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7/27/2019 featuresandkeyprocessesinknowledgeintensivefirmsgcm-130809193311-phpapp02

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Features and Key Processes in Knowledge Intensive Firms

By Dr. G C Mohanta, Professor, Al-Qurmoshi Institute of Business Management,

Hyderabad, India

Introduction

Successful knowledge intensive firms (KIFs) gain competitive advantage from the intellectual

and social capital which make up their unique trading assets. Intellectual and social capital

comprise the knowledge and skills of individual employees and the relationships between these

employees. Consequently, sharing knowledge between client projects, becomes critical to theperformance of the KIF. There are, however, obstacles to sharing and growing knowledge

which is typically distributed throughout the organisation and embedded within its routines.

Defining knowledge intensive firms

The category of knowledge intensive firms refers to firms where most of the work is said to be

of an intellectual nature and where well-educated, qualified employees form the major part ofthe work force. Typical examples of KIFs include law and accounting firms, management,

engineering and computer consultancy companies, advertising agencies, R&D units and high

tech companies.

Knowledge intensity and the type of input/capital

The key resource in KIFs is often referred to as intellectual capital or the intellectual material knowledge, information, intellectual property, experience that can be put to use to create

wealth. Starbuck suggests that knowledge intensive can be applied to firms in which

knowledge has more importance than other inputs, and human capital, as opposed to physical orfinancial capital, dominates. A knowledge intensive company makes money through the

knowledge of its people.

The reliance on intellectual capital, as opposed to physical capital, in order to compete in the

market place is regarded as a key differentiator of KIFs. Alvesson defines a KIF as a company

where the majority of employees are well qualified, while Bontis sees the quality of human

capital as a source of innovation and strategic renewal. Thus employee skills are central to thecreation of competitive advantage and, indeed, to the survival of the organisation when market

conditions are tough. However, it is not only the presence of intellectual capital that it is

important in defining KIFs but it is also the way in which this intellectual capital is applied thatmakes these organisations distinctive.

Nature of the work: applying intellectual capitalStarbuck argues that it is the application of expertise which makes an important contribution in

KIFs, while others draw attention to the capacity to solve complex problems through creative

and innovative solutions. The application of human capital highlights two important issues.

First, creative jobs, such as in advertising, are not necessarily knowledge intensive if they do

not involve intricate problem solution. Second, standardised work is not regarded as knowledgeintensive, even if it requires high levels of intellectual capital.

The work processes which are novel & complex and involve problem solving are the indicatorsof KIFs.


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We therefore extend our definition of KIFs and describe these organisations as knowledgeintensive not only because income is generated through intangible assets but also because of the

nature of the deployment of the knowledge held. In other words our criteria of knowledge

intensive firms extend to the enactment of tacit knowledge in novel circumstances. Innovation,

initiative and competence building are the important aspects in knowledge intensiveorganisations. The tacit knowledge is the prime driver for value creation.

Industry or firm specific

Some industries are termed as knowledge intensive, e.g. biotechnology or management

consulting. KIFs are the organisations within a knowledge economy that employ highly skilledindividuals and create market value through the application of knowledge to novel, complex

client demands.

KIF can be defined in terms of :

(i) The nature and quality of their highly skilled intellectual capital;(ii) The work processes which create market value through knowledge;(iii) The deployment of the knowledge involving innovation, initiative and competence building

in the provision of bespoke services.

Let us discuss two important characteristics of KIFs. First, KIFs often have different growth

patterns when compared with more traditional organisations. Typically they have been borne

out of an innovative idea that addresses a niche market need. Many of these firms are engagedin business-to-business relationships with a relatively small number of clients rather than selling

their services directly to the end user.

Defining knowledge within the KIFEach knowledge worker builds, through social practice, a representation of how to act and who

to engage with an action in complex novel situations (Swart, 2000). Knowledge and practice areintertwined and as practice is distributed, so too, is the knowledge which is embedded within

the practice.

The critical knowledge type that is distributed throughout the organisation is tacit knowledge.Here we distinguish between -

(i) Practice-based tacit knowledge that is driven by the culture in the KIF and is embodied in theapplication of software code, i.e. knowing the short-cuts around software code and how to apply

the code in a way that adds value to the customer, and

(ii) Technical tacit knowledge is embedded in knowing the code. The technical knowledge

could only be taught through shared practice (learning-by-doing with others). These two forms

of tacit knowledge are therefore intertwined and technical knowledge cannot be developedwithout practice-based tacit knowledge. It is also through the integration of these forms of

knowledge that critical skills are developed for a base of competition in KIFs.

