How Companies Use Information to Make Decisions

8/12/2019 How Companies Use Information to Make Decisions

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~ PergamonP I I : S 0 2 6 8 - 4 0 1 2 ( 9 6 ) 0 0 0 2 0 - 5

International Journal o f Information M anagement, Vol. 16, No. 5, pp. 329-340, 1996Copyright (~ 1996 Elsevier Science LtdPr inted in Great Br i tain. Al l rights reserve d0268-4012/96 $15.00 + 0.00

T h e K n o w i n g O r g a n iz a tio n : H o wO r g a n i za t io n s U s e In f o r m a t io n t oC o n s t ru c t M e a n i n g C r e a teK n o w le d g e a n d M a k e D e c is io n sC W CH O0

A n o r g a n i z a t i o n u s e s i n f o r m a t i o n s t r a t e g i c a ll y i n t h r e e a r e a s : t o m a k e s e n s e o fc h a n g e i n it s e n v i r o n m e n t ; t o c r e a t e n e w k n o w l e d g e f o r in n o v a t i o n ; a n d to m a k ed e c i s i o n s a b o u t c o u r s e s o f a c t i o n . T h e s e a p p a r e n t l y d i s t i n c t p r o ce s s e s a r e i n f a c tc o m p l e m e n t a r y p i e c e s o f a la r g e r c a n v a s a n d th e i n f o r m a t i o n b e h a v i o r s a n a l y z e di n e a c h a p p r o a c h i n t e r w e a v e i n t o a r i c h e r e x p l a n a t i o n o f i n f o r m a t i o n u s e i no r g a n i z a t i o n s . T h r o u g h s e n s e m a k i n g p e o p l e in a n o r g a n i z a t i o n g i v e m e a n i n g t ot h e e v e n t s a n d a c t i o ns o f t h e o r g a n i z a ti o n . T h r o u g h k n o w l e d g e c r e a ti o n t h ei n s i g h t s o f i n d i v id u a l s a r e c o n v e r t e d i n t o k n o w l e d g e t h a t c a n b e u s e d t o d e s i g nn e w p r o d u c t s o r i m p r o v e p e r f o r m a n c e . F i n a ll y i n d e c i s i o n m a k i n g u n d e r s t a n d i n ga n d k n o w l e d g e a r e f o cu s e d o n t h e s e l e c ti o n o f a n d c o m m i t m e n t t o a n a p p r o p r ia t ec o u r s e o f a c t i o n . B y h o l is t i c a ll y m a n a g i n g i t s s e n s e m a k i n g k n o w l e d g e b u i l d in ga n d d e c i s i o n - m a k i n g p r o c e s s e s t h e K n o w i n g O r g a n i z a t i o n w i l l h a v e t h e n e c e s s a ryu n d e r s t a n d i n g a n d k n o w l e d g e t o a c t w i s e l y a n d d e c i s iv e l y . C o p y r i g h t O 1 9 9 6E l s e v ie r S c i e n c e L t d

C h u n W e i C h o o i s A s s i s t a n t P r o f e s s o r i nt h e F a c u l t y o f I n f o r m a t i o n S t u d i e s a t t h eU n i v e r s i t y o f T o r o n t o , O n t a r i o , C a n a d a .H i s r e c e n t b o o k s i n c l u d e Information Man-agement for the Intelligent Organization( L e a r n e d I n f o r m a t i o n , 1 9 9 5 ) a n d a c o -e d i t e d v o l u m e , Managing Information fort h e C o m p e t i t i v e E d g e ( N e a l - S c h u m a n ,1 9 9 6) . T h i s a r t i c l e i s b a s e d o n h i s f o r t h c o m -i n g b o o k The Knowing Organization ( O x -f o r d U n i v e r s i t y P r e s s , N Y ) .

I n t r o d u c t i o nH o w d o o r g a n i z a t i o n s u s e i n f o r m a t i o n ? T h i s q u e s t i o n i s m u c h h a r d e rt h a n i t s o u n d s . I n f o r m a t i o n i s a n i n tr i n si c c o m p o n e n t o f n e a r l y e v e r ya c t iv i ty in t h e o r g a n i z a t i o n , s o m u c h s o t h a t i ts f u n c t i o n h a s b e c o m et r a n s p a r e n t . Y e t t h e q u e s t i o n i s n o t a f ri v o l o u s o n e . W i t h o u t a f i r mg r a s p o f h o w i t c r e a t e s , t r a n s f o r m s a n d u s e s i n f o r m a t i o n , a n o r g a n i z a -t i o n w o u l d l a c k th e c o h e r e n t v i si o n t o m a n a g e a n d i n t e g r a t e i tsi n f o r m a t i o n p r o c e s s e s, i n f o r m a t i o n r e s o u r c e s a n d i n f o r m a t i o n t e c h n o l o -g ie s . I n t h is p a p e r , w e p o r t r a y t h e p r i n c i p a l w a y s in w h i c h a n o r g a n i z a -t i o n u s e s in f o r m a t i o n s t r a te g i c a l ly , a n d s u g g e s t h o w t h e s e p r o c e s s e s a r ec l os e ly i n t e r c o n n e c t e d a n d c o u l d b e m a n a g e d t o d e s ig n a ' k n o w i n go r g a n i z a t i o n ' t h a t i s p e r c e p t i v e , w i s e , a n d d e c i s iv e .

C u r r e n t t h i n k in g i n m a n a g e m e n t a n d o r g a n i z a t io n t h e o r y r e c o g n i ze st h r e e d i s ti n c t a r e a s i n w h i c h t h e c r e a t i o n a n d u s e o f in f o r m a t i o n p l a y as t r a t e g i c r o l e i n d e t e r m i n i n g a n o r g a n i z a t i o n ' s c a p a c i t y t o g r o w a n da d a p t . F i r st , o r g a n i z a t i o n s s e a r c h f o r a n d e v a l u a t e i n f o r m a t i o n in o r d e rt o m a k e i m p o r t a n t d e c i s i o n s . I n t h e o r y , t h i s c h o i c e i s t o b e m a d er a t i o n a l l y , b a s e d u p o n c o m p l e t e i n f o r m a t i o n a b o u t t h e o r g a n i z a t i o n ' sg o a l s, f e a s i b l e a lt e r n a t i v e s , p r o b a b l e o u t c o m e s o f t h e s e a l t e r n a t iv e s ,a n d t h e v a l u e s o f t h e s e o u t c o m e s t o t h e o r g a n i z a t i o n . I n p r a c t i c e ,r a t i o n a l c h o i c e - m a k i n g i s m u d d l e d b y t h e jo s t l in g o f in t e r e s ts a m o n g

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The Knowing Organization: C W Choo

