Putting the Knowing

Organization to Value
White Paper, August 1998
Authors: H. van Lente
F.R.E. Lekanne Deprez
S.J.C.W. Schellekens
J.T.M. van der Zee

© Copyright 1998 by Nolan, Norton & Co. All rights reserved

Preface

All over the world organizations are moving from the summarizes a discussion between managers of
industrial age to the information age. As part of this leading Dutch companies, management consultants
process, business and IT concepts seem to be going and a prominent researcher in the field of knowledge
through as much change as the organizations management, professor Chun Wei Choo of the
themselves. Against this background it is of vital University of Toronto.
importance to exchange ideas and visions about Further, the subject of the discussion is outlined in a
knowledge management, and to discuss our expe- summary of a KPMG Management Consulting survey,
riences with it. as well as in professor Choo’s article ‘The Knowing
The intention of the Round Table Conferences Organization: A Process Model of Knowledge
organized by Nolan Norton Institute, the research Management’, in which he describes a knowledge
discipline of Nolan, Norton & Co. is to facilitate this management process model.
kind of exchange. The material presented here

Round Table Conference

Putting the Knowing Organization to Value

Summary of the discussion,

Wittenburg Castle, Wassenaar, 10 June 1998.

Participants
H.C. Zedlitz Fellow Nolan Norton Institute
C.K. Haasnoot Fortis
G.J. Kramer Fugro
A.A. Röell ING Group
P.M.A. Ribbers Katholieke Universiteit Brabant
G. Grossman NCM
R.H. Alsen KPN Telecom
R.M.M. Fonville Philips Semiconductors
Ph.J. Idenburg Zurich
H. van Lente KPMG Inspire Foundation
F. Lekanne Deprez KPMG Knowledge Management
S.J.C.W Schellekens Nolan, Norton & Co.
J.T.M van der Zee (Chairman) Nolan Norton Institute

1
Introduction

Is knowledge management here to stay? of the puzzle fall into place. When dealing with
knowledge management in the broadest sense we have
Nowadays ‘knowledge management’ is a fashionable to address the following fundamental questions:
topic in business and management circles. Numerous • How do we make sense of what is happening, both
books and articles are published, seminars are held and in our organizations and outside?
the first Chief Knowledge Officers are installed. The • How do we create knowledge that is adequate?
popularity of the issue has led some to believe that • How do we improve decision making?
knowledge management is a fad like many others, and Clearly, this involves more than the IT department. It
that it will soon be forgotten, to be replaced by the next relates to the ‘knowing society’, the ‘knowing organi-
‘hot’ business topic. zation’ and the ‘knowing (networking) worker’. Hence,
This scepticism is deepened by the disappointing results at the Wittenburg Round Table Conference four
of the introduction of information systems, the difficult statement were discussed:
struggles everywhere with intranets, and the limited use
that people make of databases. Indeed, there have been 1. The knowing society: as a result of the
great expectations, and they have failed to materialize. recognition of the value of knowledge, markets
Nevertheless, we have to face the fact that our will change radically.
organizations and our economy are becoming more
knowledge intensive. Undeniably, knowledge is of 2. The knowing, networking organization: in
strategic importance to services and products and to response to the shift towards a knowing economy,
their distribution. Some even say that knowledge is companies will have to form strong alliances with
becoming the primary production resource, before raw their clients, suppliers and competitors.
materials, labour and capital. Knowledge management
may not be a guarantee for instant success, but we 3. The knowing, networking worker: a knowing,
cannot do without it anymore. networking organisation induces a radical
change in the roles, competencies and responsi-
Yes, knowledge management is here to stay, but we bilities of its employees.
need a better understanding of knowledge and the way
it helps firms to create value. We invited professor 4. The transformation from the ‘IT Era’ to the
Choo, author of The Knowing Organization, to describe knowledge based ‘Network Era’ can and should
the state of the art of knowledge management. What do be managed.
we know about how to deal with knowledge in
organizations? Professor Choo integrates insights and In the following pages the discussion triggered by these
lessons from three business areas that are seldom statements is outlined, interspersed with comments and
studied in relation to one another. This makes the pieces reactions of the participants.