The quality of life is the most important thing in a KIF. KIF has only people and it does not

have products.


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In a typical KIF, a flat structure with only three levels: directors, senior software engineer (SSE)and software engineer (SE) has been maintained through periods of growth. Most of the

employees are software engineers with hardly any employees in traditional or specialist

functions, such as, finance, human resources or marketing. The majority of the workforce is

young and there is a strong drive to involve families in social and work events and theintegration of family and work life is seen as a key practice that motivates and retains staff.

The market focus has also remained on bespoke software development and commercial efforts

are directed toward the development of modules, sub-components and hardware-software

interfaces for multinational clients.

Operational differences

The typical KIF does not have traditional/specialist departments and functions and the keyoperational processes are distributed across various committees and teams. The key HR

practices have evolved through social practices and are distributed across the following three

sub-structures:(i) The committee structure that handles what would otherwise be more traditional HR function

with all employees being members of at least two committees;

(ii) The mentoring structure, where each senior software engineer takes responsibility for theResource development of a more junior engineer on another project;

(iii) The project structure, which is the main organisational structure for the organisation of

bespoke development work.

Most enabling HR practices and the core HR roles are divided between several positions

(directors and senior software engineers) in the organisation. HR practices are formalized

through the committee structure where suggestions from directors, senior software engineersand software engineers are published on the intranet, discussed at a formal gathering and then

approved by directors at their monthly meeting. This forum does afford the space for any

disagreements to be voiced as well as current practices challenged.

Although the enabling HR practices are more formalized and the responsibility split between

directors and senior software engineers, the heart of the HR processes are a lot more informaland the responsibility for these processes rests with mentors and project managers. The

mentoring scheme, where each senior software engineer has 2-3 proteges, none of whom report

to them, is key to this. The mentors, acting in a line management capacity, are responsible forthe implementation of HR processes focusing on personal and career development via the

performance management system. Project managers take a leading developmental role in atechnical skill enhancement capacity by working on project skills, which are taught by working

together. Within this approach a director could be reporting to a software engineer on a projectand consequently be trained by a younger and more junior member of staff.

The mentoring committee is enjoys a high degree of autonomy. High levels of participation inworkplace decision-making are facilitated through these structures. The developmental process

is strongly linked to reward, although remuneration is the only issue which is dealt with only at

director-level. Directors jointly determine pay levels and make decisions about increases basedon the recommendations made by the mentors as the outcome of performance appraisal

discussions. The implementation of skill enhancement rests with mentors, where responsibility

is taken for the development of skills of employees who do not report directly to the mentor.


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This developmental process is then integrated further into the mentoring committee where thementors themselves have the opportunity to develop.

The project structure is seen as the main sub-structure that integrates other operational

processes. Work is allocated according to client project teams and resource allocation is thendriven by the demand for skills within these teams.

Furthermore, the sub-structures represent the vehicles through which all HR practices evolved

in the organisation: it was through suggestions made in committees or social practice that is

shared throughout the organisation that specific HR processes were shaped. The employees

themselves generated the manner in which people are managed and it is this ownership that thendrives coherent practice.

HR practices

The typical KIF operates within a very tight labour market and knowledge workers within this

industry prefer to work for large well-known organisations. The market specialisation of theorganisation is directed at a small niche of software engineering skills, specialising in embeddedsoftware. The KIF has extremely strict selection criteria. Technical ability is not considered the

most important element and it is the culture of the KIF that leads the recruitment process.

The senior software engineer responsible for recruitment identifies candidates for recruitment

by using his widely known networks within the industry. Both pre- and post- experience

candidates will be approached for interviews and at this stage it is normally taken for grantedthat the employee will have adequate technical tacit knowledge.

The senior software engineer and some of the directors conduct interviews, which are very

informal and take on the format of a communication of ideas or solutions to a particularsoftware problem. The ability to generate innovative thought and then to communicate these

ideas are important criteria in the selection process. Recruits need to show how they will share

their innovative ideas and cutting edge know-how within a project team.

A key factor in the attraction and retention of senior software engineers and software engineers

is the nature of the work conducted by the organisation. Employees get the opportunity to workon cutting edge technology and to ensure that their skills remain at the forefront of this fast

changing industry.

The challenging work appears to be more critical to retention than the salary levels, as the KIF

does not pay better than their competitors in the local area. Employees are more focused on thequality of life that the small, innovative organisation can offer them. The development of skills

and the opportunity to apply skills are seen as a unique form of reward.

