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Information and Knowledge, Organizational
Information and Knowledge, Organizational Patrizia Porrini, Long Island University, Brookville, NY, USA William H Starbuck, University of Oregon, Eugene, OR, USA Ó 2015 Elsevier Ltd. All rights reserved.
Abstract Information is data that have meaning. In organizational contexts, meaning derives from sense-making frameworks that reflect organizations’ properties, including communication within and between organizations. Organizations transmit different messages internally than externally. Knowledge is an accumulation of information. Whereas information changes rapidly, knowledge changes incrementally. Distinctions between data, information, and knowledge are often ambiguous, as sense making depends on knowledge, which derives from information. Information and knowledge have grown very important in developed economies. Some developing countries have been investing in advanced education, so they have been replacing developed countries as suppliers of expertise. Explicit efforts to manage knowledge yielded some successes and many disappointments.
Properties of Information and Sense Making by Organizations Information is data that have meaning. Meaning arises as organizational sense-making frameworks interpret data. This sense making depends on what people already know as well as what data people can access. Organizational information derives its meaning from the sense-making frameworks that characterize specific organizations. Many organizational members need information in order to fulfill their responsibilities, so other members gather data and convert it into information. Organizations can acquire data by scanning environmental data sources, by ingesting new members, or through internal activities such as accounting and research. Many organizations may have explicit strategies to acquire information and to maintain and archive information and knowledge. Most organizations include personnel who specialize in data acquisition or information processing, and large organizations have departments that focus on such specialties. Organizations convert data into information by discussing the implications of data, by adding to databases, or by feeding data into decision processes. They process information by filtering it, integrating it, disseminating it internally, and interpreting its implications. Nearly all organizations incorporate rules and procedures that cause personnel to initiate actions or to halt actions when they receive information that satisfies certain conditions. Strangely, both managers and scholars paid little attention to the centrality of information in organizations’ activities until the last half of the twentieth century. Not until the 1950s did articles and books begin to portray managers and work groups as decision makers. In 1958, March and Simon pointed out that information sources and channels affect organizations’ perceptions, intraorganizational conflict, and goal coherence. They emphasized the human limitations that prevent people and organizations from acquiring and processing unlimited amounts of information. They also characterized people and organizations as using programs to process information, an analogy to computers.
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Weick (1969) offered the first comprehensive analysis of organizations as information-processing systems. Weick treated information processing as the essence of organized activity. Indeed, he argued that organizations are not static systems and that organizing is a never-ending process through which organizations continuously evolve. This evolution occurs primarily in ideas, perceptions, data, beliefs, and communications, and people are endlessly choosing whether to follow standardized routines. Whereas Weick described evolution within one organization, Nelson and Winter (1982) described processes of imitation and knowledge transmission that foster evolution by populations of business firms. Evolutionary ideas have subsequently guided studies of technological development and the diffusion of knowledge. Hodgkinson and Sparrow (2002) reviewed multitude psychological studies and sought to identify the key elements of ‘strategic competence,’ the ability of an organization to learn what it needs to learn and to remember what it ought to remember. They emphasized that humans have limited capacities for information processing, so they rely on simplified schemas to navigate complex, data-rich environments. These schemas incorporate biases and filters that can both facilitate action and foster errors. Beginning late in the twentieth century, many organizations turned away from meetings in which managers pool their judgments and develop perceptions collectively, and instead, these organizations are educating managers about actual properties of organizations and market environments. This trend has propelled the SAS Institute to more than three decades of double-digit growth. The institute’s product integrates an Executive Information System with data warehousing, data analysis, client-server computing, applications development, graphics, report writing, project management, and decision support (Taylor, 1996). The trend toward more objectivity and less subjectivity has involved data gathering. Data warehouses are massive databases that describe past transactions. Plummeting costs of data storage allow organizations to simply record everything, without having to decide in advance what information to
International Encyclopedia of the Social & Behavioral Sciences, 2nd edition, Volume 12
http://dx.doi.org/10.1016/B978-0-08-097086-8.73074-1
Information and Knowledge, Organizational
gather and retain, so earlier decisions about what to record do not limit later analyses. For example, a data-warehouse analysis enabled a large cosmetics company to avoid making a costly pricing blunder. This company buys data recorded by checkout scanners in chain stores, and it gets daily reports from sales personnel who record data from retail outlets and transmit them to headquarters nightly. When a major competitor introduced a new product, this cosmetics firm planned to make a defensive price reduction on its own high-priced product to keep the new competitor from taking too much business away from that product. However, analyses of scanner data revealed that the new product was not actually competing with the company’s high-priced product; it was competing with a product that had a much lower price. On the other hand, organizations may gather data or process information so poorly that they damage performance. For example, a rapidly growing health-care insurance firm processed receipts from clients much faster than it did claims from doctors and hospitals. As one result, this firm greatly overestimated its revenues, underestimated its costs, and made unrealistic forecasts about its profits . until the manager in charge of information processing reported that bill payments had fallen in arrears by nearly a year. Cohen and Levinthal (1990) proposed that organizations differ in absorptive capacity, which they defined as an ability to see the potential value of new information, to assimilate it, and to apply it. They pointed to ways in which research and development activities enhance absorptive capacity. Organizations acquire some of their sense-making frameworks from commercial markets. Publishers release many books every year that promise to provide better ways to analyze situations and better solutions for problematic situations. Organizations hire consultants who claim that they can improve organizations’ performance by analyzing economic environments, potential customers, competitors, employees’ capabilities, unexploited resources, and so forth. Gurus assert that their distinctive insights can transform mediocre performance into superb performance. However, the chances are remote of coming up with a genuinely effective new idea, and several studies have found that claims about the effectiveness of new sense-making frameworks have had weak support. Organizations have adopted new jargon but either have not attempted to make changes or have obtained poor results from changes they made. Probably because ineffectiveness saps demand, the markets for sense-making frameworks have been quite faddish (Calhoun et al., 2011). Yet, there have been long-run trends arising from workers’ higher educational levels, increasing availability of data, increasing technological complexity, and globalization.
