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.

Heathrow T5 opening fiasco continues to haunt travellers minds!

Back in April, I wrote about Heathrow irport Terminal 5 opening fiasco. I explained why I believe that on the part of British Airways, it was mostly due to a lack of training and lack of user acceptance testing of all the new systems and procedures. I also deduced from this that BA probably had an authoritative management style, a very hierarchical structure, and a corporate culture that didn't allow individuals at the bottom of the pyramid to voice concerns and constructive criticism in an effective manner. Later on, I watched amazed on BBC TV news , BA's CEO Willie Walsh acknowledging that his company's management did anticipate a difficult T5 opening, but that it was decided that the costs of delaying it would be greater than the potential costs of a failed opening! The costs directly attributed to the fiasco was estimated at £16m, already a big sum. However, I wonder if Mr Walsh and his team did account for this: Virgin sales are up thanks to T5 troubles

Insightful Knowledge

I am currently reading the very interesting marketing book "Creating Market Insight. How firm create value from market understanding", written by Dr Brian Smith and Dr Paul Raspin (Wiley edition). I will surely write a few posts about this book but I'll start here with their definition of an insight in a business context: For knowledge to be considered insight, it must pass what the authors call the VRIO test. Knowledge must be << · "Valuable": Does this knowledge enable the firm to respond to environmental threats and opportunities? · "Rare”: Is this knowledge currently held only by the organisation and not by its competitors? · Not easily Imitable: Is it costly or difficult for other organisations to obtain or develop this knowledge? · Organisationally aligned: Is the firm organised, or can it be organised, to exploit this knowledge? >> The authors do not mean that non-insight knowledge isn’t useful of course. But they attempt to differentiate knowledge that is merely useful from knowledge that is insightful. I think it is an interesting framework but I am not convinced about their definition of valuable knowledge: “Knowledge is valuable if it enables us to change something, rather than maintain things, and that change is valuable to either the customer or to the firm.” Although the authors approach this from a marketing point of view, I really struggle to agree with the notion that valuable knowledge must imply change. The authors themselves acknowledge that “the value test is a contentious and difficult one to apply t to a piece of knowledge.” One problem with this view is that it risks to prioritize in the mind of managers all the ideas and projects that imply change. Ideas and projects to improve existing activities would not be given enough attention and resources. But often it is such improvement that sparks the creation of new knowledge, that in turn will lead to a “valuable” change. In other words, a change providing competitive advantage does happen in an improvements-rich context that cannot be completely dissociated from the change. So without a good dose of “useful” knowledge, the “valuable” knowledge wouldn’t be created at all, let alone lead to an insightful change. Furthermore, stating that the change must be valuable to either the customer or to the firm does not help at all to define valuable knowledge, since any piece of knowledge that isn’t meeting this characteristic cannot even be considered useful to the firm! I think the problem with this definition of insightful knowledge is the use of the word “valuable”. I cannot yet put my finger on it but there should be another way to define what the authors had in mind without the too simple differentiation through subjective value. When I think of something, I’ll post it here.

Knowledge Management in ITIL v3

Read this very clear and insightful white paper from Peter Dorfman (dated May 2007):http://www.thinkhdi.com/hdi2008/files/ITIL3.pdf I agree with nearly all of it. Let me highlight one of Peter's concluding point: <<For end users, ITIL 3 is an opportunity to get KM onto executive radar screens, maybe for the first time.Managers who have tried to promote KM adoption may see this as a golden moment to advance a personal objective, and they may be right.>> This is absolutely correct but based on my experience, I would not advise IT Managers to seek the implementation of a KM specific software solution that would somehow sit on top of or alongside the Service Desk Management system. You will not succeed in making 1st and 2nd line technicians switch to a different tool to record or search for valuable knowledge.KM must be integrated with all the other processes (Incident/Request/Problem Mngt, etc...).To succeed, it must become part of the technician's normal activities to resolve issues or satisfy requests. As always, KM is first about people, culture and processes well before being about tools! And ITIL v3 actually does emphasize on this, and this is maybe one reason why it does not litteraly consider KM as a separate support process.

