Knowledge Services Management: Organizing Around Internal Markets

194 Pages·2009·1.66 MB·English

by  Peter K. Mills

PeterK.MillsandKevinM.Snyder
KnowledgeServicesManagement
OrganizingAroundInternalMarkets
ServiceScience:ResearchandInnovationsintheServiceEconomy
SeriesEditors
BillHefley
ITServicesQualificationCenter(ITSqc)
CarnegieMellonUniversity
5000ForbesAvenue
Pittsburgh,PA15213USA
hefl[email protected]
WendyMurphy
IBMc/o
1954RockyCoveLane
Denton,NC27239
[email protected]
Selectedtitlesfromthisseries:
BillHefleyandWendyMurphy
Service Science, Management, and Engineering Education for the 21st Century,
2008
ISBN978-0-387-76577-8
Foracompletelistingofbooksinthisseries,gotohttp://www.springer.com
Peter K. Mills
Kevin M. Snyder
Knowledge Services
Management
Organizing Around Internal
Markets
123
PeterK.Mills KevinM.Snyder
UniversityofOregon UniversityofMassachusetts
LundquistCollegeofBusiness IsenbergSchoolofManagement
1208UniversityofOregon 121PresidentsDrive
EugeneOR97403-1208 AmherstMA01003-4945
LillisBusinessComplex USA
USA [email protected]
[email protected]
SeriesEditors:
BillHefley WendyMurphy
ITServicesQualificationCenter(ITSqc) IBMc/o
CarnegieMellonUniversity 1954RockyCoveLane
5000ForbesAvenue Denton,NC27239USA
Pittsburgh,PA15213USA [email protected]
hefl[email protected]
ISSN1865-4924 e-ISSN1865-4932
ISBN978-0-387-09518-9 e-ISBN978-0-387-09519-6
DOI10.1007/978-0-387-09519-6
SpringerNewYorkDordrechtHeidelbergLondon
LibraryofCongressControlNumber:2009935052
(cid:2)c SpringerScience+BusinessMedia,LLC2010
Allrightsreserved.Thisworkmaynotbetranslatedorcopiedinwholeorinpartwithoutthewritten
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Printedonacid-freepaper
SpringerispartofSpringerScience+BusinessMedia(www.springer.com)
Contents
(cid:3)
(cid:3)
Preface ..................................................................................................................... vii

Chapter 1: Defining Competitive Advantage in Knowledge Services ................... 1

Chapter 2: Understanding the Logic of Knowledge Service Sustainability:
Customer Alliances .......................................................................................... 23

Chapter 3: Building Advantage: Managing Customer Alliances by Professional
Distance ............................................................................................................ 48

Chapter 4: Building Knowledge Advantage: Internal Market Imperatives ......... 70

Chapter 5: Building Advantage: Management by Mistrust in Controlling
Empowered Proventure Workers ..................................................................... 94

Chapter 6: Building Advantage: Designing the Right Structure for Knowledge
Services .......................................................................................................... 111

Chapter 7: The Internal Promotion of Ideas ....................................................... 137

Chapter 8: Conclusion ......................................................................................... 152

References ............................................................................................................ 159(cid:3)(cid:3)(cid:3)
Index ..................................................................................................................... 183
Preface

It is the purpose of this book to present the fundamentals of designing
knowledge service organizations. Like many others, including Jay Galbraith,
J.D. Thompson and Robert Dubin, we believe that the architecture or design
of the organization is the manager’s most important job. The fundamentals
related to design of the work landscape are therefore essential to all know-
ledge services. Our belief is that while solutions to customer priorities may
vary, all knowledge services must first get their architecture in place for the
efficient attainment of value added solutions.

The book responds to a need for different approaches to the challenges
faced by managers in designing knowledge services. Rapid technological
changes along with changing economic conditions have had significant in-
fluence on the work landscape for workers and management as well. What is
most significant about this changing environment is that the means of pro-
duction are controlled by workers themselves. In light of this, there is grow-
ing awareness that the work landscape for knowledge services cannot be
readily managed by reliance on traditional approaches such as 20th century
hierarchies.

Given this new reality, the design framework presented in this book is
based on internal market principles along with customer integration into the
boundaries of the organization. This framework initiates new and realistic
ways of designing knowledge services for sustained competitive advantage.
By adopting an internal market perspective the firm can integrate the science
and art of management with the design realities of contemporary knowledge
services. It is the intent of the book to provide ideas that are useful and rele-
vant to managers of knowledge services along with students in this field.

We are most grateful to Mindy Moreland who took on the task of initial
editing of the book. Our special thanks to Martha Carpenter for her numer-
ous insightful comments. The authors wish also to acknowledge and thank
Phil Ferranto for his invaluable assistance in creatively coordinating and
managing the manuscript with the publishers and other contributors.

Peter K. Mills
Kevin Snyder
CHAPTER 1
DEFINING COMPETITIVE ADVANTAGE IN
KNOWLEDGE SERVICES
Abstract

