MSc In Information Systems and Management

Why do some knowledge-based organizations perform well in terms of innovation but less well in terms of efficiency? To what extent can information systems help to redress this balance?

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December 16th, 2010

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This work is submitted as part of the requirements for the MSc in Information Systems and Management. The work contained in this assessment is my own, individual and original work and has not been used in whole or in part for any other assessment on this or any other degree. I have read and understand the University rules on Plagiarism

Table of Contents
INTRODUCTION................................................................................................................................3 THE KNOWLEDGE BASED ORGANISATION AND THE KNOWLEDGE WORKER ................ 3 INNOVATION VS. EFFICIENCY................................................................................................................. 4 Case Study Video Games Industry (VGI):..........................................................................................6 USING INFORMATION SYSTEMS TO TACKLE INEFFICIENCY. ............................................7 CASE STUDY - BUCKMAN LABORATORIES: ...................................................................................................... 8 FURTHER ANALYSIS .......................................................................................................................................... 9 CONCLUSION .................................................................................................................................. 11 REFERENCES: ................................................................................................................................. 13

INTRODUCTION
Throughout history, the definition of organisations and how they should achieve their goals and objectives has constantly evolved. In todays business environment, the onus is on management to create value by providing the best products and services to customers, to ensure that shareholders enjoy maximum returns while making sure that the business is efficient and productive. As a result, many companies have embraced the notion that to operate effectively in todays economy, it is necessary to become a knowledge-based organisation (Zack, 2003). The typical business will be knowledge based, an organisation composed largely of specialists who direct and discipline their own performance through organised feedback from colleagues, customers, and headquarters (Drucker, 1988). Therefore, in the knowledge-based economy of the 21st century, diverse human knowledge has become the source of product, service and business models with a new competitive value (Kodama, 2007). As the foundation of industrialized economies has shifted from natural resources to intellectual assets, executives have been compelled to examine the knowledge underlying their businesses and how that knowledge is used (Hansen et. al, 1999).

THE KNOWLEDGE BASED ORGANISATION AND THE KNOWLEDGE WORKER

In an economic environment with an over-abundance of goods and services, rapidly developing Asian economies, and globalization, companies can no longer make a profit simply by developing and producing goods and services efficiently, and then supplying them to customers (Kodama, 2007). Businesses, especially large ones, have little choice but to become information-based (Drucker, 1988). A firms ability to apply its capabilities in the form of knowledge resources to perform important activities is increasingly viewed as a critical source of competitive advantage in many industries (Grant, 1996). Knowledge-based organizations are usually considered to be those whose product or service is knowledgeintensive. They normally solve complex problems and provide solutions for clients.

Knowledge based organizations tend to favour the flat organizational structure where there are few or no levels of intervening management between staff and managers. This is supposed to help make the worker more productive as a consequence of being involved in the decision making process. According to Newell et. al, many of these type of firms tend to organize in distinctive ways in order to: a) Attract and retain knowledge workers and b) Promote innovation and in some instance creativity. The centre of gravity in employment is moving fast from manual and clerical workers to knowledge workers who resist the command-and-control model that business took from the military 100 years ago (Drucker, 1988). Fong defines the knowledge worker as an employee who possesses valuable experience, knowledge and expertise about the methods, processes and technology used to complete tasks. These workers are a relatively scarce resource in the global market and the nature of their work demands that they have autonomy. The highly skilled nature of the knowledge worker and the dependency of the organization on them means they are well remunerated.

INNOVATION VS. EFFICIENCY

The success of scientific management was based on the premise that the industry was inefficient. The use of scientific methods in the workplace revolutionized the manufacturing industry, entailing a massive transfer of power from workers to managers. The impact, or more accurately the intention, of Taylorism and scientific management was to evacuate all discretion from work processes so that the organization will become akin to machines and workers akin to machine parts (Grey, 2008). However, with the advent of the knowledgebased organization, the balance of power is shifting from the managers to the workers. Therefore, the central challenge will be to make the knowledge worker more productive (Drucker, 1999).

