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Implementing Knowledge into Action in Organizations Simulation games for successful process innovation* Riitta Smeds, Päivi Haho and Minna Forssén Helsinki University of Technology Industrial Engineering and Management

1. Introduction Innovation can be defined as an idea or invention that has been successfully implemented into a new product, process or service (Urabe 1988). Only through implementation does an innovation manifest itself and create new value. Continuous innovation capability is a key competitive advantage of today, and implementation is its cornerstone. Our subject of research is the implementation of business process innovations, new process-oriented ways of operation and business. We have applied participative process simulation games as an action research method for both process development and training projects. In the comparative analysis of the cases, we found that the most important results of the simulation games were the ‘soft’, organizational prerequisites for process innovation. These prerequisites started a learning spiral that allowed the efficient and quick


of ‘hard’ process and business

improvements, and created also long-term organizational development capability. As a contingency of process innovation, we also analyzed in two cases the development culture of organizations. The paper is a synthesis of the authors’ long-term research collaboration, which itself builds a learning spiral. The empirical part is based on two research efforts, reported in Forssén and Haho (2001) and Forssén (forthcoming). At the end of the paper, these findings are related to earlier research of managing process innovations and enterprise evolution as a whole.

*To be referenced as: Smeds, R., Haho, P. and Forssén, M. (2001) ‘Implementing Knowledge into Action in Organizations. Simulation games for successful process innovation’. In Eero Pantzar, Reijo Savolainen and Päivi Tynjälä (eds.): In Search for a Human-Centered Information Society. Reports of the Information Research Programme of the Academy of Finland, 5, 2001. Tampere University Press. 171-194.


2. Background of the research 2.1 Business process innovation and the learning spiral Business process innovation means process-oriented changes in the organization’s way of working, and thus in the jobs and tasks of its personnel. Department boundaries are crossed, new jobs, teams and roles are formed, hierarchies are lowered, new information systems are implemented, some times even new business concepts are created. Implementation of process innovations thus creates a huge learning challenge on the level of individuals and the whole organization. Human understanding develops basically in spirals of learning: concrete experience is transformed through observations and reflections into abstract concepts and generalizations, i.e. into a mental model of the situation. This model is then tested out in new real life situations, and refined again through new experience. (Lewin 1951, Kolb 1984) The same dynamic interplay in experience, reflection, conceptualization and action goes on between individuals and groups, resulting in the spiral of organizational knowledge creation (Nonaka and Takeuchi 1995, Lehtovaara 1998). Individuals share their tacit work experiences with their coworkers, conceptualize their experiences into explicit form, and together combine this knowledge in novel ways to create innovative solutions. Finally, they implement and internalize these solutions in their work, and gain again new tacit experience. Organizational learning is a social phenomenon. Nonaka and Konno (1998) conceptualize the learning community as ’shared knowledge creation space’, in Japanese ’ba’. Basically the same concept is ’community of practice’ (e.g. Wenger 1998), and an even broader concept is ’knowledge community’ (Tuomi 1999). - In addition to learning by doing in real life, this learning spiral can also be achieved through simulation, in a ‘virtual’, simulated community of practice (e.g. Smeds 1996a, Riis et al. 1998).


2.2 The simulation game method The simulation game1 is a participative, tailored developmental and training method of a company's selected business processes, for instance, an orderto-delivery process or a product development process. Simulation games can be applied in different phases of process change, to trigger or to accelerate the learning spiral. In a process simulation game, a joint knowledge sharing and creation space (‘ba’) is formed for successful business process innovation. The simulation game supports the conversion of the participants’ tacit knowledge into explicit knowledge, and its effective combination and internalization into new process innovations. Simulation games have been widely used in process development projects of mainly Finnish companies (see e.g. Smeds 1994, 1997b, Smeds et al 2000a, Haho and Forssén 2001). The process to be simulated is first analyzed and modeled by a smaller process development team, preferably already led by the simulation game facilitator. The model is then visualized as a process map using interactive business process modeling software. The simulation itself is led by the game facilitator as a directed group discussion in front of the huge visual process map, projected on the wall of the simulation room. Selected, real case projects are ‘talked through’ in a process-oriented way, to enlighten the reality in the process and to bring into the discussion the tacit experiential knowledge of the simulation team. The simulation room is furnished so as to support the visibility and audibility and to stimulate the discussion. The composition of the simulation game team is critical for the validity of the simulation. Ideally, all people involved in the case project should participate in the simulation as active players, since they are the carriers of concrete experience from the case project and the process. In addition, 1