2
Statement 1

The knowing society: As a result of the R.M.M. Fonville, Philips Semiconductors: “Creating
recognition of the value of knowledge, value based propositions for commodity products will
markets will change radically. certainly be possible, but more limited than for
‘intelligent’ products. Distribution channels are
Elaborating on this statement, the chairman pointed out probably the main theatre for doing so.”
that knowledge is becoming a major key in helping
managers ‘sense’ and survive within a 21st century No company has done more to show how the web
company. Knowledge quality and the way it is overturns conventional assumptions about distribution
managed are therefore of prime importance. The era of and marketing than [Link]. Out of the blue this
the industrial economy has passed and the ‘knowledge virtual bookstore challenged the position of well-
economy’ is a fact. This sets new rules for the way we established booksellers like Barnes & Nobles. The
do business. Uncertainty is of the order of the day - and secret of Amazon’s success is its building a business
of the next day. New markets will emerge, new on a ‘sell all, carry few’ strategy. [Link]
knowledge intensive products and services will arise. provides its customers with a ‘surprisingly’
Customers increasingly ask for ‘intelligent’ products knowledge-intensive service: on the basis of your past
and services, of which the information and knowledge choice of books, a personal profile of your preferences
component will prove to be the discriminating factor. is made. [Link] is then able to present new
In the knowledge economy, the value-adding potential books on the basis of your and your peers’ past choices
of a company depends on its strengthening its and buying behavior.
competitive position by using ‘embedded’ knowledge
components in its service and product offerings. In the C.W. Choo, University of Toronto: “The knowledge
knowledge economy, products don’t weigh a ton - they density of products and services depends on two
are the products of the human mind rather than of the important ingredients, namely the amount of know-
production line. “We have moved from a heavyweight ledge that is embedded in the product or services and
society, to a weightless society”, the chairman quoted the impact of knowledge on making customers act and
Tissen1. Creating knowledge based propositions which operate more intelligently.”
focus on customers and society at large seems to be the
only way for an organization to create value for its The participants then focused on how to generate better
stakeholders. knowledge for customers. The main challenge was
found to be: how to put knowledge into the products of
R.H. Alsen, KPN Telecom: “Creating added value is the organization to create a difference, and how to
established by focusing, not on the visible part of the manage this process. The participants noted that
product, but on the knowledge-intensive services managing the knowledge, embedded in a competitive
associated with the finishing of the product.” strategy, will create the competitive advantage.

Even commodity products, which are tangible products C.K. Haasnoot, Fortis: “Many firms see distribution
and contain little embedded knowledge, seem to as peripheral to their competitive strategy. Choosing
become more and more knowledge intensive. the right distribution channel for knowledge proves to
Examples of the knowledge intensity of these products be a core competence in our business. Knowledge
are found in the the ‘systems’ and distribution channels brokers are an increasing successful kind of salesmen.
used to package and transport them and to sell them They are able to create value out of the current
globally. information overflow.”

1
Tissen, R., Andriessen, D., Lekanne Deprez, F., Value-Based Knowledge Management, Creating the 21st Century
Company: Knowledge Intensive, People Rich, Addison Wesley Longman, 1998.

3
P.M.A. Ribbers, Katholieke Universiteit Brabant: H.C. Zedlitz, Nolan Norton Institute: “Without a
“Knowledge is crucial in the process of creating a doubt, the ability to ‘manage the knowledge’ is the
unique advantage in the market, focused on a single set basis of a company’s future success .”
of customers.”

4
Statement 2

The knowing, networking organization: resources move freely across international borders.
In response to the shift towards a Connectivity is stretching the linkage to the far
knowing economy, companies will have corners of the globe. By creating knowledge based
to form strong alliances with their networks an organization will be able to provide
clients, suppliers and competitors. value to its stakeholders. The chairman mentioned the
conclusion of De Geus2 that “intellectual property lies
Managers engage in (strategic) alliances for a number at the center of the modern company’s economic
of reasons: success or failure” .
n To reduce costs: all else being equal, organizations
with higher costs lose market share, their profit This can be seen in many organizations and
margins erode, and they have less capital available industries. Companies like Microsoft own nothing of
for investments (innovation and acquisitions). value except knowledge. Fighting to defend and
n To gain access to the partner’s resources: alliances extend the domain of their intellectual property is an
enable an organization to develop or sell a product important source of sustainable competitive
or service today - instead of tomorrow - because a advantage.
partner has it immediately available. However, teaming up with competitors (‘co-
n To build flexibility: the globalization of knowledge opetition’) seems to be the next competitive frontier
has made it difficult to make significant invest- for knowledge based network organizations. The
ments in all specialized areas; by combining discussion now focused on the issue of ‘how much to
research and development efforts, new knowledge share’. It became clear that a balance must be struck
can be transformed into valuable products and between sharing and protecting knowledge.
services.
C.K. Haasnoot, Fortis: “The Silicon Valley model is
The need for both existing and new knowledge will very interesting: co-optition, i.e. collaboration and
drive companies towards the Network Era. competition at the same time. The numerous possible
Unfortunately, knowledge often isn’t available in a combinations of partners create uniqueness.”
‘structured’ and explicit fashion. No single
organization has all the competence, intelligence and G.J. Kramer, Fugro: “I believe too much attention is
knowledge to operate, improve and innovate. paid to sharing knowledge and not enough to
Therefore, companies will be less and less able to protecting it.”
fulfil the demands of their clients without
contributions from the core activities and resources C.K. Haasnoot, Fortis: “Everybody talks about
of other organizations, be they clients, suppliers or sharing knowledge, but nobody wants to receive it -
competitors. Alliances of various kinds have given a real ‘not invented here’ syndrome, which prevents
rise to the ‘stateless corporation’, in which people and people from changing their way of doing things.”

