Article originally published in Vol 3 1992 of International Review of Strategic Management. D. E. Hussey ed. John Wiley & Sons Ltd

Ó Karl-Erik Sveiby Jan 1992, Internet version April 1999. All rights preserved.

Why has so little strategy development occurred outside the world of manufacturing industry? When reading through any strategy or management journal one gets the impression that it is only the manufacturing industry that needs strategy. Or - that strategy in the service industry is the same. Or - that the service industry is uninteresting to professors?

The implicit message of the management profession seems: if you are a CEO of a non-manufacturing company, try to behave as if you produce products and everything will turn out all right.

Is this why the present strategy formulation of service industry seems a blueprint of manufacturing industry?

However, two-thirds of OECD country CEOs work in non-manufacturing companies! In the EEC countries, 62 % of employment is in the service sector.

In most developed countries, some two-thirds of the GNP is made up of services. However, strategic planning and concept development are still focused on solving problems for the manufacturing industry. They are, with few exceptions, manufacturing companies with their roots in the nineteenth century. The only new service industry in which strategy concept makers have shown any interest is financial services, especially banking. Again, big banks are an integrated part of the world of big global manufacturing industrials.

Is it because of this poor state of knowledge that almost the only service company that has had any impact on general strategy formulation is the fast food chain McDonalds? The success of McDonalds is based on a simple and effective strategic formula: standardization of service into a package of the smallest detail, strict quality control and cost-effective production by young, cheap, unskilled workers supervised by managers on the shop-floor. The growth comes from franchising out this concept and the brand name to entrepreneurs.

What you see behind the desk of any McDonalds restaurant is an almost perfect industrial system: a conveyor belt in an environment, which is inadvertently designed as a blueprint of the traditional manufacturing organization in the factory as it was conceived by F. W, Taylor and his successors at the beginning of this century.

As an employee, you don't even have to like the work. The McDonalds concept is so successful that it can handle a personnel turnover of more than 100 % a year, a rate that would grind any car manufacturer to a halt. At McDonalds the system is greater than the individual, the tasks of the employees simplistic. Many are the successful followers of McDonalds. But can it be true that "McDonaldization" is the strategy formula for the future in services?

No, I suggest that it is a far too simple way of looking at the dynamic and fast changing world outside the manufacturing industries -people-intensive and people-dependent.

Is it possible that we are looking at the non-manufacturing organizations with the eyes of a world that has passed by, just as the farmers experienced the first manufacturing companies at the beginning of the 1800s - as another kind of farm?

I suggest that in order to develop truly original strategy concepts for the non-manufacturing companies one should try to turn the traditional logic of manufacturing "upside down". Instead of basing our conceptual thinking on 100year-old doctrines based on the notion of the one-product factory, I suggest that we should look away from the manufacturing industry, very far away.

Why not learn from the organisations which are not only people-intensive but also people-dependent, i.e. dependent on their employees7 What can we learn from companies where the employees are very skilled, very highly educated and thus have true power? The answers are interesting, not only for the knowledge-intensive industry itself but also for the manufacturing industry.

What was a car manufacturer yesterday is more and more becoming an industry that is entrusting its complex production machines to fewer and fewer very skilled people.

The service sector is not a discrete phenomenon but rather a spectrum of company types, ranging from those organizations totally adapted to their customers to organizations that have refined and packaged their output. The latter have more in common with manufacturing companies.

In the companies on the far right, service has become industry; the key to profitability lies in efficient, industrialized preprogrammed production aimed at a mass market. The McDonald's fast-food chain exemplifies this type, where even the smile you get as a customer is preprogrammed in the employee's manual.

The knowledge of a McDonalds company is totally structured and supervised by management. Even if the service package is delivered in a "moment of truth" (Normann, 1983) by an employee, little or no room is left for individual initiative. The success comes from standardization and the economy of scale resulting from it. In fact, too much initiative might disrupt the fine-tuned system and make it less effective.

