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Welcome to the not-so-distant future, a world where jobs and managers no longer exist; knowledge and vision are not only prized by shared; and lean, agile, robust enterprises thrive...

The Dawn of the
Knowledge Era

BY CHARLES M. SAVAGE

The year is 2004 and people are still scratching their heads. How was it possible to so profoundly transform our industrial world in just 10 years? It took the Industrial Revolution 50 to 150 years to establish itself. Why did we make such a swift transition?

The answer can be found in one word: necessity. Back in 1994 people realized the Industrial Era model was bankrupt. Its bureaucratic mentality was like thick molasses. Its underlying assumptions were hopelessly out of date.

Then companies like Johnsonville Foods in the United States, Oticon in Denmark, Skandia and ABB in Sweden, Semco in Brazil and Godrej in India began to rewrite the organizational rules. Instead of focusing on mining natural resources, the new approach focused on mining our minds. The transition to the Knowledge Era released a tremendous amount of energy, creative activity and economic development. And, luckily this development has been much more in harmony with our concern for the environment, so it has not brought with it the myriad negative side effects the Industrial Era ushered in.

Let's look at the whats, the whys and the hows of this transformation.

The what: operationalizing the Knowledge Era

The first thing we notice in the Knowledge Era is that the Marketing Department has been renamed the Listening Team. The team's task is to actively listen to and understand their customers' capabilities and aspirations.

Engineering, no longer a self-contained little empire, includes customers and suppliers on the Product and Service Creation Team. Operations consists of a network of independent vendors tied together as one by a robust network.

Human Resources is now called Knowledge Resources and Information Systems is now Knowledge Systems. The Training Department no longer exists, but learning has not stopped. Instead, more intense learning happens within and between teams.

Legal has redefined its stripes and instead of playing the defensive game, it is an active business partner helping to shape virtual enterprises in real time. Finance is now called Capital and Knowledge Assets, because it has understood that the company's real assets— knowledge, talent, experience and vision — are four to 20 times the amount of investments in capital letters.

Jobs are gone, as are managers. In their place are competencies, teams, leaders and learners.

Instead of boxes and lines on an organizational chart, we see ever-changing circles— clusters of capabilities teaming and reteaming to seize ever-changing business opportunities. Our leading companies have become "communities of competencies".

Departments have become Centers of Excellence and the hierarchy is now perhaps three levels at most. In fact, it hardly functions as a hierarchy any longer, but as a dynamic, pulsating movement of teams. With productivity and profits so high, the dynamic teaming process and virtual enterprising are now the chosen way of operating. Computer-based technology allows companies and individuals to work together in ever-changing patterns. Between 1994 and 2004 they master the art of temporary alliances and virtual teaming (Figure 1.)

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Instead of being pre-defined, these companies are now capable of continually redefining themselves within the context of ever-changing business opportunities. They are self-organizing, self-teaming, self-aligning and self-configuring.

Indecisiveness and endless turf battles have been replaced by agile and decisive action. These companies are both lean and robust; their resources are lean, but because they effectively leverage the capabilities of their suppliers and talents, their virtual teams are robust and vibrant. (Figure 2.)

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Companies no longer just focus on problems. Instead, they actively look for opportunities to enhance the capabilities of their customers so the customers can become more responsive to their customers. Instead of just thinking "customers," these leading companies are thinking "customers' customers." Instead of thinking about problems to solve, they seek out opportunities to seize. In short, dynamic teaming and virtual enterprising are a natural way of life now for the most successful companies. They have become good at identifying one another's capabilities and aspirations— and building off these in ever-changing clusters if teams. (See Figure 3.)

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The why: The rigor mortis of the Industrial Era

We discovered in the mid-1990s that the traditional Industrial Era model was no longer working. Talented people felt frustrated and confined. Rigor mortis was setting in.

The rules of the game had changed. Thick policy manuals got in the way, yet people hung on to their power prerogatives with all their might. They were afraid and uncertain. "How would others know who I am if I do not have a fancy office and big title?"

Gradually, people began to awaken to the fat that the five underlying assumptions of the Industrial Era were much too simplistic. Although these five assumptions had helped shape organizations for 200 years— successfully I might add— there came a point where they outlived their usefulness.

Adam Smith provided the conceptual framework for the Industrial Era in his "Wealth of Nations." His "pin making factory" has been the prototype for the division and subdivision of labour. Smith's notion of the "Invisible Hand" set the competitive framework for economic growth. James Watts' steam engine made it possible to place power where the production was needed.