Communication within Organizations and between Them Communications in organizations reflect the statuses and aspirations of organizations’ members. People in hierarchies talk upward and listen upward. They send more messages upward than downward, they pay more attention to messages from their supervisors than to messages from their
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subordinates, and they try harder to establish rapport with supervisors than with subordinates. People also bias their upward messages to enhance good news and to suppress bad news. However, the studies that support these patterns occurred before modern telecom technology came into widespread use. Newer technology has been flattening organizational hierarchies and facilitating lateral communication. Formal communications in organizations are systematically troublesome. Organizations bias their formal reports to win the support of employees, customers, investors, and the public, and the members of organizations use formal reports to promote their careers or other interests. As a result, formal reports contain many misrepresentations and biases, and organizations that take formal reports seriously are prone to run into trouble (Altheide and Johnson, 1980). Such issues raise the importance of informal communication. For instance, more profitable business firms pay less attention to formal reports and rely more strongly on informal communication, and more profitable firms base their analyses on information from more diverse sources. Organizations differ in terms of which communication modes are beneficial. Military organizations may be more effective when they restrict communication channels, whereas research institutes may benefit from open channels and random interactions. Informal communication such as work interrupted by phone calls, random chats on the way to meetings, unplanned meetings among employees, and unexpected interactions in halls can be just as important as formal communication to people’s willingness to take action. Message recipients assess information quality by properties such as timeliness, richness of detail, and verifiability through two-way conversations. Galbraith (1973) proposed an approach to organization design that focuses on the communication needed to coordinate tasks. He pointed out that behavioral programs can substitute for communication. If tasks can be adequately defined as programs and if personnel follow these programs, personnel can coordinate their actions with little communication. Programs are effective, however, only when organizations face familiar situations. If organizations continually encounter new situations, old programs become ineffective and personnel have to coordinate by communicating with each other. Galbraith pointed out that organizations can make communication less necessary by separating tasks into self-contained clusters and by lowering performance goals, thus leaving some resources underutilized. Organizations can also substitute direct horizontal communication across departmental boundaries for vertical communication up and down hierarchies; this moves decision making down to lower-level people who possess needed information rather than transporting information up to higher-level decision makers. Innovations in communication technology have had mixed effects. Until very recently, technology has compromised informal communication by failing to support facial expressions, voice inflections, and two-way interactions. The emerging availability of video support for communication alleviates these limitations. Moreover, technology has also been promoting more informal, ad hoc, and choice-oriented communication. In global organizations, technology has been facilitating more timely coordination and bringing lower-level employees closer to higher-level managers.
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Information and Knowledge, Organizational
Managers send quite different messages to internal audiences than to external audiences. For example, they may describe a current situation as an opportunity to internal audiences while characterizing it as threatening to external audiences. Competing organizations emit misleading information and they hide their planned actions.
