NEED OF TRANSFORMATIONAL CHANGES IN SASKATCHEWAN:

The Learning Organization, and Knowledge Economy [1]

By Mario deSantis, September 20, 1998

In the past articles we have seen how the theory of living systems--web of life--provides an effective utilitarian framework for building healthy human communities. We also introduced the notion that the Learning Organizations and Knowledge Economy are excellent metaphors for describing what our societal web of life should be in order to support a healthy and global economic system. In Saskatchewan, most of our political and business leaders are still operating under the obsolete worldview that life is a struggle for the survival of the fittest rather than a cooperative effort to increase the collective intelligence and wealth of our communities. Therefore, we will begin our journey on the need of transformational changes of our organizations by describing the management philosophy of the Learning Organization and the new emerging Knowledge Economy [2].

THE LEARNING ORGANIZATION

Interdisciplinary studies of living organisms have provided a convergent understanding of the complexities and interdependencies of our social system with nature [3]. As a result of these studies, the System Theory of evolution was developed [4]. This system theory has been accepted by the scientific community and it is the only theory which can reconcile science and religion, and which can explain the common patterns of systems dynamics of biological, social, cultural and cosmic evolution. The classical theory of evolution focuses on the linear processes of adaptation or survival of the species to the environment. The Systems Theory, instead, focuses on the natural ability of living organisms to i)self-organize and cooperate with others while in continuous state of chaos, and ii)create new structures within the higher living environment. This natural ability of organisms materializes through a patterned and continuous exchange of energy and matter within the organism and between the organism and the external living environment. The ability of living organisms to self-organize and create new structures has been called "mind." This mind proces can therefore be associated with what we understand to be the phenomena of thinking, learning, communicating, coordinating and memory for people. As a consequence, the continuous exchange of energy and matter between organisms has the same conceptual understanding of the continuous exchange of information which occurs between people in societies.

The theories of evolution are very important since they provide two divergent and contradictory understanding of human nature and of the related evolution of cultural values affecting our behaviour. The Newton's view of an entropic universe along with the Darwinian's concept of life as a struggle for the survival of the fittest have provided a social cultural behaviour which has caused and sometime justified the worst forms of social injustices and exploitation [5]. We are finding out that the premises of this aggressive and self destructive cultural behaviour are not true [6] and that we can redesign our way of thinking and acquire again the spirituality we have lost. The Systems Theory provides this latter image of man, a man who is creative, cooperative with other human beings and lives peacefully and harmoniously with nature. We will be using this positive image of man to appreciate the evolution of social organizations as living organisms and to support the transformational changes our organizations must undergo to adapt to the reality of a global village and a new economy.

A research commissioned by the Shell Group on a number of centuries old companies, described these establishments in this way "financially conservative with a staff which identifies with the company and a management which is tolerant and sensitive to the world in which they live!" [7] This simple definition does not make reference to any special financial or technological wizardry for surviving so many years. These companies weathered political difficulties, wars and changing consumer demands, simply because they were creative living organizations, that is businesses built for the survival of the employees and the welfare of their communities. This definition is very different from today's "economic" company, a business which is run for profit and which at the time of crisis either restructure its work force or shuts down! These two definitions of companies reflect the different cultural values with respect to our appreciation of human nature, and point to the compelling need for a new way of thinking on how to reorganize our social setting and sustain healthier communities. The organizations of the future will be those organizations which will rediscover how to tap the natural capacity to learn of their members at every level of the organization and create growth for their employees, their organizations and their communities. This new way of thinking is embodied in the definition of the Learning Organization as presented by Peter Senge in his book "The Fifth Discipline [8]."

The Learning Organization distinguishes itself from the traditional authoritarian and controlling organization for the lifelong mastery of the five disciplines:

Personal Mastery--	the discipline which continually clarifies our personal vision and allows the capacity to grow and see reality objectively.
Mental Models--	they represent our view of the world, the way we see our organization, our market and our competitors.
Shared Vision--	the building of a common sense of commitment for all the stakeholders of the organization and the alignment of all the personal visions with such sense of commitment.
Team Learning--	the ability to dialogue with our members and develop a collective intelligence which is greater than the sum of the individual members'.
Systems Thinking--	this is the discipline which links all the others. It is the ability to look beyond personalities and events and understand the underlying patterns and structures which shape the organization as a whole.