These investments took money, so it was prudent to manage capital assets and keep costs under control. The way to keep control was through the steep hierarchy with its command and control model. All simple and logical, but short-sighted, because reality is so much richer and more complex. Let's look briefly at these five assumptions and consider how they have been addressed in the last ten years.

1. Divide and Subdivide Work

Before the Industrial Era, people did a variety of things on their farm, and usually from beginning to end. It was novel to break a large task into little steps, i.e. jobs. At the time the "job" concept was breakthrough thinking because it freed people from their dependency on the land. They could now work in new patterns. Smith's thinking paralleled the science of his day that liked to deal with complexity by breaking things into little bits and solving each part. The machine that could be worked on in parts was a natural metaphor for the organization.

With large processes divided into little jobs, it was natural that we would have to have someone supervise the workers. These supervisors needed supervision so managers stepped in. The managers needed looking after, so executives were given a role. No one was quite certain that their subordinates would follow their assigned task. In the past 10 years we have realized that this model was, in essence, structured distrust.

During that same time frame we have also learned that dividing things into parts is not the only way to deal with complexity. We also need to stand back and discover the patterns. To seize the rich pattern of opportunities, we need to pattern our capabilities in ever-changing clusters of competencies. Therefore, we need to excel at the teaming process, overlapping resources with and between the company. In addition, trust and openness are essential if we are to really discover the patterns, because no one person can see all the variety in the system. We have come to understand that jobs and management are an artifact of the Industrial Era. In their place, we find a focus on teaming capabilities and creative leadership.

2. Looking after one's own interests

Adam Smith's notion of the Invisible Hand was wonderfully liberating at the time. It acknowledged that human activity generated wealth, rather than having to conform to some divine reality. There was a tremendous burst of energy in Scotland and England that gradually spread around the world. Companies built machinery, started banks, mined minerals, cut and distributed lumber, and built railroads and ships. Many little proprietorships found ways to serve one another, and the nation's wealth did, indeed, increase.

There were down sides as well. Hours were long. The dexterity of children's hands led them into the factories. There was hardly any concern about pollution or even scarcity of natural resources.

From this experience we learned that people and companies prosper by looking after their own interest. We excelled in this competitive environment. This experience conditioned us to look for weaknesses in the other, be it an individual, department or another company. This thinking carried over to our schools, which did little to teach students to learn from one another. Out of our Industrial Era experience we became giants in the art of discovering weaknesses in one another, but pygmies in discovering one another's strengths.

During the past 10 years we realized that we needed to take an active interest in others, to find their talents and capabilities and to build off these resources. Only as we actively discovered one another's competencies can we hope to effectively team them. We realized that society was the loser in the old model, because it educated excellent professionals, but their talents were not well leveraged because of the seemingly simplistic competitive model that underlaid our interactions. This led to the realization that we need not only self-interest, but also interest-in-other selves, be they individuals, other departments or other companies. "Only as you felt I take you seriously will you be willing to open up to me and share your talents freely as we create something together." The driving metaphor is now no longer just the Invisible Hand, but also Visible Heads, yours and mine, and others.

3. Transform raw materials.

The Industrial Era grew up on the wealth of nature. Steam engines drove saw mills to produce timber; they provided power to mines to produce iron ore. We transformed raw matter into finished goods.

We shaped these raw materials with ideas. Without really thinking about it, we transformed raw ideas into finished goods and services. In the past 10 years we have come to appreciate the significance of the idea-transformation process. We have become very good at weaving a tapestry of ideas into quality products. Instead of demeaning the ideas of others, we carefully listen because we have found it is often the still, small voice that projects wise thinking.

We have also learned in the past 10 years to build upon the ideas of our customers and suppliers. They are as integral to our processes as our own engineers. In fact, the raw material for our companies now comes from the ideas and aspirations of our customers as they strive to become more responsive to their customers.

4. Manage capital assets.

At the outset of the Industrial Era there was a great need for capital equipment. The cost of property, plant and equipment (PP&E) was often more significant than labor costs. It was natural, then, to develop an accounting system that focused on plant, equipment and inventory. In this model, labor was seen as a cost.

Over the last 10 years we have discovered that one of our key assets, human knowledge, is much more valuable than PP&E. For example, one high-tech company has sales of $1 billion and capital assets of $250 million. Back in 1994, when the leadership of the company was asked to estimate the value of the knowledge, experience and capabilities of the company, their answers averaged between $4 billion and $6 billion. That is 20 to 24 times capital assets. In the past 10 years, this company and others have learned how to effectively work their intellectual capital. Instead of just having a financial controller, we now have controllers who help us focus on intellectual capital. Skandia in Sweden was the first company to have such a controller, way back in 1994.

