Knowledge Management in Production Alliances

1
Knowledge Management in Production Alliances

• Linda Moffat and Norm Archer
• DeGroote School of Business
• McMaster University

Supply Transformation in the Ebusiness
Environment Toronto,
November 17, 2003
2

• Agenda
• Some Definitions
• A model
• Three case studies
• Some preliminary findings

3
Some Definitions

• Network Organizations
• focused collaborations among distinct
  organizations for joint competitive advantage
• long term (not contractually limited)
  relationships between independent firms, active
  collaboration, joint goal optimization,
• Established for market defense or access,
  technology access, resource access, refocusing
• Production Network Organizations (PNOs)
• Network organizations that develop and produce
  products.
• Have a relatively complex joint task, requiring
  some asset investment by member firms,
• may or may not develop a joint venture unit.

4
Types of Production Network Organizations

• Networks fall between markets and hierarchies
• ie. Networks collaborate more closely than in a
  market relationship defined by a limited term
  legal contract. ..
• But less closely than the divisions or functions
  inside of a vertically integrated hierarchical
  FIRM.
• Networks vary in the complexity of
  organizingstructure

Markets Opportunistic Competitive Contracts
FIRMS Hierarchical System - Optimizing Collaborati
on
Tiered Hub and Spokes
Exchanges, Consortia
SimpleChains
5
Types of Production Network Organizations
Scope of joint task
Amount of Collaboration Amount of Structure
Lo
Hi
Concentration of power in the dominant firm
Open Markets Opportunistic Contracts
Hierarchies System Optimizing Collaboration
Tiered Hub and Spokes
Exchanges, Consortia
SimpleChains
6
Supply Chains and PNOs

• Classic Supply chains are not network
  organizations.
• They are a set of short term bilateral contracts
  linking a vertically integrated producer to its
  required resource inputs.
• The traditional supply system becomes a network
  organization when control over product design
  and/or production is out-sourced, decentralized
  and distributed across a group of specialized
  firms.
• Supply chains evolve into tiered hub and spoke
  network organizations around the dominant
  producer/marketer firm. (e.g. the aerospace
  model)

7
Some Definitions (2)

• Knowledge is ...
• experientially grounded understanding
• Information is ...
• the arrangement of data into meaningful
  patterns.
• Knowledge Management is
• the way that organizations
• create, capture and reuse knowledge
• to achieve
  organizational objectives

8
So what is Knowledge Management?

• A mixed bag of
• Business processes
• IT and Communications tools
• Leadership Roles
• Organizational Design practices
• Learning methodologies
• All directed towards supporting
• knowledge creation, capture and reuse

9
Formal Knowledge Management Tools for Production
Network Organizations

• Communications tools
• T1 or Web based networks
• FIREWALLS
• Network portals, secure email
• document repositories,
• teleconferencing and video conferencing tools
• Netmeeting, whiteboarding,
• Shared data bases hosted or distributed
• order, component, design data bases, project work
  flows,
• Upstream
• CRM B2B marketing tools, data mining
• IPR agreements
• PM processes and tools and planning tools, Work
  flow tools
• Collaborative design tools, CASE, CAD,
  simulation tools, design elements, design review
  tools,
• Virtual teaming tools,
• Document repository and management tools,

• Joint Operations
• IO MRP2,
• Production Scheduling,
• Inventory mngt tools
• Supply chain management tools,
• Downstream Coordination
• IO Order management suites
• Distribution and tracking tools,
• Logistics support tools
• CRM systems
• Basically everything used inside a Vertically
  integrated firm. Plus Firewalls

10
PNO Knowledge Management Framework
Venture
Contingent
Alliance
Performance
Factors
Structure
KM
Partner Trust
Relationship
Duration
Characteristics
Mediators
Returns
Rel
Market Power
Alliance
Strategic Import
Alliance
Performance
Org Compatibility
Form
Strategic Alignment
Interdependence
Alliance
Leader Firm Centrality
Task Scope
KM Performance
Formalization
Breadth
BP Integration level
Knowledge
Complexity
User Acceptance
Management
Environment
Knowledge Flow
Approach
Risks
Effectiveness
Shared
IOICS and formal KM
Knowledge
Resources/apps
Requirements
Alliance and KM Leadership
Business Uncertainty
Formal KM practices
Technological Uncertainty
Volume
Informal KM roles
Complexity
Learning Methodologies
Tacitness
Specificity
11

• Contingency Theory
• Task Scope (breadth and complexity) of the
  Joint
• production task will be jointly shaped by
  the level of
• environmental and technical volatility
  and the level of
• specialization/interdependence of member
  firms.
• Shared knowledge requirements (volumen,
• complexity, tacitness, and specificity) is
  shaped by the
• joint task scope.
• Alliance form, (concentration of power,
• formalization and BP integration) is
  shaped by the
• relationships between the member firms,
  the joint task
• scope and its related shared knowledge
  requirements.

