Chapter 4 Knowledge-Intensive Firms

Entrepreneurship A Library of Resources for Growth-Oriented Entrepreneurs Knowledge-Intensive Firms

INTERNATIONAL CENTER FOR GROWTH-ORIENTED ENTREPRENEURSHIP 2016 Edition Dr. Alan S. Gutterman

Entrepreneurship: Entrepreneurs

A

Library

of

Resources

for

Growth-Oriented

2016 Edition published in 2016 by the International Center for Growth-Oriented Entrepreneurship (www.growthentrepreneurship.org) and copyrighted © 2016 by Alan S. Gutterman (www.alangutterman.com). All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman; however, the copyright owner grants the public the non-exclusive right to copy, distribute, or display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BYNC-SA) 4.0 License, as more fully described at http://creativecommons.org/licenses/by-ncsa/4.0/legalcode. About the Center The International Center for Growth-Oriented Entrepreneurship (www.growthentrepreneurship.org) engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the intent to achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business. In furtherance of its mission the Center is involved in the preparation and distribution of Libraries of Resources for GrowthOriented Entrepreneurs covering Entrepreneurship, Leadership, Management, Organizational Design, Organizational Culture, Strategic Planning, Governance, Compliance, Finance, Human Resources, Product Development and Commercialization, Technology Management, Globalization, and Managing Growth and Change. About the Author Dr. Alan S. Gutterman is the Founder and Executive Director of the International Center for Growth-Oriented Entrepreneurship and the Founder and Executive Director of the Business Counselor Institute (www.businesscounselorinstitute.org), which distributes Dr. Gutterman’s widely-recognized portfolio of timely and practical legal and business information for attorneys, other professionals and executives in the form of books, online content, webinars, videos, podcasts, newsletters and training programs. Dr. Gutterman has over three decades of experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from the University of Cambridge. For more information about Dr. Gutterman, his publications, the International Center for Growth-Oriented Entrepreneurship or the Business Counselor Institute, please visit www.alangutterman.com and/or contact him directly at [email protected].

Entrepreneurship: A Library of Resources for Growth-Oriented Entrepreneurs Contents

PART I

ENTREPRENEURSHIP

Preface Chapter 1

Definitions and Types of Entrepreneurship

Chapter 2

Entrepreneurship, Innovation and Development

Chapter 3

Research on Entrepreneurship

Chapter 4

Factors Influencing Entrepreneurial Activities

Chapter 5

Motivational Traits of Prospective Entrepreneurs

Chapter 6

Societal Culture and Entrepreneurship

Chapter 7

Institutional Environment and Entrepreneurship

Chapter 8

Role of Entrepreneurs in Launching New Businesses

Chapter 9

Growth-Oriented Entrepreneurship

Chapter 10

Entrepreneurship in Developing Countries

PART II

EMERGING COMPANIES

Preface Chapter 1

Characteristics of Emerging Companies

Chapter 2

Managing Emerging Companies: Critical Success Factors and Challenges

Chapter 3

Emerging Companies in Foreign Countries

Chapter 4

Knowledge-Intensive Firms

PART III

LAUNCHING A NEW BUSINESS

Preface Chapter 1

Business Planning

Chapter 2

Product Development and Commercialization

Chapter 3

Initial Funding Sources

Chapter 4

Selecting and Forming the Business Entity

Chapter 5

Formation and Organization of Limited Liability Companies

Chapter 6

Formation and Organization of Corporations

Chapter 7

Initial Capital and Ownership Structure

Chapter 8

Governance

Chapter 9

Organizational Design

Chapter 10

Human Resources

Chapter 11

Technology Management

Chapter 12

Protecting Intellectual Property

PART IV

FOUNDERS

Preface Chapter 1

Founders’ Traits and Skills

Chapter 2

Pre-Formation Duties and Liabilities of Founders

Chapter 3

Founders’ Relationships and Agreements

Chapter 4

Founders and Organizational Culture

Chapter 5

Founder’s Role with IPO Firms

This is a Part or chapter from the Library and you can get copies of other Parts and chapters by contacting the International Center for Growth-Oriented Entrepreneurship (www.growthentrepreneurship.org) at [email protected]. The Center also prepares and distributes other Libraries of Resources for Growth-Oriented Entrepreneurs covering Leadership, Management, Organizational Design, Organizational Culture, Strategic Planning, Governance, Compliance, Finance, Human Resources, Product Development and Commercialization, Technology Management, Globalization, and Managing Growth and Change.

