Knowledge and Change Management in Two Innovative Companies
The primary objective of effective productivity improvement is to reduce unnecessary and wasteful effort, not simply to speed things up. Having people do more of what they should be doing and less of what they should not be doing will yield significant rewards in both quality and productivity improvement. This is generally achieved today through knowledge management. Knowledge Management is not new, though it has become a buzz word phrase of late. What is new are the currently used methods for knowledge management in many successful companies. Over the past 15 years there has been a growing interest in international strategic alliances and how organizations learn from their partners and develop new competencies through their collaborative efforts. Hewlett-Packard and Ernst & Young are two such companies at the leading edge of their industries, partly because their company culture values and promotes the development and application of knowledge within the company. We will look at and compare these two companies and see how their strategy works to promote a network of useful knowledge being creatively applied, and how this has affected the companies.
Hewlett-Packard and Ernst & Young are in two different industries, computer hardware and peripherals and business and financial consulting respectively, but they each leverage e-commerce solutions to promote and carry on business. They both employ very comprehensive websites, which are accessible and useful to the public to cultivate new business, serve current customers and spread knowledge about the company. These websites offer education, customer support and an infrastructure which facilitates both business to customer (B2C) and business to business (B2B) sales. Let us first look at each company and how it operated, its corporate culture and the methods employed for knowledge management. Then we can compare these to see what they have in common and how they differ, with perhaps and understanding of the reason for similarities and differences and how they work for each company.
Ernst & Young is anything but young. The current company is a result of several mergers since the inception of the UK Company Harding and Pullein in 1849. When American Frederick Whinney and his sons became partners in 1859, the company was renamed Whinney, Smith & Whinney to reflect the change. In 1903, Alwin and Theodore Ernst established Ernst in Cleveland, while Arthur Young and Company was formed in Chicago in 1906. So all original branches of this company are over a century old. In 1965 the mergers began with Whinney, Smith & Whinney merging with Brown, Fleming & Murray to create an accounting and consultancy company named Whinney Murray. Ernst & Ernst was already closely allied with the Brown, Fleming and Murray. They joined Turquand Barton Mayhew to become Ernst & Whinney in 1979, and this fourth largest accountancy firm joined with number five, Arthur Young, in 1989 to become Ernst & Young.
Several more mergers and divestitures occurred to finally create the current company, which provides assurance and advisory services, tax services and transaction advisory services in various branches globally. Change management has been an integral part of this company’s operations almost from its inception, due to the many mergers and acquisitions, plus the separation of its consulting arm and its accounting business, due to a perceived conflict of interest by certain global entities. The need to manage change is one thing cited by the study of Knowledge management by McKinsey and Company in 2001 as a challenge significant enough to promote the development of shared knowledge in a knowledge network within a company . (Kluge, Jorgen, et al 2001)
Ernst & Young has 106,000 employees in 140 countries world-wide and did 16.9 billion dollars worth of business in 2005. The global locations and the related diversity of its work force has promoted an innovative company culture which promotes individual and team contributions from employees. Organizational knowledge and employee turnover have been studied extensively. Our contribution is a link between the two, whereby social networks explicate the connection between employee turnover and tacit knowledge loss. (Droege & Hoobler, 2003) The company even has an innovative Entrepreneur of the Year Program in 35 countries. The company is made up of 24% minorities in the US alone, and has the highest level of female partners in the UK. It consistently scores among the top 100 companies to work for in Fortune Magazine, scoring the highest of its three main competitors.
Cutting edge innovation is very apparent on first looking at the website of Ernst & Young. They provide both highly informational podcasts, free information programs playable on MP3 players which can be set to download automatically so the user can listed at a convenient time, even during a commute, and RSS feeds, news and articles which can be automatically downloaded to an RSS reader which can be set to run in many convenient ways on computers or PDAs. Both of these technologies can be run on many different platforms, including mobile phones and are accessible by any interested person (including their own employees). In their About US section they state that they foster a company culture which promotes employee development: Culture. Ernst & Young would not be such a successful organization without great people and strong teamwork. We provide our people with solid career growth opportunities and a people-oriented workplace environment. Our philosophy, quite simply, is that when our people achieve their best, so do our clients, and our business prospers. (Ernst & Young website, 2006)
By looking first at the company’s top officers, we can see something about the people who succeed in this company. James S. Turley, Chairman and Chief Executive Officer, spent several years with the company as their US Area Director of Entrepreneurial Services. If he did not value knowledge development before this, such service would definitely promote placing a high value on developing the company’s internal knowledge resources. Paul J. Ostling, Chief Operating Officer, got his innovative feet wet in Human Resources management for the company. He would have learned to value things like employee retention and development. Pierre Hurstel, Global Managing Partner – People, has served in several capacities which titles included the word People. Just the existence of such a designation says volumes about a company’s cultural values. All the top officers have served in divers capacities, all in line with their expertise, but with plenty of room for personal growth and expansion of their capabilities. This firm has even published articles for other companies about knowledge management. The values and principles inherent in Total Quality Management are, for example, not necessarily consistent with downsizing and restructuring (Lawler, 1994). Nor is what works best in a top performing company necessarily the best prescription for a low performing company, according to the 1992 Best Practices Report prepared by Ernst & Young. (Mccann & Buckner, 1994) On their main web page, Ernst and Young list these things under About US:
