William P. Bill Hall PhD

1
One Company Two Outcomes Knowledge Integration
vs Corporate Disintegration in the Absence of
Knowledge Management

• William P. (Bill) Hall (PhD)
• Documentation and KM Systems Analyst
  (ret.)National FellowAust. Centre for Science,
  Innovation Society
• Engineering Learning Unit
• Melbourne School of EngineeringMelbourne
  UniversityEmail whall_at_unimelb.edu.au
• Evolutionary Biology of Species and Organizations
• http//www.orgs-evolution-knowledge.net
• Susu Nousala (PhD)
• Senior Research Fellow
• Spatial Information Architecture Lab ( SIAL)
• School of Architecture and Design
• RMIT University
• Bill Kilpatrick (MBA, Risk)
• Senior Project Cost Control Engineer

Good people are good because they have come to
wisdom through failure. We get very little wisdom
from success. William Saroyan
2
Overview

• Story of one knowledge intensive engineering
  project management organization and two projects
  over a 20 year life
• Natural experiment in organizational dynamics
  and knowledge management
• Project 1 the company grew to be the largest,
  most successful in its national industry
• Project 2 the company dissipated its reputation
  and resources and was consumed by a competitor
• Success and failure analysed in a framework of
  organizational theory
• evolutionary epistemology
• organizational autopoiesis
• Lessons applicable to many knowledge intensive
  organizations

3
EPMO engineering project management org

• Multi-divisional company founded late 80s
  employing several thousand staff
• Successful 7 Bn technologically complex and
  knowledge intense project
• Design and serially produce 10 similar units for
  two customers
• Built to demanding defence standards
• Fixed price contract finalized and signed late
  1989
• Uniquely successful project was completed mid
  2007
• On time, every time
• On budget
• Profitable
• Happy customers providing continuing bread and
  butter business
• Was a profitable cash-cow allowing company to
  acquire several new divisions

4
Whats wrong with this picture?

• Williamstown, Vic. 14/08/2009

5
Follow-on project failed / EPMO sold

• 0.5 Bn fixed price follow-on project
• Seven units of three quite different, but
  simple types
• EPMO started 3 year fixed-price project April
  2004
• Built to commercial standards for a defence
  client
• Project failed
• By 2007 way over budget with major company losses
  against fixed price
• First unit delivered 6 months late, no others
  accepted as at 1/12/2008, two still unaccepted
  and rusting at the dock today ( 1/3 total value)
  
• Approximately a year after the scheduled contract
  completion, no units were fully fit for use by
  the customer (based on press reports)
• Capability/warranty issues with accepted unit
  will cost 20 M to fix
• After reviewing the situation in late 2007,
  owners decided to auction EPMO ('all or part') to
  'position the company for future growth'
• Multi-billion dollar order book, fabrication
  facilities in three states
• Pre auction estimate was that company was worth
  A 1 BN
• EMPO sold in January 2008 for A 775 M (press
  reports)
• Cost to owners thus on the order of A 225 M!
• How and why did this uniquely successful company
  dissipate?
• How do we know?

6
Epistemology and engineering KM

• Knowledge solutions to problems (Karl Popper,
  1972)
• Always tentative
• Always fallible
• Knowledge grows through criticism and error
  elimination
• Products embody knowledge engineered to solve
  problems
• Engineering organizations solve problems
• Engineering is knowledge intensive
• Organizations are systems that themselves can be
  engineered
• Organizations have knowledge of their own
• Depend on "system of systems" to manage knowledge
• System of systems components include
• People!
• Processes connecting people
• ICT infrastructure systems implementing processes
• Most knowledge is created and applied by people
• Many organizations forget about systems,
  engineering organizations forget about people,
  neither do process well

7
Theory of organization

• Maturana and Varelas 1980 definition of life
• Based on the emergence of self-bounded systems to
  able to regulate and produce themselves
• Varela et al. 1974 - Autopoiesis ( self
  production)
• Bounded (system components demarcated from the
  environment)
• Complex (separate and functionally different
  components within the boundary)
• Mechanistic (system dynamics driven by
  self-sustainably regulated dissipative fluxes or
  metabolic processes)
• Self-differentiated (boundary intrinsically
  produced maintained)
• Self-producing (system intrinsically produces own
  components)
• Autonomous (self-produced components are
  necessary and sufficient to produce the system).
• All knowledge constructed by life, life cannot
  exist w/o knowledge
• Autopoiesis vs allopoiesis
• Autopoietic systems produce their own emergent
  organization
• Allopoietic systems controlled externally