Attorneys acting as business counselors to growth-oriented entrepreneurs who are interested in forms, commentaries and other practice tools relating to the subject matter of this Part or chapter should also contact Dr. Gutterman at the e-mail address provided above.

Entrepreneurship: A Library of Resources for Growth-Oriented Entrepreneurs (2016) Part II – Emerging Companies

PART II EMERGING COMPANIES Preface

It has become common to refer to technology-based entrepreneurial ventures as prospective “emerging companies” in large part because of their emphasis on, and potential for, high growth in both employment and revenues. While the term “emerging company” is now frequently used, particularly among professional firms and venture capital investors, there is still no widely accepted definition of the term and the characteristics of the firms that might fall within the scope of the definition. One place to begin in developing a working definition of “emerging company” is to recognize that it does not necessarily include every situation where one entrepreneur or a team of entrepreneurs attempts to overcome the trials and challenges that arise during the very earliest stages of conceiving and starting a new business (i.e., the “concept” stage). At a minimum, eligibility for emerging company status requires that the “next great idea” must have left the garage or the laptop in the attic and landed in its own discrete working space with human and financial resources obtained from outside the founder group. This is not necessarily an easy hurdle to overcome and it has been estimated that a large percentage of new firms are driven out of business before they reach their first anniversary. Not all of the companies that survive the start-up phase would be considered “emerging.” It is instructive to note that the terms “emerging company” and “emerging growth company” are often used interchangeably and this provides an important clue in distinguishing the types of firms that are of interest to us—in order to be an emerging company the resource base and organizational structure of the firm must be suitable for sustained growth and the founders, other senior managers and outside investors must have all targeted growth and expansion as a key goal in the overall strategy of the company. In addition, emerging companies are built on the assumption that the desired growth will come from some new and unforeseen development that totally changes the dynamics of the market in which they are competing—technological breakthroughs, dramatic shifts in the costs associated with satisfying existing consumer needs, identification of new consumer needs and/or sociological or economic changes. It is the job of the managers of the emerging company to embrace and exploit these developments by identifying business opportunities and creating new products or services to take advantage of them. Emerging companies are often distinguished from the broader set of entrepreneurial activities by focusing on the significant level of “innovation” associated with their business models. Researchers have attempted to identify those firms that have been most successful at innovation, and to describe and explain those business practices that tend to be associated with innovative companies. Presumably a listing of these practices can provide valuable clues for identifying emerging companies and the factors that are the

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best predictors of success. A survey of the research results relating to innovation reveals the following:        

Innovative companies have strong leaders that are able to clearly articulate a vision for the business, set targets and create and maintain open relationships with all stakeholders (i.e., customers, investors, suppliers and employees). The most innovative companies have extensive knowledge of the marketplace, the needs of customers, and the strengths and weaknesses of their competitors. Innovative companies seek and retain extraordinarily qualified personnel, provide them with the proper amount of resources and general direction, and then allow them to make and pursue their own specific strategies for achieving the agreed goals. The organizational structure of an innovative company emphasizes integration of multiple disciplines and functions and teamwork, goal sharing, and full and effective communication of goals and objectives throughout the firm. Technology is used effectively throughout the company, including small changes in design, production processes and customer services. The company strives and plans for continuous and constant innovation, as opposed to isolated new ideas, to improve and enhance products, services and productivity. Innovative companies strive for strong brand recognition and rapid introduction of new products and services into the marketplace. Innovative companies have systems for collecting information about, and learning from, customers, competitors and unrelated businesses around the world.

The research also identifies some of the most common specific strategies for innovation:        

Frequent implementation of new management techniques; Implementation of skill development and education programs for managers and employees; Regular introduction of new technologies, generally no less frequently than every three years; Constant and systematic benchmarking through regular comparison with the best companies in the industry and elsewhere; Significant investment in customer-focused product design and in quality-based manufacturing equipment and processes; Regular changes in the organization of work and administration, typically made in conjunction with the introduction of new products and/or technologies; Allocation of a significant share of turnover, generally at least 10%, to development and introduction of new products and processes; and Collaboration with universities and other research centers to identify technologies which can be converted into profitable products and processes.

