Much has been written in recent years about the importance of knowledge management as a basis for competitive success. Knowledge is seen as a dynamic resource, valuable only when it is used. When organizations routinely take the time and make the effort to review what they know, knowledge becomes an asset in support of purposeful action.

Despite widespread claims about the importance of knowledge management, little has been written to help leaders understand how to consistently create and use meaningful corporate knowledge. This can occur when organizations truly have a “knowing culture,” and their leaders are committed to learning from action and applying what they learn to promote their organization’s competitive advantage. We argue that, while creating such a culture is hard work, it must become a priority for today’s business leaders.

In this article we provide a practical definition of “strategically relevant knowledge” and describe a process for promoting the kind of organizational learning that creates and uses such knowledge to build competitive advantage. We describe how a pragmatic “See, Screen, Search, Sign, Sell” learning process creates, over time, a knowing culture, which dramatically changes how, when and what organizations learn. We describe two critical elements of this targeted learning process, strategic experiments and coalition building. We also offer guidance to leaders who are committed to accelerating the creation of a knowing culture in their organization.

Elements of a knowing culture

Despite the great contributions that information technology has made to business performance, human beings – not computers – hold the key to knowledge management. Organizational competencies are the collective “know-how” that supports key business decisions and ongoing business processes. Such competencies ultimately determine competitiveness because they are essential for developing and then executing strategies that repeatedly win markets. Organizations need to discover and then build the right set of competencies.

Competitive advantage comes from applying superior competencies in light of superior knowledge. And becoming a long-term market leader requires that an organization create new knowledge and then use it effectively to adapt to change. Thus, the deliberate creation of new knowledge is the ultimate manifestation of an organization’s competencies and the fruit of a knowing culture. But what are the elements of a knowing culture?

Suppose an operating manager gets a hunch, a nagging concern that just won’t quit, or senses that something’s up, and decides to do something about it by shaping questions worthy of investigation. If the company values learning, change may soon be under way. The challenge is to initiate action before the window of opportunity closes; in other words, to overcome the inertia that makes many firms unwilling to respond. Otherwise, the manager who initially raised the questions is likely to become frustrated, and either become ineffective or spend substantial time working surreptitiously across the organization.

That is what happened at Teradyne in late 1996, when its chairman and CEO, Alex d’Arbeloff, became concerned about the long-run implications of his company’s commitment to UNIX and to developing its own software. As a board member of a small start-up, he had observed just how fast a company could move to market by using Windows NT as a platform, investing in software development far more selectively than Teradyne, and purchasing other needed software at low cost from the thousands of programmers working with Windows NT.

Although he was Teradyne’s chairman and CEO, d’Arbeloff resorted to setting up an off-site “skunk works” to develop a new generation of automatic testers for integrated circuits. That is, he initiated an experiment outside Teradyne. It was a choice with a cost. Later, after the new technology had been proven, he found reintegrating it with his corporation’s ongoing operation complex and difficult, because he could not convince his divisional managers to pick up the project and call it their own. The case for change was clear to him and the product worked. But he had insufficient support for bringing it to market quickly. The way the idea for change was presented was simply unconvincing.

Teradyne’s experience suggests that only when a good case and support are built simultaneously will an organization develop an expanding base of grounded knowledge, recognize the need for transformation, stay on track with reality, and be ready to change on time. Most organizations that try to become learning organizations invest considerable time and resources without notable results and then abandon the effort. Typically, they lack people with the experience and political savvy needed to create a low-cost learning process that becomes self-sustaining because it has become part of the organization’s operating culture.

Creating a knowing culture

Action is the key to learning-and continuously learning from action is what we mean by a knowing culture. Organizational learning is necessary because of the rapid and significant shifts in the external world of markets, customers, technology, competition, politics or economies. Organizational change, in turn, occurs when individuals recognize a need for change and create a case that convinces others that they’re right. But, to create such a case, they first have to learn what unfolding reality is, and then sell their ideas to a critical audience. Creating such a situation demands new evidence specifically targeted to the situation at hand. Producing that evidence requires new, purposeful action-experiments.

