cueing or mis-attributing the source of information, filtering its message, abstracting its meaning, attempting to use multiple channels to decode and transmit its content, and finally through seeking escape! These punctuations serve to highlight the residual information, and therefore heighten the im-



pact of misperceptions on subsequent `sensemaking'. Closely related to `volume-induced' information overload is `complexity-induced' overload (Huber and Daft, 1987). Uncertainty is increased because of three elements, referred to as: numerosity (the number of separate elements to be dealt with), diversity (the range of information sources and media), and inter-dependence (the complexity of causal relationships between the information elements). Employees may be exposed to information that conveys a greater number of diverse elements which interact in a variety of ways. The greater the complexity, the more the untrained person searches for and relies on habitual and routine cues. This creates the potential for disaster, as in the nuclear industry, where the combination of a reliance on complex technologies, numerous transformation processes, and inexperienced operatives makes the unexpected commonplace.

Organizational Interactions and Information Overload Organizational interactions also lie at the heart of information load. In this sense, it is the strategists, organization designers, systems analysts and ergonomists who have first created ± and then tried to deal with ± the problem of information overload. When strategic change is implemented, the implementation usually entails a redesign of the interactions needed to operate effectively. Managers act as information brokers, managing a web of natural ìnteractions' that take place within the organization. This is called the ìntra-organizational information market'. Managers need to have a ``good'' mental model of how knowledge and information is shared across the people with whom they need to interact (in order to deliver an important business process, product or service). This need becomes paramount as we move towards virtual forms of organization (Sparrow and Daniels, 1999). The current explosion in èlectronic connectivity' and the number of ìnteractions' that now surround jobs is expected to increase the information load associated with many jobs. Research by McKinsey consultants shows that the overall ìnteractive capability' in developed countries is set to increase markedly over the next decade (Butler et al,. 1997). Workers will be able to process existing interactions in less than half the time. Until recently, our ability to manipulate and process information and data outstripped our ability to communicate and interact, but


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today managing the quantity and quality of interactions is a key strategic management skill. All interactions have the same economic purpose ± the exchange of goods, services or information ± but they involve different cognitive requirements for data gathering and searching, co-ordination, communication, collaborative problem solving, and monitoring of transactions. They occur in many forms, and each medium is associated with a different load and richness of information. Managers have to seek the right party with whom to exchange information, arrange the presentation of the information, manage its brokerage, integrate it with other databases, and monitor the performance of the interaction. Whilst interactions are not the only source of information overload (time spent in individual analysis and data processing plays a role), they represent the largest and most rapidly expanding element of most work. Interactions are shaped increasingly by computing and communications technologies. Networking technologies make it more èconomic' to share a piece of information with a colleague or a group, or to work with different people inside the organization, customers or suppliers outside the organization, or parties around the world. Each additional node in a network required to implement the strategy effectively increases the scope for interactions exponentially, not arithmetically (Butler et al., 1997). E-mails flow freely through organizations and by-pass traditional hierarchies, functions and vertical routes of previous information flows. For example, it is estimated that 60 percent of information communicated through electronic mail would never reach the recipient if not for computer-based mail systems (Fisher, 1993). An employee at Sun Microsystems typically receives 120 messages a day, a 50 percent increase from the early 1990s. The problem is that e-mails tempt managers to act faster, thereby doubling their impact on information load. This is because managers used to be able to rely on secretaries as an information filter, but today for example there are 14% fewer secretaries in the US than a decade ago, but many more managers connected to electronic systems.

Competencies for the Future, or New Management Fads? The new types of interaction and increased information load in many jobs are re-inforcing the need for managers to develop new mindsets and for the organization to consider new concepts of intelligence. The ability to

