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1. Image not licensed for web distribution • Link here.

2. Break

3. Image not licensed for web distribution. Link here. Strategy Implementation Session 9 – Knowledge & Authority

4. Agenda • Quiz • Break • Company memos: emails today • Intro: Knowledge • P&G Discussion • P&G Update • Knowledge – Centralization & Decentralization

5. Knowledge Focus 1. Firms don’t exploit the knowledge they have. 2. Design should match responsibility to the location of the knowledge to be exploited.

6. The problem: pepperoni How to solve the problem? Once solved, how to diffuse the solution?

7. Knowledge Types and Knowledge Conversion

8. P&G Prep Questions • Does SK-II have the potential to become a global brand within Procter & Gamble’s worldwide operations? Why or why not? • Which of the three market options should Paolo DeCesare recommend to the GLT? What risks do you see? • How should he implement your recommended option? What are the implications for P&G’s new post-O2005 organization?

9. My Take on P&G SK-II

10. Organizing to carry out strategy Structured networks: highly-motivated units, with a focused expertise, interacting in a creative, bureaucracy-free and cohesive manner.* • Contrasts vividly with many of today’s complex corporate organizations… • Impede decision-making with ambiguity • Kill creativity with rules and procedures • Sap energy through the heavy hand of hierarchy • Features of a structured network… • Largely self-managing units and internal collaboration • Sufficient structure, processes, and hierarchy to enable • Clear responsibilities & relationships • Successful collaboration • Purposeful corporate strategies  Enable everyone to use and share knowledge to accomplish goals of the firm * Goold & Campbell p.1

11. The knowing-doing gap • What is the knowing-doing gap? • Why does it exist? • Why do traditional knowledge management solutions fail so often? • What can organizations to do close this gap?

12. Knowing-Doing Gap • Firms don’t exploit the knowledge they possess. • Traditional knowledge management often makes the problem worse • Emphasizes codified information • Separates knowledge from its use • People in KM don’t understand the actual work • Process & technology over philosophy

13. Consequences of a Best Practice Exchange(Goodman, Fig. 8.1) Adopt a best practice (69) Not implemented (14) Implemented (55) No results (8) Don’t know result (9) Results(39) Business Result (2) • Improved customer satisfaction (2) Interim Result(21) Technical fix (15) • Improved attitudes(10) • Improved behaviors (10) • One machine(7) • Worse(1) • Line of machines(8)

14. Knowing-Doing Gap Eight guidelines for action: • Why before how. • Knowledge comes from action. • Starting is more important than planning. • Tolerate and learn from mistakes. • Fear inhibits application of knowledge. • Foster internal collaboration not competition. • Measure what matters. • How leaders allocate their time & firm’s resources can set a powerful example. • Image not licensed for web distribution. • Link here.

15. Technology & competition are increasing the pressure to decentralize…* An Analogy Political Organization Bands (independent) Kingdoms (centralized) Democracies (decentralized) Communication costs falling • Radical • decentralization • Internal markets • Voluntary • Self-governing • User innovation • Knowledge • Communities Business Organization Small businesses (independent) Corporate hierarchies (centralized) Networks (decentralized) Communication costs falling *Future of Work, Thomas W. Malone

16. And firms face challenges from self-organized groups. Hierarchy Market

17. When can a company add value compared to a market? • When there are likely to be coordination problems • eg: Home Depot, lack of redundancy & ‘thin markets’ • When knowledge needs to be shared. • Applying common resources across activities. • eg: GE, Honda • Tacit knowledge is shared more effectively inside firms • eg: pizza franchises in Pittsburgh • When rapid adaptation is required • eg: Firms in crisis centralize – Motorola, IBM… • Getting a bunch of decentralized actors to change together = ‘herding cats’ => How can companies approximate some of the advantages of markets?

