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Strategic knowledge creation: the making of organizational futures through the complex interplay of knowledge processes

Strategic knowledge creation: the making of organizational futures through the complex interplay of knowledge processes. 
 

Stig Johannessen 

Department of Industrial Economics and Technology Management,

Norwegian University of Science and Technology (NTNU), 7491 Trondheim, Norway.                                 

E-mail: Stigj@iot.ntnu.no ,Tel: +47-73596826, Fax: +47-73593565 
 
 
 
 
 

Abstract

Strategic knowledge creation is a process of creating potential for organizational futures. Complex responsive process theory suggests that organizational futures are created in the complex interplay between humans responding and relating to both themselves and other people. This relating is through conversations and bodily gestures creating unpredictable outcomes from the emergence and self-organization of a diversity of conversational themes, amongst them strategic themes. Attention to the quality of relations of everyday life in the organization potentially stimulates dynamics, creativeness and diversity in conversational themes. This is important for the emergent construction of organizational futures.

     This thinking moves away from the established systems thinking that has dominated the areas of strategic management and knowledge management. Organizational life is understood as a relational phenomenon that escapes explanations based on the rational analysis of systems thinking. This also has methodological implications for how to conduct research into the strategy process. The researcher cannot make objective observations, but must seek to make sense of his or her experience as a participant in the process, making inquiries and using theoretical constructions to document the life from the inside of the process. In this paper an example of such research is given.      
 
 
 

  1. knowledge AND COMPLEXITY  

1.1 The dominating knowledge view

 

In recent years there have been considerable interest given to the idea that learning and knowledge is key factors of success for companies in the so-called “knowledge economy”. Theories and concepts that have evolved into a dominating position in business life include organizational learning (Argyris & Schön, 1978), the learning organization (Senge, 1990), knowledge management (Nonaka and Takeuchi, 1995), human and social capital (Becker, 1975; Burt, 1992). The focus on core competence  (Prahalad and Hamel, 1990) and value chains (Porter, 1980; 1985) has rapidly gained popularity as globalization and the technological development has changed the competitive landscapes of the economy. The importance of cooperation includes firms forming networks (Håkansson, 1982; Nishigushi, 1994). The value chain and network concepts have merged into new concepts like the netchain (Lazzarini et al., 2001). The idea here is that suppliers, focal companies, and customers, together with professional service providers that coordinate and execute the flow of products, information and finances, make up a super-structure of networks and chains interwoven into each other.  For the single organization it is a question of finding a place in the super-structure and convincing other organizations that it will represent an added value in the network-chain. The creation and utilization of new knowledge is in this context perhaps the most important activity for all organizations.  

     However, mainstream views on knowledge have been occupied with knowledge creation being described in a systems perspective (Stacey, 2001). An alternative view has recently been developed by Stacey et al. (2000). This position promotes a “complex responsive process” perspective towards organizations and knowledge creation.  This perspective builds on analogues from complexity theories together with ideas from certain directions of sociology and psychology where the focus is on the importance of human relating. Before going into more detail on this, I will scroll briefly through the “classical” complexity theories.    
 
 
 
 

1.2  Complexity theories

There are several theories that contribute to what we may call the complexity perspective. Chaos theory describes dynamical systems that have sensitive dependence on initial parameters. The system is drawn towards a particular pattern of behaviour where the limits of the pattern are deterministic, although the behaviour within the limits is unpredictable in the long term. The system's behaviour is stuck in the grip of what is called a strange attractor, without any possibilities of moving towards another attractor. This phenomenon is observed for weather systems (Lorentz, 1963), and can be described by mathematical algorithms and computer simulations.

     Of great implication are the findings of Nobel Laureate in chemistry Ilya Prigogine. He shows that non-linear interactions can lead to self-organizing order through fluctuations when a system is far-from-equilibrium, in a state that is termed bounded instability or popularly “the edge of chaos”. Here structures (called dissipative structures) are formed out of disorder (Prigogine, 1997). Another basic discovery is that time is an irreversible creation of our own existence and consciousness (Prigogine, 1983). Thus, instability and irreversibility are fundamental characteristics of nature, and the basis for spontaneous self-organizing emergence of order, see Figure 1.     
 
