Forster N. - Maximum performance (2005)(en)

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employees clearly appreciate the changes that have been made over the last decade, with HD being included in Fortune’s annual ‘The Best Companies to Work for in the USA’ in 2002 at number 51 (Levering and Moskowitz, 2002: 90).

HD is a company that took some time to understand the value of embracing learning organization theory, but they eventually saw why they needed to learn, what they needed to learn and how to learn. The company has been reaping the full commercial benefits of this revolution in their organizational mind-set for more than a decade. As their former CEO Richard Teerlink commented in 1991,

I think sometimes we get hung-up on these terms – like Quality Circles, Just in Time and the Learning Organization. For me, the learning organization is when we are continuously learning. It’s about learning what we do collectively. It’s about learning what happens outside the company. If we are not continuously learning, as individual employees and as an organization, we will remain stuck where we are today. If we stick where we are today, we will lose. We must be continuously improving, and what is the basis for continuous improvement? The basis for continuous improvement is ‘What did we learn today?’ [my emphasis].

Although Teerlink retired from the company in 2000, this philosophy continues to underpin the way that HD is planning for its future. In the late 1990s, most of the company’s customers were middle-aged men, and it was this demographic statistic that in large measure had rescued HD in the 1980s, when the company decided to market its leather-jacket image to affluent white-collar baby-boomers. However, this didn’t bode well for future sales, because the average age of US motorcycle buyers was 32 in 1990, 38 in 1998 and by 2001 had risen to 46. By 2010, most baby-boomers will be too old to buy new motorcycles. By the mid1990s, younger bike-riders who didn’t remember films like Easy Rider (or HD’s once rebellious image) were showing a clear preference for the flashier and cheaper bikes provided in abundance by the Japanese and Germans. In response to these developments, HD started to revamp and retool its bike range. In 1995, the go-ahead was given to start work on a new bike project, which culminated in the launch of the V-Rod in 2003. It was widely praised by aficionados and commentators alike as being ‘revolutionary’, ‘radical’, ‘cool beyond words’ and ‘breathtaking’ while remaining true to the history, traditions and spirit of the company. HD has also been appealing to a new demographic sector: women. The number of women buying Harleys rose from 2 per cent in 1987 to 9 per cent in 2003. Since 1999, about 40 per cent of those attending bike-training courses in the USA each year have been women. This group will be heavily targeted by the company’s marketing department over the next few years, as the company continues to learn, innovate, evolve and grow over the first two decades of the 21st century.

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Conclusion

We soon discovered how essential it is for a multi-business company to become an open, learning organization. The ultimate competitive advantage lies in an organization’s ability to learn and rapidly transform that learning into action. It may acquire that learning in a variety of ways – through great scientists, great management practices, or great marketing skills – but then it must rapidly assimilate its new learning and drive it.

(Jack Welch, former CEO of General Electric, cited by Lowe, 1998: 84)

Our true core competency is not in manufacturing or services, but the recruiting and nurturing of the world’s best people, and the cultivation within our employees of an insatiable desire to learn in order to improve everything we do on an ongoing basis. It is this competency that has enabled us to grow and adapt quickly to the many challenges we have faced over the last decade.

(Welch again in his final Director’s Report at GE in 2002. In 2003, GE was one of just seven companies in the world awarded a Standard and Poor’s AAA performance rating.)

Are more organizations likely to embrace learning organization principles as a way of improving employee performance and maintaining competitive advantage? A few years ago, the answer to this question would have been, ‘They ought to.’ Now it is, ‘They probably will’, because all cutting-edge organizations of the last 100 years have been able to do something more than reactively ‘manage change’. For example, almost all of Collins and Porras’s ‘visionary companies’ and O’Reilly and Pfeffer’s ‘extraordinary companies’ are organizations that have been able to learn quickly and have learning organization characteristics. They have regularly created change for others to follow in their wake, and have been able to adapt quickly to unforeseen circumstances in the past. Only on rare occasions have these companies been forced to resort to the classic knee-jerk reactions of most companies facing crises, such as downsizing and mergers or other short-term fixes. While these may have some short-term benefits, none of them are recipes for assuring long-term organizational growth and longevity.

