Knowledge Knowledge Management’s Social Management’s Social Dimension: Lessons Dimension: Lessons From Nucor SteelFrom Nucor SteelDillion RathDillion Rath

Bahjat AbuhadbaBahjat Abuhadba

Jessica SmithJessica Smith

OverviewOverview

• Social EcologySocial Ecology• Information TechnologyInformation Technology• Management AgendaManagement Agenda• The task of accumulating knowledgeThe task of accumulating knowledge

Social EcologySocial Ecology

• Is the social environment within which Is the social environment within which people operatepeople operate

• Very crucial requirement for effective Very crucial requirement for effective knowledge managementknowledge management

• Defines the types of people who will fit into Defines the types of people who will fit into the organizationthe organization

• Shapes individuals freedom to pursue Shapes individuals freedom to pursue actions without prior approvalactions without prior approval

• Affects how people interact with others Affects how people interact with others inside and outside of the organizationinside and outside of the organization

Information TechnologyInformation Technology

• Are the programs that companies use Are the programs that companies use to connect the entire number of to connect the entire number of employees togetheremployees together

• Plays a central role in knowledge Plays a central role in knowledge managementmanagement

• Is the only viable mechanism that Is the only viable mechanism that efficiently connects large numbers of efficiently connects large numbers of people together whether they are people together whether they are local or geographically dispensedlocal or geographically dispensed

Management AgendaManagement Agenda

• Is the process of keeping all Is the process of keeping all information up to date and correctinformation up to date and correct

• Imperative to keep the company Imperative to keep the company moving in a forward motionmoving in a forward motion

The task of accumulating The task of accumulating knowledgeknowledge

• Can be broken down into three Can be broken down into three subtasks:subtasks:

• Knowledge creation (learning by Knowledge creation (learning by doing)doing)

• Knowledge acquisition (internalizing Knowledge acquisition (internalizing external knowledge)external knowledge)

• Knowledge retention (minimizing the Knowledge retention (minimizing the loss of proprietary knowledgeloss of proprietary knowledge

The Social Ecology of a The Social Ecology of a Knowledge Machine: The Knowledge Machine: The

Case of NucorCase of Nucor• Innovative and Fastest growing steel Innovative and Fastest growing steel

company for the past 30 yearscompany for the past 30 years• Compound sales growth of 17%Compound sales growth of 17%• 1968 to 1998 profit margins were 1968 to 1998 profit margins were

above industry medians, and average above industry medians, and average annual return to shareholders annual return to shareholders exceeded 20%exceeded 20%

• Largest steel producers in the United Largest steel producers in the United States 1999States 1999

Knowledge Creation Knowledge Creation

• Superior Human CapitalSuperior Human Capital– 1,200 applicants applied for 8 job openings in 1,200 applicants applied for 8 job openings in

Darlington, South CarolinaDarlington, South Carolina

• High-powered IncentivesHigh-powered Incentives– 1990’s payouts for production employees 1990’s payouts for production employees

averaged 80% to 150% of base wagesaveraged 80% to 150% of base wages

• High degree of empowerment High degree of empowerment – ““Good managers make bad decisions”Good managers make bad decisions”

• Avg. - 50% good, 50% badAvg. - 50% good, 50% bad• Good – 60% good, 40% betterGood – 60% good, 40% better

How Nucor How Nucor Accumulates Accumulates KnowledgeKnowledge

Knowledge Acquisition Knowledge Acquisition

• First company to adopt minimill First company to adopt minimill technologytechnology

• 1987 - First to make flat-rolled steel 1987 - First to make flat-rolled steel in a minimill and to commercialize in a minimill and to commercialize thin-slab castingthin-slab casting

Knowledge Retention Knowledge Retention

• No Layoff PolicyNo Layoff Policy• Reduced the workweekReduced the workweek• ““Share the pain” Share the pain” • Response to recessions strengthen Response to recessions strengthen

the spirit of trust and respect within the spirit of trust and respect within the companythe company