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A managerial skills agenda

manage information overload and cope with information anxiety is seen as a key management competency (Stewart, 1994; Wurman, 1989). To expect all managers to improve their cognitive capabilities to cope with information overload is a route to chaos. Not all managers may be capable of such development, the organization might not have enough depth of talent capable of being developed, and even the most competent manager has cognitive limits. Organisations must also analyse some of the structural reasons why the overload has come about in the first place. Nonetheless, a validity study of high performance competencies in a sample of 140 managers conducted by Cockerill and Schroder (1993) lends support to the argument that cognitive competencies ± defined in a broad behavioural manner ± are the most predictive of business unit performance under uncertain environmental conditions. Out of seven high performance competency factors (information search, conceptual complexity, team facilitation, impact, charisma, proactive orientation, and achievement orientation) the assessed score of the managers on the two cognitive factors (information search and cognitive complexity) were the most predictive of subsequent business unit performance. The two cognitive competencies operationalised by Cockerill and Schroder (1993) were linked by them to constructs previously identified in the Burns and Bass's Transformational Leadership studies (Burns, 1978; Bass, 1984), Boyatzis's AMA Competency Study (Boyatzis, 1982), the F.C.E.M. competency study (Huff, Lake and Schaalman, 1983); and the Princeton complexity theory studies (Schroder, Driver and Streufert, 1967). They are: 1. Information search ± defined as the ability to gather many different kinds of information and use a wide variety of sources to build a rich informational environment in preparation for decision making in the organization (correlated with business performance at r = 0.35, p5.01) 2. Conceptual complexity ± defined as the ability to link information to form and compare alternate conceptions of and solutions to managerial problems, issues and situations (correlated with business performance measure at r = 0.4, p5.001). It consisted of two elements: concept formation (a creative and logical process of forming ideas based on a range of information and linking different kinds of information separated spatially and over time to form concepts, hypotheses); and conceptual flexibility (viewing events from

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multiple conceptions or perspectives simultaneously and considering the relationships between different options or strategies to arrive at decisions). Under a stable environment, the link between these cognitive management competencies and business unit performance disappeared. There is a managerial skills agenda that cuts across the information processing perspective in this article. Managers believe increasingly that the rules of the past are no longer a guide to the future. We see renewed attention given to more subjective, intangible, implicit cognitive skills and a return to the analysis of `telling' individual differences that may help managers cut through a chaotic environment, including the: 1. Investigation of less tractable areas of human cognition, such as intuition (Claxton, 1998) and creative processes that help managers adapt to sudden crises and major adjustments (Finke, Ward and Smith, 1992; Finke and Bettle, 1996; Rickards and Moger, 1999), 2. Management of emotions in organizations and the role of emotional intelligence (Goleman, 1995; Ryback, 1998). However, are we looking at another set of catchy-sounding concepts, or is there any support for these ideas? In a subsequent paper I will consider some of the latest work on cognition and cognitive styles and the debates around these concepts.

Summary This article has argued that mangers cannot avoid having to deal with emotionality in today's world. In analyzing problems they work in a context of low trust and difficult issues of fairness and equity. Cool, rational strategic thought is often not appropriate in such a context. In any event, the actors are incapable of it. As managers try to make sense of this complex and ambiguous world, the quality and appropriateness of their knowledge structures comes to centre stage. These cognitive structures can be remarkably insensitive to important but subtle changes in the strategic environment. Cognitive inertia is a significant risk. Many current changes in organizational form, such as downsizing and outsourcing, also carry risk, primarily through the potential loss of organizational memory. However, the most significant issue is the problem of information overload. The article has outlined a number of ways in which information load is increasing, and



has noted the individual and organizational problems that can arise. This analysis therefore sets the pretext for the one to follow. It can be seen why the popular and academic literature is shifting its attention to more subjective, tacit and unconscious forms of intelligence and reasoning. Does the answer lie in developing intuitive skills, creativity and emotional intelligence? The potential contributions they can make seems to be self evident, but are these facets of the intelligent unconscious valid, practical and assessible? The debates around this will be picked up in a subsequent article.

