A Case Study on the Implementation of A Knowledge Management Strategy Oriented to Innovation

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A Case Study on the Implementation of A Knowledge Management Strategy Oriented to Innovation

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A critical aspect of business management is the successful creation of processes which drive the development of a continuous flow of innovation, to give a basis for competitive advantage. To reach this goal, the establishing of a knowledge management (KM) strategy may be considered the best way to channel the organization’s efforts to this end. Knowledge management is understood in a wide sense as a process of overall change in the organization, focused on innovation, and especially related to the participation of every employee in the processes of creation and transmission of knowledge. This study analyzes the implementation of an innovation and KM strategy in the Irizar......

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Nội dung Text: A Case Study on the Implementation of A Knowledge Management Strategy Oriented to Innovation

2. Knowledge and Process Management CASE STUDY series of essential factors in the success of the creation does not consist of the processing of infor- process and the advances made in KM in relation mation or data, since the obtaining of tacit knowl- to innovation. These include the main factors in edge, which cannot be directly processed, is a the ﬁrm’s strategic change that the implementation fundamental part of this phase. It allows for the of such a strategy involves, between which there development of improvements and innovations must be a ﬁt. Finally some conclusions are obtained on products and processes, capable of creating and discussed. value, which then become part of the new knowl- edge in the system. In addition, it is important to consider a number KM AND INNOVATION of aspects in the knowledge-creation process: the organization’s internal knowledge base; the acqui- The concept of ‘Knowledge’ integrates capabilities, sition of information and knowledge from external abilities, structured information and the applica- sources; the integration of internal and external tion of technologies which can improve products knowledge and its application to problem solving; and processes, so becoming a source of competitive the creation of new knowledge and the generation advantage (Hall, 1992; Liebeskind, 1996; Winter, of innovations from this integration, and ﬁnally the 1987). A part of the knowledge generated in the importance of the organization’s capacity to absorb organization is explicit and can easily be stored new knowledge (Soo, Midgley and Devinney, and transmitted; however, tacit knowledge is also 1999). created, which is inseparable from the individuals A number of authors have shown that the new who possess it. Knowledge can be considered as a knowledge generated is the principal source of resource of strategic importance: it is scarce, rele- innovation for a ﬁrm. For example, Nonaka and vant, difﬁcult to transmit in some cases (especially Takeuchi (1995: 3) bring together the experiences tacit knowledge); it is costly and difﬁcult to imitate of Japanese companies in this respect; Teece, Pisano (Grant, 1996). In addition, using it makes it more and Shuen (1997) emphasize the point in their dis- valuable. cussion on ‘dynamic capabilities’; Grant (1996) Knowledge management (KM) is understood as points to the importance of integrating different a process for the collection, distribution and efﬁ- types of knowledge in order to innovate, while cient use of the knowledge resource (Davenport, Kogut and Zander (1992) refer to this relationship 1994). It involves organization and improvement in their concept of ‘combination capability’. A basic of methods, practical instruments and tools which premise has therefore been included in the creation contribute to the managing of knowledge, in a wide of knowledge: that a ﬁrm needs to continuously sense, in every area and level in the organization renovate its knowledge base to ensure that this and which leads to improvement in products and base does not become obsolete for the development methods of work. O’Dell and Grayson (1998) deﬁne of innovations. New knowledge, the basis for inno- KM as a strategy to be developed in a ﬁrm to vation, will constitute the future knowledge base ensure that knowledge reaches the right people at for the organization and will contribute to the the right time, and that those people share and regeneration and widening of the existing base. use the information to improve the organization’s A ﬁrm’s technological innovation process is functioning. This in turn has created a need for characterized by a series of essential features businesses to evaluate the information and capabil- (Pavitt, 1990: 18). First, there is an implication of ities generated, in order to convert them into continuous and intensive co-operation and interac- results which will add value and establish learning tion between groups which are specialist both as a continuous process within the organization. functionally and professionally (R&D, Production The process of implementation of a KM strategy and Marketing for implementation; Organization involves the operations of creation, storage, distri- and Finance for the strategic decisions on entering bution and application of knowledge; together, new business areas). Second, it involves a series of these make up a full cycle. This process will be activities whose nature is uncertain in terms of called the KM cycle, to emphasize the continuity results. In addition, it is a cumulative activity: the which should characterize this type of strategy. It greater part of technological knowledge is speciﬁc is remarkable how this cycle, especially the creation and although this knowledge and abilities can of knowledge, is closely related to innovation. The be bought from the exterior, there must be an creation of new knowledge and of innovations assimilation capability in place for it. Finally, it is implies the application of intelligence, tacit highly differentiating, since it is possible to apply knowledge and information: that is, an interaction speciﬁc technological abilities from one ﬁeld in between actions and behaviors. The action of another. A Knowledge Management Strategy Oriented to Innovation 163
