Cheaper Medicine Act: The Challenge to Pharmaceutical Industry in Exercising Economic Freedom

This article was recently published by The American Chamber of Commerce of the Philippines in the AmCham Business Journal April 2010 Issue (Cover Story).

Almost 2 years ago, the pharmaceutical industry in the Philippines faced greater challenges when the President of the Philippines, Her Excellency Gloria Macapagal Arroyo signed into law the Republic Act No. 9502: Universally Accessible Cheaper and Quality Medicine Act of 2008. Some of the important points of the implementing rules and regulations of the Act that affected the pharmaceutical industry were the following:

First, it amended the Republic Act No. 8293: The Intellectual Property (IP) Code which allows local generic medicine manufacturers to test, produce and register their generic versions of patented drugs so that these could be sold immediately upon the expiration of the patents. Furthermore, to prevent the owners of patented drugs from extending the term of their patents by declaring newly discovered uses for the components of their drugs, the law prohibits the grant of new patents using this provision.

Second, the law now allows the conduct of parallel importation of patented medicine from other countries such as Pakistan and India where the prices are significantly lower than the prevailing price in the Philippines. In addition, even the Republic Act No. 6675: The Generics Act of 1988 and Republic Act No. 5921: The Pharmacy Law were also amended in support to R.A. No. 9502 and the President has now the power to impose price ceilings on various drugs such as for chronic illnesses and other life threatening diseases.

The law primarily aimed to bring affordable and quality medicines to the general public and that the government is determined to prove that health comes first before business.

With this law, both the local and multinational pharmaceutical firms were faced a greater challenges both on how to keep the business going and still comply to the new law. Most common strategy is to bring down the operational cost of producing the medicines. Digging deeper, what makes the price of these drugs high? Primarily, the drug development itself gets the bigger share of the pie where research and development requires extensive studies for discovering new drugs and new applications. That’s where patent comes into play. Pharmaceutical companies have their patents on drug discoveries to primarily protect the technology involved and recover the high cost of investments. In the context of the amendment on the IP Code, this greatly upsets the industry. Recently, there have been some controversies between pharmaceutical firms with regards to patents reflecting conflicts and different issues on the patent rights.

On the second important note, with the parallel importation, the competition on the industry were intensified with more players coming around where price becomes now the key basis (with the assumption of quality being a constant).

Philippines being a member of the ASEAN Free Trade Area (AFTA), where the agreement is to increase competitive edge as a production base in the world market and to attract more foreign direct investments to the country, this will revolutionize the name of the game of the multi-national and even local players of the industry.  On the other hand, this also breaks the monopoly of the pharmaceutical industry in the spirit of competition and will open a new game where innovation and entrepreneurship comes into play which in turn will give greater market flexibility .  In the end, the consuming public will have more choices and better pricing scheme because of the greater number of sources made available to them.

About the author:

Christopher P. Perez is a graduate of Doctor of Philosophy in Management and Political Economy at the International Academy of Management and Economics (I.AME). He is also a graduate of Master of Technology Management (MTM) @ the Technology Management Center, University of the Philippines – Diliman and a degree holder of Bachelor of Science in Chemical Engineering from University of San Agustin. He also took some units of Master in Business Administration (MBA) in Colegio De San Juan De Letran and units in Diploma on Technology Management in De La Salle – College of Saint Benilde (Certificate Program Center).

He’s been heavily involved in the Manufacturing, Technical & Corporate Training (including Corporate University establishment), Quality Management, and Management of Technology in various companies such as Procter and Gamble, San Miguel Corporation, United Laboratories, Incorporated , and currently the Dean, Executive Director and COO of the International Academy of Management and Economics located at Makati City, Philippines.

He’s also one of the co-founders and one of the facilitators of CID Technical Trainers (a training consultancy group servicing various companies and organizations such as Bangko Sentral ng Pilipinas, School of Professional and Continuing Education (De La Salle – College of Saint Benilde), Philippine Society for Training and Development (PSTD), Meralco Management and Leadership Development Center, and JGC Philippines, Inc.

