Working in the Connected World
Managing Connected Assets
by Valdis E. KrebsIf knowledge is power, what is connected knowledge?
The new economy operates on the complexities of connections. The economics of networks has no place for independent (i.e., unconnected) objects whether they are individuals, teams or computer systems. All individuals, communities, systems, and other business assets are massively interconnected in an evolving economic web. In the connected economy, each network actor (individual, team, or organization) is embedded in a larger economic system that affects each participant and, in return, is influenced by each participant. In such an interconnected system we can no longer focus on individual or single team performance. We must manage connected assets, not unconnected individuals.
Efforts at making sense of this new world are beginning to reveal some basic principles at work in the complex adaptive systems we call our organizations.
"There is a central difference between the old and new economies: the old industrial economy was driven by economies of scale; the new information economy is driven by the economics of networks..."
Information Rules by Carl Shapiro, Hal R. Varian
Recent research on productivity and effectiveness in the knowledge economy provides insight into what works in the connected workplace. Certain patterns of connections appear around both effective individuals and successful teams when performing knowledge work. Other research shows us how to provide the 'missing links' that change a poor economic network into a better conduit for information, influence, and knowledge.
Is it who you know (social capital) or what you know (human capital) that leads to success? This has been often debated with good arguments on both sides. Most managers side with the "what you know" crowd. In the old economy this strategy worked more often than not.
In the late 1980s and early 1990s management researchers were starting to notice that some managers were better at accomplishing objectives through their relationships than other managers. John Kotter discovered that effective general managers spend more than 80% of their time interacting with others. Other management scholars were also starting to see the importance of conversations and relationships in managerial work. Individual mastery was no longer the key -- it was human capital and social capital working together to create productivity and innovation. Ron Burt, a leading researcher on the social capital of managers has found, through numerous studies, that certain patterns of connections that individuals build with others brings them higher pay, earlier promotions, greater influence and overall greater career success. Burt believes that good social capital provides a much higher return on investment in human capital -- the two work together.
Arent Greve, a researcher at the Norwegian School of Economics, is also interested in the contribution of human and social capital on organizational outcomes and individual productivity. He studied project managers in a knowledge-based services company in Europe. He viewed human capital as the knowledge and skills attained by the individual over his/her career. Social capital was defined as a property of personal networks -- the ability to reach others, inside and outside the organization, for information, advice and problem-solving. He found something very interesting. As expected, both human capital and social capital had a positive effect on productivity, but unexpected was the effect of social capital was noticeably stronger! Project managers with better personal networks were more productive -- they were better able to coordinate tasks and find the knowledge necessary to accomplish the goals of the project.
Meanwhile, in a high-tech firm, Morten Hansen of Harvard Business School, had a similar research agenda. The key difference was that Hansen was interested in the productivity and effectiveness of teams. Hansen found similar results with project teams. Those teams that could easily reach other teams and access the knowledge they needed were more successful than teams with poor network connections. Both Greve and Hansen found that the ability to reach a diverse set of others in the network through very few links was the key to success.
Hansen took his research one step further. He examined the difference between those teams that had many direct connections to other project teams and those that used both direct and indirect ties to reach the resources they needed. Hansen found that those teams that used only direct ties to seek and find information were soon overwhelmed with too many connections. The teams that used the power of the indirect tie, while at the same time limiting their direct ties, were more successful -- they did not spend as much time interacting with the network to get what they needed. A sparse radial network in which your direct ties are connected to others that you are not connected to, has been shown, by Burt and others, to provide many benefits and opportunities.
Hansen discovered one other insight that is key for knowledge management. A diverse radial network with many unique indirect ties is good for monitoring what is happening in the organization and for discovering pockets of knowledge and expertise. Yet, this type of network may not be useful for transferring knowledge. Although indirect ties help you cast a wide net and see far into the organization (and beyond it), these ties are not always efficient for transferring and utilizing knowledge once it is discovered. It depends on what type of knowledge needs to be transferred.