3. CASE STUDY Knowledge and Process Management All these characteristics make clear that the inno- Table 1. Some ﬁgures for Irizar vation process in a ﬁrm will be a very wide-ranging one, involving the obtaining of knowledge from the Number of workers (91–00) 225 634 existing organization, the combining of informa- Sales (91–99) $15 million$103 million tion, data or previous experience and the genera- Sales per person (91–99) $55,000$165,000 tion of new uses for the resources (Nonaka and Added value per $14,000$61,500 Takeuchi, 1995). For Krogh (1998: 134) it is essential person (91–99) that this process be developed in work teams Maturity time (91–99) 38 days 14 days which have clear objectives in relation to the pro- Production rate (93–00) 1.2 coaches/ 6 coaches/ day day ducts and processes; in this way, they can contri- bute innovations to the ﬁrm as a whole. The following section is devoted to the analysis of the case study used in this work. It describes the Within its sector, it ranks ﬁrst in Spain and third way in which the implementation of a KM strategy in Europe.2 Sales of luxury coaches in the European can be used as a means to generate a ﬂow of strate- market are around 10,000 units/year, but only gic innovations, so giving a source of competitive seven companies sell more than 600 units/year. advantage. Furthermore, the sector is strongly concentrated The study is structured in the following way. as a result of agreements between the bodywork After presenting the ﬁrm itself, a description is and chassis makers for both coaches and trucks given of the mission and values taken as a starting (Mercedes, Volvo and Scania). point for the strategy established. The implementa- Irizar can be considered as an innovator in pro- tion process for the strategy is then described, ducts, processes and in general management, together with the work organization changes which where it is successful in its ﬁeld. For the Economist this assumed. The results of the case study are Intelligence Unit, Irizar is ‘probably now the most articulated as a series of key factors. Finally, the efﬁcient coach builder in the world’ (EIU, 2000: study closes with a discussion of the main conclu- 172). These facts justify the study of the KM strat- sions reached. egy implementation process and the factors which have made it successful. CASE STUDY Strategic change at Irizar: the organization’s mission and values The company analyzed in this study is Irizar, an associated work co-operative belonging to Spain’s The KM strategy implementation began at Irizar in ´ Mondragon Co-operative Corporation (the MCC). 1991, a moment in which the ﬁrm was in a critical The MCC can be considered as the world leader situation, having accumulated major losses almost in co-operative working. It is made up of more to the point of bankruptcy. Given the situation, the than 100 co-operatives of associated businesses new management decided, with the support of all and employs over 42,000 workers.1 the workers, to carry out an emergency plan. This Irizar is a ﬁrm devoted to the assembly of luxury involved changing the strategy of the ﬁrm, diversi- coaches. It has seen spectacular growth over the fying markets in order to succeed in a global market last few years (see Table 1); especially noteworthy and focusing only on the assembly of luxury coaches has been its growth in average productivity of (they had previously produced urban buses also). 18.4% in the 1993–2000 period. The ﬁrm currently The implementation process was supported has 634 workers in its Ormaiztegui factory (in the through a global change focused on the building Spanish Basque country). It exports to 45 countries of a strong culture, in which all the members of and has shareholdings in ﬁve other companies: the organization were to be involved—this led to Irizar Tianjin (35%); Irizar Maghreb (34%); Irizar the deﬁnition of the process as ‘a project based on Brasil (100%); Irizar Mexico (100%) and Interna- people’. The ﬁrm’s management tried to encourage tional Hispacold (65%). It assembles six coaches the acceptance throughout the organization of every day and has a 33% share in the Spanish mar- some cultural principles—these have been rein- ket with a further ten companies sharing the rest. forced over time (Figure 1). 2 It should be underlined that the company has received prizes 1 MCC ranks at number 185 in the list of European companies by and awards such as that of being the ﬁrst European company business ﬁgures, and it is sixth in the ranking of Spanish-capital in its sector to obtain ISO 9001 Business Quality Certiﬁcation, companies within the European context. or the Coach of the Year Award for 1994 in the UK. 164 F J. Forcadell and F Guadamillas . .
