Leadership and knowledge management
Bruce LloydSouth Bank University, London, UK in discussion with
Thomas A. StewartAuthor of The Wealth of Knowledge, Nicholas Brealey (2001)
BL
What do you consider to be the core message of your new book?
TS
The main point is to build on the argument that we live in a knowledge economy and work for organisations where knowledge is the most important raw material, process and output. Today people, in general, accept that starting point. In this book I focused on how do we then take these insights and turn them into strategies and programmes of organisational change and profits. I believe considerable progress has been made on exploring what the nature of the knowledge economy is, but I don't think there has beenmuch success in translating those insights into progress through effective organisational action. At the heart of the book is the four-step process that I describe for turning knowledge into action.
One of the things I have found when organisations have looked at becoming driven by a knowledge agenda is that they have done one of two things. Some have, inessence, said: "good, lets give that development to our IT people."And they are charged with creating an encyclopaedia of everything we know. Or they have said: "good, lets put our HR manager in charge of creating a learning organisation." Without first asking the question: "to what end are we doing this?" So the first stage of this process is to define the role of knowledge in your organisation as an economic factor, as something you buy,something you do, and something you sell. I think, that the fundamental mistake that a number of organisations have made is that they have not started by doing a knowledge budget, or set of accounts, or value chain. That is step one. Step two then describes the knowledge assets that are associated with, and created by, those flows; the knowledge you use and sell. Then it is necessary to analyse those assets to see what their structure is and then figure out whether, or not,to invest in those assets to increase their value, or exploit those assets. That is the third step. The final step is basically a productivity step which says:"now we have a knowledge business up and running, how do we improve the efficiency with which it is run?" But most companies start with step four and work backwards, and then they are surprised to find that doesn't get them useful results.
BL
What are the main issues that move on from your previous, widely read, book Intellectual Capital?.
TS
First of all, it is addressing and focusing on, the vital arena of action. The first book made the case that knowledge was something important. At its heart was a description of the taxonomy of intellectual capital – that intellectual capital is found in three baskets: human capital; structural capital (that is the systems and processes, and intellectual processes); and customer capital. That was the essence of the first book. The core of this book is that we now know all that, and that what we now need to do is put that capital to work. It explores the question: "how do we put that knowledge capital to work?".
Knowledge and strategy
BL
In many ways knowledge management has been the main new area of thinking about strategy over the past decade. But a continuing question is: "what is really different?" Surely knowledge has always been critical for an organisation, whether it is in agriculture 2,000 years ago, or for the explorers of the sixteenth and seventeenth centuries. Why is it now that the whole subject is getting so much explicit and systematic attention?
TS
I address that point in the first part of the book. We have a difference of degree that has become a difference of kind. A quantum change. Certainly knowledge has always been important; it is indeed how we went from the bronze age to the iron age. The question is where you add the most value and what it is that you have to manage, or can manage, in order to add the most value. I think it is fair to say that if you looked at a coal mine in Wales or a steel mill in the Midlands in the nineteenth century, then the most important way to add value was through the effective use of capital equipment. The workers were using their hands and their muscle power, not their brain power. At that time labour was treated rather brutally, as if workers were not of particular importance ashuman beings. As we move into the twentieth century, the intellectual contribution of the worker is becoming more and more important, reflected in the work of the Tavistock Institute in mid-century. The machinery had become standard and you increasingly got differential – or competitive advantage– from the way the equipment was used, or the organisation managed. If you move into the latest growth sectors, such as computer software or pharmaceuticals, the brain power of the workers becomes increasingly critical. Labour itself has now become the source of the value added. And those industries are the ones that are becoming increasingly important for the economy as a whole. Alan Greenspan recently estimated that, if you weighed the output of the US economy today and compared that with the beginning of the twentieth century,they would be roughly the same, but the value of that output is 20 times greater in real terms. This is a direct reflection of the greater importance of the knowledge. A 100 years ago the focus was on managing the machines, while today the emphasis is on managing the people who work for the organisation to use their knowledge.
Today more and more organisations are outsourcing the management of their machines by using contract manufacture. They are focusing more on the really critical knowledge elements; it makes it much more critical that organisations know what their vital knowledge assets actually are, and how to manage them more effectively.