5 real life examples to make the case for KM in a sales environment

”[..] an organization is nothing more than the collective capacity of its people to create value” (Louis V. Gerstner, Jr., former CEO of IBM) Consider the following five simple scenarios based on real situations I have witnessed during my time in the Richemont Group. I must stress that I expect these to be relevant today to a majority of retail Organizations, and not only in the luxury sector: 1. “Reinventing the wheel.” The Logistics Manager of a regional distribution centre believes that he could greatly improve his team’s efficiency during inventories with the use of about 5 barcode readers. He contacts the IT department for advice since the idea will be to interface with the main IT system. When the stock controller is consulted, she decides that barcode readers would be too expensive if they were to be used also for boutique inventories (you would need at least 20 readers). Since laptop PCs are used in boutiques, it is decided that they would also be used for the distribution centre, against its manager’s preference. It then turns out that if laptops are adapted to boutique stocktaking, they are not practical in a warehouse: too heavy to carry around the aisles and with much less autonomy on battery. The Logistics Manager asks the IT Manager if he could find out from his counterparts what has been implemented in other regions. Logistics Managers have very little contact with one another so rarely share ideas and experiences. The IT Manager finds out that in another region, they did implement a cost-effective barcode reader solution and have even used it in some boutiques. A corporate discount is maybe even possible for the readers. By reinventing the wheel we might improve it, but is it worth the costs when all that is needed is a regular wheel? 2. “Knowledge is Power so retain it.” A wealthy American businessman enters a jewellery boutique in Tokyo. He intends to offer a present to his wife for their wedding anniversary in 2 weeks. He happens to be a regular customer at the 5th Avenue boutique in New York and does tell the Japanese sales executive Yukino of this fact. He is presented a selection of items but cannot decide, and then remembers that he had bought a bracelet for his wife two years ago. “My wife loves this bracelet and it would be great for her to have a matching necklace”. “Yes, sir, which bracelet was it?” Yukino ask. “Oh, unfortunately I cannot remember its name. Could you find out for me? I bought it in New York”. “I’m afraid I cannot do this. Would you remember the type of bracelet?” “Are you telling me that you cannot check on your system?” “Yes sir, we only have access to sales made in Japan”. “This is not very useful is it? Could you call the 5th Avenue showroom then?” “Well yes sir, I could try but with the time-difference, we’ll have to wait for this evening. Would you come back tomorrow then?” “I’m not sure to have the time. I’ll call you tomorrow morning and if you have the details I’ll try to find a moment”. In the evening Yukino calls the 5th Avenue showroom and ask for the manager who happens to be on a day off. The assistant-manager is busy with a customer and the sales-executive who picked up the phone does not believe to have the authority to give such confidential information. She takes the details and says that the assistant-manager will call back. Yukino waits until late after closure but no one calls back. The next day, Yukino is lost in apologies for not obtaining the details of the bracelet. “I am not impressed!” the American tells her. “I was really expecting such a prestigious Brand to provide better international services. I have to tell you, I feel like shopping around for something else as a result.” Knowledge is power and even more now than ever. However, if organizational knowledge is retained and not shared, is the organization as a whole really gaining any lasting power from it? 3. “Everybody is replaceable.” The Merchandising Supervisor of a regional distribution company is offered a new position in another country. Her effectiveness and efficiency as well as a great personality have won her a very good reputation with her peers within the Group. She has 10 years of experience in her current job and has progressively put in place a number of techniques and has mastered a couple of specific IT systems. Her manager is however soon concerned: how can she replace her supervisor without affecting the department’s performance? The supervisor leaves in 3 months and her unique assistant only has 1year experience and has had very little involvement in about 50% of the supervisor’s activities. As for the Manager, she would also need to learn quite a lot from before the supervisor’s departure, and of course, she is already very busy with her own tasks. The Manager decides that the supervisor’s specific activities should be shared between herself and the assistant. The supervisor offers to spend long evenings to write up some step-by-step procedures. After a month, the Manager recruits someone who first needs to be trained on relatively simple but time-consuming tasks, in order to free up the assistant for spending time with the supervisor. By the time the supervisor is on her last day, a significant amount of her knowledge has not been passed on or written down. The IT department is even called in to assess if they will be able to help with the usage of one specific piece of software. As a result, in the following months the Merchandising department struggles to maintain a satisfying level of productivity. Everybody is replaceable, yes but at what costs? 4. “This is the way we do things here.” Harrods, the London department store, is redeveloping its jewellery department this summer. A new boutique design of a jewellery Brand with a unit in this department is implemented for the occasion. Unlike before the late 90s, the local retail staffs as well as other departments (e.g. IT) are now involved in the process. However, at that stage it is about adapting the design to the local specific constraints and needs. There is a very tight schedule imposed by Harrods but the deadline is to be met. Along the way, some design details are identified as being impractical. The functional aspect of the design seems to have been overlooked in favour of the aesthetic. For example, the IT equipment required in the retail area is not sufficiently integrated and facilitated. The beauty of a desk with no cable management will be spoiled by the laptop sitting on it and its power cable running from it. In peak times such as Christmas, the 5 or 6 sales executives (instead of 3 or 4) will each need quick access to a laptop but only 3 are catered for in the design. This will result in laptops being used on top of display cabinets so not really aesthetic but customers cannot wait for sales staff to queue up for a PC! The same boutique design is to be used for many boutiques worldwide. Some of the very same functional flaws are reproduced again and again as no feedback from all the actors in the first project was formally obtained. It is reasonable to assume that each department builds on past successes and is expert in its field. However, wouldn’t each project of a particular department benefit from the proactive input of all other stakeholders? 5. “Making mistakes is fine, this is how you learn.” It is the first day of the month and as usual, each regional IT department completes and checks the End of Month process for the Group’s bespoke operational system. In Holland, the IT Manager identifies a problem: the new Group standard stock-valuing module recently implemented generates incorrect totals. He investigates and soon finds the program at fault. While he has his programmer start to work out the exact problem, he sends an email to all his counterparts in the other regions using the same system, to warn them first and also ask if anyone had already detected this problem. He quickly gets an interest from most of them but more importantly receives a response from his Spanish counterpart telling him that they faced a similar issue the month before but thought it was specific to the Spanish version of the bespoke system. The good news is that they corrected the problem and documented it. The bad news, it was written in Spanish. What is then decided due to the urgency for the Deutsch End of Month procedure is for the Spanish and Deutsch programmers to work jointly by phone (in broken-English). After several hours of collaboration, a Deutsch version of the solution is setup and tested and the End of Month procedure can be re-ran and completed 24hrs late. During that time, the system was not available to users for normal operations so the impact to the business was significant. We should note that when it first happened on the Spanish system 30 days earlier, their system was unavailable for 2 days. Learning and innovation depends on a culture encouraging risk-taking and therefore making “mistakes”. However, shouldn’t this imply that we all collectively learn from these “mistakes” and avoid making them twice? These situations all have in common a lack of knowledge sharing. They are all avoidable but the top-management first need to recognize the value of each individual’s knowledge and define and implement a strategy to leverage it.