HR IN THE KNOWLEDGE ECONOMY

1. HR IN THE KNOWLEDGE ECONOMY An extended version of a paper presented by Dr Peter Saul to MGSM Executive HR Forum 12th June, 2003 Sydney

2. Where to Look for Disruptive Organisational Paradigms • IN VOLUNTEER “ORGANISATIONS” SUCH AS THE OLYMPICS AND CLEAN-UP AUSTRALIA • IN “SURPRISING” OR “CRAZY” PLACES OUTSIDE THE MAINSTREAM OF BUSINESS AND GOVERNMENT EXAMPLES: • Terrorist organisations such as Al-Qaeda • Multi-agency networks emerging to fight global health threats such as SARS • IN THE EMERGING “KNOWLEDGE ECONOMY”

3. Many experts forecast the future of HR without giving any kind of driving logic. The Knowledge Economy provides a powerful logic for the emergence of a new kind of people management function.

4. Competitive pressures; market changes Disruptive Shifts in Human Resources Large, Centralised HR Departments Central HR Policy; Decentralised HR Operations PERFORMANCE CAPABILITY Performance the HR “market” needs, uses and will pay for Core Values; HR Tailored to Workforce Segments People Management Integrated Into Operation of Knowledge Networks TIME Adapted from ideas in “The Innovator’s Dilemma” (1997) by Clayton Christensen

5. Signs the K-economy is Becoming Mainstream “... we define a knowledge based economy as one that is increasingly dependent for its growth on the input of knowledge as a value-added input to the economic system. This is reflected in a change in the basis of ‘competitiveness’ for economies, organisations and individuals. This is realised in four interrelated ways. First, such economies experience a changing structure exemplified by new industries, occupations and organisational arrangements. Second, there is a change in the types of skills required, with a rise in the importance of generic skills, including the ability to work more autonomously, monitor their own output and behaviour, work as part of flexible teams, adapt to change, solve problems and think creatively. Third, the economy requires new forms of knowledge and places increased importance on the creation and application of knowledge in networks or clusters of companies/enterprises, and within ‘communities of practice’ where workers are required to work together in new and more complex ways. Fourth, innovation becomes more important as a means to increase economic competitiveness, and knowledge management becomes increasingly the key to sustainable competitive advantage…”“The Knowledge Based Economy: A Review of the Literature”NSW Board of Vocational Education and Training, Oct 2000

6. Signs the K-economy is Becoming Mainstream “Business-webs, value chain integrators, and other new types of inter-organizational alliances abound these days. They are called into being by: • Incapacity of classic business models to match the requirements of generating value in the knowledge economy • Availability of a powerful new medium for fostering local and global collaboration, shared learning, and coordination of action in dynamic webs of value creation ...companies that won't be able to redefine themselves, will most likely disappear, and the human cost of that is unforeseeable. The fear of the unknown, combined with the impact of the massive and sudden devaluation of many traditional competences, may trigger resistance to the waves of evolutionary changes washing our shore. Now is a time when keeping alive the question of how to reinvent ourselves and develop working prototypes of the new ways of organizing is a measure of leadership.” George Pór, Founder of Community Intelligence Labswww.co-i-l.com/coil/knowledge-garden/kd/vcmodels.shtml

7. Signs the K-economy is Becoming Mainstream “…it’s at Singapore’s newest university, Singapore Management University, where the real groundbreaking changes are taking place. SMU has dispensed with lectures entirely in favor of facilitated learning, and soft skills development is now part of the academic curriculum. Emphasis is placed upon developing leadership, team skills as well as creative thinking, and emotional literacy…. The university’s stated aim is to harmonize academic rigor with soft skills training. By moving away from a structured learning model, SMU hopes that their graduates will be better equipped to contribute to an innovation-driven economy”.Paul FitzPatrick, Singapore Human Resources Institute

8. The K-economy Paradigm Will Operate Within Big Organisations Too “Organisations will soon be managed as shifting clusters of internal enterprise units and self-managing teams. They will be connected by interactive information networks in a web of alliances, including working relationships between workers, customers, suppliers, rivals and governments to form a seamless global economy”. Michael Milgate “Management Today”, June 2003, p. 13

9. In the K-economy, Most Employers Are Small/Medium(typically with no formal HR function) “In Australia, the 1000 largest entities account for 51 per cent of turnover and 33 per cent of employment. If in the next 15 to 20 years the share of revenue drops to 40 per cent they’ll only be employing 25 per cent of the workforce. Medium sized enterprises - those with 20 to 200 employees -are likely to be the fastest growing employers followed by businesses with five to 20 employees. But the classic centre of the modern working world, the big company, has reached a level of ‘dysfunctionality’ ” Phil Ruthven, Weekend Australian Financial Review, 1-2 Feb 2003, p. 26.