The word ‘game’ means that there are some rules that the participants have to follow, and ‘simulation’ stands for

modeling reality (for definitions, see e.g Saunders 1995, Klabbers 1999). - Simulation games have first been invented in industry for the development of production processes (Ahlbäck and Haho 1992, Haho 1992), and in public administration (Piispanen and Pallas 1991). They have then been further researched and developed at HUT (e.g. Ruohomäki 1992, 1995a, 1995b, Smeds 1994, Smeds and Haho 1995, Piispanen et al. 1996, Forssén-Nyberg and Hakamäki 1998, Forssén-Nyberg and Kutilainen 1998, Haho and Smeds 1997, Smeds 1997b, Haho 1998, Smeds et al. 2000a, Forssén and Haho 2001).


process development people, line managers of the affected functions, or people from other case projects attend the simulation as observers. In the simulation discussion, the players exchange first-hand information about the conformity of the case with the process. Supported by the facilitator, this leads the whole team - the players as well as the observers - into creative dialogue about the lessons learnt from the case onto the process. In the discussion, experiences are shared and ideas, open questions and problems are expressed freely. The facilitator ensures a smooth, to some extent controlled flow of the discussion. The task of the facilitator is not to impose his/her own thoughts on the audience, but to guide the group through the process by encouraging interaction and by asking fruitful questions. Therefore, it is preferable that the facilitator knows the process and the case project well enough, but is a neutral outsider and has no vested interests in the process to be developed. The visualized process model and the selected case projects act in the simulation game as ‘transitional objects’ (de Geus 1988, in Senge 1990 p. 314), which allow the whole simulation team to jointly experiment with their knowledge and to develop a shared mental model of the business process. The simulation game itself has a dialectical character: the individual experiences and tacit process knowledge are shared in the team’s discussion, problems and contradictions are encountered, new ideas are awakened, and as a new synthesis, a joint process understanding starts to build up. The end result of the simulation is thus by nature open: the ideas that will be created in the simulation game cannot be predicted in advance. Even simulation games that have been applied for training purposes, have created genuine process innovations (Smeds et al. 2000a). Tacit, experiential process knowledge of the individual participants is thus explicated and combined in the simulation into a more holistic, shared process understanding of the whole team. Many process improvement ideas are created, and also a joint process language is learnt. The participants can immediately implement some of the ideas in their daily work. More radical reengineering ideas or problems are collected during the simulation and organized later into separate development projects (e.g. Smeds 1997b, Smeds et al. 2000a).


It is important to notice that the simulation games that we are applying are based on human interaction and dialogue, not on numerical computing. In our method, computer-aided virtual reality is used only to visualize the process, which has first been conceptually modeled by a smaller development team of the company. (Smeds 1998, Smeds et al. 2000b).

3. Simulation games in business process innovation 3.1 The sample and the research method To empirically study the effects of simulation games in the implementation of process innovation, the second and third author of the article have conducted a comparative research of 32 case projects, in which altogether 88 simulation games were realized during ten years time (1988-1998). The projects concerned process development and process training in companies representing a wide variety of industrial sectors: from equipment and precision instrument manufacturing, telecommunications, defense industry and surface mining to graphic arts, food industry and pharmaceutical industry. The projects were carried out in Finland, apart from one case in Switzerland. (Forssén and Haho 2001). The researchers acted as game facilitators in all of the cases, and the study followed the participatory action research approach (Whyte 1991). The use of multiple cases allowed a replication logic whereby each case was used to build and test emerging theoretical insights. Data







questionnaires after the simulation games, through note-taking, as well as by interviewing company personnel throughout and after the projects. Also videotaped game material was analyzed. Qualitative and/or quantitative methods were used in the analysis of the data, following the case study and the grounded theory principles in the empirical studies (Eisenhard 1989, Glaser and Strauss 1967).