 

                            Order 
 
 
 
 
 
 
 

       Self-organization 
 
 

                                                          Disorder and instability 

Figure 1  The Prigoginian concept of order creation through dissipative structures.  
 

Another approach to understanding complex behaviour is to formulate systemic behaviour in agent-based terms. Casti (1997) argues that computers makes it possible to use artificial worlds to test out theories about social and behavioural systems. The systems are named complex adaptive systems (CAS) and the characteristics of a CAS involve a medium-sized number of individual intelligent agents with the ability to adapt and with local information only. The simulations include supermarkets, urban traffic networks, prehistoric village formations, national economies, global ecosystems, business organizations and stock markets.

     However, there are severe problems attached to the interpretations of these various theoretical approaches for human organizations. To apply chaos theory for the explanation of human behaviour in organizational settings implies that human activity is explained in terms of algorithms that moves in limited patterns, something it obviously is not. The computer simulations made of complex adaptive systems are controlled by the programmer, which also is narrowing as a description of human behaviour. Likewise, dissipative structure theory shows us how physical and chemical systems can behave, but are not humans more than physical and chemical systems? 

1.3   Complex responsive processes

The question is: can we build an organizational theory founded in the social sciences and complexity theory that would lead us to a better understanding of human organizations? Stacey (2000) suggests that complexity thinking based on Prigogine´s conclusions together with relationship psychology drawn from social constructionism, inter-subjectivity in psychoanalysis and group analytic theory, can offer new understanding. This thinking views the human organization as processes that express themselves through responses in relation to the environment, either self-made or as an answer to external stimuli. Actions that form an unpredictable pattern emerge in this complex interplay between people. These patterns cannot be broken down for explanatory analysis. The understanding of change in the organization can be achieved through a reflection on the reality created in each and everyone together with others in conversations inside and outside of the organization. The reflective conversations will provide the members of the organizations with the chance of expressing themselves. This interaction of people relating to themselves and to other people might provide a potential of creating a new evolutionary pattern constituted from new knowledge. As creation of new knowledge can be seen as creation of new order, the concept of dissipative structure formation is useful as an analogue for explaining knowledge creation, see Figure 2. In this way organizations create the ability to change, to be creative and to learn. They could thus find new opportunities that can make them attractive to customers. In the language of complexity, they will be able to find new strange attractors. From this perspective the management of knowledge as a resource that can be subjected to analysis and control, and that is available to the organizations as a predictable business asset, is an extreme oversimplification. New knowledge cannot be captured, and is produced spontaneously as an emergent self-organizing phenomenon of people relating to themselves and to others in the living present.     

      
 
 
 
 
 
 
 
 
 

Self –organization 
 
 

                                                                               Conversations

                                               Interactions                   Diversity

 

Figure 2   Knowledge creation as an analogue to dissipative structure formation.

2.     Strategic knowledge creation

 

2.1   The dominating strategy view

Focusing on strategy formation in organizations, it is appropriate at this point to look at the dominant strategy approach in recent years. This has been named the “dynamical capabilities approach” by Hooley et al. (1998). An important part of this is the focus on the content of strategies in order to determine what position the company should take in the market place (Porter, 1980). The strategy formation process therefore takes an analytical approach. The object is to analyse quantitative data on the industry and the competition in order to select the optimal generic strategy. In addition to position in the market place, the dynamics capabilities approach stresses the fit between changing environments and changes in activities and capabilities (Porter, 1996). Thus, it underpins the popular concepts of supply chains and strategic partnerships (Christopher, 1998). Reve (1990) attempts to build a theory of strategic management on the combination of strategic positioning and transaction cost theory. The major premise of transaction costs theory is that the properties of the transaction determine the governance structure (Williamson, 1985). In a situation of low asset specificity and uncertainty and frequent transactions, markets govern the transactions. Medium levels of asset specificity suggest bilateral relations to be the efficient governance structure, and high asset specificity and uncertainty lead transactions to be internalised. Assets of high specificity represent the strategic core of a firm. The cultivation of the strategic core involves besides actually defining or creating it, the protection and continuous development of it as environmental requirements change. This development is towards an optimal set of internal and external contracts that define the ideal strategic position of the firm under given external conditions. Hence, the best strategic positioning should be possible to obtain, and the only way to achieve this is by treating the organization and the business environment as a system that can be broken up into bits and pieces for analysis. Given the focus on historical facts and the time interval between analysis and implementation of strategic changes, the analysis is obviously seen as being valid for a long time, meaning that the system of business organizations is assumed to behave in a predictable and rational way.       

