I. INTRODUCTION
The changes in the economic policies in the recent past, and the corresponding liberalisation of economy have placed new competitive challenges before Indian firms. While opening up new opportunities for corporate expansion and growth for many firms, these changes have also created potent threats for survival for others. Faced with competition from financially and technologically strong multinational companies, Indian businesses are engaging in a diversity of strategic responses. These initiatives range from unrelated diversification to portfolio restructuring, from increasing equity base to entering into strategic alliances, from downsizing\rightsizing to acquisitions and expansion of operations, from TQM to reengineering, and so on. Underlying these hectic activities is also a search for the correct recipe for competitive success in the face of global competition.
This paper argues that competitive success in today's global market is not determined solely by a company's tangible assets such as capital, quality of plants and equipment, the strength of product-portfolio, etc.). Rather, the domain of competition revolves largely around accumulation, nurturance and utilisation of knowledge-based intangible resources. The paper also aims to establish that the organising principles of a competitively successful organisation in the present business environment are predominantly cultural, and are not solely determined by formal structural arrangements. Specifically, this paper attempts to answer the following three questions:
1. Why is knowledge important to competitive success ?
2. How can one build a knowledge-based organisation ?
3. What are the implications of viewing organisations as systems for knowledge and learning ?
II. KNOWLEDGE AS A COMPETITIVE WEAPON
Experiences of an increasing number of companies shows that the their long-term survival and competitive success is determined not so much by their financial muscles and size, but by the manner in which they consciously attempt to learn, create, codify, and utilise knowledge. According to Andersen Consulting Inc., the knowledge of how manufacturing goods are built and how they work accounts for 70% of their development costs. In service businesses, the knowledge component of development cost may be as high as 90% (Schwartz, 1992). It is not surprising that firms are increasingly becoming more aware of their "intellectual capital". Intellectual property rights (i.e., patents, copyrights, registered designs, trademarks, etc.) around the world run into businesses worth billions of dollars, ranging from the billions dollar claim by Apple Computers against Microsoft's application of Windows, to the Swiss chocolate company, Toblerone's legal battle to protect its triangular chocolate design. It is estimated that "intellectual piracy" accounts for losses worth $10-12 billions for the software companies, and about $5-7 billions to the pharmaceuticals (Rice, 1991). The competitive value of knowledge can be appreciated through the following examples:
* World leaders like Nike and Reebok have prospered by concentrating solely on knowledge-based activities: designing and marketing high-tech, fashionable footwear for sports and fitness. Nike owns one small factory that makes some sneaker parts. Reebock owns no plants. The two rivals outsource virtually all footwear production to suppliers in Taiwan, South Korea, and other Asian countries, while focusing their efforts totally on activities such as market research, designing, market planning, etc.. Nike and Reebock each earned a return on assets of over 16% in 1992, fifth and sixth best in the Fortune Service 500 (Tully, 1993).
* Invariably, the market leaders spend considerable portion of their revenues on research activities. To quote just a few examples, ABB spends $1.3 billions, which is about 7% of its revenue, the chip-maker Intel plows back 15.4% of its revenue in R&D; Hitachi's research budget is $4 billions; Motorola's R&D expenditure is $1.8 billion, or 19% of its revenue; Siemens spends 10% of its sales on research; Sony's research budget is $1.5 billions, which is 5.7% of its revenue, and so on.
* When Toyota introduced its new version of an existing commercial van, its engineers spent more than six months riding through the streets of Tokyo with the present users of its vans. These engineers later were made the project managers for the new van, and their knowledge of the customers' needs helped them to develop a model which completely met the market requirements (Shaw and Perkin, 1992).
* Starting 1987, AT&T sent out teams to do benchmarking studies to compare rates of product introductions, length of product realisation cycles, value-price relationship, etc. This learning about industry practices helped AT&T to reduce its product development process from 2 years to 12 months (Hanley, 1990).
* Competitive companies invest considerably in building and up-dating the knowledge-base of their employees. Training at Motorola, for instance, averages 36 hours per employee per year (the company calculates that it gains $30 for every dollar spent on training); at Federal Express, each of the 40,000 couriers spends an average of 27 hours every year on an interactive PC-based program which tests his or her job knowledge, and offers remedial actions and advice; at Corning, USA, employees log in about 92 hours per year on training, and so on (Henkoff, 1993).