Properties of Knowledge Knowledge is an accumulation of information. Whereas information comprises a flow that changes rapidly, knowledge is a stock that changes only incrementally. Some knowledge is explicit; other knowledge is tacit. Activities such as teaching, consulting, and practicing law draw on extensive knowledge without processing large amounts of current information. Other activities such as bookkeeping and data entry process much information without using much knowledge. However, distinctions between data, information, and knowledge are often difficult to draw, as the conversion of data into information depends on knowledge that derives from data and information. Since the meaning of knowledge arises in part from its structure, knowledge reflects the intentions of the people who compile or organize it, and different people often extract different knowledge from a shared flow of information. An organization’s knowledge is both more and less than the sum of the knowledge held by its individual members. Organizations can store knowledge in routines and social norms that they transmit to new members, so organizational knowledge can include the discoveries of former members who have departed. Organizations can also purchase databases and computer programs from other organizations. Nonaka (1994) argued that organizations can only share and organize explicit knowledge, whereas individuals often acquire knowledge tacitly and their tacit knowledge must become explicit before it can become organizational. However, Cook and Yanow (1993) described a production process in which workers transmitted techniques to each other without explicit communication. Nonaka and Takeuchi (1995) described knowledge development as spiral in which employees’ interactions produce repeated conversions of knowledge between its tacit and explicit forms. Unshared knowledge can be a source of power for individual members (Starbuck, 1992). Some knowledge produces strong bonds between specific members and external constituents, and these bonds remain the property of the individuals rather than their organizations. Scholars have debated the circumstances in which organizations should exploit current knowledge versus searching for new knowledge. However, such a choice seems to be more academic than practical, because people make unclear distinctions between use and search and they apply confusing labels to the transformations of information and knowledge. People who perform very similar tasks may describe their activities rather differently as applying old knowledge to new problems, as creating new knowledge, or as preserving knowledge (Starbuck, 1992). It can be difficult to distinguish between creating knowledge and applying it, because research may have direct applicability and efforts to apply knowledge may yield fundamentally new insights. Indeed, to create valid knowledge about systems as complex as a human body or an
economy, people have to apply their current knowledge. Similarly, applying and preserving knowledge complement each other. Merely storing knowledge does not preserve it for long periods, because people must relate it to their current problems and activities. Because all knowledge is imperfect and volatile, how knowledge evolves is more important than what knowledge exists. Fads and fashions serve as media for knowledge development and dissemination. They draw on aspirations, enthusiasm, fear, greed, mass media, social influence, and social pressure to encourage people to try new ideas. They make people aware that knowledge deteriorates, and they facilitate the discarding of obsolete ideas. The prevalence of many fads and fashions provides constant reminders that knowledge is transitory (Abrahamson and Fairchild, 1999). Change processes both produce knowledge and make it obsolete. People take new looks at what they have been doing, they develop new perceptions and make discoveries, some of which have lasting value. As a result, efforts to exploit new knowledge can improve organizational performance even if the new knowledge per se is not a significant improvement. People who are struggling with very difficult problems need visions of possible improvement to keep them going.
Changes in Information and Knowledge Studies of organizational knowledge began to appear in the 1990s and they began to attract attention around 2000. The main stimuli for rising attention have been changes in evolving activities in developed economies, geographic migrations of economic activities, and technological innovations. Computers not only facilitate the processing of information but also provide metaphors for information processing by both individual people and social systems. Thus, equipped with an appropriate sense-making framework, managers and scholars began to notice the importance of information processing. Information and knowledge have been growing in importance in developed economies and this trend seems likely to continue. The trend involves several components: (1) The developed economies are shifting away from manufacturing and toward services. For instance, in Europe, the telecommunications sector has been growing just under 14% annually, and the software and computing services sector has been growing by 15–20% annually. These changes have been occurring in part because agriculture and manufacturing have been migrating to developing societies. (2) The fastest-growing occupations have been clerical, professional, and technical workers, including managers and administrators. Professionalservice organizations such as health-care agencies, law firms, and public-accounting firms have become much more important, grown much larger, and expanded globally. Knowledge workers and information workers are replacing manual workers. For example, machine-tool operators are giving way to technicians who monitor computer-controlled machines. (3) Workers of all kinds are gaining more education and more information-processing skills. Education, especially the higher levels of education that became prevalent during the last half of the twentieth century, has meant that more workers have valuable knowledge and more of them want jobs that allow
Information and Knowledge, Organizational
them to display or create knowledge. In the United States in 1900, only 14% of adults had completed 12 years of schooling. By 1998, 83% of adults had completed 12 years of schooling. Organizations have also been providing more education for their employees. Only 40% of the Americans who are receiving education are doing so in schools, and 60% are receiving it in their employing organizations. (4) Business is investing heavily in equipment for information work. In the United States in 2011, information-related equipment accounted for over 50% of capital investment. (5) Knowledge-intense and informationintense organizations are employing millions of people (Starbuck, 1992). (6) Corporations are depending on communications and information processing to keep them coherent as they globalize. Transoceanic communications have been growing about 35% annually, with the faster growth being in the Pacific region. (7) Firms are forming alliances and coalitions that rely on shared databases and electronic communication instead of face-to-face meetings. Business-tobusiness commerce has grown very rapidly during the early years of the twenty-first century. Current thinking about strategic management emphasizes the usefulness of valuable resources that are rare and difficult to imitate (Barney, 1991). Both managerial and academic writings highlight the importance of knowledge to business success (Kogut and Zander, 1992; Nonaka and Takeuchi, 1995). Many organizations, not only the knowledge-intensive ones, seek to accumulate valuable and proprietary knowledge that they can exploit strategically. For instance, chemical and pharmaceutical companies employ skilled scientists and spend heavily on research aimed at developing patentable, proprietary products. Some manufacturing firms assert that cadres of experienced and highly trained managers comprise their key assets. The policies of national governments have been changing the global distributions of expertise (Lewin et al., 2009). China, India, Singapore, South Korea, and Taiwan have been building capacity for knowledge-intensive work. For instance, China multiplied doctoral education in science and engineering by a factor of six between 1995 and 2003. Global corporations have been taking advantage of these plentiful and lower-cost resources by shifting their product development activities to these countries and away from the United States and Europe. At the same time, other countries – such as Canada, Europe, Latin America, Mexico, the Philippines, and the United States – have not built their capacity for knowledge-intensive work and they have not attracted it.
