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Preparing
for Conversations with Valdis Krebs
Networks: Smart
People, Stupid Organizations
Valdis Krebs
Founder,
orgnet.com
Cleveland, Ohio, U.S.
Introduction
Valdis Krebs is
a management consultant and the developer of InFlow, a software
based, organization network analysis methodology that maps and
measures knowledge exchange, information flow, communities of
practice, networks of alliances and other networks within and
between organizations. Through eye-opening graphics and revealing
measures, this technique allows managers to see what was once
invisible.
Clients such as
IBM, TRW, Raytheon, Aventis, Cardinal Health, CapitalOne, Centers
for Disease Control [CDC], Lucent Technologies, Hiram Walker,
Shell, ACENet, CWRU-REI, Rubbermaid, Sempra Energy, Deloitte
Touche Tohmatsu, Jaakko Poyry, PricewaterhouseCoopers, Booz-Allen
& Hamilton, KPMG, University of Michigan Business School
and many others use his software and services to map and measure
networks, flows, and relationships in organizations, communities,
and other complex human systems.
His work in organizational
network analysis has been covered in major media including Discover
Magazine, Business 2.0, New York Times, Wall Street Journal,
USA Today, CNN, Entrepreneur, First Monday, Optimize Magazine,
Training, PC, ZDNet, O'Reilly Network, Knowledge Management,
Across the Board, Business Week, HR Executive, Personnel Journal,
Forbes, FORTUNE, MSNBC.com, HR.com, Release 1.0, and several
major newspapers around the world.
Valdis has undergraduate
degrees in mathematics and computer science, and a graduate degree
in organizational behavior/human resources and has studied applied
artificial intelligence. He has given invited talks on organizational
networks at UCLA Anderson School, Michigan State University School
of Labor and Industrial Relations, Weatherhead School of Management
- Case Western Reserve University, Cleveland State University,
University of Michigan Business School, Kellogg School of Management
- Northwestern University and the University of Latvia.
Valdis has consulted
and researched organizational networks since 1988. He works from
his office in Cleveland, Ohio with a network of colleagues in
the USA, Canada and Europe.
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Discussion
Topics
- How do your networks
make you smarter? How do you use your networks daily? This conversation
will be from each person's own experience -- no theories or ontologies
or beliefs!
- Stupid organizations.
How do organizations with many smart people with access to all
sorts of data, information and knowledge make stupid decisions?
What do networks have to do with organizational stupidity?
- Is it who you know
that determines what you know . . . and what actions you will
take?
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Managing
the Connected Organization
Copyright
permission granted AOK by Valdis Krebs
If knowledge is
power, what is connected knowledge?
The knowledge economy
operates on the complexities of connections. All individuals,
communities, systems, and other business assets are massively
interconnected in an evolving economic ecosystem. In the connected
economy, each network actor (individual, team, or organization)
is embedded in a larger economic web that affects each participant
and, in return, is influenced by that participant. In such a
connected system we can no longer focus on the performance of
individual actors -- we must manage connected assets.
Efforts at making
sense of this new world are beginning to reveal some basic principles
at work in the complex adaptive systems we call our organizations.
"There is a
central difference between the old and new economies: the old
industrial economy was driven by economies of scale; the new
information economy is driven by the economics of networks..."
Information Rules by Carl Shapiro, Hal R. Varian
Recent research
on productivity and effectiveness in the knowledge economy provides
insight into what works in the connected workplace. Certain patterns
of connections appear around both effective individuals and successful
teams when performing knowledge work. We have also discovered
where to add 'missing links' that change a poor economic network
into a better conduit for information, influence, and knowledge.
- Improving
Individual Effectiveness
Is it who you know
(social capital) or what you know (human capital) that leads
to success? This has been often debated with good arguments on
both sides. Most managers today side with the "what you
know" crowd.
