Managing Knowledge Assets

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Managing Knowledge Assets

• Rajshree Agarwal

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Agenda

• What are the different ways in which technology
  and knowledge can be sourced and leveraged?
• What are some key considerations for managing the
  most important knowledge assetsthe people who
  work at the firm?
• What are spin-outs, and what does existing
  research tell us about this competitive threat
  from within?
• How might teams be organized for effective
  knowledge and new technology creation?

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Choosing modes of change
Changing competitive environment
Firm capabilities
Resource Gap
Yes
Relevance of Existing Capabilities?
Internal Development
No
No
Resource Markets
Resource Exchange Faces Mkt Failures?
Yes
No
Alliance
Mkt Failures are Extensive?
Acquisition
Yes
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Remember the TWOS Matrix for IBM
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Developing resources(for IBM e-business on
demand)

• Internal Development
• Linking strategy to human resource management
• four in a box cross functional strategies
• Resource Markets
• Disk drives is a commodity, can be safely
  divested
• Alliances
• Advertising campaign by Ogilvy and Mather
• No significant risk of knowledge leakage
• Partners have distinct roles that are clearly
  defined
• Acquisitions
• PWC consulting, semi-conductor plant
• Consulting needed to be integrated with other
  aspects of business
• Risk of important information being leaked
  outside the firm

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A road-map

• Internal development
• Weve been talking about it implicitly
• The last two sessions through NPD
• In the sessions for protecting and organizing for
  innovation
• This mornings session will focus on managing the
  most important knowledge assets
• The people that work for the company
• Alliances
• Collaborating for innovation
• Experimental simulation
• Please take a moment to check that the website is
  working
• www.business.uiuc.edu/BA_EEPR
• Acquisitions
• Due diligence in pre and post acquisition stages
• Road maps for success in post acquisition
  integration

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What are spinouts, and how pervasive are they?

• Spinouts are firms
• founded by employees that leave the parent firm
• to start up a new venture that competes in the
  same industry
• Pervasive in many industries where knowledge is
  key
• Automobile industry
• 41 spinouts of Olds, Caddy, Ford, and GM, some of
  whom were themselves spinouts
• Disk-drive industry
• 25 of all entrants were spinouts
• Other industries that have been studied include
  diagnostic imaging, lasers, legal services

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What are the characteristics of spawned ventures?

• The acorn does not fall far from the oak tree
• Knowledge inheritance from the parent creates
  superior technological and market pioneering
  knowledge
• Better parents beget better spinouts
• Not just contacts and networks
• Ed Baldwin had graduated a class of
  engineer-managers who now had the ability to
  figure out how to do it alone
• Gordon Moore

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Do spawns perform better than other types of
entrants?

• Simple answerYES!!
• Capabilities for success
• Entrepreneurial flexibility
• Inside knowledge of the industry
• Spinouts have both!
• Consistent evidence across multiple industries
  that spinout firms outperform other entrants, and
  often outclass their own parents

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Why do some firms spawn more than others?

• The Fairchildren
• Every new idea that came along created at least
  one new companyGordon Moore

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The Knowledge Spillovers Story

• Firms at the technological frontier are
  fountainheads of knowledge
• Employees have much to gain working with the best
  firms
• Exposed to RD knowledge, networks of suppliers
  of labor, goods, capital, and customers
• Contacts lead to relationship specific
  investments
• Employees access valuable knowledge at the parent
  firm

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Why do some employees become entrepreneurs?

• Selection
• Entrepreneurs are born, not made
• Spillovers
• Exposure to ideas creates entrepreneurial spirit
• Spats
• Disagreements with top management creates
  frustration

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So what can a firm do to reduce spinout incidence?

• You cant win them all! But
• Under-exploited knowledge begets spinouts
• Put the knowledge to good use
• Dont create horse-races
• Healthy competition may prove unhealthy in the
  long run
• Beware the long arm of the law

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Company culture

• Remember the importance of the mission statement?
• Culture is the most tacit resource, and can lead
  to sustainable competitive advantage
• Create it carefully
• Communicate it early and often
• Be Consistent!
• For creativity to thrive
• Hire the right people
• Establish the right routines

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Fostering Creativity in Teams Size and
Composition

• Team Size
• May range from a few members to hundreds.
• Bigger is not always better large teams create
  more administrative costs and communication
  problems
• Large teams have higher potential for social
  loafing.
• Functional Composition
• Depends on the task
• If minor changes to existing technologies,
  cross-functionality may not be necessary
• If major changes are required, cross functional
  representation may be essential
• Including members from multiple functions of firm
  ensures greater coordination between functions.
• In 2000, 77 of U.S. firms, 67 of European
  firms, and 54 of Japanese firms used
  cross-functional teams.