It is now generally accepted that innovation is essential to continued productivity and economic growth; however, innovation in the form of uncovering a new technological breakthrough is not necessarily as important as how and when the technology is reduced to practice and diffused into the marketplace in the form of new or improved products

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and services. Successful emerging companies realize that the growth that they are pursuing must come through continuous creation, implementation and refinement of innovative business models and that the leaders in emerging markets will be those firms that can innovate—the companies that are successful in creating, acquiring and/or combining technology and other knowledge into new products, services or business processes faster and more efficiently than the competition. Many companies stall out and are unable to break through size and revenue plateaus because they are unable to keep their innovation engines churning. In order to be a successful emerging company a firm must constantly challenge their status quo and seek innovation with respect to its products and services and the processes that are used to add value for customers and other stakeholders.

This Part discusses various definitions and characteristics of emerging companies, the relationship between emerging companies and innovation, critical success factors for emerging companies, challenges to growth generally experienced by prospective emerging companies, growth models for emerging companies and strategic alternatives for emerging companies. Emerging companies can initially be distinguished by the current and projected financial performance of the company—measured by revenues, sales, profit margin, cash flow, etc.—to determine whether the business has been, and will be, generating steadily increasing revenues at above-average rates; however, it is also important to examine whether the company has the resources and strategies in place to grow rapidly. Critical success factors for emerging companies can be broken down into two main groups: “internal” factors, which focus on the characteristics of the particular company and its founders and senior managers which can usually be affected by the company itself; and “contextual” (or external) factors, which focus on the organizational environment in which the company is operating and generally exist independent of the activities of the company although management generally has some discretion in defining key elements of the organizational environment in which the company will be operating. The Part also includes an introductory chapter on emerging companies in developing countries, an interesting phenomenon that challenges both local entrepreneurs and policymakers in those countries to create tools and strategies for accessing the essential universal requirements for emerging company status: technology, products, markets, distinctive competencies and managerial acumen with a growth-focused orientation.

Chapter 4 Knowledge-Intensive Firms §4.1

Introduction

According to Newell et al., a “knowledge-intensive firm” is a firm in which a majority, and sometimes the entire workforce, consists of “knowledge workers”, which they defined to “encompass both professionals and groups with other forms of disciplined based knowledge or more esoteric expertise and skills, for example advertising, media, whose major work tasks involve the creation of new knowledge or the application of

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existing knowledge in new ways”.1 In general, knowledge-intensive firms are involved in the delivery of services, such as law and accounting firms, management consultancies, investment banks, architectural firms, software developers and agencies specializing in advertising and public relations. Newell et al. observed that the competitive advantage of any knowledge-intensive firm is a function of its ability to recruit, develop and retain a strong pool of knowledge workers who are willing to create and share knowledge. This is not an easy task for management since knowledge workers, particularly those who are recognized as the best in their field, typically have a number of different choices available to them when selecting an employer. Moreover, as Newell et al. pointed out, “it is the workforce in these firms that to a large extent owns the means of production, not management”, thus giving the expert workforce substantial leverage over the terms and conditions of their working relationship with the firm. §4.2

Types of knowledge-intensive firms

Various attempts have been made to define a “knowledge-intensive firm” and suggest methods for classifying such firms into different types. Alvesson defined knowledgeintensive firms as “organizations that offer to the market the use of knowledge or knowledge-based products” and went on to explain that the core activities of these organizations were based on the intellectual skills of a very large proportion of the labor force deployed in development, and often also in the sale of products and in service work”.2 For their part, Newell et al.’s discussion of knowledge-intensive firms was explicitly limited to organizations that compete on the basis of their ability to create, apply and share professional and discipline-based knowledge. As for types of knowledge-intensive firms, Lowendahl argued that there were three generic types of knowledge-intensive firm that could be distinguished by focusing on differences between them with respect to the strategic focus of the firm and the control of the resources used to provide the services to clients and customers3:   

Client-Based: The strategic focus of client-based firms is on client relations and resources are individually controlled by the knowledge worker involved in the delivery of services. Examples include law and accounting firms. Problem-Solving: The strategic focus of problem-solving firms is on “creative” problem solving and innovation using team-based resources. Examples include advertising agencies, software developers and web design firms. Output-Based: The strategic focus of output-based firms in on adaptation of ready solutions using resources controlled by the firm. Examples include some larger management consulting firms.