In order to make the organization efficient, work processes were organized differently and divided into sub-tasks; this led to standardization and tight control. By doing this, workers were no longer responsible for planning the organization of work but rather now performed pre-determined activities efficiently. The world is fast moving from a production-based economy to a knowledge-based one (Powell et al. 2004). (Alvesson, 1995) Organizations are becoming more knowledge intensive and are increasingly dependent on innovative knowledge to create value (Kim et. al, 1997). The term innovation is said to be the development and implementation of new ideas by people who, over time, engage in transactions with others in an institutional context (Van de Ven, 1986). The global economy is a large service system in need of innovation to grow (Maglio et. al, 2006). Significantly, in the product-based organization, output was a tangible object that allowed for easy measurement of performance. In this new organization, output is usually an intangible object, so it raises the question of how efficiency can be measured. The knowledge of the work resides in the heads of the experts making them largely responsible for work practices. This was evident in the manufacturing industry that Fredrick Taylor analyzed. A characteristic of innovation is organizational slack, which is by definition, inefficiency. Drucker (1999) suggests that the knowledge workers determine what the task is and therefore becomes responsible for their own productivity. He argues further that for knowledge workers to be productive, they must be considered as a capital asset and as such made to grow. Citing an example of the American Telephone Company (AT&T), Drucker points out that technologists working at customer location had become a major cost centre and a cause for customer unhappiness and dissatisfaction. The knowledge workers themselves defined their task as customer satisfaction and took full responsibility for delivering quality, then it became fairly easy to organize the job. The Video games industry provides an example for the tensions that exist between the need for innovation on one hand and the need for efficiency on the other.

Case Study Video Games Industry (VGI): The VGI is the economic sector involved with the development, marketing and sale of video games. The industry burst into life in the 1970s, when independent programmers designed games that quickly gained appeal and made profits. Over time, however, project and team based studios emerged. These studios typically maintain a core full-time workforce of talented employees in preparation for new projects (Bethke 2003, Tschang 2007). As companies formed and game development shifted from a single or few programmers to teams of developers, the amount of time needed to develop a game increased significantly and with that development costs increased. Games require their workers (known as developers) to perform significant amounts of creative thinking, and games need to satisfy customers evolving expectations (Tschang, 2007). Three main actors exist, independent studios, publishers, and consumers. The interactions among the three actors strongly influence innovation within the industry (Tschang, 2007). The creative control in the industry lies with the publishers not the developers who are involved with the actual game design. Competition in cultural industries is driven by a search for novelty. However, while consumers expect novelty in their cultural goods, they also want novelty to be accessible and familiar (Lampel et. al, 2000) and as such publishers prefer to focus on short-term market trends as opposed to investing in risky ideas, even though there is a potential for such ideas to be lucrative. It is evident that actors in the industry are trying to maintain a balance. Tschang (2007) termed the predominant focus on business interests or productivity-oriented production processes, usually at the expense of creativity as Rationalization. From a publishers perspective, games development is complex and as such requires rational structuring, i.e., to be developed systematically and to ensure the certainty of the games development. The developers however argue that the increase in specialization or division of labour has reduced the individuals creative scope (Tschang, 2007). As industries evolve, product innovation usually gives way to efficiency considerations and process innovation (Utterback, 1994). Presently, the VGI is focused mainly on incremental innovation, that is, the focus is on

building on the success of games by adding some new game play, or aesthetic value to appeal to its customer base thereby, turning them into a franchise. For example, Electronic Arts (EA), an international developer, marketer, publisher and distributor of video games explicitly states that its goal is to develop titles which appeal to the mass markets (EA 2005, p.21). The company itself recognizes that it is not in the business of innovating (Tschang, 2007): We have developed, and it is our objective to continue to develop, many of our hit titles to become franchise titles that can be regularly iterated (EA 2005, p.22). Abernathy and Utterback (1978) argue that the rate of product innovation is highest in the emergent, or fluid phase of an industry. There is an increasing reliance on developmental practices that improve project performance.

