People-focused knowledge management

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P
REFACE
This book is based on some fundamental beliefs about what makes
a great enterprise:
Organizational performance is primarily a result of effective
actions by knowledgeable people (Pfeffer 1995), and therefore
good knowledge management is crucially important.
People act effectively when they understand situations and the
contexts within which they operate, are motivated, and have
appropriate resources.
When people are treated “right,” productivity advantages may
exceed 25 percent (Lawler 2003).
Employees imitate as role models their leaders whose behavior
reflects their basic philosophies.
All employees must be held accountable for their actions, and
everyone must be part of the enterprise’s governance.
People Acquire, Possess, and Use Knowledge in
Remarkable Ways!
This book builds its case on our present understanding of how
people work with their minds, the role of knowledge in conducting
work, and how that translates into effective actions for the enter-
prise, the people themselves, and other stakeholders. It also builds on
understanding recent cognitive science and management theories,
resulting in new insights that have replaced conventional thinking
and in premises such as the following:
Conceptual integration (blending) of prior knowledge into new
mental models that are applicable to new situations represents
a unique human aptitude — not a preprogrammed function that
operationalizes prior knowledge as has mistakenly been 
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suggested by “Mind-as-Container” or “Mind-as-Machine” and
similar metaphors (Bereiter 2002; Fauconnier & Turner 2002).
Expertise is a tacit and abstract personal capability used to inno-
vate, learn, act, and blend mental models and judge situations
from theoretical and practical perspectives. It is not a result of
an extensive “content of a mental filing cabinet” (Bereiter 2002).
Innovation is a tacit mental function that involves conceptual
integration or blending (Fauconnier & Turner 2002).
To a much greater extent than was realized earlier, decisions are
made by tacit activation of mental models that reflect experi-
ences of similar situations when those situations are understood
by the decision maker (Bechara et al. 1997).
In the workplace, as in life, education in the knowledge era 
must provide deep understanding. Teaching cannot continue to
provide just facts and shallow understanding sufficient “to tell
what was told” (Bereiter 2002).
Mental models range in abstraction from concrete routines,
operational models, scripts, schemata, and general principles to
highly abstract metaknowledge.
Mental models are basically converted stories in the form of
encoded descriptions of static scenes, dynamic episodes, proce-
dures for work, complex situations, and so on.
Stories provide integrated models for creating a cohesive under-
standing of complex domains.
Stories are crucial for sharing understanding, acquiring and
institutionalizing structural intellectual capital, providing effec-
tive education, and conducting knowledge diagnostics.
People learn and remember stories and concepts better 
than facts.
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F
OREWORD
At the beginning of the twenty-first century, there is increasing 
evidence that the world sees the human mind as the new frontier.
Mind-altering medications such as Prozak are commonplace. In two
consecutive issues recently, Time magazine provided multipage arti-
cles supported by colorful pictures based on functional magnetic res-
onance imaging (fMRI) to illustrate mental functions that may be
improved or changed to our benefit (Stein 2003; Gorman 2003).
These and many other events indicate that we are clearly expected to
better manage aspects of how we use or influence our minds to func-
tion, giving better performance and better quality of life.
Ever so slowly, we see that the general interest in the new frontier
is penetrating the corporate world, although thinkers like Peter
Drucker, Charles Handy, and Arie de Geus have told us so for 
many years. We are beginning to understand how we can provide
stewardship and facilitation to make people work more intelligently
and more effectively by building and making available knowledge
and conducive work environments, cultures, and resources. However,
most managers still consider technology and other physical resources
to be critical success factors instead of focusing on the human 
mind. As long as they do not know how to “manage knowledge,”
they will find it simpler to focus on aspects that can be seen and
counted.
In today’s world each business and enterprise is constantly required
to change; to be reinvented in order to provide new capabilities and
perspectives; to be able to cope with new challenges; and to renew
itself to adopt new approaches, keeping those that work well and dis-
carding those that are outdated. All these changes are required, but
at the same time we are reminded that we need to provide stable
work conditions and set our strategies to support innovation in 
both traditional business areas and new “destructive” business areas
in the interest of providing competitive advantages in tomorrow’s
world. These are considerable challenges that private companies,
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nongovernmental organizations, and nation states face — even indi-
viduals who seek to work in challenging positions. Those who step
up to the challenges will likely survive, whereas those who shy away
from them are likely to fail. To thrive and prosper will require con-
siderable management skills and involvement of new professional
skills such as knowledge management (KM). It will also require the
adoption of management philosophies and practices that emphasize
the facilitation of effective work environments and performance-ben-
eficial cultures.