3.2 The case projects and the simulation games Of the studied 32 case projects, 16 concerned process development. The following objectives were typically set to the altogether 41 developmental simulation games. The games should contribute to an increase in operational efficiency and profitability through improvements in lead-time, delivery accuracy, quality of operation and turnover of capital. Further, they should suppress non-value-adding work, reduce the number of activities in the process, and create new process rules. In addition to these concrete targets, the games should also help to create an overall picture of the present process, support the design and experimentation of the new process, increase its flexibility and its ability to learn and change, and ensure the implementation of change through empowerment. The 16 training projects were realized either in connection with ending change projects or as separate training efforts. Altogether 47 training games were run. In management training, the main objective of the simulation games was to illustrate the importance of process management. For shop-floor workers, the aim was to improve their systems thinking and understanding of own roles in the process through a simulation game. - Eight of the 16 training projects had also process development as a secondary objective. The application of the altogether 88 simulation games served the real life needs and the practical limitations of the 32 case projects. No single case company could apply simulation games throughout all change project phases. However, taken together, our empirical data from 88 simulation games covers all six change project phases. Three of the case projects started by awakening the need for change with a simulation game, and altogether twenty projects analyzed the present state of the process with the help of a simulation game. Thereafter, in eight projects, simulation games were used to plan the future process, and ten projects experimented and tested the new process alternatives

by simulation games. During the



implementation phases, simulation games were used in one development project only, for continuous improvement and training of the piloted and implemented design. (Figure 1)


AIMS 1 cases 5 cases 2 cases 1 cases

Business Process Development

5 cases 1 cases 1 case


8 cases

Training (including some developmental aims)

1 cases 1 case 4 cases 2 cases PHASE







General training

Figure 1. The phases and the context in which simulation games were used in the studied change projects (Forssén and Haho 2001, p. 239)

In addition to these development-oriented applications, the simulation games were used in all 16 training projects as a human resource management tool for general personnel training and for the orientation of new employees. 3.3


The effects of the simulation games were analyzed inductively, applying a grounded theory approach. Through content analysis of the interview data, and quantitative and qualitative analyses of the questionnaires, notes and video tapes, we categorized the results of the games into soft and hard, and into new soft and new hard results (Forssén and Haho 2001, p. 252). •

Soft results concern changes in qualitative organizational issues and conditions (e.g. improved communication and collaboration, increased understanding, improved competencies, …)


Hard results concern explicit and quantitative changes in the organization (e.g. new plans and solutions, concrete decisions and development actions, new improved practices and processes, and improvements in operational or business performance).

New soft results and new hard results are anticipated results, which have not occurred during the researched time, but which have been articulated by management. To get realized, they still require actions in the future. They are expected to have pronounced transfer effects over a long time span, and they can even transform the corporate culture.

Further, the soft and hard results were also classified according to their timing as either short-term or long-term. The short-term results appeared in three months after the simulation game session, while long-term results appeared in three to six months.

3.3.1 Soft results According to our data, simulation games create quickly soft results. In only three case projects out of the total 32, the soft results required more than three months to become realized (Forssén and Haho 2001, p. 253). The simulation games fostered the understanding of the whole, created a new process-oriented way of thinking, increased communication and co-operation between different units and processes, clarified terminology and rules of cooperation. They also improved the overall atmosphere in the organization. The simulation games opened new understanding of the business and the processes, of their real and complicated problems and development potential, and helped to see the change as a joint challenge. In the timing of the soft results, there were no differences between training projects and process development projects. Also the concrete improvement issues were similar. It is noteworthy that many of the soft results were achieved in all 32 case projects.


3.3.2 Hard results Along with the soft results from the simulation games, also hard results were gained, especially in the development projects. Business processes were modeled in a target oriented way, problem areas were identified, new ideas were conceived, new solutions were tested, plans were improved, decisions were made and many actions were implemented. Many of these hard results were met during the simulation session or at least within three months (Haho 2001). - In all 16 development projects and in two of the training projects, the improved process was described and assessed right after the simulation, which can be considered a hard result from the game. In the 16 development projects, long-term hard results were achieved in the step by step improvement of business performance like delivery accuracy, lead time and profitability (Haho 2001). The implementation of some improvement actions, and in one case the new process were also among the long-term results (Forssén and Haho 2001).