He is a current member of The Philippine Council of Management (PHILCOMAN) and The Philippine British Society.

He ‘s an Associate Fellow of the Institute of Strategic and International Studies and Associate Editor of the Philippine British Society Newsletter.

He is recently appointed as Secretary General of LAKAS NG BAYAN 2G (LABAN 2G) and a Consultant of John F. Kennedy Legacy Foundation Inc. and Teachers Organization of the Philippines.

Contact Information: (email) perez.cp@gmail.com (mobile) +639178038688

 

Managing R&D Projects

Beyond Project Management

No matter how good the R&D projects the company may have, without systems in place that ensure the original project plans are monitored, modified, and made to happen in optimum way, can be a failure. The ultimate objective of managing R&D is to give results that increase the value of the company in its business and to create new businesses.

R&D’s role in value enhancement is usually expressed in one or more of the classic dimensions such as cost, speed, quality, and image. Successful R&D organizations operates to achieve its outcomes by emphasizing the following goals: (a) a well established communications between organizations; (b) linked structural interfaces across different functions of the business; (c) creating a sense of importance and urgency in individual researchers to established a common understanding and objective of the project and integrated view of how one affects the others in achieving the common objective; (d) transparency: sharing of uncertainty; (e) creating an atmosphere of freedom; (f) willingness to terminate projects which requires a good technical answers, business judgment, and communication skills to justify to the team the reasons; and (g) corporate-wide optimization of resources.

There are 7 key practices that can help managing the process effectively: (a) a key component is the ability to express how technical objectives relates to the business objectives, allowing rigorous communication; (b) a process that jointly develops clearly articulated, mutually agreed-upon, strategically evaluated project objectives, with clearly defined results; (c) a process for setting priorities and allocating scarce but flexible resources; (d) a backlog of ideas; (e) an aggressive approach to project design that addresses most significant technical uncertainties as early as possible; (f) a practical approach to project management and information systems; and (g) an appropriate project-team structure, composition, and authority – the professional management of complex projects along with appropriate integrative mechanisms such as project management office in place.

Typically, project manager plans, supervises, and leads the subtasks and end result, defines goals, and deals constantly with time and cost parameters but most often than not, not solely own the authority over the project. The management decision is the most important factor in the success of the project and how it will be supported can spell a difference. A key element of system-wide project management is the founding of interdisciplinary teams and close, mutually supportive working relationship among the members. It also requires effective team work and leadership which most often than not is the difficult aspect of the project management because by nature, members of the team are diverse (in terms of technical expertise or knowledge) and have different cultures. Each organizations have their own unique way of doing things which primarily depends on what type of organization or business they are in and what other systems they have that integrates their processes. Though there are more and more project management concepts and systems already evolving, there is still complex issues arise during the project implementation and we can say that there is no right recipe or formula that fits. It is because every project is unique though there are main areas that are alike.

 

Interfacing R&D With Marketing And Production

Organizing for Smooth Transition from Research and Development to Production

The transition period between the end of the R&D cycle and the beginning of serial production is often jam-packed with problems and conflicts. There are five distinct stages in the classical transition of R&D to manufacturing which involves massive problems such as (a) responsibility factor where there is often a perception that R&D has nothing to do with the tasks related to manufacturing; (b) the maturity of design problem which is due to the desire to meet a deadline to customer (many of the companies launched their new product prematurely); (c) the problem of redesigning for manufacturing where pinpointing of incompetence between R&D and manufacturing occurs.

Fortunately, these interface problems are becoming easier and more manageable through the use of innovative organizational concepts such as (a) organizational methods which new organizational concepts may contribute positively to lower the division-of-responsibility barrier; (b) computer-aided design and manufacturing methods which proven to be contributing to a smooth transition in a number of ways; (c) adapting optimized production technology (OPT) and just-in-time (JIT) methods which the principles in its broad sense can be interpreted as meaning to avoid large investments in anything not necessary to assure the smooth flow of work tasks and resources in the organization; (d) the concurrent engineering approach along with applying the total quality management approach (TQM) resulting to a more flexible work environment that accepts and adapts to the continuous innovation process which proven to bridge the gap between two generations of a product, allowing the companies practicing this method to extend market share.