Knowledge Management within Organizations Around 2000 managers and scholars began to pay much more attention to methods for managing organizational knowledge. Organizations have been trying to create knowledge management systems in order to store, create, transfer, and apply knowledge. Academic research in operations, information technology, economics, marketing, and management has proposed and analyzed ways to support the creation of new knowledge and to store and codify knowledge. Many firms have appointed learning officers who try to identify useful knowledge and to disseminate it to personnel who can use it. The University of Pennsylvania is offering a masters degree for
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people who aspire to become learning officers. Krogh et al. (2012) inferred that knowledge creation requires leadership that is distributed throughout an organization and that provides appropriate resources and structures. Studies have suggested that three knowledge-management methods may be yielding benefits. All three methods focus on communication. First, some organizations are attempting to foster the conversion of tacit knowledge to explicit knowledge by organizing employees into on line communities that identify and discuss shared issues. Second, some organizations are attempting to disseminate knowledge by creating multiple channels for knowledge transfer and creating organizational cultures that advocate sharing. Third, some organizations are attempting to overcome the reluctance to share knowledge by adopting incentive pay systems that take account of overall organizational performance. However, other knowledge-management methods face serious challenges that have caused them to disappoint their users (Calhoun et al., 2011). Several studies have documented knowledge-management efforts that proved unsuccessful. One central problem is the ambiguity surrounding knowledge and its value. What knowledge deserves keeping? Databases can easily grow so large that searching through them becomes very difficult. Indexing terms that appear useful today may make knowledge inaccessible tomorrow (Schultze and Leidner, 2002). A second central problem is that knowledge management techniques build on existing knowledge, so they are useful only as long as technological and social changes follow continuous, mainly linear trajectories. When technologies and societies make abrupt, nonlinear changes, knowledgemanagement methods are likely to impede organizations’ efforts to adapt. A third central problem, related to the second, is that organizations, especially large ones, change slowly, so they need time to exploit new knowledge. To try to take advantage of the knowledge that is benefiting other organizations today is likely to yield disappointment because competitors are already exploiting that knowledge, so latecomers can hope only to catch up. Although current trends generally persist for a few periods, short-term benefits are likely to be small benefits. To extract large benefits from knowledge, organizations need to predict what knowledge will turn out to be beneficial a few years in the future. Powerful organizations that collaborate with each other have advantages in predicting the medium-term future. Barnett et al. (2003) evaluated the accuracy of 3142 forecasts about US manufacturing industries that forecasters made during the 1970s. The studied forecasts concerned events that would not occur for at least 8 years into the future. The analysis found that forecasts about highly concentrated industries proved to be more accurate, especially forecasts about variables over which companies could exert stronger unilateral control. However, differences in the accuracy of forecasts were small in comparison with the wide ranges of errors that are typical of longerrange forecasts.
See also: Absorptive Capacity (of Organizations); Design and Form: Organizational; Forecasting; Innovation; Internationalization: Patterns in Business Firms; Learning: Organizational; Professions in Organizations; Research and
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Development in Organizations; Strategic Management; Strategizing; Technology and Organization.
Bibliography Abrahamson, E., Fairchild, G., 1999. Management fashion: lifecycles, triggers and collective learning processes. Administrative Science Quarterly 44, 708–740. Altheide, D.L., Johnson, J.M., 1980. Bureaucratic Propaganda. Allyn & Bacon, Boston, MA. Barnett, M.L., Starbuck, W.H., Pant, P.N., 2003. Which dreams come true? Endogeneity, industry structure, and forecasting accuracy. Industrial and Corporate Change 12 (4), 653–672. Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of Management 17, 99–120. Calhoun, M.A., Starbuck, W.H., Abrahamson, E., 2011. Fads, fashions and the fluidity of knowledge: Peter Senge’s The Learning Organization. In: Easterby-Smith, M., Lyles, M.A. (Eds.), Handbook of Organizational Learning and Knowledge Management, second ed. Wiley, Chichester, pp. 225–248. Cohen, W.M., Levinthal, D.A., 1990. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly 35, 128–152. Cook, S.D.N., Yanow, D., 1993. Culture and organizational learning. Journal of Management Inquiry 2, 373–390. Galbraith, J.R., 1973. Designing Complex Organizations. Addison Wesley Longman, Reading, MA.