In the late 1980s
management researchers were starting to notice that some managers
were better, than other managers, at accomplishing objectives
through relationships. John Kotter, of the Harvard business school,
discovered that effective general managers spend more than 80%
of their time interacting with others. Other management scholars
were also starting to see the importance of conversations and
relationships in managerial work. Individual mastery was no longer
the key -- it was human capital and social capital working together
to create productivity and innovation. Ron Burt, of the University
of Chicago, a leading researcher on the social capital of managers
has found, through numerous studies, that certain patterns of
connections that individuals build with others brings them higher
pay, earlier promotions, greater influence, better ideas and
overall greater career success. Burt believes that good social
capital provides a much higher return on investment in human
capital -- the two work together.
Arent Greve, a researcher
at the Norwegian School of Economics, is also interested in the
contribution of human and social capital on organizational outcomes
and individual productivity. He studied project managers in a
knowledge-based services company in Europe. He viewed human capital
as the knowledge and skills attained by the individual over his/her
career. Social capital was defined as a property of personal
networks -- the ability to reach others, inside and outside the
organization, for information, advice and problem-solving. He
found something very interesting. As expected, better human capital
and better social capital both had a positive effect on productivity,
but unexpected was the effect of better social capital was noticeably
stronger! Project managers with better personal networks were
more productive -- they were better able to coordinate tasks
and find the knowledge necessary to accomplish the goals of their
projects.
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- Improving
Team Effectiveness
Meanwhile in a high-tech
firm in Silicon Valley, Morten Hansen, also of Harvard, had a
similar research agenda. The key difference was that Hansen was
interested in the productivity and effectiveness of teams. Hansen
found that teams who could easily reach other teams and access
the knowledge they needed were more successful than teams with
poor network connections. Both Greve and Hansen found that the
ability to reach a diverse set of others in the network through
very few links was the key to success.
Hansen took his
research one step further. He examined the difference between
those teams that had many direct connections to other project
teams and those that used both direct and indirect ties to reach
the resources they needed. Hansen found that those teams that
used only direct ties to seek and find information were soon
overwhelmed with too many connections. The teams that used the
power of the indirect tie, while at the same time limiting their
direct ties, were more successful -- they did not spend as much
time interacting with the network to get what they needed. A
sparse radial network in which your direct ties are connected
to others that you are not connected to, has been shown, by Burt
and others, to provide many benefits and opportunities.
Hansen discovered
one other insight that is key for knowledge management. A diverse
radial network with many unique indirect ties is good for monitoring
what is happening in the organization and for discovering pockets
of knowledge and expertise. Yet, this type of network may not
be useful for transferring knowledge. Although indirect ties
help you cast a wide net and see far into the organization (and
beyond it), these ties are not always efficient for transferring
and utilizing knowledge once it is discovered. It depends on
what type of knowledge needs to be transferred. Explicit knowledge,
which can be easily codified, can be transferred indirectly through
various technologies such as email, FTP, WWW or documents through
interoffice mail. For example, sharing a presentation done previously
for the same customer. Complex tacit knowledge knowledge requires
direct interaction and sharing of experiences between two or
more individuals. To transfer tacit knowledge a direct tie with
the knowledge source(s) must be established. Trust and understanding
must be built -- this is similar to apprenticeship. Explicit
knowledge travels over computer networks, but tacit knowledge
is shared and learned via human networks.
- Improving
Information Flow
Network ties are
distributed unevenly in organizations. People that work together
form networks together -- clusters emerge around established
work relationships. Engineers working on Project X form a cluster,
those working on Project Y form a cluster, and those working
on Project Z form a cluster. Everyone knows everyone else within
the local cluster, and yet only a few individuals have boundary
spanning ties to other clusters. Strong, frequent, ties are usually
found within clusters, while weaker, less frequent ties are found
between clusters.
Clusters of concentrated
connections appear throughout an organization and throughout
industries. Some clusters have many ties outside the group, while
other clusters have only a few. Poor connections between clusters
result in very long path lengths throughout the organization.
In such a network it is easy to access those in your cluster
but not those in other clusters. This often results in distant
clusters not knowing what information and knowledge is available
elsewhere in the organization.
Often the knowledge
you need is in clusters other than your own. Networks have a
horizon beyond which it is difficult to see what is happening.
