William P. (Bill) Hall (PhD)

1. Organizational knowledge Process Infrastructure People Leave one of the legs off, and the stool will fall over One Company – Two Outcomes Knowledge Integration vs Corporate Disintegration in the Absence of Knowledge Management William P. (Bill) Hall (PhD) Documentation and KM Systems Analyst (ret.)National FellowAust. Centre for Science, Innovation & Society; Engineering Learning Unit Melbourne School of EngineeringMelbourne UniversityEmail: whall@unimelb.edu.au Evolutionary Biology of Species and Organizations http://www.orgs-evolution-knowledge.net Susu Nousala (PhD) Senior Research Fellow Spatial Information Architecture Lab ( SIAL) School of Architecture and Design RMIT University Bill Kilpatrick (MBA, Risk) Senior Project Cost Control Engineer “Good people are good because they have come to wisdom through failure. We get very little wisdom from success.” William Saroyan

2. Overview • Story of one knowledge intensive engineering project management organization and two projects over a 20 year life • “Natural experiment” in organizational dynamics and knowledge management • Project 1: the company grew to be the largest, most successful in its national industry • Project 2: the company dissipated its reputation and resources and was consumed by a competitor • Success and failure analysed in a framework of organizational theory • evolutionary epistemology • organizational autopoiesis • Lessons applicable to many knowledge intensive organizations

3. EPMO: engineering project management org • Multi-divisional company founded late ’80s employing several thousand staff • Successful $ ~7 Bn technologically complex and knowledge intense project • Design and serially produce 10 similar units for two customers • Built to demanding defence standards • Fixed price contract finalized and signed late 1989 • Uniquely successful project was completed mid 2007 • On time, every time • On budget • Profitable • Happy customers providing continuing “bread and butter” business • Was a profitable “cash-cow” allowing company to acquire several new divisions

4. What’s wrong with this picture? Williamstown, Vic. 14/08/2009

5. Follow-on project failed / EPMO sold $ ~0.5 Bn fixed price follow-on project Seven units of three quite different, but “simple” types EPMO started ~ 3 year fixed-price project April 2004 Built to “commercial” standards for a defence client Project “failed” By 2007 way over budget with major company losses against fixed price First unit delivered 6 months late, no others accepted as at 1/12/2008, two still unaccepted and rusting at the dock today (~ 1/3 total value) Approximately a year after the scheduled contract completion, no units were fully fit for use by the customer (based on press reports) Capability/warranty issues with accepted unit will cost $20+ M to fix After reviewing the situation in late 2007, owners decided to auction EPMO ('all or part') to 'position the company for future growth' Multi-billion dollar order book, fabrication facilities in three states Pre auction estimate was that company was worth $A 1 BN EMPO sold in January 2008 for $A 775 M (press reports) Cost to owners thus on the order of $A 225 M! How and why did this uniquely successful company dissipate? How do we know?

6. Epistemology and engineering KM • Knowledge = solutions to problems (Karl Popper, 1972) • Always tentative • Always fallible • Knowledge grows through criticism and error elimination • Products embody knowledge engineered to solve problems • Engineering organizations solve problems • Engineering is knowledge intensive • Organizations are systems that themselves can be engineered • Organizations have knowledge of their own • Depend on "system of systems" to manage knowledge • System of systems components include • People! • Processes connecting people • ICT infrastructure systems implementing processes • Most knowledge is created and applied by people • Many organizations forget about systems, engineering organizations forget about people, neither do process well

7. Theory of organization • Maturana and Varela’s 1980 definition of life • Based on the emergence of self-bounded systems to able to regulate and produce themselves • Varela et al. 1974 - Autopoiesis (= ‘self’ + ‘production’) • Bounded(system components demarcated from the environment) • Complex (separate and functionally different components within the boundary) • Mechanistic (system dynamics driven by self-sustainably regulated dissipative fluxes or metabolic processes) • Self-differentiated (boundary intrinsically produced & maintained) • Self-producing (system intrinsically produces own components) • Autonomous (self-produced components are necessary and sufficient to produce the system). • All knowledge constructed by life, life cannot exist w/o knowledge • Autopoiesis vs allopoiesis • Autopoietic systems produce their own emergent organization • Allopoietic systems controlled externally