Hodgkinson, G.P., Sparrow, P., 2002. The Competent Organization: A Psychological Analysis of the Strategic Management Process. Open University Press, Buckingham. Kogut, B., Zander, U., 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science 3, 383–397. Krogh, G., Von, Nonaka, I., Rechsteiner, L., 2012. Leadership in organizational knowledge creation: a review and framework. Journal of Management Studies 49, 240–277. Lewin, A.Y., Massini, S., Peeters, C., 2009. Why are companies offshoring innovation? The emerging global race for talent. Journal of International Business Studies 40, 901–925. March, J.G., Simon, H.A., 1958. Organizations. Wiley, Cambridge, Mass. Nelson, R.R., Winter, S.G., 1982. An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge, MA. Nonaka, I., 1994. A dynamic theory of organizational knowledge creation. Organization Science 5, 14–37. Nonaka, I., Takeuchi, H., 1995. The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation. Oxford University Press, Oxford. Schultze, U., Leidner, D., 2002. Studying knowledge management in information systems research: discourses and theoretical assumptions. MIS Quarterly 26 (3), 213–242. Starbuck, W.H., 1992. Learning by knowledge-intensive firms. Journal of Management Studies 29, 713–740. Taylor, P., May 1, 1996. Survey – FT IT: R&D Keeps Software at the Leading Edge. Financial Times. Weick, Karl E., 1969. The Social Psychology of Organizing, second ed. AddisonWesley, Reading, MA. in 1979.
Abstract Information is data that have meaning. In organizational contexts, meaning derives from sense-making frameworks that reflect organizations’ properties, including communication within and between organizations. Organizations transmit different messages internally than externally. Knowledge is an accumulation of information. Whereas information changes rapidly, knowledge changes incrementally. Distinctions between data, information, and knowledge are often ambiguous, as sense making depends on knowledge, which derives from information. Information and knowledge have grown very important in developed economies. Some developing countries have been investing in advanced education, so they have been replacing developed countries as suppliers of expertise. Explicit efforts to manage knowledge yielded some successes and many disappointments.
Properties of Information and Sense Making by Organizations Information is data that have meaning. Meaning arises as organizational sense-making frameworks interpret data. This sense making depends on what people already know as well as what data people can access. Organizational information derives its meaning from the sense-making frameworks that characterize specific organizations. Many organizational members need information in order to fulfill their responsibilities, so other members gather data and convert it into information. Organizations can acquire data by scanning environmental data sources, by ingesting new members, or through internal activities such as accounting and research. Many organizations may have explicit strategies to acquire information and to maintain and archive information and knowledge. Most organizations include personnel who specialize in data acquisition or information processing, and large organizations have departments that focus on such specialties. Organizations convert data into information by discussing the implications of data, by adding to databases, or by feeding data into decision processes. They process information by filtering it, integrating it, disseminating it internally, and interpreting its implications. Nearly all organizations incorporate rules and procedures that cause personnel to initiate actions or to halt actions when they receive information that satisfies certain conditions. Strangely, both managers and scholars paid little attention to the centrality of information in organizations’ activities until the last half of the twentieth century. Not until the 1950s did articles and books begin to portray managers and work groups as decision makers. In 1958, March and Simon pointed out that information sources and channels affect organizations’ perceptions, intraorganizational conflict, and goal coherence. They emphasized the human limitations that prevent people and organizations from acquiring and processing unlimited amounts of information. They also characterized people and organizations as using programs to process information, an analogy to computers.