Learning Organization tools can support the management of perpetual change and innovation because the average life expectancy of all business organizations is declining year by year and this trend will continue for the foreseeable future. It is a management philosophy that rejects short-term fads, quick-fix solutions and the use of consultants to sort out organizational problems. Like all successful individuals, all successful companies learn how to do things for themselves. Both voraciously acquire knowledge and ideas from any source and use these to educate themselves or their workforces, and thereby serve their best long-term interests. As John Burgoyne has suggested, ‘the battle is not yet won, but sufficient victories have been won in many companies,

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large and small, to suggest that the learning organization is not just a fashion accessory’ (1995: 28).

Arie de Geus, whose work at Royal Dutch Shell first inspired the idea of the learning organization, has argued that only those companies who put their own interests first, rather than those of its external financial stakeholders, will thrive in the future (de Geus, 1996, 1997; Macleay, 1997b). Echoing Collins and Porras’s findings on visionary companies, Senge’s work on learning organizations and the work of O’Reilly and Pfeffer on extraordinary companies, de Geus has consistently argued that companies that focus single-mindedly on profits are unable to learn and, therefore, cannot hope to survive in the long term. Of 45 long-last- ing companies that he identified (some of which had existed for centuries), all had a purpose beyond profit. They saw themselves first and foremost as organic systems, made up of living people, and their primary loyalty was toward themselves and their employees, not shareholders. He found that companies that focused primarily on economic management, and short-term financial goals, invariably had a much shorter shelf life than those companies that focused on systemic learning.

De Geus recalls that he was so surprised by these results that he went back again and again to verify that this was what these companies were actually doing, and not symptomatic of the usual corporate rhetoric about ‘our people being our most important assets’. But, this is precisely what he did find. Also recall that de Geus was not an ‘ivorytower’ academic. His unwavering belief that a single-minded adherence to managing organizations as economic entities was fundamentally flawed emerged from almost 40 years at Royal Dutch Shell, including ten years as head of Shell’s Corporate Planning Department. During this time he had wrestled with two major questions: ‘What does an oil company do when there is no more oil to find?’ and ‘What are the secrets of companies that live for decades and even centuries?’ The book in which he presented his ideas, The Living Company, had such an impact that it won The Financial Times/Booz Allen and Hamilton 1998 Global Business Books Awards prize for ‘Most Innovative Business Book of 1998’. Shell, the weakest of the world’s large oil companies in 1970, is now one of the strongest, and companies as diverse as BP, General Electric, Harley-Davidson, Du Pont, Siemens and the American Army have all taken learning organization principles on board (Sullivan and Harper, 1996).

There is little doubt that learning organization principles can be difficult to implement, but many of the world’s most successful companies have spent a lot of time developing their learning capabilities. It took Harley-Davidson the best part of five years to really grasp what the

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implications of learning organization principles would be for the company. Having said this, the learning organizations identified by de Geus and Senge are companies that have been in existence for many decades and, in some cases, for more than a hundred years. They have an inbuilt capacity to live in harmony with their business environments, by being extremely flexible when times are tough and, more importantly, continuing to learn, develop and change when the business environment is slower and more stable. These are companies that do not rest on their laurels, and never grow complacent and arrogant when they are successful or at the height of their powers. In common with high-achieving individuals, they have an inbuilt hunger for perpetual learning, self-education and improvement, and do not stand still for long. While learning capabilities alone may be insufficient to ensure a secure future for an organization, its ability to learn faster than its competitors will be a major source of competitive advantage for the foreseeable future. How it can then convert this learning into useful knowledge and information that the entire organization and its employees can utilize will be discussed in the next chapter.

In order to control your destiny, you must realise that you will only stay ahead competitively if you acknowledge that no advantage or success is ever permanent. The winners are those that keep moving. We’ve tried to instill this attitude in our people. We’ve tried to make it not only acceptable but also that people look for a better way or grab the best ideas from wherever they find them [ ] To create an effective learning organization, you don’t bolt things down. You let the organization and the ways in which it learns evolve continuously.