1DRUCKER, P F (1993) Post-CapitalistSociety H a r p e r C o l l i n s , N e w Y o r k2SENGE, P M (1990) The Fifth Discipline:The Art & Practice of the Learning Organ-ization D o u b l e d a y C u r r e n c y , N e w Y o r k

organizational stakeholders, bargaining and negotiation betweenpowerful groups and individuals, the limitations and idiosyncracies ofpersonal choice making, the lack of information, and so on. Despitethese complications, an organization must keep up at least an impres-sion of rational, reasoned behavior, both to sustain internal trust, and topreserve external legitimacy. Although organizational decision makingis a complex, messy process, there is no doubt that it is a vital part oforganizational life: all organizational actions are initiated by decisions,and all decisions are commitments to action. Herbert Simon and hisassociates have maintained that managemen t/s decision making, so thatthe best way to analyze organization behavior is to analyze the structureand processes of decision making.The second area of strategic information use is when the organizationmakes sense of changes and developments in its external environment.Organizations thrive in a dynamic, uncertain world. A dependablesupply of materials, resources, and energy must be secured. Marketforces and dynamics modulate the organization's success or failure.Fiscal and legal structures establish its identity and sphere of influence.Societal norms and public opinion constrain the organization's roles andreach. The critical dependencies between an organization and itsenvironment requires the organization to be constantly alert of changesand shifts in its external relationships. Indeed, the organization that hasdeveloped early insight on how the industry and market s are moving willhave a competitive edge. Unfortunately, messages and signals aboutevents and trends in the envi ronment are invariably ambiguous and aresubject to multiple interpretations. As a result, a crucial task ofmanagement is to discern the most significant changes, interpret theirmeaning, and develop appropriate responses. The immediate goal ofsensemaking is for an organization's members to share a commonunderstanding of what the organization is and what it is doing; thelonger term goal is to ensure that the organization adapts and thereforecontinues to thrive in a dynamic environment.The third area of strategic information use is when organizationscreate, organize and process information in order to generate newknowledge through organizational learning. New knowledge is thenapplied to design new products and services, enhance existing offerings,and improve organizational processes. Peter Drucker has called know-ledge, rather than capital or labor, the only meaningful economicresource of the post-capitalist or knowledge society. For him, the rightrole of management is to ensure the application and performance ofknowledge, that is, the application of knowledge to knowledge. 1 Thecreation and use of knowledge is a particular organizational challenge.Knowledge and expertise is dispersed throughout the organization, andis often closely held by individuals or work units. There have beennumerous accounts of organizations having to reinvent the wheelunnecessarily and not being able to locate the expertise that existssomewhere in the organization. Another obstacle to learning is thatorganizations find it difficult to unlearn their past- -to question inheritedassumptions and beliefs, to reject existing practices as the only viablealternatives. Indeed, Senge has warned that many organizations areunable to fully function as knowledge-based organizat ions-- they sufferfrom learning disabilities. 2 To overcome these disabilities, the learningorganization must develop the capacity for both generative and adaptivelearning.

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3 M A R C H , J G A N D S I M O N , H A ( 1 9 9 3 ) Organ-izations 2 n d e d i t i o n , B l a c k w e l l , O x f o r d4 S I M O N , H A ( 1 9 5 7) Models of Man: Socialand Rational J o h n W i l e y , N e w Y o r k5 S I M O N , H A ( 1 9 76 ) Administrative Be-havior: A Study of Decision-Making Pro-cesses in Administrative Organization 3 r de d i t i o n , F r e e P r e s s , N e w Y o r k61bid7Ibid, p p 2 4 0 - 2 4 180p cit, R e f 3 , p 1 6 2

The Knowing Organization: C W ChooOrganizations a s d e c is i o n m a k i n g s y s t e m sIn the decision-making view, the essential features of organizationalstructure and function may be derived from the characteristics of humandecision-making processes and rational human choice. 3 In an idea lworld, rational choice would require a complete search of availablealternatives, reliable information about their consequences, and consis-tent preferences to evaluate these outcomes. In the real world, suchdemands on information gathering and processing are unrealistic.Instead of a comprehensive, objective rationality, Herbert Simonsuggested that decision making in organizations is constrained by theprinciple of bo un ded ra t ional i ty : 4

The capacity of the human mind for formulating and solvingcomplex problems is very small compared with the size of theproblems whose solution is required for objectively rationalbehavior in the real world--or even for a reasonable approx-imation to such objective rationality. (p. 198)What constitute the bounds that limit the capacity of the human mindfor rational decision making? Simon identifies three categories ofbounds: the individual is limited by his mental skills, habits, andreflexes; by the extent of knowledge and information possessed; and byvalues or conceptions of purpose which may diverge from organizationalgoals. 5 It is because individual human beings are limited in thei rcognitive ability that organizations become necessary and useful instru-ments for the achievement of larger purposes. Conversely, the organiza-tion can alter the limits to rationality of its members by creating orchanging the organizational environment in which the individual'sdecision making takes place. Simon proposes that the organizationinfluences its members ' behaviors by controlling the dec i s ion premise supon which decisions are made, rather than controlling the actualdecisions themselves.6 A fundamen tal problem o f organizing is then indefining the decision premises that form the organizational environ-ment: The task of administration is so to design this environment thatthe individual will approach as close as practicable to rationality (judgedin terms of the organiza tion's goals) in his decisions. 7As a consequence of bounded rationality, the organizational actorbehaves in two distinctive ways when making decisions. First, hes a t i s f i e s - - h e looks for a course of action that is satisfactory or goodenough rather than seeking the optimal solution. A course of action issatisfactory if it is practical and exceeds some minimally acceptablecriteria. For March and Simon, most human decision making, whetherindividual or organizational, is concerned with the discovery andselection of sat isfactory alternatives , s The search for a satis fyingalternative, motivated by the occurrence of a problem, is concentratednear the symptoms or an old solution, and reflects the training,experience and goals of the participants.Second, the organization or organizational actor s impl i f i e s the deci-sion process---he follows routines and applies learned rules of thumb inorder to avoid uncertainty and reduce complexity. For example, theorganization develops action repertoires usingp e r f o r m a n c e p r o g r a m s todeal with recurrent situations. By restricting the range of situations andthe range of alternatives available, performance programs greatlyreduce the cognitive and informational requirements of the decision-making process. For instance, the sounding of the alarm in a fire station

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D E C I S I O N P R E M I S E S

B O U N D E DR A T I O N A L I T Y

D E C I S I O NR O U T I N E S e r f o r m a n c e r o g r a m s Satisficing SimplificationsC o g n i t i v e I n f o r m a t i o ne V a l u e s

The Knowing Organization. C W Choo

O R G A N I Z A T I O N A L L YR A T I O N A LD E C I S I O N B E H A V I O R

F i g u r e O r g a n i z a t i o n s a s d e c i s i o n m a k i n g s y s t e m s

i n i ti a te s a p r e d e f i n e d a c t i o n p r o g r a m , a s d o e s t h e a p p e a r a n c e o f a r e l i e fa p p l i c a n t a t a so c ia l w o r k e r ' s d e s k , o r t h e a p p e a r a n c e o f a n a u t o m o b i l ec h a ss is i n f r o n t o f t h e w o r k s t a t io n o f a w o r k e r o n t h e a s s e m b l y l i n e . 9M o s t b e h a v i o r i n o r g a n i za t io n s i s g o v e r n e d b y p e r f o r m a n c e p r o g r a m s .

T h e k e y f e a t u r e s o f o r g a n i z a t io n s a s d e c i s io n m a k i n g s y s t e m s a r es h o w n i n Figure 1. O r g a n i z a t i o n s s e e k r a t i o n a l b e h a v i o r i n t e r m s o fa c t i o n s t h a t c o n t r i b u t e t o i t s g o a l s a n d o b j e c t i v e s . U n f o r t u n a t e l y , t h eb e h a v i o r o f in d i v i d u a l m e m b e r s a r e c o n s t r a i n e d b y t h e i r c o g n i t iv ec a p a c i t y , in f o r m a t i o n , a n d v a l u e s . A w a y t o b r i d g e t h e g a p b e t w e e no r g a n i z a t i o n a l r a t i o n a l i t y a n d t h e i n d i v i d u a l 's b o u n d e d r a t i o n a l i ty is tod e s i g n d e c i s i o n p r e m i s e s a n d d e c i s i o n r o u t i n e s t h a t g u i d e o r c o n t r o li n d i v id u a l d e c i s io n b e h a v i o r .