2
Geus, de A.P., Planning as Learning, Harvard Business Review, March-April, 1988.

5
Statement 3

The knowing, networking worker: the maintenance of his competencies and the
The knowing, networking organization employability of his knowledge.
induces a radical change in the roles, Focusing on the knowing, networking worker, the
competencies and responsibilities of its participants made some remarkable observations about
employees. the debit side for employers, for example on the
demands of employees for compensation, incentives
The chairmain pointed out that, thanks to information and rewards.
and communication technology, most employees
already have the opportunity to work in non-traditional P.M.A. Ribbers, Katholieke Universiteit Brabant:
workplaces, away from their employer’s office and in “Many organizations, universities etc. are on the wrong
direct contact with the customer. Laptops, cellular track. The performance appraisal system forces people
phones, wireless modems and voice mail change the to act and operate as individuals (‘lonely bulls’).”
work environment for many knowledge professionals.
These tools have extended their working day. In effect This requires an awareness of the damage a knowledge
they have created a portable assembly line for the 1990s worker can inflict on a company. If a key knowledge
that allows knowledge professionals to remain on-line worker leaves, the company loses more than just that
in planes, cars, and at home. The knowledge economy employee; it loses the informal network this employee
sees the birth of the ‘assembly-on-line workers’. has constructed around himself, and it is in danger of
However, not all companies are succesful in losing clients who see their relation as not necessarily
implementing these approaches. with the company but rather with the individual
concerned3.
G.J. Kramer, Fugro: “The Dutch high-tech company According to the participants it is very important, after
Getronics stopped its pilot study of teleworking. There finding the right people, to make their knowledge
were too many distractions, making it impossible for explicit. Converting tacit knowledge into explicit
employees to work at home. The low productivity of knowledge involves finding a way to express the
software developers became unacceptable.” inexpressible, according Nonaka & Takeuchi4. They
stress, as did the participants of the Round Table
On the other hand, the simple act of removing walls that Conference, the importance of creating a knowledge
separate people in traditional offices often fosters team with different knowledge styles and ambiguous
teamwork. As a result, relations between employees and targets (open-ended, and susceptible to a variety of
employers are increasingly managed by mutually different or even conflicting interpretations). Especially
agreed outcome or output indicators, rather than by the internal and cross-border cultural issues are
presence. It is expected that the rise of the knowing, important.
networking organization will accellerate this
phenomenon. Many of today’s workers will find C.K. Haasnoot, Fortis: “We face this challenge in our
themselves in a position where they are no longer company: how to transform tacit knowledge into
employees but knowledge professionals, who advise explicit knowledge. Right now, when someone retires,
their ‘used-to-be-employer’ and possibly other with him knowledge leaves the company - this considers
companies as well. In short, the knowing, networking IT people as well as other professionals. Unless they
worker will apply his knowledge on behalf of several have documented their experience and skills, a lot of
organizations concurrently, and will be responsible for intellectual capital5 just walks out the door.”

3
Ibid. 1
4
Nonanka, I., Takeuchi, H., The Knowledge-Creating Company. Oxford University Press, 1995.
5
Roos, J., Roos, G., Edvinsson, L., Dragonetti, N., Intellectual Capital, Navigating in the new business landscape.
Macmillan Business Press, 1997; Dutch report: Adviesraad voor het Wetenschaps- en technologiebeleid,
Onschatbare rijkdom aan kennis, Javastraat 42, Den Haag, 1998.