2.2   The emergence of an alternative view  

It is not difficult to identify systems in today’s organizational reality. We have a lot of technological systems, accounting systems and plans meant to structure action.

However, when humans interact and act in organizations, it is difficult to capture or predict this by thinking of it as a system. In a complex responsive process view, human actions are understood as processes of relating (Stacey, 2000). Human interaction is creating power relations that form mutual constraints and enforce control in the relations. This control is put into effect by conversations, bodily gestures or in other communicative ways made understandable to people. The outcome of this is unpredictable, and the activity could produce ideas and strategic knowledge that could lead to successful organizational futures, or it could end up in less successful developments or even disaster and annihilation of the organization.    

     In this way, the strategic knowledge creation and the creation of organizational futures are taking place in the complex responsive processes when humans are relating to themselves and to other people.  

2.3   Strategy as conversation 

There is no such thing as a pre-given reality or future and there is no way of establishing in forehand what is the right or wrong way of doing things. Hence, there is something peculiar about the way managers are expected to have prophetic abilities and have visions of the future that is more reliable than any other person's. In a world where patterns are emerging unpredictably, it is futile to see strategy as an analytic planning concept that sets direction into the future based on historical facts. Strategies and strategic knowledge are created in action. So why should there be a division between formulation and implementation of strategies?

     Turning again to complex responsive process theory, Stacey (2000) calls for a refocusing of attention in the organization. Focus is on self-organizing processes, emergent results and on different qualities like the quality of participation, the quality of conversational life, on containing anxiety, on diversity and on unpredictability and paradox. The quality of the relations creates the internal capacity for change and new patterns. Strategic management is seen as a process with active participation in the conversations around important emergent themes. In this strategic process the focus is on securing a free conversation in the organization.

     Every organization has its official and unofficial conversational life with “legal” and “illegal” themes of conversation. Shaw (1997) points to the importance of the uncontrollable underground of the organization – the shadow organization. Instead of seeing this activity as a problem to be overcome, as in traditional organizational development work (Kotter and Schlesinger, 1979), one would from a complexity perspective recognize the shadow activity as being of primary importance for the emergence of new organizational realities.  However, it is impossible to tell what is the shadow organization and what is not. The themes of conversation are constituted in relations that can shift and vary with respect to legitimacy, quality and potential for novelty. Thus, the legitimate and the illegitimate themes surface everywhere and all the time in the organization.  

    The illegitimate themes are very important in the sense that they are paradoxically both supportive and subversive for the power relations. The more the “illegal” and subversive themes are suppressed, the more the official world is a pretend-world, where everyone agrees with what the management says, and the management always talk about themes they think are proper in relation to their owners. In the knowledge economy, themes concerning empowerment, distributed intelligence and flattening of the corporate hierarchy has become popular in the rhetoric of many leaders. However, such talk is of limited value if the conversations inside the organization are all about control, financial results and increasing the market shares. If the conversational themes are restrained into repetitive patterns, the ability to find new attractors - new opportunities for the company - is limited.

     If room is made for the potentially subversive themes that threaten the power structure, there could be friction in the conversations between these themes and the ones that are supporting the existing power relations. This could produce a more creative conversation with varying themes and the potential of reaching new attractors - new ideas and possibilities that can be pursued and perhaps will lead to advantages for the company. If the strategy process itself is this free conversation, then strategy is a dynamic, collective activity that can stimulate the awareness of change and uncertainty in the whole organization. The actions and solutions will be different in different companies, but they will be actions and solutions that make sense for people and hence the ability of the organization for change will increase. Thus, the focus of the organization is just as much on creating cooperative advantage as competitive advantage. Cooperative advantage can be defined in this context as a better quality of relations than most other organizations.

      In mainstream management thinking, planning activities are important as an illusion of control and as a way of solving organizational paradoxes. Understood from a complex responsive process view, there is a need to move away from this position and instead accept paradoxes as facts of life that need not be solved. With an open-ended future, the solving of paradoxes restrains the organization. Managers should be involved in promoting diversity in conversational themes so that conversations are not stuck in repetitive patterns. This means a “joggling” of paradoxes in order to foster potential for new strategic knowledge.  