A number of technology-driven industries, including semiconductor manufacturing in its early development as well as other related industries more recently, have been characterized by the failure of many R&D initiatives to reach the goal of affordable products that can be manufactured on a large scale. What is lacking is a life-cycle template to serve as a methodology for smooth transition from R&D to volume manufacturing. In many of these cases, the failure is due in large measure to the inability of corporate management, using a specific set of attributes, to technically assess the economics of transition from the laboratory to large-scale production.

Many local companies in the Philippines were not an exception to these problems as well. Many of the previous products launched prematurely and proven to be unsuccessful contributing to these problems and it costs the company valuable losses. These costly learning have been an areas for development and continuous improvement. As we often say, it is only through the actual experience that we will learn the most (learning curve of the company which is also directly related to Knowledge Management concepts), but with the help of emerging new concepts and principles, companies will be much less vulnerable to failures and prevent further losses.

 

Measuring and Improving R&D Productivity

Minimizing the Research and Development Cycle

If a company is to create a perfect and fully performing product before the beginning of the manufacturing cycle, it must allocate sufficient time to R&D. But with the current dynamic business environment, products have much shorter life spans with many products being replaced by newer models in an ever increasing pace and the traditional paradigm of R&D cycle simply not applicable anymore. A reason for this is that the window of market opportunity for commercial success of a product is too brief. To be successful, a company must be organized to introduce its products as closely as possible to the beginning of this time window. Factors that affect the length of R&D cycle that must be considered are: (a) technological uncertainties and innovation risks which may become extremely complicated as interdependencies are introduced in different stages of the cycle; (b) supply of critical materials and parts which requires special attention since inventory policies such as the just-in-time (JIT) policy simply won’t apply due to the uniqueness of R&D organization compared to other units; and (c) bottlenecks in the R&D organization itself since outputs rely primarily on people. People should have the precise knowledge, experience, and expertise to do the job because the real output of R&D organization is not just a prototype or a physical product but also the knowledge and information that accompany it (assuming it is not yet finished and documented). Suggested methods that are effective in reducing cycle time are: (a) managing uncertainties and risks involved by early identification, reducing and monitoring, parallel development, simulation and rapid prototyping by using computer simulation and modeling; (b) applying rational inventory policy for R&D which JIT model is simply inappropriate and requires a different policy which can be a combination of several known policies; (c) reducing bottlenecks in R&D organization by, first, identifying most critical bottlenecks and take appropriate action to open them to speed up the process and shorten the cycle.

The sequence of activities from the R&D decisions to commercialization involves not only the factor of time delays, but substantial uncertainties. Organization should provide an interface system for multiple sources of information and functionality, ensuring that R&D as well as other groups in the organization has the right data and tools to make the right decisions supporting the interoperability between groups, thus resulting to reduced cycle times and move discovery (or innovation) forward. Designing a system that supports different groups’ functions and responsibilities across the entire organization requires an integration and synergy of various systems in-place. Goals, responsibilities and roles of each group should be clear prior to the start of the implementation of the R&D projects so that later on problems such as conflicts between groups can be minimized.

Interfacing R&D with Marketing and Production

Management of innovation requires different and multiple roles. Each role has some unique contributions to make in terms of technical expertise, process facilitation, and organizational resources. Each role requires flexibility when changes occur and organization should be deliberate and conscious about the learning process. R&D interfaces with various units within the company such as general management, production, and marketing. The main cause for more than half of the R&D project failures have occurred for non-technical reasons such as lack of continuing and collaborative relationship between R&D and various groups e.g., marketing, engineering, production (this is due to various reasons such as culture, turf, KM capability, etc.).
Problems that can be encountered during the interfacing can be overcome by setting and agreeing on goals within and across the organization. Potential conflicts can be minimized (if not totally eliminated) by having simple approaches to information management and communication in a more constructive way. The degree of harmony and joint involvement between R&D and the other groups in the company have a significant effect on the success of R&D projects. Effectiveness of information transfer (in a much greater framework: KM – Knowledge Management) and the understanding of user needs are the major variables affecting project outcomes.