6
Statement 4

The transformation from the ‘IT Era’ to than are available, while until recently knowledge of
the knowledge based ‘Network Era’ can Cobol was regarded as obsolete.
and should be managed.
Ph.J. Idenburg, Zurich: “It is more a matter of
The demands of the knowledge based ‘Network Era’ changing the organizational culture than of
have much in common with those of the learning introducing technical facilities and rules. The
organization. Organizations have to be more open and question is how to make a culture that is not stable
flexible. Chris Argyris once introduced the notions of anymore. We need bridgebuilders to do this.”
single and double loop learning. Single loop learning
is quite common: it involves small adaptations in the G. Grossman, NCM: “Ten years ago HRM was a
day-to-day activities of organisations. Double loop hype and now everybody has it included in the list of
learning appears to be much more difficult. It aims at management tasks. Once knowledge management is
taking a step back and reflecting on underlying recognized as crucial, it will become an ordinary part
assumptions, beliefs, conventions and norms, which of management. Then it will disappear as a hot
is not easy. A dilemma here is that good com- topic.”
munication rules, such as protecting individual
feelings, may block double loop learning. Learning is In the old days management had to worry about
thus closely related to unlearning: doing away with manufacturing products and rendering services. In the
old practices that no longer suffice. At this point it new knowledge economy management has to make
was discussed how to appreciate the value of tacit sense. Without curiosity about what is happening in
knowledge. the environment, organizations cannot survive in this
new era.
Ph.J. Idenburg, Zurich: “It is more efficient to have
a regular inflow of new, fresh people than to try to A.A. Röell, ING Group: “The scanning function will
unlearn what is no longer relevant and adequate. As grow in importance. Big players often do this by
a consequence, the average outflow at Zurich is now buying small firms that have explored some new
10 %. The time to unlearn is no longer available, and direction and have shown that it is successful.”
the tacit knowledge of our workers is quickly
outdated.” P.M.A. Ribbers, Katholieke Universiteit Brabant:
“Not only is the environment changing very rapidly,
Several participants did not agree. They warned that there is also an incredible increase in the amount of
one should be very careful, that one should not information that is available. It has been estimated
underestimate the value of tacit knowledge and skills that we have now 10,000 times more information than
which at first sight seem not to add much value. The 10 years ago. Clearly, it is necessary to organize
‘year 2000 problem’, for instance, now calls for many one’s scanning of the supply and to limit one’s intake
more specialists in the Cobol programming language of information in a clever way.”

7
Conclusions

n In the knowing society all markets will change n Making knowledge explicit in the organization is
rapidly, not only those of ‘intelligent’ products. necessary in this time of non-traditional work-
places and knowing, networking workers.
n The created value of an organization will become
more and more ‘knowledge dense’. The n The challenge organizations face no longer lies in
knowledge density of organizations will be their making products for traditional markets but in
competitive advantage in the knowledge economy. making sense in rapidly changing markets.

n Intellectual property is a crucial source of sustain- n Learning organization principles should be applied
able competitive advantage. to manage the transformation to the knowledge
based Network Era.
n Alliances enable an organization to gain the
necessary access to the resources needed.
Nevertheless, organizations must strike a balance
between sharing and protecting knowledge.

