What’s Best for the Corporate Brain?

by James Heskett

Summing Up

Those offering insights into ways to make the corporate brain function more effectively suggest that the corporate brain may be as complex as its biological counterpart. Respondents alternatively focused on learning, constant usage, and memory.

Where learning was the primary concern, the orderly introduction of new talent into an organization, perhaps by periodically identifying and letting the lowest performers go, was applauded. One of the comments reflects this view: "What is really important is that companies continue to invest in knowledge management practices but at the same time remain flexible enough to source new expertise and knowledge from outside the company." The planned termination of the lowest performing employees was characterized as a way "to forget things we no longer need to know," a process "too often ignore[d]."

Charles Carroll pointed out "Corporate brain cells, like their biological counterparts, must be used to be valuable." A part of this usage involves getting employees to share knowledge they possess with the organization. Or as Varun Sahay said, "Intellectual capital that belongs to employees has to be transferred into the corporate brain," a formidable task in many organizations.

Those stressing the importance of memory placed the greatest value on the retention of talent in the organization. As C. J. Cullinane put it, "If employees are the brain cells, then long-term employees are the long-term memory of the corporate brain."

Most respondents, in one way or another and without mentioning it explicitly, suggested strong linkages between the health of the corporate brain and the organizational culture of which it is a part. For example, will individuals be more willing to share their "intellectual capital" in some cultures more than others? What are the characteristics of such cultures? How can they be nurtured? What do you think?

Original Article

Two of the most important questions concerning the long-run health of the modern organization competing in an information economy are: (1) How do organizations learn? and (2) How does the "corporate brain" really work? The increased attention to what Thomas Stewart terms "intellectual capital"—the sum of everything everybody in an organization knows that gives it a competitive edge"—is stimulating ways of thinking about these questions.

As Stewart and others have concluded, intellectual capital comprises a "hierarchy of knowledge"—data, information, knowledge, and wisdom—making up both explicit (data and information) and tacit (knowledge and wisdom) components. Explicit intellectual capital can be identified, quantified, stored, accessed, and accumulated through the effective use of technology by and for managers. Tacit capital, however, is stored in the minds of people and has to be unlocked in ways that develop, recombine, and provide the basis for implementing ideas. It requires everything from formal education to "water cooler conversations" to get members of an organization to exchange and build on each others' ideas. Given the complex nature of tacit knowledge and the way it is developed, one can conclude that as intellectual capital becomes more important in the mix of what all organizations create, continuity—of leadership and among employees—may be as important as any other element of strategy. But just how much employee continuity is best for the development of the corporate brain?

If employees are the "brain cells" needed to develop intellectual capital and things like continuity of employment, organization structure, and incentives equivalent to the synapses by which information is exchanged and knowledge created, how many (if any) cells are destroyed in the "corporate brain" when downsizing occurs? Or when organization development efforts are curtailed? Or when knowledge development is subcontracted to an army of "free agents?" Or when employees are discouraged from engaging in too much "water cooler time" in the name of preserving next quarter's bottom line?

Some organizations, like Southwest Airlines, seek to minimize employee turnover and go to great lengths to avoid downsizing, concentrating instead on very careful hiring and training. Others, like GE, in addition to providing an array of educational and other opportunities, follow the practice of periodically identifying a prescribed percentage of managers—in GE's case 10%—who are candidates for possible dismissal, in part under the assumption that selection and training processes are not perfect and that this is the best way to raise the quality of management in a large organization on a continuing basis. These practices, just two among many strategies for building intellectual capital, raise interesting questions.

Which is best for the health of the organization and the ways in which intellectual capital are created? Are there conditions under which each can be beneficial? If so, what are the conditions? What strategies to build intellectual capital are you pursuing in your organization? What do you think?

    • Charles Carroll
    • Laid-off program manager

    Corporate brain cells, like their biological counterparts, must be used to be valuable. The mere fact that an employee has worked for years and gained knowledge does not mean that the corporation will automatically benefit. It must be shared. This means the employee must be rewarded and not be in fear of removal.

    Many "experts" have memorized current procedures and do not understand the underlying doctrine that makes that knowledge relevant or irrelevant. If technology is a reproducible method of addressing goals through people, processes, and artifacts, then its value is based on the currency of these three. Fleet Admiral Ernest J. King said, "You have to understand the doctrine to know when to break the rules." The chain is: data-information-knowledge-wisdom-effectiveness. Companies taking in "knowledge" from employees must examine it in its context and distill the timeless from the temporary.

