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Where Are We Moving to in the New World of Work? Changing Enterprise Organization, Forms of Labour Deployment and Employee Qualification Demands in the Knowledge-Based Economy

Paper prepared for the 5^th Conference of the European Sociological Association Visions and Divisions – Challenges to European Sociology, August 28 – September 1, 2001, Helsinki

Tuomo Alasoini, Docent

Ministry of Labour

P.O.Box 34, FIN-00023, Government, Finland

Telephone: +358-9-1856 9292

Fax: +358-9-1856 8900

Email: tuomo.alasoini@mol.fi

Introduction

This paper examines implications of the transition to knowledge-based economy for enterprise organization, forms of labour deployment and employee qualification demands from the analytic framework of explicit-tacit knowledge interplay and with a focus on the workplace level. The aim is to identify general and possible trends, which could be relevant topics for further sociological discussion and inquiry. The socio-economic context of the paper is the technologically advanced industrial countries in general, though many of the individual examples are from Finland.

The approach adopted in this paper is inspired by Lundvall’s and Nonaka’s views on preconditions for innovation and interactive learning at the level of the company and the society at large (e.g. Lundvall 1992; 2000; Nonaka 1999; Nonaka & Takeuchi 1995; Nonaka et al. 2001). Both authors build their theoretical constructions on the analytic distinction between explicit and tacit knowledge, on the one hand, and on their inevitable intermingling, on the other hand. Neither of the authors, however, has utilized this framework to examine transformation of the working life, which is the object of this paper.

The paper starts with an overview on the main features of the knowledge-based economy. This overview is then used as the bases for a closer examination on the evolution of production models and new associated forms of workforce utilization. The subsequent section focuses on trends in workforce qualification demands from the point of view of growing knowledge-intensity of work and increasing importance of tacit knowledge. The closing section discusses new aspects of company power relations in the knowledge-based economy.

The Knowledge-Based Economy – Interplay of Explicit and Tacit Knowledge

There has been a great deal of discussion in recent years about whether the technologically most advanced industrial nations are changing over – or have in fact already changed over – to a new type of economic growth. Specifically, the debate has gained momentum because of the economic growth and rising productivity which continued unabated in the USA throughout the 1990s without any significant inflationary pressure (e.g. OECD 2000). In discussion on this subject, a number of labels (such as the ‘digital economy’, the ‘new economy’, the ‘information economy’, the ‘knowledge-based economy’, the ‘knowledge-intensive economy’, the ‘network economy’, the ‘weightless economy’, the ‘learning economy’, etc.) have been applied to this new phase. The ‘knowledge-based economy’ is a label, which captures quite well the main features of this new phase of economic development from the perspective of corporate operating environments:

Firstly, the ability to create, process, store, transfer and protect knowledge has become an increasingly important source of competitive strength for companies. The growing knowledge intensity of products and operative processes in all sectors of the economy will lead to a blurring of the distinction between manufacturing and services, and ultimately to obliteration of the distinction. Many traditional manufacturing companies do not identify themselves as goods producers anymore, because they provide their clients ‘systems’ or even ‘solutions’, i.e. integrated packages of hardware and embedded knowledge-intensive services. As an example, services already account for an estimated quarter of exports by Nokia, which is classified as an industrial enterprise in official statistics (Ali-Yrkkö et al. 2000, 11). Of other big Finnish enterprises in the metal and engineering industry, maintenance accounts for a steadily growing proportion of the sales and financial outcome of the Kone Corporation (manufacturer of elevators), the Metso Corporation (manufacturer of paper machines) and the Outokumpu Group (manufacturer of stainless steel and copper products), for instance. Many service companies, alike, are increasingly integrated into industrial production networks as traditional manufacturing companies are outsourcing activities, which are beyond their core competence.

Secondly, the ability to learn rapidly and develop constantly and to efficiently use this ability to generate constant product and service innovations has become the key success factor for an increasing number of enterprises. Their main developmental problem is no more rationalization within or optimization of the production process, but continuous optimization and development of the entire product concept. Giddens describes the ongoing transformation of managerial discourse: "When one talks to business people, one is struck by the intensity of the pressure of ideas on them. They are always thinking: what comes next, what should I be thinking about next? Where can I find a niche in this market for a while? They don’t really any longer talk much about problems of production. You can’t really do business these days without having a concept" (Giddens & Hutton 2000, 26-27). This change can be clearly seen in an expert survey on the main development targets of production in the Finnish metal and engineering industry in the next ten years. According to the survey, optimization of the product concept is a far more important development target for the companies than optimization of production and even increasingly so compared with development of the production process itself (Heinonen 1999, 35-38).