72
Weick (1969) offered the first comprehensive analysis of organizations as information-processing systems. Weick treated information processing as the essence of organized activity. Indeed, he argued that organizations are not static systems and that organizing is a never-ending process through which organizations continuously evolve. This evolution occurs primarily in ideas, perceptions, data, beliefs, and communications, and people are endlessly choosing whether to follow standardized routines. Whereas Weick described evolution within one organization, Nelson and Winter (1982) described processes of imitation and knowledge transmission that foster evolution by populations of business firms. Evolutionary ideas have subsequently guided studies of technological development and the diffusion of knowledge. Hodgkinson and Sparrow (2002) reviewed multitude psychological studies and sought to identify the key elements of ‘strategic competence,’ the ability of an organization to learn what it needs to learn and to remember what it ought to remember. They emphasized that humans have limited capacities for information processing, so they rely on simplified schemas to navigate complex, data-rich environments. These schemas incorporate biases and filters that can both facilitate action and foster errors. Beginning late in the twentieth century, many organizations turned away from meetings in which managers pool their judgments and develop perceptions collectively, and instead, these organizations are educating managers about actual properties of organizations and market environments. This trend has propelled the SAS Institute to more than three decades of double-digit growth. The institute’s product integrates an Executive Information System with data warehousing, data analysis, client-server computing, applications development, graphics, report writing, project management, and decision support (Taylor, 1996). The trend toward more objectivity and less subjectivity has involved data gathering. Data warehouses are massive databases that describe past transactions. Plummeting costs of data storage allow organizations to simply record everything, without having to decide in advance what information to
International Encyclopedia of the Social & Behavioral Sciences, 2nd edition, Volume 12
http://dx.doi.org/10.1016/B978-0-08-097086-8.73074-1
Information and Knowledge, Organizational
gather and retain, so earlier decisions about what to record do not limit later analyses. For example, a data-warehouse analysis enabled a large cosmetics company to avoid making a costly pricing blunder. This company buys data recorded by checkout scanners in chain stores, and it gets daily reports from sales personnel who record data from retail outlets and transmit them to headquarters nightly. When a major competitor introduced a new product, this cosmetics firm planned to make a defensive price reduction on its own high-priced product to keep the new competitor from taking too much business away from that product. However, analyses of scanner data revealed that the new product was not actually competing with the company’s high-priced product; it was competing with a product that had a much lower price. On the other hand, organizations may gather data or process information so poorly that they damage performance. For example, a rapidly growing health-care insurance firm processed receipts from clients much faster than it did claims from doctors and hospitals. As one result, this firm greatly overestimated its revenues, underestimated its costs, and made unrealistic forecasts about its profits . until the manager in charge of information processing reported that bill payments had fallen in arrears by nearly a year. Cohen and Levinthal (1990) proposed that organizations differ in absorptive capacity, which they defined as an ability to see the potential value of new information, to assimilate it, and to apply it. They pointed to ways in which research and development activities enhance absorptive capacity. Organizations acquire some of their sense-making frameworks from commercial markets. Publishers release many books every year that promise to provide better ways to analyze situations and better solutions for problematic situations. Organizations hire consultants who claim that they can improve organizations’ performance by analyzing economic environments, potential customers, competitors, employees’ capabilities, unexploited resources, and so forth. Gurus assert that their distinctive insights can transform mediocre performance into superb performance. However, the chances are remote of coming up with a genuinely effective new idea, and several studies have found that claims about the effectiveness of new sense-making frameworks have had weak support. Organizations have adopted new jargon but either have not attempted to make changes or have obtained poor results from changes they made. Probably because ineffectiveness saps demand, the markets for sense-making frameworks have been quite faddish (Calhoun et al., 2011). Yet, there have been long-run trends arising from workers’ higher educational levels, increasing availability of data, increasing technological complexity, and globalization.
Communication within Organizations and between Them Communications in organizations reflect the statuses and aspirations of organizations’ members. People in hierarchies talk upward and listen upward. They send more messages upward than downward, they pay more attention to messages from their supervisors than to messages from their
73
subordinates, and they try harder to establish rapport with supervisors than with subordinates. People also bias their upward messages to enhance good news and to suppress bad news. However, the studies that support these patterns occurred before modern telecom technology came into widespread use. Newer technology has been flattening organizational hierarchies and facilitating lateral communication. Formal communications in organizations are systematically troublesome. Organizations bias their formal reports to win the support of employees, customers, investors, and the public, and the members of organizations use formal reports to promote their careers or other interests. As a result, formal reports contain many misrepresentations and biases, and organizations that take formal reports seriously are prone to run into trouble (Altheide and Johnson, 1980). Such issues raise the importance of informal communication. For instance, more profitable business firms pay less attention to formal reports and rely more strongly on informal communication, and more profitable firms base their analyses on information from more diverse sources. Organizations differ in terms of which communication modes are beneficial. Military organizations may be more effective when they restrict communication channels, whereas research institutes may benefit from open channels and random interactions. Informal communication such as work interrupted by phone calls, random chats on the way to meetings, unplanned meetings among employees, and unexpected interactions in halls can be just as important as formal communication to people’s willingness to take action. Message recipients assess information quality by properties such as timeliness, richness of detail, and verifiability through two-way conversations. Galbraith (1973) proposed an approach to organization design that focuses on the communication needed to coordinate tasks. He pointed out that behavioral programs can substitute for communication. If tasks can be adequately defined as programs and if personnel follow these programs, personnel can coordinate their actions with little communication. Programs are effective, however, only when organizations face familiar situations. If organizations continually encounter new situations, old programs become ineffective and personnel have to coordinate by communicating with each other. Galbraith pointed out that organizations can make communication less necessary by separating tasks into self-contained clusters and by lowering performance goals, thus leaving some resources underutilized. Organizations can also substitute direct horizontal communication across departmental boundaries for vertical communication up and down hierarchies; this moves decision making down to lower-level people who possess needed information rather than transporting information up to higher-level decision makers. Innovations in communication technology have had mixed effects. Until very recently, technology has compromised informal communication by failing to support facial expressions, voice inflections, and two-way interactions. The emerging availability of video support for communication alleviates these limitations. Moreover, technology has also been promoting more informal, ad hoc, and choice-oriented communication. In global organizations, technology has been facilitating more timely coordination and bringing lower-level employees closer to higher-level managers.
