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Thursday, November 06, 2003 - 06:54 PM

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Resonant GuideMANAGING KNOWLEDGE: THE NEW FOUNDATION OF SOCIETY OR ANOTHER PASSING FAD? This article reviews the rise and fall of knowledge management, and then examines how the unique logic of knowledge requires organic, self-organizing systems. This more sophisticated approach is used to examine how universities could be transformed.
By: William E. Halal

Keywords: Knowledge workers, Information, Management

After decades of talk about the powers of knowledge, a few years ago business, government, and other institutions began to take this strange new resource seriously. "Organizational learning" caught fire as it became clear that acquiring knowledge was paramount in a complex world of constant change. Stories circulated about managers who saved millions of dollars by putting knowledge to work effectively. A new breed of executive appeared to oversee this unknown function - the "chief knowledge officer" (CKO).

The rise and fall of knowledge management (KM)

Soon, 70 percent of corporations were busy assessing the value of their "intellectual assets". They became concerned about storing this invisible wealth in "knowledge repositories" so its power could be "leveraged" widely. Executives encouraged "communities of practice" to nurture the knowledge of specialized groups. Companies set up "yellow pages" of organizational skills and "knowledge banks" on their corporate Intranets.

There were many examples of success. The World Bank claimed a new mission that went beyond simply issuing loans for Third World development projects; under its new "knowledge strategy" the Bank drew on a global network of experts to "solve development problems" before lending money. Investment houses and consulting firms set a new standard for client service, typically stated as, "We want to provide every client the full knowledge of our entire organization - not just the knowledge of their contact person." Ford's technicians amassed such an inventory of proven "best practices" that the company sold the system itself for several million dollars.

This was heady, of course, so it is understandable that KM was seized by roughly the same hubris that caused the boom. At the height of the KM boom, brochures flooded the mail announcing yet another conference that would reveal the secrets to managing knowledge. But in the corporate suites, CEOs began wondering about the payoff from their investment, and CKOs had little to offer that was convincing. It did not help when the bust shattered faith in anything innovative, while the economy swooned in harmony.

We are now seeing the downside of KM. The majority of projects failed to produce gains, and so organizations are cutting back their efforts. The World Bank, which had served as a beacon for the field, dismantled its once vaunted KM program. One consultant said "KM as we've known it is dead".

Understanding the nature of knowledge

All innovations experience rise and decline, so it is hard to assess the prospects for this young discipline. I have been deeply involved in this field, well before it erupted into prominence, and my instincts tell me that the management of knowledge has a bright future. In an age when knowledge has surpassed capital as the strategic factor driving a global economy, the field deserves some portion of the enormous effort now expended on accounting, financial analysis and services, capital investment, and the rest of the vast infrastructure devoted to sheer money. After all, the knowledge represented by patented inventions, software, marketing programs, and skillful employees comprises 70-90 percent of the assets held by corporations like Microsoft.

To realize this potential, we will have to understand the unusual qualities of knowledge that make it so difficult to manage. For instance, all agree on the need to share knowledge, yet attempts to do so usually fail because most people have an understandable reluctance to give away this valuable resource. It is also clear that knowledge may have strategic importance, but managers find it hard to justify investments in an activity with such illusive results. And the creative source of knowledge emanates from an ill-defined sense of personal understanding - "tacit knowledge" - that defies being stored and retrieved at will. In short, knowledge has a unique logic that defies conventions formed during the reign of capital (see Halal, forthcoming).

One of the most remarkable qualities about knowledge is that it can be created by anyone. A good example is Napster, the music-swapping system that gained 50 million members in weeks. Napster is so clever that it established a dramatically different peer-to-peer Internet architecture, which may eclipse client-server architecture. Yet the inventor was a high school student.

Similar examples abound in which people without advantage, resources, or status gained the insight to produce creative innovations. This burst of creativity is visible on the Internet and in the countless new ventures now being formed by people from all over the world, from all walks of life, and all ages.

The implication is that knowledge organizations should be driven from the bottom-up using principles of entrepreneurship rather than those of hierarchy that continue to prevail. In a knowledge-centric world, we generally want to create the two entrepreneurial conditions that draw out talent:

1. allow everyone the opportunity to introduce innovations, and
2. reward those who succeed.

Yes, it will be messy, but innovation is a messy business.

This focus on entrepreneurship also solves the difficult problem of evaluating KM programs. The usual approach is to treat KM as a service subsidized by the CEO in a cost-center. This may be convenient, but line managers rightfully view cost-centers as a burden and evaluating their productivity is difficult. If regarded as an "entrepreneurial venture" offering services selected by line managers among competing providers, however, value is easily recognized by their willingness to pay. The success and growth of this important new function then rests on its ability to assist others in doing their work.

Another remarkable feature is that knowledge can grow indefinitely, unlike capital. Capital consists of tangible assets (factories, land, money) that are limited and can only be used for one purpose at a time. But knowledge is an intangible asset that increases when applied to different needs. Ray Smith, the former CEO of Bell Atlantic, often called the Father of the Information Age, explained: In the information age, wealth is a function of information and properties of the mind. Unlike capital, knowledge can't be used up. The more of it you dispense, the more you generate (cited in Halal, 1998a).

This leads to the striking implication that collaboration is now economically productive in the sense that it creates value. Collaboration was rare in the industrial age, but in an information age collaboration is encouraged because all parties can benefits by sharing knowledge. That explains the wave of business alliances underway, even among competitors.