(John Browne, CEO of BP, cited by Prokesch, 1997: 162; the company reported record profits on the back of a 42 per cent increase in earnings during 2003: AFP, 2004a.)

Exercise 9.5

Having read through the last section of this chapter, please think about how you might implement learning organization principles in your organization in the future.

1.

2.

3.

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Notes

1Answers to Exercise 9.1:

Part 1: (1) Tuesday, (2) Yourself, (3) NINE, (4) Two ‘F’s (or seven ‘f’s), (5) SIX,

Part 2

(1)The person was a dwarf who couldn’t reach the lift-buttons for the higher floors.

(2)He was a parachutist, whose parachute failed to open.

(3)This was the year when the world’s first digital wristwatch was put on show at an international watch manufacturers’ conference. The Swiss (the world’s leading clock and watchmakers at the time) did not believe that there was a market for this innovation. However, some representatives from a relatively unknown Japanese company called Sony did attend this conference . . . it took the Swiss watch-making industry more than a decade to recover from its inability to imagine, ‘What if . . .?’ It later bounced back in the mid-1980s with the launch of the Swatch range of watches.

(4)The telephone. Although as many as 12 people were instrumental in developing this, most notably the Italian Antonio Meucci, the two people who eventually took most of the credit for the idea were Alexander Graham Bell and his assistant, Graham Watson. Soon after they had developed a working prototype on 10 March 1876, they demonstrated their invention to the executives of Western Union. This is part of the reply they received: ‘Mr. Bell, after careful consideration of your invention, while it is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities’, adding that they saw no future for ‘an electrical toy’. Bell then set up his own company, American Telephone and Telegraph (AT&T). Within just 20 years there were more than six million phones in use in America. AT&T became, for much of the 20th century, the biggest corporation in the USA, with stock valued at $US1000 a share at its peak. The Bell patent (No. 174,465) became the single most valuable patent in history (Bryson, 1994: 113).

(5)The Talking Clock.

2Answers to Figure 9.1: Picture puzzles

At the top left, there is a duck and a rabbit; on the right there is a table with four chairs under it, or a square being eaten by ‘space-invaders’, or a top-down view of a square parasol with four round stools under each corner. In the middle, there is a penguin and a Chinese face, a sleeping cat and a sleeping mouse, and a couple embracing/a man washing his face. Next, there is a man’s face/a seashore/a dog and, on the right, an old woman’s and a young woman’s face.

Answers to Exercise 9.2: Advanced lateral thinking

(1)The statement ‘I don’t always speak the truth’ has to be true. If it were false, it would imply that the speaker does always speak the truth. Thus, the supposition that his statement is false leads to a contradiction, thereby demonstrating its truth. Consequently, the first stranger’s statement is true.

(2)All jokes have to start somewhere. Betty created the joke and told it to Cathy. So when Alice began to tell Betty the joke, she had not heard it or read it, but knew it.

(3)247 – 118 = 129

(4)The classical solution to this problem is to use one of the objects for a purpose for which it was not intended and to apply a principle from another body of knowledge. If you can get the strings to move, or pendulum, you can bring their ends closer together. How do you create a pendulum? By adding a weight to it. So, all you have to do is tie the stapler to one string, swing it, grasp the other string and as the weighted string swings back, grab it, remove the stapler and tie the two ends to together.

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(5) The clock strikes 11 times at 11.00, three times on each quarter hour and 12 more times at 12.00 midnight, making a total of 26 chimes. However, once a year, in many countries of the world, the clocks go back one hour at the beginning of winter. So, having reached midnight, the clock chimes 12 times. The clock is then wound back one hour to 11.01. It then chimes three times on the quarter hour and 12 times at 12.00, making a total of 27 chimes (12 + 3 + 12) in 60 minutes.

(Perkins, 2001)

3Many practitioners of the yoga and relaxation disciplines, described in Chapter 2, believe that these also free the creative and dissociative parts of the human mind.