T h e d e c i s io n - m a k i n g m o d e l r e m a i n s a r a t io n a l m o d e l . T h e o r g a n i z a-t i o n is i n t e n d e d l y r a t i o n a l e v e n i f i ts m e m b e r s a r e o n l y b o u n d e d l y s o .G o a l s a n d o b j e c t i v e s a r e s e t f i r s t , a n d w h e n p a r t i c i p a n t s e n c o u n t e rp r o b l e m s i n t h e p u r s u i t o f t h e s e o b j e c t i v e s , a s e a r c h f o r in f o r m a t i o n o na l t e r n a t iv e s a n d c o n s e q u e n c e s t a k e s p l a c e , f o l l o w e d b y e v a l u a t i o n o f t h eo u t c o m e s a c c o r d i n g t o t h e o b j e c t i v e s a n d p r e f e r e n c e s . T h e r e i s a l i n e a r ,i n p u t - o u t p u t f l a v o r to t h e m o d e l , w i th a f o c u s o n t h e f l o w o f i n f o r m a -t i o n i n t h e o r g a n i z a t i o n ' s d e c i s i o n - m a k i n g p r o c e s s e s .

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O r g a n i z a t io n s a s s e n s e m a k i n g c o m m u n i t i e sW h e r e a s t h e d e c i s i o n - m a k i n g m o d e l a s s u m e s t h a t o r g a n i z a t i o n a l b e -h a v i o r i s d i r e c t e d a t t h e a t t a i n m e n t o f g o a l s a n d is p r i m a r i l y c o n c e r n e dw i t h u n c e r t a i n t y a n d c h o i c e in th e p e r f o r m a n c e o f o r g a n i z a ti o n a l t a s ks ,t h e s e n s e m a k i n g v i e w s u g g e s t s t h a t o r g a n i z a t i o n a l a c t o r s h a v e f i r s t t om a k e s e n s e o f w h a t i s h a p p e n i n g i n t h e i r o r g a n i z a t io n a l e n v i r o n m e n t s i no r d e r t o d e v e l o p a s h a r e d i n t e r p r e t a t i o n t h a t c a n s e r v e a s a c o n t e x t f o ro r g a n i z a t i o n a l a c t i o n . T h e s e n s e m a k i n g v i e w a s s u m e s t h a t p e o p l e i no r g a n i z a t i o n s a r e c o n t i n u o u s l y t ry i n g to u n d e r s t a n d w h a t i s h a p p e n i n ga r o u n d t h e m . T h i s a s su m p t i o n d o e s n o t r e q u i r e t h e m t o b e r a t i o n a lp r o c e s s o rs o f i n f o r m a t i o n - - t h e y m a y i m p o s e t h e ir o w n m e a n i n g u p o ne x p e r i e n c e , a n d u s e t h e a s c r i b e d m e a n i n g a s a b as is f o r s u b s e q u e n t

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SELECTIONH RETENTION

Figure S e n s e m a k i n g p r o c e s s e s i n a n o r g a n i z a t i o n

10WE|CK, K E (1979) The Social Psychologyof Organiz ing 2 n d e d i t i o n , R a n d o mH o u s e , N e w Y o r k11WEICK, K E (1995 ) Sensemaking InOrganizations S a g e , T h o u s a n d O a k s , C A ,~2170Op cit, Ref 10, p 164

u n d e r s t a n d i n g a n d a c t i o n . I n o t h e r w o r d s , p e o p l e i n o r g a n i z a t i o n sc r e a t e t h e i r o w n s u b j e c t i v e r e a l i ty r a t h e r t h a n t r y t o d i s c o v e r s o m ee x i s t i n g r e a l i t y .

I n c o n t r a s t t o t h e r a t i o n a l m o d e l i n w h i c h o r g a n i z a t io n s a r e t i g h tl yb o u n d b y d e c i si o n p r e m i s e s a n d p e r f o r m a n c e p r o g r a m s , K a r l W e i c k 1p r o p o s e s a m o d e l o f o r g a n i z a t i o n s a s ' lo o s e l y c o u p l e d ' s y s t e m s i n w h i c hi n d i v i d u a l p a r t i c i p a n t s h a v e g r e a t l a t i t u d e i n i n t e r p r e t i n g a n d i m p l e m e n t -i n g d i r e c t io n s . H e s t r e s s e s th e a u t o n o m y o f i n d iv i d u a ls a n d t h e l o o s e -n e s s o f t h e r e l a t i o n s l i n k i n g i n d i v i d u a l s in a n o r g a n i z a t i o n . T h e c e n t r a li n f o r m a t i o n a c t iv i ty i s r e s o lv i n g t h e equivocality o f i n f o r m a t i o n a b o u tt h e o r g a n i z a t i o n ' s e n v i r o n m e n t . T h i s s e n s e m a k i n g is d o n e r e t ro s p e c ti v e lys i n ce w e c a n n o t m a k e s e n s e o f e v e n t s a n d a c t io n s u n ti l t h e y h a v eo c c u r r e d a n d w e c a n t h e n g l a n c e b a c k w a r d i n t i m e t o c o n s t r u c t t h e i rm e a n i n g . C u r r e n t e v e n t s a r e c o m p a r e d w i th p a s t e x p e r i e n c e i n o r d e r t oc o n s t r u c t m e a n i n g : t h e g o a l o f o r g a n i z a t i o n s , v ie w e d a s s e n s e m a k i n gs y s t e m s , is t o c r e a t e a n d i d e n t i f y e v e n t s t h a t r e c u r t o s t a b i li z e t h e i re n v i r o n m e n t s a n d m a k e t h e m m o r e p r e d i c t a b le . A s e ns ib l e e v e n t iso n e t h a t r e s e m b l e s s o m e t h i n g th a t h as h a p p e n e d b e f o r e . ~

A n o r g a n i z a t i o n e n g a g e s i n s e n s e m a k i n g t h r o u g h f o u r s et s o f in t e r -l o c k i n g p r o c e s s e s : e c o l o g ic a l c h a n g e , e n a c t m e n t , s e l e c t i o n , a n d r e t e n -t i o n Figure 2). S e n s e m a k i n g b e g in s w h e n t h e r e i s s o m e c h a n g e o rd i f f e r e n c e i n th e o r g a n i z a t i o n a l e n v i r o n m e n t , r e s u l ti n g i n d i s t u r b a n c e so r v a r i a t i o n s i n t h e f l o w s o f e x p e r i e n c e a f f e c t i n g t h e o r g a n i z a t i o n ' sp a r t i c i p a n t s . T h i s ecological change r e q u i r e s t h e o r g a n i z a t i o n ' s m e m -b e r s t o a t te m p t t o u n d e r s t a n d t h e s e d i ff e r e n c e s a n d t o d e t e r m i n e t h es i g n if i c a n c e o f th e s e c h a n g e s . I n t ry i n g to u n d e r s t a n d t h e m e a n i n g o ft h e s e c h a n g e s , a n o r g a n i z a t i o n a l a c t o r m a y t a k e s o m e a c t i o n t o i s o l a t eo r b r a c k e t s o m e p o r t i o n o f t h e c h a n g e s f o r c lo s e r e x a m i n a t io n . T h u s ,m a n a g e r s r e s p o n d t o e q u iv o c a l in f o r m a t i o n a b o u t t h e e x t e r n a l e n v i r o n -m e n t b y enacting t h e e n v i r o n m e n t t o w h i c h t h e y w ill a d a p t . I n c r e a t i n gt h e e n a c t e d e n v i r o n m e n t , t h e y a t t e n d t o c e r t a in e l e m e n t s o f t h ee n v i r o n m e n t - - t h e y s e le c t iv e l y b r a c k e t a c t i o n s a n d t e x t s, l a b e l th e mw i t h n o u n s , a n d l o o k f o r r e l a t io n s h i p s . W h e n m a n a g e r s e n a c t t h ee n v i r o n m e n t , t h e y c o n s t r u c t , r e a r r a n g e , s in g le o u t , a n d d e m o l is h m a n y' o b j e c t i v e ' f e a t u r e s o f t h e i r s u r r o u n d i n g s . . . t h e y u n r a n d o m i z e v a r i -a b l e s , i n s e r t v e s t i g e s o f o r d e r l i n e s s , a n d l i t e r a l l y c r e a t e t h e i r o w nc o n s t r a i n t s . 12 T h e r e s u l t o f t h i s enactment i s t o g e n e r a t e e q u i v o c a l r a wd a t a a b o u t e n v i r o n m e n t a l c h a n g e s , r a w d a t a t h a t w il l s u b s e q u e n t l y b et u r n e d i n t o m e a n i n g a n d a c t i o n .