References Bass, B.M. (1985) Leadership and performance beyond expectations. New York: The Free Press. Berger, P.L. and Luckman, T. (1967) The social construction of reality. New York: Doubleday Anchor. Boyatzis, R.E. (1982) The competent manager. New York: John Wiley. Briner, R.B. (1999) `Feeling and smiling'. The Psychologist, 12 (1), 16±19. Burns, J.M. (1978) Leadership. New York: Harper and Row. Butler, P., Hall, T.W., Hanna, A.M., Mendonca, L., Auguste, B., Manyika, J. and Sahay, A. (1997) À revolution in interaction', McKinsey Quarterly, 1997 (1), 5±24. Calori, R., Johnson, G. and Sarnin, P. (1994) `CEOs cognitive maps and the scope of the organization', Strategic Management Journal, 15, 437±57. Cassell, C. (1999) Èxploring feelings in the workplace: emotion at work'. The Psychologist, Special Issue, 12 (1), 15. Cassell, C. and Daniels, K. (1998) À missed opportunity? The contribution of occupational psychology to strategic management research'. The Occupational Psychologist, No. 35, 17±21. Claxton, G. (1997) Hare brain, tortoise mind: why intelligence increases when you think less. London: Fourth Estate. Cockerill, A.P. and Schroder, H.M. (1993) Validation study into the high performance managerial competencies. London Business School Report, May. London: LBS. Cooper, R. (1998) `Sentimental value', People Management, 2nd April, 48±50. Daft, R.L. (1995) Organisation theory and design, 5th Edition, St.Paul, Minn: West Publishing Daniels, K. (1999) Àffect and strategic decision making, The Psychologist, 12 (1), 24±27'. Daniels, K., DeChernatony, L. and Johnson, G. (1995) `Validating a method for mapping managers' mental models of competitive industry structures'. Human Relations, 48 (8), 975±991. Evans, J.St.B.T. and Over, D.E. (1997) Àre people rational ? Yes, no and sometimes', The Psychologist, 10 (9), 403±406. Fineman, S. (1996) Emotion and organizing. In S.R. Clegg, C. Hardy and W.R. Nord (Eds.) Handbook of Organisation Studies. London: Sage.


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Finke, R.A. and Bettle, J. (1996) Chaotic cognition: principles and applications. New Jersey: Lawrence Erlbaum. Finke, R.A., Ward, T.B. and Smith, S.M. (1992) `Creative cognition: theory, research and application'. Cambridge, Mass: MIT Press. Fisher, D. (1993) Communication in organizations, 2nd Edition, Minneapolis, St.Paul: West Publishing. Folger, R. and Cropanzano, R. (1998) Organisational justice and human resource management. London: Sage. Goleman, D. (1995) Emotional intelligence: why it can matter more than IQ. London: Bloomsbury. Hodgkinson, G.P. (1997) `Cognitive inertia in a turbulent market: the case of U.K. residential estate agents', Journal of Management Studies, 34 (6), 921±945. Hodgkinson, G.P. and Johnson, G. (1994) Èxploring the mental models of competitive strategists: the case for a processual approach', Journal of Management Studies, 31, 525±51. Huff, A.S. (1982) Ìndustry influences on strategy formulation', Strategic Management Journal, 3, 119±30. Huber, G.P. and Daft, R.L. (1987) `The information environments of organizations', In F.M. Javlin, L.L. Putnam, K.H. Roberts and L.W. Porter (Eds.) Handbook of organizational communication. Newbury Park, CA: Sage. Huff, S., Lake, D.G. and Schaalman, M.L. (1982) Principal differences: excellence in School leadership and management. Boston, Mass: McBer and Co. Kramer, R.M. and Tyler, T.R. (1996) (Eds.) Trust in organizations: Frontiers of Theory and Research. London: Sage. March, J.G. and Simon, H.A. (1958) Organisations. New York: Wiley. Morrison, E.W. and Robinson, S.L. (1997). `When employees feel betrayed: A model of how psychological contract violation develops'. Academy of Management Review, 22 (1), 226±256. Porac, J.F., Meindl, J.R. and Stubbart, C. (1996) Ìntroduction', In J.R. Meindl, C. Stubbart and J.F. Porac (Eds.) Cognition within and between organizations. London: Sage. Reger, R.K. and Palmer, T.B. (1996) `Managerial categorisation of competitors: using old maps to navigate new environments', Organization Science, 7, 22±39. Rickards, T. and Moger, S. (1999) Handbook of creative team leaders. Aldershot: Gower. Rousseau, D.M. (1995). Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Sage: Thousand Oaks CA. Ryback, D. (1998) Putting emotional intelligence to work: successful leadership is more than IQ. Oxford: Butterworth-Heinemann. Schroder, H.M., Driver, J.J. and Streufert, S. (1967) Human information processing. Holt, Rinehart and Winston: New York. Simon, H.A. (1946) Administrative behaviour. New York. Sparrow, J. (1998) Knowledge in organizations: access to thinking at work. London: Sage Publications. Sparrow, P.R. (1998) Ìnformation overload'. In K.Legge, C.Clegg, and S.Walsh (Eds.) The experi-