* At American Airlines, three "knowledge engineers" spent one year studying how scheduling of routine aircraft maintenance is done. The combined knowledge of all aircraft-routing experts was translated into 5,000 rules of their expert-system program Moca, which now decides the best schedule for maintenance of the 600 odd aircrafts without disrupting the airlines schedule. The estimated annual saving is about $500,000 (Schwartz, 1992).
These examples are a cross-section of the current emerging business reality, and highlight a trend which is in the process of becoming more the rule than an exception. They also point to a new insight about the nature of present competitive environment: that while the tangible assets (plant, machinery, capital) may be necessary for the enterprise to function, it is its knowledge-based resources - its "invisible assets" (technological know-how, customer information and trust, MIS, corporate culture, etc.) - which provide it with competitive edge (Itami, 1987). Such a concept of organisation also radically alters the basis of competition from how the firm manages its product-markets to how it utilises and develops its collective learning or core competencies (Prahalad and Hamel, 1990). As Hamel (1991) noted:
"Conceiving of the firm as a portfolio of core competencies and disciplines suggests that interfirm competition as opposed to inter-product competition, is essentially concerned with acquisition of skills. In this view global competitiveness is largely a function of firm's pace, efficiency, and extent of knowledge accumulation."
III. BUILDING A KNOWLEDGE-BASED ORGANISATION
Thus, the distinctive processes characterising knowledge-based organisations would be those which facilitate learning and creation of new knowledge, and help the organisations to cope with environmental change and turbulence. In the following sections, we will review some of those practices and options which organisations employ in doing so.
1. Conscious Cultivation of Instabilities
To commerce with knowledge-based resources on a continuous basis calls for openness to the idea of continuous change and transformation. The firm must develop processes and mechanisms which do not let it settle down into an inertia, but instead, keep it in a perpetual state of "unfreezing" (Lewin, 1947). Such a state of disequilibrium is essential for creating the degrees of freedom which the system requires for adapting itself to the turbulent environmental conditions (Gemmel and Smith, 1985). Instabilities and crises shake up people, force them to question the status quo, and to focus on the essential. One study of 40 companies (quoted in Dumaine, 1993) found that in each case, a major strategic and organisational change was preceded by some form of crisis. Nonaka (1988), in his study of self-renewing companies, also noted that crises create opportunities for growth and innovation:
"In order for an organisation to renew itself, it must keep itself in a non-equilibrium state at all times.... A crisis, of course, can mark the start of a company's demise. But, in general, some form of crisis is needed to generate an entirely new, innovative product concept or to abolish a company's existing patterns and replace them with a new order."
Thus, even though contradicting traditional organisational wisdom, a knowledge-based organisation must value "rocking the boat" as a more viable operating norm than maintaining stability.
Essentially, such cultivation of instability involves conscious simulation of organisational crises. One of the most common ways in which companies, and their leaders, create such a sense of impending crisis is by implementing swift structural/ strategic changes. For instance, during the 1980s, in ABB, British Airways, and General Electrics, major transformational processes started with massive shake-ups which involved down-sizing, divestments and acquisitions, changes at the apex level, restructuring, etc. What made these actions a potent force for transforming the organisation was the speed which they were implemented. In British Airways, for instance, within a period of just one year, the board was reconstituted, 20,000 employees were retrenched, old aircrafts were sold off, services were withdrawn from unprofitable routes, new managerial talents were brought in at top levels, and so on (Business Week, 1989). The swiftness and magnitude of such actions serves to communicate signals of change across the organisation, and prepares people to align their expectations and actions with change. Nadler (1988) termed this the "management of pain principle":
"Successful long-term changes seem to be characterised by creation of a sense of urgency right to the limit of tolerance - just at the point where responses may start to become defensive."