Managing the interfaces between different groups is a major challenge to managing innovations. Most projects fail due to lack of communication and openness between various groups in the organization which later producing enormous amount of conflicts (not to mention that competency in terms of where the right knowledge required resides, thus a sound knowledge management is crucial). Company culture should form part of any systems that can help streamline the interfaces between groups. Managing a diverse group of experts such as R&D is even up to now a challenge to management on how to synergize each groups to manage interfaces in a holistic and integrative approach.

 

Inventing/Creating Technology: Dual Insight Approach (Techno-Market)

Most ideas evolve through constant iteration between a new technological capability and a market need. There are, moreover, several paths leading to the combination (techno-market insight) that starts the process of commercialization. In practice, research gets initiated on the basis of a variety of impulses: an idea for a future new product; solving a customer’s problem; a reaction to competitor movers or other threats to a business; and exploiting new principles to build a capability. Getting to a valuable insight quickly is partly serendipitous event but can be “engineered” to some extent. The start of the process of technology commercialization should be seen as a willful act. The engineered insight (or R&D) may not be the one that gets pursued in the end, but simply should be seen as a starting point once excitement has been created. There are three ways to come to a techno-market insight speedily: accelerating the rate of experimentation, using formal creativity techniques; grounding the research in known problems from the start; and intensifying contacts between researchers and the market, allowing them to anticipate uses they may not normally think of. The first task in technology commercialization involves managing the process of idea creation effectively. This means that the organization must provide a wide and rich commercial context as possible, including scenarios of the future; create conditions wherein chosen problems are pursued deeply; encourage contacts, brainstorms, and idea exchanges, rather than encouraging solitary approach.

In this highly competitive and dynamic environment(with globalization in mind), business is challenged by the faster pace of commercialization and the ability to create and commercialize new products quickly as possible has become a central challenge for organizations (Product Life Cycle is another area that we need also to understand which I will discuss in another blog soon). Faster commercialization can secure the organization’s existence, but more importantly it provides several benefits such as the growth of turnover, profits and market. Additionally, organization can reach the position of being the market leader in the local and global business arena. It was also noticed that the significant cost benefits can accrue from compressing the commercialization process by producing product right on time. Currently many firms are increasingly interested in being the first in the market with their new products to gain these benefits and notably, in the Philippines, several organizations are now becoming aware of this practice (due to pressing issues of globalization). However, a systematic analysis of the problems of commercialization and the connection between these problems and the process of commercialization is still missing. There is still no standard methodology as to the process of generating projects down to commercialization. It is varies from organization to organization (or organization within an organization i.e., division, departments, etc.)

Some projects are generated by mere impulse, or what the management finds interesting enough (although objectively, they have a great deal of judgment based on their business acumen as to what business or technology to pursue) and direct the R&D to exploit the technology and build an internal capability. Implementation of the project down to commercialization by all means is assured since it is directly supported by management.

At the end of the day, still the question to organizations is how to accurately come up with the right technology to commercialize (in a techno-market approach) and at the same time fastest way to reach the market (first to market). For further understanding about techno-market model for commercialization, I came across a model that can explain the process in details and you can download it here.

 

Managing Core Competence (In Knowledge Management Context)

Knowledge is the heart of Agility – the driving force of both proactive and reactive change. New knowledge demands to be acted upon; and when one business acts upon new knowledge others have no choice but to follow. This human thing we are distinguishes itself from other life by generating and applying knowledge. The increasing population is building upon an increasing body of past knowledge – which increases the frequency of new knowledge generation and speeds the decay of knowledge value – making the general business environment, which is built on knowledge, more unstable. Conscious knowledge management is the practice that will return general stability in the long run. Short term it will provide preemptive advantage to those who master it first.

