The Importance Of Knowledge And Organizational Culture Management Essay

Knowledge has become increasingly important because of the increased pace of globalization, and the interaction of technology and organizational change. Another reason for the rising valuation of knowledge in organizations is that it is no longer defined as just an input to businesses today; frequently, it is seen as the output and objective of the company (Martin, 2000). In “Managing in a Time of Great Change”, Peter Drucker wrote that “knowledge has become the key economic resource and the dominant-and perhaps even the only-source of comparative advantage” (Drucker, 1995).

Today researchers are approaching knowledge management from a cultural perspective, based on studies of the interactions among people within a social (i.e., their work) environment (Blackler, 2000).

Organizational culture is complicated, emergent, and not unitary. Organizational culture drives an organization’s formal and informal expectations of individuals, defines the types of people who will fit into the organization, and affects how people interact with others both inside and outside the organization. When it comes to international business, understanding cultural differences and promoting cultural sensitivity will help ensure that communication across borders is effective and that business transactions are successful.

Many authors agree that more than anything else, organizational culture holds the key to successful knowledge management (Gupta and Govindarajan, 2000; Martin, 2000; Knapp and Yu, 1999; Gummer, 1998). While most managers may recognize the importance of culture, they find it difficult or impossible to articulate the culture-knowledge relationship in ways that lead to action (De Long and Fahey, 2000).

National cultures are a highly significant element in global strategy. Different definitions of the key attributes and dimensions of national culture exist. The two best-known typologies for modeling the effect of national culture on the behavior of individuals in organization (the aspect which affects strategic thinking) are those of Hofstede’s (1980, 1988 and 1991) five-dimensional model and Tromenaars’s (1993) seven-dimensional model.

The main problem associated with merger and acquisition strategy lies in the ability to integrate the new company into the activities of the old. This problem often centres upon problems of cultural fit. Cap Gemini is a European company, originally French, while Ernst & Young is an American one. Hofstede’s framework describes five dimensions of differences/value perspectives between national cultures:

Power distance: measures how subordinates respond to power and authority. A high power distance culture prefers hierarchical bureaucracies, strong leaders and a high regard for authority. A low power distance culture tends to favour personal responsibility and autonomy. Hofstede ranked USA as Moderate Power distance, France as High Power Distance. So, employees in both Cap Gemini and Ernst&Young are more likely to challenge bosses and bosses tend to use a consultative management style.

Individualism versus collectivism: the degree to which individuals base their actions on self-interest versus the interests of the group. In an individual culture, free will is highly valued. In a collective culture, personal needs are less important than the group’s needs. This dimension influences the role government is expected to play in markets. Both USA and France are ranked as High Individualism.

Masculinity versus femininity: a measure of a society’s goal orientation. A masculine culture emphasizes status derived from wages and position; a feminine culture emphasizes human relations and quality of life. Hofstede ranked USA as Moderate Masculinity, but France as High Femininity. So, Cap Gemini employees tend to value a good working relationship with their supervisors; working with people who cooperate well with one another, living in an area desirable to themselves and to their families, and having the security that they will be able to work for their company as long as they want. Ernst&Young employees tend to value having a high opportunity for earnings, getting the recognition they deserve when doing a good job, having an opportunity for advancement to a higher-level job, and having challenging work to do to derive a sense of accomplishment.

Uncertainty avoidance: the degree to which individuals require set boundaries and clear structures. A high uncertainty culture allows individuals to cope better with risk and innovation; a low uncertainty culture emphasizes a higher level of standardization and greater job security. USA ranked as Low Uncertainty Avoidance and France as High Uncertainty Avoidance. Cap Gemini employees’ culture tends to perceive unknown situations as threatening so that people tend to avoid them, while Ernst&Young employees feel less threatened by unknown situations. Therefore, they tend to be more open to innovations, risk, etc.