- Serving Our Clients
- Supporting Our People
- Events & Sponsorships
- Our Values
- Global Code of Conduct
- EY/Ethics Hotline
- Our History
- Our Awards
The solution to all HRM-lie problems is the belief in, and practice of, employee centeredness. (Sikula Sr., 2001, p. 419) Note that Supporting Our People comes right behind Serving Our Clients. Even the overview section is slanted toward the development of people as a resource under Company Culture. Their stated values are completely centered on their people: At Ernst & Young we live by a set of shared values, encapsulated in our Values Statement, that guide the actions and behaviors of each of us. Our values influence the way we work and interact with our colleagues; as well as the way we serve our clients and engage with all our stakeholders:
Who we are;
People who demonstrate integrity, respect, and teaming
People with energy, enthusiasm, and the courage to lead
People who build relationships based on doing the right thing
When we developed our Values Statement, we asked hundreds of our people across the world to tell us what they thought about who we are and what we stand for, as individuals and as an organization. There was a remarkable level of consistency in their responses. We built our Values Statement on those responses. That’s why we know that it truly reflects the way our people act and behave worldwide. (Ernst & Young Website 2006)
In looking at the programs they support around the world, it becomes apparent that knowledge development is valued as an asset and innovation and entrepreneurship is promoted. By creating or contributing to these varied programs, the company leads by example and shows how much it values the development of human resources around the world, even the resources of other companies. In one study, researchers have indicated that satisfaction depends on the difficulty of the job, the adequacy of management communication, training, promotion policies, supervision, demographic and situational variables, and other factors. The ten-year National Longitudinal Survey of work attitudes and labor market experience for a large national sample of the U.S. work force supports the notion that dissatisfaction with jobs is on the rise. This, of course, requires good training programs and the provision of educational opportunities for employees. In addition to the development of individual employees, Ernst & Young promotes teamwork within the company and with partners and clients in other industries. Ernst & Young has consistently formed partner relationships with other industries to promote product and service development. The synergy developed with other industries has helped them stay on top of their business, as suggested by a study of International Joint Ventures. (Dhanaraj, Lyles, Steensma & Tihanyi, 2004)
Among the first companies to assign top-level managers to address knowledge management directly were professional services firms such as Ernst & Young, Coopers & Lybrand, and Andersen Consulting. After programs were developed for the consulting firms themselves, the firms then found a lucrative business in helping other companies that wanted to leverage their knowledge but did not have the in-house expertise. Continuing advances in databases and computer networks are making such knowledge projects possible. (Thierauf 12)
Knowledge management has several components: development of knowledge within the organization, application of knowledge, distribution of knowledge and development of knowledge networks. Tools used for storing and distribution and the development and management of knowledge networks at Ernst & Young include technological tools. For example: one of the strategies used at Ernst & Young involving technology is for each Ernst & Young auditor and consultant to utilize a laptop loaded with Lotus Notes, Microsoft Office software, and a browser for the World Wide Web. They are all expected to download to their laptop, and master the contents of, at least two of 80 available ‘‘power packs’’—databases containing information on particular areas of the firm’s practice, such as expatriate tax processing or changing regulations in the health industry. Each of the power packs has 42 specific entries, including contact information for the firm’s network of ‘‘subject-matter experts’’ (senior consultants available to help a junior associate out of a jam), client information, industry background, and templates for presentations. In this way, pertinent knowledge already entered is available to every employee and consultant, and each one has a template into which they can enter more information with ease and speed after meetings with clients and groups. Thins impresses their clients a great deal and increases their business.
The company uses Lotus Notes for internal virtual collaboration and knowledge development. In addition to this they have a website with complex search engine capabilities, both the public site and their own intranet available globally to employees via Virtual Private Network (VPN) technology. Ernst & Young uses Verity’s (Sunnyvale, California) Intelliserve search engine. Users can search is by browsing, just like reading a newspaper column containing new additions. Documents are stored on the intranet in a very simple and user friendly document management system.
Groupware is used to connect people into workgroups and they can divide dynamically into working groups as needed, sharing via video conferencing, chat, white boarding, audio conferencing and such. The workgroups are pre-organized for function and interests, but working groups form as needed to solve problems and brainstorm. In this way, Ernst and Young leverages Information Technology and the Internet to promote knowledge development, application and sharing.