This chapter examines the profound and widespread evolutionary transformation
of the workplace as the economy shifts from one based on manufacturing to know-
ledge services. 20th century managerial approaches for competitiveness are becom-
ing a relic, the result of a broader transformation to knowledge services and the
need to focus on the building of tacit knowledge stocks for sustained competitive ad-
vantage. The chapter outlines the emerging knowledge based work landscape and
the challenges it presents for managers. In this chapter, the “proventure” worker is
introduced and the new and complex contract in the relationship between manage-
ment and worker in the workplace. The nature of knowledge service solutions to cus-
tomer priorities is presented with the focus on collective cognitization along with the
active inclusion of customer as co-creators of value-added solutions. The chapter
concludes by highlighting a big-picture framework to provide guidance for manag-
ers of knowledge services interested in understanding and improving the perfor-
mance of their organizations.
“All I talked about was the drive to get into services. We are in the services business
to expand our pie. Our job is to sell more than just the box.”1
-Jack Welch, Former General Electric CEO
As Mr. Welch’s quote suggests, we are becoming a predominantly know-
ledge-based services economy. The facts bear this out. Over the last twenty-
five years, there has been a dramatic transition toward the “cognitization” of
work, or work requiring copious reasoning and judgmental activities.2 In the
growing economic evolution that is currently taking place, the shift in em-
ployment to knowledge-centered services is the most forceful driver trans-
forming 21st century firms and the way things get done in the world of work.
Emerging knowledge service organizations are generally organizations that
use intellectual capital—a body of ideas—to diagnose or address customer
priorities and recommend a course of action or solution. Services are the en-
gine driving the expansion in the U.S. economy.
Currently, about 80% of Americans are employed in the services sector.
The number of manufacturing jobs had fallen dramatically over the past sev-
eral years. From 2000 to 2005, the U.S. lost approximately 17% of manufac-
P.K. Mills, K.M. Snyder, Knowledge Services Management, Service Science: Research
and Innovations in the Service Economy, DOI 10.1007/978-0-387-09519-6_1,
© Springer Science+Business Media, LLC 2010
2 Defining Competitive Advantage
turing jobs (dropping from 17.3 million to 14.3 million). This illustrates an
ongoing trend within the American workforce, as the manufacturing sector
has dropped from 35% in 1955 to 10% in 2005. Agriculture continues to
make up a very small portion of the economy, representing only about 2%.
Similar to the shift from agriculture to manufacturing during the Industrial
Revolution, the current shift is changing the workforce from emphasis on
manufacturing excellence to the quality of services solutions.
The activities of many successful companies have mirrored this shift, from
manufacturing to services. Former president and CEO of General Electric
(GE), Jack Welch, has been a visionary in management design for decades.
In 1996, Welch unveiled the “New GE for the Next Century.” The plan reor-
ganized GE in terms of service functions, transplanting traditional product-
market units that had once been the legacy of innovation, progress, and sus-
tained profitability. The transformation of GE from manufacturing to servic-
es—where the margins are generally 50% higher—had been an obsession for
Welch. This transformation has taken GE from a $79 billion firm in 1996 to a
$173 billion firm in 2007. Meanwhile, its overall profit margin increased
from 9% to 13%.3
International Business Machines (IBM) was another company to success-
fully make the shift. When IBM acquired the PriceWaterhouseCoopers
(PWC) consulting practice in 2002 for $7.5 billion, it added 33,000 service
workers to its ranks, signaling a dramatic change in the company’s strategy
and future profit potential.4 IBM has continued to move in this direction by
focusing on providing business solutions through IT consulting, a move that
has increased overall revenues by 22% since the PWC acquisition. Many
other large manufacturing companies are taking notice and have followed
IBM. Hewlett Packard’s (HP) recent acquisition of Electronic Data Systems
(EDS) and its 140,000 service employees doubled HP’s workforce at a cost
of $13.9 billion, indicating further emphasis on services over manufacturing.5
While this movement by IBM and others underscores the radical transfor-
mation of the work landscape over the recent years, the effects of shifting to
a service-based organization are profound. In this chapter, we will discuss the
departure from 20th century organizational landscape and some of the daunt-
ing challenges facing managers with the rise of knowledge-based service or-
ganizations.
Knowledge-based services are at the epicenter of workplace evolution.
Services such as business-to-business services; high-touch, high-tech support
services; technical-software services; accounting and financial services; ad-
vertising, marketing, and public relations; engineering; medical and health-
care; management consulting; and legal services comprise the most rapidly
expanding segment of the labor force. The paramount impetus for growth in
this economy is these services. Whereas manufacturing ruled the economy
only a few decades ago, employment in these industries has plummeted and
continues to do so under pressure from lower costs. Economic census data
Knowledge Services Management 3
show that between 1977 and 2007, the number of employees engaged in
manufacturing activities decreased by about 25% while service employees
increased by 168%. The graph below illustrates the dramatic shift from man-
ufacturing to a service based economy.
Table 1-1. Shift in Labor Force from Manufacturing to Services in the United States (1977-
2007)6

The most rapidly expanding segment of the economy is knowledge servic-
es. Economic census data show that while the number of establishments en-
gaged in manufacturing activities increased by around 2 percent from 1968-
2005, establishments in the knowledge services increased by 26 percent dur-
ing the same time period.7 This movement to knowledge services appears to
be far from a temporary shift but rather a permanent one and is not without
precedence. There appears to be a pronounced link between economic evolu-
tion and commoditization of services. At the core of the movement to a
knowledge-based work force is a trend towards the commoditization of low-
level white-collar services jobs such as wholesale, call centers, basic level
technology jobs (such as billing services and resetting passwords), and other
service work activities. Margins are generally much lower for these services
as they tend to have little to differentiate them from each other. What is of
historical importance about the commoditization of contemporary low-level
white-collar services is its striking similarity to the experience manufacturing
workers underwent well over a generation ago. It is this commoditization of
low-level services that is, to a large extent, fostering much of the change in
the newly evolving knowledge-based service sector.
Marketers have long recognized that customers of low-level, white-collar
services have tremendous buyer power. By this we mean that the customers
of commoditized services care only about prices, which in turn force firms
producing these services to compete on costs.8 As a commodity, low-level
white-collar services along with physical-handling services (e.g. retail ser-