The knowledge is in the hands of the organization. Image, manuals, routines, experience, control. The standardized service factory has a high structural capital. The customer knows what he or she can expect when entering a McDonalds restaurant. No surprises, either negative or positive. The customer buys security.

The companies at the far left of Figure 1, however, are their opposite. It is to the left that we find what we might call the sector of the knowledge industries. The "service" emerges as an ongoing problem-solving process between the customer and the producer. There is no standardized service package. The customer often does not know what he or she is asking for. The service provider is an expert and the customer wants the problem solved by the expertise of the expert. The knowledge industry therefore has to treat its customers as individuals. Their close relationship is sometimes even revealed in their language. Who has not heard a lawyer say "We decided to plead guilty" or ridiculed a doctor claiming "I believe we've got fever". The most typical firms are to be found within the professional services or business services.

The doctor or the consultant finds it hard to standardize his operations. Because he cannot force his clients to adapt to him, he must perforce adapt to them.

What characterizes a knowledge-intensive organization? It is an organization where the majority of the employees are highly educated, where the "production" does not consist of goods or services but complex non-standardized problem-solving. The problem-solving process involves a lot of information processing (not necessarily computerized) and the end result is normally a report or process delivered orally or as hard copy. The customers are treated individually and often called clients or patients.

The four main distinguishing features of the production are:

• Non-standardization

• Creativity

•High dependence on individuals

•Complex problem-solving

The companies are in the knowledge industries like management consulting, computer software, technical research, advertising, law, medicine, architecture, and so on. The sector is sometimes called professional services or business services but they have counterparts in the public sector, such as many of the highly specialized governmental bodies or specialized hospitals or research organizations. They also exist within big organizations as departments for R&D or laboratories.

There are very few statistics on this area. Even in Sweden, where this topic has been very "hot" since the mid 1980s, the statistics are blurred. The sector has only recently been noticed by researchers and EEC officials. Even if the statistics are obscure, there are at least some facts.

According to a recent EEC Commission paper, the so-called "business service sector", which includes knowledge-intensive segments like advertising, management consulting, accountancy, PR, software, contract R&D and engineering but also companies for temporary staff, contributes about 14 % of the EEC's value added and 6 % of its GNP, which makes it a larger sector than agriculture. In Sweden, the sector (excluding temporary staff) employs 5-7 % of the total workforce, depending on the narrowness of the definition.

The sector is growing very fast. The growth rate in Sweden during the 1980s was 5.5 % per annum in employment and 10.6 % in number of companies (Sveiby, 1990). The fastest growing knowledge industries are the computer consultants, the research oriented companies and the media/information companies with growth rates around 15-25 % per annum. If these growth rates continue into the nineties, the knowledge-intensive sector will employ around I 1 % of the total Swedish workforce in the year 2000 (EEC Commission, 1990).

In the EEC countries, the sector's growth in current prices was an annual 14.6 % in the period 1980-1985. In Europe, statistics compiled by European Services Forum reveal the same pattern. The fastest growing companies in Europe during the eighties have been companies in the professional services, with growth rates ranging from 10 % in volume to well over 100 % in some segments (EEC Commission, 1990).

The companies in the knowledge industries are thus well worth attention-for one thing they are probably the fastest growing organizations in the world today. That they have been unnoticed so far is probably because they are so obscure, small and hidden in statistics as service companies.

A growing number of the new successful companies being formed today in the US as well as in Europe and elsewhere are probably in the knowledge industries. In the US, it is estimated that the traditional manufacturing industry will shrink down to some 10 % of the total workforce by the year 2000.

The knowledge-intensive organization is, of course, not a new kind of organization growing out of thin air. Research by the Swedish Federation of Industry has proved that some two-thirds of the growth in the service sector in the period up to 1983 originates from companies spun out of the manufacturing companies, and most of them are to be found in the knowledge-intensive sector. Very often the largest customer is their previous employer.

