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Best Business Books: Knowledge

Searching for Giants of Theory and Practice

(originally published by Booz & Company)

Battle lines are often drawn in the space between two truths — in life, in war, and certainly in the ongoing debate about knowledge in business. True, “knowledge” has become a cliché, a fad. Also true, as Peter Drucker argued: Our world is becoming “not labor intensive, not materials intensive, not energy intensive, but knowledge intensive.” The challenge is to find the truth within the cliché by asking, What should business do differently in a knowledge-intensive world?

Isaac Newton once said, “If I have seen further, it is by standing on the shoulders of giants.” Today’s business community needs a Newton — to fashion a unified theory of knowledge in business; to point out any giants lurking in our midst; to get us beyond the hype of the past decade. But no Newton — or giant’s shoulders, for that matter — has emerged. Without help in sight, we sifted through the hundreds of books published about knowledge in business over the past decade. Here we offer four that together provide the practitioner a sound basis for beginning to understand the knowledge-intensive world Drucker foresaw.

First, from 1989, is Charles Handy’s The Age of Unreason, a “guidebook to the new country” of knowledge-intensive business. Handy’s power — then and now — is his comprehensive vision of the interrelated changes in business, work, and society. In 2000, John Seely Brown and Paul Duguid bridged the gap between Handy’s vision and today’s cynicism with The Social Life of Information. Consistent with Handy’s vision, detailed and pragmatic, it gives a clear-eyed assessment of the 1990s — the hollow hype, the lessons learned, and the near-term opportunities. With those two books framing the question, Ikujiro Nonaka and Hirotaka Takeuchi’s 1995 The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation gives us a deep view into innovation and a different organizational vision, that of the Japanese. Finally, in 1998, from Gary Klein, a cognitive psychologist, we have Sources of Power: How People Make Decisions, the results of 10 years of research in how experts in a variety of professions learn and use knowledge to make critical decisions.

The Voice of Reason
In 1989, Handy wrote, “Increasingly, organizations consist of clever people doing clever things.” They are places where “fewer people, thinking better, helped by clever machines and computers, add more value than gangs or lines of unthinking human resources.” According to Handy, the source of superior organizational performance has shifted; it is no longer scale, business processes, or knowledge per se, but people, thinking and acting.

People are especially advantaged during periods of rapid change because they can learn. “Those who are always learning are those who can ride the waves of change and who can see a changing world as full of opportunities rather than of damages.” Humankind, Handy tells us, “is born to learn.” More than the simple transfer of answers from teacher to student, true learning is discovery. When we learn something, it changes us. Real learning, according to Handy, is a continually turning wheel. It starts with a question or problem, however immense or trivial. Why does the sun rise in the east every day? How much should a policyholder claim for a demolished car? How can I make a culinary miracle out of the leftovers in the fridge?

From the question we move to theories or possible answers, using the knowledge and information at hand. Common knowledge is that the sun moves around the earth. My company’s models suggest the car is worth $3,000. My sister is a good cook, I’ll call her.

Next, the theories or answers have to be tested, tried out, and reshaped. If the sun is moving around the earth, why does it rise on a different point on the horizon each day? Maybe the earth goes around the sun. My client can’t replace her car for $3,000; the claim should be for $3,500. My expert sister says make meatloaf and salad. Finally, we reflect — why did that work or not work? This is where learning takes hold. The meatloaf was dry. We won’t forget the eggs next time.

Since the friction of human nature slows the wheel of learning, Handy offers three “lubricants.” First, be “properly selfish”: focus learning on your own talents and abilities. Next, continually reframe questions and propose trial answers; embrace new perspectives; don’t get stuck in the box of your past ideas and approaches. Finally, get comfortable with uncertainty and change: Dealing with rapid change and discontinuity is where your added value is greatest.