10. Knowledge is Personal “Unlike information, knowledge involves us and our deeper motivations and dynamics as human beings. We interact with something or someone in our environment and then use who we are - our history, our identity, our values, habits, beliefs - to decide what the information means. In this way, through our construction, information becomes knowledge. Knowledge is always a reflection of who we are, in all our uniqueness. It is impossible to disassociate who is creating the knowledge from the knowledge itself. ...We must recognize that knowledge is everywhere in the organization, but we won't have access to it until, and only when, we create work that is meaningful, leaders that are trustworthy, and organizations that foster everyone's contribution and support by giving staff time to think and reflect together.” Margaret Wheatley (2001) “The Real Work of Knowledge Management”. IHRIM Journal, April-June, Volume 5, Number 2, pp. 29-33

11. Knowledge Organisations • Organisations must capture high value market “spaces” and be attractive to knowledge workers • Hence knowledge organisations must: • set objectives that people deeply care about so that they are motivated to self-organise around them • foster teamwork, sharing and network building • foster innovation, curiosity, questioning • foster continuous learning and reflection • reward knowledge creation and value-adding • be tolerant of mistakes - maximise learning • display openness in communication • build and maintain knowledge sharing and synergistic networks with business partners, education and research institutions and government • maximise environmental sensitivity and corporate adaptability • locate where k-workers want to live

12. Corporate Culture is Critical to Success in K-economy "Successful knowledge sharing is 90 percent cultural, 5 percent tools and 5 percent magic." Mark Koskiniemi, Vice President of Human Resources, Buckman Laboratories

13. K-economy Example: Western Sydney For a presentation on the k-economy development strategy of the Office of Western Sydney go to: http://www.keconference.com/presentations/6-MargaretRyan.ppt

14. K-economy Example: The Noosa Economy The village economy The experience economy The lifestyle economy The knowledge economy

16. New Leadership Paradigm: “Complex Leadership” • Leaders and organisations create each other • “Catalysts” including leaders, ideas, events, and symbols trigger, amplify and speed up the effects of leader behaviour on the organisational system • Complex Leaders do not control but foster and enable bottom-up behaviours and stimulate systems toward emergent surprises • Complex Leadership permeates the whole organisation - differences between “leader” and “follower” are blurred. • Complex Leaders impact the fitness of the system by enabling “distributed intelligence” Source: Marion and Uhl-Bien (2002) “Complexity Theory and Al-Qaeda: Examining Complex Leadership”

17. Summary of a Possible Future • Most organisations produce or compete on the basis of knowledge and services (not things) • Most “organisations” are networks of SMEs • People skills are taught at schools and universities (these are taken for granted in the workplace) • People management systems become necessary organisational infrastructure (and are largely invisible and taken for granted) • Leaders nurture networks and foster emergent order throughout the system (this is created by bottom-up action) • Work teams, informal self-help networks and formal professional associations take over much of the old HR role (e.g. in finding jobs; sharing knowledge; recognising success) • Future HR roles could include: leader, mentor, project manager, broker/linker, consultant, HRIT system manager, team member/professional

18. Details of HR in the K-economy • Very specific HR scope focused on project organisation (e.g. talent scouting/selection, pay, health & safety) • Outsourced • agents, brokers, specialist providers • contract staff organisations handle the HR for their talent as part of their brand and competitive strategy • Mutual employment obligations spelled out in project contracts • or implicit in industry standards • or assumed from past working experience • Project Manager’s reputation depends on his/her people skills and hence there is a reluctance to delegate to HR specialists

19. Details of HR in the K-economy (cont.) • Selection is via networks, personal references, reputation • Performance management is via peer pressure and industry/ professional standards • Rewards are contractual or entrepreneurial (equity based) • Development is via doing leading edge projects • where one can acquire explicit and tacit knowledge and build professional networks • Innovation is via brokers, deal makers, agents, sponsors, and team/network conversations • Individuals rely on professional associations, “guilds”, managers/agents, self-help networks

20. PAST HR ROLE WAS CLEARLY DIFFERENTIATED mechanistic (Personnel Admin) ritualistic, legalistic (IR) CEO’s eyes and ears with the troops provider of specialist services distinct professional career paths HR is HR’s responsibility FUTURE(in K-economy) PEOPLE/LEADERSHIP ROLE IS DISTRIBUTED AND DIFFUSE knowledge management network ecologist; teamwork; leadership legal compliance change management purchaser of specialist services no distinct HR profession - new hybrid roles emerge People/Leadership is everyone’s responsibility CHANGING “HR” ROLES: A Summary

21. NEW CRITERIA FOR RATING “HR” • Evidence of behaviours aligned with culture of innovation and sharing • Salary/wages costs compared to industry median (reflecting value of corporate reputation/intangibles in labour market) • Number of talented candidates applying for advertised (and unadvertised) jobs; or partnership roles • Rate/cost of unplanned turnover among good performers • Percentage of customers citing “service quality” or “competent, caring staff” as a competitive edge for the company • Speed and net cost of implementing organisational changes • Percentage of stakeholder value coming from products and services introduced in last 3 years • Number of patents generated; value of intellectual property • Share price premium over net tangible assets (compared to industry peers) • Value derived from business partnerships

22. Some Questions • How can you nurture knowledge-creating networks? • How can you catalyse emergent behaviour that adds value? • How can you eliminate HR policies and practices and unlearn behaviours that get in the way of successful knowledge economy dynamics? • How might you help transform leadership in your organisation from seeking top-down control to seeking bottom-up emergent order? OR How can you re-invent yourself and other leaders as organisational ecologists? • Are you prepared to risk acting on your answers? Or, are you prepared to risk NOT acting on your answers?