8
New survey shows sea change in attitude towards
knowledge management

KPMG Management Consulting research reveals: knowledge organization. A large number of organi-
‘Half of the companies in the UK suffer significant zations continue to rely upon invaluable knowledge
damages from staff turnover’. (including that concerning customers, markets and
employees’ skills) held solely in people’s heads.
Businesses in the UK have undergone a sea change in Consequently, when a key employee leaves, so does
their perceptions of knowledge management, his experience and expertise, which can be disastrous
according to a new survey1. The results of research for the organization as a whole.”
published in june ‘98 by KPMG Management David Parlby continues: “Technology on its own does
Consulting in the UK show that only 2 % of the not constitute a knowledge management project, nor
respondents believe knowledge management to be a is technology necessarily always the best means of
fad that will soon be forgotten (in direct contrast with storing information - on occasions, there is no better
other studies conducted a year before2) and that almost alternative than in the individual’s mind. However, it
half of the organizations questioned feel they have a is fair to say that technology is a key component in any
knowledge management initiative in place. The same knowledge management initiative, and an area in
survey also highlights the cost of failing to use which many companies currently fail to capitalize on
knowledge effectively. Almost half of the companies their investment. Many organizations fail to store and
have suffered significant damage from losing key disseminate information electronically. But surpri-
staff, with 43 % experiencing impaired client or singly, this is not because of a lack of resources.”
supplier relations and one in ten facing a loss of
income because of the departure of a single employee. The new survey dispels the popular belief that
The survey includes the following findings: knowledge is not shared within companies because
n 43 % of the respondents claim that the loss of a there is no way of doing so, or because people largely
single employee has damaged their company’s resist sharing their knowledge with others. According
relations with a key client or supplier; to the survey, the technology that facilitates
n 13 % of the respondents state that the departure of knowledge management is already in place: 68 % of
a single key staff member has resulted in signi- the respondents currently use document management
ficant income loss; systems, 66 % have implemented an intranet and
n 49 % of the respondents state that knowledge of the 36 % possess a data warehouse.
best practice in a specific area of operations has However, David Parlby believes, the survey does
been lost when an employee left the company. show that companies are experiencing difficulties
with knowledge management initiatives primarily
David Parlby, partner in charge of knowledge because individuals are unable to spare the time
management at KPMG Management Consulting in the required to make knowledge sharing a reality.
UK, comments: “This survey demonstrates that “Almost half of the respondents believe that people
knowledge management is here to stay. The cynicism in their organization want to share information but
that greeted earlier research (in which almost a third simply do not have the time. Surprisingly, the lack of
of the respondents perceived knowledge management time is considered a greater barrier to knowledge
to be a transient fad ) has been replaced by a belief that
2
sharing than cultural issues, which are regularly cited
this is the way of the future. However, too many as blighting such projects. Indeed, only 16 % of the
companies are still suffering the ill-effects of poor respondents feel that individuals are unwilling to

1
Knowledge Management Research Report 1998. The fieldwork for this survey was conducted by the Harris
Research Centre among companies with a turnover greater than £200 million. More than 100 companies
participated, with the eligible respondent being the Finance Director, the Chief Executive or the Marketing
Director. For further information: KPMG UK World Wide Web address: [Link]
2
The Knowledge Barrier, by the Information Systems Research Centre of Cranfield School of Management,
September 1997.

9
share their own knowledge.” “Companies must make Other key findings of the report include:
knowledge sharing a priority, re-evaluating their n 43 % of the respondents consider their organisation
incentive structures to ensure that sharing information to have a knowledge management project in place;
is adequately rewarded. But they must also allow n only 26 % of these projects have reached the
employees more time to carry out this vital task. By implementation stage, with the majority still in the
sharing knowledge effectively, more time is freed for investigation, review and preparation stages;
productive tasks - creating a kind of ‘virtuous circle’. n most companies with a knowledge management
For organizations that continue to be lean and fit in project in place have not yet established a strategy,
the information age, this can give an invaluable as indicated by the lack of both allocated budget and
competitive edge.” board level responsibility for the initiative.

10
The knowing organization:
a process model of knowledge management

The expert perspective of Chun Wei Choo

Organizations use information in the three arenas of is its holistic management of the information proces-
sensemaking, knowledge creation, and decision ses that underpin sensemaking, knowledge-creating,
making. Organizational knowing emerges when the and decision-making.
three modes of information use are connected to each
other to constitute a larger network of processes Sensemaking is precipitated by a change or difference
through which the organization constructs shared in the environment that creates discontinuity in the
meanings about its actions and identity; discovers, flow of experience engaging the people and activities
shares, and applies new knowledge; and initiates of an organization. These discontinuities provide the
patterns of action through search, evaluation, and raw data from the environment which have to be made
selection of alternatives. sense of. The sensemaking recipe is to interpret the
environment through connected sequences of
The knowing organization possesses information and enactment, selection, and retention1. In enactment,
knowledge that confer a special advantage, allowing people actively construct the environments which they
it to manoeuvre with intelligence, creativity, and attend to by bracketing, rearranging, and labelling
occasionally, cunning. The knowing organization is portions of the experience, thereby converting raw
well-prepared to sustain its growth and development data from the environment into equivocal data to be
in a dynamic environment. By sensing and under- interpreted. In selection, people choose meanings that
standing its environment, it is able to prepare for can be imposed on the equivocal data by overlaying
adaptation early. By marshalling the skills and exper- past interpretations as templates to the current
tise of its members, it is able to engage in continuous experience. Selection produces an enacted environ-
learning and innovation. By applying learned decision ment that is meaningful in providing cause-effect
rules and routines, it is primed to take timely, purpo- explanation of what is taking place. In retention, the
sive action. At the heart of the knowing organization organization stores the products of successful