No one suggests that management is simple or easy. Even under
the best of circumstances — when nothing much changes and busi-
ness goes well — managers must coordinate complex intertwined
social, business, human, and mechanical processes. But such ideal
conditions rarely exist. The real world — particularly today —
involves constant changes on nearly every front. Customers, sup-
pliers, competitors, products, services, employees, technologies, reg-
ulatory environments — the economic playing field itself — all tend
to change. Changes include improvements and opportunities as well
as external and internal challenges and problems. In this turmoil,
managers at every level do their best not only to “keep the ship
afloat” but also to improve performance to remain viable and suc-
cessful. Under these circumstances, management is indeed difficult
and complex. The old adage of “keep it simple stupid” (KISS) does
not seem to work. Worse, KISS may often do harm by inappropri-
ately narrowing the focus and ignoring significant implications.
Many try to circumvent challenges and requirements by manipula-
tion and the creation of false impressions. Those who insist on fol-
lowing such paths frequently find themselves in serious trouble, as is
evidenced by many recent examples.
Old mainline approaches to business management and operations
have less validity. Vibrant and novel management approaches and
operational practices need to be pursued. Many of these have been
practiced in outstanding organizations for centuries, although new
perspectives and scientific findings provide additional foundations
and conceptual supports.
The business environment itself is changing. Globalization and
increased competition are emerging with new driving forces result-
ing from more sophisticated consumer populations. The new world
is upon us, as numerous companies and public institutions realize. 
It has significantly changed the attitude of stakeholders of all kinds,
of employees, of customers, of suppliers, of whole regions and 
countries where the economy and quality of life are supported by
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industries and institutions. Investors and sponsors of public institu-
tions are changing their understanding of what constitutes appropri-
ate operation. In many instances, it is realized that the complete
approach to conducting business must be changed when the goal is
survival and success. Business must be reinvented to build new value-
creating paradigms, processes, products, and services. This is par-
ticularly important in the developed countries in Europe, North
America, Australia, and parts of East Asia to support their quality 
of life.
In this environment, Knowledge Management provides a particu-
lar opportunity to help people work more effectively and intelligently
in support of the enterprises in which they invest their own and their
families’ future and on which they depend for their livelihood.
Sharper competition between companies, between countries, and
between continents result in requirements for greater effectiveness of
operations and service to customers and for creation of new pro-
ducts and services. There is increased understanding and agreement
that the major driving force in this new environment is knowledge
— that is, both personal and structural knowledge and other forms
of intellectual capital assets. However, the situation is more complex
than just building and applying knowledge. Competitiveness in the
new world is directly dependent not only on the value and sophisti-
cation of the knowledge assets but also on how well they are renewed
and utilized to conduct competent work. Consequently, it is neces-
sary to deal directly with how people and organizations create and
utilize the knowledge and understanding — know-how and thinking
strategies — in their daily work lives. We need to learn and apply
how these intellectual capital assets are engaged to analyze situations,
make decisions, and execute actions to the enterprise’s and indi-
vidual’s best advantages.
Neither these issues nor the approaches to deal with them are
simple or straightforward, and our insights are limited. Hence, many
of the perspectives expressed in this book will be subject to debate
and change as we learn more. Models and philosophies for what
makes enterprises successful vary widely. No two enterprises are the
same or have identical requirements. To allow for such disparities,
we examine basic knowledge-related premises for what makes the
enterprise effective and viable. We will explore what it means to “act
effectively.” We will study factors and conditions that promote and
maintain effective-acting behaviors and prevent dysfunctional ones.
We will examine what it means for an enterprise to achieve “durable
viability.” We will focus on many aspects of how situations can be
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handled effectively. We will discuss how Knowledge Management can
assist in achieving enterprise objectives. And we will explore some of
the implications that may be expected from better people-centered
Knowledge Management. In the appendices, we introduce models for
implementing KM in proactive organizations and for showing what
is required of KM professionals in terms of services provided and
expertise needed.
Views vary on the economic and social roles of the enterprise, as
well as on the relative importance of the roles and behaviors of key
individuals and business leaders. Nevertheless, an emerging school of
thought bases success and viability on business ethics and properly
prepared and motivated individual contributors. That view is
pursued here. It is our belief that motivated, contributing, and
accountable knowledge workers are the linchpins that secure and
sustain the successful operation of the enterprise machinery.
However, they must be supported by well-designed organizational
structures and infrastructures. They must also be provided with 
leadership and role models to help guide their behaviors.
Managing knowledge and managing in general are intricate
endeavors that require the manipulation of human, social, and eco-
nomic systems that are only partially understood. From systems-
theoretic perspectives,
1
organizations are complex open systems
2
that
cannot be fully observed and therefore cannot be identified. As a
result, these endeavors cannot be controlled in any strict sense or
even to our specifications.
3
Yet, we need to manage them — influence
them — in order to shape their behavior and performance, bringing
them closer to the desired objectives and expectations.
