Knowledge Management’s
Social Dimension: Lessons
From Nucor Steel
Dillion Rath
Bahjat Abuhadba
Jessica Smith
Overview
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Social Ecology
Information Technology
Management Agenda
The task of accumulating knowledge
Social Ecology
• Is the social environment within which people operate
• Very crucial requirement for effective knowledge
management
• Defines the types of people who will fit into the
organization
• Shapes individuals freedom to pursue actions without
prior approval
• Affects how people interact with others inside and
outside of the organization
Information Technology
• Are the programs that companies use to connect
the entire number of employees together
• Plays a central role in knowledge management
• Is the only viable mechanism that efficiently
connects large numbers of people together
whether they are local or geographically
dispensed
Management Agenda
• Is the process of keeping all information up to
date and correct
• Imperative to keep the company moving in a
forward motion
The task of accumulating knowledge
• Can be broken down into three subtasks:
• Knowledge creation (learning by doing)
• Knowledge acquisition (internalizing external
knowledge)
• Knowledge retention (minimizing the loss of
proprietary knowledge
The Social Ecology of a Knowledge
Machine: The Case of Nucor
• Innovative and Fastest growing steel company
for the past 30 years
• Compound sales growth of 17%
• 1968 to 1998 profit margins were above industry
medians, and average annual return to
shareholders exceeded 20%
• Largest steel producers in the United States 1999
Knowledge Creation
• Superior Human Capital
– 1,200 applicants applied for 8 job openings in Darlington,
South Carolina
• High-powered Incentives
– 1990’s payouts for production employees averaged 80% to
150% of base wages
• High degree of empowerment
– “Good managers make bad decisions”
• Avg. - 50% good, 50% bad
• Good – 60% good, 40% better
How Nucor Accumulates
Knowledge
Knowledge Acquisition
• First company to adopt minimill technology
• 1987 - First to make flat-rolled steel in a
minimill and to commercialize thin-slab casting
Knowledge Retention
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No Layoff Policy
Reduced the workweek
“Share the pain”
Response to recessions strengthen the spirit of
trust and respect within the company
• Lowest turnover rate of any company in its
industry
How Nucor Mobilizes and
Shares Knowledge
Identifying Opportunities to Share
Knowledge
• Made performance data available to the
company
• Allowed individual units and corporate
headquarters to uncover opportunities to share
best practices
Encouraging Individuals to Share
Knowledge
• Share best practices proactively
• Group based Incentive
• Example:
– Bonus depended not on their own performance, but
on the performance of their entire 25-40 person
work group
Building Effective and Efficient
Transmission Channels
• IT used to transfer and share unstructured and
codified knowledge
– Intraplant Knowledge Transfers
• 250 to 300 people in plant
• Dinner for 25 to 100 employees each year
Building Effective and Efficient
Transmission Channels
• Interplant Knowledge Transfers
– Detailed performance data regularly distributed to
plant managers
– General managers met 3 times a year to review each
facility’s performance and to develop formal plans
for the transfer of best practices
– Managers, supervisors, and machine operators
periodically visited each others mills
Building Effective and Efficient
Transmission Channels
– Selectively reassigned people from one plant to
another on the basis of their expertise
• Recycled process innovation form existing
plants to start-up plants
• Built and rebuilt one or more mills each year
– Existing process knowledge was recycled into new
plant-design and construction
Building Effective and Efficient
Transmission Channels
– Natural Incentive because building plant for
themselves
– Knowledge of the underlying process technology
embedded in the plant design was carried over in the
workers’ mind from the construction phase to the
operations phase
– Plant start-up expertise emerged as a plant
competency
Convincing Individuals to Accept
and Use the Knowledge they Receive
• “Not invented here”
– Relying on their own efforts at knowledge creation
could be costly
– Makes unit’s performance visible to other units in
the company
Knowledge Machine
Company Divisions:
1. Creation and acquisition of
knowledge
2. Sharing of knowledge
• Nucor Corporation is a pioneer
knowledge company.
Maximizing knowledge Creation and
Acquisitions:
The above can achieved through:
1.Set Stretch Goals: Set goals that cannot be
reached without innovation. Welch, “ If you do
know how to get there it is not stretch target”.
Basically, CEO of Yokogawa, “breaking out of
the conventional”.
Maximizing knowledge Creation and
Acquisitions:
2. Provide High Powered Incentives:
The higher the rewards the more likely employees will
actively participate in the stretch-goal process.
3. Cultivate empowerment and provide “slack” level
resources: In an innovative environment; limiting
times of specific activities such as research and testing
will stifle innovation. Example of innovation fostering,
3M requires at 15% of work time be done without
supervision.
Maximizing knowledge Creation and
Acquisitions:
4. Equip every unit with a well defined
sandbox to “Play”: Allow a determined
percentage or revenue from the company for the
sole purpose of experimentation. This will allow
innovation yet under a controlled risk-assessing
environment.
Maximizing knowledge Creation and
Acquisitions:
5.Cultivate a market for ideas within the
company: Implementing reliable idea-screening
mechanisms. No single individual should have
the monopoly of wisdom thinking in the
company.
Maximizing Knowledge sharing:
1.Ban knowledge hoarding and turn
knowledge givers into heroes: Decide which
company product belongs to the whole business
and which ones belong to single units. Rewards
heroes who facilitate their adoption by other
units of the business.
Maximizing Knowledge sharing:
2. Rely on group based incentives:
This helps direct efforts toward the general benefit
rather than individual gain. It also exposes the
purposely under-performers and takes corrective
measures towards them. EX: Nucor, Group cash
incentives, and Cisco, stock options (25.11)
Approx Value.
Maximizing Knowledge sharing:
3. Invest in Codification: Create a standard
operating procedure. This will allow consistency
of service and improve operations. Example,
Marriot.
4. Matching knowledge mechanisms to the
type of knowledge: Each piece of knowledge
needs a different way to transmit it and share.
Recreating Competitive Advantage
• Intellectual capital along with the continuous
desire for mobilizing new technology is the key
toward staying on the completive edge.
• In a global economy with opened competition;
companies must adapt effective and sufficient
knowledge development techniques to stay
competitive.
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Knowledge Management