4The computer. Mechanical computers were developed and used during World War II, as part of the Enigma code-breaking programme in the UK. The first digital computer appeared in 1946. So, although all the relevant information and technologies existed in 1918, it took 30 years to link these disparate bodies of knowledge together into an innovation that continues to radically transform the world (Drucker, 1999: 155–6). This is another example demonstrating that most new ideas and products are derived from pre-existing products and/or bodies of knowledge and expertise, often reformulated, reframed or resynthesized in new and novel ways. For an insight into how this process has driven the creation of hundreds of consumer products, and the many devices we use at work and in the home, see Joel Levy’s Really Useful: The Origins of Everyday Things (London: Quintet Publishing, 2002) or any autobiographies of inventors/innovators like Thomas Edison or Barnes Wallis.

5Another idea that has been around for a long time. John Patterson, founder of the National Cash Register in the USA, proposed a system of paying employees for their ideas, in order to turn his firm into what he termed ‘a hundred-headed brain’. He first proposed this idea in 1895 (The Economist, 1999). Chapter 4 contains a detailed guide to the financial and non-financial incentives that can be used to retain high-quality and creative employees.

6Of course, funky ergonomics alone are useless without the right values, organizational culture, strategies and practical business acumen to operationalize and market innovative ideas. In Google’s case, there were indications during 2003–4 of the emergence of ‘an arrogant and complacent culture’, and some worries about problems of integration and coordination being created by too rapid growth. The company’s apparently relaxed attitude to the emergence of new players in the search engine market was also a cause of concern to some business commentators. The new competition includes Microsoft, which now has its own search engine software built into all operating systems (Vogelstein, 2003).

7And even management gurus get it wrong sometimes. Two of the organizations cited as examplars of innovative companies in these articles by Gary Hamel were Enron and Worldcom. Fortune also presented its ‘most innovative company’ award to Enron on six occasions during the 1990s. Perhaps ‘most innovative ways of stealing money from other people’ awards would have been more appropriate.

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The last two chapters have demonstrated how important continual change, innovation and organizational learning are for modern organizations. A significant component of each of these competencies is the extent to which organizations can tap into, and fully utilize, the knowledge and intellectual capital of all their employees in order to cope with shortening product life cycles, increasing competition, accelerating change and environmental uncertainties. The word ‘knowledge’ is derived from the Greek for ‘meaning’, logos, and was also used by the ancient Greeks to mean ‘reason’ or ‘word’. It is defined here as a body of facts, information and know-how accumulated over time. Knowledge management is a generic term encompassing the processes by which employees’ experience, expertise, skills and knowledge are gathered, shared and utilized and then converted into collective organizational learning in order to improve organizational performance, effectiveness and productivity. The term ‘intellectual capital’ is derived from the Latin words intellectus (understanding) and capitellum (the head). There is some uncertainty about the emergence of this concept in modern times, but it appears to have been first used in its modern sense in 1958 by Peter Drucker, popularized by John Galbraith in the late 1960s and fully articulated by the Swedish academic, Karl-Erik Sveiby, in 1989 (Stewart, 2002). It is defined here as the totality of an organization’s collective knowledge, learning, patents, expertise, wisdom, experience, know-how, skills and competencies.

In a broad sense, knowledge, knowledge management and intellectual capital have always been important elements of business success and organizational effectiveness. For hundreds of years, owners of family run enterprises have passed their knowledge and wisdom on to their children, craftsmen have taught their skills to apprentices, and employees have shared their expertise, experience and know-how at work. ‘Communities of practice’, in the form of trade associations or guilds of metal workers, potters, artists, lawyers, builders, masons and other skilled professions have existed for centuries, and they too have shared and disseminated knowledge within their occupational groupings. However, for much of the history of industrial capitalism, many groups of workers were valued only for their muscle power, particularly after the introduction of production-line systems into manufacturing industries in the 19th and early 20th centuries. The ‘godfather’ of mass-production in the automobile industry, Henry Ford, is reported to have said in the 1920s, ‘Why is it that whenever I ask for a pair of hands, a brain comes attached?’

