Knowledge Management is all about people

Knowledge Management is all about people
We don't like the unexpected. Storms, accidents, or even unexpected outcomes within our organizations. We like to be in control, we like order, and we like to predict events. The reality, however, is that organizations are nonlinear systems with behavior, like the weather, that is hard to predict.

There is a confluence of events, equal to an organizational version of a perfect storm, that is brewing, and it will have consequences that are difficult to pinpoint. The elements coming together include the following:

  • A wave of baby boomers set to retire

  • Increased entrepreneurship, as measured by business start-ups

  • Foreign students leaving after graduation

  • A dearth of students in science, mathematics, accounting, and other rigorous disciplines

  • A disengaged workforce(1)1

  • Empowerment efforts in retreat

  • Decreasing civility

  • A shift in wealth creation from the tangible to the intangible

    The first four elements of the approaching front reflect a shrinking pool of highly skilled workers, or the "creative class."(2) The next three elements signify shifts within the work environment. The final element, however, is the most critical of all. It represents a sea change in how businesses function and prosper. This epic shift in wealth creation, from the tangible to the intangible, is the source of much consternation and stress all on its own, and deserves a critical examination.

    The Shift

    The movement of wealth creation from the tangible to the intangible means that knowledge and knowledge workers are becoming the scarce resources of the enterprise.3 We have not yet come to grips with this shift, so we try to leverage the value of knowledge through Industrial Age mechanisms and traditional management practices designed for another era.

    An example of this is the practice of knowledge management, where knowledge is treated as an object that can be collected, organized, and distributed on demand. The Industrial Age method of handling this perception of knowledge is through technology: the creation of systems and databases through which knowledge is captured and shared.

    The trouble with this approach is that it assumes knowledge can be detached from the individual who holds it and the context in which it was developed. Further complicating the industrial approach, there are at least two types of knowledge. The first type is explicit, which does lend itself to a technological knowledge management solution. The second type of knowledge is far more elusive, and sometimes that holder of the knowledge doesn't recognize that it exists. This is tacit knowledge, without which explicit knowledge is incomplete. The failure to recognize the importance of tacit knowledge has led to disappointing results among technology-based knowledge management efforts, leading some to conclude the effort was another passing management fad.

    The more egregious failure among the current practices of knowledge management, however, is the baseline assumption that knowledge can be managed. The term "knowledge management" generally refers to the Industrial Age concept of management through control, order, and prediction. In the Idea Age, knowledge management needs to embrace the concepts of connections, openness, and permissions.

    In the aftermath of the 2007 Valentine's Day ice storm, Pennsylvania state officials said that they did not know hundreds of motorists were stranded on highways for hours without aid. In this day of instant communications and ubiquitous cell phone usage, this is hard to fathom. Most likely, this was a case of being connected without the benefit of a connection. The missing link is not one of technology, but rather human intervention.

    As noted above, a large segment of the workplace - 70 percent by some estimates - is disengaged. If a work environment has a large number of disengaged workers, the best systems approach to knowledge management won't work because there are no connections. Without relationships, technology becomes an expensive investment that doesn't deliver. Under the old Industrial Age model, the workplace may have been able to tolerate a higher level of personal disengagement so long as the hard product shipped, but in an era where ideas count, a disengaged environment is toxic to creative thinking and innovation. Couple this disengagement with an appalling decrease in civility among co-workers, and the best systems will fail every time. Knowledge workers respond and become engaged when they believe in a purpose. Business leaders must create and support a culture that provides an opportunity for individuals to express both their own purpose in life and contribute to the purpose of the organization. In the Industrial Age, organizations at first required only the hands of the worker, and then later their brains as well. In the Idea Age, we need the full person present - hands, head, and heart - engaged in problem solving and creativity.

    Knowledge workers thrive on information, requiring it for energy and growth. Too often, however, we remain stuck in Industrial Age practices of tightly controlling information. Management needs to do a better job of ensuring that systems are in place that enable information to flow in all directions. This includes space architecture too. We often create work spaces that resemble canyons, killing the creative spirit and dampening unplanned get-togethers. Space, like design, matters. For example, a proposed project for a new facility at a nonprofit divided the board. A majority of the board wanted to maximize the square footage for offices. A few board members, however, recognized that the building, at the entrance to the campus, had the potential to draw people together and improve communications. Their idea required an atrium in the new facility, but it would draw away from the space available for offices. The minority of board members made a compelling case, which was adopted. The facility did, indeed, become a focal point for people to gather.

    In this time of transition, we still cling to the mantra of the quality movement - "getting it right the first time" - and practices that penalize making a mistake. The rub of this thinking is that it discourages risk-taking, experimentation, and learning, which are required in a world fueled by competitive ideas. A review of management literature from the early 1990s until now shows an evolution in thought, first focusing on change, then innovation, and now knowledge. The common denominator among these three topics is learning, which is the foundation for each. This suggests that organizations with a supportive learning environment - including leadership, structures, systems, and culture - are also adaptive, innovative, and able to exploit and share knowledge.