• Lowest turnover rate of any Lowest turnover rate of any company in its industrycompany in its industry

How Nucor Mobilizes How Nucor Mobilizes and Shares Knowledgeand Shares Knowledge

Identifying Opportunities to Identifying Opportunities to Share KnowledgeShare Knowledge

• Made performance data available to Made performance data available to the companythe company

• Allowed individual units and Allowed individual units and corporate headquarters to uncover corporate headquarters to uncover opportunities to share best practicesopportunities to share best practices

Encouraging Individuals to Encouraging Individuals to Share KnowledgeShare Knowledge

• Share best practices proactivelyShare best practices proactively• Group based IncentiveGroup based Incentive• Example:Example:

– Bonus depended not on their own Bonus depended not on their own performance, but on the performance of performance, but on the performance of their entire 25-40 person work grouptheir entire 25-40 person work group

Building Effective and Building Effective and Efficient Transmission Efficient Transmission

ChannelsChannels• IT used to transfer and share IT used to transfer and share

unstructured and codified unstructured and codified knowledgeknowledge– Intraplant Knowledge TransfersIntraplant Knowledge Transfers

• 250 to 300 people in plant 250 to 300 people in plant • Dinner for 25 to 100 employees each yearDinner for 25 to 100 employees each year

Building Effective and Building Effective and Efficient Transmission Efficient Transmission

ChannelsChannels• Interplant Knowledge TransfersInterplant Knowledge Transfers

– Detailed performance data regularly Detailed performance data regularly distributed to plant managersdistributed to plant managers

– General managers met 3 times a year to General managers met 3 times a year to review each facility’s performance and to review each facility’s performance and to develop formal plans for the transfer of develop formal plans for the transfer of best practicesbest practices

– Managers, supervisors, and machine Managers, supervisors, and machine operators periodically visited each operators periodically visited each others millsothers mills

Building Effective and Building Effective and Efficient Transmission Efficient Transmission

ChannelsChannels– Selectively reassigned people from one Selectively reassigned people from one

plant to another on the basis of their plant to another on the basis of their expertiseexpertise

• Recycled process innovation form Recycled process innovation form existing plants to start-up plantsexisting plants to start-up plants

• Built and rebuilt one or more mills Built and rebuilt one or more mills each yeareach year– Existing process knowledge was recycled Existing process knowledge was recycled

into new plant-design and construction into new plant-design and construction

Building Effective and Building Effective and Efficient Transmission Efficient Transmission

ChannelsChannels– Natural Incentive because building Natural Incentive because building

plant for themselvesplant for themselves– Knowledge of the underlying process Knowledge of the underlying process

technology embedded in the plant technology embedded in the plant design was carried over in the workers’ design was carried over in the workers’ mind from the construction phase to the mind from the construction phase to the operations phaseoperations phase

– Plant start-up expertise emerged as a Plant start-up expertise emerged as a plant competencyplant competency

Convincing Individuals to Convincing Individuals to Accept and Use the Accept and Use the

Knowledge they ReceiveKnowledge they Receive• ““Not invented here”Not invented here”

– Relying on their own efforts at Relying on their own efforts at knowledge creation could be costlyknowledge creation could be costly

– Makes unit’s performance visible to Makes unit’s performance visible to other units in the companyother units in the company

Knowledge Machine Knowledge Machine Company Divisions:Company Divisions:1.1. Creation and acquisition of Creation and acquisition of

knowledgeknowledge2.2. Sharing of knowledge Sharing of knowledge • Nucor Corporation is a Nucor Corporation is a

pioneer knowledge pioneer knowledge company.company.