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ence of managing: a skills workbook. London: MacMillan, pp. 111±118 Sparrow, P.R. and Cooper, C.L. (1998) `New organizational forms: The strategic relevance of future psychological contract scenarios'. Canadian Journal of Administrative Sciences, 15 (4), 1±16. Sparrow, P.R. and Daniels, K. (1999) `Human resource management and the virtual organization: mapping the future research issues'. In C.L. Cooper and D. Rousseau (Eds.) Trends in Organizational Behaviour, Volume 6. London: Wiley. Sparrow, P.R. (1999) `Strategic management in a world turned upside down: the role of cognition, intuition and emotional intelligence?' In P. Flood, S. Carroll, L. Gorman, and T. Dromgoole (Eds.) Managing Strategic Implementation. London: Blackwell Publishers. Spender, J.C. (1989) Industry recipes: the nature and sources of managerial judgement. Oxford: Basil Blackwell.

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Stewart, T.A. (1994) `Managing in a wired company', Fortune, July 11th, pp. 44±56 Van de Vliert, A. (1997) `Lest we forget', Management Today, January, 62±63. Walsh, J. (1995) `Managerial and organizational cognition: Notes from a trip down memory lane'. Organization Science, 6 (3), 280±321. Weick, K. (1979) The social psychology of organizing (2nd edition). Reading, MA: Addison Wesley. Weick, K.E. (1995) Sensemaking in organizations. Thousand Oaks, CA: Sage. Wurman, R.S. (1989) Information anxiety. New York: Doubleday.

Paul Sparrow is Professor in International Human Resource Management, the Sheffield University Management School, UK.


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Book of the Quarter Reviewed by Tudor Rickards Edited by Georg von Krogh, Johan Roos and Dirk Kleine (1998), Knowing in firms: Understanding, managing and measuring knowledge, Sage, 290 pp, ISBN 0-7619-6014-7, index, clothback.

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he book enters the highly competitive market of books on organisational knowledge in its multiple manifestations. It offers an unusually strong integration of contributions from scholars and from those rare organisational types who are acquiring the label reflective practitioners. The editors and contributors include enough distinguished names to whet the appetite. In keeping with Sage's reputation, the book is serious. Serious in the sense of avoiding the simple and prescriptive. It seeks to ground the exciting new domain of knowledge management and related themes of organisational change. Indirectly it offers ways into the subjects of creativity and innovation at levels of the individual and the social. An early chapter1 on future research into knowledge management is actually something slightly different. It outlines a way of approaching the subject that concept generation and concept `retrofitting' across the regions of the core motivating issue or topic; its epistemology; appearance; and application. The approach deserves close study by those in search of a procedural map for their research journeys. It has application far beyond the issue of knowledge management. Ironically, the essay illustrates a particular difficulty with knowledge management as an issue. Contrast this with creativity, or innovation, or even change management. Knowledge management seems to me to be quintessentially epistemological. The authors' scheme works quite well, if we can distinguish the issue to hand from the other domains, and particularly from that of epistemology, or beliefs about valid knowledge. Thus, creativity may be treated as a motivating construct or issue. The epistemology of researchers into creativity may be considered in terms acceptable to those who believe in the primacy of òbjective and replicable facts' # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

or in terms of those who believe in personally experienced insights, or whatever. When, however, the issue is not creativity, but knowledge (or more precisely, the management of knowledge), we have to consider what is meant by the epistemology of management of knowledge. Is it knowledge about the management of knowledge? These are well-known philosophical conundrums laced with infinite regress possibilities. They are deep issues indeed, perhaps of a kind that led to Wittgenstein's explosive rejection of the prospects of bothering with such matters. That being said, I rather like the outcomes of this attempt to iterate between the conceptual and empirical domains to reveal patterns in existing work, and future possibilities. It seems a worthwhile alternative to the better-known and related multiple paradigm approach of Burrell and Morgan.2 Through it, the authors identify a prevailing or dominant paradigm of a cognitive kind, since the influence of Simon, Chomsky, Minsky, and others. They also reveal two less dominant approaches, one of a connectivist kind and the other of a self-structuring (àutopoietic') kind respectively. Unsurprisingly, they find it difficult to locate a given body of work entirely within one paradigm. (Marx, famously, was said to have undergone an epistemological shift. And didn't the Red Queen tell Alice that she could believe three impossible things each day before breakfast? Presumably she was an early post-modern paradigm-hopper). The authors avoid the difficulties of seeking to reconcile the three paradigms.3 Rather, they suggest that valuable, albeit modest, intellectual gains are possible from an appreciation of the possibilities of alternative viewpoints while working within a given tradition or paradigm. Nevertheless, Kogut and Zander are cited as connectivists, and Nonaka as a