The resource creation process (Tsoukas, 1996) is driven by a culture of innovation (self-

teaching and employee-driven), knowledge sharing within projects and learning acrossboundaries between projects. The project structure is consequently the main vehicle for the

formal and informal development of resources. Within the project structure the most competent

person will manage a project - this is often a software engineer or a student engineer and ajunior member of staff could, as a result, have a director reporting to him.


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The most competent person will be decided on the basis of prior experience. In other moretraditional work environments this may result in disagreements however in the KIF there are

several strands of technical skill with certain employees specialising in each of these strands.

Technical experts are also recognised through informal networks and by working together

across various project teams. Everyone is given the opportunity to acquire management skillsand those who do not want to take this route in their careers have the opportunity to be project

engineers (developing) and advisors (working on another project but giving advice in their areaof specialisation).

Development is not only driven through informal and embedded processes but is also

formalised and linked to project and software development outcomes through the performancemanagement system. The KIF has a complex performance management process, which evolved

through suggestions and practice of the software engineers. This review process, which takes

place over and above the continuous reviews on a project, comprises two stages:

(i) Project performance reviews, conducted by the project manager focus on project efficiencyand the employees technical ability within the project. Here three forms of review areimplemented: a self-appraisal that is focused on jointly set objectives, project performance,

technical ability, self-management, team contribution and customer satisfaction; a peer review

on the same dimensions and a management review of the employee. A direct link is establishedbetween project performance reviews and annual increases.

(ii) Bi-annual performance reviews that focus on employee development and spans project

boundaries, thereby ensuring that practice is shared throughout the organisation. These reviewsare conducted by mentors who collate all project performance reviews, completes a protg

appraisal on overall performance areas and conducts a performance discussion.

The project structure is also fluid and people are rotated between projects to maintain a level of

interesting work and to broaden their technical skill-range. On average an employee will move

on to a new project every 18 months and rotation between sub-projects, which originate fromspecific client requests, within the larger project is more frequent. A project manager may

manage up to 4 sub-groups and conduct development work on one project.

Learning from the master is highly valued within the project structure and if the master is notwithin the project then it is the responsibility of the project manager to point the particular

employee in the right direction to develop the specific technical skill. External sources such as

the internet are also relied on heavily for the development of code and university networks are

often consulted when employees are faced by challenging customer demands. Boundariesbetween projects and organisations are fluid in order to encourage resource development.

Finally, learning is regarded so highly in the organisation that high performing employees are

often rewarded with training days and are encouraged to select training that is not related to

their core function in the organisation. Development of non-core skills is normally conductedoff-site through a provider other than the organisation. Employees are then encouraged to share

informally what they have learnt at a weekly meeting or on their intranet page. Examples of

training were learning a different language, art courses or technical courses that were related to

the organisation but not central to its current market positioning. The use of redundant timefor the development of resources is therefore highly valued and accounted for in the formal

appraisal procedure.


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Discussion

Although a project based structure, which facilitates the distribution of knowledge, is used in

the KIF, various mechanisms are employed to share or connect the knowledge. These

mechanisms mean that employees are familiar with who knows what, who is working onwhat and who to ask when particular questions are raised'. Knowledge is shared by cross-

functional meetings, voluntary membership of committees, conversations via newsgroups,

participation in frequent social events, the induction process as well as the intranet. These

mechanisms are sufficiently strong to overcome any problems associated with the companybeing based on two sites in the same town. Employees are also encouraged to build networks

with clients and the local community and, as a result, the notion of connectivity is taken beyond

the boundaries of the organisation.

Both cultural and technical knowledge are therefore connected throughout the organisation.

These forms of connectivity are created within the organisation through high levels ofparticipation in decision-making and by maintaining a central focus of bespoke development.

These processes may be aided by the homogeneity in the organisation, which is largely brought

about by a choice to grow relatively slowly and to employ mainly specialists.

The integration of distributed knowledge is therefore underpinned by particular recruitment and

selection choices and employee development and participation strategies. It is also evident in

the unique manner in which these practices are implemented, thereby developing a context ofHR practices as a form of participation. The combination of this particular set of HR practices

has created specific conditions for the establishment of knowledge networks.