Bureaucracy-busting however, is not the only way of shocking the organisation into awakening. The same purpose is often served by articulating a broad, equivocal and challenging vision for the organisation. Such visions promote knowledge- creation in the organisation in two ways: firstly, they amplify the discrepancy between the present and desired levels of performance, and provide a direction to the problem-solving efforts in the organisation (Sheldon, 1980); and, secondly, they allow multiple interpretations, leading to divergence and dialogue in the organisation (Nonaka, 1988). For instance, General Electrics' vision to become a "boundaryless organisation", or Xerox's aim to become a "document company", have provided these organisation the impetus to redefine their own way of functioning. Similarly, for many firms the corporate goals such as TQM, becoming a learning organisation, leveraging on core competencies, etc., become the vehicles for self-reflection, self-reassessment, and self-renewal.
Lastly, many knowledge-based organisations create instabilities by consciously cultivating diversities and redundancies in their functioning. This can be achieved in many ways. Some firms, for example, recruit people with diverse experience, often unrelated to the firm's basic business. Such a practice helps injecting new perspectives in the organisation, create polarities of views, and facilitate a process of questioning. For instance, recruitment at Sony favours people with open-mind and wide range of interests, over specialists-experts (Schlender, 1992). Similarly, companies like Citicorp and Xerox have had a tradition of recruiting people at senior position from as diverse background as automobile, chemical, and processed-food industry.
Knowledge-based companies also create redundancies by adopting practices such as multiskilling, interfunctional job-rotation, double-reporting, cross-functional teams, use of multiple teams around the same project, etc. Such practices stimulate knowledge-creation activities within the organisation, because, as Nonaka (1991) observed:
"...(they) encourage frequent dialogue and communication. This helps create a "common cognitive ground" among employees and thus facilitates the transfer of tacit knowledge... Redundancy also spreads new explicit knowledge through the organisation so that it can be internalised... when responsibilities are shared, information proliferates, and the organisation's ability to create and implement concepts is accelerated."
2. Self-reflection and Introspection
As we noted earlier, a knowledge-based organisation needs to not only learn and integrate new knowledge, it must also have mechanisms to unlearn old and obsolete knowledge. As organisations grow and become stable, they also become more vulnerable to getting trapped in their past success patterns (Miller, 1992; Shukla, 1994). Organisations tend to programme their past successes by developing systems, routines and culture around them. These patterns often become so much embedded in the company's policies and practices that they go unnoticed, even when they have become obsolete. Detecting, confronting and changing these obsolete policies and practices is made further difficult by the fact that they serve to protect individuals and groups from embarrassments, pain and conflicts which arise when confronting the errors in one's own reasoning (Shaw and Perkin, 1992).
Firm's ability to self-reflect and introspect is a necessary precondition for breaking out of such success traps. Argyris and Schon (1978) described this process as "double loop learning" which occurs when members of an organisation:
"...reflect on and enquire into previous episodes of organisational learning, or failure to learn. They discover what they did that facilitated or inhibited learning, they invent new strategies for learning, they produce these strategies, and they evaluate and generalise what they produced."
Garvin (1993) in his study found that learning organisations create appropriate forums and mechanisms to tap and share their learning from past experience. For instance, they set up task-forces to prepare reports on "lessons learned" from previous successful and unsuccessful experiences, do post-project appraisals, document case studies, share and disseminate these findings across the company, and so on.
One of the popular methods used by companies to stimulate such processes of reflection and self-critiquing is use of feedback. In fact, most OD (Organisational Development) techniques rely exclusively on the use of internal survey feedback methodology (French and Bell, 1991). One example of the use of this method is the changes implemented in British Petroleum during last few years. In 1989-90, BP initiated "Project 1990", a survey to evaluate the company's employees, review current operations, and generate recommendations for enhancing the effectiveness of the firm (Butler, 1990). Headed by a team of high-flier middle managers, it painted a candid portrait of BP as an overcontrolled organisation, with a lack of clarity of goals and vision not being shared even at senior levels. This self-feedback led to radical transformations, including a focus on culture change, a massive communication program to make people aware of company's core values, and a restructuring of BP's operations.
Another valuable function served by company-wide self-reflection and idea sharing is the enhancement of the organisation's ability to self-monitor itself. Corporate introspection creates capacity within the organisation to question its operations, to assess their appropriateness in the given context, and to adjust its actions accordingly (Morgan and Remirez, 1983). Asea Brown Boveri (ABB), for instance, has institutionalised such a process in its systems (Taylor, 1991). The performance of all its business units, on different indices (e.g., failure rates, throughput time, financial indices, etc.) are computed, ranked and made public every month. This system not only boosts internal competition, but also encourages individual units to look and interact with others to discover new ways of working. To further this process of mutual learning, each of the 70 odd business areas organise meetings of functional managers from local companies around the world. The aim of these meetings is to bring managers together to exchange information, ideas and solutions with each other, and to learn from each others' experience.
