A particular problem for KIFs is the retention of their key personnel. While this is a standard problem for all companies, Alvesson (2000) highlights that this issue becomes amplified for a KIF as a result of two consequences. First of all ‘personnel’ is the most significant and sometimes the only significant resource for a KIF, especially since capital and equipment are normally of less importance. Second, an established KIF may risk loosing groups of employees, who go on to establish a company of their own. This is extremely threatening for employers, posing the loss of not only its personnel but also its clients.
In addition, apart from personnel, a vital resource for many KIFs is the organisation-specific knowledge of an informal nature, which is often embedded, in the organisational culture and style of working. While this may be difficult for a competitor to imitate from a distance, an employee leaving an organisation and joining another poses an opportunity for their new companies to exploit the organisation-specific tacit knowledge of the former employing company (Alvesson 2000). Furthermore, where specific knowledge remains solely with the individual there is the worry that the organisation will not be able to continue appropriating this knowledge if the employee leaves the company; the individual will take the value with them. This can have a detrimental effect on a firm’s competitive advantage, since it may not be able to exploit this knowledge and it may come in to the hands of a competitor.
Stinchcombe and Heimer (1988) outline further issues of employee retention in the way that software firm’s relations with computer manufacturers repeatedly expose their experts to job offers. To sell their services to clients, software firms have to publicise the talents of their key experts, and this publicity creates job opportunities for experts making retention a challenge for the employing firm. In addition Starbuck (1992), notes that experts at the forefront of social and technological change usually have many job opportunities. Therefore where a firm has to continuously replace experts solely to update expertise, this not only weakens loyalty to the firm but also adds variance to organisational culture.
While the issues of employee retention and loyalty are interlinked, Alvesson (2000) highlights the issue of employee loyalty and the potential conflict in much knowledge-intensive work as being between belongingness and identification with the employer or the client. This tends to be a particular problem for many KIFs who deal with complex problems involving lasting and multifaceted interaction with clients.
There is evidence of this being common in computer consultancy work where the consultant performs their task at the client’s workplace on a daily basis over a long period of time. Here the risk maybe that a consultant begins to establish a rapport with the client. This highlights the issue of there being a greater level of loyalty between the consultant and the client instead of the consultant and its employer. For instance a consultant may be inclined to reduce costs more than would be optimal from a top management perspective out of some sense of loyalty to the client (Alvesson, 2000). Echoing this, Deetz (1995) mentions a group of professionals who underreported their actual hours of working time to management, thus reducing income to the company out of some loyalty to the client. However, similar to the managerial tensions of balancing autonomy with control, KIFs face a similar dilemma with loyalty. A high level of loyalty can also pose as a problem. For example, older employees may not be perceived as very efficient and profitable as well as a number of junior consultants, therefore it may be desirable to lose some of these staff so that an optimal ratio between seniors and juniors is maintained (Maister, 1982, 1993).
KIFs can also have difficulty with growth. Starbuck (1992) points out that while they are prone to grow by using experts more efficiently by adding support staff, or increasing products and services by extracting the existing in-house expertise the end result is that KIFs tend to grow by becoming less specialised and where support staff greatly out number experts, the firm can claim expertise in too may domains thus losing their “halos of expertise and their credibility” (Starbuck, 1992).
However, where a KIF has very few topical foci, products or services, this can also be dangerous. KIFs in this position must not only perform superbly in these areas but also cannot afford any customer dissatisfaction (Starbuck, 1992). Further risks associated among KIFs with few products or services is that if demand in the market changes, this may have the effect of rendering its competences obsolete, leaving diversification as a crucial strategic direction. The expertise of a KIF also loses profitability as it become more prevalent, thus Stata (1989), comments on KIFs that “the ability to learn faster than competitors may be the only truly sustainable competitive advantage”.
Another challenge for managers within KIF’s is to establish the appropriate climate and procedures to encourage both organisational learning and knowledge sharing. Stewart (1991) argues that the greatest challenge for the manager of intellectual capital is to create an organisation that can share knowledge. Factors such competition among professionals, the tendency of each professional or expert to regard itself as an elite, along with the difficulty in assigning credit for contributions can all inhibit knowledge sharing. Where procedures to encourage organisational learning and knowledge sharing are not established, there is the risk of employees behaving in a manner similar to old paradigms, which taught ‘knowledge is power’ implicitly leading people to hoard knowledge, as the more you know what others don’t, the more valuable you are to an organisation.
III. How might these management challenges and problems be tackled?
Performance management systems in KIFs can help to stimulate knowledge sharing. In their study of a KIF, Robertson and Hammersley (2000), highlight how management used performance revenue targets (PRTs) for employees to promote knowledge sharing within the organisation.
In order to achieve PRTs, consultants worked on a small number of projects at any one time commanding a percentage of the overall fee from each one. Consultants were expected to achieve PRTs consistently over time and were ranked annually on their achievement of both PRTs and their contribution to overall sales. Percentage increments were added to the consultant’s salary based on their annual ranking for their achievement of PRTs. These measures worked not only as a catalyst for employees to share their knowledge, but also created an internal market for expertise as consultants had to promote their potential contribution to projects as widely as possible. This was to ensure that they could be included in projects and secure project revenue, which contributed, to monthly PRTs, which serves as a major determinant of performance increments.