Thirdly, the new information and communications technologies (ICT), based on microelectronics, telecommunications and network-oriented computer software, hold a key role as economic growth engines. ICT is the technology base for the greater knowledge intensity of goods and services and also one of the factors which promotes companies to acquire improved capacity to learn. In the 1990s, the role of ICT as a booster of productivity growth was further emphasized by liberalization of the telecommunication sector, several technological innovations and accelerated convergence of the telecommunication and information technology sectors.

Learning is a multifaceted process which is possible to deal with only in a very simple manner in the following. The term ‘multifaceted’ refers to the fact that learning can take place on different levels (individual, group, organization, network), can be of different levels of profundity (single loop, double loop), may focus on different kinds of knowledge, etc. From the latter point of view, learning could be viewed in the following way (Lundvall 2000, 127): Know-what refers to knowledge about ‘facts’. Know-why refers to knowledge about principles and laws of motion in nature, in the human mind and in society. Know-how refers to skills, or the ability to do something. Know-who involves information about who knows what and who knows how to do what, as well as the ability to cooperate and communicate with different kinds of people and experts.

ICT is most effective in supporting the learning of know-what and know-why. Key tools in both of these kinds of learning are the ability to read documents, participate in training and access databases. At its best, ICT may bring about a revolution in the dissemination of this kind of explicit, codified knowledge. ICT allows explicit knowledge to be transferred quickly and at low cost from one place to another and from one user to another, regardless of physical distances. For instance, the Internet and the other Net technologies (intranets, extranets) can help solve the traditional trade-off in information economics between the richness (bandwidth, customization, interactivity) and reach (connectivity) of information, since it makes for rich information with a broad reach (Evans & Wurster 1997).

Learning know-how and know-who requires different tools, however, since the knowledge they require is of a different nature. It is based on learning by doing and learning by using, and on shared experiences generated through social interaction within different kinds of groups and networks (learning by interacting). This type of experience-based knowledge can be called tacit knowledge. Unlike explicit knowledge, tacit knowledge cannot be codified into speech, writing, diagrams, instructions or standards; rather, it is anchored in values, feelings, beliefs, cultural symbols and mental models.

It is difficult, not to say impossible, to replace the significance of individual or collective face-to-face interactions in the sharing of tacit knowledge and articulating it as explicit in an organization, even if rapid development of interactive multimedia applications combining text, image and sound offers increasingly advanced communication potential. Virtual forms of working and work organization might at best supplement, but never totally replace, self-managing teams with close physical and social contacts, for instance, as a forum for learning (Bolisano & Scarso 2000; De Santis & Fulk [eds.] 1999; Jackson [ed.] 1999; Malhotra [ed.] 2000).

A highly developed ICT infrastructure is an important factor in support of individual and collective learning from the company point of view. Its importance derives not so much from its increasingly advanced potential for acquiring, processing, storing or transferring explicit knowledge, however, as from the way it can be used to support knowledge-conversion processes in the organization, based on interaction between explicit and tacit knowledge. This interaction is the foundation for innovation and, accordingly, the key competitive strength of the organization in the environment of the knowledge-based economy (Nonaka 1999; Nonaka & Takeuchi 1995; Nonaka et al. 2001). The following sections take a closer look at what this kind of perspective on learning entails for enterprise organization, workforce utilization, qualification demands and company power relations.

New Organizational Logic – Towards Strategic Enterprise Networks

In the post-war decades, it was typical of major companies to strive for advanced vertical and horizontal integration. Horizontal integration was often connected with diversification, i.e. seeking growth by expanding into new sectors. Vertical integration, which was characteristic of the Fordist production model, was a means to internalize possible market risks in different phases of the value chains.