Core competency knowledge is just one aspect of the total picture – but an important place to start. We’ll explore the design of a knowledge management practice here; in the context of the competency at the GM metal-fabrication plant. This plant stamps and assembles after-model-year auto body parts. But we won’t be talking about things unique to metal fabrication or even small-lot, high variety production – our business practice design will have application everywhere. As seen, the main issue has revealed itself: those with the competency can’t seem to articulate it instructively. Organizations employ tacit knowledge at the intuitive level that even they are unaware of. That’s pretty common everywhere – and only becomes an issue when you decide it’s time to explicitly inventory this kind of knowledge and spread it around. There are more issues that must be addressed by the business practice to design. First and foremost, the knowledge management process itself must be highly adaptable – able to evolve and accept deeper and better competency understandings over time, able to accommodate new applications for that competency, and able to incorporate new knowledge developed elsewhere. A perfect application for the issue-focused, principle-based design methodology we’ve been exploring.
Issue-focused design means we want to understand our requirements objectively before we commit to a solution. Additional key issues on the proactive side include:
*  People must be interested and perceive value in order to learn effectively.
* The accuracy of knowledge, once it is captured, and the effectiveness of communicating it are both prime areas for constant improvement.
*  With time, the product and process technology will change, as will the nature of the knowledge and the knowledge focus.
* Some knowledge pays dividends when understood by different types of employees: engineers, skilled trades, accountants, personnel, management, etc – each requiring a modified learning approach.
* Insular knowledge is dangerous. An effective core competency renewal process must be aware of and able to incorporate relevant developments outside the local and greater-corporate environment.

Key issues on the reactive side include:

* All knowledge does not necessarily good, e.g., know how to make a process highly adaptable when there is no value to the company to do so. A self-healing process eliminates both incorrect and poor-value knowledge.
* People in training are employees with front line jobs, and business priorities change daily. There’s no longer a “time-out” for training. Key points: flexible scheduling, and the training time should look like job time.
* A training procedure must accommodate large and small groups, from a few new hires to large groups of existing employees.
* Technology and applications change with time, so fundamental knowledge must be reinterpreted.

For the core competence perspective to take root in an organization, the entire management team must fully understand and participate in the five key competence management tasks: (1) identifying existing core competencies; (2) establishing a core competence acquisition agenda; (3) building core competencies; (4) deploying core competencies; and (5) protecting and defending core competence leadership.

A firm can’t actively “manage” core competencies if managers don’t share a view of what those core competencies are. Thus, the clarity of a firm’s definition of its core competencies and the degree of consensus that attaches to that definition are the most rudimentary tests of a company’s capacity to manage its core competencies. Whereas most managers will have some sense of “what we do well around here”, they may be quite unable to draw any kind of specific link between particular skill sets and the competitiveness of end products and services. The first task in managing core competencies is therefore to produce an “inventory” of core competencies.

Often observed in most companies attempting to define their core competencies, the process tends to be haphazard and political. The first attempt typically produces a lengthy “laundry list” of skills, technologies, and capabilities – some core, but most not. Every participant in the process wants to ensure that the activities he or she manages are regarded as “core”. A substantial amount of effort is required to fully disentangle competencies from the products and services in which they are embedded, to distinguish core from non-core, to cluster and aggregate the skills and technologies in some meaningful way, and to arrive at “labels” that are truly descriptive and promote shared understanding. The time it takes to arrive at an insightful, creative, and shared definition of core competencies is, in a large company, more likely to be measured in months than weeks. In my professional experience, it even took years considering issues e.g., culture, beliefs, generation-gaps, etc.

Companies typically fall into one of several traps when attempting to identify core competencies. One of the most frequent is delegating the task to the technical group. There is a clear danger in taking such an approach. Core competencies are the soul of the company and as such they must be an integral part of the process of general management. When only the technical group feels ownership, the usefulness of the concept in building new business is jeopardized considerably. Too often the concept of core competencies is highjacked by the technical group in a bid for stature and resources.