8
Other organization theory issues

• Tacit knowledge vs explicit documentation
• Personal tacit personal (Polanyi)
  subjective (Popper 1972)
• Organizational tacit (Nelson Winter 1982)
• David Snowdens paradoxes (2002 - after Polanyi
  1958, 1966)
• Personal knowledge is volunteered it cannot be
  conscripted.
• People know more than can be told, and tell more
  than can be written
• only know what they know when they need to know
  it
• Bounded rationality (Herbert Simon 1979, Steven
  Else 2004)
• Impossible for people to make perfectly rational
  decisions
• Memory capacity
• Processing speed
• Satisficing
• Limits to organization (Kenneth Arrow 1974, Steve
  Else)
• Issues of authority, governance and delegation
  (Else)
• Structure and flow of information to support
  decisions
• The folly of centralized micromanagement
• Overloading decision processing
• Insufficient capacity to know what was needed at
  boundaries
• Boundaryless careers (1994)

9
Case study background papers

• Nousala, S., Miles, A., Kilpatrick, B., Hall,
  W.P. 2005. Building knowledge sharing communities
  using team expertise access maps (TEAM).
  Proceedings, KMAP05 Knowledge Management in Asia
  Pacific Wellington, N.Z. 28-29 November 2005
• Nousala, S. 2006. Tacit knowledge networks and
  their implementation in complex organisations.
  PhD Thesis, School of Aerospace, Mechanical
  Manufacturing Engineering, RMIT University
• Nousala, S., Hall, W.P., John, S. 2007.
  Transferring tacit knowledge in extended
  enterprises. IKE'07- The 2007 International
  Conference on Information and Knowledge
  Engineering, Las Vegas, Nevada, June 25-28, 2007
• Nousala, S. H., Terziovski, M. 2007. 'How
  innovation capability is developed and exploited
  at a defense project engineering company (DPEC)',
  In Terziovski, M. (Ed.), Building Innovation
  Capability in Organizations, London Imperial
  College Press
• Nousala, S., Hall, W.P. 2008. 'Emerging
  autopoietic communities scalability of
  knowledge transfer in complex systems'. The First
  IFIP International Workshop on Distributed
  Knowledge Management, 2008 (DKM 2008), October
  18-19, 2008, Shanghai, China
• Hall, W.P. 2003. Managing maintenance knowledge
  in the context of large engineering projects -
  Theory and case study. Journal of Information and
  Knowledge Management, 2(3), 1-17
• Hall, W.P., Richards, G., Sarelius, C.,
  Kilpatrick, B. 2008. Organisational management of
  project and technical knowledge over fleet
  lifecycles. Australian Journal of Mechanical
  Engineering. 5(2)81-95

10
Theory background papers

• Hall, W.P. 2005. Biological nature of knowledge
  in the learning organization. The Learning
  Organization 12(2)169-188.
• Hall, W.P., Dalmaris, P., Nousala, S. (2005) 'A
  biological theory of knowledge and applications
  to real world organizations', Proceedings,
  Knowledge Management in Asia Pacific, Auckland,
  28 29 November, 2005.
• Hall, W.P. 2006. 'Emergence and growth of
  knowledge and diversity in hierarchically complex
  living systems' Workshop Selection,
  Self-Organization and Diversity CSIRO Centre for
  Complex Systems Science and ARC Complex Open
  Systems Network, Katoomba, NSW,17-18 May 2006.
• Vines, R., Hall, W.P., Naismith L. 2007.
  Exploring the foundations of organisational
  knowledge An emergent synthesis grounded in
  thinking related to evolutionary biology. actKM
  Conference, ANU, Canberra, 23-24 October 2007.
• Dalmaris, P., Tsui, E., Hall, W.P., Smith, B.
  2007. A Framework for the improvement of
  knowledge-intensive business processes. Business
  Process Management Journal. 13(2) 279-305.
• Hall, W.P., Dalmaris, P., Else, S., Martin, C.P.,
  Philp, W.R. 2007. Time value of knowledge
  time-based frameworks for valuing knowledge. 10th
  Australian Conference for Knowledge Management
  and Intelligent Decision Support, Melbourne, 10
  11 December 2007.
• Hall, W.P., Vines, R., Nousala. submitted
  'Autopoiesis and knowledge in the emergence of
  self-sustaining organizations'. In Magalhaes,
  R., Sanchez, R. (eds.), Autopoiesis in
  Organizations and Information Systems. Elsevier
  Science.