This also helps us understand the key to pooling knowledge. Few people are altruistic enough to volunteer their time and effort to help others without receiving a reward. Claims that cooperation can be encouraged by fostering the right organizational culture usually are greeted with skepticism. Rather than rely on good intentions or annual performance reviews, some type of exchange is needed to make knowledge sharing a workable reality.

The exchange could consist of the mutual help colleagues provide when collaborating with one another, which has worked well for some organizations, especially within communities of practice (CoPs). A carefully nurtured set of CoPs helped the Navy "become alive with the fire of shared understanding".

It is also useful to rely on financial rewards to make the pooling of knowledge realistic. After all, capital continues to hold power in a knowledge economy. Attempts have been made to set up "knowledge exchanges" similar to "stock exchanges" without much success, but perhaps the time has not yet come for such a formidable undertaking. A simple version is immediately available, however, in which "experts" advise "clients" for a fee. Selling knowledge may sound exotic, but this line of work has proven wildly successful for decades - consulting. Note that providing knowledge as a paid service or through an alliance fits well with the previous concept of decentralized organizations in which entrepreneurial units do business with one another.

When the dust settles at the conclusion of the knowledge revolution, I suspect that present attempts to "manage" knowledge will appear a quaint throwback to the industrial age. A study of mine (Halal, forthcoming) in progress interviewed 40 managers and concluded that three principles are likely to transform institutions about 2005-2010:

1. E-organization. Suppliers, clients, and other stakeholders are increasingly connected electronically, and the entire organizational system will soon exchange information continuously and operate in real time.
2. Internal markets. To permit this real-time behavior, the hierarchy is being decentralized into a network of small, self-managed units that learn continuously how to adapt to their environment, creating spontaneous order out of chaos.
3. Stakeholder collaboration. All stakeholders are unified into a political coalition of constituent power centers that work together by sharing knowledge and problem solving to further their mutual success of the enterprise.

From knowledge management to knowledge creation

If something similar to the above proves valid, the key to success in a knowledge economy should shift from "managing" knowledge to "creating" knowledge, or "facilitating" knowledge. Now that we understand the world is too complex and chaotic to be "managed" in a deterministic sense, a more realistic view is emerging in which our sole hope is to create "self-organizing systems" of the type found in nature - and let solutions emerge spontaneously.

The principles outlined above describe different facets of self-organizing systems (SOS). SOSs are held together by information flows, they are composed of autonomous cells that search for solutions, and governed by shifting power centers. Knowledge is certainly being "managed" in this system, but only implicitly as the system solves myriad small problems to grope its way forward (for more on self-organizing systems, see Halal, 1993, 1998b).

Transforming today's unwieldy bureaucracies into self-organizing, living systems would allow us to use knowledge in the organic manner that nature developed through eons of evolution. Imagine business corporations and government agencies alive with the fluid intelligence of a colony of ants, a flock of birds, or a herd of wild horses. Now, that's knowledge in action!

Let's carry this line of thought further by examining the implications for what should be the foremost institution in a knowledge age - the university. If there is one organ of society primarily intended to create and disseminate knowledge, it is the university. Although universities perform this task pretty well, they also fail in some respects. They are hardly efficient, as attested by tuition increases that double or triple inflation. Academic disciplines remain narrowly isolated from one another in "silos" or "stovepipes". And, apart from a few leading intellectual centers, I think the knowledge of most university faculty lags the cutting edge of real-world innovation by about ten years.

As I argued in a previous On the Horizon paper (Halal, 1997), universities enjoy features of democratic governance, but their basic structure resembles the planned economy that failed in the Soviet Union. That is why faculty generally feel little responsibility for their performance in terms of student enrollments, financial impact, etc. That is also why they resist innovations like distance education. Just as the Soviet Union was transformed by the shift to a market economy - albeit painfully and slowly - a similar transformation is overdue in universities. Even government is being "reinvented" today.

Small signs attest to movement in this direction. Stanford is encouraging faculty to organize into small interdisciplinary teams that create new programs or research projects. Carrying this trend further, self-managed faculty units could be supported by budgets based on the revenue they generate, student satisfaction, scholarly excellence, and any other agreed on goals. If this single strategic change were to be made, professors could enjoy far greater freedom from the university bureaucracy to do more creative, rewarding work - while universities would become the entrepreneurial institutions needed to cope with mounting complexity and change.

In cases where such institutional designs have been used, behavior changes almost overnight. I think we would be surprised to see professors discover untapped reservoirs of ingenuity in designing creative educational programs to attract students. They would seek out colleagues in other disciplines to benefit from exchanging knowledge, thereby cross-pollinating disciplines. They would voluntarily adopt distance-learning and other innovative technologies and find a way to use them effectively.

Dangers and excesses are likely, of course, as in all serious change. But the university bureaucracies of the past will prove no match for today's brave new world built on knowledge. If universities hope to play their rightful role leading the knowledge revolution, they will have to emulate the organic systems found in life that use knowledge so brilliantly and so naturally.


Halal, W.E. (1993), Internal Markets, Wiley, New York, NY.
Halal, W.E. (1997), "Creating an entrepreneurial university", On the Horizon, March-April, Vol. 5 No. 2.
Halal, W.E. (1998a), The Infinite Resource, Jossey-Bass, San Francisco, CA.
Halal, W.E. (1998b), The New Management, Berrett-Koehler, San Francisco, CA.
Halal, W.E. (forthcoming), "The logic of knowledge: how a knowledge economy differs from a capital economy", Systems & Cybernetics.

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