74
Information and Knowledge, Organizational
Managers send quite different messages to internal audiences than to external audiences. For example, they may describe a current situation as an opportunity to internal audiences while characterizing it as threatening to external audiences. Competing organizations emit misleading information and they hide their planned actions.
Properties of Knowledge Knowledge is an accumulation of information. Whereas information comprises a flow that changes rapidly, knowledge is a stock that changes only incrementally. Some knowledge is explicit; other knowledge is tacit. Activities such as teaching, consulting, and practicing law draw on extensive knowledge without processing large amounts of current information. Other activities such as bookkeeping and data entry process much information without using much knowledge. However, distinctions between data, information, and knowledge are often difficult to draw, as the conversion of data into information depends on knowledge that derives from data and information. Since the meaning of knowledge arises in part from its structure, knowledge reflects the intentions of the people who compile or organize it, and different people often extract different knowledge from a shared flow of information. An organization’s knowledge is both more and less than the sum of the knowledge held by its individual members. Organizations can store knowledge in routines and social norms that they transmit to new members, so organizational knowledge can include the discoveries of former members who have departed. Organizations can also purchase databases and computer programs from other organizations. Nonaka (1994) argued that organizations can only share and organize explicit knowledge, whereas individuals often acquire knowledge tacitly and their tacit knowledge must become explicit before it can become organizational. However, Cook and Yanow (1993) described a production process in which workers transmitted techniques to each other without explicit communication. Nonaka and Takeuchi (1995) described knowledge development as spiral in which employees’ interactions produce repeated conversions of knowledge between its tacit and explicit forms. Unshared knowledge can be a source of power for individual members (Starbuck, 1992). Some knowledge produces strong bonds between specific members and external constituents, and these bonds remain the property of the individuals rather than their organizations. Scholars have debated the circumstances in which organizations should exploit current knowledge versus searching for new knowledge. However, such a choice seems to be more academic than practical, because people make unclear distinctions between use and search and they apply confusing labels to the transformations of information and knowledge. People who perform very similar tasks may describe their activities rather differently as applying old knowledge to new problems, as creating new knowledge, or as preserving knowledge (Starbuck, 1992). It can be difficult to distinguish between creating knowledge and applying it, because research may have direct applicability and efforts to apply knowledge may yield fundamentally new insights. Indeed, to create valid knowledge about systems as complex as a human body or an
economy, people have to apply their current knowledge. Similarly, applying and preserving knowledge complement each other. Merely storing knowledge does not preserve it for long periods, because people must relate it to their current problems and activities. Because all knowledge is imperfect and volatile, how knowledge evolves is more important than what knowledge exists. Fads and fashions serve as media for knowledge development and dissemination. They draw on aspirations, enthusiasm, fear, greed, mass media, social influence, and social pressure to encourage people to try new ideas. They make people aware that knowledge deteriorates, and they facilitate the discarding of obsolete ideas. The prevalence of many fads and fashions provides constant reminders that knowledge is transitory (Abrahamson and Fairchild, 1999). Change processes both produce knowledge and make it obsolete. People take new looks at what they have been doing, they develop new perceptions and make discoveries, some of which have lasting value. As a result, efforts to exploit new knowledge can improve organizational performance even if the new knowledge per se is not a significant improvement. People who are struggling with very difficult problems need visions of possible improvement to keep them going.
Changes in Information and Knowledge Studies of organizational knowledge began to appear in the 1990s and they began to attract attention around 2000. The main stimuli for rising attention have been changes in evolving activities in developed economies, geographic migrations of economic activities, and technological innovations. Computers not only facilitate the processing of information but also provide metaphors for information processing by both individual people and social systems. Thus, equipped with an appropriate sense-making framework, managers and scholars began to notice the importance of information processing. Information and knowledge have been growing in importance in developed economies and this trend seems likely to continue. The trend involves several components: (1) The developed economies are shifting away from manufacturing and toward services. For instance, in Europe, the telecommunications sector has been growing just under 14% annually, and the software and computing services sector has been growing by 15–20% annually. These changes have been occurring in part because agriculture and manufacturing have been migrating to developing societies. (2) The fastest-growing occupations have been clerical, professional, and technical workers, including managers and administrators. Professionalservice organizations such as health-care agencies, law firms, and public-accounting firms have become much more important, grown much larger, and expanded globally. Knowledge workers and information workers are replacing manual workers. For example, machine-tool operators are giving way to technicians who monitor computer-controlled machines. (3) Workers of all kinds are gaining more education and more information-processing skills. Education, especially the higher levels of education that became prevalent during the last half of the twentieth century, has meant that more workers have valuable knowledge and more of them want jobs that allow
Information and Knowledge, Organizational