Knowledge and leadership
BL
I would like to come back to that because it is closely linked with the issue of leadership. In the old model, people at the top were expected to know all the answers. Perhaps not all the answers, but certainly much more than theyknow now. Today we are lucky if they know the questions, let alone the answers. Inthe early 90's we had rediscovered the importance of learning and learning organisation ideas became both fashionable and important, but once that had taken hold it was natural to ask: "what is it that we need to learn?"Another factor was that computers were generating an enormous amount of additional information and that is resulting in an epidemic of information overload. The inevitable result of this trend is more choice and the priority is to manage all this data and information into new and useful knowledge. Finally,in parallel with the growth of the knowledge economy we also had the growth of the service economy, where the workers in an organisation spend more time in direct contact with customers, so employees were also becoming more important conduits for the element of customer knowledge that you mentioned earlier. In the old days, key knowledge about customers resided much more with top management.
TS
And that comes back again to the key question: "what do we need to know?And learn?" which brings us onto the role of leadership. I see leadership very much as an "ionising" factor. I think too many people have a "lionised"view of leadership. And all those articles that end their discussion with the phrase: "and all this comes down to leadership!" – that is a cop out! It begs the question: "what do we mean by leadership?" In my view leadership has an ionising role, in that it generates and sets the direction for energy in an organisation. It sets the tone and the culture. It is not a matter any more of giving instructions, more setting direction, combined with allowing and supporting others in the energising process.
BL
One area that I find is rarely mentioned in either strategy or knowledge management books is the role and nature of asking questions. That is invariably the foundation on which the development of new knowledge is based. Asking the"right" questions is a start, but they have to be asked in the right way too. Then that has to be combined with an ability to listen to the answers and apply that new knowledge, which are all vital parts of the critical role of leadership. Do you agree? Was it deliberate or accidental that this subject wasn't mentioned in your book?
TS
I once wrote an article that argued that organisations should have "permission"statements, as well as "mission" statements. And those would encourage that process. Certainly asking questions is the key to revealing and sharing new knowledge.
BL
But it is not just a matter of asking the right questions, they have to be asked in the right way.
TS
I totally agree and I have found many interviews in my life as a journalist,where getting that right has totally changed the nature of the conversation. People not only have become more forthcoming, they have also become more credible as human beings, which also makes a useful contribution to their effectiveness in their leadership role. If you just view knowledge management as a technical process and then leave it all to the "technies", you will end up with a library, which you then expect people to visit. But the fact is,they don't! Instead you need to create a place and culture where people are free to ask questions and explore answers.
BL
But many knowledge management books ignore this whole subject. In addition,if you want someone to change, you don't "tell them to change"; you need to use questions to try to get them to move from where they are, to where you would like them to be. It might take longer but the end result should result in them in being more committed to the change. That links into the "ionising"point you mentioned earlier.
TS
We need the technology. But we also need commitment and alignment. And we need to take account of human nature. We first turn to people who we trust when we are looking for help to provide a solution to a problem, rather than a so-called "expert". We need experts who we can not only trust, but in order to do that we need to be able to communicate effectively with them, even when they use a technical language that is not widely understood.
BL
We need to trust the answers. One reason why so much money is wasted over IT investment is that those at the top of an organisation, which are those in overt leadership roles, have not understood what questions to ask; in addition, they have not either understood, or trusted, the answers. The needs of the business have not come first.
TS
To put it another way, if a leader asks for help with a problem, the IT department often say: "yes, we have some new equipment". And the HR department say: "yes, we have tried and tested principles." Strangely,it is quite often harder to get attention than it is to get money, especially if things are going reasonably well. And when things are going badly, cutting costs comes first.
Knowledge and power
BL
When I ask my part-time students whether their organisation has a "knowledge is power", or a "sharing knowledge", culture, their answer is usually 75/25 in favour of "knowledge is power". As far as I am concerned that is a fundamental cultural contradiction. Is that your experience too?
TS
This issue does need to be addressed and the best leaders are aware of it. A great many leaders who have risen to the top within a culture of "knowledge is power" find it difficult to make the change to a "sharing"culture, particularly as it would risk undermining their own legitimacy. The culture that appears to have solved that dilemma best is GE. When Jack Welch got to the top he found that managers were more part of the problem, than the solution. I have written about this in more detail elsewhere; it is about getting the workers ideas front and centre, and it forces the managers to respond positively. As a result, the leadership process at GE is all about sharing and developing ideas. In GE you have to emphasise the importance of sharing knowledge. And that starts at the top. People there have to do it and be seen to do it. At the same time, GE is a nakedly ambitious, very American,organisation. It is brash, obnoxious and pushy. But GE have taken these things and turned them into a culture driven by a successful combination of both co-operation and competition.