HP was founded as a manufacturer of test and measurement instruments with a US$538 investment in a Palo Alto, CA garage in 1939 by Bill Hewlett and Dave Packard. They had both graduated from StanfordUniversity in 1934. Their first product was a precision audio oscillator, the Model 200A. They went on to the development of cutting edge printer technology and computers and peripherals. The company foundered mid-life, but reorganized its corporate structure, eliminating the hierarchical structure which hindered knowledge development and flattened and decentralized its divisions. HP management encourages a family corporate culture. The company has merged with or acquired a number of companies with competing or complementary technologies and partners actively with others. (Wikipedia 2006)
Hewlett-Packard is another company which leverages knowledge to improve its bottom line. According to the first international survey of corporate practices in knowledge management by Ernst & Young, 77 percent of the respondents identified knowledge about customers as the most critical knowledge [Moran 1997]. (Simonin, 1999) HP takes this to heart, and their website is a primary indicator. Like Ernst & Young, HP shows their global contributions to community on their website, leading by example, and how they feel about and treat their employees is mentioned in many places. However, the content on the public site is very focused upon their products, customer support and education. They offer the same information about their products, but the products are the focus, while Ernst & Young does more service. Product descriptions, trouble-shooting, help with purchase choices and software is offered to anyone.
In addition, HP offers education to the public. Most of their free courses are centered on subjects who could involve their products, but they even offer mini-courses on subjects to which the only connection to their products is that the user is using a computer over the Internet to the HP site in order to participate. Certainly this has a dual role: the free education educates about subjects who might use their products, but also, the courses attract people to their site, where they see ads and learn about HP products. Lastly, it leaves users with a distinctly positive feeling about the company when they take advantage of the free courses.
The primary role of the site in addition to offering information and support is to learn about their consumers. Ernst & Young’s efforts are more focused upon learning the domain knowledge to offer their clients, and developing working teams. HP focuses its efforts more on learning about their customers and developing expert systems. As the chairman of the Hewlett Packard Corporation said, If HP only knew what HP knows, we’d be worth twice what we are today.(Desenberg, 2000, p. 52) People who take advantage of the support are asked to rate the effectiveness, and the site randomly selects users to request their participation in surveys. They do extensive data mining at every turn. People do not mind, as they always feel as if they are getting something for nothing from the site. The company even follows up with emails and phone surveys whenever practical. So it is easy to see that HP concentrates much of its efforts upon learning everything possible about their customers.
This is not to say that HP ignores the development of knowledge and networks among its employees, HP has a comprehensive employee education program and promotes cross training and job rotation to help employees develop multiple skills. One key element developed to a high degree by Hp is the knowledge of who knows. This is all stored in a central database available to all employees. So teams can be formed to include the needed experts and changed by adding people as needed. In this way, workers know just where to go for information about who knows what (Thompson, Levine & Messick, 1999, p. 25)
HP not only develops the expertise of its employees through educational programs, but it encourages teamwork through the family like company culture. The ability to operate as a team player rather than as an individual is highly valued and reinforced through peer control: the typical personalities were described as ‘compromisers, no strong egos’. The importance of selling the customer the ‘right product’ rather than selling at any cost stresses the long term nature of the culture. Hewlett Packard are seeking people who wish to become part of the ‘family’ rather than those who wish to reap high returns over a short period. In this way HP encourages achievement for the sake of the company which nurtures the family. what it (HP) has created rests so deep within the organization that it is almost impossible for other companies to replicate or imitate. (Gratton, Hailey, Stiles & Truss, 1999, p. 210)
HP has successfully reduced its product development cycle from 2-5 years to 6-9 months by means of employee brainstorming sessions and collaboration, mixed teams and cross-pollination and a tremendous amount of informal knowledge sharing. Since HP’s products are more tangible objects than Ernst & Young’s, it makes sense to center on improving efficiency in things like the development cycle in terms of speed.
These two companies both place a high value on employee retention and development. They treat knowledge as a tangible asset and leverage software and hardware solutions for knowledge management and sharing. Both of these companies show by example what they believe in and promote community development and programs which have little direct benefit to the company in the interest of good company citizenship. Bothe companies have comprehensive programs for team building and management and they both employ a leadership team which promotes all of these. The major differences in the two companies are where they concentrate their data mining efforts and how they foster cooperation among employees.
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Attributes of Knowledge and its Development within Companies
Setting targets to achieve or surpass world-class level
Combining these targets with individual incentives
Active involvement of employees in product portfolio and product innovation decisions
Frequent, informal bottom-up and top-down communication
Setting up cross-functional teams
Common goals and values within different functions/departments
Application of benchmarking techniques
Using external knowledge sources via strategic alliances
Commitment of all employees to track customer and market requirements
Co-location, especially with external partners
Job rotation and teamwork in development
Joint teams or personal meetings with external partners
Employee knowledge profiles available on the intranet
Regular training with internal and external experts
Network building with external partners
Open access to knowledge infrastructure
Company-wide process standards
Systematic retention and updating of process experiences
Regular process optimization based on experiences
Decisions are made at the lowest appropriate levels
Internet access for all employees
Open idea databases to store product ideas
Application of creativity techniques and idea contests
Degrees of freedom for all employees away from daily work pressure