Creating The Knowledge Culture - McKinsey Quarterly.pdf - Culture - lady_kitty

Creating a

knowledge culture

Susanne Hauschild, Thomas Licht, and Wolfram Stein

Knowledge is now the lifeblood of all companies. Don’t confuse it

with information.

sk a group of senior executives if they regard knowledge management

as very important to the success of a company. Most will enthusiasti-

cally say that they do —a response beﬁtting one of the trendiest topics in

management circles.

Yet thinking that knowledge management is crucial and knowing what to do

about it are very different. A McKinsey survey of 40 companies in Europe,

Japan, and the United States showed that many executives think that knowl-

edge management begins and ends with building sophisticated information

technology systems.

Some companies go much further: they take the trouble to link all their

information together and to build models that increase their proﬁtability

by improving processes, products, and customer relations. Such companies

understand that true knowledge management requires them to develop ways

of making workers aware of those links and goes beyond infrastructure to

touch almost every aspect of a business. 1

1 Knowledge management is the focus of a large and expanding body of literature. The books that helped

us analyze the ﬁndings of our survey included Kazuo Ichijo, Ikujiro Nonaka, and Georg von Krogh, Enabling

Knowledge Creation: How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation ,

New York: Oxford University Press, 2000; and Thomas H. Davenport and Laurence Prusak, Working

Knowledge: How Organizations Manage What They Know , Boston, Massachusetts: Harvard Business

School Press, 1998.

The survey on which this article is based was conducted in cooperation with the University of Technology

in Darmstadt, Germany, with signiﬁcant contributions from Alexandra Bendler.

Susanne Hauschild is a consultant in McKinsey’s Vienna office, and Thomas Licht is a consultant and

reserved.

MICHAEL SHEEHY

THE McKINSEY QUARTERLY 2001 NUMBER 1

Because knowledge management is an increasingly essential component of

innovation and value creation, we focused on two tasks—product develop-

ment and order generation and fulﬁllment —as a way of identifying which

companies in our survey were good knowledge managers. These tasks are

the major contributors to the value a company generates. By using process

performance and ﬁnancial indicators, we categorized 15 companies as suc-

cessful and 15 as less successful and then compared the two groups. 2 The

successful companies cut throughput time by an average of almost 11 per-

cent from 1995 to 1998, compared with an average of 1.6 percent at the

less successful companies. Development time at the successful companies

fell by 4.6 percent in the same period, compared with just 0.7 percent at

the less successful ones.

We then compared the knowledge-management practices of the more and

less successful companies to understand how those practices contribute to

corporate success. 3 The survey’s ﬁndings can be summarized simply: success-

ful companies build a corporate environment that fosters a desire for knowl-

edge among their employees and that ensures its continual application,

distribution, and creation.

Creating a desire for knowledge

Less successful companies tend to take a top-down approach: pushing

knowledge to where it is needed. Successful companies, by contrast, reward

employees for seeking, sharing, and creating knowledge. It requires effort

to develop what we call “knowledge pull”—a grassroots desire among

employees to tap into their company’s intellectual resources. Creating data-

bases or virtual team rooms isn’t enough, since many employees resist using

knowledge generated by other departments, for example. Worse still, many

people believe that the hoarding of knowledge is power, a philosophy that

may help individuals but hurts companies.

Partly to overcome barriers of this kind, successful companies tend to estab-

lish clear goals that promote knowledge pull by forcing employees to reach

beyond themselves (Exhibit 1). Instead of wasting resources by avoiding

knowledge that was “not invented here,” employees at such companies use

all available resources, including the corporate knowledge base, to improve

their chances of reaching these goals. Almost all of the successful companies

we analyzed set ambitious goals for product development and process inno-

vation, while only 33 percent of the less successful companies did so for

product development and only 27 percent for process innovation.

2 Ten moderately successful companies were intentionally left out to get a signiﬁcant differentiation.

3 The companies we examined covered a wide spectrum of industries: automotive, capital goods, and high

technology. We also looked at a handful of companies, from other industries, that were speciﬁcally chosen

because of their reputation for good knowledge management. Successful techniques, we found, worked

across industry categories.