Explicit knowledge, which can be easily codified, can be transferred indirectly through various technologies such as email, FTP, WWW or documents through interoffice mail. For example, sharing a presentation done previously for the same customer. Complex tacit knowledge knowledge requires direct interaction and sharing of experiences between two or more individuals. To transfer tacit knowledge a direct tie with the knowledge source(s) must be established. Trust and understanding must be built -- this is similar to apprenticeship. Explicit knowledge travels over computer networks, but tacit knowledge is shared and learned via trusted social networks.
Network ties are distributed unevenly in organizations. People that work together form networks together -- clusters emerge around established work relationships. Engineers working on Project X form a cluster, those working on Project Y form a cluster, and those working on Project Z form a cluster. Everyone knows everyone else within the local cluster, and yet only a few individuals have boundary spanning ties to other clusters. Strong, frequent, ties are usually found within clusters, while weaker, less frequent ties are found between clusters.
Clusters of concentrated connections appear throughout an organization and throughout industries. Some clusters have many ties outside the group, while other clusters have only a few. Poor connections between clusters result in very long path lengths throughout the organization. In such a network it is easy to access those in your cluster but not those in other clusters. This often results in distant clusters not knowing what information and knowledge is available elsewhere in the organization.
Often the knowledge you need is in clusters other than your own. Networks have a horizon beyond which it is difficult to see what is happening. Research by Noah Friedkin at UC Santa Barbara has shown that this horizon of observability is usually two steps in a human network -- your direct contacts and their direct contacts. Around three steps out, things are real fuzzy -- you do not have a good idea of what is happening in that part of the network. Beyond three steps, you are blind to what is happening in the rest of the network. So the popular idea of it being a 'small world' because we are all separated by an average of 6 degrees is misleading. Six degrees is actually a very large world -- two, or maybe three degrees is a small world. Who can you reach/influence in two or three steps?
In a network of very long path lengths between clusters, your ability to find the knowledge or information you need is constrained. If the knowledge that you seek is not within your network horizon[1, 2, or 3 steps], then you assume it is not available in your organization and you reinvent it or pay for it on the outside. Exasperated with this network horizon in his organization, a former CEO of HP once lamented, "If we only knew what we know".
The natural response in many organizations is to throw technology at the problem. A very poor, yet quite common, solution is to mine the knowledge from employees, codify it, and store it in a knowledge database. Many large consulting firms tried this approach in the early to mid-1990s with usually poor results. They found that people were not always willing to make public their best knowledge and that codifying tacit knowledge was like trying to nail jelly to the wall.
Why not use the power of the network itself to create a solution? Improve the organizational network and then use technology to help people communicate across wide spans of the human network. At first blush, improving an organization-wide network may seem an overwhelming task. Where do we start? First, look at the networks and communities of practice/interest/knowledge that have organized around a specific topic, product, service or customer. Usually the whole organization does not have to be included in the problem space. Second, map out the network nodes and their connections (who goes to whom for expertise/knowledge/advice on X?). From this network map, you can see the various clusters and how they are connected. Figure 1 below is a network map of project teams. A line connecting two teams indicates a two-way information flow or exchange of knowledge.
This network of 17 project teams all work on subassemblies to a larger product. The teams are composed of mostly engineers, technicians, and project managers. All teams have less than ten members. Three clusters are evident with the cluster composed of teams N, O, and P connecting the other two emergent clusters.
Before we look at how to improve the overall connectivity of the network, let's digress back to social capital. Which team has the best social capital in this network? Which team can access all of the knowledge and resources in the network quicker than the others? (Hint: this network is drawn to reveal the answer.)
Common wisdom in networks is "the more connections, the better." This is not always true. What is always true is "the better connections, the better." Better connections are those that provide you access to nodes that you currently do not have access to. Although Team F and Team Q have many connections each and have excellent local access (to the nodes near them), they have only fair access to the rest of the network. Team O has the best social capital (aka network benefits) in this network of project teams. Team O achieves this with only three direct ties -- it is connected to others who are well connected. Team O's indirect contacts bring access to information and knowledge not available locally for Team O.