3. Openness to External Information Sources
One distinctive feature of knowledge-based organisations is the permeability of their boundaries which allows them to accept and leverage on information sources existing outside the company. Such firms seem to operate on the assumption that the innovative attitude of the firm reflects both in its capacity to conceive new ideas, as well as in its ability to leverage on ideas existing in external environment. These firms actively scan their environments, pick up ideas, and take risk and initiative to implement them. Utterback (1974) in his study of 157 successful innovations in US firms, found that 98 of these were based on ideas picked up from outside the company. After all, in offering Pan Pizza (which accounts for a $500 million business), Pepsico's Pizza Hut merely exploited an idea which it had borrowed from the local competing pizzarias in Chicago (Pearson, 1989). Similarly, Xerox was able to achieve a turnaround by benchmarking good management practices from even those companies which were outside the photocopier industry, e.g., American Express for billing and collection, American Hospital Supply for automated inventory control, LL Bean for distribution, warehousing, and order-taking (Walker, 1992).
Innovative firms also systematically use their customers and suppliers to gain useful information about their own offerings, functioning and service, and use it as a stimulus for creative efforts. British Airways, for instance, conducts some 150,000 interviews with its customers every year (Horovitz and Panak, 1992). In addition, it also uses focus group discussions, conducts ongoing dialogues with its regular passengers, and systematically analyses complaints and suggestions to identify trends and ideas. This information is disseminated and shared across organisation, often resulting in ideas for new services. Similarly, General Electric worked with their customer BMW to innovate the first car-body panel made of thermoplastics for their Z1 two-seater.
Such interaction with external stakeholders also helps the firm in gaining useful information about competitors' strengths and weaknesses. For instance, every year Whirlpool, the domestic appliance company, surveys 180,000 households to get customers' assessment of their own as well as their competitors' products. If a competitor's product gets a better ranking , Whirlpool engineers rip it apart and do reverse-engineering to find out why, and to build these features in their future design (Solo, 1991). Likewise, Compaq Computer acquired knowledge about its largest competitor, IBM, by collaborating with common suppliers. It was this collaboration which helped Compaq to bring out a new IBM-compatible PC in the market even before IBM was able to do so (Wissema and Euser, 1991).
Another source for learning and innovation exploited by knowledge-based firms is through strategic alliances and collaborations. Systematic management of these "competitive collaboration" (Pucik, 1988; Hamel, 1991) help these firms in gaining access to critical competitive information, and in building new competencies. Hamel, Doz, and Prahalad (1991), in their study of 15 strategic alliances between Japanese and American firms noted that the Japanese companies gained far more from these collaborations than their American counterparts. This was so because they carefully planned and executed a strategy to acquire their partner's knowledge assets. For instance, in many Japanese companies the collaboration managers would regularly make round all employees involved in alliances, collect information and pass it on to appropriate departments. In some others, regular meetings were held where employees shared new knowledge and decided who was positioned to acquire additional information.
The researchers concluded:
"Successful companies view each alliance as window on their partners' broad capabilities. They use the alliance to build skills in areas outside the formal agreement and systematically diffuse new knowledge throughout the organisation."
4. Empowerment and Experimentation
In any organisation, relevant-knowledge is neither uniformly distributed, nor is it always readily accessible to decision-makers. This is so, not only because information gets distorted and suppressed while traversing hierarchical and functional boundaries, but also because the increasing environmental complexity and change create information-overload for firms to cope up with. As Senge (1990) noted:
"It is no longer sufficient to have one person learning for the organisation... It's just not possible any longer to "figure it out" from the top."
It is only natural, for instance, that the firstline salesperson may have a more intimate knowledge of the customers' requirement or the shopfloor worker may have better insight into the reasons for high rejection-rates than the superiors. To exploit this knowledge, it is necessary to build up participative-democratic setting in which people lower in the hierarchy are empowered enough to share information, learn from each other, and to take and implement necessary decisions (Emery and Emery, 1978; William, 1982).