Our new accounting system includes both capital and knowledge assets. It measures both inventory turns and knowledge turns. These new ratios help keep our companies focused on their key variables. We have rebuilt our measurements from a customer's perspective, which has helped us uncover opportunities in the market.

5. Command and control processes

In the Industrial Era when resources were tightly controlled throughout the steep hierarchy, accountability and control were essential. But over the last 10 years we have realized that as we team more and more with resources outside our companies, the old command-and-control processes are a hindrance.

Instead, we have learned to help all team members understand the business context of our work, to see the patterns and not just the parts, and to use their heads and their hands. Our new system makes us accountable to the customer, not just our boss. In fact, the boss is hardly visible in the new model, because we are constantly moving among and between teams. Our real colleagues are our teammates on our teams and related teams. We have, therefore, designed reward systems based on our contributions to the customer's and team's success.

Instead of command and control, we have a model of cooperation and collaboration within and between companies. There is a dynamic openness, an honesty, and a determined desire to see the truth. Most of the petty little games we use to play with information have gone the way of the buggy whip. It no longer makes sense to manage the news so our boss does not notice the blunders.

As we have moved to the Knowledge Era a new set of assumptions have come to the front:

1. Team and reteam capabilities.

2. Interest in other selves reveals their capabilities and aspirations.

3. Transform both raw material and raw ideas.

4. Leverage both capital and knowledge assets.

5. Cooperate and collaborate within and between companies.

In these 10 years we have surprised ourselves with how much more engaging business can be. In fact, there is so much excitement that more and more young people want to come into the manufacturing and service sectors. They know their talents will be appreciated and used. They are well prepared because as young people they simulated the development of cities and industries in computer simulation games, like SIMCITY, and they mastered the process of putting together teams in their Dungeons and Dragons games.

The how: making it happen

How were we able to make such a significant shift in just 10 years? First, when we realized how hopelessly out of date the simplistic assumptions of the Industrial Era were, we realized that we needed more fundamental changes. Certainly our effort towards total quality and business process reengineering helped, but they were not sufficient.

We realized that it was no longer plausible to just dream up new buzzwords and plaster them in a thin veneer over a garbage heap. Instead, we had to actively unlearn some of the assumptions we had spent 200 years learning. As we rethought our business context, we realized we needed self-organizing organizations, not pre-defined organizations. We needed to reach out to our customers and listen, not just tell. And we needed a new understanding of values and culture, one in which the knowledge, capabilities and the aspirations of the other were actively valued (Figure 4).

In this regard, it became painfully clear that the Industrial Era was built on structured distrust. It cultivated a culture of devaluing, where we looked for one another's weaknesses, but never saw our strengths. By learning to look for each other's capabilities and aspirations, we realized how separate boxes hampered our creativity.

Most interestingly, we realized that the individualism that we prided ourselves in was a pseudo -individualism. As we learned to dynamically team within and between companies, we learned to pick up on the unique capabilities of one another. By valuing one another, we brought into focus a much more substantive appreciation for one another, a much deeper individualism.

Our new model began by understanding how we could work with our customers to help them become more responsive to their customers. As we spotted opportunities, we then identified the capabilities we needed to team to capture the opportunities. We built a robust infrastructure to support this. And we engaged the staff functions in new ways to help this happen. In the Industrial Era the staff was the keeper of the culture and it often kept us stuck in the old culture (Figure 5).

Now, over the past 10 years, the staff has been reintegrated into the line; the distinctions are hardly noticeable. Knowledge Resources (HR) and Knowledge Systems (IS/ IT) have rebuilt the infrastructure so it is easy to collaborate electronically. Teams are formed and reformed. Rewards come not only in the paycheck, but also in the pat on the back from a colleague, recognizing our focused efforts. People no longer worry about climbing over one another to get up the ladder, but are appreciated in new ways for their integrity, openness, insights and even wise comments.

In short, operationalizing Knowledge Era enterprises has given us the ability to leverage the talents, knowledge and wisdom of one another in new and exciting ways. As people feel more involved, they also have more incentive to enhance their own capabilities, thus generating even more activity. The shift to the Knowledge Era has provided, in essence, the foundation for the next economy, one more in harmony with nature and human nature. Our lean, agile and robust enterprises have learned to quickly, effectively and prof itably build off the strengths in one an other in an ever-changing constellation of capabilities.

1996 OR/MS Today, May 1996

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