18. One new tool: Bringing the Market Inside* • Advantages • Draws out knowledge that resides throughout the organization. • Internal permit trading to meet company greenhouse emissions goals (BP) • Can be useful for forecasting technology (Google) or pricing (Intel). • Types of Internal Markets • Internal Selling: keeping shared services honest and responsive to needs, or organizing project teams (HP) • Trading Ideas: futures markets for predicting sales (HP) or technologies (Google) • Allocating Assets: an internal market for manufacturing capacity to allocate investment capital (Intel – prototype) • Disadvantages • Internal markets mirror some of the biases of the organization. • Overconfidence/optimism • New employees, up days for stock • Local information bias • Strong trading correlation for people who sit close, somewhat for people in social networks • They are open to manipulation for personal interest if poorly designed. *Thomas Malone, HBR April 2004

19. Another tool: relational contracts to support decentralized decisions. non-integrated Spot market Incentives, initiative integrated relational network decentralized formal Command firm Source: Rebecca Henderson Talk on relational contracts in Org Design Coordination, Control

20. Image not licensed for web distribution. • Link here. Have you worked where you felt you had significant responsibility? What made you believe in your authority? Why are relational contracts necessary for decentralization?

21. The ideal level of responsibility in a company depends on the location of vital knowledge. • Three complementary aspects of decentralization: • authority/responsibility • information • incentive MoreDecentralized MoreCentralized Vital knowledge resides across units or at the organization level. Vital knowledge resides in individuals. Vital knowledge is valuable & sticky.

22. Mobilizing Knowledge in MNC’s Complexity of Market Knowledge High Move information about the technology to where the market knowledge resides Move knowledge by rotating people and temporary co-location Exchange information (arm’s length, digital transfer is sufficient) Move information about the market to where the technology resides Low High Low Complexity of Technological Knowledge

23. Are the benefits of decentralization important? • Motivation and creativity • Many minds on same problem • Flexibility & individualization NO YES • Can you compensate for the potential costs of decentralizing? • Difficulties in… • Making decisions quickly • Managing risk and quality • Exploiting economies of scale • Sharing knowledge effectively NO YES NO Do the benefits of decentralization outweigh the costs? YES DECENTRALIZE CENTRALIZE

25. VF: many brands – a few centralized rules

26. VF’s approach: “centralized/decentralized” • All firms are ‘centralized/decentralized’ as VF describes itself • Decentralize to exploit expertise • Centralize to create common value and manage collaboration and change • Effective decentralization (or centralization) involves three linked design decisions: • Location of decision rights • Location of relevant information • Location and appropriateness of incentives • Successful firms are explicit about which decisions and responsibilities lie at which level.

27. Knowledge: issues • Group for efficiency in storing and creating knowledge. • Integrate diverse knowledge for production. • Many knowledge systems are a linking mechanism between areas of the organization. • eg: in product development project teams are very effective at integrating diverse knowledge. • eg: communities of practice try to develop shared functional knowledge across product or customer divisions • Decision level • Push decisions to the level where sticky knowledge resides. • Decision depends on explicit knowledge: Transfer up for higher levels. • Decision depends on tacit knowledge: move decision to level where skills are applied to business problems. • Processes, Systems, & Culture need to complement the other choices.

28. Knowledge: missteps • Failing to turn knowledge into action (opposite of 8 guidelines): • Lack a philosophy that motivates action (culture) • Don’t risk enlightened trial and error • Analysis paralysis - “Ready, aim, aim, aim….” • Mistakes generate blame not learning • Fear discourages risk-taking • Internal competition reduces sharing • Belief: “measuring more will lead to doing more” • Leaders don’t focus action by their example • Failing to match responsibility to sticky knowledge • Failing to match authority, information & incentives.

29. Next up: Strategic Renewal Summarize Ghosn’s main change initiatives. What lessons can we draw from Ghosn’s approach to change management? Why did Nissan’s employees implement Ghosn’s plan when they had failed to follow through on previous turnaround efforts? Image not licensed for web distribution. Link here.