Firstly, there is a strong cultural drive behind the recruitment process: prospective employees

are recruited on the basis that they 'fit' within the organisation. This selection model enables

connections to be made within the distributed knowledge system by establishing shared mentalmodels and a continued commitment to the sharing of knowledge. These HR practices are

focused on the sharing of knowledge and the provision of social supports for interconnecting

various stakeholders in the knowledge sharing process.

Employee development is the second key process through which the distributed knowledge

system becomes interconnected. The approach to development taken in the KIF is characterized

by cross-boundary learning, work-based learning and learning by doing, which depicts thesharing of knowledge through real time problems and the implementation of learning across

boundaries.

The design of the development process is focused on integrating communities and 'drawingtogether' the tremendous potential of distributed knowledge within the organisation. The

particular design of learning across projects through rotation between various client projects

supports the notion of sharing knowledge further: fluid boundaries are evident in the manner inwhich HR practices are implemented.

The implementation of HR practices through key sub-structures facilitates the sharing ofknowledge. Mentoring processes ensure that knowledge remains interconnected by appointing

mentors who do not have functional/technical responsibilities and committees span project

boundaries that are fluid. These processes are cross-boundary not only in their origin but also intheir implementation and comprise a form through which the sharing of knowledge is controlled

reflecting the culturally driven nature of these practices.


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HR practices are embedded in organizational routines and have become part of the way things

are done, thereby encouraging an informal yet standardised approach to the management of

knowledge workers as well as the sharing of knowledge. The committee structure in particular

creates several communities-of-practice across the organisation that integrates practice. At theheart of these communities is a strong sense of identification with the organisations culture,

history and core capabilities. These vehicles for the implementation of HR practices are sociallydriven and they encourage a social/integrative approach to the practices that create a

competitive advantage for the organisation: the development of cutting edge bespoke software.

A strong sense of social consensus governs the organisation: high degrees of participation aremade possible through strong cultural controls. Practices are also developed informally within

the organisation and become embedded through continued practice. For instance the focus of

the recruitment process as inviting someone to a party strengthens this consensus and createsan environment where common frames of understanding are established and knowledge sharing

is facilitated. Knowledge integration is also encouraged through the approaches to development,which rely strongly on culturally driven forms of engagement and agreement.

The HR practices in the KIF are designed to stimulate the development of knowledge for

employees which is key to their satisfaction and commitment and the sharing of that knowledgewhich is central to organizational success. This relates directly to retention rates, which are

regarded as critical in knowledge based competition. The knowledge workers themselves derive

benefits from an integrative knowledge system and the process of developing these

interconnections has become embedded in the HR practices.

This interconnection is central to the growth and success of KIFs as these organisations are

highly dependent upon their employees who are their principal assets. Moreover the ability togrow knowledge depends greatly upon the sharing of that knowledge between employees,

which requires their co-operation. This places a premium on satisfying the needs of employees

who are the owners of intellectual capital. Indeed, the success of the organisation depends onmanaging these knowledge workers so that they are attracted to the organisation, they want to

stay and they are highly motivated to perform well.

These employees are likely to want challenging and interesting work with a high degree ofautonomy. Complex, unique tasks are likely to provide these employees with the opportunity to

apply and, crucially, develop their knowledge. They are looking not just to engage in the

repetitive application of existing knowledge, but they want to develop their knowledge and they

are most likely to do this if they are working in novel situations where problem solving isinvolved. This is also likely to involve a high degree of autonomy in their work since this gives

them the freedom to solve problems drawing on their own expertise and professional training.Indeed, it is this application of specialist knowledge to new situations which will provide a

strong intrinsic incentive to these employees.

KIF also pays attention to the needs of their employees since it is they who hold the assets of

the company both collectively and individually. They do this by acknowledging that the

development and sharing of knowledge is fundamental not only to organisational success but

also to the needs of their employees.

Conclusion


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HR processes provide a series of social supports to overcome some of the obstacles to sharingknowledge which is commonly distributed throughout the organisation. In particular, these

barriers can be overcome by paying attention to the needs of individual employees so that they

see it as in their own interests to share knowledge. In effect these HR processes are designed to

create a complementarity between the needs of the employee for development and growth andthe needs of the organisation to share knowledge. These practices and processes contribute to

the development of social capital (Nahapiet and Ghoshal, 1998) which promotes the conversionof human capital into intellectual capital. Concentrating on the needs of employees provides the

means of overcoming the competing pressures of the distribution and sharing of knowledge.

Employees develop their own skills and knowledge by being given challenging tasks (the

distribution of knowledge) but they also recognise that they need to share this knowledge withinthe organisation.

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