The average path length in this network is 3.9 with many paths longer than the network horizon. Even in this small network there are nodes that are nearly blind to what is happening in other parts of the network.
In the summer of 1998, writing in the scientific journal Nature, a stir of excitement was generated by two mathematicians from Cornell, Steven Strogatz and Duncan Watts. While investigating small-world networks (those with many clusters), they discovered that a few randomly added crosscuts between unconnected clusters would improve[i.e. lower] a network's path length significantly. The benefits were not just local, but spread throughout the network and the benefits could be achieved with just a few added ties in the network. Very small adjustments could cause large positive changes.
Looking back on our project team network in Figure 1, how can we improve the connectivity with just one added link? Which two nodes would you connect to bring everyone in the network closer together?
Although many combinations will increase the access of everyone to everyone else, the greatest measurable effect is when we add a crosscut between Team Q and Team F. The average path length drops from 3.9 steps to 2.6 -- an improvement of 33%! Information flowing from any node in the network to any other node in the network now uses fewer hops to get from origin to destination. In human networks, the fewer the steps in the path the quicker the information arrives and the less distorted it is.
The connection between Teams Q and F may be the optimal connection in network efficiency, but it may not be a practical connection. Both of these teams already have many ties and may not have the time and energy to support another one (remember Hansen's research above). What is an alternative connection? If you cannot connect the highly connected nodes, how about connecting their respective network neighbors? Instead of connecting Q and F, how about connecting D and Z? This connection will not reduce the path length as much, but it is between nodes that are not overburdened with connections.[See Figure 3 below].
One of the benefits of consulting with organizational network analysis is having leading edge clients. Not only are they open to new methods to improve their organizations, they usually end up teaching me quite a bit. One such client is Vancho Cirovski, Vice President of Human Resources at R. P. Scherer-Hardcapsule. Vancho, an expert soccer player and coach, first noticed an interesting phenomenon on the playing field. Teams that were more integrated and communicated well amongst themselves on the field, more often than not, beat a collection of individually superior players who were not interacting well on the field.
Vancho saw the same effect in project teams inside organizations. He has summarized these concepts of managing connected organizations using Einstein's famous formula:
The effectiveness of a team or organization is based on personal know-how (mastery), enhanced by communications(feedback and new knowledge) from both direct and indirect connections (diverse networked resources).
A common reason for the failure of many mergers and acquisitions is the failure to properly integrate the two combining organizations and their cultures. Although a formal hierarchy combining the two organizations may be in place, the right work relationships are never formed and the organizations remain disconnected. Ralph Polumbo, Vice President of Integration for Rubbermaid's 1998 acquisition of its European competitor, Curver, wanted to make sure the two organizations were combining effectively. He wanted to map and measure the melding of information flows, work relationships and knowledge exchanges -- connections that help cultures combine. His vision was one of a boundaryless organization with no fragmentation along former constituencies. He wanted to see where integration was happening and where it was not occurring. By examining his human and social capital concurrently, he was able to visually monitor the successful integration of both organizations.
How can managers improve the connectivity within their organization? Here are a few places to get started:
What is connected knowledge? A competitive advantage! Your competition may duplicate the nodes in your business network, but not the pattern of connections that have emerged through sense-making, feedback and learning amongst your connected assets. And if you get Vancho's take on Einstein's formula correct, then connected knowledge is pure energy!
In the 1992 U.S. presidential race, one simple phrase refocused and re-ignited a jumbled campaign effort by Bill Clinton -- "It's the economy, stupid". Adaptive businesses see the benefits in managing connected organizations. We can adapt the old campaign slogan to reflect a new network economy reality -- "It's the connections, stupid!"
Copyright © 1999, Valdis Krebs, All Rights Reserved.
www.knetmap.com