Model Process Modes Interactions / Resources

Environmental change -> • Belief-driven

Enactment, selection, retention -> Beliefs
processes
Sense- Enacted interpretations
making
• Action-driven
"looking backward": Interpretations Enactments
processes
Retrospective sensemaking
Sensemaking

Knowledge-gap situation -> • Knowledge

Tacit, explicit, cultural knowledge -> conversion Cultural
Knowledge conversion, building, linking, Knowledge
Knowledge- -> New knowledge • Knowledge
creating building Explicit Tacit
"Looking across many levels": Knowledge Knowledge
Multilevel learning from individuals, • Knowledge Knowledge creating
groups, organizations. linking

Choice situation -> • Rational

Alternatives, outcomes, preferences ->
Preferences
Decision- Rules, routines -> • Process
making Decisions
• Political
Rules Routines
"Looking ahead":
Goal-directed, future-oriented • Anarchic Decision Making

Figure 1. Sensemaking, Knowledge Creating, and Decision Making

11
sensemaking (enacted or meaningful interpretations) between the personal, tacit knowledge of individuals
so that they may be retrieved in the future. who develop creative insight, and the shared, explicit
knowledge by which the organization develops new
Organizational sensemaking can be driven by beliefs or products and innovations. Tacit knowledge is shared
by actions1. In belief-driven processes, people start from and externalized through dialogue that uses metaphors
an initial set of beliefs that are sufficiently clear and and analogies. New concepts are created, and the
plausible, and use them as nodes to connect more and concepts are justified and evaluated according to its fit
more information into larger structures of meaning. with organizational intention. Concepts are tested and
People may use beliefs as expectations to guide the elaborated by building archetypes or prototypes.
choice of plausible inter-pretations, or they may argue Finally, concepts which have been created, justified and
about beliefs and their relevancy to current experience modeled are moved to other levels of the organizaton
especially when beliefs and cues are contradictory. In to generate new cycles of knowledge creation. In
action-driven processes, people start from their actions knowledge building3, the organization identifies and
and grow their structures of meaning around them, by nurtures activities that build up knowledge which
modifying the structures in order to give significance to strengthens the organization’s distinctive core
those actions. People may create meaning in order to capabilities, enabling them to grow over time. These
justify actions that are visible, deliberate, and knowledge building activities are: shared problem
irreversible (committing actions), or they may create solving, experimenting and prototyping, implementing
meaning in order to explain actions that have been taken and integrating new processes and tools, and importing
to induce changes in the environment (manipulating knowledge. Individuals with diverse signature skills
actions). work together on solving a problem. Through
experimentation and prototyping, the organization
Knowledge creating is precipitated by a situation extends its existing capabilities, and builds new ones for
which identifies gaps in the existing knowledge of the the future. Successful implementation of new tools and
organization or the work group. Such knowledge gaps processes requires users and technology to mutually
stand in the way of solving a technical or task-related adapt and to complement each other. Knowledge about
problem, designing a new product or service, or taking the technology as well as the market is imported from
advantage of an opportunity. An organization posses- outside the organization and absorbed. In knowledge
ses three kinds of knowledge: tacit knowledge linking4, the organization forms intimate learning
embedded in the expertise and experience of indivi- alliances with other organizations in order to tranfer
duals and groups; explicit or rule-based knowledge knowledge that is embedded in the specialized
codified in organizational rules, routines, and proce- relationships, work cultures and operating styles of the
dures; and cultural knowledge expressed in the partner organization. Wikstrom and Normann5 see an
assumptions, beliefs, and norms used by members to organization as a knowledge-creating value star at the
assign value and significance to new information or center of many incoming flows of knowledge from
knowledge. New knowledge is created by knowledge suppliers, customers, and other partners. Knowledge is
conversion2, knowledge building3, and knowledge transformed into value not only within the organi-
linking . In knowledge conversion , the organization
4,5 2
zation, but also through knowledge-based interactions
continuously creates new knowledge by converting with its customers, suppliers, and other partners.