    • C. J. Cullinane

    If employees are the brain cells, then long-term employees are the long-term memory of the corporate brain. The welder who knows his job and its idiosyncrasies and the customer service person who knows his customers and their idiosyncrasies are the basic "engrams" that run a business!

    The financial manager who remembers the 1970s and the environment of that time is less likely to make mistakes than one who has not experienced this kind of business environment. This long-term memory can be an important element of the corporate brain.

    • Anonymous

    There is little doubt that organizations must develop strategies to build intellectual capital. But the exact nature of the role that corporations must play is less clear. Corporate programs that build and sustain knowledge must exist, but only within reason. Companies who rely too heavily on their current workforce for intellectual capital will undoubtedly pay a price during downsizing or restructuring. What is really important is that companies continue to invest in knowledge management practices but at the same time remain flexible enough to source new expertise and knowledge from outside the company. This will help promote innovation and generate new ideas, thereby adding to the company's intellectual capital.

    • Vukile Gwele
    • Business Analyst

    At least many organizations are beginning to recognize and acknowledge the mix of the three pillars of business—people, processes, and technology. The three are so mutually inclusive for effective and efficient business outcomes. People (the corporate brain) are the custodians of the processes and technology (the intellectual capital). The database and applications residing in IT are but a subset of a bigger knowledge base residing and locked inside the people. It may not reflect as such in a company's balance sheet, but the knowledge base (people) is the organization's valuable asset.

    If competitive advantage is to be realized to the fullest, strategies to unlock, nurture, and secure or protect this knowledge base have to be developed and aligned with other strategies at corporate, business, and functional levels. The challenge here is that the success of corporate leadership should not only be measured by the amount of wealth (value add) they create for the shareholders, but also by their endeavors and efforts to develop the very same instruments that propel the business objectives.

    • Varun Sahay
    • Business Development Manager, Caatoosee Ag

    Intellectual capital that belongs to employees has to be transferred into the corporate brain. Discipline in the organization is a must whereby the employees learn that retention of knowledge is not a means to job security, but is unproductive for the growth of the organization. Relationships are people oriented, strategy is organization oriented; the two belong together.

    Downsizing and employee turnover are corporate terms used to justify an employee's lack of experience. The organization's presumption is that terminated employees were not contributing to the growth of the corporate brain but being counter productive.

    We must remember that over the last couple of years there has been an explosion in the job market. Jobs were given to people with limited experience to create the corporate image of a machine, but in reality how much additional knowledge was being put into the corporate brain? Probably less than 5 percent, if the employee had the previous qualification requirements.

    In today's organization the only way of preserving intellectual capital is by converting the tacit knowledge into explicit knowledge to which all employees have access. The value creation can then be justified in terms of employee productivity. The knowledge resides in the organization and the employees can use their tacit knowledge to make use of that knowledge.

    • Brett

    I had not heard the example of GE targeting 10 percent of managers for possible dismissal before, but I like it. In terms of organizational learning I think it is an interesting approach to an under-discussed topic: how to forget things we no longer need to know.

    We spend nearly all of our time figuring out how to create, catalog, and retrieve new knowledge but too often ignore the process of forgetting. Although GE's example may be a bit harsh (dismissal), the value of getting "new blood" cannot be underestimated. It seems that the best way for middle managers to keep their jobs, and possibly become senior managers, is to make sure their own skills are continually refreshed.

    • Jayanthi Iyengar
    • Content Consultant, Jain Television, New Delhi

    The corporate brain is nothing but the codification of knowledge and work practices that exist in most organizations. It embodies the work culture of an organization, which remains with it despite employee turnover. The segment of the workforce that remains with the organization provides continuity. This segment carries forward the unique spirit that is endemic to each organization.

    This point is repeatedly borne out by the fact that the work culture and approach to work in an organization may not change despite a substantial change in the employee profile. While there is little to worry about for those organizations that have the kind of work culture that suits their requirements, organizations that desire to change their work culture would have to transform that segment of their work force that controls the approach to work. As a business strategy, this is not easy, since each of the players in this segment are power brokers within the organization. Hence any change wrought would have to be done either by taking them along or breaking them. The first approach is evolutionary, the second revolutionary. The choice of approach is entirely up to the organization, though the second is cleaner, faster and corrective—the corporate brain does need a correction from time to time!