The bigger the better

Updated: Sep 30 2008, 07:46am hrs
Stretch goals. The easier the target, the less the need for new approaches. Hence, the starting point for developing a culture of knowledge creation is to set targets that cannot be achieved without some innovation. As Jack Welch, CEO and architect of General Electric from 1981 to 2001, observed, If you do know how to get thereits not a stretch target. The

CEO of Yokogawa, our Japanese partner in the Medical Systems business, calls this concept bullet-train thinking, that is, if you want a 10-miles-per-hour increase in train speed, you tinker with horsepowerbut if you want to double its speed, you have to break out of both conventional thinking and conventional performance expectations.

Provide high-powered incentives: By definition, stretch goals increase a persons level of risk in performing a task. Unless the potential reward matches the higher level of risk, it would be irrational for smart people to stay with the company. Stretch goals without high-powered incentives are likely to end up as lofty exhortations lacking the real power to stir people to seek new approaches.

Cultivate empowerment and slack: Stretch goals and high-powered incentives stimulate a demand for new ideas. In contrast, empowerment and slack are supply-side tools that play a critical role in increasing the creative capacity of subunits. The 70-20-10 rule at Google is a good example of how empowerment and slack foster innovation. Under this rule, people at Google are expected to spend 70% of their time on core projects, 20% on projects that extend the core, and 10% on new projects that may even be unrelated to the core business.

Equip every unit with a well-defined sandbox for play: By definition, creating a culture that values experimentation means encouraging a willingness to undertake risks. Although senior executives, in concert with the board of directors, must from time to time undertake bet-the-company types of moves, it would be suicidal to have a culture in which the power to make such moves is widely distributed in the firm. One mechanism that permits companies to sidestep this dilemma is to give people or units well-defined sandboxesdiscretionary areasfor experimentation and play. If an experiment proves to be a fiasco, the risks are likely to be acceptable. Again, Google's 70-20-10 rule is one example of a well-defined sandbox. Another potentially useful, although hypothetical, example of a sandbox approach: a hospitality chain could specify that every hotel general manager has the freedom to experiment with 10% of the rooms on the property. Within the limitations of the sandbox, employees can experiment with their own new, even radical, ideas.

Cultivate a market for ideas within the company: Every company must have a screening mechanism to determine which of the multiplicity of ideas emerging from the various subunits deserve further support and which should be abandoned. Companies must accept the fact that no single individual, howsoever smart, has a monopoly on wisdom. Accordingly, they should create a culture whereby an idea that is rejected by the would-be innovator's immediate superior can still be shopped around to other potential sources of support within the company, without creating a perception of insubordination.

Ban knowledge hoarding and turn knowledge givers into heroes: Every company must decide, implicitly or explicitly, which resources are to be treated as if they were corporate resources (loaned, licensed, or leased to the business units) and which resources are to be treated as if they were owned by the business units. Consider, for example, brand names such as Nokia, Honda, or IBM. In each of these companies, business units use the corporate brand name as a critical resource. It is clear, however, that the brand name does not belong to any single business unit or subsidiary; in fact, through their actions, subsidiaries are expected to strengthen the value of the brand. To maximise knowledge sharing, companies must view knowledge similarly, that is, to treat knowledge as a corporate resource that cannot be hoarded by any particular subsidiary or business unit. GE, Procter & Gamble, and the consulting firm McKinsey & Company are examples of companies with such policies.

Rely on group-based incentives: In companies such as Nucor, incentives take the form of cash compensation. In other companies, such as Google, they take the form of sizable stock options. The power of group-based incentives stems from the fact that they direct attention to maximizing the performance of the whole system rather than just an individual unit. Of course, a potential disadvantage of group-based incentives is that they can lead to free-rider problems. However, this side effect can be minimised by ensuring that incentives are large enough to be meaningful, making individual behavior visible within the group, and giving the group power to expel the chronic underperformer.

Invest in codification of tacit knowledge: Consider the case of Marriott International. Over the three years 2007-09, the company has indicated that it plans to add almost one hundred thousand rooms to its portfolio. Assuming 1.3 employees per room, this means an addition of 130,000 new people, not counting replacement of any that may leave during this period. In order to sustain this level of growth effectively and efficiently, Marriott has been compelled to convert virtually everything it knows about the operation of a hotel into codified SOPs (standard operating procedures). Without codification, the outcome would be either highly inconsistent service or a much slower growth rate. Companies, of course, must recognise that there is a limit to how much knowledge can be codified. Even in a company such as Marriott, many critical types of knowledge (for example, how to integrate acquisitions) must remain at least partly tacit. Notwithstanding these limits, the returns from investments in codification can be very high in terms of both a wider sharing of knowledge within the enterprise and of spurring the development of new knowledge.

Match transmission mechanisms to type of knowledge: The transfer of all knowledge occurs through one or more of the following transmission mechanism: exchange of documents, conversations and coaching, and transfer of people and teams who carry the knowledge in their heads. To be both effective and efficient, transmission mechanism must be tailored to the type of knowledge being transferred. Efficiency without effectiveness, as we know well, is useless.

Reprinted with permission from Wiley India

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