Managing the Connected Organization
by Valdis E. Krebs
If knowledge is power, what is connected knowledge?
The knowledge economy operates on the complexities of connections.
All individuals, communities, systems, and other business assets are
massively interconnected in an evolving economic ecosystem. In the
connected economy, each network actor (individual, team, or
organization) is embedded in a larger economic web that affects each
participant and, in return, is influenced by that participant. In such a
connected system we can no longer focus on the performance of individual
actors -- we must manage connected assets.
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. We have also
discovered where to add 'missing links' that change a poor economic
network into a better conduit for information, influence, and
knowledge.
Improving Individual Effectiveness
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 today side with the "what you know" crowd.
In the late 1980s management researchers were starting to notice that
some managers were better, than other managers, at accomplishing
objectives through relationships. John Kotter, of the Harvard business
school, 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, of the University of
Chicago, 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, better ideas 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, better human capital and better
social capital both had a positive effect on productivity, but
unexpected was the effect of better 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 their projects.
Improving Team Effectiveness
Meanwhile in a high-tech firm in Silicon Valley, Morten Hansen, also
of Harvard, had a similar research agenda. The key difference was that
Hansen was interested in the productivity and effectiveness of teams.
Hansen found that teams who 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 human networks.
Improving Information Flow
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 the University of California at
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 -- except for obvious 'public' information known by
everyone. 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 -- one, two and three degrees is a small
world! It is usually those separated by two degrees where the 'small
world' discoveries happen -- it is here where you discover the person
next to you on the plane is related to a friend from your university
days.
In a network of very long path lengths between clusters, your ability
to find the knowledge or information you need is very constrained. If
the knowledge that you seek is not within your network horizon[1 or 2
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 HP
only knew what HP knows".
The natural response in many organizations is to throw technology at
the problem. A very poor, yet quite common, solution is to mine
knowledge from employees, codify it, and store it in a knowledge
database. Many large consulting firms tried this approach in the 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.
Figure 1
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 in the network of project teams.
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.
The average path length in this network is 3.45 with many paths
longer than the network horizon. Even in this small network there are
nodes[teams] 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 characteristic path length
significantly. The benefits were not just local, but spread throughout
the network and this improvement could be achieved with just a
few added ties in the network. Very small adjustments could cause
large positive changes -- a common dynamic in complex adaptive systems.
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 a whole step!
The longest path in the network is reduced from 7 steps to 4 steps. In
human networks, the fewer steps in the network path, the quicker
information arrives with less distortion.
Figure 2
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 what Hansen discovered about too many
direct ties?). 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.
Leading Edge Management
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 Cardinal Health. 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. I saw a similar
phenomenon on my son's soccer team. They had good players, but were
divided up into several cliques which did not get along with each other
-- the team as a whole underperformed consistently. It is the
chemistry of the mix that matters!
Vancho saw the same effect in project teams inside organizations. He
has summarized these concepts of managing connected organizations using
Einstein's famous formula:
E = MC2
- M is the Mastery of each individual (human
capital)
- C are the Connections that join individuals into a
community (social capital)
- C is the Communication that flows through those
Connections
- E is the resulting Effectiveness of the team or
organization.
Vancho further stipulates that the two Cs, communication and
connections, combine to form another C: Chemistry, which
leads to team or organizational effectiveness.
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 merging 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 decided 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 track 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. An organizational merger is illustrated here.
How can managers improve the connectivity within their organization?
Here are a few places to get started:
- Look beyond the individual -- uncover their interconnections and
multiple group memberships.
- Know the difference between tacit and explicit knowledge and how
it is shared and transferred.
- Reward people for directly sharing their know-how, for including
others in their knowledge-sharing networks.
- Design computer systems that facilitate conversations and sharing
of knowledge -- think communication, not storage/retrieval.
- Help women and people of color connect to key knowledge flows and
communities in the organization. This may help eliminate the glass
ceiling.
- Recruit new hires through the networks of current employees --
they will be happier, adjust quicker, and stay longer.
- When transferring employees keep in mind their connections.
Exchanging employees with a diverse network of ties can create
shortcuts between departments or teams and greatly improve the overall
information flow. Transferring employees from one department to
another creates an overlap which enhances the transfer of
information and influence between the two groups.
- Ensure better coordination of behavior between departments or
projects by adding crosscuts to minimize the path length of their
information exchange networks. To reduce delays you want some
redundancy in the paths -- if one is blocked then alternative
communication paths are available.
- For the HR department it is no longer sufficient to just 'hire the
best'. You must hire and wire! Start new networks, help
employees and teams connect --connect the unconnected!
What is connected knowledge? A competitive advantage! Your
competition may duplicate the nodes in your organization, but not the
pattern of connections that have emerged through sense-making, feedback
and learning within your business network. 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
the new business reality -- "It's the connections, stupid!"
Software
and Training in social network analysis are available from the
author.
Copyright © 1999-2004, Valdis
Krebs