8. Other organization theory issues • Tacit knowledge vs explicit documentation • Personal “tacit” personal (Polanyi) ≈ “subjective” (Popper 1972) • Organizational “tacit” (Nelson & Winter 1982) • David Snowden’s paradoxes (2002 - after Polanyi 1958, 1966): • Personal knowledge is volunteered; it cannot be conscripted. • People know more than can be told, and tell more than can be written; • only know what they know when they need to know it • Bounded rationality (Herbert Simon 1979, Steven Else 2004) • Impossible for people to make perfectly rational decisions • Memory capacity • Processing speed • Satisficing • Limits to organization (Kenneth Arrow 1974, Steve Else) • Issues of authority, governance and delegation (Else) • Structure and flow of information to support decisions • The folly of centralized micromanagement • Overloading decision processing • Insufficient capacity to know what was needed at boundaries • Boundaryless careers (1994) • Time value of knowledge (Hall et al. 2007) • Time progresses relentlessly • If not maintained, knowledge of the world depreciates with time

9. Why did EPMO Fail?

10. EPMO Background • Constants • Highly knowledge intensive work • Family owned • “Absentee” owners and senior executives • Head Office in different state from all production work) • Execs & senior line managers didn’t understand IT • “Pencil & paper” management paradigm • CIO appointed only in late 2005 and then ignored • Many lost opportunities for organizational efficiency • Example: board spent $ M to implement corporate portal • Did not consult workface staff to understand needs • Would not pay for additional modules to make it work • Would not fund training and process development • Deep management hierarchy (“black hole” for K flows to centre) • Command and control philosophy (“don’t disagree with boss”) • High turn-over of senior line managers (“one strike” policy) • Managers hired from other industries, sacked for “mistakes” • 2-3 yr cycle • Managers unaware of historical problems and solutions

11. Aspects of successful project • Contract required delivery of capabilities demanding innovation rather than building product to predefined specifications • Long duration (~17 yrs) • significant serial production • Owners & senior execs focused on acquisitions so didn’t interfere • Stable, conscientious work force in engineering & production • Ordinary pay, but proud to be associated with premier project • Many knowledge workers earned 10 and 20 year pins • Costly knowledge problems in design and early production stages • Supplier IP/technical data for design and support engineering • Engineering configuration management and change control • Delivering coherent technical data and documentation to client • Cost-effective solutions found and built into processes and practices at the workface level despite senior management • ‘feral knowledge management’ • Execs did not understand and were probably unaware of solutions • Solutions requiring investment often blocked or delayed. Example: • Some critical IT solutions for support engineering funded by middle management as time and materials from current operating budgets • Solutions + effective IT significantly reduced costs • Released contingency funds more than covered losses in other areas

12. Changes: autopoietic integration to allopoietic dissipation • Executive management: from hands-off (autopoiesis) to micromanagement (allopoiesis) • ~ 2001, owners hired “close-out” specialist from overseas as Project Director/Divisional EGM to manage serial production of the major project • EGM bonus based solely on added profit squeezed from project • Over ~ 4 years • Demanded strict time-costing to the half hour • All time required to be allocated to project line item cost code • Staff quickly made redundant when no longer needed for project • Most senior line managers replaced under his regime • Managers tend to know only particular project lifecycle stages • Replacements only knew smooth running serial production • Example: EGM approval and signature required for “outsiders” (e.g., from Head Office) to meet project staff • Impact on staff • Nose in furrow mentality • Major unpaid overtime required of salaried staff • Morale became very poor – nothing volunteered

13. Circumstances of the failure • Mobilizing the ~$ 500 M “follow-on” project • ~3 year fixed-price project • Assumed to be a “simple, commercial” project • Seven units of three quite different types to be produced in parallel • Based on existing designs meeting commercial safety standards • Competitive contract price and schedule assumed that knowledge and skills would transfer from successful project • Limited opportunities for serial production • Little commonality – but total complexity similar to large project • Needed rapid progress from detail design to production • Follow-on started before successful project finished • New (cheaper) people were hired from outside (lacked knowhow) • Line managers required all work on old and new projects to be measured to the half-hour for booking against project budgets • Bureaucracy, • Lack of trust • Staff no allowed to do anything unless there was a booking number • Socialization was seen as time-wasting • A security fence was built between the projects • Six months into project, new staff still didn’t know what to do!

