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Image not licensed for web distribution Link here. Break. Image not licensed for web distribution. Link here. Strategy Implementation Session 9 – Knowledge & Authority. Agenda. Quiz Break Company memos: emails today Intro: Knowledge P&G Discussion P&G Update

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Presentation Transcript
  • Quiz
  • Break
  • Company memos: emails today
  • Intro: Knowledge
  • P&G Discussion
  • P&G Update
  • Knowledge – Centralization & Decentralization
knowledge focus
Knowledge Focus

1. Firms don’t exploit the knowledge they have.

2. Design should match responsibility to the location of the knowledge to be exploited.

the problem pepperoni
The problem: pepperoni

How to solve the problem? Once solved, how to diffuse

the solution?


Knowledge Types and

Knowledge Conversion

p g prep questions
P&G Prep Questions
  • Does SK-II have the potential to become a global brand within Procter & Gamble’s worldwide operations? Why or why not?
  • Which of the three market options should Paolo DeCesare recommend to the GLT? What risks do you see?
  • How should he implement your recommended option? What are the implications for P&G’s new post-O2005 organization?
organizing to carry out strategy
Organizing to carry out strategy

Structured networks: highly-motivated units, with a focused expertise,

interacting in a creative, bureaucracy-free and cohesive manner.*

  • Contrasts vividly with many of today’s complex corporate organizations…
  • Impede decision-making with ambiguity
  • Kill creativity with rules and procedures
  • Sap energy through the heavy hand of hierarchy
  • Features of a structured network…
  • Largely self-managing units and internal collaboration
  • Sufficient structure, processes, and hierarchy to enable
    • Clear responsibilities & relationships
    • Successful collaboration
    • Purposeful corporate strategies

 Enable everyone to use and share knowledge to accomplish goals of the firm

* Goold & Campbell p.1

the knowing doing gap
The knowing-doing gap
  • What is the knowing-doing gap?
  • Why does it exist?
    • Why do traditional knowledge management solutions fail so often?
  • What can organizations to do close this gap?
knowing doing gap
Knowing-Doing Gap
  • Firms don’t exploit the knowledge they possess.
  • Traditional knowledge management often makes the problem worse
    • Emphasizes codified information
    • Separates knowledge from its use
      • People in KM don’t understand the actual work
    • Process & technology over philosophy
consequences of a best practice exchange goodman fig 8 1
Consequences of a Best Practice Exchange(Goodman, Fig. 8.1)

Adopt a best practice (69)

Not implemented


Implemented (55)

No results (8)

Don’t know

result (9)


Business Result (2)

  • Improved customer satisfaction (2)

Interim Result(21)

Technical fix


  • Improved attitudes(10)
  • Improved behaviors (10)
  • One machine(7)
  • Worse(1)
  • Line of machines(8)
knowing doing gap1
Knowing-Doing Gap

Eight guidelines for action:

  • Why before how.
  • Knowledge comes from action.
  • Starting is more important than planning.
  • Tolerate and learn from mistakes.
  • Fear inhibits application of knowledge.
  • Foster internal collaboration not competition.
  • Measure what matters.
  • How leaders allocate their time & firm’s resources can set a powerful example.
  • Image not licensed for web distribution.
    • Link here.
technology competition are increasing the pressure to decentralize
Technology & competition are increasing the pressure to decentralize…*

An Analogy

Political Organization







Communication costs falling

  • Radical
  • decentralization
  • Internal markets
  • Voluntary
  • Self-governing
  • User innovation
  • Knowledge
  • Communities

Business Organization

Small businesses


Corporate hierarchies




Communication costs falling

*Future of Work, Thomas W. Malone

when can a company add value compared to a market
When can a company add value compared to a market?
  • When there are likely to be coordination problems
    • eg: Home Depot, lack of redundancy & ‘thin markets’
  • When knowledge needs to be shared.
    • Applying common resources across activities.
      • eg: GE, Honda
    • Tacit knowledge is shared more effectively inside firms
      • eg: pizza franchises in Pittsburgh
  • When rapid adaptation is required
    • eg: Firms in crisis centralize – Motorola, IBM…
      • Getting a bunch of decentralized actors to change together = ‘herding cats’

=> How can companies approximate some of the advantages of markets?