USING INFORMATION SYSTEMS TO TACKLE INEFFICIENCY.

As soon as a company takes the first tentative steps from data to information, its decision processes, management structure, and even the way its work gets done begin to be transformed (Drucker, 1988). Information systems have been heralded as revolutionary, being able to change work practices and location of work. However, new technologies come with them, a whole new set of challenges because it can be both an enabler and disabler of change. However, Information systems can be deployed in these firms to help ensure that these companies are efficient. The assumption that technology drives organisational change in a deterministic manner (or indeed that organisational designs drive technology adoption) is problematic because it ignores the agency of human factors in influencing choices about both the technology and the organisation (Child 1972, Newell et. al, 2009). According to Drucker (1999), the central challenge before the organisation will be to make knowledge workers more productive. As knowledge workers are the most valuable assets in the firm, the role of information systems will be to make the knowledge worker productive thereby increasing efficiency in the firm without losing its innovative capabilities. With the advent of the Internet and web technologies, there can now be a centralisation of technologies

under a single environment that is accessible from remote locations all over the world, ensuring that everyone is working with the same up-to-date versions. The question therefore is how can we use information systems to enhance the productivity of the worker. Case Study: Buckman Laboratories is a privately held specialty chemical company based in Memphis, Tennessee. Utilizing advanced chemical treatment technologies; Buckman provides complete solutions for complex industrial problems to companies in 100 countries around the world. Stanley J. Buckman founded the company in 1945, from its beginning, the company emphasized its abilities to create and manufacture innovative and unique solutions for the control of the growth of microorganisms in customer processes. Upon his death in 1978, his son Bob Buckman took up the reins as CEO of the organisation and at once, set about changing the hierarchical structure that the organisation was operating. The new CEO believed that the company was too product driven despite the company slogan of Creativity For Our Customers and sought to make the company more customer-centric. Skilled employees were sent to acquire and share best practices. The main problem of this method was that it took to long for these workers to get around the world; by the time they returned from these trips most methods were outdated. In search of a better way to enable the organisation communicate more efficiently a database was built to encourage managers to share best practices. However, managers did not use the system for its intended purpose as they already had the knowledge regarding best practices in their work. Management then identified the people who really needed the system where those who interacted with the customers daily. By allowing the field salespeople to use the system, it became apparent who knew their stuff and they became respected within the organisation. As the organisation increased in size and expanded globally, new needs were created. The CEO, Bob Buckman realised that what he wanted was information, not just for himself but for all his people--a steady stream of information about products, markets and customers. Bob believed that if I can give everybody complete access to information about the

company, then I don't have to tell them what to do all the time. The organization starts moving forward on its own initiative." If he could connect people through a network, he could replace the depth of knowledge offered in a multi-tiered hierarchy with the breadth of knowledge that is the sum of the collective experience of employees.(Fulmer, 1999). A knowledge-management system, Knetix was launched. The system made room for forums where employees from around the world could post messages, ask questions and get help from anyone. The system has undergone reviews and changes over the years, for example, to accommodate employees from non-English speaking countries; translators are available to help translate to the required language. Recognition for the system includes, Arthur Andersen Enterprise Award for Knowledge Sharing and the Smithsonian Computerworld Award for knowledge sharing in the manufacturing sector, sponsored by Ernst & Young Further Analysis The case study on Buckman Laboratories provides us with an interesting insight of how the introduction of a KMS can help increase efficiency. The CEO, Bob Buckman said, If the greatest database in the company is housed in the individual minds of the associates of the organization, then that is where the power of the organization resides. These individual knowledge bases are continually changing and adapting to the real world in front of them. We have to connect these individual knowledge bases together so that they do whatever they do best in the shortest possible time. The KMS helped improve collaboration across the organisation worldwide and made employees feel like part of a global organisation. Over time, the social networks in the company grew. People became aware of colleagues and their expertise and as a result direct contact via phone and e-mail skyrocketed. Opportunities for more face-to-face meetings were created and this was leveraged to meet in person. Percentage of sales from new products, which the organization considered a measure of innovation, began to double. Other results included a 51 per cent increase in sales per sales associate. This overlooks the likelihood that

