Innovation is a priority, so why not KM?

A recent Boston Consulting Group report shows that 64% of companies consider innovation as one of their top 3 priorities. This is less than the 72% in 2006 but still high in the current difficult economy. That is good and understandable but then why is Knowledge Management not a priority as well as a result? You cannot foster innovation throughout a company wihout effective and efficient knowledge sharing processes. Apple, Google and Toyota took the top 3 spots of the most innovative companies. Unsurprisingly, these 3 are regularly at the top of the global Most Admired Knowledge Enterprises (MAKE). In the 2008 ranking, they were in the 7th, 2nd and 4th place respectively. In fact, 9 of the 20 global MAKE companies last year are among the BCG top 50 innovative companies including 5 of the top 6 ! These organisations have understood that innovation does not only sit in the R&D labs, it is to be fostered everywhere. Innovation implies effective collaboration between individuals, teams, deparments and companies, and effective collaboration implies in turn effective knowledge sharing between all these actors. All these companies above invest heavily in knowledge management and would typically have managers with formal KM responsibilities. But then why is it that the companies with such formal and significant KM are still such a minority? What will it take for leaders to realise en masse the importance of KM?

Is sharing knowledge really desirable in a business?

A. Imagine a company where no knowledge is shared. Only information is passed on between employees within pre-defined operational processes. Each employee exchange information only to their immediate colleagues, either within their team/department or with the colleagues in the next/precedent levels in the operational chain. B. Imagine a company where all knowledge (tacit or explicit) is shared. All employees share their individual and collective (team/department) knowledge with every one else within the company. Each employee is free to share his/her knowledge with anyone else and to ask anyone for his/her knowledge on any subject (of a professional and non-confidential nature). My question is simple: which of these two extremes is likely to generate the most successful business, assuming they would be both in the same market(s) and every other parameters equal (eg. number of employees, age) ? I will expand on this question later on but for now, let me just say that for anyone answering B, please give me strong arguments because the majority of businesses today are still closer to extreme A.

Getting the right information to your retail customers at the right time, or how to make them loyal to your brand

In these very challenging economical times, retaining your customers is a must to survive now and thrive when things improve. For your customers to repetitively shop in your stores (on the high street or online) means for them one or both of the following conditions:

· It is to them the most practical or ‘lack of choice’ (ex.: “I shop at your supermarket because it is the closest to my home”).
· It is the brand that best fits their needs and/or wants at that moment in time.

You could of course consider the first group of customers as a bonus but they should be nurtured too as the practical reason for their custom could disappear and them with it (like moving house). The key for making either type of customers (“for practicality” or “by choice”) stay with your brand long term, is increasingly to provide them with the right information at the right time and in the right place, and this through all the market channels you make available to them. For instance, when online, a customer is virtually always one-click away to choose a competitor. I am not referring here only to ecommerce situation but to any web browsing situation to obtain information about your brand/company, starting of course with your main informational website.

In retail, you not only need to be consistent between your various channels but you need to integrate them as well. So it is not just about consistency in products and pricing, but also for example about enabling a customer who purchased online to be able to collect and return in store if he/she wishes to. And this type of seamless (to the customer) integration is not just an information systems problem. For instance, the manager of the store where the products purchased online are collected, will not welcome the transaction if the sale isn’t allocated to his store some way or another! So if only your online store gets the sale, you will de facto create internal resistance and unnecessary competition that ultimately could affect the customer (a solution by the way here is to have the sale shared by both channels).

Providing customers with the right information at the right time and in the right place implies understanding their likes and dislikes, their needs and wants. In the luxury goods sector, this knowledge on customers has historically been obtained by the sales associate on the shop floor during the process of a sale. When you buy a £,000+ product or service, you have time to chat about yourself and the reasons for your purchase (and you often want to) but when you are buying a pack of beer, a pair of socks or a bottle of shampoo, you usually don’t want to spend more time than necessary. Well, this is changing and primarily thanks to ecommerce. When you want to buy a shampoo or a pack of beer online, you must first register your name and contact details at the very least, so you have provided the private information that the retailer would not have obtained on the high street – except if you had used a “loyalty” card. So retailers can track customer behaviour online but often fail to do so on the high street which makes it difficult to leverage the integration of the different channels to market. Loyalty card schemes have been thought of the solution but too often fail to deliver the desired outcome because:

- Too many customers don’t bother signing up to the scheme (for various reasons but often simply because they don’t consider the associated discounts significant enough).
- A majority of customers will view it only as a discount scheme (“when I shop here, I might as well use the card and get the discount points as a bonus”) but their repeat visits do not depend on it.
- Most of the competition have a similar scheme so it does not constitute a significant USP (large number of customers end up with all your competitors’ loyalty card in their wallet).

A loyalty scheme needs to be about loyalty, not only about discounted repeat purchases. So this takes us back to the subject of this post: “true” loyalty can be achieved when the customer has access to and is given the right information at the right time about your product and services. “Right” information means as individualized as possible. A customer is really only interested in the products and services that concerns him/her. So for ex, a customer who never drinks alcohol wouldn’t care less about a promotion on wines. And it is not as simple as thinking that such a promotion should target only customers with a history of wine purchases. Our non-drinker customer could easily have once bought a bottle as a one-off gift for a friend.