11

• Why did EPMO Fail?

12
EPMO Background

• Constants
• Highly knowledge intensive work
• Family owned
• Absentee owners and senior executives
• Head Office in different state from all
  production work)
• Execs senior line managers didnt understand IT
  
• Pencil paper management paradigm
• CIO appointed only in late 2005 and then ignored
• Many lost opportunities for organizational
  efficiency
• Example board spent M to implement corporate
  portal
• Did not consult workface staff to understand
  needs
• Would not pay for additional modules to make it
  work
• Would not fund training and process development
• Deep management hierarchy (black hole for K
  flows to centre)
• Command and control philosophy (dont disagree
  with boss)
• High turn-over of senior line managers (one
  strike policy)
• Managers hired from other industries, sacked for
  mistakes
• 2-3 yr cycle
• Managers unaware of historical problems and
  solutions

13
Aspects of successful project

• Contract required delivery of capabilities
  demanding innovation rather than building product
  to predefined specifications
• Long duration (17 yrs)
• significant serial production
• Owners senior execs focused on acquisitions so
  didnt interfere
• Stable, conscientious work force in engineering
  production
• Ordinary pay, but proud to be associated with
  premier project
• Many knowledge workers earned 10 and 20 year pins
• Costly knowledge problems in design and early
  production stages
• Supplier IP/technical data for design and support
  engineering
• Engineering configuration management and change
  control
• Delivering coherent technical data and
  documentation to client
• Cost-effective solutions found and built into
  processes and practices at the workface level
  despite senior management
• feral knowledge management
• Execs did not understand and were probably
  unaware of solutions
• Solutions requiring investment often blocked or
  delayed. Example
• Some critical IT solutions for support
  engineering funded by middle management as time
  and materials from current operating budgets
• Solutions effective IT significantly reduced
  costs
• Released contingency funds more than covered
  losses in other areas

14
Changes autopoietic integration to allopoietic
dissipation

• Executive management from hands-off
  (autopoiesis) to micromanagement (allopoiesis)
• 2001, owners hired close-out specialist from
  overseas as Project Director/Divisional EGM to
  manage serial production of the major project
• EGM bonus based solely on added profit squeezed
  from project
• Over 4 years
• Demanded strict time-costing to the half hour
• All time required to be allocated to project line
  item cost code
• Staff quickly made redundant when no longer
  needed for project
• Most senior line managers replaced under his
  regime
• Managers tend to know only particular project
  lifecycle stages
• Replacements only knew smooth running serial
  production
• Example EGM approval and signature required for
  outsiders (e.g., from Head Office) to meet
  project staff
• Impact on staff
• Nose in furrow mentality
• Major unpaid overtime required of salaried staff
• Morale became very poor nothing volunteered

15
Circumstances of the failure

• Mobilizing the 500 M follow-on project
• 3 year fixed-price project
• Assumed to be a simple, commercial project
• Seven units of three quite different types to be
  produced in parallel
• Based on existing designs meeting commercial
  safety standards
• Competitive contract price and schedule assumed
  that knowledge and skills would transfer from
  successful project
• Limited opportunities for serial production
• Little commonality but total complexity similar
  to large project
• Needed rapid progress from detail design to
  production
• Follow-on started before successful project
  finished
• New (cheaper) people were hired from outside
  (lacked knowhow)
• Line managers required all work on old and new
  projects to be measured to the half-hour for
  booking against project budgets
• Bureaucracy,
• Lack of trust
• Staff no allowed to do anything unless there was
  a booking number
• Socialization was seen as time-wasting
• A security fence was built between the projects
• Six months into project, new staff still didnt
  know what to do!