All this learning demands a new organizational model. “Clever people have to be managed rather more sensitively than were the hired hands of the old factory days,” Handy tells us. People need to participate in decisions, both to improve the business’s results and to motivate individual learning. Senior managers have to delegate decision making. Building on the Roman Catholic concept of subsidiarity, Handy admonishes, “to steal people’s decisions is wrong.” For business units to be agile, they need to be smaller and more focused. Smart machines support smart people, helping improve the quality of decisions. The manager’s role is increasingly to set collective goals, to define who gets to make what decisions, to coach individuals, to ensure that individual objectives are aligned with the organization’s goals, and, ideally, to shape and share a vision that gives purpose to the work of others.

Since organizations are being challenged to raise their performance, companies will, in turn, demand more and more from their knowledge workers. Not everyone will desire to — or be able to — keep up. Long before the Web redefined the world of work, Handy described many of the changes we see today: the end of lifelong employment, the rise of part-time work, differentiation between core players and fringe players, multiple careers, outsourcing of specialized knowledge work.

Handy’s comprehensive vision of the knowledge economy was prescient. But The Age of Unreason is only an insightful sketch. No one yet has offered an actionable blueprint.

The Bright Light of Hindsight
The impractical knowledge management advocates of the 1990s make an easy target for criticism: learning organization theorists focusing on individual enrichment and group dynamics while neglecting business results; information technologists trying to “manage knowledge” through knowledge repositories that ignored the dynamics of learning and decision making; the majority of the world’s largest corporations pursuing knowledge and learning initiatives and only a tiny fraction achieving any meaningful bottom-line impact. But, in The Social Life of Information, authors Brown and Duguid go beyond mere criticism to explain what really went wrong.

“The way forward is paradoxically to look not ahead, but to look around,” Brown and Duguid tell us. The authors argue that knowledge and information can’t be separated from context — from the details and subtleties of how people communicate; how they learn; how they use and understand both what they know and the information they have; how they use the tools they have; how knowledge moves across regions; and how relationships between people and companies work and don’t work. Disregard for the realities of how people interact individually and together with information and knowledge explains why the breathless predictions by techno/info/knowledge enthusiasts have fallen flat.

Brown and Duguid provide powerful stories of learning and improved results grounded in context and actual work practice. Knowledge, they argue, finds value only in practice, in use. For example, Xerox’s field service reps relied on informal collaboration and individual expertise to fix machines in the field, ignoring the explicit knowledge-based tools and processes provided by the company. Ultimately Xerox helped the reps improve performance by embracing how they already learned: The company provided mobile telephones so reps could discuss problems with each other while on the job, and also provided more opportunities for them to socialize and exchange stories about work.

Through theory and practical examples, Brown and Duguid breathe life into Handy’s sketch of the knowledge-intensive world. They give us a theory that adeptly links knowledge, information, and learning, while keeping humans squarely in the middle. They show us the pitfalls of unraveling the theory. Realism. No hype.

Knowledge Creation and Innovation
In The Knowledge-Creating Company, Nonaka and Takeuchi give us an in-depth view into organizational knowledge creation in innovation. Organizational knowledge creation, the authors explain, occurs in a spiral, moving between tacit and explicit knowledge, “starting at the individual level and moving up through expanding communities of interaction that cross sectional, departmental, divisional, and organizational boundaries.”

Matsushita’s development of a bread machine in 1987 illustrates the spiral. First, a team of people knowledgeable about bread making and technology created a prototype machine based on their tacit and their explicit knowledge about markets, technologies, and baking. The first output, the authors relate, didn’t pass as bread; it was raw on the inside and hard on the outside. After an unsuccessful attempt to learn from a master baker, one team member worked in a bakery to develop tacit understanding about kneading dough. The next prototype incorporated this understanding and delivered a good loaf. Finally, the team reflected on ways to enhance the consumer value proposition, ultimately reducing the machine’s cost by eliminating an expensive yeast cooler.