CREATING A KNOWLEDGE CULTURE

Other techniques used by successful companies include granting ﬁnancial

and other incentives to reward employees who pull knowledge from internal

and external sources and who contribute their own knowledge to the corpo-

rate base. More than 70 percent of the successful companies surveyed, for

example, had individual incentive systems linked to product development

targets, compared with 27 percent of the less successful companies. Tying

incentives to goals that employees can inﬂuence but not achieve on their own

forces them to seek and to offer knowledge more broadly. At one US high-

tech ﬁrm, for instance, managers give employees cash incentives for ﬁling

patent applications, whether or not they are successful, to bring ideas out

into the open and to discourage the hoarding of knowledge.

Financial incentives can go a long way toward creating this kind of knowl-

edge pull, but unless they are developed carefully they could encourage the

hoarding of knowledge and other counterproductive practices. (Linking an

annual bonus solely to a sales rep’s volume growth, for instance, could spark

unhealthy competition within a company’s sales force and, in extreme cases,

foment rivalries that might damage overall performance.) Incentive plans can

also include coveted office space and other obvious status symbols as well as

an opportunity to travel and to receive more challenging assignments.

Incentive systems should promote

a broad range of corporate objec-

tives, and successful companies tend

to include knowledge management

among them. Instead of focusing

narrowly on individual performance,

such companies ensure that incen-

tives uphold a balanced range of

goals that might include ﬁnancial

success outside an employee’s imme-

diate unit, for when people beneﬁt

from the success of other units in

their companies, they are encouraged

to move away from the knowledge-is-

power mind-set and to begin sharing

what they know. Other approaches,

such as research competitions with

high-prestige, high-value prizes, are

more direct ways to encourage the

sharing of knowledge.

EXHIBIT 1

A lust for knowledge

Percent of participants using specific techniques

Successful companies

Less successful companies

Set world-class standards for . . .

Product

development

Process

innovation

Product and

process quality

Offer employees incentives for . . .

Product

development

Process

improvement

Encourage participative decision making in . . .

Although goals, incentives, and par-

ticipation all play a signiﬁcant role

in aspects of corporate strategy other

Process

innovation

Product

portfolio

Source: 2000 survey of 40 companies in Europe, Japan, and the United States;

McKinsey analysis

THE McKINSEY QUARTERLY 2001 NUMBER 1

than knowledge management, successful companies tend to keep knowledge

management in mind when crafting their overall strategies. The knowledge-

pull mind-set can be created only if it becomes an integral part of corpo-

rate culture—a necessary ﬁrst step before a company embarks on

the more practical tasks of knowledge management.

Bringing knowledge to bear

Besides creating an environment that encourages knowledge pull,

successful companies excel in applying, distributing, and creating

knowledge— tasks that can’t always be neatly separated. A technique

that helps distribute knowledge, for example, could also facilitate its appli-

cation in speciﬁc situations. Dividing the range of knowledge-management

practices among these three tasks is partly a matter of convenience and partly

an attempt to distinguish techniques by the speed with which they can

improve corporate performance. The three categories also help to identify

areas in which a company’s overall knowledge-management effort should

be improved.

Application

Every company is already sitting on a vast storehouse of knowledge, but

much of it is underused. The application of knowledge that is already in

hand is the fastest and most direct way of using knowledge to inﬂuence a

company’s bottom line (Exhibit 2). Furthermore, if companies fail to apply

knowledge, its successful distribution and cultivation will have little impact.

Part of the problem is that “information” is generally a fact, whereas

“knowledge,” which focuses on linkages or relationships, is subjective. Each

employee weighs knowledge against a different set of experiences and preju-

dices when deciding its meaning, value, and use. One global electronics com-

pany ran into problems of this sort when it tried to apply a technology being

exploited at an overseas subsidiary to its traditional product line at home. A

manager involved in the project explained that though the overseas team had

described and explained the new method, differences in culture and business

experience prevented it from being understood and implemented correctly.

“We really had to bring the experts together in one team and arrange a per-

sonal work meeting, so that they could ﬁnd a common basis to start from,”

the manager said. The information was there, but not the knowledge.

One way successful companies overcome this problem is to bring people

together across functions and hierarchies. All of the best performers had

cross-functional teams and frequent personal contacts among people at dif-

ferent levels, but only 33 percent of the less successful companies formed

cross-functional teams and only 53 percent had cultures encouraging infor-

Creating The Knowledge Culture - McKinsey Quarterly.pdf

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