T h e e n a c t m e n t p r o c e s s s e g r e g a t e s p o s s i b l e e n v i r o n m e n t s t h a t t h eo r g a n i z a t i o n c o u l d c l a r if y a n d t a k e s e r i o u sl y , b u t w h e t h e r i t a c t u a ll yd o e s s o d e p e n d s o n w h a t h a p p e n s i n t h e s e l e c t io n p r o c e s se s . I n t h eselection p r o c e s s , a n s w e r s a r e g e n e r a t e d to t h e q u e s t i o n , W h a t is g o i n go n h e r e ? S e l e c t i o n i n v o l v e s t h e o v e r l a y i n g o f v a r i o u s p la u s i b le r e la -t i o n s h ip s t r u c t u r e s o n t h e e n a c t e d r a w d a t a i n a n a t t e m p t t o r e d u c e t h e i r

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The Knowing Organization: C W Chooe q u i v o c a l i t y . T h e s e s t r u c t u r e s , o f t e n i n t h e f o r m o f c a u s e m a p s , a r et h o s e t h a t h a v e p r o v e n s e n s i b le i n e x p l a in i n g p r e v i o u s s i tu a t i o n s, a n da r e n o w b e i n g s u p e r i m p o s e d o n t h e c u r r e n t r a w d a t a t o s ee i f t h e y c o u l dp r o v i d e a r e a s o n a b l e i n t e r p r e ta t i o n o f w h a t h a s o c c u r r e d . T h e s e l e c t i o np r o c e s s t h e r e f o r e r e a c h e s i n t o t h e p a s t t o e x t r a c t h i s t o r y a n d s e l e c t ar e a s o n a b l e s c h e m e o f i n t e r p re t a t io n .

I n t h e retention p r o c e s s , t h e p r o d u c t s o f s uc c e s sf u l s e n s e m a k i n g a r er e t a i n e d f o r f u t u r e u s e . T h e p r o d u c t o f o r g a n i z a t i o n a l s e n s e m a k i n g i s a ne n a c t e d e n v i r o n m e n t - - a s e n si bl e r e n d e r i n g o f p r e v i o u s e v e nt s s to r e d i nt h e f o r m o f c a u sa l a s s e rt i o n s , a n d m a d e b i n d i n g o n s o m e c u r r e n te n a c t m e n t a n d / o r s e le c t io n . 13 B e c a u s e t h e e n a c t e d e n v i r o n m e n t i s b a s e do n r e t r o s p e c t i v e i n t e r p r e t a t i o n s o f a c ti o n s o r e v e n t s a l r e a d y c o m p l e t e d ,i t i s l ik e a h i s to r i c a l d o c u m e n t , s t o r e d u s u a l l y a s a m a p o f r e l a t i o n s h i p sb e t w e e n e v e n t s a n d a c t io n s , t h a t ca n b e r e t r i e v e d a n d s u p e r i m p o s e d o ns u b s e q u e n t a c t i v it ie s . I n th e s e n s e m a k i n g v i e w , t h e r e a s o n f o r e x is t e n c eo f a n o r g a n i z a t i o n i s t o p r o d u c e s t a b le i n t e r p r e t a t i o n s o f e q u i v o c a l d a t aa b o u t e n v i r o n m e n t a l c h a n g e . A l t h o u g h t h e e n t i r e p r o c e s s o p e r a t e s t or e d u c e e q u i v o c a l i ty , s o m e e q u i v o c a l f e a t u r e s d o a n d m u s t r e m a i n i f t h eo r g a n i z a t i o n i s t o h a v e t h e f l e x i b i l it y t o s u r v i v e i n t o a n e w a n d d i f f e r e n tf u t u r e .

A n i m p o r t a n t c o r o l l a r y o f t h e s e n s e m a k i n g m o d e l i s t h a t o r g a n i za -t i o n s b e h a v e a s i n t e r p r e t a t i o n s y s t e m s :

O rg an i z a t i o n s m u s t m ak e i n t e rp re t a t i o n s . Man ag e r s l i t e r a l l ym u s t w ad e i n t o t h e s w arm o f ev en t s t h a t co n s t i t u t e an ds u r ro u n d t h e o rg an i z a t io n an d ac t i v e ly t ry t o i m p o s e s o m eo r d e r o n t h e m . . . I n t e r p r e t a t i o n is t h e p ro c e s s o f t ra n s la t in gt h es e ev en t s , o f d ev e l o p i n g m o d e l s fo r u n d e r s t an d i n g , o fb r i n g in g o u t m e a n i n g , a n d o f a s s e m b l in g c o n c e p t u a lsche m es. 14W h a t is b e i n g i n t e r p r e t e d is t h e o r g a n i z a t i o n ' s e x t e r n a l e n v i r o n m e n t ,a n d h o w t h e o r g a n i z a ti o n g o e s a b o u t i ts in t e r p r e t a t io n d e p e n d s o n h o wa n a l y z a b l e i t p e r c e i v e s t h e e n v i r o n m e n t t o b e a n d h o w a c t i v e ly i ti n t r u d e s i n t o th e e n v i r o n m e n t t o u n d e r s t a n d i t . E q u i v o c a l i t y i s r e d u c e db y m a n a g e r s a n d o t h e r p a r t i c i p a n t s w h o e x t e n s i v e l y d is c u ss a m b i g u o u si n f o r m a t i o n c u e s a n d s o a r ri v e a t a c o m m o n i n t e r p r e ta t i o n o f t h ee x t e r n a l e n v i r o n m e n t .