One way in which organisations practice this empowerment of lower levels is through formation of self-managing teams. Such teams share three features (Simmon and Blitzman, 1986; Nonaka, 1988):
(a) they are autonomous in that they decide on many operational decisions, such as goal-setting, planning, monitoring performance, hiring, peer appraisal, etc.;
(b) they are responsible for achieving their performance goals regarding costs and profits; and,
(c) they are multi-disciplinary so as to achieve synergy through cross-fertilisation of ideas among members.
A recent survey (Khanna, 1994) found that many Indian organisations (e.g., Modi Xerox, Telco, Ranbaxy, Voltas, etc.) have started organising their work around multi-functional and cross-hierarchical teams. Often, these teams, which consist of 6-12 persons, are completely responsible for a well-defined segment of finished work, and have the authority of taking decisions which in traditional structures would have been the prerogative of the managers.
The empowerment strategy also influences and molds the formal structures of the organisation. It reduces the number of hierarchical levels, creates more autonomous business units, and decreases centralised controls. Once having delegated responsibilities down the line, organisations do not require a multi-layered centralised system to regulate and monitor performance. The 1,300 companies of ABB worldwide, for instance, are organised as 5,000 profit centres - some having as few as just 10 people - each an autonomous business unit with responsibility for its own profits and losses, and having control over decisions about issues such as launching products, design changes, altering production methods, etc.; there are no more than 5 levels between the top management executive committee and the shopfloor (Business Week, 1993). Similarly, Microsoft limits each of its business units to 200 persons to create flexibility, a greater sense of ownership, and synergy among the employees (Rebello and Schwartz, 1992).
Empowerment, however, is more than mere creation of profit centres with operational freedom. Competitively successful organisations use many innovative practices to innovate their members. One survey (Fortune, 1993), for instance, found that many successful organisations use "360-degree feedback" ,i.e., they have systems which allow upward evaluation of superiors by the subordinates. In fact, in 18 out of 32 organisations surveyed, the feedback was also used as an input for superiors' promotion and increments. Similarly, in General Electric, the system of "Work-Outs" (Pascale, 1990; Stewart, 1991) allow employees to carry out functions (e.g., identify and analyze unproductive work-related practices, develop new solutions, redefine the nature and flow of work, decide on the modes of implementation, etc.) which were managerial prerogatives earlier. Such processes and mechanisms not only make empowerment an experienced reality for the employees, but also qualitatively redefine the nature of traditional hierarchical and functional relationships in the organisation.
Real empowerment also enables and encourages people to carry out knowledge functions on behalf of the organisation. This may involve a variety of activities ranging from learning through customer-contacts to problem solving and product innovations. Xerox, for instance, trains and encourages its employees in using problem-solving techniques focusing on idea-generation, analysis, reaching consensus, and planning action, in their day-to-day activities (Garvin, 1993); many companies (e.g., 3M and Hewlett-Packard) encourage their employee to use 10-15% of their time on their own pet projects, and to take risk, experiment and fail is a built-in cultural prerogative. Similarly, ABB practices the "7-3 formula", which means it is better to make swift decisions and be right seven out of ten times than to waste time unnecessarily in achieving perfection. This tolerance of failure encourages people to take legitimate risks and to learn from their mistakes without feeling defensive about it (Taylor, 1991).
Sometimes, in fact, innovative firms encourage its members and units to deliberately commit "mistakes" in order to learn from them. Citicorp's Credit Card division, for instance, periodically approves a few thousand applications at random without performing any detailed credit evaluation. Many of these, naturally, are bad risks, and default on payment. The bank lets these defaulters continue so that it can get a better statistical picture of how defaulters behave. This information is used by Citicorp in improving its credit scoring system considered to be one of the most sophisticated in the world to monitor its existing and future cardholders (Norton, 1987).
5. Fostering "Knowledge-Connectivity"
While empowering and encouraging people to experiment helps organisations to increase the competence and expertise of its employees, it is equally important to diffuse this learning throughout the organisation so that it becomes a shared cognitive base for individual action (Garvin, 1993). "Knowledge connectivity" refers to this capability of the firm to connect the localised learnings to the rest of the organisation. Such processes, however, are not only limited to dissemination of ideas; rather, they bind the organisation in an interactive network of communication, allowing people to have access to each others' knowledge, to exchange views and ideas, and to interact with each other to develop new concepts (solutions, services, products, etc.), on a regular, and, as far as possible, on a real-time basis.