14. Autopoiesis vs Allopoiesis • Up through ~ 2001 EPMO’s main division operated effectively as an autopoietic entity • Absentee owners largely directed their attention elsewhere • Line managers were problem-solvers & developed trusting relationships with people facing problems at the work-face • Conditions allowed of tacit networks to emerge • Tacit networks will emerge naturally if given time and not stifled • After 2001, local management/self-regulation were replaced by top-down micro-management, effectively transforming EPMO into an allopoietic organization • Old project no longer required innovation • Command and control replaced group-based problem analysis and solution • Nose in furrow mentality stifled thinking beyond following directions to do the job at hand

15. Example: new project negotiation & mobilization • Failed attempts to transfer knowledge • Management kept old hands in old project jobs or made redundant • New hires knew theory but lacked specific domain experience • Informal small project team developed & successfully prototyped knowledge mapping methods to help new hires access critical knowledge • Identified likely problem areas requiring knowledge transfers from old hands • How to manage configurations and engineering changes • How to capture supplier IP needed to complete & document designs • How to produce and manage technical data and documentation deliverables • Interviews were out of hours or with non-project people • Old hands proved to be happy to share knowledge and “war stories” • Analysis and prototype validated and published (Nousala et al. 2005) • Line managers treated all attempts to implement knowledge mapping/transfer program as “time wasting” (no booking no. allocated) • Pre-negotiation stage: first formal proposal vetoed by Production Manager • Early negotiations: additionally supported by Nousala’s availability to manage interview, mapping process & database: vetoed by EGM’s direct reports • Project mobilisation – proposal additionally adopted by Special Project Manager responsible for IT implementation: vetoed by direct reports. • Security fence physically separating new project team from most remaining old hands from the old project& lack of cost-codes effectively blocked emergence of autopoietic solutions based on informal knowledge transfers

16. Personal vs organizational knowledge • Vines et al. (organizational knowledge) • Tacit Personal (can be mapped for org use – Nousala et al) • ExplicitPersonal (personal knowledge management) • Explicit Organizational (can be indexed & served for organizational use) • Formal (review & approval workflows make explicit formal) • Knowledge cycles • EPMO had excellent repository and search technology but did not support it with procedures & training • Impossible to transfer all personal knowledge to the organization • Boundaryless careers (Michael B. Arthur ) • People come and go • Knowledge built through individual career trajectories • EPMO gave many old hands redundancy and stifled many others by walling them off and overwhelming them with routine work

17. Personal vs organizational knowledge • Nousala et al. (personal knowledge in the organization) • Organization depends on people who know • what knowledge is needed • who may know the answer • where explicit knowledge may be found • why particular knowledge is important or why it was created • when the knowledge was last needed or may be needed in the future • how to apply the knowledge • Knowledge can be mapped even where it cannot be made explicit • Mapping process should facilitate formation of networks • We identified organizational sources of knowledge and proved it could be mapped – EPMO management blocked use • Autopoietic organization cannot survive without generating & using knowledge • Allopoietic structure concentrates knowledge in managers. Organization cannot survive where external management’s bounded rationality is overwhelmed

18. Failure to see people and culture are important • Old style engineers understand tangible technology well, processes moderately well, people not at all • Finance, admin & some engineers saw the cost of everything but didn’t value personal knowledge • EPMO executives • Understood technology proposals and would pay to implement • Did not understand value arguments about people and culture, and did not approve what they did not understand • Managing technological enterprises and getting the most out of their information systems is mostly about managing people and knowledge • IT infrastructure is useless unless related people and process issues are understood and solved • Failing to understand manage people and organisational culture can destroy organisations.