130p cit, Ref 10 , p 1661 4 W E I C K , E A N D D A F F , R L (1983) ' T h ee f f e c t i v e n e s s o f i n t e r p r e t a t i o n s y s t e m s ' i nC A M E R O N ~ K S A N D W H E T I ' E N , D A ( E D S )Organizational Effectiveness: A Compari-son of Mult iple Models A c a d e m i c P r e s s ,N e w Y o r k , p p 7 1 - 9 31 5 N O N A K A , | A N D T A K E U C H I , H (1995) TheKnowledge-Creating Company: HowJapanese Com panies Crea te the Dynamicsof Innovation Ox f o r d Un i v e r s i t y P r e s s ,N e w Y o r k

O rg an i z a t io n s as kn o w l ed g e c rea t in g en t e rp r isesN o n a k a a n d T a k e u c h i r e c c e n t ly p r e s e n t e d a c o m p r e h e n s i v e m o d e l o fh o w o r g a n i z a t i o n s d y n a m i c a l l y c r e a t e k n o w l e d g e , t5 K n o w l e d g e c r e a t i o nis a c h i e v e d t h r o u g h a r e c o g n i t i o n o f th e s y n e r g i s ti c r e l a t i o n s h i p b e t w e e nt a c i t a n d e x p l ic i t k n o w l e d g e i n t h e o r g a n i z a t i o n , a n d t h r o u g h t h e d e s i g no f s oc i al p r o c e s s e s t h a t c r e a t e n e w k n o w l e d g e b y c o n v e r t i n g t a c i tk n o w l e d g e i n t o e x p li c it k n o w l e d g e . Tac it know ledge i s p e r s o n a l k n o w -l e d g e t h a t i s h a r d t o f o r m a l i z e o r c o m m u n i c a t e t o o t h e r s . I t co n s is ts o fs u b j e c t i v e k n o w - h o w , i n s ig h t s, a n d i n t u it i o n s t h a t c o m e s t o a p e r s o nf r o m h a v i n g b e e n i m m e r s e d in a n a c t i vi ty fo r a n e x t e n d e d p e r i o d o ft i m e . Explic i t knowledge i s f o r m a l k n o w l e d g e t h a t i s e a s y t o t r a n s m i tb e t w e e n i n d iv i d u a ls a n d g r o u p s . I t is f r e q u e n t l y a r t i c u l a te d i n th e f o r mo f m a t h e m a t i c a l f o r m u l a s , r u l e s , s p e c i fi c a t io n s , a n d s o o n . T h e t w oc a t e g o r ie s o f k n o w l e d g e a r e c o m p l e m e n t a r y . T a c i t k n o w l e d g e , w h i le i tr e m a i n s c l o s e l y h e l d a s p e r s o n a l k n o w - h o w , is o f l im i t e d v a l u e t o t h e

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EXTERN LIZ TIONTacit

SOCI LIZ TION

Figure 3

The Knowing Organization: C W ChooExplicit

COMBIN TION

licitINTERN LIZ TIONTacit J

rgan iza t ions as know ledge c rea t ing en te rp r i ses

161bid

organization. Explicit knowledge does not appear spontaneously, butmust be nurtured and cultivated from the seeds of tacit knowledge.Organizations need to become skilled at converting personal, tacitknowledge into explicit knowledge that can push innovation and newproduct development. Whereas Western organizations tend to concen-trate on explicit knowledge, Japanese firms differentiate between tacitand explicit knowledge, and recognize that tacit knowledge is a sourceof competitive advantage.

There are four modes of knowledge conversion Figure 3): socializa-tion, externalization, combination, and internalization. Socialization isa process of acquiring tacit knowledge through sharing experiences. Asapprentices learn the craft of their masters through observation, imita-tion, and practice, so do employees of a firm learn new skills throughon-the-job training. When Matsushita was developing an automatichome bread-making machine in the late 1980s, its software engineersapprenticed themselves to the head baker of the Osaka InternationalHotel, who was reputed to produce the area's best bread, and dis-covered that the baker was not only stretching but also twisting thedough in a particular fashion, which turned out to be the secret formaking tasty bread. This twisting-stretch movement was copied by themachine, and Matsushita's Home Bakery product sold a record-settingvolume in its first year. (Examples of knowledge creation processes arefrom Nonaka and Takeuchi. 16)Externalization is a process of converting tacit knowledge into explicitconcepts through the use of metaphors, analogies, or models. Theexternalization of tacit knowledge is the quintessential knowledge-creation activity and is most often seen during the concept creationphase of new product development. When Canon was designing theMini-Copier, it had to produce a low-cost disposable cartridge thatwould eliminate the need for expensive maintenance. One day, afterconsuming cans of beer following a heated discussion, the design groupleader asked how much it would cost to manufacture a beer can. Byexamining beer cans, the group discovered how to fabricate the low-cost

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T h e K n o w i n g O r g a n i z a t i o n : C W C h o odisposable aluminium drum cylinder that eventually establishedCanon's leadership position in the personal copier market.C o m b i n a t i o n is a process of creating explicit knowledge by bringingtogether explicit knowledge from a number of sources. Thus, indi-viduals exchange and combine their explicit knowledge through tele-phone conversations, meetings, memos, and so on. Existing informationin computerized databases may be massaged to produce new explicitknowledge. At Kraft Genera l Foods, point-of-sales data are analyzed tofind out not only what does and does not sell, but also to develop newways to increase sales. Stores and shoppers are classified into categories,so that the system can pinpoint who shops for which goods at whatstores, and provide timely recommendations on merchandise mix andsales promotions .Finally, internal izat ion is a process of embodying explicit knowledgeinto tacit knowledge, internalizing the experiences gained through theother modes of knowledge creation in the form of shared mental modelsor work practices. Internalization is facilitated if individuals can re-experience indirectly the experience of others. At GE's Answer Centrein Louisville, Kentucky, all customer complaints go into a huge data-base. The new-product development team can then use this database tore-experience for themselves what the te lephone operators had encoun-tered.As shown in Figure 3, the four modes o f knowledge conversion feedoff each other in a continuous spiral of organizational knowledgecreation. Knowledge creation typically begins with individuals whodevelop some insight or intuition into how better to do their tasks. Thistacit know-how may be shared with others through socialization.However, as long as the knowledge stays tacit, the organization isunable to exploit it further. Thus, the tacit know-how of the masterbaker's kneading technique has to be converted into explicit knowledgethat is then used to design the kneading mechanism inside the bread-making machine. From the organization's perspective, externalizationof tacit knowledge into explicit concepts is therefore vital. Drawing outtacit knowledge requires taking a mental leap, and often involves thecreative use of a metaphor or analogy (recall the aluminium beer can inCarton's design of disposable copier cartridge). An organization wouldhave several bodies of explicit knowledge generated by different groupsor units at different points in time. These disparate bodies of expertisemay be combined and reconfigured into new forms of explicit know-ledge. Lastly, the new explicit knowledge created through the variousmodes would have to be re-experienced and re-internalized as new tacitknowledge.

17FELDMAN, M S AND MARC H, J G (1981)' I n f o r m a t i o n i n o r g a n i z a t i o n s a s s ig n a l a n ds y m b o l ' A d m i n i s t r a t i v e S c i e n c e Q u a r t e r l y26 (2) 171-18618MARCH, J G AND OLSEN, J P (1976) A m b i -gui t y a n d C h o i c e i n O r g a n i z a t io n s U n i v e r -s i t e t s fo r l age t , B e rgen

T o w a r d s t h e k n o w i n g o r g a n i z a t i o nOf the three models, the rational decision making framework isprobably the most influential and widely applied. Yet there are someperplexing behavior patterns common in organizations that do not seemto fit this view. People gather information ostensibly for decisions butdo not use it. 17 They ask for reports but do not read them. Individualsfight for the right to take part in decision processes, but then do notexercise that right. Policies are vigorously debated but their imple-mentation is met with indifference. 18 Managers observed in situ seemedto spend little time in making decisions, but are instead most often

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19MmTZaERG, H (1973) The N a tur e o f Man-agerial Work Harper and Row, New York;K O ] ~ F E R , J P (1982) The General ManagersFree Press, New York2 0 C Y E R T , R M A N D M A R C H , J G (1992) ABehav ior a l Theor y o f t he F i rm 2nd edition,Blackwell, Oxford, p 236Zaop cit, Ref 3, p 18Zaop cit, Ref 10231bid, p 229240p cit, Ref 11, p 114250p cit , Ref 15