There are three reasons for organisations to foster knowledgeconnectivity. Firstly, in an organisation, knowledge and expertise is power, and power differentials can block freedom and synergy. As Nonaka (1991) observed:
"When information differentials exist, members of an organisation can no longer interact on equal terms, which hinders the search for different interpretations of new knowledge."
Secondly, systems of sharing information and expertise are normally not built into organisations. The flow of knowledge and information within organisations is often inhibited and distorted by departmental, hierarchical and group boundaries. Brown (1991) noted that innovative knowledge-based activity,
"...goes on at all levels of a company - whenever employees confront problems, deal with unforeseen contingencies, or work their way around breakdowns in normal procedures. The problem is, few companies know how to learn from this local innovation and how to use to improve their overall effectiveness."
For instance, the normally segmented functional structure inhibits the product designers from learning about a design-fault which the service engineers may be encountering almost everyday, or one unit of the organisation may be unaware of the innovative solutions developed and used by another unit. The learning often remains confined to specific group of people because there are no channels through which it can be shared with others.
Lastly, much of the knowledge which makes an individual, team or department effective is tacit, personalised and deeply embedded in the specific contexts of action (Badaracco, 1991; Nonaka, 1991), i.e., they know more than what they can articulate. Making this knowledge explicit requires more than just picking it off-the-shelf and publicising it. Studies (e.g., Brown and Duguid, 1991) have shown that such tacit knowledge is more effectively communicated and up-dated through informal interpersonal processes (in the canteen, while working, through exchanging stories, etc.) than through formal meetings, training programmes, house journal, etc.. Tapping this hidden knowledge, and converting it into collective learning depends much on close, personalised interactions (Spender, 1992).
There are various ways in which organisations go about establishing this connectivity among its members. One of the most common methods employed by organisations is by creating forums where its members can exchange their learning on a regular basis. The Corporate Research group at Sony organises an annual 3-day exposition - open only to its employees - in which its hundreds of product teams (and lone entrepreneurs), scattered across its 23 business groups display what they are working on. The occasion, which is quite important in Sony (all members of top management visit each display), also helps the company to establish a rapport among its innovators, and to encourage cross-fertilisation of ideas (Schlender, 1992). Similarly, Citicorp (like ABB) organises internal conferences on specific subjects (e.g., credit cards, mortgage loans, corporate services, etc.) in which participants come from its various worldwide offices and share their experiences (Tichy and Charan, 1990).
A more sophisticate method to insure exchange of ideas and their implementation, which is being increasingly used by organisations, is by redesigning the work itself. The essence of this approach is to completely "reengineer" (Hammer, 1990; Hammer and Champy, 1994) the work-processes, so that all relevant expertise is available at the point of work, where it is required (e.g., representatives of research, engineering, manufacturing and marketing sit together, and not sequentially, to create and launch a new product). Work is accomplished through autonomous multifunctional teams, which are organised around specific business processes and outcomes, and not around functional tasks (Hammer, 1990; Ross, 1990). This arrangement makes it possible to tackle work-related interfunctional problems in parallel and interactively, rather than sequentially. For instance, in 1989, Kodak reengineered its business processes, and organised its employees into multi-functional "Zebra teams" to manage the "flow". Each team is responsible for making items for a particular customer (internal or external), and being multifunctional, sorts out diverse functional, but overlapping, problems (related to design, production, marketing, etc.) at the very point where they arise (Stewart, 1992). Similarly, in GE's Puerto Rican arresters factory, the 172 hourly workers are organised in self-managed teams of about ten persons each. Each team "owns" part of the work (assembly, shipping, receiving, etc.). Members of each team come from different parts of the plant, so that each group has representatives from both upstream and downstream operations. Moreover, since these workers have rotated through the plant's main work areas, they are aware of the interdependencies and interfaces between different phases of the total work process (Stewart, 1992).