Other traps include mistaking assets and infrastructure for core competencies and in inability to escape an orthodox product-centered view of a firm’s capabilities. Additionally, if executives are too rushed to “get the job done”, they may fail to generate a deep and common understanding of what the chosen core competence “labels” mean. A wide group of people in the organization must be capable of describing the competence in reasonably similar terms and share an understanding of just what constituent skills are embodied within the competence. There is yet another frequent pitfall. Companies often fail to apply the test of “customer perceived value” to their list of competencies. Understanding the link between competence and benefit is critical in identifying competencies that are genuinely core. We often recommend that several teams work on defining core competencies. Each team should encompass a broad cross-section of employees – functionally, divisionally, geographically, and hierarchically. Seeking a diversity of views ensures that the best possible definition emerges.

It is important not just to identify and agree on what the core competencies are but also to identify the elements that contribute to each core competency. For example, expertise in the science of color, inks, dyes, substrates, coating, paper handling, and a host of such elements or discreet skills adds up to the core competence in chemical imaging at Eastman Kodak. It is important that these discrete skills are identified and an inventory of people who possess those skills developed. One company succeeded in developing a hierarchy that extended from competencies to skills and technologies to individual employees – “competence holders”. This hierarchy could be accessed through a computer database so that if someone in the company needed to access a particular competence, he or she could locate the right person. Such visibility to a firm’s core competence resources is vital if they are to be fully exploited and easily redeployed.

Further, companies need to benchmark their core competencies with other firms. Senior managers must be full participants in the process of identifying core competencies. The process will involve many meetings, heated debates, frequent disagreements, unexpected insights, and a sense of excitement about potential new opportunities. The task of discovering a firm’s core competencies is not one that senior management can delegate; neither can it be squeezed into a two-or three-day “offsite” workshop. The goal of the process is to develop a wide and deep understanding of the skills that currently underpin the firm’s success, to escape the myopia of the served market, to highlight the “shared property” of the firm, to point the way to new business, to raise sensitivity to the reality of competition for competence, and to provide the basis for actively managing what, after all, are the firm’s most valuable resources. The exercise to identify core competencies cannot take a mechanistic, follow-the-checklist approach.

Given that it may take five, ten, or more years to build world leadership in a core competence area, consistency of effort is key. Consistency depends first of all on a deep consensus about which competencies to build and support, and second, on the stability of the management teams charged with competence development. Such consistency is unlikely unless senior managers agree on what new competencies should be built. Without such consensus, a company may well fragment its competence-building efforts, as various business units pursue their independent competence-building agenda, or the firm may simply fail to build new competencies. Stability to senior management teams and, correspondingly, strategic agenda is also a key.

To leverage a core competence across multiple businesses and into new markets often requires redeploying that competence internally – from one division or strategic business unit to another. Some companies are better at this than others, and hence get greater effective use out of their competencies. We sometimes define a company’s core competencies in the same way a country defines its money supply; stock (the number of bills printed, or the number of people who “carry” a particular skill) multiplied by velocity (how fast the bills change hands, or how quickly and easily competence carriers can be redeployed into new opportunity areas). Many companies have a sizable stock of core competencies – many people with truly world-class skills – but almost zero competence velocity – the ability to redeploy those individuals behind new market opportunities.