Things have changed dramatically since Ford made this comment, particularly over the last 20 years. Today we find ourselves living in what has been described by many commentators as a ‘global knowledge

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economy’, where efficiency and economies of scale will only allow companies to have limited success in business. With the rapid shift from industries based largely on muscle to ones based increasingly on intellectual resources, more and more companies have been forced to examine the knowledge underpinning their businesses, and how they can use this to increase their competitiveness. The Swedish corporation Scandia, guided by Karl-Erik Sveiby, was the first to establish a comprehensive set of knowledge management tools to assess its intangible knowledge assets, and today one in three Nordic companies measure these ‘soft’ assets (Edvinsson, 2002: 49). Many other major international companies in a range of industries such as telecommunications, oil and gas exploration, construction, engineering, computer hardware and software, automobile manufacturing and management consulting have also started to reap the benefits of the improvements they have made to the way they manage their employees’ knowledge.

Capturing the commercial potential of intellectual property can also reap huge dividends for companies. For example, IBM patented more than 22 000 inventions and innovations during the 1990s, generating hundreds of millions of dollars in income and billions in market value from its patent portfolio. In 2003, it registered 3415 patents, making it the most prolific patent holder in the USA for the eleventh consecutive year. The next best was Canon, with 1400 patents. IBM’s Senior VicePresident for Technology and Manufacturing, Nick Donofrio, commented in January 2004, ‘We consider patents the starting point on the path to true innovation. What differentiates IBM from other companies is our ability to rapidly apply these to new products and offerings that solve the most pressing business challenges of our clients’ (cited by Blake, 2004). Furthermore, knowledge management is no longer the exclusive domain of large private sector businesses; government, public sector, schools and not-for-profit organizations have also started to benefit from knowledge management initiatives in recent times. For example, in 2002, the City of Perth Executive in Western Australia introduced a comprehensive knowledge management programme for its 472 employees – the first public sector government organization in Australia to do this (City of Perth, 2002), Several other public sector organizations in WA soon followed this example in 2003–4.

However, until fairly recently, the collective knowledge and intellectual capital of organizations rarely appeared on end-of-year financial reports or balance sheets. There were two reasons for this. First, few businesses could see much point in doing this. Second, many business people believed that things as nebulous, implicit and difficult to pindown as ‘knowledge’ and ‘intellectual capital’ could not be easily

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quantified and measured. In spite of these difficulties, it is no exaggeration to say that there was an explosion of interest in managing knowledge and intellectual capital in the late 1990s and early 2000s. This happened for several reasons. First, emerging economic theory now places knowledge at the centre of sustained economic growth, be this at the company level or at the level of the nation state (for example, Singapore), and several recent studies have suggested that knowledge and intellectual capital will be the primary drivers of both organizational and national economic performance over the next two decades (for example, Guthrie and Petty, 2000; Klaila and Hall, 2000; Choo, 1998).

Second, businesses continue to downsize, rationalize and/or merge, leading to continual rounds of job cuts in many industrial sectors. The steady growth in the use of outsourcing in organizations, the emergence of ‘portfolio careers’, ‘craft loyalty’ and the increasing use of short-term contracts by employers, have led directly to the gradual erosion of employee loyalty and commitment to organizations in all business sectors, particularly amongst Generations Y and T. For example, in California’s Silicon Valley, labour turnover rates in local electronic firms in the late 1990s were over 35 per cent, and as high as 60 per cent in some small firms. The average job tenure of employees was about two years (Evans and Wurster, 2000: 6). If an organization’s knowledge resides only in the heads of their employers, they can effectively kiss this goodbye when they lose staff. Potentially, this can be a very expensive proposition, if they have spent time and resources developing those people and who subsequently move on to one of their competitors (a phenomenon aptly described as ‘bright-sizing’). This means that companies, particularly in new industries, have to become better at retaining their employees’ knowledge in order to maintain their corporate ‘memories’. They also need to find ways of encouraging their loyal employees to bring their intelligence, motivation, creativity and knowledge to work and then utilizing these to the maximum possible level while they are there.

The book of business

‘Staff come and go. Make sure their knowledge and experience stay. When you lose staff, you lose ground. It’s hard not to when all that training and investment simply walks out of the door. An estimated 70–80 percent of company knowledge disappears this way. We have a complete package of software, hardware and services to help your company capture knowledge and use it. This eliminates the need to recreate business applications, tools and processes in different locations.