The globalization of competition, supported by the liberalization of trade and the deregulation of markets as well as the development of ICT have, however, signified an end to the trends of horizontal and vertical integration of production. An increasing number of companies have chosen in recent years to focus on a narrower segment of products and services and of the value chain, around which they build their core competence. Horizontal disintegration is associated with the fact that when operations become globalized, there is less need for companies to balance their cash flow over economic cycles by betting on different industries; instead, balance can be sought through differences in regional markets. Another important reason for the increased horizontal disintegration is that amid tougher and more open international competition, companies find it hard to achieve and maintain competitive advantages in several sectors or several product or service segments at once.

The role of ICT in the process of horizontal and vertical disintegration is twofold: on the one hand, ICT speeds up the product and service focusing, i.e. horizontal disintegration, by promoting globalization (see above); on the other hand, it speeds up vertical disintegration by reducing transaction costs. ICT helps rethink the production economic logic of organizing the value chains by creating new possibilities to split and reshape them into new business areas. A good example of this kind of radical change during the recent years is the spreading of e-commerce, or ‘e-business’ in general, along with the rapid development of the Internet.

The ruling principle behind the organization of value chains in the knowledge-based economy then becomes horizontal coordination rather than vertical integration (Schienstock 1999, 27-31). According to the new organizational logic, value chains are split into several parts, with different companies in charge of the parts. From the point of view of the core companies in the chains, this means more outsourcing of functions and new types of dense interaction, whether virtual or not, across corporate boundaries – even to the extent of blurring them – with other enterprises in the chain and often also with clients. This kind of production model can be called as a ‘strategic enterprise network’ in which the main focus is on managing value chains comprising complex networks (Heinonen 1999; Hyötyläinen 2000 – see Figure 1).

Figure 1. Evolution of Production Models (source: Heinonen 1999, 35).

The core companies in the networks strive to retain responsibility for the most strategic and economically most productive parts of the chain. This usually means ‘going downstream’ in the value chain, closer to the client, with embedded and more comprehensive services and integrated solutions (Wise & Baumgartner 1999). Thus Nokia, for instance, has already outsourced most of its production and focuses on product design, R&D, and brand management (Ali-Yrkkö et al. 2000, 28).

Knowledge Supply Model – A New Model for Workforce Utilization?

Despite the lively discussion on the reshaping of value chains in the knowledge-based economy, there has been little analysis of how these changes will affect how companies use labour. In an environment in which the main driving force of economic growth is the production and use of knowledge, a special challenge for this kind of analysis is that it should link expected changes in the labour market to those in the market for the demand for and production of knowledge (Teece 2001, 141). One of the rare attempts to do this so far is Burton-Jones’ Knowledge Supply Model (1999); a model, which can also be regarded as a modernized version of the well-known Flexible Firm Model of Atkinson (1987). Knowledge Supply Model looks at a core company in a value chain, whose key production factor is knowledge. This kind of company is not interested in the workforce primarily as a source of physical labour, but as a generator of knowledge. The following focuses on some of the main hypotheses inherent in this model.

From the point of view of knowledge production by an individual company, the workforce is divided into internalized and externalized producers. Functions which require mainly explicit and non-company-specific knowledge can be outsourced, while functions requiring a great deal of tacit and company-specific knowledge are kept in-house. The ‘core group’ comprises the firm’s most senior knowledge workers, who are responsible for its high-level knowledge integration functions and for planning, coordinating and controlling its activities. Such functions demand high levels of both explicit and tacit knowledge and company-specific knowledge. For this reason, the company strives to keep them committed through attractive arrangements involving ownership shares, share of profits, bonuses and fringe benefits.

In the long term, the personnel of a knowledge-intensive company will consist in an increasingly large proportion of this group. The more knowledge-intensive the value chain, the smaller this core group will be, however, in proportion to the total workforce in the entire value chain. Knowledge-intensive companies may not wish to grow by increasing their own personnel, preferring to network with their clients and the other companies in their value chain. Due to inadequate functioning of the market or the company-specific knowledge required by assignments, even these companies cannot usually outsource all functions outside their core competence. Along with the growing knowledge intensity of the economy, the market for knowledge-intensive business services is, however, developing all the time.