Long-term versus short-term orientation: the fifth dimension of Hofstede which was added after the original four to try to distinguish the difference in thinking between the East and West. The degree to which a society does or does not value long-term commitments and respect for tradition. Long-term traditions and commitments hamper institutional change. USA is ranked as short-term orientation.

Hofstede provided a definition of culture and how culture can be measured. His research showed that cultural differences matter. Managers in international organizations operate according to their country’s values, rather than to the organization’s culture.

Europe itself has the greatest linguistic and cultural diversity of the Western world. However, the common history, geography and socio-political evolution of the European continent, as well as the cultural divergences that have occurred in former colonies, have resulted in the creation of a common basis for European culture that contrast (sometimes sharply) with the USA or the rest of the Western world.

Cap Gemini is a French company and management policies and practices in France are associated with:

strategic rather than financial orientation

tall organizational hierarchies with a large proportion of managerial personnel

high degree of specialization

widespread use of written media

individual rather than collective working and decision-making

centralization of decision making.

Ernst&Young is an American company and managing policies and practices in USA are different from Europe:

short-term financial orientation

rewards related to specific performance indicators

high rate of job change and inter-company mobility

rationalist approach: emphasis on analysis and planning

reliance on formalization and systems

delegation down extended hierarchies (Child, Faulkner and Pitkethly, 2000).

The culture clash may arise if headquarters attempts to pursue a policy of domination without securing adequate levels of operational co-operation and co-ordination. Tension and conflict will result, with performance adversely affected. Issues of the culture clash in acquisitions may cause problems for the new parent, particularly in cross-border acquisitions where national culture differences are imposed on corporate culture problems. Organizational culture may be a positive means of integration people around common purposes or a source of conflict which threatens the success of international activities when a particular organizational culture is so deeply embedded that it persists beyond a significant structural change, such as change of ownership.

As Ernst&Young consulting unit is being acquired, its employees might show resistance to the new owners, and where employees are unable to get another job, they are likely to show passive resistance in carrying out their current responsibilities, making knowledge and skill transfer difficult if not outright impossible. Management turnover is a serious obstacle in creation a value from an acquisition. CGE&Y has faced a drop in the contribution rates after the acquisition, especially noticeable in the E&Y part of the merged business.

Perhaps a trust is the single most important factor that determines if knowledge management initiatives will hold. Persuading people to share their knowledge require not only new processes, but also a new covenant between employers and employees, as well as between employees and employees. Employees need reassurance that they will still be valued after they gave up their knowledge (Williams, 2002; De Long and Fahey, 2000; Martin, 2000; Davenport and De Long, 1998).

The level of trust that exists within an organization greatly influences the amount of knowledge that is shared both between individuals and from individuals into an organization’s knowledge management initiative. And in instances where trust is low, organizations need to first rebuild trust levels, before they can expect individuals to share expertise freely without worrying about the impact of this sharing on their value to the company (De Long and Fahey, 2000).

National culture differences can display themselves either as simple misunderstandings or at the more fundamental level of conflicts in values (Child et al., 2000). Misunderstandings about language and about the interpretation about behavior are common… Although in a fast-changing world some of these stereotypes may no longer be so typical, behavior is still likely to be interpreted in contrasting ways by people from different national cultures. These may lead to misunderstanding or even give great offence.

An obvious element in achieving inter-cultural communication is the issue of languages. America has one language for all – American English, Europe, on the other hand has more languages than nations. As a result, most Europeans will learn at least one other language in school as it is often compulsory in mainland Europe. Headquarters of a new company CG&EY are located in Paris and problems may arise from inability of top management of E&Y to speak French. Managers who are only monolingual will be increasingly less successful within MNCs than colleagues who are multilingual.

Schoenberg (1999) argued that value creation in acquisitions depends a lot on successful knowledge transfer. Acquirers therefore need to identify in advance which knowledge needs to be transferred, determine mechanisms for its transfer and engender an atmosphere conducive to its successful transfer port-acquisition. This is rarely explicitly done. Much knowledge is tacit and its transfer requires the active willingness of both parties to teach and to learn.