For more and more companies today, the ratio of market value to asset value is 2:1, 4:1, even 10:1. The difference between asset value and book value is not goodwill, it is core competence – people embodied skills. The numerator in the ratio reflects investors’ beliefs about the uniqueness of the firm’s competencies and the potential value that can be generated by the exploitation of those competencies in the marketplace. The allocation and management of the assets that appear on the balance sheet is an elaborate, time-consuming ritual, infused with analytical rigor and attempts at numerical precision. But what about the other three-fourths or nine-tenths of corporate value? Through what mechanisms are core competencies allocated? How explicit are the choices about where to put talent? How much pressure is put on divisional managers to justify why they should have preferential access to some particular competence pool? Although human resource executives will proudly proclaim that “people are our most important asset”, there is seldom any mechanism for allocating human capital that approaches, in its sophistication and thoroughness, the procedures for capital allocation. In most Western companies the chief financial officer has more organizational status and raw power than does the head of personnel. In many Japanese companies the situation is precisely reversed – as it should be if a company truly believes that competition for competence is the highest order of competitive rivalry, and if it understands that access to competencies, rather than access to cash, is the most critical driver of growth. We sometimes carry out with a company’s divisional managers illustrates a critical precondition to the capacity to redeploy competence assets. We provide each divisional or strategic business unit manager with a product-geography matrix, and then ask each executive to rank, 1 through 10, their company’s near-term growth opportunities. There is usually little correspondence between one manager’s rankings of growth priorities and any other manager’s rankings. Yet, in the absence of a corporate-wide consensus on new business opportunities – that is, agreement on what projects truly are “urgent” or deserved to be labeled “gold” – there can be no logical basis for the internal reallocation of core competence resources.
One Japanese company regularly publishes a list of the company’s top market and product development priorities. Obviously, there is great status attached to working on a high-profile, critical program. If an individual somewhere in the organization believes that he or she can contribute to one of the high priority projects, that individual can “self-promote” himself or herself onto the team. The team leader may not choose to take the applicant, but if the skills offered are critical to the project’s success, the team leader can ask that the individual be transferred. At this point, the employee’s boss has to justify why that individual’s talents are of more value to the corporation in the current job than in new job. As one might expect, the existence of such a system helps ensure that unit managers do their best to keep key people occupied with truly challenging projects. It also ensures that the best people end up working on the biggest potential opportunities.

The mobility of competencies is also aided when the employees who comprise a particular competence meet frequently to exchange ideas and experience. Seminars and conferences are important for instilling a sense of community among people working in the same competence. The cross-fertilization that results accelerates competence-building. The goal is a group of people who see themselves as corporate resources, and whose first loyalty is to the corporation and the integrity of the company’s core competencies, rather than to any single business unit. Geographic proximity can also aid competence mobility. Where a competence is spread across facilities in a dozen countries or more, collective learning and the reallocation of individuals to new projects are difficult. A company should avoid unnecessary geographical fragmentation of its core competencies.

Core competence leadership may be lost in many ways. Competencies may wither through lack of funding; become fragmented through divisionalization, particularly where no single executive feels fully responsible for competence stewardship; be inadvertently surrendered to alliance partners; or be lost when an underperforming business is divested.
Protecting core competencies from erosion takes continued vigilance on the part of top management. Although most senior managers can easily dredge up competitive measures of sales performance, market share, and profitability, few are able to offer a quick and convincing judgment on whether their company is staying ahead of competitors in core competence development. There is no way to protect a firm’s core competencies from erosion if the health of those competencies is not visible to top management. Divisional managers should be assigned cross-corporate stewardship roles for particular competencies, and should be held responsible for the health of those competencies. Regular “competence review” meetings should focus on levels of investment plans for strengthening constituent skills and technologies, internal patterns of deployment, the impact of alliances, and outsourcing.

It is not to be argued that the core competence perspective should supplant a product-market perspective; rather, it should complement it. Given how deeply engrained the strategic business unit perspective is in most companies, it will take substantial effort from senior management to build the complementary core competence view. The goal is not to “hardwire” the core competence into the organization through structural changes, but to “soft-wire” the perspective into the heads of every manager and employee. This means (1) establishing a deeply involving process for identifying core competencies; (2) involving strategic business units in a cross-corporate process for developing a strategic architecture and setting competence acquisition goals; (3) defining a clear set of corporate growth and new business development priorities; (4) establishing explicit “stewardship” roles for core competencies; (5) setting up an explicit mechanism for allocating critical core competence resources; (6) benchmarking competence-building efforts against rivals; (7) regularly reviewing the status of existing and nascent core competencies; and (8) building a community of people within the organization who view themselves as the “carriers” of corporate core competencies.

Having safeguarded the firm’s existing competencies escaped the myopia of existing served markets, and built a forward-looking competence agenda, a company can move on to the finals tasks in managing the migration path to the future: expeditionary marketing and global preemption.