Research by Noah Friedkin, at the University of California at
Santa Barbara, has shown that this horizon of observability is
usually two steps in a human network -- your direct contacts
and their direct contacts. Around three steps out, things are
real fuzzy -- you do not have a good idea of what is happening
in that part of the network. Beyond three steps, you are blind
to what is happening in the rest of the network -- except for
obvious 'public' information known by everyone. So the popular
idea of it being a 'small world' because we are all separated
by an average of 6 degrees is misleading. Six degrees is actually
a very large world -- one, two and three degrees is a small world!
It is usually those separated by two degrees where the 'small
world' discoveries happen -- it is here where you discover the
person next to you on the plane is related to a friend from your
university days.
In a network of
very long path lengths between clusters, your ability to find
the knowledge or information you need is very constrained. If
the knowledge that you seek is not within your network horizon[1
or 2 steps], then you assume it is not available in your organization
and you reinvent it, or pay for it on the outside. Exasperated
with this network horizon in his organization, a former CEO of
HP once lamented, "If we only knew what we know".
The natural response
in many organizations is to throw technology at the problem.
A very poor, yet quite common, solution is to mine knowledge
from employees, codify it, and store it in a knowledge database.
Many large consulting firms tried this approach in the 1990s
with usually poor results. They found that people were not always
willing to make public their best knowledge and that codifying
tacit knowledge was like trying to nail jelly to the wall.
Why not use the
power of the network itself to create a solution? Improve the
organizational network and then use technology to help people
communicate across wide spans of the human network. At first
blush, improving an organization-wide network may seem an overwhelming
task. Where do we start? First, look at the networks and communities
of practice/interest/knowledge that have organized around a specific
topic, product, service or customer. Usually the whole organization
does not have to be included in the problem space. Second, map
out the network nodes and their connections (who goes to whom
for expertise/knowledge/advice on X?). From this network map,
you can see the various clusters and how they are connected.
Figure 1 below is a network map of project teams. A line connecting
two teams indicates a two-way information flow or exchange of
knowledge.
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Figure 1
This network of
17 project teams all work on subassemblies to a larger product.
The teams are composed of mostly engineers, technicians, and
project managers. All teams have less than ten members. Three
clusters are evident in the network of project teams.
Before we look at
how to improve the overall connectivity of the network, let's
digress back to social capital. Which team has the best social
capital in this network? Which team can access all of the knowledge
and resources in the network quicker than the others? (Hint:
this network is drawn to reveal the answer.)
Common wisdom in
networks is "the more connections, the better." This
is not always true. What is always true is "the better connections,
the better." Better connections are those that provide you
access to nodes that you currently do not have access to. Although
Team F and Team Q have many connections each and have excellent
local access (to the nodes near them), they have only fair access
to the rest of the network. Team O has the best social capital
(aka network benefits) in this network of project teams. Team
O achieves this with only three direct ties -- it is connected
to others who are well connected. Team O's indirect contacts
bring access to information and knowledge not available locally.
The average path
length in this network is 3.45 with many paths longer than the
network horizon. Even in this small network there are nodes[teams]
that are nearly blind to what is happening in other parts of
the network.
In the summer of
1998, writing in the scientific journal Nature, a stir of excitement
was generated by two mathematicians from Cornell, Steven Strogatz
and Duncan Watts. While investigating small-world networks (those
with many clusters), they discovered that a few randomly added
crosscuts between unconnected clusters would improve[i.e. lower]
a network's characteristic path length significantly. The benefits
were not just local, but spread throughout the network and this
improvement could be achieved with just a few added ties in the
network. Very small adjustments could cause large positive changes
-- a common dynamic in complex adaptive systems.
Looking back on
our project team network in Figure 1, how can we improve the
connectivity with just one added link? Which two nodes would
you connect to bring everyone in the network closer together?
Although many combinations
will increase the access of everyone to everyone else, the greatest
measurable effect is when we add a crosscut between Team Q and
Team F. The average path length drops a whole step! The longest
path in the network is reduced from 7 steps to 4 steps. In human
networks, the fewer steps in the network path, the quicker information
arrives with less distortion.