The expression "professional services" unfortunately leads our thoughts the wrong way, because these firms are not servicing their clients in the same sense as a travel agency, a washing firm, a hotel or a bank does. Their product is as intangible as a normal service company's but very different indeed! I therefore prefer the term "knowledge industry" because it is the expert knowledge of the professionals that the clients are willing to pay for, not the service. Even if the product is intangible and the benefits often are obscure, the employees of a knowledge-intensive organization can very often show very visible results, such as an improvement in the profits of their clients, or a successful lawsuit or medical treatment.

In these circumstances, what is the output of a knowledge-intensive organization in money terms? A problem solved, which saves a client, say $10 million at a fee of $1 million. Is the output the value of the invoicing? Is it the value added in the company? Or the value added to the client's organization? Or is it the salaries paid to the consultants, $0.5 million? In the official statistics the net benefit of $59 million is shown as a profit in the client's records and $1 million as gross revenues from the business service sector, but is this the truth? What is the best mirror of the truth: to allocate the benefit to the one who asked for advice or to the one who gave it?

To make things more difficult, the complex and creative output of the knowledge-intensive organization and the more standardized industrial production of the service company often coexist within the same organization. Most of the companies in the non-manufacturing industries are to be found in the middle of the chart in Figure l.

This dualism of the organizations "in between" is a challenge in itself. As for the retail banks, most of us regard them as typical service organizations, which is also true to a large extent. The majority of their employees take care of routine transactions over the counter. At the same time, their colleagues in other departments might be engaged in more complex problem-solving like large credit investigations, cash management problems, corporate finance, and so on. These employees are also normally more highly educated. They are different from the majority, they know they are, and they do not want to mingle with the rest. They constitute what could be called a "professional island" within the company.

The professional island is an important and growing problem for top management in large organizations. The professionals within, say, a research department have to solve creative, non-standard problems and need a loose, creative, informal environment very much like the knowledge-intensive organization in order to be effective. On the other hand, they have to be an integrated part of the production or service system of the organization and to live by the more strict non-creative rules of that.

How does top management tackle this problem? Until the seventies it was by structuring it in the traditional way with business units, marketing, a sales force, etc.

It is probably the strategy most easily understood for the management of any knowledge-intensive organization today, because it makes it possible to use old established management experience. It is thus the strategy of the computer consultant who develops a software which can be sold in multiple copies. It is also the strategy of the management guru who produces a package of videos, tapes and books plus a seminar with a price tag of $499 per package.

The successful application of the factory strategy gives a high volume in money terms and is very tempting for an entrepreneur, who can get very rich. But the strategy also almost certainly leads to a loss in professional knowledge, a reduced value added per employee, smaller job content, and opens up for price competition in the end.

The success of the factory type of companies have made many people shake their heads and predict that we are heading towards a society where the job contents are even smaller than in the traditional smokestack industry. Will this prediction come true? I find it hard to believe that the same youngsters who refuse a job on the shop floor because of its small job content will accept a small job content in the service industry.

Some of the most challenging problems that are facing the managers of today are closely linked to the choice of strategy. And they are people problems: disenchanted employees and intensified competition for the best recruits, who are becoming ever more demanding and requiring "free" professions anywhere except on the manufacturing industry shop floor.

The successful companies in the knowledge-intensive industries have had to tackle the problems of managing "difficult", highly skilled employees wanting to do their own thing as well as demanding customers wanting tailor-made solutions every day. In fact, it is an integral part of the lives of their managers.

One severe obstacle, however, is that there is little or no systematic research and accumulated knowledge on how to manage a knowledge-intensive organization or a service company but a lot on how to manage a manufacturing company.

Suppose we throw off our old factory glasses and look in the other direction, what strategy do we see then7 I call it the "strategy of the knowledge company", (Sveiby and Lloyd, 1987).