teams will incur opportunity costs when they obtain knowledge: time spent searching for and transferring knowledge from sources outside the team take away time from working on other aspects of the sales proposal, such as developing innovative solutions that are customised to the client (Haas et. al, 2005).

Management consulting firms have paid a huge amount of attention into managing knowledge because knowledge is a key asset of consulting in the bid to add value to the client. They were among the first to aggressively explore the use of information technology to capture and disseminate knowledge (Hansen et. al, 1999). There are two knowledge management strategies that are evident in the consulting world, codification strategy and personalisation Strategy. Codification Strategy: Knowledge is carefully codified and stored in databases, where it can be assessed and used easily by anyone in the company (Hansen et. al, 1999). An example is the Accenture Knowledge Exchange system, commonly referred to as KX. Working as an intern at Accenture, Nigeria provided me with the opportunity to witness first hand how this worked, team members encouraged using the KX to search for documents related to the process being done, which could then be adapted to fit the specific needs of the client. I found that this cut down the amount of time that will ordinarily have been spent starting the process from scratch. Personalisation Strategy: Here, knowledge is closely tied to the person who developed it and is shared mainly through direct person-to-person contacts (Hansen et. al, 1999). The primary purpose of technology at such companies is to help people communicate the knowledge. For example, Bain and Company focus on dialogue between individuals and knowledge is transferred through brainstorming sessions and one-on-conversations. A variety of technologies can be used to communicate, coordinate and share knowledge across teams and the organisation real-time. These technologies allow team members to share

explicit knowledge resources and tacit knowledge with increased speed and flexibility independent of place and time. This is evident in technologies such as mobile phones, teleconferencing, and Knowledge Management Systems. Knowledge work depends on meaningful interactions among experts (Kotlarsky, 2008). One of the strengths of Scientific Management was it gave control of the processes to the managers thereby allowing for efficiency. Technologies allow people to communicate asynchronously and possibly remotely. Technology thus coordinates indirectly, by allowing individuals to coordinate their activities (Kotlarsky, 2008). Knowledge work demands that the knowledge worker be autonomous. The phenomenon of teleworking can help with this by using technologies that allow knowledge workers manage themselves and are able to work from anywhere in the world. This also gives management some control over the work practices of the knowledge worker as they can be monitored. Although employees can benefit from obtaining and using knowledge that exists in other parts of the firm to perform competitive tasks, sharing knowledge across sub-units within a firm can be problematic and risky (Haas et. al, 2005). The problems and risks associated with this knowledge transfer can outweigh the potential benefits of utilising the firms knowledge resources, obtaining and using knowledge from documents or experts in the firm may sometimes impede rather than improve the performance of important tasks (Haas et. al, 2005).

CONCLUSION
Information systems can help foster collaboration, knowledge transfer, control and autonomy in the organisation. An information-based business must be structured around goals that clearly state managements performance expectations for the enterprise and for each part and specialist and around organized feedback that compares results with these performance expectations so that every member can exercise self-control (Drucker, 1988). A companys knowledge management strategy should reflect its competitive strategy: how it creates value for customers, how that value supports an economic model, and how the companys people

deliver on the value and the economics (Hansen et. al, 1999). The modern world is a world is the world of efficiency in which the focus is upon the best means to achieve particular ends (Grey, 2008). By increasing the productivity of the knowledge worker, the organisation becomes efficient.

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