The major philosophical differences between the Learning Organization and the Traditional Controlling Organization can be summarized as follows:

The Traditional Controlling Organization sees the organization as a producer of goods and services whereby employees are considered expendable resources. The Learning Organization sees the company as a living being where the interactions and the stories of their members make up their company.

The Traditional Controlling Organization sees its growth as dependent on how bigger and influential it can become in the marketplace. The Learning Organization sees its growth as dependent on its capacity to create new wealth for the members and their communities.

The Traditional Controlling Organization uses collaborative management teams to maintain the appearance of a cohesive team, while avoiding any issue which would effecttheir members' turf or hierarchical position. Argyris, Professor at Harvard University, called this ability to get along with each other "skilled incompetence," that is the ability in being proficient at keeping themselves from learning. The Learning Organization is a living organization and its members use the dialogue as a means to learn, to reason, to think together and build a collective intelligence. The dialogue is becoming the cornerstone for pursuing organizational learning and transformational changes throughout the world [9].

The Traditional Controlling Organization is a hierarchical organization where domination and control are transmitted through orders from the top down. The hierarchical organization is symbolized by the pyramid. The Learning Organization has a multilevel stratified structure which encourages participative processes at all levels of the organization. The symbol representing the structure of the Learning Organization is the tree. The tree finds its nourishment from both its roots and its leaves, that is the power in a systems tree flows in both directions with neither end dominating the other.

The Traditional Controlling Organization is mostly concerned with casual events and simple linear relationships to their causes. The paradox of this mentality was succinctly explained by Frederick Brook: "nine women can't make a baby in one month [10]." The Learning Organization recognizes that problems are complex and that there is no single solution or quick fix to solve them. Therefore, the Learning Organization encourages the development of multiple perspectives for finding solutions to complex problems, and in this respect uses Labs/IT modelling techniques and simulations in general.

The leadership of the Traditional Controlling Organization is represented by the assertive "captain of the ship" who makes the tough decisions. In a Learning Organization, leaders play the roles of teachers, stewards, and designers, that is they feel accountable for the well being of the organization and they operate in service, rather than in control. In this environment, we surrender the presumption of being in control and we feel confident in revealing our weaknesses, uncertainties and ignorance since these are essential preconditions for learning.

The Traditional Controlling Organization is based on the top down percolation of power characterized by fragmentation, compromise, defensiveness, intimidation and fear. In this environment, the need to tell the truth clashes with other loyalties. Instead, in the Learning Organization the dialogue among employees build an atmosphere of openness, commitment and collective intelligence where the only sustaining loyalty is loyalty to the truth.

The Traditional Controlling Organization promotes a climate of a deterministic and intolerant world where the concepts of operational uniformity, centralization, and physical wealth permeates every aspect of the organization. Instead, the Learning Organization accepts the living reality of a simultaneous ordered and complex world, and promotes an operational environment which encourages diversities, multiple perspectives and the creation of intangible wealth in the form of learning and knowledge.

The Traditional Controlling Organization assesses its performance with numbers: How much money can we save by laying off so many employees and how much of that money can we take to raise our executive compensation? What's the market value today of our company's stock? Did we achieve the sales target?... etc. As we can see, management by numbers supports an organization which is speculative, short term oriented and where the immediate results of accidental events take priority over long term structural changes. The Learning Organization rejects this kind of management by numbers and uses well documented learning histories to assess its overall performance [11].

The Traditional Controlling Organization aims at an administration which is "a tight ship" or "lean and mean." Instead, the Learning Organization management philosophy allows for some slack in its operational activities. This slack allows employees to overcome the anxieties associated with learning and provides an atmosphere of reflection and experimentation where mistakes are tolerated as natural part of the learning process [12].