BL
Which is extremely effective if organisations can get the balance right. But,in the end, how far does that long-term organisational success depend on a fundamental values agenda?
TS
I found that those who talked the game best after GE, were ENRON –although my book was published before their crisis hit the headlines. People in ENRON talked about the value of dissent, but they didn't practice it. They talked about the value of creativity, but practised it mostly in their accounts. They said all the right things about a free market of ideas and a free market of human capital, and we were all blind-sighted by that. In retrospect, it is now easy to say that they didn't reflect either a sense of ethics, or even a desire for the facts. The only thing they were obsessed with was their perception of results. You don't manage a process by just focusing on outputs – that is how the Soviets mismanaged their economy. You manage it well by getting the processes right. People need to focus on developing the right the skills in order to get better results. If this is not the priority, more and more corners will be cut in order to achieve the results: ultimately generating a vicious circle that invariably leads to destruction.
BL
But how far was the journalist world also caught up with the bandwaggon effect that prevented them too from asking the questions that should have been asked in the ENRON case?
TS
I would only point out that, if the ENRON executives could pull the wool over the eyes of some very sophisticated financial people, I am not surprised that journalists were caught out too. Although one of my colleagues at Fortunewas actually one of those who did "blow the whistle" on ENRON. Yes, we all should have asked better questions. But don't underestimate the coherence and confidence with which answers were being given, right up to the point of collapse.
BL
So what do you think leadership needs to be doing to help improve the effectiveness of knowledge management in their organisation?
TS
Leadership need to bring the knowledge issues to the surface and then make sure that they are integrated into discussions about strategy. Leaders often talk about the brain power and intellectual capital of their organisation, but they then delegate the whole management process to their HR or IT departments. Knowledge needs to be kept as the key issues for Board discussions in the strategy processes. Another thing that they need to do is work on increasing trust levels.Leaders need to have a knowledge perspective on the organisation and help create conditions where managers will encourage its development. Trust is vitally important in helping to develop a climate that encourages questioning and exploring answers; of course, all this needs to be done in disciplined way that is focused on business needs.
BL
Many books talk about the importance of trust, but few of them discuss where that trust comes from. In my view, in essence, trust reflects a perceived sense of fairness, which brings us back to the values agenda. But the issue of "fairness"is rarely discussed. Also, perhaps paradoxically, the more change that is going on, the more important trust becomes, but the harder it is to find trust. Without trust you can easily get into a vicious circle, where more changes create more problems and less trust, which can then easily lead to more problems and the apparent need for even more change.
TS
We do talk a lot about the need for trust and I do emphasise the importance of it in the book, as well as exploring the conditions on which trust depends and how it can be developed. If there is power without trust, it is likely to create dissension, rather than progress.
BL
Sometime ago I did some work on the link between power and responsibility[see Leadership & Organization Development Journal, Vol. 17 No. 4,1996, pp. 52-6] and we are using the word trust as closely overlapping with the concept of responsibility. Both the words trust and responsibility reflect the way power is used. It encourages people to ask: "in whose interest is power being used?" And that is often the fundamental problem.
TS
And all too often that is the case.
BL
And that will, sooner or later, destroy the organisation.
TS
That is a very good point and a very big problem. A vital part of any leadership role is to recognise its stewardship role. Organisations do not exist just to make those at the top rich. They are there to make everyone successful.
BL
Your book covers these organisational issues much more thoroughly than most books on knowledge management but, I believe, it would be really helpful if all books on the subject were driven by those issues, rather than giving the impression knowledge management is essentially at technical issues, instead of recognising that it is the people issues that are the most critical and problematic.
TS
I disagree. I believe the subject needs to be driven by the needs of customers. Too often executive compensation seems to come before customers. Greedy leadership and greedy management are deeply corrosive. One of the first things an organisation needs to do is generate a sense of informality and a climate where people feel that the rewards are related to contribution. But, I agree, that is rarely the case in practice.
Knowledge and wisdom
BL
There is one word I didn't find mentioned in your book … the word "wisdom".
TS
I left it out deliberately for two reasons. First, people talk about the hierarchy from data to information, to knowledge to wisdom. And I don't like that progression – things don't add up that way. Data and information are different to knowledge and wisdom. Second, I feel it is presumptuous to talk about wisdom. Wisdom is to be treasured where it exists but it is pretty hard to manage its creation.
BL
Thank you very much for your time and stimulating insights. I hope your book is as widely read as it deserves.