According to the Knowledge Supply Model, companies which consider knowledge their main production factor are not, typically, interested in increasing their own personnel numbers, even in order to balance out workload fluctuations, by using temporary workers, part-time workers or work-sharing. Especially in the long term, the use of agency workers or outsourcing is more attractive. The use of agency workers is made all the more attractive from the company perspective by the greater potential for benefiting from economies of scale and matching supply and demand. Knowledge-intensive companies use agency workers primarily for work which does not require high explicit knowledge or tacit company-specific knowledge. Burton-Jones predicts, however, that the use of agency workers is likely to expand to work requiring higher expertise.

Work demanding high levels of explicit knowledge which is not considered by the company to belong to its core competence or which could not be merged with the core competence without excessive investments is, however, outsourced as a rule. Even highly qualified employees of core companies in value chains may find themselves self-employed or micro-entrepreneurs against their will as a consequence of their expertise not being part of the company’s core competence. The market for knowledge-intensive business services which develops around the core companies thus comprises a number of operators in different positions, such as self-employed, micro-entrepreneurs, SMEs, big international companies, different networks and so on. Their market position as knowledge producers is affected by the level of the knowledge they possess, how specific it is from the point of view of other companies, and its value for other companies.

This type of model is naturally rough and abstract, but it may describe with some precision the general logic associated with changes in corporate organization and utilization of labour in the knowledge-based economy. The general trends described in this model may filter through as very divergent practical solutions in different industrial and national contexts, due to varying institutional practices.

Trends in Workforce Qualification Demands – A Closer Look at the Role of Tacit Knowledge

The ability of ICT to significantly facilitate the acquisition, processing, storing and transfer of explicit knowledge and thus the learning of know-what and know-why has led to a situation where it is increasingly difficult for companies to construct a long-term competitive advantage from explicit knowledge and such learning. In this kind of environment companies’ possibilities to protect, let alone monopolize, explicit knowledge will be weakened radically. It would therefore seem that the development of ICT creates a somewhat paradoxical situation in which the significance of tacit knowledge as a source of competitive strength for individual companies is emphasized in the knowledge-based economy.

According to Lundvall (2000, 129), the more complex and densely networked the operating environment of companies develop and the faster and more radical corporate change processes become, the more important role tacit knowledge will play. Ståhle and Grönroos claim that "An organization’s richest and the most valuable knowledge is therefore stored in the tacit knowledge reserves of its employees. The explicit knowledge reserves are not nearly as valuable as the tacit knowledge base of the company. Even as a rough estimate, the value of explicit knowledge is no more than 5 per cent, compared with 95% for other forms of knowledge" (Ståhle & Grönroos 2000, 106). The rapid growth and superior financial performance of Nokia in recent years, for instance, has been analysed and explained by the company’s efficient means of creating, sharing and articulating of tacit knowledge (Kulkki & Kosonen 2001).

The increased importance of tacit knowledge in production management is described by Lillrank’s (1998) Quality Broom Model (Figure 2). This postulates that quality systems or other standard operating procedures can only control fairly uniform and repetitive production processes. A company’s capacity to control processes with the aid of explicit knowledge begins to deteriorate when the uniformity and repetitiveness of processes decreases. As the expected output variety of these processes grows, companies are forced increasingly into the realm of tacit knowledge. In such a situation, process control requires a highly developed quality culture. The effectiveness of this type of management method depends on how well the company employees have internalized the corporate vision, the extent to which their actions are guided by the company’s commonly accepted values, and whether individual employees have adequate competence and tools to cope with their varying and rapidly changing work situations.

Figure 2. The Quality Broom (source: Lillrank 1998, 23).

The emphasis on tacit knowledge as a source of competitive strength for a company is also reflected in the qualification demands for employees. Tacit knowledge is accumulated through experience, such as learning by doing and using and the social interaction in teams and networks. From this point of view, tacit knowledge is thus best accumulated through continuous, full-time careers and assignments involving a wealth of interfaces, such as working in a teamwork-based, project-based and densely networked environment. There is therefore ample justification for companies to develop their forms of work organization in this direction.