Portions of this chapter are adapted from S. Newell, M. Robertson, H. Scarbrough and J. Swan, “Chapter 2: Knowledge-Intensive Firms” in S. Newell, M. Robertson, H. Scarbrough and J. Swan, Managing Knowledge Work and Innovation (London: Palgrave MacMillan, 2009). 2 M. Alvesson, Knowledge Work and Knowledge-Intensive Firms (Oxford: Oxford University Press, 2004), 17. 3 B. Lowendahl, Strategic Management of Professional Service Firms (Copenhagen: Copenhagen Business School Press, 1997). 1

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Alvesson suggested dividing knowledge-intensive firms into professional services firms and research and development (“R&D”) companies.4 The output of professional services firms is largely intangible and workers employed by such firms generally interact directly clients. In contrast, R&D companies typically produce tangible products and contacts between workers at such companies and customers are usually indirect. The landscape of activities can reasonably fall within a definition of knowledge-intensive firm have expanded significantly in recent years. Law and accounting firms are the traditional examples of knowledge-based professional services firms; however, Newell et al. noted that there has been an explosion of new high-tech and specialist consultancy firms, including virtual, Internet-based knowledge-intensive firms offering specialist services to both individual clients and the general public. Newell et al. also observed that certain knowledge-intensive firms, such as software developers and web design firms, no longer relied on workers who acquired their required skills and expertise through formal education and certification/licensure qualifications. §4.3

Distinctive characteristics of knowledge work and knowledge workers

Newell et al. suggested several distinctive characteristics of knowledge work and knowledge workers5:  



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Autonomy: Knowledge work typically calls for creativity and problem-solving and thus requires that knowledge workers be given substantial autonomy to determine how to initiate, plan, organize and coordinate their major work tasks. Knowledge Base and Working Methods: Newell et al. noted that different types of knowledge workers rely, create, share and apply different types of knowledge in their work, which means that each knowledge work setting has its own distinctive “epistemic culture” (i.e., “those amalgams of arrangements and mechanisms. . . . – which, in a given field, make up how we know what we know’).6 As a result, notice must be taken of unique social, discursive and material practices and efforts to introduce standard work practices and procedures, such as knowledge management systems and tools, will likely be met with resistance as being unnecessary distractions from the core work processes of practitioners of the particular knowledge base. Co-Location: Knowledge work often requires that workers be physically co-located away from their employer firm, typically on site in the offices of clients for which the firm is performing services. Co-location creates several challenges for management of the employer firm such as preventing clients from hiring away their workers and making sure that teams of workers in different locations can still communicate and

M. Alvesson, Knowledge Work and Knowledge-Intensive Firms (Oxford: Oxford University Press, 2004). 5 S. Newell, M. Robertson, H. Scarbrough and J. Swan, “Chapter 2: Knowledge-Intensive Firms” in S. Newell, M. Robertson, H. Scarbrough and J. Swan, Managing Knowledge Work and Innovation (London: Palgrave MacMillan, 2009). 6 K. Knorr-Cetina, Epistemic Cultures: How the Sciences Make Knowledge (Cambridge, MA: Harvard University Press, 1999), 1 (italics added by Newell et al. (see prior note)).

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

collaborate effectively. Significant advances have been made in collaborative tools; however, care must be taken not to impose work processes on teams that will impede their creative processes. “Gold Collar” Workers: While many of the workers at traditional firms are relatively easy to replace, knowledge workers are the direct productive forces of their organizations and thus management is under special pressure to not only provide their workers with excellent terms of employment and working conditions but also an organizational design and culture that is conducive to knowledge work and view favorably by the workers.7

§4.4

Organizational design of knowledge-intensive firms

Motivating knowledge workers and providing an environment in which they can do their most creative and productive work is an important imperative for managers of knowledge-intensive firms. Professional services firms, such as law and accounting firms, traditionally relied on organizational designs that have been described as “professional bureaucracies” and which have been organized using a clear hierarchical structure. In these organizations, advancement followed a clearly defined career path and leadership positions were held by senior professionals who oversaw both groups of other professionals (e.g., practice groups in a law firm) and managers not licensed in the discipline of the firm who were responsible for operational areas such as finance, information technology and human resources.8 While this model has been resilient for law and accounting firms, it is not suitable for most of the new knowledge work that has emerged in recent years and Newell et al. observed that contemporary knowledgeintensive firms such as software developers and specialist consultancies opt for flatter, less bureaucratized ways of organizing and “try to organize highly organically and flexibly, generally around teams”. Mintzberg famously identified and described five archetypal structural forms that characterize the way firms organize: the “simple structure”; the machine (or full) bureaucracy; the professional bureaucracy; the adhocracy; and the divisionalized form.9 One of those forms, the “adhocracy”, was prescribed by Mintzberg as being the most appropriate when creativity and innovation (i.e., developing novel solutions to client problems) is the fundamental mission and strategy of the firm, as is generally the case with knowledge-intensive firms. The key part of the organization for this structural type was the support staff and the preferred coordination mechanism was mutual adjustment. 7