The strategy would then be to try to emulate the successful knowledge intensive organization (a "knowledge company"). It is an organization, which moves to the left in Figure 1.

The knowledge company:

• Solves complex non-standard problems demanding creativity
• Has a small flat organization
• Has a high number of professional employees ...
• But few non-skilled employees
• Grows organically and through alliances rather than by acquisition
• Forms private partnerships rather than goes public
• Treats its clients individually
• Builds company strength through skilled individuals
• Develops the organization through developing the know-how of the employees
• Has managers who are formal as well as informal leaders

The balance sheet of the knowledge company contains few machines except the human being. The research engineer, the programmer, the consultant or the architect is the real "machine" of the knowledge company. The computer is regarded in this respect as an extension of the brain.

The leader of a knowledge company has the same object as his or her counterpart in industry: to increase the value of the capital in the company, the assets.

However, the big difference is that the real assets are the knowledge of the employees, their formal skill, education as well as experience, and their social ability. There is also the knowledge of the "organization", the rules, the manuals, the relations with clients and suppliers. Put all this knowledge together and we find the total capital of the knowledge company. Very little financial capital is normally needed to fulfill the business idea of the consultancy firm, although there are also capital-intensive know-how companies, like portfolio management companies. But in them too the brains of their employees are vital for squeezing an extra point of interest out for their clients.

The assets of the knowledge company are intangible and invisible to our present accounting methods, but real nevertheless.

The manager of a knowledge company is no different from his/her industrial colleague. The knowledge company manager also manages the assets and tries to optimize their profitability. Only - the assets are the people.

Just imagine for the sake of argument, viewing a company balance sheet through these eyes. How would we maintain and develop the assets?

The capital and investment of the knowledge company does not show up in the balance sheet because we do not know how to account for it. No company accountant knows the benefits of education, but he can calculate the internal rate return of the new machine on the factory floor down to two decimal points. Neither does he know the value of the know-how, but he can show the number of office desks on the screen of his personal computer.

Many managers are busy counting the few beans in the visible bowl, but totally forget about the giant heap of beans in the invisible bowl. Knowledge is an asset which only shows up lumped as "goodwill" in the balance sheet.

Surely that is a very unsatisfactory situation after more than 100 years of research in the accounting profession? No wonder that the managers of know-how companies normally have great difficulty in calculating their real profitability. How many failures of company startups are due to the poor accounting methods for know-how companies?

The concept of "knowledge" is very complex and many philosophers have tried to define it. I will not make an attempt here, but simply point to one aspect of knowledge which I have found fruitful in understanding the knowledge company, namely, the dichotomy between professional and managerial (organization) know-how. (Read Tacit Knowledge - an introduction to Michael Polanyi's epistemology for a more comprehensive discussion about the concept of Knowledge. Author's ed 1999.)

Professional know-how is the core knowledge of the knowledge company-the essence of the business idea from which the company receives its revenues. In the law firm it is legal know-how, in the laboratory it is scientific or chemical know-how (an engineer, it is said, is someone who can make for 25 cents what any fool can make for a dollar, while a management consultant is someone who can do the opposite). The success of the knowledge company depends on how skilled the professionals are compared to their professional colleagues employed by their competitors. The people possessing this knowledge are called professionals, "gold-collar workers" or simply "experts" or "specialists" and they often make up 70-90 % of all the employees, so they are totally dominant both in numbers and in the company culture.

I define managerial know-how as marketing, administration, accounting and the art of management itself. Managerial know-how is needed, otherwise the knowledge company will not survive. The goal of managerial know-how is to preserve and increase the value of the total organization-the total capital, i.e. mainly the invisible know-how capital-to keep it together.

The great dilemma, the dichotomy, is that one person very seldom has both these types of know-how. It seems a psychological fact that they even exclude each other. The professional is thus almost never a good manager, and vice versa. just think of all the trouble a good consultant may cause a company if he is put in the chair of the CEO! Also, compare the well-known dichotomy between thinkers and doers, thinkers in this context being more similar to specialists and doers to managers.

