Innovation, as a significant competitive advantage to gain profits in the complicated competition, is valued highly in knowledge-intensive organizations. Some former scholar simply regards innovation as the process of inventing new things (Barnett, 1953). Miller (1989) argues innovation is one of crucial elements of competitive strategy for organizations. In knowledge-based organizations, the definition of innovation becomes abroad. It covers four stages: including discovering new ideas, identifying the strategic creativity, implementing useful creativity and maximizing the largest profits of useful creativity (Dundon, 2002).
As a result, knowledge-based organizations invest a lot to facilitate innovation. Lee (2002) suggests that knowledge-based organizations are not able to compete in the current global markets without hiring flexible knowledge workers or applying latest information technology to management. Recently, with blindly investing in innovation, efficiency seems to be neglected by many organizations. Efficiency, not only refer to lower cost, but also how to use the existing knowledge, expertise and resource effectively. Without efficiency, organizations cannot plan all the working processes properly. Therefore, in order to survive, even gain profits, a firm cannot ignore either innovation or efficiency (Tushman & O'Reilly 1996). Nevertheless, it is not easy to achieve balance between the two aspects.
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In the following session, this paper will illustrate from four aspects to present the reasons why some organizations can do well in terms of innovation while having a low efficiency. Since knowledge workers are the fundamental element of knowledge-based organizations, management style of people and teams seems to influence the overall efficiency to some extent. Besides, choosing what kind of ways to encourage information flows among the employees is another issue that is worthy to discuss. In addition, with the appearance of new organizational forms, such as project-based organizations, it is significant to deal with the knowledge-sharing process among project teams. Finally, with the increase awareness of Knowledge Management, the balance between knowledge exploration and exploitation is the last point to discuss.
In Session 3, it will discuss the way to address balance between innovation and efficiency from the perspective of IS. The relevant case illustrates how this issue is solved by simultaneously implementing ERP systems and KM systems.
II. The reasons for organizations doing well in innovation but having a low efficiency.
The way of managing knowledge workers.
Knowledge workers, who are wanted to be more creative and productive, need to manage themselves in their own ways (Drucker, 1997). Indeed, the way organizations use to manage knowledge workers cannot be the same as it to manual workers since knowledge workers demand rights to initiate, plan and organize their work by themselves. However, too much autonomy given to the knowledge workers will make slack in organizations. The slack not only contains inefficiency of individual work but also includes the slackness of knowledge worker teams.
For individual knowledge workers, their responsibility cannot be framed by either time limitation or cost (Cortada & Woods, 2001). Therefore, many knowledge-based organizations promote an autonomous environment in order to motivate innovation. Nevertheless, excessive adhocracy (Newell et al, 2009) will affect the organizational efficiency. For example, knowledge workers in many consulting companies need to work some time remotely at the client firms. They are allowed to arrange time by themselves. When they are back to their own companies, they still need time to return to thoughts and tasks (DeMarco, 2001). Hence, it makes a cost of task switching. The idle time between activities influences the process of next activity so that affects the overall efficiency.
Many researches on teams composed of knowledge workers focus only on direct relationships between design, process and contextual variables and team effectiveness (Campion et al, 1993). They neglect the relationship between interactions among team members and team efficiency. For those Gold collar who need to be provided with excellent working conditions (Newell et al, 2009), they may be given permission to work at home. Although the comfortable working environment can enhance creativity, there exists a big problem. The complexity of knowledge work often makes face-to-face modes of interaction the only viable communication medium for sharing knowledge (Newell et al, 2009). As a result, the distance contact, to some extent, influences the efficiency and cost of teamwork. Even though working at home saves employees time to commute, it wastes time in another way.
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The way of encouraging information flow.
Tacit knowledge, which is associated with skills that people develop through their own experience in specific contexts, is hard to formalize or communicate (Newell, 2009). Since tacit knowledge often resides in people's heads and cannot be explicitly codified and stored, many organizations (e.g. consulting firms) applies personalization strategy (Hansen, 1999) to help tacit knowledge-sharing so as to promote innovation. The strategy contains to build social networks within an organization not only by face to face contact, but also over telephone, via other tools, such as video conference and e-mails (Hansen et al, 1999).
Nevertheless, sometimes, knowledge transferring is time-consuming. When an employee attempts to get tacit knowledge from his colleague who holds it, it is really time consuming. It requires both the instructor and learner to get involved in the communication (Pedersen, 2003). One has to spend his time to explain issues and the other provide suggestions or solutions face to face or in a distance via technical tools. After that, the part who receives tacit knowledge needs time to interpret it before applying it to practical situation. From performance perspective, some knowledge can only be learnt properly and achieved its value by understanding certain task context (Collis, 1994). Furthermore, if there is a language barrier, it is another problem. Some situations are too complex to elaborate when the two parts speak different languages (Voelpel & Han, 2005). In many Chinese global organizations, "the fear of losing face due to poor English also prevents some Chinese employees from contributing actively to the knowledge base" (Voelpel & Han, 2005).