Echoing this, Teece (2000), notes that performance pay can ensure that employees work for an organisation rather than against it. Providing clear performance-based metrics facilitates high autonomy and the potential for congruence. In the case of project- based teams, it encourages people to work together and share knowledge.
Similarly, knowledge sharing and organisational learning are being recognised as one dimension of an employee’s performance. Hansen et al (1999), cite Ernst & Young as a company that rewards and recognises formally and informally employees who utilise and contribute to the corporate knowledge base. They also use this is a basis for performance reviews. The effect of recognising employee’s contributions reinforces their desire to share. Similarly, McKinsey & Co realised that employees naturally like to compete with fellow workers. Seeing this they pursued a strategy of promoting people who were knowledge builders and made it a conscious part of their evaluation process. By making heroes of them, employees began to learn they got ahead in their careers if they focused on knowledge building.
Alvesson (2000) highlights that a crucial part of management in KIFs is to manage loyalty in order to avoid the unwanted exit (leaving) of employees. Avoiding unwanted exit could involve creating obstacles for defection. Some companies have rules preventing the use of ex-employees as consultants for some time after they have left, preventing them from exploiting the use of commercially sensitive information they may have about their ex-employer. This rule may also prevent some people from leaving, as the ex-employer may be the most significant potential client. Contracts may also be used to prevent employees taking clients with them when leaving.
Management of exit may also involve telling negative stories about people leaving in disloyal moves, showing the immorality of the betrayers and the harm done to the firm (Alvesson, 2000). In contrast, where a KIF wishes to get rid of older employees, Alvesson (1995) highlights a case where a KIF launched the slogan ‘Happy exit’ as a signal to older employees that it was a good thing to consider other career possibilities when one starts to get older. However, the risk here is that if people do not accept the idea of changing jobs when getting older, than this may decrease commitment to the firm.
The challenge to management is to avoid over managing these types of workers. This requires a corporate culture that allows knowledge to flow freely, which means breaking down hierarchies and scrapping rules that stifle new ideas. One way of achieving this is by inverting organisation structures using former line hierarchy as a support mechanism. This type of organisational structure allows experts a high level of autonomy, and is also a more efficient way of utilising their resources, as they do not become bogged down with bureaucracy and administrative duties. Granting employees a high level of autonomy also contributes to “redundancy”, allowing project team members to engage in activities that outwardly appear to be unconnected with the task in hand (Robertson and Hammersley, 2000). Adding to this redundancy is considered to be fundamental to the process of innovation (Nonaka and Takeuchi, 1998).
Where tensions exist between managing experts and line managers, Sveiby (1997) states that a “distinction should be made between leadership of the organisation and leadership of experts.” He relates this to the tandem leadership systems that evolved in the publishing and performing arts, whereby a director or conductor is appointed to oversee the artistic side of the business, while a producer, manager or publisher looks after the administrative staff. This allows for creative freedom with control.
IV. Conclusion
To conclude, many of the management challenges and problems in KIFs can be related to people management issues. This may stem as a result of not only the uniqueness and scarcity of these workers in the labour market, but also the nature of the environments that KIFs operate in, which are characterised by volatility and ambiguity. Therefore, owing to their uniqueness and the considerable levels of autonomy required by these workers, it follows that traditional paradigms of people management are not suitable, and a different approach needs to be taken when managing these workers.
Managing KIFs requires a delicate balancing act on the part of management. The goal is to manage the tensions that exist within KIFS, such as freedom and control, finding a suitable balance between them and not leaning overtly to one way.
V. References
Starbuck, W.H. (1992) ‘Learning by knowledge-intensive firms’, Journal of Management Studies, Vol 29, No6, pg.713-740
Winch, G. and E. Schneider (1993) ‘Managing the knowledge-based organisation: the case of architectural practise’, Journal of Management Studies, Vol 30, No6, pg.923-937
Alvesson, M., (2000) ‘Social identity and the problem of loyalty in knowledge-intensive companies’, Journal of Management Studies, Vol 37, No8, pg.1101-1121
Robertson, M. and Swan, J. (2003) ‘Control – What Control?’ Culture and Ambiguity Within a Knowledge Intensive Firm, Journal of Management Studies, Vol 40, No 4, pg 831-856
Robertson, M. and Hammersley, G.O. (2000) ‘Knowledge management practises within a knowledge-intensive firm: the significance of the people management dimension’, Journal of European Industrial Training, Vol 24, Nos 2,3,4, pg.241
Hansen, M.T, Nohria, N. and Tierney, T. (1999) ‘What’s your strategy for managing knowledge?’, Harvard Business Review, Vol 77, No2 pg 106-116
Stata, R. (1989) ‘Organisational learning – the key to management innovation’, Sloan Management Review, Vol 30, pg 63-74
Little, S., Quintas, P., and Ray,T (2002) Managing Knowledge: An Essential Reader, Sage Publications: London
Nonaka, I., and Teece, D., (2001) Managing Industrial Knowledge: Creation, Transfer and Utilisation, Sage publications, 2001
Word count: 2193
