• Knowhow development
Most successful knowhow companies have their own knowhow development programmes, similar to research & development programmes in traditional companies. This is common, for example, among large accountancy firms and computer companies. The professionals are encouraged to spend time preparing internal reports or management books or to engage in research. The recent flood of management books stems from this kind of programme in consultancy firms.
The books, having served the purpose of stimulating the author and improving his or her understanding of a particular knowhow area, can be used to raise the company's public profile.
It will be impossible in the future for any knowhow company to survive
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without R&D. It is not hard to encourage professionals to do research; the problem for management is how to monitor it and make sure it turns out to be useful for the company as well as for the individual.
• Knowhow transfer
The more senior professionals have an enormous amount of knowhow, most of which lies latent. Managers must find ways of transferring this untapped wealth to the more junior members of the organisation. Successful knowhow companies have their own education programmes for this purpose, sometimes even their own universities, and they are avid buyers of external education. But that is not enough.
It is hard to formalise knowhow transfer systems. Some say the most valu- able knowhow of all comes from one's own mistakes. This is why successful knowhow companies use training on the job as the main method of knowhow transfer. The senior professionals in accountancy, law and consultancy firms always have a team of youngsters to do the donkeywork. The seniors are the motivators and quality controllers and at the end of the day they present the results and take all the credit, or so it often seems to the frustrated juniors.
Accountancy and law firms are more or less obliged to work this way, witness the 'pupil' system at the British bar, but in other industries this kind of professional 'shadowing' by new recruits is rare. It seems to be difficult to find in the same person both professional competence and an ability to transfer knowhow effectively.
Indeed in some industries there is even a professional prejudice against knowhow transfer. Who knows, one of those youngsters might learn enough to take over the professional's job? Ironically this attitude is common in those very organisations, such as the universities, where knowhow transfer is the business idea. Nowhere are the worst excesses of professional jealousy and egoism more evident than in the competition for professorial chairs. The same jealousies exist in most professions. Try asking a journalist for his contacts book.
• The experience curve - knowhow leakage
The success of Bruce Henderson, founder of the Boston Consulting Group, was based on his skillful exploitation of a concept known as 'the experience curve.' He drew general conclusions about the transfer of knowhow and experience from his studies of computer manufacturing companies. He discovered that the marginal cost of making computers declined as volume increased, not just be- cause of the traditional economies of scale in marketing and buying, but also because as people became familiar with the production process they learned how to improve it.
Knowhow companies have similar experience-curves of both the positive and negative kinds. A negatively sloping learning curve is a sign of knowhow leakage. There is leakage to clients with every assignment, to other professionals at seminars and to competitors when they poach staff.
Professionals also love writing books and articles. Because of the plethora of
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MANGING KNOWHOWprofessionals eager to share their knowledge with the world at large for the sake of their name on the front page of a book, traditional authors of technical and management literature have a tough time these days.
For society as a whole knowhow leakage is a good thing. It means that one can always learn something new in the information society. The alert and trained analyst can find titbits of knowhow everywhere. This is why all knowhow areas are developing so rapidly to-day. Knowhow spreads (leaks) quickly in the information society.
However carefully the knowhow is protected, it will become public knowl- edge sooner or later. It cannot be kept from prying eyes even by locking it in a safe and giving only one person the combination - like the recipe for Coca-Cola.
If the knowhow is valuable it will be copied and sometimes, as with Pepsi-Cola, the copy may conquer the original.
It is in the nature of the knowhow company to share its knowledge. The client learns from the consultant and in so doing erodes the consultant's competitive advantage.
Knowhow leakage cannot be staunched, it can only be replaced. New knowhow must be created constantly if the knowhow company is to maintain its lead and thus its competitive advantage.
Companies which fail to focus on their core knowhow will be ambushed.
Their carefully nurtured competitive position may, at any time, be abruptly neu-
Figure 14 As volume increases unit costs fall, but this also increases the risk of knowhow leakage as competitors become familiar with your knowhow.
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tralised by other companies catching up or by technological developments that turn an edge into a liability. In the information society knowledge flows freely.
A knowhow company that stands still is doomed.
Technological change in knowhow areas is rapid and has been accelerating during the past 20 years. Take the case of the calculator. The first electric calcu- lating machines appeared in the early 1970s. They were large, clumsy and ex- pensive. A few years later the second generation arrived. They were smaller, lighter and better engineered. Then came the first electronic calculators. By the beginning of the 1980s the product life-cycle was down to about six months.
Today calculators are as thin as credit cards and cheap enough to be given away as company presents.
In such circumstances it takes very sophisticated knowhow in knowhow de- velopment to maintain a competitive advantage.
Even in areas where product life-cycles can be measured in years it is obvious that the information society reduces quite dramatically the time it takes for knowhow to spread. A knowhow lead is as ephemeral as a fashion. It needs constant renewal if it is not to be lost.
It is hard to over-estimate the significance of this change in the rate of change. In the agrarian societies of the sixteenth to eighteenth centuries it could take more than 100 years for a new technology to disseminate. Inventors had little contact with the outside world. Knowhow was transmitted mainly by word of mouth. It was not until the beginning of the twentieth century that knowhow transmission began to speed up. A striking symptom of the change was the sudden eruption of patent offices all over the world. The idea of 'intellectual property', needing protection from predatory competitors, had been born.
It is important to focus on knowhow for another reason too. Some changes are so dramatic that they can invalidate the business idea. Early warnings of such developments are essential for survival.
• Computer service bureaux
The computer service market is a good example of how a knowhow area can change and develop. At the beginning of the computer age 20 years ago the computer service bureau had its heyday. The new electronic brains were clumsy and expensive. Even the simplest routines had to be handled by experts. It was natural that the bureaux should evolve into companies servicing the needs of several clients, using large, powerful machines operated by specialists.
Then computer prices began to tumble at a dizzying and accelerating speed.
At the same time advances in software technology made the machines much easier to use. The bureaux selling merely computer power encountered serious problems. Their knowhow was being incorporated into the hardware. Machines that had seemed dauntingly complex and temperamental to their clients became accessible and much more reliable.
Sweden's largest computer bureau, Datema, recorded losses for three con-
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MANGING KNOWHOWsecutive years and was bought out in 1985. Before then many of the best pro- grammers had left to start their own companies. While struggling desperately for survival, Datema had spawned a new generation of Swedish computer companies.