6. Knowledge and Process Management CASE STUDY Figure 2 Irizar chart Figure 3 Organizational success factors in the implementation of KM A Knowledge Management Strategy Oriented to Innovation 167
7. CASE STUDY Knowledge and Process Management SUCCESS FACTORS IN THE STRATEGY’S variety of jobs taken on, the high degree of IMPLEMENTATION autonomy in work, and participation in the suggestion system. All of these reinforce people’s The analysis of the case in question allows pointing motivation and deﬁne a leadership style. out a group of organizational factors that can be * People participation in the creation and application of considered essential in the success of the imple- new knowledge. More than 90% of the workers mentation process of this strategy. The factors participate voluntarily in working teams. Every- found in the case analysis can be ﬁtted to the classic body is expected and encouraged to make at least 7-S McKinsey model (Waterman, 1982) (Figure 3), two improvement suggestions per year (more the scheme used to represent the principal aspects than 1260 ideas per year in total). on which a succesful strategic implementation * Shared learning (to encourage knowledge transmis- depends. The model suggests that there are a set sion). More than 10% of the time is devoted to of factors which inﬂuence strategic change in a learning in teams. company, and that these should be interconnected and be internally coherent. In this case, a KM strat- KM tools egy is involved, focused on the building of a series of capabilities related to innovation. Corporate cul- The systems and tools used to foster creation and ture is the core factor, although it must ﬁt with transmission of knowledge (shared experiences) organizational structure, management of human are the following: information and communication, resources, leadership style and KM systems and external relations, education and training, working tools. teams and committees and the assembly system for decisions. All of these are based on participa- tion in the process. Although the new information The knowledge management strategy technologies are applied in a similar way to that developed at Irizar used by the ﬁrm’s competitors, this does not At Irizar, it is understood that the objective of KM is seem to be an essential factor for success in KM the promotion of innovation and the capacity of the in this case. organization to transform the opportunities which Another important aspect is the use of KM appear into results, in a more efﬁcient way than its results measurement tools, which at Irizar are competitors. The process of creation, storage, distri- not limited to the quantitative aspects but which bution and application of new knowledge has been also advance and deﬁne other measures related to systematized in Irizar through working teams, sup- strategic objectives (people’s overall satisfaction, ported by values like trust and tolerance to mistakes. participation, shared learning and shared leader- The learning through ‘shared experiences’ is impor- ship). These permit the establishing of a monitoring tant, but the key question is knowledge creation and control on the organization’s strategic objectives. innovation. Other questions such as productivity and quality are simply the initial conditions The development of innovative capabilities required to compete. Another key question, in rela- from KM tion to strategic targets, is knowledge of the environ- ment through long-term agreements with customers The concept of innovation is understood at Irizar as and suppliers. ‘the introduction of new ideas or methods to the The most important achievements reached in way in which something is made or done’. The relation with KM as an innovation strategy at Irizar relation between innovation and KM can be sum- are the following: marized in a few words: ‘Innovation as a goal and KM as a method.’ This is supported by a series * Overall personnel satisfaction. Measured by a satisfaction at work questionnaire, which has of cultural values: given very satisfactory results.3 This is mainly * Shared vision: dreams, ideals, commitment, explained by the active participation of the belonging to the project, work in teams, mission workers in the decision-making process, the and values. * Knowledge ﬂows from shared experience, and 3 All workers complete this questionnaire at regular intervals, innovation from knowledge. surveying them on aspects relating to their level of satisfaction * Irizar is a project focused on innovation and with their work. The results are valued on a Likert scale of 1 knowledge creation. to 7 for the different items. Over the last few years, the average satisfaction index—calculated as the average of the values given * It is essential to encourage shared learning in self- to each question—has been higher than 4 points from 7. management teams. 168 F J. Forcadell and F Guadamillas . .