1
Weick, K.E., Sensemaking in Organizations, Thousand Oaks, CA: Sage Publications, 1995.
2
Nonaka, I., Takeuchi, M., The Knowledge Creating Company, Oxford University Press, 1995.
3
Leonard-Barton, D., Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation, Boston,
MA: Harvard Business School Press, 1995.
4
Badaracco, J.L., The Knowledge Link: How Firms Compete Through Strategic Alliances, Boston, MA: Harvard
Business School Press, 1991.
5
Wikstorm, S., Normann, R., Knowledge and Value: A New Perspective on Corporate Transformation, London,
UK: Routledge, 1995.

12
Decision making is precipitated by a choice situation, a dynamic process marked by many interruptions and
an occasion in which the organization is expected to iterations. Nevertheless the process shows a general
select a course of action. Completely rational decision structure: it begins with the recognition and diagnosis
making involves identifying alternatives, projecting of the problem, followed by development of
the outcomes of each alternative, and evaluating the alternatives through searching for ready-made
alternatives and their outcomes according to known solutions or designing custom-made ones, and ends
preferences or objectives. These information gathering with the evaluation and selection of an alternative that
and information processing requirements are beyond has to be authorized or approved. In the political mode9,
the capabilities of any organization or any individual. when goals are contested by various interest groups and
Depending on the level of goal ambiguity or goal technical certainty is high within groups, decisions and
conflict, and the level of technical uncertainty, an actions are the results of the bargaining among players
organization copes by adopting one of four modes of pursuing their own interests and manipulating their
decision making. In the boundedly rational mode, available instruments of influence. Political decision
when goal and technical clarity is relatively high, making may then be likened to game-playing, in
choice is simplified by performance programs6 and which players take up positions, stands, and influence,
standard operating procedures which execute the
7
and make their moves according to rules and their
search and decision rules and routines that the bargaining strengths. In the anarchic mode10, when
organization has learned. In the process mode 8, when goal and technical uncertainty are both high, decision
goals are strategic and clear but the technical methods situations consist of relatively independent streams of
to attain them are uncertain, decision making becomes problems, solutions, participants, and choice

Signals from the Environment

Beliefs

Interpretations Enactments

Sensemaking
Shared Meanings and Purpose Shared Meanings and Purpose

Cultural
Knowledge Preferences

Explicit Tacit
Knowledge Knowledge Rules Routines

Knowledge creating Decision Making

External Knowledge New Capabilities Goal-directed
and Innovations Adaptive Behaviour

Figure 2. The Organizational Knowing Cycle

6
March, J.G. and Simon, H.A., Organizations, 2nd ed. Oxford, UK: Blackwell, 1993.
7
Cyert, R.M., March, J.G., A Behavioral Theory of the Firm. 2nd ed. Oxford, UK: Blackwell, 1992.
8
Mintzberg, H., Raisinghani, D., and Thêorét, A., The Structure of “Unstructured” Decision Processes,
Administrative Science Quarterly 21, 1976.
9
Allison, G.T., Essence of Decision: Explaining the Cuban Missile Crisis, Boston, MA: Little Brown, 1971.
10
Cohen, M.D., March, J.G., and Olsen, J.P., A Garbage Can Model of Organizational Choice, Administrative
Science Quaterly 17, 1972.