This is a real strategic dilemma for the knowledge company, so let us look into it a little further. If we put the two types of know-how together, we get a matrix showing the four main categories of personnel in a knowledge company (see Figure 2).

One of the key issues for managing a knowledge company is to understand the distinct features of these four main categories, the professionals, the managers, the clerical staff and the leaders.

Figure 2. The knowledge company. Personnel categories

The professionals have been studied by sociologists, who find some distinct features:

• They have a field of knowledge where they have developed a skill that is higher than others
• They have a special education with distinct degrees allowing them to work in the profession
• They have often formed professional associations and codes of ethics for their profession
• They have a high degree of responsibility towards their profession and their work

We have probably all encountered the typical professional. He (it is mostly a man) is intelligent, brilliant, arrogant and absent-minded. He loves his job and is a workaholic when it comes to problem-solving. But he hates the company "bureaucracy" and is seen constantly arguing with management over this bill or that expense, he is never on time and no one seems to know where he is right now. He is loyal to his organization only if he can feel proud of the professional level of it. He is both unable and unwilling to manage other people; he likes working in teams but only if they consist of skilled professionals. He is interested mainly in the freedom to develop his own professional skills and the status of the profession.

His counterpart is the manager, a person who in industry is a relatively common middle manager, but who is rather lonely in the knowledge company. There are very few marketing managers (if any), no sales managers, few personnel managers (if there are any they are often called development or training officers). In fact, in many of the smaller know-how companies, the accountant is the only traditional manager, very lonely indeed since his own profession has abandoned him in respect of tools.

The typical manager likes to work with other people, is team-oriented, likes to exert his/her influence in an organization and feels a loyalty towards the organization he or she is put to manage, since the success of it can be translated into interesting career opportunities in the future. The managers lack the professional know-how but are strong in managing the business.

They are also normally the managers of the clerical staff, who often are in a real problematic situation. They lack the professional skill of the professionals and are prevented from developing their career structure by the usual method of moving up the ladder and becoming managers, because there are very few such opportunities in know-how companies.

The leader is the driving force of the knowledge company and is more or less irreplaceable. He or she has often founded the company and is almost always an ex-professional who has developed managerial skills and interests. It is very rare to find an accountancy firm, theatre, engineering firm or advertising agency not led by an ex-professional.

The leader must be able to handle and steer the driving forces in the knowledge company. The leader must also be able to balance conflicts between the have the experience! Unfortunately, that experience is not applicable to the know-how companies. This revelation usually comes as an unexpected blow to everybody, when the new manager starts to send out memos with orders regarding how to report meetings with clients, changes the accounting system, asks the professionals to clean their messy tables, questions them about where they spend their time, why they travel so much and should they not be able to reduce the number of employees? The industrial manager is then met with scorn whenever there is a discussion about the content of the business. The business idea is tied to the profession, and everybody relishes seeing the non-professional manager revealing his ignorance in these matters. A manager who is unable to lead the professionals creating the revenues is thus very easily reduced to a sour administrator of the costs, and the power rests with the experts.

The manager might then try to get rid of the most troublesome specialists and make the company more manageable by introducing standardized procedures, going towards the right in Figure 1. This kind of company might be called a "factory". (See Figure 4.)

One key to success for leadership in a knowledge-intensive organization is to be able to balance the management of both the professionals and the organization strategy of the knowledge company. It is a very difficult task because the professionals rarely accept leadership by any one except a professional. Since the architects make up the majority of all employees in an architect firm and so have formed the whole culture, it is thus more or less impossible to manage the company if the top manager is not an architect himself. ,

But architects are poor managers! How does one solve this problem? The leader who knows everything is, of course, one solution, but rare. One clue is to be found in the fact that-many successful know-how companies are run not by one CEO but by two or even three. In some industries this has become the norm.