The Learning Organization is a management philosophy closer to our "true" human nature and supporting the vision of a global village where all people have the natural right to live in peace and progress. We must redimension the role of business organizations to "make money" at the expense of others, instead, we must focus our efforts in expanding our capacity to create wealth for the employees, the organizations and the communities. The new knowledge economy is reinforcing the need for these transformational changes and many organizations are beginning to embrace the philosophy of the Learning Organization and putting people before money. As an example of such a trend, Johnsonville Foods (Sheboygan, Wisconsin) changed its management style and allowed people who do the work to make decisions relating to their own jobs; in doing so the company changed its focus '...from using people to build the business to using the business to build great people... ' [13]. In Saskatchewan, another example of an organization, which emphasises the highest value of employees is the Office of The Provincial Auditor where "...Our employees are our strength and major resource in achieving our mission and values. We value fairness and equity; personal development; creativity, challenge, and innovation; teamwork; and leadership. We also value balance and harmony between work, home and community responsibilities..." [14]

THE KNOWLEDGE BASED ECONOMY

As already mentioned at the beginning of the previous section, a very important component of the social organization is the evolution of its collective intelligence through the exchange of information among people within the organization and with the environment. Today's environment is evolving through dramatic rapid changes brought by the application of new technologies and only organizations with the best management of their collective intelligence will be able to adapt synergistically to such changes and acquire a competitive advantage over less intelligent competitors. The

Thomas Stewart

importance of knowledge in

Peter Drucker

the work place was first recognized by Drucker when some 20 years ago he introduced the concept that in the future the competitiveness of the new corporation would be dependent on the "knowledge worker," and later it was reiterated by Arie deGeus, former head of planning for Royal Dutch/Shell, when he said that "...The ability to learn faster than our competitors... may be the only sustainable competitive advantage..." Today, everybody agrees that knowledge has become the most important asset of any corporation and yet accountants, banks, and conventional / traditional wisdom can't put a number on it. Thomas Stewart, business writer for Fortune 500 Magazine, is one of the best authors who has been able to popularly describe the new knowledge economy and the transitional challenges and opportunities waiting business organizations. Recently, while on the Internet, I have come across some of his excellent, poignant and humorous writings. I report below an extract of one of his articles [15] which highlights the current widespread ignorance in appreciating the corporate's intangible assets:

"...Your boss is an idiot. You've got this great idea, a strong staff, a half-finished project that all evidence suggests is worth tens of millions, and the idiot kills it. You quit... and make an appointment with Harry at the bank... You show Harry the business plan... And Harry... asks just one question before turning you down:

"What do you have as collateral?"... I mean, you have assets, lots of assets, but they're intangible--between your ears, on this little diskette, in that patent filing. The whole point is to build a virtual corporation; you'll contract out the manufacturing, warehousing, distribution. You don't have brick and mortar, and you don't want it. But banks don't know the difference between assets and a hole in the ground. A memory stirs--a smirking, familiar voice: Welcome to that corner of the Information Age that is known as... The Twilight Zone..."

The above situation is not unique, but it repeats itself over and over again. Another article is the introduction section of Stewart's new book "Intellectual Capital: The New Wealth of Organizations [16]." This introduction is a piece of artistry per se; the writing style, the humour in portraying leaders with their cadaverous secretive way of thinking, the laugh at the sprouting of new management trends and fads "...in the Land of OZ...," and the meaningful insights of the revolutionary economic changes presently occurring, are all compelling reasons why everybody with a concern and an appreciation for the future should read and enjoy this book. Stewart describes the passing of the industrial world and the advent of the new knowledge economy in this way:

"...The economic world we are leaving was one whose main sources of wealth were physical. The things we bought and sold were, well, things; you could touch them, smell them, kick their tires, slam their doors and hear a satisfying thud. Land, natural resources such as oil and ores and energy, and human and machine labor were the ingredients from which wealth was created. The business organizations of that era were designed to attract capital--financial capital--to develop and manage those sources of wealth, and they did it pretty well. In this new era, wealth is the product of knowledge. Knowledge and information--not just scientific knowledge, but news, advice, entertainment, communication, service--have become the economy's primary raw materials and its most important products. Knowledge is what we buy and sell. You can't smell it or touch it; even that satisfying thud from a slammed car door is probably the result of clever acoustical engineering. The capital assets that are needed to create wealth today are not land, not physical labor, not machine tools and factories: They are, instead, knowledge assets..."