Organizational culture is increasingly recognized as a major barrier to leveraging intellectual assets. DeLong and Fahey (2000) identified 4 ways in which culture influences the behaviors central to knowledge creation, sharing and use. First, culture-and particularly subcultures-shape assumptions about what knowledge is and which knowledge is worth managing. Second, culture defines the relationships between individual and organizational knowledge, determining who is expected to control specific knowledge, as well as who must share it and who can hoard it. Third, culture creates the context for social interaction that determines how knowledge will be used in particular situations. Fourth, culture shapes the processes by which new knowledge-with its accompanying uncertainties-is created, legitimated, and distributed in organizations.

These four perspectives suggest specific actions managers can take to assess the different aspects of culture most likely to influence knowledge-related behaviors. This diagnosis is the critical first step in developing a strategy and specific interventions to align the firm’s culture in support of more effective knowledge use (DeLong and Fahey, 2000).

To reinforce a common culture, CGE&Y came up with a list of seven values to provide people with a behavior guideline. Honesty, boldness, trust, freedom, team, modesty and fun were to be explicit values for the merged organization.

In summary, as knowledge management is critical to an organization’s competitive advantage, organizational culture is critical to an organization’s definition and execution of its business strategy. Hence, knowledge management cannot be effectively addressed without addressing organizational culture. The cultural factors that impact knowledge management initiatives are information systems, organizational structure, reward systems, processes, people, and leadership.

Much of the responsibility for improving cultural fit in acquisition lies with chief executives and other senior managers. Senior managers who plan to implement knowledge management initiatives must carefully address these cultural factors. And although the cultural factors may be defined and investigated independently, they are in fact interdependent. For this reason, each cultural factor should be addressed in relationship to the others.

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Critical success factors for organizations today – the need for speed, management of complexity, a sense of history and context, effective judgment, and organizational flexibility – are all related to and dependent on organizational knowledge. The “intangibles” that add value to most products and services are knowledge-based – technical know-how, product design, marketing presentation, understanding the customer, personal creativity, and innovation.

Several studies have proposed several key variables for successful implementation of knowledge management: Davenport et al. (1998), Ryan and Prybutok (2001). Perhaps the most comprehensive list of success factors has been presented by Moffett et al. (2003). Ten key components to successful knowledge management were identified:

friendly organizational culture;

senior management leadership and commitment;

employee involvement;

employee training;

trustworthy teamwork;

employee empowerment;

information systems infrastructure;

performance measurement;

benchmarking

knowledge structure.

The Knowledge Management (KM) model and experiences CG and E&Y followed before the acquisition were substantially different in terms of organizational structure, technological platforms and contribution mechanisms. KM at Cap Gemini was more decentralized than in E&Y.

One of the key success factors at E&Y is knowledge structure. The company had clear focus on knowledge: four centers to support the KM – the Centre for Business Innovation, the Center for Business Transformation, the Centre for Business Knowledge and the Centre for Technology Enablement. Each centre had its own objectives adding to the common goal – gathering, selecting, filtering, storing and distributing both external and internal knowledge and information to the entire organization.

Other critical success factors are employee involvement and training, friendly organizational culture and teamwork. Before the acquisition E&Y was well recognized for its organizational culture as being the “kings of teamwork”. Communication played an outstanding role as it fostered knowledge sharing and a lot of efforts have been made to foster contribution and teamwork. The management of E&Y believed that the focus should be on people, as they are the true knowledge owners. However, the scope and geographical distribution of the E&Y knowledge base and its users meant that technology had to be used as an enabler wherever possible.

The Center for Business Knowledge (CBK) acts as a knowledge-clearing house that provides Information Professional-mediated knowledge services (navigation, research, analysis and vendor management) and knowledge management (communities of practice and interest coordination, training and communication, KnowledgeWeb intranet and Ernst & Young Online extranet). The CBK also works with other practice area support functions and IT groups to deliver services in an integrated way.