3.3.3 New soft and new hard results In many of the 32 case projects, especially in the development projects, the learning effects during the process simulation produced a special momentum for future process development. The shared tacit knowledge of the process as well as the externalized process models created a shared process understanding and goals for future development projects. Our follow-up interviews after the simulation games indicate, that the simulation experience promotes and even encourages company staff in self-governing development, even long after the shared simulation experience. (Haho 2001, Forssén and Haho 2001, see also Smeds 1994) The new soft results in the development projects were e.g. a powerful impact on future corporate culture and increased flexibility to move to new challenges. These results were achieved throughout the projects, and they further affected new hard results, like the efficient and rapid implementation of new IT-systems. The changes that are triggered through the simulation games need not be explicitly managed. In the interplay between tacit and explicit knowledge in the simulations, and between the soft and hard results in process development,


change can be achieved tacitly, without any explicit development efforts. Individuals act on intuition, and as a result, the organization adapts its processes even before the matter is explicated. The following expression from participants after their game session supports this finding of tacit change: “We will not go away empty-handed”, “I believe that no one is making the same mistakes anymore; we have learned a lot.” 3.4 Conclusion To conclude our empirical findings from the 32 case projects, we have found that the process simulation games create an interplay of soft and hard results over different time horizons. Our results further indicate, that the soft results are the prerequisites for successful implementation of process innovation. The soft results form the platform for hard results and for improved business performance, and also for future process evolution that can be achieved either through explicit or tacit change in the organization. (Figure 2) Time

Tacit change

Explicit change Improved business

New soft/ hard results Hard results Soft results Participative process simulation Tacit knowledge

Explicit knowledge

Figure 2. The interplay of tacit and explicit knowledge, and of soft and hard results in process innovation. (Forssén and Haho 2001, p. 258)

4. Development culture – contingency in process innovation In implementing knowledge into innovations, there exist facilitating as well as preventing factors. Enablers of innovation can be, for example, the quality of informal interaction, the use of formal support systems, the degree of


empowerment, the existence of common understanding about the company's targets, and mutual terminology. Important disablers can be the lack of information, a discouraging climate or managerial skills as well as mental barriers between people (e.g. Moss Kanter 1983). Implementation success is critically dependent on these conditions that characterize a company’s development culture. Two of the industrial companies in which simulation games were applied were studied in more depth to analyze their development cultures (Forssén, forthcoming). Altogether 46 employees were interviewed about the enablers and disablers concerning employee-initiated process innovations. Based on the content analysis of the interviews, the cultural factors which affected ‘bottom-up’ idea implementation were qualitatively classified into eleven main factors. The same factor could be either an enabler or disabler, depending on its value. The main factors were (1) the structure of the idea ‘life cycle’, (2) communication, (3) the activity of individuals, (4) leadership, (5) knowledge and holistic understanding, (6) participation, (7) climate, (8) development resources, (9) organization structure, (10) training activities and (11) definition of the roles of organizational members. (Table 1). According to the cultural framework of Schein (1992, p. 361), a learning culture has some level of control, people are proactive problem solvers, leaders realize that they do not know all and empower others, the faith leaders have in people outweighs the assumption that people are lazy, and therefore, leaders can build control-oriented organizations instead of creating bureaucratic rigidity. A learning culture can be either authoritarian or participative depending on the nature of the solution, and system thinking, such as the understanding of the causal effects of one’s own work on others are essential dimensions as well. A learning culture is built on the assumption that communication and information is essential, and that meetings where decisions are made are regarded as ‘real work’ in addition to being a formal operative task. Both








communication and sufficient information, leaders’ skills, holistic system thinking and training, participative methods, and the essence of some level of structure or control. Schein (1992) sees that communication and information


are central to organizational wellbeing and trust. Good climate as an enabler emerged in the empirical classification of this case study as well. According to Schein (1992), meetings and negotiations should be seen as ‘real work’, which coincides with the insight of this case study that organizational development needs resources of its own. (Forssén, forthcoming) In addition to these similarities, two factors were found, which were missing from Schein’s learning culture: organizational structure and the definition of authorities and responsibilities of organizational members. A process oriented structure supported bottom-up process ideas, whereas a functional structure was a hindrance. And unclear authorities and responsibilities prevented the implementation of bottom-up ideas. - Together, the eleven main factors built up the case companies’ development culture, which either enabled or disabled the implementation of their ‘bottom-up’ organizational development ideas, depending on factor values. Previous studies (e.g. McAdam and McCreedy 1999, Zemke 1999, Van De Ven 1986, Smeds 1996b, Hammer and Stanton 1999, Moss Kanter 1983) give support to these findings. (Forssén, forthcoming)

