People-focused knowledge management

Comments: AeroCo’s management exhibited constrained 
Situational Awareness which limited its ability to act in time.
The primary knowledge-related aspects of this case included the
chief engineer’s lack of understanding of the dynamics of personnel
retirements, replacements, and acquisition of expertise. Upper man-
agement also exhibited a lack of understanding of the same issues.
Other aspects included the knowledge-building requirements to
create a competent workforce, a process that required knowledge
transfers from experts to novices, education, and learning on the job.
Decision-Making/Problem-Solving and Action Space and
Innovation Capability
The quality of the enterprise Decision-Making/Problem-Solving
capability is one of the most important functions for determining the
enterprise’s ability to survive and prosper. This capability may be risk
seeking, daring, and creative to seek new and novel business oppor-
tunities. It may be risk-balanced, proactive, and innovative to support
market leadership pursuit. It may be risk averse, reactionary, and con-
ventional to support a business-as-usual direction. Clearly, within an
enterprise of some size, Decision-Making/Problem-Solving capabili-
ties will fall within all of these categories — within top management,
operating divisions, departments, and among individuals.
How Shall We Utilize Our Retained Earnings for
Best Long-Term Success?
Parity Corporation’s president, Joe Hammack, struggled with
the question of how to expand Parity’s business. The last years
had been successful, and the company had accumulated cash
reserves from retained earnings beyond those needed to sustain
operations during difficult times. They attributed much of their
success to their advanced personnel policies and good salaries
and bonuses, which provided a loyal and effective workforce.
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In spite of present successes, market research indicated that
Parity’s existing medical diagnostic products would potentially
be outdated within a few years. Within Parity, updated prod-
ucts were being prototyped, and new-generation products were
under development. However, all were extensions of the present
product line. Market forecasts for the health-care sector growth
in general were quite favorable. Under these circumstances, it
would be natural to pursue business-as-usual and use Parity’s
favorable situation to lower profit margins and prices to increase
market share. Parity could then bank the cash reserves as 
insurance against future adverse conditions, or perhaps use
reserves to increase dividends or otherwise reward owners and
employees.
Nevertheless, Joe was not at ease. Joe, his Marketing vice
president, and other members of the executive team believed
that the present market trend would not continue for very long.
Together they decided that Parity needed to consider new direc-
tions while they had the financial advantages to invest in new
business. The issue was: Which directions should they pursue?
There were many clear options, but they were still within the
present market perspectives. Most would exploit Parity’s R&D
and manufacturing technology strengths, and they knew that
direction could be managed with confidence. Then again, other
firms would pursue the same options, and competition could be
fierce, with no guarantee of successful outcomes.
Given this situation, Joe and his management team decided
that, given their core strengths, they would try to create a new
market niche that would provide them with durable opportuni-
ties for success in years to come. They set to work by first defin-
ing from a top-down and abstract perspective which core
strengths they could use as foundation for new business direc-
tions. They focused on their R&D, engineering, manufacturing,
marketing, and sales capabilities, assuming that they would have
the management strength to deal with new markets. They decided
to “think outside the box,” and they created scenarios for wide-
ranging customer and market futures. The initial scenarios still
were based too much on conventional thinking. It was decided
to step back and look at general principles and plausible scenar-
ios for future health-care delivery and how technology would
need to develop to support new thinking, new practices, new eco-
nomics, and new health-care-related social values. In addition,
they included the best thinking they could find on expected
Enterprise Situation-Handling
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emerging technology and technological breakthroughs, both
within and outside their present areas of expertise.
Several interesting scenarios emerged, some of which were
isolated, others overlapped, but all required some technologies
beyond Parity’s present capabilities. The isolated scenarios were
considered to be vulnerable and risky, whereas the overlapping
ones were judged to provide both flexibility and greater likeli-
hood of being realized. In addition, all the scenarios would
require that someone — most likely Parity, if it proceeded —
would need to build awareness and understanding in the mar-
ketplace of the improved quality of care and cost-effective
opportunity associated with the new health-care delivery prac-
tices that would rely on its new products. The priority scenar-
ios centered around diagnostic and treatment monitoring
devices that ranged from simple and inexpensive applications of
sophisticated technology with large market potentials through-
out the world to high-cost machines with limited markets. All
relied on new technologies, some of which might not be realiz-
able and which therefore were risky.
Joe and his team agonized over the situation, which truly rep-
resented a dilemma with risks on all sides. However, it was 
generally agreed that continuing with any one of the business-
as-usual alternatives would likely make Parity ultimately deplete
its cash reserves to stay in business and become a mature cor-
poration with few options for renewal. In the end, they elected
to pursue a strategy that would work if several of the overlap-
ping scenarios were realized. The strategy would be costly and
risky but also quite rewarding if it could be brought about. The
scenarios and the success of the strategy relied extensively on
Parity’s ability to develop radically new and affordable diag-
nostic and treatment monitoring devices that could revolution-
alize selected areas of health-care delivery. Hence, they agreed
that the responsibility for success was in the hands of Joe and
his management team and, equally important, every employee
at every level of the company.
To pursue the new strategy, Parity needed to more than
double its R&D operations by bringing in senior researchers
and their teams with expertise in four scientific areas. They were
prepared to use considerable resources to acquire the necessary
capabilities. They also needed to build greater medical expertise
and develop additional strategic alliances with medical institu-
tions, particularly with medical schools. In addition, the man-
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agement team realized that it needed to rely on its rank-and-file
employees to a greater degree than it had previously attempted
to assist in implementing the new strategy. Given evidence that
greater employee satisfaction increases productivity and inno-
vation, the team decided to make Parity a more effective orga-
nization by providing employees at all levels with greater
freedom to innovate and assume responsibilities. For that, man-
agement needed to create and engage in deep dialogues with
each employee to make them understand how they could assist
in implementing both existing and new strategies and how they
would benefit personally from making Parity a success.