8. Knowledge and Process Management CASE STUDY * Autonomy for taking decisions and tolerance of Given the special nature of the working organi- the mistakes which application of new knowl- zation, the recruitment process is carried out in a edge involves. particularly careful way. The time taken for a new person entering the ﬁrm to become a member is around three years. In this period, the new work- Structure er passes through various stages called ‘profesio- At Irizar, a functional structure was replaced by an gramas’, during which he or she is evaluated in organization based around processes, in which the terms of various parameters referring to the work, work teams are a key part. Two key factors are such as activity, quality, initiative, motivation, found: reduction in the number of hierarchy levels ideas contribution, team working, availability and and organization of the work into teams. Irizar has multiskilling. New recruits who do not ﬁt into the a very ﬂexible organization, with a very low num- organization (one in ten people) leave within six ber of levels and an almost ﬂat organization chart. months. However, the number who leave the orga- There are no intermediate supervisors and all nization once incorporated into it is very small employees are integrated into work teams. Among (there were none at all in the last year) even these, the line-customer teams should be empha- when there are strong ﬁnancial incentives to do sized: these teams manage the greater part of the so. Although salary differentials exist, the workers production process phases, from supplies to pro- are aware that these are justiﬁed by varying levels cess engineering. of training. In general terms, the workers consider This fosters a reduction of differences in salaries themselves to be well paid and this subject does not in the organization and makes similar the involve- generate conﬂicts. ment of all workers in reaching strategic objectives. A principle which has been strongly adopted in There are no time controls at Irizar and supervision the ﬁrm’s culture is that technology is not a differ- is carried out within the teams in relation to their entiating resource, but people are. The necessary work (improvements obtained, meeting of time technologies can be purchased externally, but any limits and so on). Also, some changes have been competitor can also do this. Knowledge, on the made to the physical workplaces to facilitate other hand, is a unique resource. In the words of knowledge transmission and communication. the manager, ‘ . . . When people have greater shared experience, they create more knowledge. Resources run out, people don’t.’ Human resources A key principle for the company’s success, Leadership style assumed in its culture, is the importance of people and their participation to achieve the proposed The role of strategic leadership is essential for suc- strategic objectives. This principle is strongly inﬂu- cess. At Irizar, leaders promote the initial process, enced by the culture of the corporation to which the support ideas for improvement and give support ﬁrm belongs (the MCC), which encourages partici- and advice to teams. They also advance the process pation as a strong value. with a more participative leadership. More than Work teams constitute the system which articu- 20% of the employees have led and co-ordinated lates participation in the organization, in particular a team at some time. the line-customer teams. They are an essential tool Participation in the development of strategy is in explaining the goals reached. In Irizar, all the also high, in accordance with the co-operative prin- work is organized around work teams, which also ciples of the Corporation. There is a co-ordinator carry out support jobs related to the execution of for this and a minimum of three Assemblies per strategic goals, especially the line-customer teams. year, attended by all members, to ﬁx the strategic The teams are dynamic and have a close relation objectives. with their surroundings, mainly customers and suppliers. This structure motivates the workforce Corporate culture and depends on them. This makes the workers feel that their participation is important and that As described above, participation and trust are key they are involved in the company. Work teams values in the ﬁrm. The Assembly system for taking have contributed to the creation of a shared view decisions encourages participation in establishing of the ﬁrm’s problems and to a simple transmission goals and strategies for the ﬁrm. In addition, of knowledge. Because of their importance, the par- people’s active participation in knowledge creation ticipation of worker is massive, although there is no and transmission in working teams is an essential special reward. cultural value. At Irizar, participation is the A Knowledge Management Strategy Oriented to Innovation 169