The Alliance Structure is contingent upon member
characteristics. But it should also take into
account the knowledge sharing requirements of
the joint task.
Shared Knowledge Requirements
Shared Knowledge Requirements

12
Knowledge Management mediates anymisalignment
between the Alliance structureand joint task
requirements

• Alliance performance is shaped by the fit
  between the form of the alliance and its its
  knowledge sharing requirements.
• heavy knowledge sharing requirements and limited
  alliance formalization and structure present
  challenges.
• formal and particularly informal knowledge
  management practices may be implemented jointly
  or by individual firms to mediate the
  misalignment.
• Improved KM effectiveness leads to greater
  inter-firm understanding, trust and collaboration
  effectiveness..

Volume Complexity Tacitness Specificity
13
Three case studies

• Case 1 a microelectronics PNO Chain
• Case 2 A telecom joint venture PNO
• Case 3 a tiered hub and spoke Aerospace
• NPO
• all involve some Canadian firms,
• all experienced some misalignment between task
  scope and venture structure
• all made extensive use of IOICS and other
  knowledge management methods.

14
Case 1 A Microelectronics PNO Chain

• .Network organized to produce a single device--
  with upgrades-- innovative product which has
  become mature. Owns its market, multiple
  globally distributed large endusers
• Industry for complex specialist network
  management ICs characterized by rapid product
  and process technology evolution and very high
  market uncertainty
• Member Relationships
• 6 firms in a chain, specify, design, fabricate,
  package, test, distribute and integrate
  specialized semiconductors for telecommunications
  systems.
• The one common denominator is profitability based
  on business volume growth expectations,
  originally for this device and now for future
  product collaborations.
• Joint Task Scope
• end to end development of a complex IC by
  utilizing the specialized knowledge and assest
  investments of each of the member firms.
• But little overlap of tasks in the chain.
• Information and Knowledge Exchange Requirements
  
• across the whole product life cycle.
• Information volume peaks at the initial design
  transfer, and the required knowledge exchange is
  very specialized and complex, and is formalized
  and highly codified.
• Venture Structure
• flat, loosely integrated by the linking pin or
  factoring firm-- the small specialist design
  house
• The silicon Fab controls the production schedule
  of the venture because of its control over the
  key production capability.
• Structure/Knowledge Sharing Alignment
• the legal structure of the venture is simple
  contracts,.
• There is no formal governance or dispute
  resolution structure, and no designated venture
  management board

15
Case 1 Challenges

• 1. No governance structure means informal
  dispute identification and resolution process has
  to evolve, operates slowly.
• 2. The strategic import of the venture is highest
  for the design house, and relatively low for the
  key player, the Fab.
• Strategic import also fluctuates across the life
  of the venture for each member.
• 3. Challenge of sharing of tacit specialist
  knowledge, at several phases. Limited the scope
  of joint tasks. Very compartmentalized.
• 4. The knowledge exchange presented ICT
  challenges to the smaller PNO firms.
• 5. Turnover of key personnel in some of the
  member firms meant loss of history and of trust
  at operational level of venture.

16
Case 1 Knowledge Management Efforts

• Linking Pin firm assumes responsibility for
  establishing joint venture governance structure,
  processes.
• Sets up its own formal dispute resolution
  procedure for the venture.
• Weekly teleconferences with cross-functional
  representation from all member firms -- on as
  needed basis. Chair and minutes responsibilities
  circulate. Records distributed across venture.
• Strategic alignment maintained by efforts of the
  linking pin firm. Commits executive resources to
  maintaining MIND SHARE with less strongly
  committed (large, more powerful) members. Face
  to face meetings on quarterly basis to exchange
  TACIT knowledge-- strategic and operational
  plans. Creating a community of interests,
  creating shared strategic goals. Critical
  strategic joint KM
• Different level of ICT capability, managed by the
  Fab-- maintains a lite data exchange capability
  for smaller players, provides ICT services,
  translates data files, for small partners of
  strategic value.
• Turnover issue requires re-connection and
  re-education period, some raising of the issue
  with partner firms, preference for partners with
  lower turn-over.
• Specialist Knowledge sharing issues handled by
  assigning specific venture roles, to
  specialists-- often with language skills (french,
  mandarin, german) to match opposite in partner
  firms .
• Adoption of specific ICT tools to facilitate
  specialist collaborations eg. virtual test
  environment.