13
opportunities. A decision happens through chance and Where messages from the external environment are
timing, when problems, solutions, participants, and highly incomplete, shared meanings reduce uncer-
choices coincide; and when solutions are attached to tainty by supplying assumptions and expectations to
problems, and problems to choices by participants fill in the voids. Shared meanings need to be
who have the time and energy to do so. continuously updated against new events and
conditions. By allowing ambiguity and diversity in
The Organizational Knowing Cycle interpretations, an organization can constantly
monitor its shared meanings against the environment
In the knowing cycle, a continuous flow of infor- to ensure that they are still valid.
mation is maintained between sensemaking, know-
ledge creating, and decision making, so that the Within the framework of its constructed meaning,
outcome of information use in one mode provides the agenda, and identity, the organization exploits current
elaborated context and the expanded resources for specializations or develops new capabilities in order
information use in the other modes, as shown in to move towards its vision and goals. Movement may
Figure 2. be blocked by gaps in the knowledge needed to bridge
meaning and action. Gaps in knowledge may be about
Through sensemaking, organizational members enact something that is lacking (such as a material with the
and negotiate beliefs and interpretations to construct desired properties, or a technique to perform an
shared meanings and common goals. Shared action); or they may be about something that is
meanings and purpose are the outcome of sense- obstructing the way ahead (such as a problem to be
making, and they constitute the framework for solved, or an obstacle to be overcome). When the
explaining observed reality, and for determining organization experiences gaps in its existing
saliency and appropriateness. Shared meanings and knowledge or limitations in its current capabilities, it
purpose help to specify a shared organizational initiates knowledge seeking and creating, set within
agenda, a set of issues that people in the organization parameters derived from an interpretation of the
agree on as being important to the well-being of the organization’s goals, agendas, and priorities.
organization. While they may not agree about the Organizational members individually and collectively
content of a particular issue, and may adopt diverse fabricate new knowledge by converting, sharing and
positions on how it should be resolved, nevertheless synthesizing their tacit and explicit knowledge, as
there is collective recognition that these issues are well as by cross-linking knowledge from external
salient to the organization. Shared meanings and individuals, groups and institutions. The outcome of
purpose also help to define a collective organizational knowledge creating are new capabilities and
identity, or perhaps more accurately, a set of multiple innovations that enhance existing competencies or
identities, since an organization assumes different build new ones; generate new products, services, or
identities in different situations. Defining an processes; or extend the range of viable
organizational identity establishes norms and organizational responses to a problem situation. The
expectations about the propriety, accountability, and value of new knowledge is assessed locally by its
legitimacy of the organization’s choices and beha- ability to solve the problem at hand, as well as
viors. A framework of shared meanings and purpose generally by its ability to enhance the organization’s
is therefore used by organizational members to assess capabilities in the long run. New knowledge enables
consequentiality and appropriateness, and to reduce new forms of action but also introduces new forms of
information ambiguity and uncertainty to a level that uncertainty. The risks and benefits of untested
enables dialogue, choice and action making. Where innovations and unpractised capabilities are
messages from the external environment are highly compared and evaluated by invoking rules and
equivocal, shared meanings reduce ambiguity by preferences in the process of organizational decision
helping members to select plausible interpretations. making.

14
Shared meanings and purposes, as well as new Sometimes shared interpretations indicate that the
knowledge and capabilities converge on decision situation is novel, where none of the learned rules
making as the activity leading to the selection and seem to apply. When rules break down, the
initiation of action. Shared meanings, agendas and organization attempts to make new meaning in time
identities select the premises, rules, and routines that to initiate action, effectively prototyping new rules to
structure decision making. New knowledge and prompt choice making. The end result of this
capabilities make possible new alternatives and interaction between shared meaning (in
outcomes, expanding the repertoire of available interpretations and understandings) and shared
organizational responses. By structuring choice learning (in rules and routines) is the execution of a
behavior through premises, rules and routines, the pattern of actions that simultaneously constitutes the
organization simplifies decision making, codifies and organization’s attempt to move towards current goals
transmits past learning, and proclaims competence and maintain current identity, as well as its attempt to
and accountability. Rules and routines specify adapt to changed conditions in the environment. In
‘rational’ criteria for the evaluation of alternatives, this sense, the outcome of decision making is
‘legitimate’ methods for the allocation of resources, behavior that is both goal-directed and adaptive.
and ‘objective’ conditions for distinguishing between
normal states and novel situations that may While each organization adjusts its behavior to
necessitate the search for new rules. perceived changes in the environment, its responses
are diluted and diffracted by the concurrent actions of
Over time, the organization has learned and codified other actors that participate in the same arena. Thus
a large number of rules and routines, so that choosing each organization is reacting to the actions of other
which rules to activate for a specific choice making organizations that are also reacting to it. The resultant
scenario is itself problematic. Shared meanings and meshwork of interactions configure new patterns and
understandings about the nature and needs of a new conditions that pose fresh ambiguities and
particular situation are used to guide rule activation. uncertainties. A continuous stream of new events and
Shared interpretations help select which rules to apply equivocal cues necessitates iterative cycles of
by answering the questions “What kind of situation is information processing. Where meanings or purpose
this?” and “What rules do we have for dealing with change as a result of reinterpreting the environment,
this type of situation?” Shared interpretations may or where rules or routines are altered as a result of
also select rules according to the criterion of acquiring knowledge and understanding, the
appropriateness – “What kind of organization are we? organization is adapting to variation and feedback in
What would be appropriate behavior for an its environment.
organization like ours in a situation like this one?”

15
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