Unfortunately, some managers try to run their organizations with
strict rules in the belief that a highly ordered operation will become
“Newtonian” and that it can be controlled with practical means.
National leaders have also pursued such philosophies and continue
to do so. To some extent, legal systems and laws are designed to
channel behavior to be predictable and not just appropriate.
Organizations vary greatly, and since they cannot be fully observed
it is difficult, if not impossible, to perform rigorous investigations of
processes such as the use of knowledge and how people think to
determine what works, what does not work, and what may be
improved to work better. However, in order to achieve effective per-
formance, we still need to determine good approaches — particularly
knowledge-related methods — as best we can.
As a result, in this book we present suggestions for what can be
done and what may be expected from different actions under various
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circumstances and how such actions depend on personal and enter-
prise knowledge and other intellectual capital assets. It therefore
should be clear that our suggestions are assertions and hypotheses
based on the author’s experience and interpretation of the experi-
ences of others.
Whereas this book largely pursues systematic and analytical
methods, we also recognize that synthesis and holistic perspectives
are required to build the broad and overall understanding and vision
required to create workable approaches that will provide the effec-
tiveness needed to compete and survive.
An integrative systems view lies behind the perspectives provided
in this book. This view recognizes the interrelations between the
enterprise and its surroundings and markets. It recognizes that we
need to consider mutual relations between areas within the enterprise
such as its departments, its procedures and practices, its culture, its
assets, and its people and their motivation, expertise, skills, and atti-
tudes. It also recognizes the dynamic and often nonpermanent nature
of entities, relationships, and behaviors.
Whenever possible, I have attempted to build on scientific findings
and on established, commonly accepted, or seemingly logical
premises. In many instances, scientifically obtained findings are
stretched and extrapolated in “good engineering fashion” to synthe-
size frameworks, approaches, and actions. These constructs are often
illustrations, examples, and models and are expected to generate ben-
eficial target system behaviors.
The underlying premise of this book is based on the belief that the
central actors in organizations and society are humans — not com-
puters. Similarly, the major enablers of performance are knowledge
and other intellectual capital assets — not information. People, and
the effectiveness of their actions, determine success or failure. Hence,
our emphasis is on people and their behaviors and roles in enterprise
operations. This emphasis is further strengthened when we consider
that our ability to act effectively is determined predominantly by our
mental capabilities, especially by our personal knowledge, under-
standing, beliefs, and other mental constructs available to us at the
point and time of action.
Notes
1. This and many other terms and concepts are outlined in the Glossary.
For more on systems perspectives, see Ackoff and Emery (1972), von
Bertalanffy (1969), and Checkland (1999).
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2. Organizations are complex open systems, in contrast to mechanical
systems which are complicated closed systems; see Glossary.
3. In 1960, Rudolph Kalman presented the Kalman filter theory with
observability and controllability as fundamental criteria for dynamic
systems identification and operation (Kalman 1960a and 1960b). 
Feldbaum also used the concepts as part of his dual control theory 
(Feldbaum 1960).
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1
C
OMPETING IN THE 
G
LOBAL 
E
CONOMY
R
EQUIRES 
E
FFECTIVE 
E
NTERPRISES
Premise 1-1: The Global Economy
Demands Excellence
The global economy reaches everywhere. Enterprises throughout
the world provide cost-and-feature competitive products and services
wherever they find customers. They also seek partners and suppliers
wherever they can obtain the most advantageous cost-and-quality
combinations. Everyone has access to the same markets and the 
same suppliers. Under these conditions, any organization that 
provides deliverables in the competitive global market can only
succeed through excellence — by being best among competitors — by
delivering products, services, or combinations of these that are of the
greatest value to its customers.
In addition to being excellent, advanced enterprises strive to
remain leaders by innovating faster than their competitors since only
learning faster than their competitors often means adopting what
others — their competitors — already practice.
The Competitive Enterprise Example
For 25 years Jones Development & Engineering, Inc. has provided
advanced technology services to industrial customers in many indus-
tries. Jones assists customers in creating prototypes of complex 
high-performance products that utilize advanced technologies and
materials. Jones’s staff collaborates with customers to conceptualize,
design, and engineer products that must perform well in very
demanding applications. They also work with customers’ customers
to understand their problems so that they can properly address the
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issues they have. Most often, Jones starts work with customers in the
initial conceptual stages of new product development followed by
pilot production and product introduction. Later, Jones’s staff assists
by handing over production to customers’ operations, often working
for months in customer facilities to achieve full technology and exper-
tise transfer.
Jones has grown steadily to become the international leader in 
its niche and works hard to maintain its leadership position. The
company is very profitable with a large and faithful customer base.
In many ways, Jones operates like many of its competitors, yet
pursues practices that are proactive and deliberate and therefore quite
effective, which sets them apart. Some examples of these practices
are as follows.