Stewart states that the Information Age and the omnipresence of new technologies are the biggest stories of our time. In this new knowledge based economy -- and of the Internet -- managing knowledge, sharing knowledge and leveraging intellectual capital have become the most important assets of intelligent organizations. However, Stewart adds that we still have old fashioned organizations which don't manage knowledge in the form we need today:

"...when knowledge is scarce, you hoard it, give it an aura of magic and mystery, and bar the inner sanctum to all but a few initiates. It's a form of knowledge management that survives today in contemporary guilds... and of course, the corporate computer services department..." and he goes on to say "...We'll discover some surprising counterintuitive truths about managing in the Knowledge Era; for example, we'll learn how planned ignorance can sometimes be more valuable than knowledge, and why business leaders, who spend much of their time trying to construct management systems, would do better figuring out ways to make those systems disappear... We'll see how intellectual capital can free up other capital, such as equipment, cash, and inventory, liberating financial resources, increase corporate agility, and dramatically increase profitability; We'll learn important new principles of managing people in an information economy--so that companies can really mean it when they say 'people are our most important asset' "

We have neglected for a long time that the power of corporations was to be placed on the "knowledge worker" and have used the experts in Total Quality Management (TQM), Business Process Reengineering (BPR) and Outsourcing to provide quick fixes to the corporation's problems. Today, we realize that TQM cannot fix problems of a systemic or structural nature; that BPR [17] or Downsizing were quite often used as gimmicks to layoff employees, increase executive compensation salaries and cut costs; and that Outsourcing is expensive [18] and deprives corporations of possible critical competencies. We are now definitely in the knowledge era, and researchers and experts are providing additional confusion in the business world by coming up with different definitions of "Knowledge" and "Knowledge Management" in order to build new sciences and specialized business consulting expertise. I would not be surprised if these researchers and academicians are the same ones who were preaching the new "Paradigm Shift" and the need for "Collaborative Management Teams" and "Cross-functional Communication." The futility of the intellectual work of such experts and researchers in coming up with artificial fads was expressed by Stewart "...There's even a fad denouncing management fads..."

We recognize that business should not be driven by fads, and that we require an understanding of the evolving marketplace so that we can take intelligent actions to synergise our organizations. Some perceived realities of the marketplace are the following:

The economic value of knowledge is nonsubtractive, abundant, and unpredictable in its creative aspect. Knowledge breaks down the conventional law of economics of "demand and supply" and that of "diminishing return"and as a consequence organizations will be challenged in pursuing new ways to manage and market their resources [19].

Customers are becoming more demanding and they are asking for complete solutions to satisfy their needs. This means that firms will be required to partner to make individual contributions to the customer's complete solution. Therefore, the marketing power of organizations will shift from how well they perform their internal competencies to how well partnered [20] they are in being able to provide a contribution to complete solutions.

There is the need for suppliers to perceive customer needs as a unique package. This perception has been recently reinforced by the abysmal business flop of AOL to have a lower flat rate for all customers. The marketing approach to satisfy customers through a unique package has been called "management revenue" [21] and it is in one way an opportunity for businesses to create their own new market [22].

The need for partnering, to provide total solutions to customers, and create new markets has evolved to become a new market phenomenon called coopetition [23]. With coopetition, firms create cooperatively new markets and compete in them.

With the globalization of the economy, the sharing of information and partnering have become key managerial issues for increasing the collective intelligence of corporations. Therefore, globalization reinforces the need for corporations not to reinvent the wheels and use instead information and knowledge already available in the market place. Information and knowledge are imbedded into the products we buy and sell and any intelligent corporation must follow the new value chain where knowledge is its most important component. The concept of reusing information already available in the market place is the fulcrum of the knowledge economy, yet we still have many leaders who refuse to acknowledge this reality and who are still reinventing the wheel and therefore creating fictitious wealth by digging deeper into the ground.

In organizations knowledge is cultivated in the so called "communities of practice" [24] where people voluntarily get together to learn from each other on professional or other matters of their interest. Such communities do not recognize structured boundaries and they are the most important places where knowledge takes place. Organizations are recognizing the need to leverage this intellectual resource and they are facilitating their development through the establishment of Intranet / Internet technologies.

The widespread usage of the Internet [25] [26] and related applications of new technologies such as Intranet and now the NC (Network Computer by Oracle) have become the most important components of another quantum revolution which does not recognize geographical and time boundaries. This revolution will be a spin off of the inexpensive opportunities to network and communicate with any person or organization around the world at any time either simultaneously or sequentially. There will be virtual organizations, such as universities or corporations, electronic commerce will proliferate, there will be changes affecting every aspect of our lives at work and at home. Therefore, strategic planning of corporations must make room for including the impact of the ongoing dynamic applications of new technologies even if such technologies are not known yet.