Table 1. Main factors that enabled or disabled implementation of ‘bottom-up’ development ideas in two case organizations (Forssén, forthcoming). MAIN FACTOR

Enabling values


* Idea life cycle structured




Disabling values

* Life cycle not structured * Problems in different phases. * Communication * Lack of communication * Proximity and good * Physical distance layout between departments * Informal meetings and * People do not know each social happenings other, barriers between departments * Committed personnel * Passive people * A very active person * Difference between old * Committed young people and young employees * “Good” managers * Problems in leadership * Lack of information, * Knowledge about processes, idea life cycles * Useful tools and participative methods * Good atmosphere * Bad atmosphere * Resources: money and * Resource problems; human resources work overload, rush




* Matrix and process organization structure * Changes in organization structure * Training programs for process understanding, change management or work rotation * competence management -

* Too functional an organization structure

* Unclear authorities and responsibilities of developers and managers

It is important to notice that some factor values varied between different departments of the same company. This demonstrates that an organization can have several different development subcultures. The implementation of business process innovations that as a rule cross departmental boarders requires skillful collaborative management, which is sensitive also to cultural differences (Moss Kanter 1983, p. 79, 147). To enable efficient process innovations, new inter-group processes should be designed, which allow communication and collaboration across strong sub-cultural boundaries (Schein 1992). One possible ‘inter-group process’ to bridge the differences between development sub-cultures is created by the social simulation games, that combine people from different departments and hierarchical levels into a virtual ‘learning community’. The soft, cultural effects of simulation games support the successful implementation of inter-departmental process innovations (cf. chapter 3, and Figure 2).



5.1 Management of enterprise evolution revisited Successful evolution management is theoretically based on four necessary requirements: holistic knowledge, hologram structure, empowerment and umbrella strategy together with project management (Smeds 1996a p. 64, 1997a,b, 2001). The three first mentioned form the organizational requirements for process innovation, and the fourth concerns strategic


evolution management. In this chapter, these requirements are shortly presented, and thereafter related to the empirical case study findings. 1) Holistic knowledge. For viable process ideas to be conceived, the knowledge of the developers should represent ‘requisite variety’ (Ashby 1968). Knowledge is needed about the whole process: the operation and technology, but also business and strategies. 2) Hologram structure. The amplification and selection of ideas into innovations requires creative human interaction in teams (Van de Ven 1986; ‘requisite structure’, Sahal 1982). - The members in these holograms should represent all functions and organizations that belong to the business process, and come also from different hierarchical levels. This brings the required holistic knowledge and diversity into the innovation process. 3) Empowerment is the basic principle to achieve holistic knowledge and hologram structures for innovation. The employees possess invaluable tacit process knowledge. They are also the key actors in implementation. Ideally, all employees working in the process should participate in its development. Participation creates a common understanding and commitment to change, more viable ideas are developed, and their implementation into process innovations is facilitated (Smeds 1996a,b, 1997a,b, Nonaka and Takeuchi 1995, Mumford 1981, Moss Kanter 1983). 4) Dynamic umbrella strategy is needed to give the vision and guidelines for the innovations, and to allow the innovations to emerge in a self-organizing way (Smeds 1988, 1994, 1996a,b, 1997a). Process innovations should be managed towards a strategic vision, which itself develops in dynamic interaction with the development projects (Mintzberg and Mintzberg 1988). Systematic







communication and dialogue about process development in a strategic context enables the management of enterprise evolution as a whole (Smeds 1996a,b, 1997a). Under the umbrella strategy, process development should be organized and managed as projects. Although autonomous in their innovative outcome, process innovations would benefit from dedicated project teams and resources, a clear scope and overall objectives, milestones and monitoring practices. Systematic project portfolio management with strategic selection


criteria for process development projects helps to prioritize and manage the process innovations towards the vision. (Smeds 2001) 5.2. Process innovation lessons from the case projects The study of the 32 case projects (Forssén and Haho 2001) indicates strongly, that the process simulation games create beneficial prerequisites for the implementation of process innovations. Through the simulation games, the platform for successful implementation is built and promising results are achieved, in a short period of time. The beneficial effects of the simulation games are based on their soft results: the qualitative organizational issues and conditions that the games improve. The participative simulation games were more than process development and training sessions: they created a shared, deep understanding of the holistic knowledge around the business and process environment. This was achieved through the tacit-explicit knowledge interplay in the ‘hologram structures’, in the simulation game teams. The better people understand the process, the deeper knowledge they achieve (e.g. from identifying the process to forming the process rules, from communication to co-operation, from understanding the process to understanding each other’s opinions). At the surface, a valid explanation can be given through logic, but to plunge deeper, experience is needed (Lehtovaara 1998). The soft results that were built up in the participative process simulations, i.e.