The Know ing Organizat ion: C W Chooe n g a g e d i n m e e t i n g s a n d c o n v e r s a t i o n s . 19 S u c h f i n d i n g s s e e m t o s u g g e s tt h a t d e c i s io n m a k i n g , a p a r t f r o m b e i n g a n o c c a s i o n f o r m a k i n g c h o i c e s ,is a l so a n a r e n a f o r d e v e l o p i n g a n d e n j o y i n g a n in t e r p r e t a t i o n o f l if ea n d o n e ' s p o s i t i o n i n it . A b u s i n e s s f i r m is a t e m p l e a n d a c o l l e c t i o n o fs a c r e d r i t u a ls a s w e l l a s a n i n s t r u m e n t f o r p r o d u c i n g g o o d s a n d s e r v ic e s .T h e r i t u a ls o f c h o i c e t ie r o u t i n e e v e n t s t o b e l i e fs a b o u t t h e n a t u r e o ft h in g s . T h e y g i v e m e a n i n g . 20 I n o t h e r w o r d s , o r g a n i z a t i o n a l l if e is n o tj u s t a b o u t c h o i c e b u t a ls o a b o u t i n t e r p r e t a t i o n , a n d t h e p r o c e s s o fd e c i s i o n m a k i n g m u s t e m b r a c e t h e p r o c e s s o f s e n s e m a k i n g e v e n a s i te x a m i n e s t h e b e h a v i o r s o f c h o i c e - m a k i n g . I n t h e i r i n t ro d u c t i o n t o t h e1 9 9 3 e d i t i o n o f t h e i r 1 9 5 8 c l a s s i c , Organizations, M a r c h a n d S i m o nw r o t e :

So m e co n t em p o ra ry s t u d en t s o f m ean i n g i n o rg an i z a t i o n sw o u l d g o fu r t h e r t o a s s e r t th a t i t is i n t e rp re t a t i o n , r a t h e r t h anchoice , tha t i s cen t ra l to l i fe . Wi th in such a v iew, organiza-t i o n s a r e o rg an i z ed a ro u n d t h e r eq u i r em en t t o s u s t a i n , co m -m u n i ca t e , an d e l ab o ra t e i n t e rp re t a t i o n s o f h i s t o ry an d l i f e - -n o t a ro u n d d ec i s io n s . D ec i s i o n s a r e i n s t ru m e n t s t o i n t e rp re t a -t i o n , r a th e r t h a n t h e o t h e r w a y r o u n d . A l t h o u g h w e t h in k a ni n t e rp re t i v e p e r s p ec t i v e y i e ld s i m p o r t an t i n si gh ts i n t o o rg an -i z a ti o n s , w e w o u l d n o t g o t h a t f a r , e v en i n r e t ro s p ec t . B u t w es u s p ec t t h a t a 1 9 9 2 b o o k o n o rg an i z a t io n s , ev en w h i le r ea f -f i rm i n g t h a t t h e re i s a r ea l w o r l d o u t t h e re t o w h i ch o rg an iz a -t i o n s a r e ad ap t i n g an d w h i ch t h ey a r e a f f ec t i n g , w o u l d n eedt o p a y s o m e w h a t m o r e a t t e n ti o n t h a n a 1 9 5 8 b o o k d i d t o t h es o c i a l c o n t e x t o f m e a n i n g w i t h i n w h i c h o r g a n i z a t i o n sop er ate .21I n th e s e n s e m a k i n g m o d e l , t h e e n a c t e d e n v i r o n m e n t is a n o u t p u t o f t h em e a n i n g - c o n s t r u c t i o n p r o c e s s , a n d s e r v e s a s a r e a s o n a b l e , p l a u s i b l eg u i d e f o r a c ti o n . H o w e v e r , o n c e t h e e n v i r o n m e n t h a s b e e n e n a c t e d a n ds t o r e d , p e o p l e i n t h e o r g a n i z a t i o n n o w f a c e t h e c r it ic a l q u e s t i o n o f w h a tt o d o w i t h w h a t t h e y k n o w - - t h e s e a r e w h a t W e i c k h a s c a l l e d ' t h ec o n s e q u e n t i a l m o m e n t s ' . 22 F u r t h e r m o r e , t h e s h a r e d i n t e r p re t a t io n s a r ea c o m p r o m i s e b e t w e e n s t a b i li ty a n d f l e x i b i l i t y - - s o m e e q u i v o c a l f e a t u r e sd o a n d m u s t r e m a i n i n t h e s t o r e d i n t e r p r e t a t i o n s , s o th a t t h e o r g a n i z a -t i o n h a s t h e f l e x ib i li ty t o a d a p t t o a n e w a n d d i f f e r e n t f u t u r e . P e o p l e i no r g a n i za t io n s a r e t h e r e f o r e p e o p l e w h o o p p o s e , a r g u e , c o n tr a d i c t,d i s b e l i e v e , d o u b t , a c t h y p o c r i t i c a l l y , i m p r o v i s e , c o u n t e r , d i s t ru s t , d i f f e r ,c h a l l e n g e , v a c i l l a t e , q u e s t i o n , p u n c t u r e , d i s p r o v e , a n d e x p o s e . A l l o ft h e s e a c t io n s e m b o d y a m b i v a l e n c e a s t h e o p t i m a l c o m p r o m i s e t o d e a lw i t h t h e i n c o m p a t i b l e d e m a n d s o f f l e x ib i li ty a n d s t ab i li ty . ' '2 3 W h e r ed e c i s i o n p r e m i s e s i n t h e d e c i s i o n - m a k i n g m o d e l c o n t r o l o r g a n i z a t i o n a lc h o i c e - m a k i n g , s h a r e d a s s u m p t i o n s a n d e x p e r i e n c e s i n t h e s e n s e m a k i n gm o d e l c o n s t r a i n t h e w a y s t h a t p e o p l e i n a n o r g a n i z a t i o n p e r c e i v e t h e i rw o r l d . B o t h p h e n o m e n a a r e a s pe c ts o f p r e m i s e c o n t r o l , a n d p r e m i s ec o n t r o l b e c o m e s a u s e f u l c o n c e p t t h a t j o i n s s e n s e m a k i n g w i t h d e c i s i o nm a k i n g . 24 T h e c e n t r a l c o n c e r n o f s e n s e m a k i n g is u n d e r s t a n d i n g h o wp e o p l e i n o r g a n i z a t i o n s c o n s t r u c t m e a n i n g a n d r e a l i t y , a n d t h e n e x p l o r -i n g h o w t h a t e n a c t e d r e a l i t y p r o v i d e s a c o n t e x t f o r o r g a n i z a t i o n a la c t i o n , i n c l u d i n g d e c i s i o n m a k i n g a n d k n o w l e d g e b u i l d i n g .C o m m e n t i n g o n t h e r a t i o n a l d e c i s i o n - m a k i n g m o d e l , N o n a k a a n dT a k e u c h i a r g u e d t h a t t h i s i n f o r m a t i o n p r o c e s s i n g v ie w h a s a f u n -d a m e n t a l l i m i ta t i o n . 25 F o r t h e m , t h e d e c i s i o n - m a k i n g m o d e l d o e s n o tr e a l l y e x p la i n i n n o v a t i o n . T h e d e c i s io n m a k i n g v i e w is e ss e n t ia l ly

