Academic journal article The McKinsey Quarterly

Creating a Knowledge Culture

Academic journal article The McKinsey Quarterly

Creating a Knowledge Culture

Article excerpt

Knowledge is now the lifeblood of all companies. Don't confuse it with information.

Ask a group of senior executives if they regard knowledge management as very important to the success of a company. Most will enthusiastically say that they do--a response befitting one of the trendiest topics in management circles.

Yet thinking that knowledge management is crucial and knowing what to do about it are very different. A McKinsey survey of 40 companies in Europe, Japan, and the United States showed that many executives think that knowledge management begins and ends with building sophisticated information technology systems.

Some companies go much further: they take the trouble to link all their information together and to build models that increase their profitability by improving processes, products, and customer relations. Such companies understand that true knowledge management requires them to develop ways of making workers aware of those links and goes beyond infrastructure to touch almost every aspect of a business. [1]

Because knowledge management is an increasingly essential component of innovation and value creation, we focused on two tasks--product development and order generation and fulfillment--as a way of identifying which companies in our survey were good knowledge managers. These tasks are the major contributors to the value a company generates. By using process performance and financial indicators, we categorized 15 companies as successful and 15 as less successful and then compared the two groups. [2] The successful companies cut throughput time by an average of almost 11 percent from 1995 to 1998, compared with an average of 1.6 percent at the less successful companies. Development time at the successful companies fell by 4.6 percent in the same period, compared with just 0.7 percent at the less successful ones.

We then compared the knowledge-management practices of the more and less successful companies to understand how those practices contribute to corporate success. [3] The survey's findings can be summarized simply: successful companies build a corporate environment that fosters a desire for knowledge among their employees and that ensures its continual application, distribution, and creation.

Creating a desire for knowledge

Less successful companies tend to take a top-down approach: pushing knowledge to where it is needed. Successful companies, by contrast, reward employees for seeking, sharing, and creating knowledge. It requires effort to develop what we call "knowledge pull"--a grassroots desire among employees to tap into their company's intellectual resources. Creating databases or virtual team rooms isn't enough, since many employees resist using knowledge generated by other departments, for example. Worse still, many people believe that the hoarding of knowledge is power, a philosophy that may help individuals but hurts companies.

Partly to overcome barriers of this kind, successful companies tend to establish clear goals that promote knowledge pull by forcing employees to reach beyond themselves (Exhibit 1). Instead of wasting resources by avoiding knowledge that was "not invented here," employees at such companies use all available resources, including the corporate knowledge base, to improve their chances of reaching these goals. Almost all of the successful companies we analyzed set ambitious goals for product development and process innovation, while only 33 percent of the less successful companies did so for product development and only 27 percent for process innovation.

Other techniques used by successful companies include granting financial and other incentives to reward employees who pull knowledge from internal and external sources and who contribute their own knowledge to the corporate base. More than 70 percent of the successful companies surveyed, for example, had individual incentive systems linked to product development targets, compared with 27 percent of the less successful companies. …

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