Experiments are catalysts for learning, especially when they are based on the joint conceptions of a group of talented managers. If the person who originally senses that external change can convince one or more colleagues to collaborate on an experiment designed to test the relevance of that perception for future business practice, the experiment will be better and conducted sooner. And, because those who commit to action together have moved well beyond friendly “good luck” wishes and promised involvement in the future, there is a better chance that a critical mass of support can be achieved. The developing knowledge-based case and the coalition pursuing it may be sufficient to engender confident corporate action. This basic learning process, shown in Figure 1, can be summarized as “See, Screen, Search, Sign & Sell.”

Note the central place of experiments in this process. Experiments provide the hard data to augment and test-either affirming or destroying the original case made-if they are mined for lessons learned in an after-action review. The learning process is also characterized by positive feedback, since, if well managed, the developing case attracts new support, while that new support widens the experimental possibilities and so promises to strengthen the case again, as the dotted arrows in Figure 1 suggest. Ultimately, a proven data-anchored case and the credibility of those supporting it will make change possible. When this process is repeated again and again, and becomes a natural basis for organizational learning and strategic action, the organization will have created a knowing culture.

There are costs associated with creating a knowing culture. Senior management has to shift to a style of behaviour characterized by asking questions rather than providing answers, by listening rather than talking, and encouraging experimentation rather than short-term success. To the extent that an organization, following the process we have outlined, becomes proficient in gathering unique data, converting it to information, and then-by testing new theories-converting this information to actionable knowledge, it will accrue a knowledge advantage. As Thomas Edison is reputed to have said to Robert Merck: “Your experiments may not work out, but they are one way to create your own opportunities.”

Critical Element 1: Business experiments

Because the term “business experiment” probably means many things in many companies, it is important to define what we mean by it.

  • A business experiment is intended to answer a strategic question for an organization.
  • A business experiment should be designed so that its outcome provides actionable guidance, either confirming or disproving an expected outcome.
  • A business experiment should require modest commitments relative to the organization’s resources, not a formal budget but rather a manageable stretch beyond an ongoing funded initiative.
  • A business experiment should be short, certainly well within the organization’s capital budgeting horizon.
  • Regardless of whether its immediate outcome was an economic success, each business experiment must be followed by an after-action review to yield lessons learned plus new questions to be researched.

In most companies today, business experiments are conducted covertly. This is unfortunate since it means we hear little about them. Successes are proclaimed, but failures are usually buried quickly and unceremoniously without review, with a corresponding loss of potential lessons. In contrast, the learning process, with its open reception of “See, Screen, Search, Sign and Sell,” intentionally promotes experiments as opportunities to learn, no matter the outcome. “Failures” receive review, not to find the guilty or to punish the uninvolved, but to promote learning and identify new questions. It’s a new perspective for many and will be personally risky unless the corporate culture embraces the notion that long-run success is rarely won without some failures along the way. What counts is not an intermediate score, but long-run victory.

Experiments should be considered as opportunities for creating rather than simply transferring strategic knowledge. Engaging in experiments is consistent with the traditional observation that managers have to create knowledge if they are to successfully create businesses. While some experiments can be tightly controlled and scientifically designed, others will be less controlled and more intuitive. Some may even be intentionally biased to accelerate the learning process.

The learning process is primed by questions, powered by carefully considered experiments, and anchored by deliberate reviews of every result. It is motivated by the realization that, although there is a surfeit of data in business, there is considerably less information and knowledge about emerging business opportunities and how to seize them. Acting from grounded knowledge is much preferred to precipitously jumping to a new business strategy in the absence of critical knowledge and tested competencies. And simply waiting for uncertainty to disappear is not a viable option for tomorrow’s leaders.

Critical Element 2: Building coalitions and the politics of support

For most organizations, learning is problem-specific and so their investment in the learning process is curtailed when the first round of answers is obtained or when times change and the living is easy. In contrast, we argue for the creation of a permanent knowing culture, where the learning process is routinely allowed to do the “heavy lifting.” This goes far beyond the conduct of a few modest experiments and then thinking that the job is done. To create such cultural change, leaders must refrain from making premature evaluations of their experiments’ outcomes. And they must be committed to a process where learning is not confined to the most senior executives, but rather spread by coalitions of key people throughout the organization.