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Z60p cit, R e f 1 5 p 5 6270p cit, Ref 15, p 227

conservative, where decision premises and performance programs aredesigned for control, and search biases inhibit radically innovativesolutions. On the other hand, when organizations innovate, they donot simply process information, from the outside in, in order to solveexisting problems and adapt to a changing environment. They actuallycreate new information and knowledge, from the inside out, in order toredefine both problems and solutions and, in the process, to re-createtheir environment . '26 The key to innovat ion is in unlocking thepersonal, tacit knowledge of the organization's members. This know-ledge conversion process has to take place against the backdrop of ashared underst anding of what the organization stands for and where it isheaded, in other words, a k n o wle d g e v i s i o n that defines the 'field' or'domain' that gives corporate members a mental map of the world theylive in and provides a general direction regarding what kind of know-ledge they ought to seek and create. 27

Although the three arenas of information use--sensemaking, know-ledge building, and decision making--are often treated as distinct andseparate organizational processes, closer scrutiny suggests that they arein fact highly interconnected processes, and that by analyzing how thethree activities energize each other, a holistic view of organizationalinformation use emerges. Our discussion reveals that the three modelscomplement each other by supplying some of the missing piecesnecessary for each model to function. At a general level, we canvisualize the three models as representing three concentric layers oforganizational information behaviors, with each inner layer buildingupon the information outputs of the outer layer Figure 4 ) . Informationflows from the ex ternal environment (outside the circles) and isprogressively assimilated and focused to enable organizational action.First, information about the organization's environment is sensed andits meaning is socially constructed. During sensernaking, the principalinformation process is the interpretation of news and messages aboutthe environment. Members must choose what information is significantand should be attended to; they form possible explanations from pastexperience; and they exchange and negotiate their views in order toarrive at a common inte rpretation. Sensemaking supplies a meaningfulcontext for all organizational activity and in particular guides theknowledge creation processes. Knowledge resides in the minds ofindividuals, and this personal knowledge needs to be converted intoknowledge that can be shared and transfo rmed into innovations. Duringknowledge c rea t ion , the main information process is the conversion ofknowledge. Members share their personal knowledge through appren-ticeships and training, and articulate what they intuitively know throughdialogue and discourse, as well as more formal channels. When there issufficient understanding and knowledge, the organization is primed foraction, and chooses its course rationally according to its goals. Duringdec is ion mak ing , the key information activity is the processing ofinformation about the available alternatives in order to weigh theirrelative merits and demerits. Members typically follow a sequence ofsteps and adopt a set of criteria to collect information, design alterna-tives, and evaluate alternatives. The resulting organizational actionchanges the environment, and produces new streams of experience forthe organization to adapt to, thus beginning another cycle. All threeinformation modes--interpretation, conversion, and processing--aredynamic social processes, subject to interruptions and iterations.

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T h e K n o w i n g O r g a n iz a ti o n : C W C h o o

Sensemaking

Knowledge Creation

Decision Making

Action

Information Processing

Informati on onversion

Information Interpretation

F igure 4 The now ing O rganizationT h e o r g a n i z a ti o n t h a t e f f e c t iv e l y i n t eg r a t e s s e n s e m a k i n g , k n o w l e d g e

c r e a t io n , a n d d e c i s i o n m a k i n g i n t h e m a n n e r w e h a v e j u s t d e s c r i b e d m a yb e c a l l e d a K n o w i n g O r g a n i z a t i o n . T h e K n o w i n g O r g a n i z a t i o n p o s -s e s s e s i n f o r m a t i o n a n d k n o w l e d g e s o t h a t i t i s w e l l i n f o r m e d , m e n t a l l yp e r c e p t i v e , a n d e n l i g h t e n e d . I t s a c t i o n s a r e b a s e d u p o n a s h a r e d a n dv a l id u n d e r s t a n d in g o f t h e o r g a n i z a ti o n 's e n v i r o n m e n t s a n d n e e d s , a n da r e l e v e r a g e d b y t h e a v a i la b l e k n o w l e d g e r e s o u r c e s a n d s k il l c o m p e t e n -c ie s o f it s m e m b e r s . T h e K n o w i n g O r g a n i z a ti o n p o s s e s s e s i n f o r m a t i o na n d k n o w l e d g e t h a t c o n f e r s a s p e c i a l a d v a n t a g e , a l l o w i n g i t t o m a n -o e u v r e w i t h i n t e l l i g e n c e , c r e a t i v i t y , a n d o c c a s i o n a l l y , c u n n i n g .

T h e kn o w i n g cy c le in ac ti o nF o r a n e x a m p l e o f t h e k n o w i n g c y c l e i n a c t i o n , c o n s i d e r t h e s t r a t e g i cp l a n n in g a p p r o a c h o f t h e R o y a l D u t c h /S h e l l G r o u p o f c o m p a n i e s . S h e lli s a c e n t u r y o l d c o m p a n y t h a t h a s s h o w n a d a p t i v e n e s s i n a n t i c i p a t i n ga n d r e a c t i n g t o c h a n g i n g e n v i r o n m e n t s . I n t h e e a r l y 1 9 7 0 s , S h e l l w a sa b l e t o d i s c e r n d i f f e r e n c e s b e t w e e n I r a n a n d S a u d i A r a b i a ( w h i l ee v e r y o n e e l s e p e r c e i v e d t h e A r a b o i l n a t i o n s a s a h o m o g e n o u s c a r t e l )an d t h u s an t i c ip a t e t h e sh o r t ag es t h a t l ed t o t h e 1 9 73 o i l c r i s i s . In 1 9 8 1 ,S h e l l w a s a b l e t o s e l l o f f it s e x c e s s r e s e r v e s ( w h i le o t h e r c o m p a n i e s w e r es t o c k p i l in g f o l lo w i n g t h e I r a n - I r a q w a r ) b e f o r e t h e g lu t c a u s e d t h e p r ic ec o l la p s e . M o r e r e c e n t l y , b y r e c o g ni z in g t h e d e m o g r a p h i c a n d e c o n o m i cp r e s s u r e s o n t h e S o v i e t U n i o n ( w h i l e W e s t e r n p o l i t i c i a n s s a w o n l y a ne v i l c o m m u n i s t e m p i r e ) , S h e l l w a s a b l e t o a n t i c i p a t e g l a s n o s t . A r i e d eG e u s , h e a d o f p l a n n in g o f S h e ll fo r m o r e t h a n t h r e e d e c a d e s , o b s e r v e s

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The Know ing Organization: C W Choo

2 8 DE G E U S , A P (1988) 'P lanning a s l e a r n -i n g ' H ar v ar d Bus i ne s s Re v i e w 66 (2) 70-742 9 K L E I N E R , A (1994) 'Crea t ing scenar ios ' inS E N G E~ P , K L E I N E R , A , R O B E R T S , C , R O S S , RA N D S M I T H B ( E D S ) The Fifth DisciplineF i e l db ook D o u b l e d a y , N e w Y o r k , p p 2 7 5 -2783 0 W A C K , P (1985) 'Scenar ios : unchar ted wa-t e r s a h e a d ' H ar v ar d Bus i ne s s Re v i e w 63 (5)72 - 8 93 1 V A N D E R H E I J D E N , K (1994) ' S h e l l ' s i n t e r -n a l c o n s u l t a n c y ' i n S E N G E , P , K L E I N E R , A ,R O B E R T S , C , R O S S , R A N D S M I T H , B ( E D S )The Fi f th Disc ipl ine Fie ldbook D o u b l e d a y ,N e w Y o r k , p p 2 7 9 - 2 8 63 2 L E E M H U I S , J a (1985) 'Us ing scenar ios tod e v e l o p s t r a t e g i e s ' L o n g R a n g e P l a n n i n g18 (2) 30-37