R. Kelley, The Gold Collar Worker–Harnessing the Brainpower of the New Workforce (Reading, Mass.: Addison-Wesley, 1990). 8 B. Lowendahl, Strategic Management of Professional Service Firms (2nd Ed.) (Copenhagen: Copenhagen Business School Press, 2000); H. Mintzberg, Structures in Fives, Designing Effective Organizations (Englewood Cliffs, NJ: Prentice-Hall, 1979); and D. Muzio and S. Ackroyd, “On the consequences of defensive professionalism: Recent changes in the legal labour process”, Journal of Law and Society, 32(4) (2005), 615. 9 H. Mintzberg, Structures in Fives, Designing Effective Organizations (Englewood Cliffs, NJ: PrenticeHall, 1979). For further discussion, see “Organizational Design: A Library of Resources for GrowthOriented Entrepreneurs” prepared and distributed by the International Center for Growth-Oriented Entrepreneurship (www.growthentrepreneurship.org).

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Newell et al. concisely summarized the key features of the “adhocracy” form as follows: “The adhocracy is almost the complete opposite of the traditional bureaucracy. An adhocracy genuinely de-emphasizes a hierarchical structure in preference to a dynamic organizational structure based on self-formed and self-managed project teams, decentralized decision-making and minimal formalization in terms of policies, rules and procedures. Within an adhocracy . . . control tends to be based on professionalism and shared, organizational values—referred to as cultural or normative control—rather than on more typical forms of direct control such as direct supervision and adherence to rules and procedures.”10 Other researchers have found evidence to support the arguments that traditional bureaucracy is not suitable for firms engaged in activities that require innovation and shifting from an adhocracy to even a “soft” form of bureaucracy, intentionally or not, can have significant detrimental effects on the firm.11 §4.5

Structural constraints on knowledge work

Starbuck discussed several important structural constraints on effective knowledge work that managers of knowledge-intensive firms must continuously monitor.12 First, Starbuck cautioned managers of knowledge-intensive firms about attempts to develop norms and practices (i.e., “best practices”) that might constrain the innovative behaviors of the firm’s knowledge workers. While it is to be expected that firms may develop informal practices about various aspects of the knowledge creation process and that these practices may become embedded in firm routines and organizational culture, managers should be careful about codifying these practices into standardized tools for project planning and development that eventually inhibit discovery and adoption of new tools and ways of working that may be more appropriate for future projects. A second issue is balancing the need to balance time as a scarce resource against the need for knowledge workers to have sufficient time to work through difficult problems and arrive at the creative and innovative solutions that are at the core of excellence knowledge work. Law firms have long been known for their diligence tracking of S. Newell, M. Robertson, H. Scarbrough and J. Swan, “Chapter 2: Knowledge-Intensive Firms” in S. Newell, M. Robertson, H. Scarbrough and J. Swan, Managing Knowledge Work and Innovation (London: Palgrave MacMillan, 2009). 11 Baron et al., for example, conducted a large-scale, longitudinal survey of software firms in Silicon Valley over a ten-year period which focused on modes of organizing, performance, CEO and employee turnover. The very few firms that shifted from a “star model” (arguably the template that most closely resembles the adhocracy) to bureaucracy experienced the highest employee turnover. Baron et al.’s research therefore clearly demonstrates that the majority of knowledge-intensive firms do tend to organize largely informally and traditional bureaucratic modes of organizing are not suitable if innovation is required. See J. Baron, M. Hannan and D. Burton, “Labor pains: Change in organizational models and employee turnover in young, high-tech firms”, American Journal of Sociology, 106(4) (2001), 960. For further discussion, see “Entrepreneurship: A Library of Resources for Growth-Oriented Entrepreneurs” prepared and distributed by the International Center for Growth-Oriented Entrepreneurship (www.growthentrepreneurship.org). Research by Robertson and Swan also highlighted that subtle shifts in organizing template from an adhocracy to a ‘soft bureaucracy’ (largely legitimated by the public flotation of the firm onto the stock market) can also have a significant detrimental effect. See M. Robertson and J. Swan, “Going public: The emergence and effects of soft bureaucracy in a knowledge intensive firm”, Organization, 11(1) (2004), 123. 12 W. Starbuck, “Learning by knowledge-intensive firms”, Journal of Management Studies, 29(6) (1992), 713. 10