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The importance of creative leadership

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leading advocate of an autopoietic approach to knowledge management. Like the authors, I believe their analysis is important. For example it helps explain some of the confusions around terms such as tacit knowledge and knowledge transfer. Researchers from the three paradigms will have different sets of assumptions as their engage with these issues. They will also set about generating their own sets of explanatory terms, that also help us pin down their otherwise hidden (tacit?) paradigmatic preferences. For the dominant cognitive school, tacit knowledge is non-problematic. For the connectivists, tacit knowledge requires intelligent search to reveal it. For the autopoietically inclined, the knowledge can only be partially conveyed, and then through shared experiences. From time to time, this organising framework crops up in the other chapters of the book. More typically, however, the contributors had their own stories to tell. The consequence is what struck me as a microcosm of this exciting new field of thought: a set of rich pictures, (often literally rather complex diagrams of the `boxes and arrows' types). As the editors hinted, this is a multiparadigm domain. The two chapters coedited by Nonaka serve to illustrate why his ideas have had such international acclaim. The core of his theory of knowledge management is possibly one of the most accessible in the book. Knowledge management can be understood as a process in which tacit and explicit knowledge are mutually transforming, through individual and social processes. The overall knowledge iteration or spiral has echoes of the earlier work of Donald Kolb. Kolb proposed a learning spiral; Nonaka and Tekeuchi propose a `spiral of organizational knowledge creation'.4 I found it particularly interesting to discover so many connections with the creativity literature. Knowledge creation, after Nonaka and Tekeuchi, requires special efforts to achieve insights that may have to involve intuitions and metaphoric modes. These authors have already written extensively in this fashion, and here they provide case evidence of companies that have made extensive efforts to achieve innovation through people whose primary role is as `knowledge enablers'. These enablers act as facilitative or creative leaders. Other case studies attest to the importance of creative leadership, and techniques that encourage idea generation and development. This kind of leader, working with a multi-disciplinary team is well-known within the creative problem-solving literature.5 It has also been

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taken up, and advocated recently for its social and economic advantages, by the Industrial Society in the United Kingdom. I would like to see more efforts at identifying the ways in which knowledge management processes may be supported by more ideas from within the creative problem-solving paradigm. Overall, the book captures the excitement of the emerging field, with well documented case examples. It will serve well the serious student of knowledge management, and also those researchers and `reflective practitioners' interested in any aspects of innovation and creativity within organisations. Its international coverage is particularly to be commended. If I have a concern for the development of the field it is this. The dominant cognitive paradigm may well gobble up the more fragile alternative ways of seeing. Just as action research and OD were `tamed' to make them more respectable and palatable, so might the àutopoietic' models of knowledge creation be overwhelmed by a dominant cognitive orthodoxy, perhaps as an offshoot to resource-based theories of the firm. This book goes some way to give support to the emerging paradigmatic position.

Notes 1. Venzin et al. 2. For example, they are able to identify the slippage from one paradigm to another as their connectivist workers `retrofitted the concept of `social constructivism' from an anti-representationistic world-view to representationism (p. 62). Burrell and Morgan (1979), and more recently Rickards (1999), see this as a capture and taming of the less dominant paradigm by the more dominant one (àbstracted empiricism', no less). 3. The temptation to `sort out' paradigms via `triangulation' is great for many a doctoral candidate torn between statistical approaches and high-involvement experiential ones! For them, in particular, the reasoning followed in this chapter is worth noting. 4. Nonaka and Takeuchi, (1995: 73). 5. Perhaps the best-known approach was developed by Parnes and Osborn from the Creative Education Foundation in Buffalo, NY. See Rickards and Moger (1999) for a recent account of such practices.

References Burrell, G. and Morgan, G. (1979) Sociological paradigms and organisational analysis: Elements of the sociology of corporate life, London: Heinemann.


