28 August 2007

Half Of My Management Is Wasted

Charles Williams, of the Fuqua School of Business at Duke, has an interesting article in the September 07 Strategic Management Journal, available, I'm sorry to say, only to subscribers. Professor William's paper deals with what it means to say that an organization "knows" something and how organizations go about transferring knowledge.
The idea that organizational knowledge is tacit and ambiguous has played a central role in research on strategy and organization. [All citations omitted.] Causal ambiguity is inherent to most complex production processes, so firm members often do not understand the root causes of firm performance or the interaction between individual activities. Replication, which is effort towards exact copying of a set of activities, enables the transfer of those activities without the need to understand their causes, consequences, and interdependence. Thus, researches have proposed that firms replicate knowledge to transfer it in the face of ambiguity.

* * *

Most theorists locate organizational knowledge in the actions of the organization. [A remarkably Witgensteinian position -- DGC] Nelson and Winter 'propose that organizations remember by doing. [Emphasis original] Similarly, Spender emphasizes that knowledge is inextricably linked to collective action in organizations. Nonaka also suggests that 'knowledge is deeply rooted in action.' Thus, firms possess knowledge only if they can put it into action.

* * *

These aspects of knowledge suggest two key characteristics of organizational knowledge: causal ambiguity and context dependence. Causal ambiguity arises because knowledge is embodied in the repeated activities of the organization, known as routines. Routines link together the actions of organization members, who may not understand, or even be aware of, actions elsewhere in the chain. Since these chains are long and incompletely understood, no member of the organization will completely understand the relationship between an organization's actions and outcomes.
In other words, organizations, as opposed to the people who comprise them, can only be said to "know" through routine. But because knowledge becomes routine, no one really knows which parts of the routine are the important parts. My wife had two good examples of this. The first is an old joke about a mother showing her daughter how to cook a ham.
"First, we start by cutting off the end."


"I'm not sure, but that's how Grandma taught me to do it." Later, she asked her mother why she had started by cutting off the end:

"Because my pan was too small for an entire ham."
Her other example was from the practice of medicine. Different insurers have different record keeping requirements, so routines are changed to meet the requirements of a new insurer. Later, even if you stop doing business with that insurer, the new requirement has become routine and people keep meeting it, even though no body knows why. (Law, too, is very much like this.)

Superstition, too, is very much like this. A baseball player has a good outing and then tries to replicate whatever he did that day exactly. He eats the same meal, takes the same number of swings in batting practice, even wears the same underwear. His routine is causally ambiguous; he doesn't know which part he can safely give up. Montgomery Ward John Wanamaker supposedly said that he knew that half his advertising was wasted, he just didn't know which half. The problem is that you can't know which half of your daily routine is wasted: there's no telling which portion, if pulled, will start the avalanche.


Ali said...

That was John Wanamaker who said that, not Montgomery Ward.

Bret said...

Very neural. Individual neurons contribute to "knowledge" by doing (in this case firing in a certain way) without, of course, having any idea of what they're doing.

The interesting thing (for me) about founding companies is to transition from being a couple of individuals to an organization with knowledge. It's fun to watch.

erp said...

Q. Why did the kindergarten kid use only a black crayon?
A. He lost all the other colors.