IC Enabled Dynamics And Transformation Of Business Management: The Management Of Minds

The single greatest challenge facing managers in the developed countries of the world is to raise the productivity of knowledge and service workers. The challenge, which will dominate the management agenda for the next several decades, will ultimately determine the competitive performance of companies.

In the industrial economy, machines being nonhuman were both predictable and easily operable. That all changed with the knowledge economy, in which the main machine or tool of production is the human mind. Business leaders in the new economy will no doubt agree that it is difficult, maybe even impossible, to manage minds. Perhaps managers should not even try because any attempt to control a mind may stifle its creativity, an essential enabler of innovation. Left to its own rhythm, a mind may produce nothing more than whimsical ideas much like a walk with Alice in Wonderland, never to come back again. While that may be good for some industries that offer the magic of Wonderland as their main product line, or what Disney calls "the magic of Disney" other industries need to have a systematic way to manage or attempt to manage these mind machines.

Another potential problem is control. In order to control something, you need to own or possess it. But when it comes to minds, an organization can never do that, because minds are possessed by human beings, or knowledge workers. Even with the best of intentions, one might wonder how much of his or her mind a knowledge worker can control. How to motivate and guide the thought processes of knowledge workers has been the subject of many disciplines: philosophy, psychology, epistemology, and anthropology, to name a few. So how can the business leader in this economy manage these "machines" to ensure productivity?

Organizations in the industrial economy were designed to maximize value extraction from an organization's industrial capability. Organizational boundaries were well defined and the chain of command and authority was clear. Innovation and research were functions of R&D or the new product development department, where a clear research agenda was identified. Workers in this department had it as their job to innovate. Others had different work to do: to market, to legalize, to sell, to lead, and so on. Top management was the source of ideas that revitalized business and made it succeed and grow, while the workers primarily performed the tasks assigned to them or written in their job descriptions.

Great ideas in the industrial economy were initiated and implemented by business leaders, and legacies were created. Henry Ford, for example, conceptualized the $5.00 a day wage and an economical automobile his workers could afford. Sears & Roebuck extended services to U.S. farmers in remote areas and established the company as the provider of wellpriced quality goods. Legendary leaders with new good ideas, and workers following in his or her steps is no longer the ideal model. For one thing, one idea is not enough. Ideas are contagious in this age, and competition quickly adopts an idea unless it is novel and patented. The demand for new ideas supplied by one or even a whole R&D department is now uneconomical and insufficient.

More raw ideas and innovative resources are required. Once new ideas are supplied, more minds are required to sift and process them into new products, processes, and services. It has been claimed that it takes 3,000 good ideas to have four research or product development projects, and only one of these four will be commercially successful.21 If this is true, then that means the more new ideas generated the higher the probability of market success. If innovation is initiated at the top of the organization, then not only will the number of ideas be meager but the value of these ideas will be doubtful as well. This is because those at the top are not necessarily the ones in constant contact with customers, and thus possess the knowledge about market trends and customer needs.

To grow, organizations need a structure that allows for the creation of new knowledge and generation of ideas from the frontlines. Innovation needs to be a bottom-up-driven activity that travels through as few layers as possible. This also requires fewer horizontal boundaries between departments, divisions, and business units so that the organization can benefit from the mix of expertise and richness of knowledge that each brings from his or her own perspective. This can hardly be achieved through a command line management style. Other styles need to be developed to accommodate IC-enabled dynamics as well.

Take for example Asea Brown Baveri22 (ABB), the U.K. giant of 60 businesses, 6000 profit centers in 1300 operating companies, and $30 billion annual revenue. ABB's success can be attributed to a great extent to its management style, symbolized by the 30-30-30-10 rule, which ABB's leadership applies to existing and acquired businesses. The rule provides that 30 percent of employees are kept at top management, 30 percent at middle management, 30 percent on the frontline management and 10 percent are laid off. The point is to push down as many managers as possible and thus to push decision making further down where actual contact with the market, and hence innovation, occurs. At ABB, "frontline managers are now entrepreneurs driving a bottom up process middle managers are coaches, leveragers, and developers of the organization; and top managers are institution builders and creators of the organization's values and purpose.

In the industrial economy the majority of management resources and expertise are focused on managing the production line and ensuring that assigned tasks are performed as efficiently as possible. Management style was linear at best and less complicated, as displayed in Exhibit 1.2. The core of business management under this system is capital budgeting, in which the emphasis is on cost reduction and efficiency. Under this system, measurement of performance is mainly quantitative, where a break in the production line and its effect on the final output is ascertainable. Units of cost, time, and sales are thus effective metrics to measure the success of a certain project and inform future investment decisions.

In the knowledge economy, the production flow is strikingly different. Business management is no longer focused on managing predictable, controllable production lines but must pay attention to rather complex human and knowledge systems and relations. What business needs to manage is the process of knowledge creation and innovation as well as the resultant intellectual products or products of the human mind. At best, this creates an environment of organized chaos, in which the role of management is transformed from a supervisory to an inspirational role. The core of business management under this system is knowledge accumulation to enable innovation, production, and business growth. Under this system, the metrics are performance measures, many of which are qualitative. This creates the need for management to consult a set of measures and outcomes that are not as predictable or controllable.

Overall, the variables that management needs to consider in order to leverage organizational IC have changed. More importantly, the profiles of the good manager and the good leader have also changed. Management genius and excellence now are demonstrated by those who know how to motivate and inspire knowledge workers so that more ideas are produced. Leadership success is possible only when the leader creates a culture of trust wherein workers at all levels and in various departments share their knowledge sideways, top-down, and bottom-up.

Managers and leaders need to have a nose for good ideas and a gut feeling indicator that detects good projects. Again, determining what is a good idea depends on the manager's experience, hunch, or previous training in short, tacit knowledge. The more the leadership and managerial role changed the more the organizational structure and communication patterns changed to allow for collaboration sideways, vertically, and between individuals. This gave rise in some organizations to new top managerial positions: for example, the chief knowledge officer (CKO), and VP of intellectual capital management (VP of ICM),24 who are particularly focused on development and management of knowledge and IC.

The creation of such new positions, though necessary for the development and advance of ICM in the whole organization, are not enough to enable an organization to extract the maximum

Management

Supervision

Production

Line

Production                Production                  Production

stage one                 stage two                    stage three

process raw               assemble                        finish

materials                     product                        product

EXHIBIT 1.2    Production Flow: Linear

value of its IC. The whole organization needs to adapt to the IC-enabled dynamics, which transformed the organizational design of the most successful knowledge organizations.