We can assume that the importance of formal criteria describing explicit knowledge will decrease in the recruitment of employees. In future, the most important of these will be versatile professional skills, international skills (such as language skills) and digital literacy, i.e. the ability to work in an environment which requires the use of ICT. According to Schienstock (1999, 39), companies are increasingly seeking new employees based on factors describing the work orientation – for instance, quality consciousness, reliability, precision, care, commitment, trust, creativity, openness to new ideas, entrepreneurial spirit and enthusiasm. Companies typically assume that these work orientation criteria express an individual’s potential for accumulating tacit knowledge. It is, in fact, often argued that companies are now looking for ‘nice guys’. This is not restricted merely to the technologically most advanced organizations or traditional white-collar work, but also increasingly to traditional industries and blue-collar employees (Flecker & Hofbauer 1998; Lavikka 2000). According to the most recent Finnish qualification studies, very divergent sectors now seek surprisingly similar features. Metsämuuronen (2000) considers the growing significance of these kind of ‘cross-professional qualifications’ as an outcome of simultaneous spread of similar new service, information and networking cultures in different sectors of the economy.

The search for ‘nice guys’ increases the risks inherent in the recruitment process. It is more difficult to gauge individual people’s potential for accumulating tacit knowledge than it is to assess the level of explicit knowledge they possess. The demands placed on the work orientation of these individuals are furthermore not without potentially conflicting tensions. For instance, ‘entrepreneurial spirit’ and ‘openness to new ideas’ are not necessarily qualities which ensure that people will commit themselves to an organization’s vision or values; rather, they may tend to promote independent actions and critical questioning of existing structures and systems. As Flecker and Hofbauer (1998, 116) note, "Organizations, rather than having members, are confronted with calculating ‘entrepreneurs of their own labour power’, which may, in turn, lead to increased difficulties in normatively integrating individuals’ self-actualization". Corporate management systems and organizational forms should change at the same pace as the recruitment criteria they apply if they are to ensure that these criteria are not reduced to tools for normative subordination and control of the workforce, but instead remain real tools for encouraging employees to attain their true productivity and innovation potential.

Lester (1998, 273-278) suggests that one possible means to try to solve the problem of conflicting tensions between the new demands for work orientation could be a new kind of pragmatic psychological contract between the company and the individual. Instead of guarantees of job security or career development, the company commits itself to providing the employees opportunities for personal and professional growth. The company does not even expect that the employees commit themselves to the enterprise as such, but to the opportunities the company provides them to achieving their long-run professional and personal goals and accumulating their knowledge base, which is the most critical determinant of their value on the labour market of the increasingly knowledge-intensive economy. This kind of contract, however, is not easy to sustain. For instance, how does the company guarantee that the employees consider their jobs sufficiently interesting and challenging, or that they train and develop themselves to the benefit of the company, too? It is also questionable, how this kind of model can be applied to employees other than in senior knowledge integration tasks.

The increasingly knowledge-intensive economy has a built-in mechanism which reinforces social segregation; a fact referred to also in the Knowledge Supply Model. Lillrank (1997, 82) has described this by saying that "in intellectual work, the difference between the performance capacity of individual employees can be infinite", contrary to the case in work based on physical tasks, where differences are smaller and thus somehow proportionate. It has been also proposed that the model for a successful company of the future is one with half a number of its present employees with twice their present level of knowledge, and which produces three times the present added value (Otala 2000, 23).

These quotes describe a trend towards a more uneven distribution of work and earned income in the knowledge-based economy. The growing differences between individuals as producers of added value will cause an increasingly uneven trend in labour demand. According to Lillrank (1997, 82), there will no longer be as strong a production economy justification for equal income distribution following the transfer from mass production to the more flexible, tailored production characteristic of the knowledge-based economy, because it does not require the same reasonably homogenous mass market. This argument, however, is too simple even from the production economic point of view alone, since increasing social inequality may undermine the feasibility of the knowledge-based economy for another reason. According to Lundvall (2000, 132-133), sharp social divisions undermine the social capital of a society, which is the foundation of all interactive learning. The accumulation and articulation of tacit knowledge, in particular, is possible only through social interaction, and the main prerequisite for that is solid trust between individuals.