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“billable hours” as a means for billing clients and tracking lawyer productivity; however, other knowledge-intensive firms in need of revenues to survive have also been forced to monitor and account for the time of their knowledge workers. While clients certainly want to be able to know what has been done for them before paying their bill, and managers of knowledge-intensive firms need to have some idea of how their workers are spending their time in exchange for the compensation offered by the firm, Starbuck cautions that monitoring and controlling of time may cause knowledge workers to do less than their best work because they are rushed. Moreover, time constraints inhibit knowledge workers from pursuing new ideas that may come during a project which while unrelated to the problem at hand nonetheless may lead to significant additions to the firm’s overall knowledge base. Attorneys at law firms actually face a similar dilemma: they are trained to exhaustively consider every angle of a legal issue as a condition of fulfilling their professional duties; however, clients have become less and less willing to pay for the production of comprehensive summaries and analyses of the law. As a result, attorneys have need to learn how to work efficiently and provide clients with the best possible answer given the budgetary constraints that may have been imposed. Finally, while growth is usually a sign that the creativity of the workers within a knowledge-intensive firm is being well received in the relevant marketplace, it is also a move that must be undertaken cautiously with due regard to how increased size will impact the way in which work is conducted. Researchers have warned that growth can be counterproductive for firms that compete primarily on the basis of their ability to solve complex problems for their clients.13 Growth typically brings more formalization, centralization and hierarchy, as well the need to hire and manage more support staff, and all of this pulls the firm away from the adhocracy structure considered optimal for creativity and innovation. Newell et al. suggested that the potential problems associated with growing a knowledge-intensive firm might be mitigated by creating new, autonomous business units or introducing internal markets around a project-based form of organizing, thus maintaining an environment in which workers can create efficiently with the low levels of formalization and decentralized decision making that are most conducive to knowledge work.14 §4.6

Organizational culture for knowledge work

The challenge surrounding organizational culture for knowledge-intensive firms comes from the need for workers to have the requisite amount of autonomy thought to be necessary for creativity and innovation.15 Knowledge workers may be tempted to act in their own personal interests, rather than to advance the needs of the organization, since knowledge workers typically enjoy high mobility in the marketplace and often are able to 13

B. Lowendahl, Strategic Management of Professional Service Firms (Copenhagen: Copenhagen Business School Press, 1997). 14 S. Newell, M. Robertson, H. Scarbrough and J. Swan, “Chapter 2: Knowledge-Intensive Firms” in S. Newell, M. Robertson, H. Scarbrough and J. Swan, Managing Knowledge Work and Innovation (London: Palgrave MacMillan, 2009). 15 The discussion in this section is adapted from S. Newell, M. Robertson, H. Scarbrough and J. Swan, “Chapter 2: Knowledge-Intensive Firms” in S. Newell, M. Robertson, H. Scarbrough and J. Swan, Managing Knowledge Work and Innovation (London: Palgrave MacMillan, 2009).

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change firms quickly if higher compensation and other opportunities beckon. As a result, managers of knowledge-intensive firms should strive to create an organizational culture based on “responsible autonomy”, which Newell et al. explained as a situation in which workers use their work autonomy to advance the interests of the firm and not just their own personal interests.16 Managers of knowledge-intensive firms must also understand and accept that their workers are typically highly skilled and educated and diverse, thus making it difficult to impose dominant organizational values of the type normally seen in traditional organizations with accepted hierarchies and centralized decision-making. Newell et al. observed that this means that those managers will “have to acknowledge that knowledge workers will naturally hold a variety of beliefs, which cannot necessarily be altered or subsumed within a single organizational value system”. The solution, according to Newell et al., may be for the organizational leaders of knowledge-based firms to focus on “promoting an organizational ethos that is more or less generally accepted and shared, rather than attempting to instill and reinforce a dominant core value system”. For example, leaders may emphasize and proactively support free communication among workers and consensual decision making.17 If the leaders can do this successfully (e.g., workers actually believe that they have reasonable autonomy to decide how projects will be carried out), they will have a better chance of creating an environment that knowledge workers see as a “good place to work” and thus increase their chances of attracting and retaining the necessary talent and having them carry out their work in the spirit of responsible autonomy.

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See also A. Friedman, Industry and Labour (London: Macmillan, 1977). See J. Greenberg and R. Baron, Behavior in Organizations (7th Ed) (Englewood Cliffs, NJ: PrenticeHall, 2000) (describing efforts of Yahoo! founders to promote free communication among employees and genuine consensual decision making as the organizational ethos necessary for the fast-paced environment of the Internet and personal beliefs of knowledge workers). 17

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