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Figure 2
The connection between
Teams Q and F may be the optimal connection in network efficiency,
but it may not be a practical connection. Both of these teams
already have many ties and may not have the time and energy to
support another one (remember what Hansen discovered about too
many direct ties?). What is an alternative connection? If you
cannot connect the highly connected nodes, how about connecting
their respective network neighbors? Instead of connecting Q and
F, how about connecting D and Z? This connection will not reduce
the path length as much, but it is between nodes that are not
overburdened with connections.
One of the benefits
of consulting with organizational network analysis is having
leading edge clients. Not only are they open to new methods to
improve their organizations, they usually end up teaching me
quite a bit. One such client is Vancho Cirovski, Vice President
of Human Resources at Cardinal Health. Vancho, an expert soccer
player and coach, first noticed an interesting phenomenon on
the playing field. Teams that were more integrated and communicated
well amongst themselves on the field, more often than not, beat
a collection of individually superior players who were not interacting
well on the field. I saw a similar phenomenon on my son's soccer
team. They had good players, but were divided up into several
cliques which did not get along with each other.
Vancho saw the same
effect in project teams inside organizations. He has summarized
these concepts of managing connected organizations using Einstein's
famous formula:
E = MC2
M is the Mastery
of each individual (human capital)
C are the Connections
that join individuals into a community (social capital)
C is the Communication
that flows through those Connections
E is the resulting
Effectiveness of the team or organization
The effectiveness
of a team or organization is based on personal know-how, enhanced
by communication, information flow and knowledge exchange through
both direct and indirect connections.
A common reason
for the failure of many mergers and acquisitions is the failure
to properly integrate the two combining organizations and their
cultures. Although a formal hierarchy combining the two organizations
may be in place, the right work relationships are never formed
and the merging organizations remain disconnected. Ralph Polumbo,
Vice President of Integration for Rubbermaid's 1998 acquisition
of its European competitor, Curver, wanted to make sure the two
organizations were combining effectively. He decided to map and
measure the melding of information flows, work relationships
and knowledge exchanges -- connections that help cultures combine.
His vision was one of a boundaryless organization with no fragmentation
along former constituencies. He wanted to track where integration
was happening and where it was not occurring. By examining his
human and social capital concurrently, he was able to visually
monitor the successful integration of both organizations.
How can managers
improve the connectivity within their organization? Here are
a few places to get started:
- Look beyond the
individual -- uncover their interconnections and multiple group
memberships.
- Know the difference
between tacit and explicit knowledge and how it is shared and
transferred.
- Reward people for
directly sharing their know-how, for including others in their
knowledge-sharing networks.
- Design computer
systems that facilitate conversations and sharing of knowledge
-- think communication, not storage/retrieval.
- Help women and
people of color connect to key knowledge flows and communities
in the organization. This may help eliminate the glass ceiling.
- Recruit new hires
through the networks of current employees -- they will be happier,
adjust quicker, and stay longer.
- When transferring
employees keep in mind their connections. Exchanging employees
with a diverse network of ties can create shortcuts between departments
or teams and greatly improve the overall information flow.
- Ensure better coordination
of behavior between departments or projects by adding crosscuts
to minimize the path length of their information exchange networks.
To reduce delays you want some redundancy in the paths -- if
one is blocked then alternative communication paths are available.
For the HR department
it is no longer sufficient to just 'hire the best.' You must
hire and wire! Start new networks, help employees and teams connect
--connect the unconnected!
What is connected
knowledge? A competitive advantage! Your competition may duplicate
the nodes in your organization, but not the pattern of connections
that have emerged through sense-making, feedback and learning
within your business network. And if you get Vancho's take on
Einstein's formula correct, then connected knowledge is pure
energy!
In the 1992 U.S.
presidential race, one simple phrase refocused and re-ignited
a jumbled campaign effort by Bill Clinton -- "It's the economy,
stupid." Adaptive businesses see the benefits in managing
connected organizations. We can adapt the old campaign slogan
to reflect the new network reality -- "It's the connections,
stupid!"
Link
http://www.orgnet.com/
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