2.4   Scenario thinking revised 

The experience of change and uncertainty in many companies inflict leaders to look for tools that can help them reduce this uncertainty. It has become popular to make scenario studies because they are meant to say something about the future and thereby reduce uncertainty (deGeus, 1999). The people conducting the studies are supposed to give input to create both likely and unlikely scenarios concerning developments over some time interval, often more than five years. The results are used as basis for management decisions. There is clearly a belief that the scenarios will tell the management something about the future.       

      In a complexity perspective the practice of scenario thinking gets a different flavour.  Complexity thinking put emphasis on the process of self-organization, that is, people create relations spontaneously. Hence, there should be no time frame or norms on the activities that may come up concerning conversations about the future. The way the work is done, how it is documented and communicated to others in the company is something that must be allowed to emerge. It could be imagined that most employees, even in a big company, in one way or another, could involve themselves in conversational activities about how the future of the organization is created in the living present. The notion of prediction must, however, be rejected as outcome of the activities conducted, and the understanding should be that the activities are about building commitment, creativity and making sense of the organization and the member’s experiences in it.        

     An engagement regarding the development and life of the company can grow out of this, a stimulation of creativity and innovation that can foster ideas and suggestions on how the company’s reality is shaping within transformational patterns. The possible scenarios created are not alternatives for clear decisions, but represent themes in ongoing conversations in the organization. Conversations are in themselves a basis for strategies and directions to emerge, enabling the company to direct itself in the rugged landscapes modern firms must move in.

     An alternative scenario activity could aim at bringing insight and understanding that the future is constructed in a transformative process and that the company continuously reemerges inside this change process. Basic assumptions and ideas on how and why things are done the way they are today, should be explored and challenged.

     All employees can experience their commitment, creativity and understanding of the company’s situation in some way is reflected in the actions taking place. This whole pattern of activities can be seen as a different way of conducting the strategy process. The development and the implementation of strategies are integrated in the same process, which potentially should create greater support for the strategic activities in the organization.        
 

3.  Inside the strategy process  

    1.    Methodological considerations

As pointed out earlier, in the dominating understanding of strategy making, it is assumed that human economic activities bear the characteristics of a system (Porter, 1985). To describe something as a system means that this phenomena can be confined into some comprehensible unit, which then can be subjected to analysis. A system can either be constructed from its parts, as in a machine, or, it can be an organic unit, as in a living organism. In both cases, the system is thought to be something one can isolate and analyse in order to understand its way of functioning. It is assumed that the system is stable and predictable for such a time period that an analysis can be made, and that the analysis is valid in the future.

     However, this view seems to be lacking proper explanatory power for many of the change phenomena that are experienced in present organizational realities (Johannessen, 2002). Working from a complex responsive process perspective is to take a different methodological position based on the idea that the future is under perpetual construction (Stacey, 2001). In this transformative process view, human behaviour and actions in organizations are a relational phenomena. The interaction of people with each other and the environment creates responding processes by which reality is transformed for both themselves and their environment. These processes cannot be confined into a “box” that can be analysed and understood by an objective observer. Human realities escape the systems terms, because of their unpredictable and never-ending transformative character.

    This places the researcher as a participant in the organizational life (Heron, 1996). His role is not that of the objective observer but that of the participative inquirer. The documentation of experiences is through narratives and stories, but also through abstract descriptions and explanations about participative processes (Griffin, 2001; Strathfield, 2001; Shaw, 2002).

     In my own work of trying to understand the strategy process, this methodological shift has consequences.  In the organization(s) where I do research, I engage in conversations with both managers and ordinary employees, and sometimes owners. The conversations have a form and take place in various ways. Examples are management-meetings, one-to-one semi-structured conversations, informal non-prepared conversations over lunch or in a coffee-brake, telephone conversations and e-mail communication. In some of these meetings I take notes, in others I do not. The first meetings are often of a more formal character. It can have the form of a semi-structured interview conducted in order for me to get updated information in addition to getting to know people. When I later spend time in the organization, the meetings and conversations have a more informal character. After the conversations have taken place, I write down my impressions of the meetings and try to make sense of them by the aid of a complexity perspective, as the next sections is an example of.