BOOK OF THE QUARTER

Nonaka, I. and Takeuchi, H. (1995) The knowledge creating company: How Japanese companies create the dynamics of innovation, NY and Oxford, England: Oxford University Press Rickards, T. (1999) Creativity and the management of change, Oxford: Blackwells


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Rickards, T. and Moger, S.T. (1999) Handbook for creative team leaders, Aldershot, Hants: Gower Venzin, M., von Krogh, G. and Roos, J. (1998) `Future research into knowledge management'. In von Krogh, G., Roos, J. and Kleine, D. Knowing in firms: Understanding, managing and measuring knowledge, London: Sage.

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Book Review Fiddis, C. (1998) Managing knowledge in the supply chain: The key to competitive advantage, Financial Times Retail & Consumer, London, ISBN 1-84083-051-4, Clothback, A4, 157 pp, no index, £495.00 for Mail Order Europe.

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his book could stand as an exemplar of the notion of knowledge management. Busy executives are smart enough to demand executive summaries from highly trusted sources. Provided the source is reputable, the price of £495 is less than the cost of attending a seminar, or that of bringing in a guru for the day. What better evidence of the importance of knowledge management today, as perceived by the market and the suppliers to that market? Within the supply chain, the `R&D end' in the Universities produce the scholarly insights, and provide them freely to intermediates such as Creativity and Innovation Management. Other more market-focused practitioners and consultants might write books for, let's say, £40. But the trouble with these books is that there are many of them. How can the busy executive be sure of getting the best? That requires the ideas to appear as part of as brand. The cost goes up tenfold, but the buyer trusts the brand. In this case the brand is Financial Times Retail & Consumer. With this little lecture on supply chain economics, I leave the question of ìs the book worth the money'. Except to say that the branded product does what is expected of it. The author has interviewed a range of senior executives mainly in consumer packaged goods organisations, and captured their views on knowledge management. These views are supported from secondary sources (conferences, surveys, and the occasional academic). Overall, the author has assembled a credible `platform of understanding' of beliefs on knowledge management. The beliefs are shaped as academics, consultants, and business people interact and mutually influence ideas and `knowledge'. For the less economically endowed reader, it will be some comfort to know that the platform of understanding is out there, waiting to be erected by that old fashioned expedient of hard work in the library and on the Internet. (`Data mining' to use the knowledge management metaphor).

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The platform of understanding has been assembled from beliefs that competitiveness requires attention to the knowledge side of any business. Furthermore, the beliefs are largely `pro-innovation', accepting of the importance of networking, and new collaborative practices within competitive global markets. These beliefs help in the shift away from older simplistic confidence in `pure' rational management. There are a few quibbles - about the pro-innovation assumption ± but these can be accommodated by going more deeply into the story. McKinsey, with the incisiveness for which it is famed, suggests that `fitness' can be found where there is a balance between too little innovation and too much (p. 140). I found the fifth `driver' of knowledge management more interesting, namely that òptimisation through right sizing is not sustainable, and leads to competition solely on the basis of price due to the loss of knowledge' (p. 1). Lecturers in HRM and knowledge management may wish to set this as an examination question. What we have here, is a powerful justification for knowledge management within the resourse-based theory of human capital. Whether that can be demonstrated, is another matter. The case reports are particularly interesting, and indeed a relief from many of the worthy theoretical articles on the subject. However, these views show touchingly oldfashioned ideas about how change takes place. Indeed, the author has trouble assembling convincing mechanisms for change, either from interviews or the secondary sources. `The most powerful way of cultivating care and changing values comes from . . .top management who ``walk the talk'' [and] a total rethink on the concept of knowledge' (p. 60). One approach mentioned for stimulating change is `creative abrasion', although its specific mechanisms are not covered. Trust is also reported as important (`first get some # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.

BOOK REVIEW

trust'. . .). Koestler's model of creative discovery is mixed up with innovation, and his famous book is mis-titled (p. 54). As indicated, some of the assumptions within the emerging of knowledge management could do with a challenge. The author notes that the influence of vested interests has served to weaken confidence in the objectivity of reported findings and claims. However, overall, the book lives up to the promise of its


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brand, and offers an acceptable introduction to knowledge management for its targetted market. Further details from: Elinor Butler: (Tel) +44(0) 171 896 2668 (Fax) +44(0)171 896 2333 Tudor Rickards

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