them to display or create knowledge. In the United States in 1900, only 14% of adults had completed 12 years of schooling. By 1998, 83% of adults had completed 12 years of schooling. Organizations have also been providing more education for their employees. Only 40% of the Americans who are receiving education are doing so in schools, and 60% are receiving it in their employing organizations. (4) Business is investing heavily in equipment for information work. In the United States in 2011, information-related equipment accounted for over 50% of capital investment. (5) Knowledge-intense and informationintense organizations are employing millions of people (Starbuck, 1992). (6) Corporations are depending on communications and information processing to keep them coherent as they globalize. Transoceanic communications have been growing about 35% annually, with the faster growth being in the Pacific region. (7) Firms are forming alliances and coalitions that rely on shared databases and electronic communication instead of face-to-face meetings. Business-tobusiness commerce has grown very rapidly during the early years of the twenty-first century. Current thinking about strategic management emphasizes the usefulness of valuable resources that are rare and difficult to imitate (Barney, 1991). Both managerial and academic writings highlight the importance of knowledge to business success (Kogut and Zander, 1992; Nonaka and Takeuchi, 1995). Many organizations, not only the knowledge-intensive ones, seek to accumulate valuable and proprietary knowledge that they can exploit strategically. For instance, chemical and pharmaceutical companies employ skilled scientists and spend heavily on research aimed at developing patentable, proprietary products. Some manufacturing firms assert that cadres of experienced and highly trained managers comprise their key assets. The policies of national governments have been changing the global distributions of expertise (Lewin et al., 2009). China, India, Singapore, South Korea, and Taiwan have been building capacity for knowledge-intensive work. For instance, China multiplied doctoral education in science and engineering by a factor of six between 1995 and 2003. Global corporations have been taking advantage of these plentiful and lower-cost resources by shifting their product development activities to these countries and away from the United States and Europe. At the same time, other countries – such as Canada, Europe, Latin America, Mexico, the Philippines, and the United States – have not built their capacity for knowledge-intensive work and they have not attracted it.
Knowledge Management within Organizations Around 2000 managers and scholars began to pay much more attention to methods for managing organizational knowledge. Organizations have been trying to create knowledge management systems in order to store, create, transfer, and apply knowledge. Academic research in operations, information technology, economics, marketing, and management has proposed and analyzed ways to support the creation of new knowledge and to store and codify knowledge. Many firms have appointed learning officers who try to identify useful knowledge and to disseminate it to personnel who can use it. The University of Pennsylvania is offering a masters degree for
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people who aspire to become learning officers. Krogh et al. (2012) inferred that knowledge creation requires leadership that is distributed throughout an organization and that provides appropriate resources and structures. Studies have suggested that three knowledge-management methods may be yielding benefits. All three methods focus on communication. First, some organizations are attempting to foster the conversion of tacit knowledge to explicit knowledge by organizing employees into on line communities that identify and discuss shared issues. Second, some organizations are attempting to disseminate knowledge by creating multiple channels for knowledge transfer and creating organizational cultures that advocate sharing. Third, some organizations are attempting to overcome the reluctance to share knowledge by adopting incentive pay systems that take account of overall organizational performance. However, other knowledge-management methods face serious challenges that have caused them to disappoint their users (Calhoun et al., 2011). Several studies have documented knowledge-management efforts that proved unsuccessful. One central problem is the ambiguity surrounding knowledge and its value. What knowledge deserves keeping? Databases can easily grow so large that searching through them becomes very difficult. Indexing terms that appear useful today may make knowledge inaccessible tomorrow (Schultze and Leidner, 2002). A second central problem is that knowledge management techniques build on existing knowledge, so they are useful only as long as technological and social changes follow continuous, mainly linear trajectories. When technologies and societies make abrupt, nonlinear changes, knowledgemanagement methods are likely to impede organizations’ efforts to adapt. A third central problem, related to the second, is that organizations, especially large ones, change slowly, so they need time to exploit new knowledge. To try to take advantage of the knowledge that is benefiting other organizations today is likely to yield disappointment because competitors are already exploiting that knowledge, so latecomers can hope only to catch up. Although current trends generally persist for a few periods, short-term benefits are likely to be small benefits. To extract large benefits from knowledge, organizations need to predict what knowledge will turn out to be beneficial a few years in the future. Powerful organizations that collaborate with each other have advantages in predicting the medium-term future. Barnett et al. (2003) evaluated the accuracy of 3142 forecasts about US manufacturing industries that forecasters made during the 1970s. The studied forecasts concerned events that would not occur for at least 8 years into the future. The analysis found that forecasts about highly concentrated industries proved to be more accurate, especially forecasts about variables over which companies could exert stronger unilateral control. However, differences in the accuracy of forecasts were small in comparison with the wide ranges of errors that are typical of longerrange forecasts.
See also: Absorptive Capacity (of Organizations); Design and Form: Organizational; Forecasting; Innovation; Internationalization: Patterns in Business Firms; Learning: Organizational; Professions in Organizations; Research and
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Development in Organizations; Strategic Management; Strategizing; Technology and Organization.
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