Furthermore, if organizations use ineffective ways to codify tacit knowledge, it will affect the task, even make the task fail. For example, Xerox wants to train repair technicians to use a new know-how embedded system so that they can solve problems guided by the systems while responding to a call. However, the system turns to be a failure since Xerox discovered that technicians learned from one another by sharing stories about how to fix machines. The expert system could not store the details that were exchanged by conversations (Hansen et al, 1999). What Xerox did was focusing on knowledge collection, but neglecting feasibility. It is not efficient in terms of codifying tacit knowledge into explicit one.
The way of structuring the organizations.
Along with the changing of global economy and technology, MNCs and high-tech companies begin to transform the traditional hierarchical organizations into team based or project based ones, since this flatter and horizontally-integrated organizational structure is more flexible (Child & McGrath, 2001). Members in the same team works on different parts of task, but share similar target values. To some extent, this flexible structure helps to generate new products or service quickly in a fixed time period. Many scholars hold different opinions on knowledge-sharing within this structure. From the perspective of knowledge stocks, knowledge is the property of the whole team as a competitive advantage, which cannot be imitated by the other units (Hansen & Nohria, 2004). In contrast, some scholars view it from the perspective of knowledge flows, since one team can easily do relearning from other teams' pervious lessons (Brown & Duguid in Hahn & Subramani, 2002), effectively solve the technical problems (Orr in Hahn & Subramani , 2002)
However, the drawback of this structure is ferocious competition which affects efficiency. Since there is scarce resource (e.g. capitals), in the whole organization, every project team competes for it. With competition, automatic knowledge-sharing among all the teams becomes rather difficult resulting from lack of coordination. Since each team keep isolated with the others, members in each team focus on their own interests. As a consequence, there exists internal stickiness of knowledge. It results in a knowledge boundary among all the teams. Besides, such a competition may lead to "a conflict between daily versus long-term pressures" (Cross & Baird, 2000), while influencing the organization's learning capacity (Fisher & White, 2000). Even worse, it will change the organizational current culture gradually.
According to a strategic management theory, firms develop and collect "core competencies" or key resources over time (Prahalad & Hamel, 1990). However, it is very difficult to accumulate competitive advantage under this structure. The reason is that every project team recruits temporary financial staff, HR staff and sales persons in a project-based organization, but these employees may be free lancers, who may leave the organization after completing the project. Hence, knowledge transfer becomes a challenge for project-based organizations due to its unstable structure. It there is not an effective way to store the loss of knowledge, it will be problematic to do relearning in the future project. When there is a same project, it needs the new team to start at the beginning without guiding by a reflection. Then there comes a phenomenon called "reinvent the wheel", rather than learn experiences from the past lessons (Prusak, 1997).
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The way of managing knowledge.
Managing knowledge refers to collecting and developing an organization's knowledge to build its competitive advantages (von Krogh, 1998). Recently, more knowledge-based firms show interests in knowledge management, especially knowledge creation, since new knowledge leads to developing new products or new services. Some theory even views that exploitation of existing knowledge is only a small part of what constitutes KM in innovation projects. The crucial one is the processes of knowledge exploration, since new knowledge is created via this period (Levinthal & March in Swan et al, 1999). There is another view of KM which regards the source of innovation is not merely the more efficient processing of existing information but the application of knowledge to knowledge itself (Drucker in Swan et al, 1999). However, "an organization may gain great efficiency by streamlining problem solving processes through reuse of knowledge, yet may slowly become rigid and lose its capacity to learn locally and innovate" ( Hahn & Subramani, 2000).
Part of new knowledge is learnt from the past ones and experiences. Some of the companies keep blindly investing knowledge creation without thinking out the cost and profit. According to March (1991), some systems that just focus on knowledge exploration with no regard to exploitation always turn out to be failures since they suffer a lot by the costs of experimentation with no benefits achieving. Many new ideas seem to be too unrealistic or complicated to realize, but time and money consuming. For example, "unrelated diversification process" is treated as a kind of external knowledge creation (March, 1991). In Porter's (1987) study with 33 US corporate between 1950 and 1980, shows that most of them entered into 80 other new industries. Although it can bring them short-term profits, but in a long run, it will not be good for gaining competitive advantages. Actually, the rapid turn to a new industry, which is not familiar by the competitors, will bring companies new profits resulting from less competition for customers and resources. However, once the new industry has developed into a mature one, the company may feel difficult to achieve more due to no thorough investigating and understanding the changing environment.