17
Case 2 A Telecom Joint Venture

• 2 strong VI partners, one with new technology,
  other with market access.
• Required major commitment of equity and
  engineering resources-- design and mfg. By both
  partners, for high risk entry to new market.
• Venture Scope very broad, and deep integration
  of design and prodn.
• Knowledge Flow requirements HUGE Joint design
  venture required deep knowledge transfer from
  company A to company B-- new wireless technology.
  Joint mfg required full integration of both
  companies mfg systems and processes.
• Venture Structure Legal Joint Venture unit
  established for design unit, PMO for
  manufacturing units.
• Couldnt do the design in a PMO because of IP,
  tacit knowledge transfer difficulties.
• Allignment Issues Depth of collaboration for
  tech transfer and collaboration led to creation
  of a formal joint venture structure for design
  group.
• This was not sufficient for effective
  collaboration-- even with own management
  structure and assets.
• Goal was high level of process integration--Profes
  sional, Cultural and organizational differences
  presented significant barriers

18
Case 2 Knowledge management Efforts

• KM strategy was formal and heavily resourced by
  Company B, (more experience with global
  production and ICT) to acquire key new technology
  (a KM driven venture)
• Joint Venture unit created-- to prevent loss of
  key Knowledge holders-- but also to introduce
  Company Bs processes and tools to Company As
  talent.
• Addressed cultural, language and organizational
  issues, as well as specialist engineering
  knowledge transfer. (codification and
  personalization approaches both used)
• Used ICT infrastructure to create virtual
  development teams with members in Europe and NA.
• Invested a lot in long term postings of key
  personnel in JV and Company A and B units to
  handle strategic knowledge sharing and transfer.
• Outcome Project was a huge success
• Eventually company B absorbed the JC unit-- and
  didnt loose the key personnel.
• Eample of using a JV-- extended enterprise-- to
  transfer key knowledge and human resources
  between companies- in a high risk situation.

19
Case 3 An Aerospace Supply Chain

• An experiment that is currently under way.
  Evolution of a traditional supply chain to a
  tiered hub and spoke PNO.
• Challenge is to outsource production activities
  and decentralize design responsibility.
• Leveraging an advanced internal ICT
  infrastructure, and industry wide design and
  manufacturing standards and data exchange
  standards and tools.
• Partners already experienced in using ICT to
  manage regular supply relationship, but partner
  ICT capabilities and resources are limited and
  uneven.
• Challenges The joint task scope is being
  greatly expanded, based on the premise that the
  knowledge sharing capabilities will be strong
  enough to support the required collaboration.
• The transition to a virtual enterprise will
  require a significant transfer of both codified
  and tacit, complex, specialist knowledge outward
  from the hub firm to its new production partners.

20
Comparison of Cases
21
(No Transcript)
22
Some Preliminary Conclusions

• PNOs linking very large and some very small
  players require strong strategic incentives for
  specialization or market penetration to encourage
  the large players to collaborate deeply.
• Small players need to invest heavily in informal
  knowledge sharing and knowledge management
  methods across the PNO to maintain strategic
  mind-share with their large partners.
• PNO chain alliances are best for specialist
  collaborations. They are not sufficiently
  integrated for tech transfer or for the
  deverticalization of previously highly integrated
  production systems.
• PNO chains need scale flexible project
  focused collaboration processes and KM tools, to
  support and reduce the collaboration load on
  member firms.
• Large, sophisticated players have the distinct
  advantage of migrating their complex and
  advanced internal ICS and KM practices to support
  PNO integration, but may need to transfer
  knowledge as well as information to partners.
• Smaller players benefit from selectively adopting
  the technologies and experience and from
  utilizing the ICS resources of their larger
  partners. But this must be done carefully, to
  avoid lock in or take-over.
• The scope of collaboration varies over the life
  cycle of PNO ventures heavy in the development
  phase and much lighter in the operational phase.
• PNOs work best for Collaboration, not for deep
  Technology Transfer