communication and co-operation, mutual goals and terminology for shared visions, increased also commitment and empowerment. According to Mumford (1981) and Moss Kanter (1983), participation increases employee competence and self-confidence, which makes it easier to achieve the hard results. The most interesting finding was that even when focusing on the hard improvement targets, the process simulations reinforced in a perceivable way the soft results. This effect was found during the simulation sessions, in the short-term results and in the long-term results (Haho 2001, Forssén and Haho 2001). But based on these soft effects, also the hard results were achieved


quickly. The interplay between the soft and hard issues, achieved through the games, created soft results in the process as well as impressive hard results and improvements in business performance. These results support the earlier findings, that hologram structure, holistic knowledge and empowerment are necessary organizational requirements for the management of process innovation. Further, they also confirm the results that process simulation games as an evolution management method fulfill these requirements. (c.f. Smeds 1994, 1996a, 1997b) Development culture is an important contingency of process innovation. Simulation games can have the potential to positively affect cultural factors. This is shown in the powerful new soft results that were found in development case projects of this study. Also a previous comparative case study of simulation games showed this effect (Smeds 1997b). The participative process simulations are valuable investments in human resources, which in the ongoing spiral of learning can with time turn into cultural change. To achieve broad cultural change, however, simulation games should be used quite widely in the organization. The lasting effect of the ‘hologram’ memory of a simulation game could also be found in the intuitive, self-governing change, that proceeded in the development projects in line with strategy and supported the development actions (similar ‘unmanaged’ but fitting effects of simulation games are found also in Smeds 1994, 1997b). This tacit change is triggered by the individuals’ implicit learning experience in the simulations, without any explicit management effort (for implicit learning and intuition, see Reber 1989). Tacit, self-governing change and the future soft and hard results that enfold over time give strong support to the assumption that process innovations and enterprise evolution are creative, self-organizing phenomena and should be managed as such2. This supports the umbrella strategy requirement for innovation management (Smeds 1988, 1994, 1996a,b, 1997a,b). However, since the case projects contained both development and training projects, and the details of the change projects and their management were not analyzed in


For different theories of development and change processes see e.g. van de Ven and Poole (1995).


this article, strategic evolution management issues have to be addressed further in future research. Taken together, the soft results of the studied games created holistic process understanding of the empowered personnel. Holistic knowledge, which is continuously developed in the knowledge spiral, is according to this study the primary prerequisite for successful evolution. Understanding of the whole breaks the stability, reinforces the capability of the organization to selforganize, and promotes new innovations. Earlier implementation research (e.g. Moss Kanter 1983, Davenport 1993), as well as organizational learning theories (e.g. Argyris and Schön 1978, Senge 1990), have not given enough attention to the primary importance of these soft issues to hard results and to future evolution. In the turbulent environment of today, where new digital business models and processes proliferate and the rhythm of innovation accelerates, flexibility in innovation and enterprise evolution can be achieved through the interplay between the soft and hard process innovations, based on an organizational platform of holistic understanding and continuous learning.

Acknowledgements This paper is based on research that has been conducted the Information Research Programme of the Academy of Finland, in its projects Dynamo ‘Dynamics



Knowledge and





Accumulation Visualized




Learning in Virtual Environments’. The financial support of the Academy of Finland is gratefully acknowledged.

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20 Biographies: Riitta Smeds Helsinki University of Technology D. Sc. (Tech.) Professor Management of enterprise evolution, organizational learning, business process networks in digital economy.

Minna Forssén Helsinki University of Technology Lic. Sc. (Tech.), senior researcher Knowledge creation, Participative organizational development

Päivi Haho Helsinki University of Technology M.Sc. (Tech.), senior researcher Simulation game method, business process development