The power of knowledge flow: how KFSO’s accelerate value creation.

The new organizational design science of Kinetic Flow State Organizations prioritizes the flow of knowledge. What is knowledge in a business context and how can it be thought of as flowing?

The firm as knowledge flow.

In value creation economics, business firms facilitate value for their customers and compete with each other via configurations of capital. In this view, capital is defined as an asset that will produce or contribute to the production of products and services that the customer will value enough to pay for, hence generating a future cash flow. Anything that doesn’t contribute to generating cash flow via value facilitation is just a cost.

Capital assets always include knowledge. Sometimes, the knowledge itself is capital. Databases, processes and procedures and methods, formulas, brands, and lines of code can all be thought of as pure knowledge, often with direct links to the past (such as a brand that has “heritage” or “tradition”).

Physical capital - machines, buildings, computers, vehicles - is also composed of knowledge assets. Built into each one is the knowledge of how to implement a complex task that contributes to value production. These assets have been designed, manufactured, refined and maintained with knowledge derived from learning, whether from teachers and classes or from in-use experience or from marketplace feedback. All capital has knowledge embedded in it.

And in this view, people are capital - not in the soulless concept of “human capital” but as members of a knowledge community, creating new knowledge together, interacting, learning and continuously advancing knowledge boundaries. A lot of this human knowledge is tacit, meaning it can’t be well articulated, but it can be applied effectively in value creation. Some people “just know”. Adam Smith, in 1776, referred to “skill, dexterity and judgment”, attributes of a kinesthetic knowledge located in the hands and not just the head, and including action, which is the application of skill, dexterity and judgment. Friedrich Hayek referred to the “division of knowledge” in what he called “the extended order of human cooperation”. These are all ways to describe what we now identify as the flow of knowledge within the knowledge community of the firm.

The social character of knowledge capital.

It is the knowledge of many people that is combined and configured as capital. Value creation is a process of interaction inside and outside an organization. Capital is a manifestation of a vast division of knowledge, sometimes spanning the globe and often spanning history - an incomprehensible sharing of the knowledge, talent, skills, dexterity and judgment of thousands or millions of people across time and space. The capital structure of the entire economy reflects this rich social interaction. One type of group interaction occurs in the construct we call the firm, and the teams within and between firms that work on particular projects and initiatives.

This flow of knowledge into an extended capital structure enables individuals to take advantage of the specialized knowledge of others who have contributed to that structure. The structure and the firm become increasingly complex over time. Even if value creation becomes more efficient and requires fewer people, the division of knowledge is at work in the tools, techniques, instructions, frameworks and code that embody the contributions of many in order to help the relatively few people who implement, and give them remarkable productive powers.

Organizing the complexified knowledge-intensive firm.

Knowledge capital, in physical, digital and human forms, can be combined and recombined in innumerable configurations of people, teams, machines, factories, software and data. The value creation results from these configurations and interactions are not predictable and so there must be fluidity for continuous adaptation and adjustment. There is a powerful knowledge intensity and knowledge complexity at work.

The organizational approach to managing knowledge complexity is increasing freedom and autonomy for individuals. Managers do not have the knowledge that autonomous individuals and teams do, and so they can’t add any value to the knowledge application and knowledge creation and new knowledge combinations that can take place at the edges of the knowledge capital structure. Economists refer to knowledge specialization and knowledge complementarity -how it all fits together. This is a spontaneous function, powered by feedback, experimentation and discovery, not management. The organizational framework that enables the spontaneous knowledge reconfigurations is the Kinetic Flow State Organization (KFSO).

Kinetics: For knowledge to flow in reconfigurable combinations of people, machines, software, processes and projects, the environment must have freedom to change, move, readjust, rebalance and self-organize. Traditional organizational design is not kinetic. It aims for stability and strength and control, and erects barriers to rapid, free movement. This mindset is reflected in the boxes and lines and tiers of the traditional organization chart, which remains a fixture in most firms. Org charts are a graphic depiction of fixity. Once a vice-president, always a vice-president, with all the authority and top-down supervision that comes with it! Org charts are symbolic of the hierarchical rigidity firms must learn how to uninstall in today’s business environment.

Flow State: The alternative to hierarchical authority is flow, which can take two forms, one at the organizational level, and one at the individual level. In the organization, kinetics ensure that knowledge flows into the configurations in which individuals with the right knowledge are free to collaborate together and in combination with fixed and digital knowledge assets. They are thus fully equipped to take action to enhance customer value, or advance any value creation project or run any value creation experiment, or resolve any error or fix any problem. They don’t have to seek permission from others in authority; their freedom is to act and share the results.

Self-organization and the free flow of knowledge.

There is often a great fear in traditional authority hierarchies to extend such degrees of freedom. There is a fear of losing control, of swinging from organization to disorganization, from order to disorder. Yet, systems science, the study of complex systems like knowledge-intense firms, indicates that, when collaborative interactions are unrestricted and knowledge flows freely, self-organization takes place. Individuals and teams are able to establish a shared purpose and configure themselves in the right relationships for its completion. Self-organization is the outcome of free knowledge flow.

For the individual, the flow state is a feeling of intense engagement. We know from Gallup surveys that disengagement is a serious productivity hurdle that firms must overcome. Gallup reports that 70% of employees are defied as disengaged at work, meaning they are not actively involved or enthusiastic about their jobs. They’re doing the bare minimum and are not emotionally invested.

Because the design vector in KSFOs aims towards maximum freedom and autonomy for individuals, these firms are places where individual flow states can become the norm for working together on challenging projects that are meaningful to those who are engaged in them, and for the customer seeking new value. Meaning and a sense of achievement are the most motivational attributes of work, and so the flow state – people working hard together for a shared value-creation purpose towards which they feel they can make progress - is a great contribution to productivity and growth.

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Mark Béliczky World Management Agility Forum