Oct 042007

The optimists among us would like to think that the abundance of information, easily transmitted, will result in companies that are less hierarchical and more democratic. That perhaps the firm as we know it will become extinct. I was, for a brief, tongue-in-cheek moment, one of those optimists.

Others, like Andrew McAfee at Harvard, suggests that information technology may enable the decoupling of information flows from decision rights. In other words, because information flows freely, information doesn’t need to be co-located with decision makers. McAfee rightly discusses the difference between general knowledge (explicit knowledge) and specific knowledge (tacit knowledge). General knowledge is more easily shared. Specific knowledge is locked in people’s heads. Information technology certainly helps spread general knowledge.

But what is the role of specific knowledge in a world where the costs of transmitting information are practically nil? How does recently abundant general knowledge affect specific knowledge? What is the impact on companies?

First we should clarify the distinction between general knowledge and specific knowledge. Specific knowledge takes years to develop, sometimes 15 to 20 years. Specific knowledge comes in two flavors, expert specific knowledge and non-expert specific knowledge. An expert is someone who possesses deeper knowledge in a domain that lets them perform better than their peers. Experts make different and better decisions in their problem domains. Non-experts may have specific knowledge accumulated over 20 plus years but lack the more sophisticated organization of the domain knowledge and hence can’t perform in their domains as adeptly as experts.

General knowledge isn’t so costly to accumulate. It doesn’t require learning complex organization schemes. It isn’t useful for certain problems that require complex pattern matching skills. News, gossip, trivia are all forms of general knowledge. General knowledge certainly makes life interesting and when spread, may become a useful piece of information added to an expert’s specific knowledge base. But simply being plugged into general knowledge does not an expert make. Expertise requires something more. It requires long-term persistence and drive, perhaps obsessiveness.

For the most part, I believe specific, expert knowledge is essential for firm competitiveness. A bunch of generalists may be able to perform simpler tasks, but won’t be able to adequately solve what experts can easily. A team of experts can and should outperform a team of non-experts. General knowledge, by itself, isn’t competitive. Specific knowledge ought to be.

But I also believe specific knowledge may be at risk due to the seductive ubiquity of general knowledge. Expertise development requires dedication, concentration and a bit of stability. If it takes 15-plus years to become an expert, you have to be gainfully employed those 15 years and be able to accumulate difficult knowledge consistently over that period of time. The more that people are awash interrupting technology (cell phones, PDAs, emails, phone calls, media-munching) on a daily basis, the harder it is to dedicate time to become an expert. Information technology may actually be eroding specific knowledge in some.

Experts do make decisions based on general knowledge. More general knowledge may actually create greater disparity between experts. Why is this? Consider the following thought experiment. Consider two teams of experts (two tech consulting firms) with access to the sum total of freely available information on the Internet (potential competitors) attempting to make a complex decision (which competitor to buy) in an ambiguous environment (uncertainty as to who else is trying to buy competitors) within a short time frame. What is the probability that these two teams will latch onto the same general knowledge that will serve as inputs into their specific knowledge? Practically nil. Because the decision is complex, the inputs required will need to be large. Because the environment is ambiguous, much will be unknown for the experts. Because the experts have different personalities, relationships and interests, they are likely to be sensitive to different kinds of general knowledge (e.g., “I heard from a friend company X is buying company Y”). Because the timeframe is short, both teams won’t have time to exhaustively review all general knowledge available to them. They will have to make do, or satisfice.

So what does an infinite supply of general knowledge do in this thought experiment? It should increase the likelihood that the two teams will come up with very different decisions. Expert decisions may be as good as those made by a Magic 8 ball. Increased general knowledge may actually be destabilizing. Interestingly, in this thought experiments, winning firms will have won based on chance, not on skill. And because of the accumulation of wealth, they may now have a pile of cash that enables them to survive longer. Just like gambling in Las Vegas! Or just like Google!

So what does this mean? Consider the following:

  • Increased transmission of general knowledge (via more IT) will create more instability and turbulence in markets.
  • The value of individual and team expertise may decrease. Decision rights and expertise will decouple as those with the gold (who were lucky) will make the rules and experts will continue to remain relatively speaking, penniless.
  • If there are any decisions to be handled more democratically, these will be simpler, less risky decisions.

In this scheme of things, fortune favors the bold (those with the courage to not withdraw from the gambles), not the smart. Since I reached back only a couple thousand years to Virgil for that quote, I guess nothing much will change!

Please tell me I am wrong.


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