  

3.2    The strategy process

I have participated in the strategy process of an international manufacturing company. They had decided to formalize the strategy process in such a way that it would involve employees to a large degree. The idea was that the strategy process should move in one-year cycles where certain discussions and activities were supposed to take place. At the start of one cycle the top management should provide certain guidelines or conversational themes. The management group then involve themselves in discussions related to these overall themes. Managers involve their departments in similar discussions, and at some point they make decisions that is reported to the top management. The official strategy is then formulated, and the work on action plans, budgets and the like, starts at the department levels. The top management by the end of the cycle approve these plans. And so the implementation can start at the beginning of the following year. At the same time, a new cycle in the strategy process starts. 

     This kind of formalized strategy process is supposed to be a combination of open-ended discussions, planning and analysis. In this sense it is fair to say that the process represent a conventional view on strategy making.

3.3  The strategy meetings

 

I was invited to a managers meeting at the factory to present my idea of a research project into the strategy process. In preparing for this I attempted to control my own insecurity regarding the meeting by building a fantasy on how I wanted it to proceed.  This mental preparation actually made me feel quite confident when I entered the meeting. At the same time I was eager to keep this feeling by controlling the proceeding of the meeting. I really wanted to show them what I had been working on so that my fantasy (that of course included they being excited about my research proposal) about the proceeding of the meeting should be fulfilled.

     The conversations in the meeting developed in a quite different manner. When the meeting turned out more informal than my fantasy had suggested, I was struck by my eagerness to bring forward themes I had prepared for, and I felt dissatisfied with the fact that I did not get the opportunity to bring forward all the good arguments I had prepared. My own attempts to reduce uncertainty by setting the agenda, controlling the conversational themes, actually led to more uncertainty about whether I would gain the trust of the managers.

     By focusing on themes that I had prepared for, I tried to capture the conversations inside an “attractor” that I had set up in advance in order to predict the outcome of the meeting. In the arguments brought forward by others, I was looking for opportunities to link my responses to the predicted themes. And whatever the claims by others, I tried to give interpretations and answers that fitted these preordained themes. Thus, the conversations were probably restrained, reducing the chances of the emergence of new creative themes.    

My experience of the first meeting was that I wanted to build trust between the managers and myself, but in order to achieve this I also felt I had to control the meeting situation to a certain degree. Reflecting upon this afterwards, I expect many leaders and employees experience the same kind of paradox in trying to get attention or act according to their power in the organization. However, it is important to accept that the emergence of new creative themes happen all the time under paradoxical conditions. These paradoxes are, for instance, the mentioned paradox of control and trust, the paradox of criticism and recognition, the paradox of loyalty and disloyalty, and many others.      

     Some time after this, at a strategy meeting for the factory department leaders, the participants were informed that the top management wanted new inputs. The meeting proceeded to present the existing functional strategies, and to discuss these.

     First focus is on strategies for development of organization and employees. The company wants to be special, and different from its competitors. A new organizational matrix structure is discussed. No one understands the model, so lets wait for the top management to explain it.

     Now to production: A question is raised whether logistics and value chain management perhaps is the most important core competence of the company. They are well known for their use of logistics to create competitive advantage, so I suggest that they think about doing something completely different with their company.  What about becoming a coordinator of supply chains, specializing in supply chain management as a service to other companies? I must admit I had not thought much about this before I came to the meeting, so from my position the suggestion was an attempt to say: What could it mean for the company to be good in performing supply chain management?  Is the only meaning of this that our own supply chain could be run more efficient, or can it change the whole business idea (and hence strategy) of the company?

     To my surprise, there was agreement that the idea is good. Others have in fact suggested this before, and there is interest in discussing this further. 

     Speaking of doing other things, one says. What about producing and selling components to our competitors?  The discussion now starts on this possibility, but ends without any clear conclusions.   

     Afterwards one of the managers told me that the idea of selling supply chain management was attractive to several of the managers, but they thought it would have such great consequences for the factory workers, that most of them was holding back such a discussion.