t h a t O u t c o m e s li k e t h e s e d o n ' t h a p p e n a u t o m a t i c a l l y . O n t h e c o n t r a r y ,t h e y d e p e n d o n t h e a b i l i ty o f a c o m p a n y ' s s e n i o r m a n a g e r s t o a b s o r bw h a t i s g o i n g o n i n t h e b u s i n e s s e n v i r o n m e n t a n d t o a c t o n t h a ti n f o r m a t i o n w i t h a p p r o p r i a t e b u s i n e s s m o v e s . ''2 8A s a l a r g e m u l t i n a t i o n a l w i t h i n t e r e s t s a ll o v e r t h e w o r l d , S h e l l f a c e s ad a u n t i n g t a s k a s it a t t e m p t s t o m a k e s e n s e o f it s h i g h l y c o m p l e x a n d

e q u i v o c a l e n v i r o n m e n t . I n t r y i n g t o c o n s t r u c t p l a u s i b l e i n t e r p r e t a t i o n so f t h e e x t e r n a l e n v i r o n m e n t , S h e l l' s p l a n n e r s d i f f e re n t i a t e b e t w e e nk n o w a b l e ' p r e d e t e r m i n e d v a r i a b le s ' a n d u n k n o w a b l e ' k e y u n c e rt a i n -t i e s ', a p r o c e s s t h a t i s e q u i v a l e n t t o e n a c t i n g t h e e n v i r o n m e n t . P r e d e t e r -m i n e d v a r i a b l e s a r e r e a s o n a b l y p r e d i c t a b l e ( u s i n g f o r e x a m p l e , d e m o -g r a p h i c d a t a ) a n d s e t t h e b o u n d a r i e s o f f u t u r e s c e n a ri o s , w h i le k e yu n c e r t a i n t i e s a r e h a r d t o p r e d i c t a n d p o i n t o u t t h e m o s t s e r i o u sc o n s e q u e n c e s o f t h e d e c i s i o n s t a k e n . I n s e l e c ti n g a r e a s o n a b l e i n t e r -p r e t a t i o n , S h e l l ' s m a n a g e r s a n d p l a n n e r s p l o t o u t t w o o r t h r e e s c e n a r -i o s , a n d u s e t h e m i n e x t e n d e d c o n v e r s a t i o n s t o c o n v e r g e o n a s h a r e dr e p r e s e n t a t i o n o f th e e n v i r o n m e n t a n d a c o n s e n s u s o n w h a t S h e l l is tob e i n t h a t n e w e n v i r o n m e n t . 29 S h e ll h a s d e v e l o p e d s c e n a r i o p l a n n i n gt e c h n i q u e s t h a t h a v e b e e n u s e d t o d r a w o u t t h e p e r s o n a l , t a c i t k n o w -l e d g e o f m a n a g e r s a n d p l a n n e r s , a n d e x t e r n a l i z e t h e k n o w l e d g e i n t of o r m a l s c e n a r i o s w h i c h f a c i li t a t e t h e c r e a t i o n o f a s h a r e d i n t e r p r e t a t i o no f e x t e r n a l d e v e l o p m e n t s . 3 P l a n n e r s u s e a n i n t e rv i e w i n g m e t h o d w i t ht r ig g e r q u e s t i o n s a n d f e e d b a c k w h i c h r e v e a l t h e m e n t a l m o d e l s , a s s u m p -t i o n s , a n d c r i ti c a l c o n c e r n s o f m a n a g e r s . 31 T h e s e a s s u m p t i o n s a n dc o n c e r n s a r e t h e n w e a v e d i n t o a f e w s c en a r i o s th a t m a n a g e r s c a n u s e t od e e p e n t h e i r u n d e r s t a n d i n g a n d u n c o v e r p o s s i b i l i t i e s f o r a c t i o n . T h ei n s i g h t a n d k n o w l e d g e g a i n e d t h r o u g h s c e n a r i o p l a n n i n g m u s t b et r a n s l a t e d i n t o s p e c i f i c c o u r s e s o f a c t i o n . S h e l l N e d e r l a n d , a s i z e a b l em e m b e r o f t h e S h e ll g r o u p , u s e s a s e t o f s ea r c h a n d d e c i s io n r o u t i n e s( c a l le d a s t r a t e g i c r e v i e w ) t o d e v e l o p a s t r a t e g y f o r a c t i o n . 32 I ne v a l u a t i n g a p a r t i c u l a r o p t i o n o r p r o j e c t , d a t a o n a s m a l l n u m b e r o f k e yv a r i a b l e s ( s u c h a s h i s to r i c p r i c e a n d c o s t a n a l y s e s , e x c h a n g e r a t e s ) a r es e a r c h e d a n d p r e s e n t e d . T h e p r e m i s e h e r e i s t h a t m o s t b u s i n e s s es 'i n c o m e v a r i a t i o n s a r e d e t e r m i n e d b y c h a n g e s i n o n l y a f e w k e yv a r i a b l e s . T h i s a n a l y s i s r e s u l t s in e x p e c t e d i n c o m e r a n g e s , w h i c h a r et h e n c o m p a r e d w i t h r e q u i r e d i n c o m e l e v e l s d e r i v e d f r o m l o n g e r t e r ms t r a t e g i c g o a ls . T h e c o u r s e o f a c t i o n w i t h a c c e p t a b l e r i s k - p a y o f f i s t h e ns e l e c t e d .S h e l l h a s b e e n a b l e t o e f f e c t i v e l y m a n a g e a n d i n t e g r a t e i t s s e n s e -m a k i n g , k n o w l e d g e b u i l d in g , a n d d e c i s i o n - m a k i n g p r o c e s se s i n s c e n a r iop l a n n i n g a n d s t r a t e g y d e v e l o p m e n t . I ts a b i li ty to s u r v i v e a n d a d a p tt h r o u g h t h e y e a r s i s d u e i n n o s m a l l p a r t t o i t s s k i l l i n s c a n n i n g t h ee n v i r o n m e n t , d e v e l o p i n g i n t e r p r e t a t i o n s o r s c e n a r i o s t h a t p r o v i d e ac o n t e x t f o r a c t i o n , m o b i li z in g t h e t a c i t k n o w l e d g e o f it s m a n a g e r s a n dp l a n n e r s , a n d i m p l e m e n t i n g h a r d - h e a d e d d e c i s i o n r o u t i n e s t o a ids t r a t e g y d e v e l o p m e n t .O u r d e s c r i p ti o n o f t h e K n o w i n g O r g a n i z a t i o n p r o v i d e s a u n i f ie d v ie wo f t he p r i n c i p a l w a y s in w h i c h a n o r g a n i z a t i o n c a n m a k e u s e o fi n f o r m a t i o n s t ra t e g ic a l ly . B y a t t e n d i n g t o a n d m a k i n g s e n s e o f s i gn a lsf r o m i t s e n v i r o n m e n t , t h e o r g a n i z a t i o n i s a b l e t o a d a p t a n d t h r i v e . B ym o b i l i zi n g th e k n o w l e d g e a n d e x p e r ti s e o f i ts m e m b e r s , t h e o r g a n i z a -t i o n is c o n s t a n t l y le a r n i n g a n d i n n o v a t i n g . B y d e s i g n i n g a c t i o n a n dd e c i s i o n r o u t i n e s b a s e d o n w h a t i t s m e m b e r s k n o w a n d b e l i e v e , t h eo r g a n i z a t i o n i s a b l e t o c h o o s e a n d c o m m i t i t s e l f t o c o u r s e s o f a c t i o n .

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