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Diversity of Teams

• Pros
• Diversity in functional backgrounds increases
  breadth of knowledge base of team.
• Other types of diversity (e.g., organizational
  tenure, cultural, gender, age, etc.) can be
  beneficial as well.
• Provides broader base of contacts within and
  beyond firm.
• Ensures multiple perspectives are considered.
• Cons
• Diversity can also raise coordination costs.
• Individuals prefer to interact with those they
  perceive as similar (homophily)
• May be more difficult to reach shared
  understanding.
• May be lower group cohesion.
• Extended contact can overcome some of these
  challenges.

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Roles in Effective Teams

• Project Leader is essential
• Needs to have both sufficient power and ability
  to execute
• Other primary roles
• Ambassador activities representing team to
  others and protecting from interference.
• Task coordination activities coordinating teams
  activities with other groups.
• Scouting activities scanning for ideas and
  information that might be useful to the team.
• Scouting and ambassador activities more
  beneficial early in development cycle task
  coordination activities beneficial throughout
  life of team.

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One size does not fit all

• One well-known typology of team structure
  classifies teams into four types
• Functional
• Lightweight
• Heavyweight
• Autonomous

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Functional and lightweight teams

• Functional Teams
• Members report to functional manager
• Temporary, and members may spend less than 10 of
  their time on project.
• Typically no project manager or dedicated liaison
  personnel.
• Little opportunity for cross-functional
  integration.
• Likely to be appropriate for derivative projects.
  
• Lightweight Teams
• Members still report to functional manager.
• Temporary, and member may spend less than 25 of
  their time on project.
• Typically have a project manager and dedicated
  liaison personnel.
• Manager is typically junior or middle management.
• Likely to be appropriate for derivative projects.

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Heavyweight and Autonomous teams

• Heavyweight Teams
• Members are collocated with project manager.
• Manager is typically senior and has significant
  authority to command resources and evaluate
  members.
• Often still temporary, but core team members
  often dedicated full-time to project.
• Likely to be appropriate for platform projects.
• Autonomous Teams
• Members collocated and dedicated full-time (and
  often permanently) to team.
• Project manager is typically very senior manager.
• Project manager is given full control over
  resources contributed from functional departments
  and has exclusive authority over evaluation and
  reward of members.
• Autonomous teams may have own policies,
  procedures and reward systems that may be
  different from rest of firm.
• Likely to be appropriate for breakthrough and
  major platform projects.
• Can be difficult to fold back into the
  organization

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Team Leadership

• Team leader is responsible for directing teams
  activities, maintaining alignment with project
  goals, and communicating with senior management.
• Team leaders impact team performance more
  directly than senior management or champions.
• Different team types need different leader types
• Lightweight teams need junior or middle manager.
• Heavyweight and autonomous teams need senior
  manager with high status, who are good at
  conflict resolution, and capable of influencing
  engineering, manufacturing, and marketing
  functions.

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Team Administration

• The more explicit the routines, the better
• Many organizations now have heavyweight and
  autonomous teams develop a project charter and
  contract book.
• Project charter encapsulates the projects
  mission and provides measurable goals. May also
  describe
• Who is on team
• Length of time members will be on team
• Percentage of time members spend on team
• Team budget
• Reporting timeline
• Key success criteria
• Contract book defines in detail the basic plan to
  achieve goals laid out in charter. It provides a
  tool for monitoring and evaluating the teams
  performance. Typically provides
• Estimates of resources required
• Development time schedule
• Results that will be achieved
• Team members sign contract book helps to
  establish commitment and sense of ownership over
  project.

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Managing Virtual Teams

• Members may be a great distance from each other,
  but are still able to collaborate intensely via
  videoconferencing, groupware, email, and internet
  chat programs.
• Enables people with special skills to be combined
  without disruption to their personal lives.
• However, may be losses of communication due to
  lack of proximity and direct, frequent contact.
• Requires members who are comfortable with
  technology, have strong interpersonal skills and
  work ethic, and can work independently.

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Back to employee entrepreneurship and employee
mobility

• Implicit premise in the spinout literature is
  that firms leaving the company are bad for
  business
• Notion of creative destruction

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Alternative paths creative destruction and
creative construction
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Spillovers in the era of open innovation

• Creative construction questions the model of the
  closed, vertically integrated organizational
  activities
• Creation and appropriation had to occur within
  the same organizational boundaries
• Spillovers were a necessary cost of doing
  business
• Strategic management of spillovers leads to
  spill-ins
• Encourage organizational processes that may
  enable such synergies

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Key Takeaways

• Firms can acquire knowledge in multiple ways
  including
• Internal development
• Alliances
• Acquisitions
• Both for new knowledge creation, and to avoid
  creating competition from within, firm culture
  needs to be geared towards retention of their
  best employees
• Team structure needs to conform to the task being
  addressed
• Issues related to size, cross-functionality,
  diversity and structure and distance need to be
  examined
• Leadership and administration are key aspects of
  ensuring success
• Recent models have started to emphasize the
  possibility of open innovation
• strategic management of spillovers and spillins