Some of the recent advances in information-communication technology have made it even easier for organisations to establish knowledge-connectivity. Networking among terminals, group softwares, expert systems, neural networks, e-mail, etc., not only facilitate exchange of ideas among people both within and outside the organisation, but also help organisations to make more efficient use of its knowledge and expertise. The implications of an informationally wired-up organisations are diverse (Savage, 1992). These information systems affect the organisations in three ways. Firstly, the free-flow of information empowers people and so, changes the culture. For instance, Microsoft encourages its members to log in and share ideas and information across departmental and hierarchical boundaries. Besides keeping people aware about what is happening in other parts of the organisation, it also helps creating an equalitarian work-atmosphere in which an employee can directly communicate with the CEO, Bill Gates, without going through his/her superior (Rebello and Schwartz, 1992).
Secondly, the on-line communication and frequent exchange of ideas among employees builds up group synergies and reduces the decision-making time through better use of information. Boeing, for instance, uses an interactive group software for conducting meetings. The company found that it helped drastically reducing the decision-making time (in some cases, from seven weeks to two and a half days), and an average saving of $6,700 per meeting in terms of employee time (Kirkpatrick, 1992). Similarly, at HCL-HP (India), service engineers log in case histories of customer-problems solved by them in a group software. This database is available to any service engineer in any part of India, leading to reduction in solution time from three days to four hours (Lahiri, 1993).
Lastly, these systems help creating a common reservoir of organisational knowledge and expertise, which is readily and commonly available for solving organisational problems. Advances in systems such as neural networks, expert systems, genetic algorithms, etc., make it possible for organisations to create intelligent problem-solving systems by pooling the best of all the relevant knowledge available in the organisation. American Express, for instance, uses an expert system which has helped it to speed up and sharpen its credit authorization process. Earlier the authorizer would consult 16 screens of data for each customer to approve a credit. The new system distils the knowledge of its best authorizers into a simple programme, with a better rate of safe credits (Light, 1992). Similarly, Shearman Lehman Brothers Inc. uses a neural network based system for forecasting market patterns. The system is based on a decade's worth of historical data, and manages its own portfolio. Since the software can "learn" from its mistakes, it has been gradually improving its performance, and even started making profits after an initial learning period of two years (Schwartz, 1992).
IV. IMPLICATIONS
The growing trend of using knowledge as a business asset (and not just as a resource) has significant implications for how one interprets the nature and function of the business firms. The fact that in 1986, the total R&D spendings of 50 top Japanese firms exceeded their capital expenditure (Kodama, 1992), or that in 1991, US companies spent more on computing and communication than on industrial, mining and construction machines (Stewart, 1994) necessitates rethinking the familiar notions about nature of firm, the role of management, the meaning of business success, etc. Evidence appears to suggest that increasingly the corporations are changing from being mere centres of production to becoming places for thinking, learning and knowledge-generation. According to Badaracco (1991):
"... Firms appear not as separate administrative, social and economic spheres, but as open, porus forms of organisations that learn, create, transmit, deploy, and control knowledge. They are, in essence, vast, complex repositories of embedded knowledge."
That is, the knowledge-based view of the organisation involves looking at organisations, not as mechanical or merely adaptive entities, but as intelligent systems, which are capable of learning and incorporating new knowledge by scanning and interacting with their environment, and by reflecting on, analyzing, and reconceptualizing their own ways of working. This emerging alternative view of organisation as an embodiment of knowledge has three critical implications.
Firstly, the knowledge-based definition of organisation calls for a redefinition of what constitute the managerial/ organisational principles and practices. The traditional organisational principles were based on an assumption of environmental stability, in which control and predictability were crucial requirements for organisational effectiveness. Within such a paradigm, the definition of managerial activities in terms of planning, controlling, directing, unity of command, division of labour, span of control, etc., was relevant, and probably useful.
The knowledge-based view of organisations, in contrast, emerges from a realisation that in the current discontinuously changing environment, it is no longer possible for organisations to succeed merely through applying old business methods, concepts and solutions; rather, to grow and survive, organisations must continuously learn, evolve and innovate new knowledge and alternatives. Within this new perspective, the critical managerial/ organisational activities must also revolve around and focus on building knowledge-resources of the organisation. The four such essential activities which would determine the effectiveness of firms as knowledge-based systems are described in Table 1.