    If we can move away from the outmoded convention of knowledge management as a technology-driven practice where knowledge is treated as a thing, toward a new mindset where relationships matter and knowledge and the knowledge holder are one, we will be led back to people. The switch is critically important, especially for organizations that face the prospect of losing the tacit knowledge of impending retirees. Technology alone won't help. Individuals working together in cross-training assignments, creating settings that encourage sharing of work practices, and facilitating opportunities for observation while problem-solving or creating will help. These suggestions, of which there are many, can help organizations capitalize on the fact that 70 percent of workplace learning takes place informally.(4)

    An emphasis on people has other advantages beyond the understanding and expansion of true knowledge management. Organizations have spent much time and effort on technology-related issues and cutting costs. Lean and mean, however, comes at a price. There is no slack. An example of this is the airline industry. Any storm, summer or winter, can cause havoc that results in the warehousing of passengers in planes on a tarmac for hours. No slack in the system means it is susceptible to disruption, causing delays, cancellations, and bad customer service.

    The absence of slack also has a more insidious effect on organizations. A company may be described as a "high-performing organization," which sounds admirable. We soon discover, however, that the phrase usually means that it is an organization where everyone is involved in problem-solving. Innovation is becoming the basis for competition in the new era we are entering, so skills in problem-solving alone won't help. Innovation requires opportunity. Unless there is some slack in the system, individual workers will focus tightly on their strengths, inhibiting any growth through experimentation or reaching out beyond tightly defined parameters.

    ow we adjust to this new era and move forward requires new thinking, experimentation, and patience.

    Knowledge Management and the Accounting Practice

    The management of information through the use of technology has been deemed critical to the success of most CPA firms. A great deal of time and financial resources have been dedicated to developing computer-based systems that enhance the ability to provide client services in the most efficient and effective manner. Oddly though, these same firms fail to manage some of the most important information of all: the knowledge that lies within each member of the firm.

    Accounting practice management information systems are focused on organizing data and making them readily accessible in a usable form. These systems, however, fail to capture the important information that lies outside the technological boundaries, such as little-known or personal facts about a client, special circumstances regarding a client process, or new procedures that might enhance the firm's operations. We all know of instances when a client conveyed information to one staff member, and that knowledge was never passed along to other members of the firm. The same is true within the practice hierarchy, where knowledge sometimes fails to disseminate from the senior levels down to the staff level.

    Those responsible for the administration of a CPA firm need to be aware of the value of this human knowledge within the organization, and take steps to maintain an environment that fosters the exchange of ideas and information. The older-era structure of a CPA firm with the partners at the top of the ladder, segregated from staff who handle the day-to-day needs of the clients, will lead to the failed transmission of important knowledge. In this type of Industrial Age organization, key knowledge can get trapped within various levels of the hierarchy when there are no other means for it to travel to other areas within the firm. A number of steps can be taken to create an environment that will facilitate the flow of important information throughout the firm, if you are willing to start moving into the new Idea Age.

    First and foremost, the tone of the organization always comes from the top. Senior members of any CPA firm need to avail themselves to the staff, both formally and informally. Simply walking through the office and sharing thoughts with staff members can be invaluable. This makes staff members feel comfortable speaking with the senior firm members, opening a door for the transfer of knowledge. What can be learned while sharing a few moments with an associate around the water cooler or the coffee pot is amazing.

    Also, end the notion of stratification that exists in many CPA firms. This belief that senior members should only socialize with other senior firm members is a lost opportunity to share knowledge with someone who is on the front line, interacting with clients every single day. Staff have a lot more information to pass on than what can be filled out in a data field.

    The practice's facilities are another key component to consider when trying to enhance the transfer of knowledge among staff. Office layout needs to be designed so staff members can communicate with one another freely, and be accessible to senior personnel. The traditional cave-like structure of many offices fosters isolation, making communication with other members logistically difficult. Office floor plans need to be open meeting places that foster the transfer of knowledge. Don't discount the placement of components such as fax machines and photo copiers. These areas can be functional gathering places too.

    Although it may seem redundant, there is a real benefit to assigning more than one accountant to each client. This both provides the client with a comfort level of having more than one individual to contact within the firm, and creates a failsafe in the event a staff member leaves the firm or encounters a long-term absence. Through this introduction of some "slack" there will always be another member of the staff aware of the client's issues who can step right in.

    Ultimately, the long-term success of the CPA firm depends upon the transfer of knowledge amongst its members. The free exchange of knowledge among the staff is critical. Learning, development, and listening are important objectives if you want to succeed in the new Idea Age.

    (1) Gallup Study: Feeling Good Matters in the Workplace, http://gmj.gallup.com.
    (2) Richard Florida, The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community and Everyday Life (New York: Basic Books, 2002) p.8.
    (3) Peter F. Drucker, The Age of Discontinuity: Guidelines to Our Changing Society (New York: Harper-Collins, 1968) p. 267.
    (4) Don Cohen and Lawrence Prusak, In Good Company: How Social Capital Makes Organizations Work (Boston: Harvard Business School Press, 2001), p. 170.

    By Philip E. Howe, CPA, and Martin C. Levin, CPA

    Summer 2007, Pennsylvania CPA Journal

    Reprinted with permission

    Philip E. Howe, CPA, is director of accelerated programs at The Wescoe School of Muhlenberg College. He is also a member of the Pennsylvania CPA Journal Editorial Board, PICPA's Strategic Advisory Board, and AICPA's Virtual Grassroots Panel. He can be reached at phowe06@rcn.com.

    Martin C. Levin, CPA, is director of accounting services at Levin, Savchak & Associates PC in Allentown, PA. He is also a member of the AICPA Accounting and Review Services Committee. He can be reached at mlevin@levinsavchak.com.

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