My point here is that the goal for retailers should be to have reliable and relevant knowledge of their customers in order to provide them in return with the right information at the right time.
This effective knowledge of your customers will of course rely on sales history based information obtained with traditional “loyalty schemes”. But crucially, to obtain a true USP with this knowledge, a retailer will have to find and master other sources of information. Social networks are one such source, with examples being online communities. Examples of retail focused websites taking full advantage of this are the customer reviews based sites like www.toptable.com or www.yelp.com. Retailers need to engage with these indirect sources of customer information and use them as models for implementing social networking solutions directly engaging with their customers (or potential customers).

I will not list here all the possibilities (and I don’t know them all anyway) for retailers to improve their deliveries of effective information to their customers. Obviously, many great ideas are still to come. What is certain is that the retailers that will consider this challenge strategically and be among the first to surpass their customers’ expectations, will lead the pack when the economy recovers.

A Prediction Market Cluster conference on Collective Wisdom

Well, following on from my last post about Collective Wisdom, it seems that Surowiecki started something big with his book!

I have received an invite to a conference in San Francisco on Collective Intelligence.

Unfortunately, I won't make it (a bit too far from London!).

It seems that this subject is gaining a lot of interest and success stories.

I like the diagram above that is given on this conference web page. It's a good and simple summary of Surowiecki's key principles on collective wisdom.

If anyone reading this attends this conference, please contact me to let me know how it went.

About The Wisdom of Crowds

In his book “The Wisdom of Crowds – Why the many are smarter than the few”, James Surowiecki makes - indirectly but nonetheless powerfully - a very good case for Knowledge Management or the leverage of individual and collective knowledge. Simply put this way, that the many are smarter than the few is hardly a contentious statement. After all, a croud of say 1000 individuals should be smarter than only 500 of this same croud most of the times. You have more minds available to solve a problem/find an answer. However, what Surowiecki means is that a croud of 1000 can be – with the right conditions – much smarter than the sum of its parts even when it acts/decides in a completely uncoordinated way (meaning each individual acts/decides in isolation from the others). In fact, such a group can be (and Surowiecki gives plenty of examples) smarter than the even best experts in a particular field! The three conditions for this group wisdom to materialise according to Surowiecki, are that it must be diverse, independent and decentralized. On diversity, Surowiecki writes (chapter 2, part III): <<The fact that cognitive diversity matters does not mean that if you assemble a group of diverse but thoroughly uninformed people, their collective wisdom will be smarter than an expert’s. But if you can assemble a diverse group of people who possess varying degrees of knowledge and insight, you’re better off entrusting it with major decisions rather than leaving them in the hands of one or two people, no matter how smart those people are.>>This can be hard to believe but Surowiecki then makes the case for this point very well and I cannot find any reason to disagree with him. On independence, he writes (chapter 3, part I): << First, [independence] keeps the mistakes that people make from becoming correlated.[..] One of the quickest way to make people’s judgments systematically biased is to make them dependent on each other for information. Second independent individuals are more likely to have new information rather than the same old data everyone is already familiar with. The smartest groups , then, are made up of people with diverse perspectives who are able to stay independent of each other. >> I would think that this condition is in theory much less contentious than the first one on diversity. However, the problem with true independence is that in practice, it is rather difficult to obtain. Often, decisions in a croud are made sequentially with each individual influenced by his/her predecessors.Therefore, Surowiecki advises that <<If you want to improve an organization’s or an economy’s decision making, one of the best things you can do is make sure, as much as possible, that decisions are made simultaneously (or close to it) rather than one after the other.>> On decentraization, he writes (chapter 4, part II): << [..] if you set a croud of self-interested, independent people to work in a decentralized way on the same problem, instead of trying to direct their efforts from the top down, their collective solution is likely to be better than any other solution you can come up with. [..] Decentralization’s great strength is that it encourages independence and specialization on the one hand while still allowing people to coordinate their activities and solve difficult problems on the other.>> However, Surowiecki then cautions that : << decentralization’s great weakness is that there’s no guarantee that valuable information which is uncovered in one part of the system will find its way through the rest of the system.>> He then asserts that for a crowd of any kinds to allow << individuals to specialize and to acquire local knowledge [..] while also being able to aggregate that local knowledge and private information into a collective whole, [..] [it] needs to find the right balance between the two imperatives: making individual knowledge globally and collectively useful (as we know it can be), while still allowing it to remain resolutely specific and local. >> Well, well, isn’t this where/when Knowledge Management should come in? In fact, for all intent and purposes, this is a definition of KM I am satisfied to work with in an organizational setting: any intentional and managed changes or activities with a conscious objective to facilitate/enable what is highlighted in blue above. But it then highlights a fundamental reason for organizational KM to have so often failed to deliver: the lack of management recognition that collective knowledge in practice is indeed always valuable, with the potential to be very often correct and effective. Leveraging knowledge is then not just about realizing (and doing something about it) that each employee’s knowledge is valuable (and that’s already hard enough for most senior managements) but that the collective knowledge of the whole or groups of employees is even more valuable. I think that a cultural shift is needed here for this realisation to become the norm rather than the exception. This shift has already started with the ubiquitous nature and global reach of the World Wide Web enabling huge crowds to influence decisions directly or indirectly (eg. Obama’s election). This shift now needs to enter the board rooms en masse. According to Malcolm Gladwell, “the tipping point” (see his book with this title) should be reached when between 10 and 15% of board rooms will have formally acknowledged the value and power of individual and collective knowledge. I can safely predict this will happen even if I cannot say when.