     My impression is that this meeting contained control and creativity, predictability and unpredictability at the same time. It was both a structured and an open-ended discussion. The managers went through the existing strategy and were in that sense bounded and taken in a certain direction with their discussion. But at the same time, the discussion revealed a critical attitude towards the content of the existing strategy, and suggestions were surfaced that were potentially undermining and threatening to the very existence of the organization in its present form.

     A couple of months later the top management had invited company managers for a two day meeting on strategy. The present results for the company were not very uplifting. Strong leads were put on the discussion. The owners wanted quick profit and sales had to climb. The whole discussion was on how to improve sales. What markets to pull out of, and which one to focus on.  No particular focus on core competence, logistics and production. My understanding of this is that power now was being unleashed in order to focus attention on short-term results and tactics. This restrained the potential creation of new strategic knowledge, because themes were restricted and no time was spent for undermining themes to be tested against the themes supportive for the present power relations.   

     Back on the factory two weeks later, the section leaders gathered for a meeting. This meeting now was restricted in conversational themes, given the strong input from the top management. The focus should be on: Products, core competence, customer satisfaction, employees, productivity, quality and flexibility.     

     Working in groups, the section leaders discussed the various themes. One group talk about numbers and engage in a discussion that is very task oriented. What is core competence, one asks.  No one wants to take on this discussion. One states that core competence is the company’s focus area, and hence something for the top management to decide upon.

     Another group discuss customer satisfaction and finds that this depends on how we see reality. The group is reluctant to discuss organizational problems. They think about the new matrix organization that has been announced, but not very well understood, and they wait for action from the top management. They seem confused and no one attempts to lead on in such a discussion. This is a similar response to the organizational issues as in the factory managers meeting.  

     A third group discuss the problem of flexibility in production. They engage in a discussion about principles of production. Are we doing things right? Are we doing the right things? This discussion is the closest that any of the groups comes to bringing up “illegal” themes of strategic importance. There are no clear suggestions or conclusions.  

     What I make of this is that the tightening of conversational themes by the top management has created anxiety about what to do. The conversations seem stuck and tend to focus on solving small problems in the daily work. There is an atmosphere of control, and focus on short-term improvement. No one publicly questions the situation and context that they find themselves in.

     Even when there was supposed to be open discussion, people were constrained by the themes that they expected was relevant to discuss. From a complex responsive process perspective, the nature of the conversational themes is important. The themes can get stuck in attractor-like repetitive patterns. Power relations among people participating in the conversations influence these patterns. If the patterns are not broken, there is a great chance that nothing really new will come out of the discussions.

     There is a lack of in depth pursuing of potentially radical ideas, and also the process itself (the cycle) is conservative by nature. It serves as a process of conservation of established themes of conversation, and conservation of the established view of the organizational future as a linear extrapolation of the present situation.  In addition, it serves as an arena of control by the management.   

     My experience so far has led me to the impression that the strategy process is about much more than strategy. It is about the relational phenomena of frustration, anxiety, hope, control, uncertainty, power that each and everyone feel. In a formally conducted strategy process, supposedly focusing on the future, it is surprising to see how much of the operational, day-to-day problems that is present in the conversations.    

     There is both predictability and unpredictability in the process. The restrained conversations are predictable within certain limits or attractors that are set up, while the unpredictability lies in the tendency for new themes to emerge. Instability is fostered by anxiety towards discussing new themes with other managers and employees. Introducing ”safe” themes, like short- term sales and market shares or increased productivity, have a stabilizing effect on this. 

  1. CONCLUSION

The newly proposed theory of complex responsive processes challenges the dominating view on knowledge creation. This has implications to how we understand the formation of strategies and organizational futures. Strategies emerge from the diversity of conversational themes self-organizing and producing new ideas and insights. This complex process of human relating departs from systems thinking in its explanations and raises the question whether it is at all possible to gain scientific knowledge on human relations by using systems terms. An alternative way of doing research is by participative inquiry, where the researcher participates in the life of the organization. Although this resembles established methods like ethnographical

methods and action research, there is a difference in that those methods are based on respectively observation and intervention. As a participative inquirer the researcher is no more observer or intervener than anybody else in the organization. The researcher is documenting his or her work by the aid of narratives, stories and abstract theoretical constructs. The prime focus is to make sense of impressions and experience in organizational life. This paper has provided an example of such participative research into the strategy process of a particular firm.       

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