one new tool bringing the market inside
One new tool: Bringing the Market Inside*
  • Advantages
    • Draws out knowledge that resides throughout the organization.
      • Internal permit trading to meet company greenhouse emissions goals (BP)
      • Can be useful for forecasting technology (Google) or pricing (Intel).
  • Types of Internal Markets
    • Internal Selling: keeping shared services honest and responsive to needs, or organizing project teams (HP)
    • Trading Ideas: futures markets for predicting sales (HP) or technologies (Google)
    • Allocating Assets: an internal market for manufacturing capacity to allocate investment capital (Intel – prototype)
  • Disadvantages
    • Internal markets mirror some of the biases of the organization.
      • Overconfidence/optimism
        • New employees, up days for stock
      • Local information bias
        • Strong trading correlation for people who sit close, somewhat for people in social networks
    • They are open to manipulation for personal interest if poorly designed.

*Thomas Malone, HBR April 2004

another tool relational contracts to support decentralized decisions
Another tool: relational contracts to support decentralized decisions.














Rebecca Henderson

Talk on relational contracts in Org Design

Coordination, Control


Image not licensed for web distribution.

    • Link here.

Have you worked where you felt you had significant responsibility? What made you believe in your authority?

Why are relational contracts necessary for decentralization?

the ideal level of responsibility in a company depends on the location of vital knowledge
The ideal level of responsibility in a company depends on the location of vital knowledge.
  • Three complementary aspects of decentralization:
  • authority/responsibility
  • information
  • incentive



Vital knowledge

resides across units or

at the organization level.

Vital knowledge

resides in


Vital knowledge is valuable & sticky.

mobilizing knowledge in mnc s
Mobilizing Knowledge in MNC’s

Complexity of Market Knowledge


Move information

about the

technology to where

the market knowledge


Move knowledge

by rotating people

and temporary


Exchange information

(arm’s length, digital

transfer is sufficient)

Move information

about the

market to where

the technology resides




Complexity of Technological Knowledge


Are the benefits of decentralization important?

  • Motivation and creativity
  • Many minds on same problem
  • Flexibility & individualization



  • Can you compensate for the potential costs of decentralizing?
  • Difficulties in…
  • Making decisions quickly
  • Managing risk and quality
  • Exploiting economies of scale
  • Sharing knowledge effectively




Do the benefits of decentralization outweigh the costs?




vf s approach centralized decentralized
VF’s approach: “centralized/decentralized”
  • All firms are ‘centralized/decentralized’ as VF describes itself
    • Decentralize to exploit expertise
    • Centralize to create common value and manage collaboration and change
  • Effective decentralization (or centralization) involves three linked design decisions:
    • Location of decision rights
    • Location of relevant information
    • Location and appropriateness of incentives
  • Successful firms are explicit about which decisions and responsibilities lie at which level.
knowledge issues
Knowledge: issues
  • Group for efficiency in storing and creating knowledge.
  • Integrate diverse knowledge for production.
    • Many knowledge systems are a linking mechanism between areas of the organization.
      • eg: in product development project teams are very effective at integrating diverse knowledge.
      • eg: communities of practice try to develop shared functional knowledge across product or customer divisions
  • Decision level
    • Push decisions to the level where sticky knowledge resides.
      • Decision depends on explicit knowledge: Transfer up for higher levels.
      • Decision depends on tacit knowledge: move decision to level where skills are applied to business problems.
  • Processes, Systems, & Culture need to complement the other choices.
knowledge missteps
Knowledge: missteps
  • Failing to turn knowledge into action (opposite of 8 guidelines):
    • Lack a philosophy that motivates action (culture)
    • Don’t risk enlightened trial and error
    • Analysis paralysis - “Ready, aim, aim, aim….”
    • Mistakes generate blame not learning
    • Fear discourages risk-taking
    • Internal competition reduces sharing
    • Belief: “measuring more will lead to doing more”
    • Leaders don’t focus action by their example
  • Failing to match responsibility to sticky knowledge
  • Failing to match authority, information & incentives.
next up strategic renewal
Next up: Strategic Renewal

Summarize Ghosn’s main change initiatives.

What lessons can we draw from Ghosn’s approach to change management?

Why did Nissan’s employees implement Ghosn’s plan when they had failed to follow through on previous turnaround efforts?

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