The newspaper is run by an editor (the manager of the professionals) and a managing director (the administrative manager). Sometimes their two tasks are combined in one, called publisher. The advertising agency often has one creative manager and one administrative, the film industry has the duo of producer/director and the boxer has his promoter. The managing director thus has a much weaker position in the knowledge company managing than in the manufacturing company. Unless he can team up with the manager of the professionals his powers are reduced to mere administration.

The balance of power between the professional know-how and the managerial know-how is crucial to understanding the strategy of the knowledge company. The balance may shift abruptly when one of the top team is changed or is becoming more powerful. These shifts of power explain many of the otherwise incomprehensible strategic moves of some know-how companies.

That the balance does affect the business idea can be seen very clearly in some cases. Just imagine for a moment that you are looking at a movie. Think of the text at the beginning (or the end) of the film saying who were the people responsible for making the production. The later the names appear, the more important they are. Who is usually the last name? Right. The director. It tells you as a viewer that the creative content of this movie is in the power seat of the production- The producer comes in as number two, counted from the end.

Now think of some of Stephen Spielberg's monster movies. He is called producer but still makes it as the last name of the list. It is because the film is based on its technical effects, which are so complex that the film-making has to be in the hands of the producer.

Now think of Dallas or any other soap opera. Who is the last name? You don't remember? Actually, the list is full of Producers, executive producers operating producers and assistant producers. The name of the episode's director appears very briefly in the middle. What that tells us about the creative content of Dallas is obvious, but it also tells us that the TV production of the soap opera is run like the conveyor belt in a factory.

The conveyor-belt organization is actually a 'very primitive form. No biological process is so crude. Still, it has proven its productivity for more than 50 years and is still the most efficient organization, when the production is run by unskilled, disinterested labour who use their working hours for pondering about what to do during their spare time.

This is why the factory strategy functions s well with immigrants or illiterate youngsters, but try to put a team of Harvard graduates in there and count the hours they stay on the job! In fact, McDonalds has a perfect match between personnel idea and business idea and this is probably one of the cornerstones of its success.

The concept of the personnel idea was first suggested by Richard Normann in his book Service Management. It is very useful in understanding any non-manufacturing industry, be it service company or knowledge-intensive organization.

The personnel idea is the comprehensive opinion among top management about what kind of employees they will recruit, how the employees will be developed, motivated, remunerated and out-placed.

I suggest that a knowledge company must have a very close link between its business idea and ersonnel idea, otherwise it cannot function.

Many know-how companies in the management consultant industry have, for instance, copied McKinsey, who has a very distinct personnel idea, sometimes shortened to "up or out". Young bright graduates are recruited and introduced to the McKinsey toolkit and then developed through a tough career program by which they either end up as a senior partner or outside-very often as an important buyer of McKinsey services.

Contrast that with a personnel idea by which a consultant company mainly recruits experienced line managers as consultants and expects to keep them for 5-7 years while they consult clients from their own experience. Two very different strategies, businesses and concepts for solving clients' problems will be the result of two such different personnel ideas.

I have come across a vast number of knowledge-intensive organizations in the last few years, some as a consultant, some as a researcher, some as a board member. Here, in summary, are my findings as regards successful strategies.

It is much easier to manage a narrowly focused knowledge company than a conglomerate. This is because (a) a leader from another profession will not have the automatic following from the professionals in the other; (b) it is more or less impossible for the conglomerates to achieve better quality than the focused companies. Saatchi & Saatchi, who tried to build an empire consisting of a portfolio between advertising, management consulting and finance, is the negative example. The biggest Swedish consultant firm, Indevo, tried to build the same kind of conglomerate and failed too. It will be very interesting to see whether the French computer consultant Cap Gemini, which recently acquired a minority interest in the strategy consultant Siar-Bossard, will succeed.