The Knowledge-Creating Company complements Brown and Duguid’s arguments for context and work practice with an understanding of innovation that is consistent with Handy’s wheel of learning. However, the organizational vision offered by Nonaka and Takeuchi differs significantly from that of the other authors; it is much more institutional, less focused on individual learning and decisions. “The role of the organization is to provide the proper context for facilitating group activities as well as the creation and accumulation of knowledge at the individual level,” they tell us. It is a model especially suited to Japanese companies. Together with Nonaka’s subsequent research about ba (the context or place for creation, available in working papers through the University of California, Berkeley), The Knowledge-Creating Company provides a cross-cultural leavening of our thinking about knowledge.

Real-Time Decision Makers
In a knowledge-intensive world, clever people deliver better results by making better decisions. In Sources of Power, Klein challenges conventional decision theory by concentrating “not on the limits of decision makers, but on the human strengths and capabilities that have typically been downplayed or ignored.” Klein studies high-pressure “naturalistic decision-making settings” where information is inadequate, time is of the essence, and change is constant: firefighters battling flames; doctors saving babies’ lives; chess masters staying cool.

Skilled decision makers are experts who recognize patterns and run rapid mental simulations to test alternatives and make judgments, Klein tells us. For example, a doctor, unable to find an air passage through a newborn’s tumor-choked throat, remembers another doctor’s story of locating a passage in an adult’s crushed chest by looking for bubbles. As the child turns blue, the doctor looks for bubbles. He finds the passage. The baby lives.

People become experts through the experience of successfully confronting difficult situations. “Skilled problem solvers and decision makers are themselves scientists and experimenters,” writes Klein. “They are actively searching for and using stories and analogs, personal as well as borrowed from others, to learn about important causal factors.”

Klein offers two paths to better decision making: Develop experts and get them in front of important problems, or equip people with tools that enable them to make expert-quality decisions (like Handy’s vision of smart people using smart tools). For example, in a project for the U.S. Air Force, Klein and his team developed a decision-support tool that improved the performance of weapons directors who fly in the AWACS (Airborne Warning And Control System) airplane, achieving a 36 percent decrease in missiles fired that missed their target; 9 percent increase in the overall kill ratio; and 15 percent reduction in friendly aircraft shot down.

Building on both the literature in his field and his experience with clients, Klein provides a practical, empirically sound theory for how to make good decisions in fast-paced environments. Like the other authors’ theories, Klein’s theory is built on an integrated view of learning, knowledge, and people. Klein is unique, however, in unlocking the psychology of individuals and groups to show us the expert way. For example, he explains the importance of communicating intent in team decisions; of trust; of stories, metaphors, and analogies. He warns that although great decision makers are creative, exercises in creativity won’t yield great, insightful decisions. Neither will rational planning. In pointing us to experts — to how they use knowledge to make decisions — Klein helps us avoid the trap of trying to understand knowledge on its own, distinct from its use. From Klein, we learn how to start with the question, the decision, the objective — we learn how to operationalize Handy’s wheel of learning.

In Search of…
Newton? Giants? A practical grand unified theory of knowledge in business? None found yet. However, for practitioners, these four books together provide a powerful foundation: high-level vision and practical advice, business case studies and deep empirical research, Western and Japanese perspectives — all sharing remarkably consistent frameworks about learning, knowledge, technology, decision making, and people.

Instead of an Isaac Newton, perhaps we should be in search of a businessperson — an Alfred Sloan or an Akio Morita — who will create a dominant company using a new organizational model. A company that wins because its clever people do clever things, because they make better decisions, and because the organization itself learns. A knowledge-intensive company that others emulate and that changes the way we live and work. We haven’t seen one yet. Have you?

Jan Dyer,
Jan Dyer spent the last 11 years at Booz Allen Hamilton, where she served as the firm’s director of intellectual capital and worked with corporations in a variety of industries. She specializes in the strategic application of knowledge and learning.

Chuck Lucier,
Chuck Lucier is senior vice president emeritus of Booz Allen Hamilton. He is currently writing a book and consulting on strategy and knowledge issues with selected clients. For Mr. Lucier’s latest publications, see
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