III. IS helps address balance between innovation and efficiency.
Even with latest technology, it is still difficult to achieve innovation and efficiency at the same moment. In a former view, it is believed that an organization must choose one aspect from efficiency and flexibility to achieve (Thompson, 1967). Sometimes, some organizations focus on one of the two aspects, which lead to serious consequence on the other one. For example, Business Process Reengineering (BPR) once was regarded as an effective system to cut down staff and cost so as to improve the efficiency. However, many organizations found there was a loss of knowledge due to the redundant employees (Newell et al, 2002). In order to do well in both innovation and efficiency, an increasing number of organizations are interested in implementing two or more information systems together. For example, in terms of enterprise-knowledge management system, it uses technologies for storing structured and unstructured knowledge, locating people tacit knowledge, combining with other enterprise systems, such as ERP and CRM (Laudon, 2006).
Recently, Enterprise Resource Planning (ERP) systems and Knowledge Management (KM) systems are being widely implemented across organizations simultaneously. A case (Newell et al, 2002) of a knowledge-based organization presents that the simultaneous implementing ERP system and KM system can foster the balance of innovation and efficiency to a certain extent.
Company A is a famous multinational firm in engineering industry, which involved in five production divisions. Each division department has its own legacy system. These five divisions are function-based structured in order to maintain the centralized decision-making power. These factors make knowledge-sharing very difficult within the organizations. Besides that, it also has a consulting arm, which is project-based, to provide the technical solutions to clients. Innovation is regarded as central competitive advantage while how to promote efficiency is their problem to maintain and expand their success. In 1996, the top-management decided to release the plan of implementation ERP system from SAP. In 1997, the company started implementing a series of KM initiatives, including a K-bank, which is a corporate-wide knowledge directory based on company intranet. It helps to build a database for the frequent enquiring technical problems from the clients. The results of the simultaneous implementation seem to be successful according to the interviews with the employees. Besides that, Newell (2002) proved the success by Adler's (Adler in Newell et al, 2002) four mechanisms (metaroutines, enrichment, switching and partitioning), which is used to examine the balance between creation and flexibility.
In terms of simultaneous implementation, there is no conflict between the two systems with regards to functions in the case company. ERP system focuses on enhancing efficiency by "integrating organizational processes through shared information and data flows" (Shanks & Seddon in Newell et al, 2002). In Company A, it replaces the old legacy systems with a new common one so as to enhance knowledge-sharing among the five production divisions and consulting arms. With knowledge shared within the companies, knowledge boundaries among the production divisions, which are caused by the functional structure, can be reduced to some extent. Similar to a former view, information, knowledge, and expertise, which used to be unstructured and concealed, now turned into a visible format, available within the organization through a common integrative IT infrastructure (Wagle, 1998). With regards to KM systems, the initiatives focus much on knowledge capture, storage and creation. To some extent, the K-bank helps solve the problem of remote working. When consultants work in the clients' companies, they can also get the best practices of different divisions. The knowledge management initiatives help to maintain and enhance innovation by the processes of exchange and combination of tacit knowledge and best practices (Nahapiet & Ghoshal, 1998).
However, the negative impacts results from the simultaneous implementation cannot be neglected as well. For example, some engineers resisted using the new ERP system because of disputing for the ownership of new knowledge (Newell et al, 2002). It created new inter group conflicts and competitions. Although there is this kind of negative impacts, it doesn't affect the entire success of the implementation. The different orientations and objectives of either two systems have been achieved separately. In terms of the two systems, one the one hand, it broke the knowledge boundaries among all the separate teams. On the other hand, it facilitates the flexible work style in consulting division so as to maintain innovation, which is always the competitive advantage in the case company.
In terms of the problem of innovation and efficiency, IS/IT is not the panacea. Either information systems or high-tech is only one part of the solution. The real challenge of balancing innovation and efficiency is to get the organizational culture right (McCrimmon, 2007). Information systems cannot help much in culture. However, culture can not only affect knowledge worker behaviors and work structures, but also influence the use of technology and information systems in turn (Long, 1997). The implementing technologies supporting innovation and efficiency will be shaped by existing organizational culture (Barley, 1990). In other words, whether a new information system will be successful or not will be influenced by organizational culture to a degree. If an organization has a good learning culture, the employees may more quickly accept the new implementing systems.
Furthermore, although we have implementation of many effective systems, how to ensure these initiatives been used by organizational members is another problem. In other words, managers should come up with the effective management strategies to let their employees see the benefits of new systems. Organizational members need to be motivated to use these information systems so that these systems can be functioned to a large extent. The motivation can be monetary and non-monetary, but the aim is to let those information systems are able to be widely accepted and utilized by all the organizational members. On the other hand, organizations should not totally rely on Information System, but neglect some initiatives without relation of high-tech. For example, in Knowledge Management, some of initiatives, such as Community of Practice (CoP), do not need a lot of investment, but may have a good effect.
All in all, in order to achieve the balance between innovation and efficiency, managers should take information systems, culture and management strategies into consideration.