16
Autopoiesis vs Allopoiesis

• Up through 2001 EPMOs main division operated
  effectively as an autopoietic entity
• Absentee owners largely directed their attention
  elsewhere
• Line managers were problem-solvers developed
  trusting relationships with people facing
  problems at the work-face
• Conditions allowed of tacit networks to emerge
• Tacit networks will emerge naturally if given
  time and not stifled
• After 2001, local management/self-regulation were
  replaced by top-down micro-management,
  effectively transforming EPMO into an allopoietic
  organization
• Old project no longer required innovation
• Command and control replaced group-based problem
  analysis and solution
• Nose in furrow mentality stifled thinking beyond
  following directions to do the job at hand

17
Example new project negotiation mobilization

• Failed attempts to transfer knowledge
• Management kept old hands in old project jobs or
  made redundant
• New hires knew theory but lacked specific domain
  experience
• Informal small project team developed
  successfully prototyped knowledge mapping methods
  to help new hires access critical knowledge
• Identified likely problem areas requiring
  knowledge transfers from old hands
• How to manage configurations and engineering
  changes
• How to capture supplier IP needed to complete
  document designs
• How to produce and manage technical data and
  documentation deliverables
• Interviews were out of hours or with non-project
  people
• Old hands proved to be happy to share knowledge
  and war stories
• Analysis and prototype validated and published
  (Nousala et al. 2005)
• Line managers treated all attempts to implement
  knowledge mapping/transfer program as time
  wasting (no booking no. allocated)
• Pre-negotiation stage first formal proposal
  vetoed by Production Manager
• Early negotiations additionally supported by
  Nousalas availability to manage interview,
  mapping process database vetoed by EGMs
  direct reports
• Project mobilisation proposal additionally
  adopted by Special Project Manager responsible
  for IT implementation vetoed by direct reports.
• Security fence physically separating new project
  team from most remaining old hands from the old
  project lack of cost-codes effectively blocked
  emergence of autopoietic solutions based on
  informal knowledge transfers

18
Personal vs organizational knowledge

• Vines et al. (organizational knowledge)
• Tacit Personal (can be mapped for org use
  Nousala et al)
• Explicit Personal (personal knowledge management)
• Explicit Organizational (can be indexed served
  for organizational use)
• Formal (review approval workflows make explicit
  formal)
• Knowledge cycles
• EPMO had excellent repository and search
  technology but did not support it with procedures
  training
• Impossible to transfer all personal knowledge to
  the organization
• Boundaryless careers (Michael B. Arthur )
• People come and go
• Knowledge built through individual career
  trajectories
• EPMO gave many old hands redundancy and stifled
  many others by walling them off and overwhelming
  them with routine work

19
Personal vs organizational knowledge

• Nousala et al. (personal knowledge in the
  organization)
• Organization depends on people who know
• what knowledge is needed
• who may know the answer
• where explicit knowledge may be found
• why particular knowledge is important or why it
  was created
• when the knowledge was last needed or may be
  needed in the future
• how to apply the knowledge
• Knowledge can be mapped even where it cannot be
  made explicit
• Mapping process should facilitate formation of
  networks
• We identified organizational sources of knowledge
  and proved it could be mapped EPMO management
  blocked use
• Autopoietic organization cannot survive without
  generating using knowledge
• Allopoietic structure concentrates knowledge in
  managers. Organization cannot survive where
  external managements bounded rationality is
  overwhelmed

20
Failure to see people and culture are important

• Old style engineers understand tangible
  technology well, processes moderately well,
  people not at all
• Finance, admin some engineers saw the cost of
  everything but didnt value personal knowledge
• EPMO executives
• Understood technology proposals and would pay to
  implement
• Did not understand value arguments about people
  and culture, and did not approve what they did
  not understand
• Managing technological enterprises and getting
  the most out of their information systems is
  mostly about managing people and knowledge
• IT infrastructure is useless unless related
  people and process issues are understood and
  solved
• Failing to understand manage people and
  organisational culture can destroy organisations.