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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


Why Know-Who Trumps Know-How

External networking is good for business results, and a number of companies — including ABB, Canon, Ericsson, Hewlett-Packard, IBM, Philips, Sony, and Texas Instruments — are moving forcefully in this direction. Still, many companies are far from this level of excellence. Their inability to make effective use of an ever-increasing sea of knowledge prevents necessary self-renewal from taking place, and management may not discover that the company’s products (or even its business model) are outdated until it is too late for corrective action.

Extracorporate networking can also free R&D personnel to focus more intensively on the requirements and tasks of successful product innovation. Gunnar Brock, former president and CEO of Tetra Pak Group, captures this well when he talks about overcoming critical barriers to innovation: “We need to foster a culture that does not expect everything to be developed in-house, and we must focus more efforts on integrating the knowledge of others. Moreover, we should rotate our engineers out of R&D so that they better understand the needs of our customers instead of becoming too myopic in their own specialized fields.”

Six Managerial Principles
Six fundamental managerial principles are required to implement know-who based management: open sharing and global diffusion of know-how; holistic and long-term-oriented performance measurement; the courage to perform creative destruction; multiple competencies and redundancy for cross-functional learning; the leveraging of extracorporate creativity and human know-how channels; and respect for the primacy of customer needs and manufacturability in R&D.

Companies that have the courage to adapt these principles and develop a staff profile with multiple competencies will achieve a new dimension of innovation management. A new breed of outward-oriented engineers with an equally developed understanding of research, development, production, and marketing will secure seamless knowledge transfer throughout the innovation process. A skillfully managed shift from internal know-how to global know-who can actually tear down most organizational barriers that otherwise prevent great inventions from turning into breakthrough innovations. For those who choose to pursue it, global know-who ultimately will become more important to corporate success than specialized know-how.

1. Open Sharing and Global Diffusion of Know-How. Corporate infrastructures must resonate with the open sharing of ideas, technologies, and human resources, both within and between business units. At the Sony Corporation, promotion criteria explicitly include the sharing of mistakes, which helps secure open communication and sharing of know-how. In 1993, Sony’s Akio Morita explained, “You can only be promoted to manager if you are known for a success and for a failure that you have committed so everybody can learn from it instead of possibly repeating the same mistake again that caused the failure.”

Many know-how based companies are not even close to fulfilling this principle. A senior manager in a strongly compartmentalized multinational told me, “We have never learned to cooperate within this company. Instead, we build gardens of our own, and keep the knowledge in our own drawers.” In a very different, yet also quite knowledge-based business, an R&D manager, responsible for one of the four business areas, observed, “I would rather throw all my R&D results out the window than share them with my colleagues in the other business areas. I would not allow them to borrow any of my people either.”

The compartmentalized culture of isolation is particularly common in strong companies that allow — or even support — internal competition. Not only do such companies have strong cultural barriers between their isolated and deeply specialized functions, but individual performance is more valued than groupwide innovation. The narrow specialization and performance scope of each individual makes it difficult to turn creative ideas into product innovations responding to global market needs.

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