Getting Involved – New Aspects of Company Power Relations

In the new environment, the most strategic functions for the company are knowledge integration, and planning, coordination and control of the company’s core activities. The firm’s most senior knowledge workers, who are responsible for these tasks, are the privileged group of the increasingly knowledge-intensive economy in terms of power, influence, pay, and other terms and conditions of employment (e.g. Burton-Jones 1999; Drucker 1992; Reich 1991). As a rule, the more knowledge-intensive a work process becomes, the wider the gap between the performance capacity of different individuals expands. In an environment where the primary source of sustainable competitive edge for the company is innovation, senior knowledge workers become genuine owners of the strategic tools of production, i.e. knowledge that adds value – this implying that their power of pressure in relation to that of the capital owners grows. Their privileged position is further accentuated by the increasingly important role of tacit knowledge as a source of competitive strength for the company. Explicit knowledge can be stored in the company’s manuals and databases, but tacit knowledge is attached to individuals.

The increasingly important role played by senior knowledge workers in the value-adding process is not without conflicting tensions from their own point of view, however. As the key generators of added value for the company, they are exposed to continuous pressure for innovation, learning, professional development and showing of their commitment and value-creating capacity to the company. This problem is aggravated by the fact that many of the companies in the growing knowledge-based businesses aim to achieve the effect of ‘increasing returns’, i.e. whoever gains advantage, ceteris paribus, gains further advantage (Arthur 1999; Teece 2001). This new business logic may feed ‘winner-takes-all’ mentality and aggressive approach also in personnel policy. As the firm’s knowledge base (in terms of employee skills and competencies) grows the more it is used, it becomes increasingly tempting for the firm to strive to exploit skills and competencies of this group of employees without any limitations.

Expectations of ‘boundless commitment to value creation’ by high-skilled knowledge workers are speeded up by the advance of ICT, which makes work more virtual and mobile. New forms of ICT-mediated working (‘teleworking’, ‘e-working’, ‘virtual working’, ‘mobile working’, etc.) unchain work from the traditional boundaries of time and space. This opens up knowledge workers better opportunities for autonomy, self-regulation and work-life balance, on the one hand, but leaves them more vulnerable to ever increasing performance and innovation pressure in the form of excessive work load and working hours, on the other hand. In practice, it may be increasingly difficult for individual skilled knowledge workers to control the boundaries between work and personal lives, despite the fact that they enjoy more autonomy at work and have better chances of flexible working arrangements than the other groups of employees.

An increasing number of companies in the knowledge-based economy probably realize, however, that the performance-enhancing potential of ICT derives not so much from its role in expanding the scope for squeezing the maximum work effort from knowledge workers or from pure streamlining of core business processes as from its supporting role in knowledge-conversion processes in the organization. Knowledge creation must be managed, monitored and assessed. It is necessary for the company to get different types of knowledge and different carriers of knowledge into interaction, as implied in Nonaka’s well-known SECI (Socialization, Externalization, Combination, Internalization) Model for knowledge creation (Nonaka 1999; Nonaka et al. 2001). The SECI Model recognizes the role of tacit knowledge and the fact that problems associated with sharing of tacit knowledge and articulating it as explicit cannot be overcome by advanced ICT, but by other means, such as new work and organizational practices.

The SECI Model leaves many open questions, however, such as where the organization gets the ability to transform the interaction between different types of knowledge and different carriers of knowledge into, not only one-loop, but double-loop learning also. This important distinction is not included into the model (Engeström 2001; cf. also Uhlin 2000). The model looks at knowledge creation mainly as an intra-organizational process, whereas the approach adopted in this paper emphasizes the capacity of creating strategic enterprise networks as the key characteristic of the emerging production model. Through networking the company builds close relationship to other companies in the value chain, to clients, and to different kind of support organizations such as training and research institutes or consultant agencies.

The opportunity to get involved in knowledge-creation processes, whether intra- or inter-organizational, is crucial for individual employees in terms of sustaining their value for the company or their labour-market position in general. Being a member in teams, projects, development groups or networks where knowledge is created, and particularly where tacit knowledge is accumulated, is growing in importance compared with other individual characteristics such as organizational status, the level of formal education, seniority or the length of tenure. Any company in a knowledge-intensive business, which does not have a mechanism for involving a sufficient number of employees in these strategic processes, runs the risk of becoming too vulnerable and too dependent on the skills and competencies of a few senior knowledge workers. Creating new kind of work and organizational practices to broaden the scope for participation in these processes is an area where company owners and staff and their trade unions might well find a common interest in the knowledge-based economy.

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