January 8, 1997
Donald W. Mitchell
Chairman and Chief Executive Officer
Mitchell and Company
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Leveraging knowledge capital can be extremely hard and time consuming work, unless you do it the right way. Let me share with you one of my favorite stories in this area.
Two Companies' Successful Struggles to Gain and Leverage Knowledge Capital
One of our clients is a large manufacturer of a popular roofing material. The CEO was delighted one day to visit the most efficient plant of the largest manufacturer of the same roofing material in Japan. The Japanese company used the same type of equipment, to similar specifications, and operated the equipment with 70% fewer people. The CEO could see an easy way to vastly reduce costs.
Imagine his surprise when he reported his findings to his top manufacturing people and no one believed him. Only reluctantly did the head of manufacturing agree to return to Japan with him to see the Japanese plant. Once there, the head of manufacturing was overwhelmed with excitement because he thought he could do even better than the Japanese. Together, they returned and shared the information with the plant managers . . . who refused to believe that this change was possible. A third trip followed, which included the plant managers. Seeing was believing, and they were converted. This time, they brought back a videotape to document what they had seen. The videotape was shown to the shift supervisors, who said it was all a trick and could not be done. A fourth trip followed, which included the shift supervisors, key line supervisors, and some lead line workers who actually worked one of the Japanese lines in the Japanese way for two weeks while there. Everyone now agreed the change could be made, and it quickly occurred after they returned to the United States.
The CEO later told me that the most important lesson was that the way to leverage new knowledge is to provide hands-on experience for everyone needed to make the change.
In fact, another client had just this experience when they went from 17th (and last place) in profit margins in the processed food industry to first place in less than three years. This company also began with a benchmarking process that included both its own facilities and those of people in the same industry where the processes were similar. They, too, found that all potential improvements identified in the benchmarking were thought to be "impossible" by operating management, until these "doubting Thomases" visited the facility that was actually doing the "impossible." Once there, the skeptical operating executives found that over two-thirds of internal benchmark processes were capable of being adopted and over one-third of the external benchmark processes could be used, as well.
A Systematic Approach to Leveraging Knowledge Capital
An interesting point about both examples is that both companies could have employed the benchmarking and knowledge transfer many years earlier, and enjoyed the benefits much sooner. Without a solid process to add to and leverage knowledge capital, this capital often remains unproductive.
Where are some valuable sources of knowledge capital to leverage? This question is important because the CEO is in a unique position to be sure that key information is obtained and used. In guiding companies to improve their effectiveness through knowledge capital, we have found these sources to be the best:
-internal and external benchmarks of key management processes, put in terms of accomplishments and how they are achieved (some very promising areas that deserve more attention include hiring and retention of key employees, reducing the cost of capital, identifying the key areas for improvement focus, alliance relationships, and outsourcing to increase effectiveness)
-detailed profiles of the perceived needs, behaviors, and preferences of current and potential institutional shareholders, competitors, customers, suppliers, partners, and employees
-operating analysis to determine where "breakthrough" performance levels are (such as which levels will cause the most profitable customers to switch between competitors), and
-answers to the question of how to achieve the desired result if one were starting from scratch to design a new business.
Two Key Steps for More Effectively Leveraging Knowledge Capital
Our most effective clients tell us that two steps are needed first to get the most out of these sources:
1. Make the information readily available in a flexible, simple form to those who can make good use of them (the new universal databases with total drill-down capability are a good example), and
2. Teach people how to use the information.
A key problem comes in the latter area. Most large companies have an enormous amount of information now, but no one is quite sure what to use it for. One of our clients (a Baldrige Award winner) tells the story of having two company statisticians follow their senior executives around for six months to see how information was used. The statisticians reported that the executives responded to statistically meaningless information in over 95% of the cases, creating a shortage of time to work on the high payoff areas. With training on when to respond, effectiveness soared.
Once we have the information easy to access in the right form, and know how to use it, we will still have to put it into contexts where it becomes understandable to people – as our client did by taking everyone to Japan.
Leveraging Knowledge Capital in the Future
A lot of new work is being done on this to increase the productivity of knowledge workers. Led by prototypes at companies like Xerox and Sun Microsystems, task forces with members in remote locations are using continuous audio, video, and work-in-progress documents on their computers to make their virtual interactions much more like being in the same room. In fact, inside the information framework, there is a virtual office for chatting, sharing information, and a variety of formal and informal environments. As a result, each person develops a better understanding of each other, permitting the time to complete projects to be greatly reduced.
When I started as head of strategic planning and development for a Fortune 500 company, our CEO told me that I should spend 5 percent of my time on improving my knowledge. That was quite a revelation to me, for it seemed like an enormous amount of time. Today, in retrospect, I would say that it is too little. Some of the most effective companies are now spending between 10-15 percent of employee time in this way. With more knowledge, the time it takes to get something done can be drastically reduced. In today's busy companies with lean employment levels, the time allotted for employees to add knowledge has often been reduced to too low a level.
Although computers and other new forms of technology can assist in this process, leveraging knowledge capital is primarily a hands-on management task involving good leadership skills. Those CEOs who will be most effective will be those who have the following qualities:
1. they can tell a compelling story of why knowledge transfer is critical today and tomorrow that energizes their organizations to take action (and if they cannot tell this compelling story, they will find a story teller who can fill this role for them)
2. they understand the people in their organization well so that the CEO knows the best way to create the right influence on this subject
3. they insist that the best sources of information are available and thatthe organization learns the best ways of using them, and they tie leveraging knowledge capital successfully back to the vision that the organization has accepted for the future.
In this role, the CEO is like the conductor of an orchestra . . . who makes no sound yet is responsible for the music that comes from those who do.
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