Professor of Strategy and Entrepreneurship
London Business School

When knowledge hurts

Over the last decade or so companies have been told till it was a nuisance that their knowledge is their ultimate (if not only) source of competitive advantage. They have been encouraged – by management gurus, academics, and ample management consultants alike – that they should invest in knowledge development, protect it, and makes sure it gets identified, codified, and even put on the balance sheet.

The advice was to carefully identify best practices and make sure that you have systems that help these practices to be shared throughout the organization. This way, you will make optimal use of the great good and surely a healthy return will follow – or so the preachers said.

Many companies responded, as advised, by setting up internal systems that could be used to store and access all sorts of documents, as well as systems to aid the identification of experts in the organization and ways to contact them for advice.

But have these knowledge management systems turned out to be as good as was promised to us? Well… let’s say that a few caveats have emerged.

Because what we sort of forgot in the torrent of knowledge euphoria is that this stuff can also come at a cost. The cost of actually finding it, for example, in the jungle of corporate databases, but also the cost that comes with the fact that re-using prior knowledge doesn’t necessarily make you very original. And that’s a problem, especially when you need to stand out from the crowd.

Professors Martine Haas from the Wharton School and Morten Hansen from INSEAD, for example, examined the use of internal knowledge systems by teams of consultants in one of the big four accountancy firms, trying to win sales bids. They measured to what extent these teams accessed electronic documents and how much they sought personal advice from other consultants in the firm. They figured that, surely, accessing more knowledge must be helpful, right?

But they proved themselves wrong; to their surprise they found that the more internal electronic databases were consulted by these teams the more likely they were to lose the bid! Likewise for seeking advise from colleagues. This effect was especially pronounced for very experienced teams. These guys were much better off relying on their own expertise than trying to tap into experiences by others, whether it was in the form of electronic stuff of external advice.

Haas and Hansen figured that the opportunity costs of accessing all this prior knowledge must be huge; big enough to offset any potential benefits. Searching through the plethora of documents and soliciting advice from colleagues actually withheld the teams from making substantial investments into putting together a truly original and suitable proposal.

Things were even worse in situations in which competing firms were simultaneously bidding for the same lead, and being able to differentiate yourself from these rivals became crucial. In these cases, utilizing prior knowledge seemed to lead teams to develop cookie-cutter solutions when being original and innovative was what was really needed. As a result, they lost the bid.

The only times that a team benefited a bit from accessing internal knowledge sources was when it concerned a very inexperienced team. In such instances, talking to a few internal experts improved their chances of putting together a winning proposal. However, the internal document databases were always useless at best. The more these rookies tried to tap into the mountain of electronic documents available to them, they worse their chances of coming up with the winning bid.

The advice to derive from this research? Shut down your expensive document databases; they tend to do more harm than good. They are a nuisance, impossible to navigate, and you can’t really store anything meaningful in them anyway, since real knowledge is quite impossible to put onto a piece of paper. Yet, do maintain your systems that help people identify and contact experts in your firm, because that sometimes can be helpful. But make sure to only give your rookies the password.

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One Comment for “When knowledge hurts”

  • Gordon says:

    Your conclusion is: "The advice to derive from this research? Shut down your expensive document databases".

    However, I think Haas' and Hansen's finding was a little more nuanced than that. They find that such document databases had value where the business driver was efficiency – but not where it was quality. To quote: "This suggests that firms that primarily compete on quality can benefit most from emphasizing personal advice usage (and perhaps downplaying electronic document usage), while the opposite holds for firms relying on efficiency." p. 38

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