A fast acquisition-based growth strategy - like that of Saatchi & Saatchi - seems to create too dangerous a turbulence. Acquisition of a knowledge company nothing more than recruiting a large bulk of new people - unseen. This normally creates disenchantment among the Professionals in both camps and quality, motivation and consequently productivity are affected negatively.

All professionals want to produce high quality. Clients want it too. The key is the follow-up of quality through rigid systematic client reviews.

The know-how is the most important asset and is regarded as a balance sheet item to preserve' improve, develop, acquire and guard. The Professionals are given ample resources for research into the core areas.

Various creative measures are found in order to keep the key people who possess the critical know-how. The actions vary between beer on Friday afternoon and strict employment agreements and owner/partnership.

6. Small is Beautiful

There seems to be no economy of scale in production; on the contrary, creative people like small organizations better than big ones. Efficiency measured as value added per employee is the same or even slightly better in small companies as compared to larger organizations according to the data I have gathered.

There are some scale economies in PR and marketing. Big know-how Companies get more attention and larger accounts from big clients. Accounting firms also maintain that they need a certain volume in order to be able to keep specialist knowledge which their clients ask for, Such as international tax.

The successful know-how companies see culture as a management tool and carefully maintain and develop it. This is because the stronger the culture, the lighter the formal control. If bright and knowledgeable people are well aware of what is allowed, how they are expected to behave and what ethics the company stands for, very little traditional top down management is needed.

If the leader is a professional or ex-professional of the same industry as the company, he/she will find it easier to (a) get the professionals following, (b) truly understand the business. Very often this is impossible, so the leadership is divided between two or even more people. The traditional managing director, as we find him in the manufacturing company, takes on a different position in a knowledge-intensive organization.

To these - I would today (March 1999) add a tenth success factor:

It is not only the Competence of the professionals, which is worth harnessing, also the other two intangible assets, the External Structure and the Internal Structure. An understanding of the whole, the knowledge flows and how to leverage them off each other is the tenth success factor.

All management theories up fill now are based on the simple fact that the formal boss has an automatic advantage by being in control of the information flow, so he or she always knows a little more and has a better overview.

But suppose that this is not the case? Suppose that your subordinates are better informed than you are, have better relations with the key customers than you have, have closer networks within the organization than you do and - how awful -they are even more intelligent than you and they know how to show it.

Is it possible to be a manager under such circumstances? No, would be the classic answer-change the manager. Of course, a manager who is not accepted by his staff cannot function in any organization. However, in the industry the "grassroots" generally give in after a while, grinding their teeth.

They yield because the manager possesses an arsenal of instruments of power against which the individual subordinate is helpless.

However, many managers of knowledge-intensive organizations are precisely in this situation, and the most successful of them are able to handle the situation with great success. Our present theories of management are of little assistance in understanding the strategic implications of this, because they are based on the notion of the manufacturing company.

I therefore suggest that the strategists take a good look at the successful knowledge-intensive organizations, the know-how companies. The know-how companies might give some interesting clues as regards the organizations of the future because they have for decades been tackling the problems that the rest of the world is only now beginning to grasp.

The most successful know-how companies have had to adapt to the needs of their clients, to tailor-make their problem solving. They have had to be very careful with how they organize in order to make room for creativity. They have had to learn to manage the difficult, highly skilled people that are now becoming numerous in the manufacturing industry also. The know-how companies have had to invent individual remuneration tied to performance, they have had to maintain and develop the valuable knowledge of their employees as their prime assets. In order to survive, they have had to create a leadership based on mutual trust, respect for the individual, employee-driven, loose but still strong.

The managers of knowledge-intensive organizations have not created all these features because their managers are better than other managers. On the contrary, as I hope I have shown in this chapter, the strategy of the knowledge company is but one of several alternative strategies.

But, out of necessity, they have long ago had to find solutions to many of the problems that are now emerging in many other companies and organizations all over the world. This is because the companies in the knowledge-intensive industries are the first organizations since the beginning of the industrial era that are truly dependent on their staff.

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