A network of Centers for Business Knowledge, which appear to be a combination of the traditional company library and information service, plus specialized services such as statistical analysis and financial benchmarking. Thus, although the rhetoric is about ‘knowledge’, the reality is about information, its organization and transfer.

In terms of computer-mediated collaboration, the CBK is more than just a cleverly branded corporate library or intranet site. The extra dimension to the CBK that makes it different is the role of knowledge managers within the CBK and out in the business who are responsible for integrating information, human knowledge and technology into work practices. On a practical level they dissect processes, categorize industries, map knowledge and help practice staff to understand where and how they can access and apply the organization’s knowledge resources.

Tim Curry, Ernst & Young’s Global Chief Knowledge Officer in 2002 said “Our success in Knowledge Management is based partly on our ability to develop and maintain high quality knowledge content that addresses the issues that our clients care about and partly on our investment in cutting-edge technology and world-class knowledge tools through the Ernst & Young Center for Business Knowledge. The KnowledgeWeb enables our people from around the world to enhance the service we provide to our clients, and it augments our position in the industry as the leader in professional services”.

Intellectual assets of the employees are the foremost critical success factor. “Usually people begin a KM project by focusing on the technology needs. But the key is people and process.”(Shir Nir, 2002). The key to successful knowledge management (KM) projects is focusing on people first, not cutting-edge technology. The biggest misconception that IT leaders make is that knowledge management is about technology,

While substantial progress had been made in CGE&Y’s approaches to knowledge management, significant challenges remained. Embedding knowledge in technology was an ongoing issue, with the technology options changing rapidly and the support requirements growing with increased use. It was particularly difficult to use technology to support some types of consulting knowledge-e.g., building relationships with senior client executives-which were tacit in nature and difficult to extract from the minds of practitioners.

Another challenge at CGE&Y, as in virtually all organizations adopting knowledge management, was assessing its progress and whether the resources devoted to it were justified. The CBK in particular had made numerous attempts to measure its own effectiveness and that of knowledge management in general. It assessed, for example, the number of telephone and computer-based requests for its services, and tried to track sales or engagement wins in which knowledge use had been a critical factor.

Successful implementation requires not only that knowledge is collected and distributed, but also, more importantly, that knowledge within the organization is easy to use in daily processes, that it is accurate and up-to-date, and that people can quickly contact subject matter experts for feedback and questions.

I would suggest Alberto Almansa to renew the contract with CBK. Despite of its high cost this if definitely the key centre that supported all KM practices for all geographic areas and the reason of the company’s continuing success. One of the main CBK’s goals was to achieve a cooperation culture through the KWeb.

Outsourcing of CBK is not possible because of high cost and because it was critical for the business. The content of CBK is a pillar for the day-to-day work and a cornerstone in E&Y strategy; in fact it is one of the reasons behind E&Y goof performance in the consulting business and this could not be replicated easily.

A good KM strategy should reflect a balance between ‘quick-wins’ and building a sustainable knowledge management capability into the long-term. The advantage of quick wins is that they allow people to see immediate benefits, and therefore they are more likely to give their support. In seeking a number of quick wins, managers should try not to be over-ambitious in the short to medium- term. Organization culture and ingrained work habits cannot be changed overnight.

Knowledge management is emerging as a significant organizational and management challenge. The pressure of the emergence of the global knowledge-based economy and recognition of knowledge as key and intangible asset are making the effective management of knowledge a priority. The knowledge-based economy (K-economy) in the intelligence age is moving forward at a very rapid pace, especially with the role played by information and communications technology which acts as a catalyst to the development of knowledge. It has become a business phenomenon for the knowledge management paradigm to play a vital role in the success of an organization in the global market. Over and above participation in the K-economy, knowledge management will help shape technological and organizational innovations of an organization for a more effective operation and thus enable an organization to better compete in the marketplace and for survival.