Maximizing knowledge Maximizing knowledge Creation and Acquisitions:Creation and Acquisitions:

The above can achieved through:The above can achieved through:

1.Set Stretch Goals1.Set Stretch Goals: Set goals that : Set goals that cannot be reached without cannot be reached without innovation. Welch, “ If you do know innovation. Welch, “ If you do know how to get there it is not stretch how to get there it is not stretch target”. Basically, CEO of Yokogawa, target”. Basically, CEO of Yokogawa, “breaking out of the conventional”.“breaking out of the conventional”.

Maximizing knowledge Maximizing knowledge Creation and Acquisitions:Creation and Acquisitions:

2. Provide High Powered Incentives:2. Provide High Powered Incentives:The higher the rewards the more likely The higher the rewards the more likely

employees will actively participate in the employees will actively participate in the stretch-goal process.stretch-goal process.

3. 3. Cultivate empowerment and provide Cultivate empowerment and provide “slack” level resources: “slack” level resources: In an innovative In an innovative environment; limiting times of specific environment; limiting times of specific activities such as research and testing will activities such as research and testing will stifle innovation. Example of innovation stifle innovation. Example of innovation fostering, 3M requires at 15% of work fostering, 3M requires at 15% of work time be done without supervision.time be done without supervision.

Maximizing knowledge Maximizing knowledge Creation and Acquisitions:Creation and Acquisitions:

4. Equip every unit with a well 4. Equip every unit with a well defined sandbox to “Play”:defined sandbox to “Play”: Allow a Allow a determined percentage or revenue determined percentage or revenue from the company for the sole from the company for the sole purpose of experimentation. This purpose of experimentation. This will allow innovation yet under a will allow innovation yet under a controlled risk-assessing controlled risk-assessing environment.environment.

Maximizing knowledge Maximizing knowledge Creation and Acquisitions:Creation and Acquisitions:

5.Cultivate a market for ideas 5.Cultivate a market for ideas within the company: within the company: Implementing Implementing reliable idea-screening mechanisms. reliable idea-screening mechanisms. No single individual should have the No single individual should have the monopoly of wisdom thinking in the monopoly of wisdom thinking in the company.company.

Maximizing Knowledge Maximizing Knowledge sharing:sharing:

1.Ban knowledge hoarding and 1.Ban knowledge hoarding and turn knowledge givers into turn knowledge givers into heroes: heroes: Decide which company Decide which company product belongs to the whole product belongs to the whole business and which ones belong to business and which ones belong to single units. Rewards heroes who single units. Rewards heroes who facilitate their adoption by other facilitate their adoption by other units of the business.units of the business.

Maximizing Knowledge Maximizing Knowledge sharing:sharing:

2. Rely on group based incentives:2. Rely on group based incentives:

This helps direct efforts toward the This helps direct efforts toward the general benefit rather than general benefit rather than individual gain. It also exposes the individual gain. It also exposes the purposely under-performers and purposely under-performers and takes corrective measures towards takes corrective measures towards them. EX: Nucor, Group cash them. EX: Nucor, Group cash incentives, and Cisco, stock options incentives, and Cisco, stock options (25.11) Approx Value.(25.11) Approx Value.

Maximizing Knowledge Maximizing Knowledge sharing:sharing:

3. Invest in Codification:3. Invest in Codification: Create a Create a standard operating procedure. This standard operating procedure. This will allow consistency of service and will allow consistency of service and improve operations. Example, Marriot.improve operations. Example, Marriot.

4. Matching knowledge mechanisms 4. Matching knowledge mechanisms to the type of knowledge:to the type of knowledge: Each piece Each piece of knowledge needs a different way to of knowledge needs a different way to transmit it and share.transmit it and share.

Recreating Competitive Recreating Competitive AdvantageAdvantage

• Intellectual capital along with the Intellectual capital along with the continuous desire for mobilizing new continuous desire for mobilizing new technology is the key toward staying technology is the key toward staying on the completive edge.on the completive edge.

• In a global economy with opened In a global economy with opened competition; companies must adapt competition; companies must adapt effective and sufficient knowledge effective and sufficient knowledge development techniques to stay development techniques to stay competitive.competitive.