Acknowledging the politics of learning and subsequent change is central to success. D’Arbeloff was unable to find a way to engage his divisional managers at Teradyne in the development of his new testing equipment. His company paid the price by moving too slowly from prototype to full production than might otherwise have occurred. The rough hand-off between the skunk works group and ongoing operations was the price of a political failure-in this case, dysfunctional office politics. Strategic change, like Teradyne’s, almost always requires faceto-face negotiations, political savvy, and substantial effort from its champions. But, the task for champions like d’Arbeloff will be easier if they can institutionalize the See, Screen, Search, Sign and Sell process.

Politics plays its part in each step of this process. At the beginning, when an individual perceives an issue and is inclined to move it forward, there is a natural need to assess the level of associated personal risk. Such risk is often present even when the issue has been carefully posed in terms of the strategic questions to explore.

For companies that have already institutionalized learning with strategic experiments and considerably reduced that type of personal risk, the screening stage still requires a careful assessment of the politics associated with the worrisome issue: Where is the support and opposition-the vote, if you like-and why? How should we deal with that political reality?

The search step builds the case for transformational change by using the data, information and knowledge gathered during an experiment to carefully review its results. D’Arbeloff’s skunk works fulfilled that role at Teradyne. But, ideally, the search should be undertaken by a coalition of signed-up managers and staff members whose own resources have been used to advance the learning effort. That is the step that d’Arbeloff found very difficult and very time-consuming. Perhaps this was due to his executive position and the lack of a formal process for dealing with his concerns.

On the other hand, applying the See, Screen, Search, Sign and Sell process will legitimize action learning and institutionalize a new forum for change champions to sign up supporters so the organization can further investigate any perceived strategic opportunity or threat. Moreover, the supporting coalition, once formed, is a resource for establishing a knowledge-based case to convince (sell) others on the idea that a commitment is needed. In the best political tradition, the case may have to be presented one “internal customer” at a time to win each important vote. Along the way, every coalition will experiment, learn, and possibly benchmark against competitors, to create a critical mass of knowledge, and then to reach out to others. Like most corporate coalitions, any initial coalition is likely to be short-lived and bound together more by concerted action than by unified long-term objectives. The fifth step, finally, occurs when the managers in the change coalition become committed to selling their case up through the organization to create an even a broader coalition, one that includes more senior managers.

Accelerating action-learning

Senior managers can set the stage for creating a knowing culture in their organizations by facing reality squarely, encouraging debate, and channelling conflict in constructive directions. Managers can assess their own performance along these lines by honestly answering one broad question: Am I receptive to different types of thinking?

Another managerial challenge is to ensure that the right strategic questions are raised as early as possible-that is, to start the process so that the organization sees more and learns faster. This requires targeted personnel management, first, by carefully selecting who is placed in key positions with access to critical transformational signals of either emerging problems or opportunities, and then, by evaluating the performance of those people.

Meeting the placement challenge requires the careful identification of individuals who are likely to spark knowledge creation and thrive in an organizational context coloured by internal politics. Look for people who have proven they can get the right issues on the corporate agenda. Look for those who have already demonstrated that they can maintain a wide set of relationships across formal organizational boundaries, since informal internal networks are needed to foster coalitions and constructive debate, before during and after experimentation. Look also for those who have access to outside networks that expose them to ideas beyond your corporate boundaries and serve as a low- risk basis for testing emerging ideas. Finally, look for individuals who are good listeners and will encourage others to talk openly without having to screen thoughts, thus allowing them to see what others do not.

These savvy individuals will also know not to ask for money up front, which often triggers the premature death of good ideas. Instead, they will strive to maintain autonomy, avoid premature evaluations, and make the personal decision either to sustain or terminate an experiment, depending on what is learned and when the lessons sought are won.

Having identified the individuals with these requisite skills and orientations, management must support them by ensuring that they have the time and orientation to develop a deep understanding of the issues and opportunities facing the company. In particular, they can accelerate the action-learning process by keeping strategic experiments independent of formal budgeting cycles and strategic planning exercises.

Knowledge management should not be seen as the restricted domain of the chief information officer. Rather, it should a responsibility of every manager and a catalyst for guiding his or her organization towards competitive success. Getting it right means changing the organizational culture. Adopting the perspectives and approaches that we have outlined here will be a step in the right direction.