 

Developing Old And New Competencies: How Organizations View It?

Any knowledge management system must deal with rapid change in knowledge value, and provide means for evolving the knowledge base under management. Even leadership core competency becomes irrelevant in the churning competitive environment. The design requirements focus on the dynamic nature of knowledge capture, dissemination, renewal, and creation; and recognize the need for transparent training which does not interfere with daily employee productivity.

The context of the design is a GM Metal Fabrication plant with exceptional competency at creating high-variety, low-volume production processes, and their desire for training both new employees and a broader base of existing employees in this competency.

To start – there is a need to build one process to capture knowledge and insight that a few people possess, and another process to plant that knowledge and insight effectively in other minds. Since the value of knowledge and the nature of its application changes constantly, these processes must be change-proficient. Consider the alternative: if succeed in capturing and packaging the insights of a few people today, and also succeed in feeding this boxed wisdom to everyone else, there is both a risk that the contents are incomplete and a time when they become stale – better to let things compete for acceptance than to institutionalize rigor mortise. Leading management sage Tom Peters says it well: “I’m totally opposed to the learning organization idea. I argue for the forgetting organization. You get droids when you have too much training and too many people thinking and learning in the same way” (Wired Magazine, Dec 97). Therefore, there’s a need for a process that captures wisdom from those who have it, even if they can’t articulate what it is; that seeks wisdom wherever it may be at the moment; that actively renews (improves, upgrades) its content; that creates and accepts new knowledge when it is appropriate.

With this reasoning the knowledge capture process has grown into a capture, renewal, and creation process – the activities that identify and package the right stuff. But we’re still going to have problems if this stuff is simply put in a box and handed over to a separate and dedicated “training” process: for one it’ll go stale, for another the trainers will not be quick to change what they teach. A little more reasoning is needed. New employees come in the door and existing employees change job functions constantly throughout the year – frequent events that trigger a need for training.

Meanwhile, deliberate knowledge generation typically relies on the slow-to-admit failure of existing knowledge as its triggering event. This tells us that the knowledge generation activities are better tied to the training triggers – and leads us to the conclusion that we don’t want separate generation and dissemination processes but rather one integrated system – one that generates and reaffirms knowledge in the process of teaching it. The implication here is that the people being trained will be the agents of knowledge generation as well as the triggers. Organizations don’t want off-the-shelf knowledge to feed to people – but rather a training process for discovering and reinterpreting appropriate knowledge and its application. Now there’s a reality to face after addressing the stale knowledge problem: performance pressures preempt time-off for training and postpone financial commitments for training resources.

Organizations also don’t want dedicated training resources – they institutionalize the rigor mortise. Instead, they want a rotating mentor-student relationship that exposes the wisdom of real workers, and challenges them to explain their insights explicitly and similarly, don’t want time-off for training – that encourages the wrong knowledge focus. Instead, organizations wanted a training to occur during the process of solving real problems – with solutions that provide real value in real time to the organization. This was called employment of real people solving real problems in real time Realsearch in the prior essays. Details can be read in “Realsearch: A Framework for Knowledge Management and Continuing Education” available on the web site at http://www.parshift.com.

 

Developing Competence And Performance: How Rewarding?

It is clear that the industry-specific external drivers of change such as technological advances, globalization, consumer choice and demand, and changing government policies and legislation align closely with the requirement for competencies, skills and recognition of all types of learning, both for new entrants and workforce development.

Some competencies may not necessarily be core to a person’s role or occupation, but will add value to it or enable a person to continually develop for personal or professional purposes. These additional competencies may be recognized through formal training and learning leading to the achievement of a certificated qualification. It is assumed that existing qualifications or schemes will form part of the knowledge management framework. Learning and training (in various form of acquisition) may not lead to a qualification or certification and is therefore classified as informal. However, in both cases, the learning experience has added to, or enhanced, the individual’s ability to perform within their given occupation.   The overall competence of an individual will need to have an overarching mechanism that physically records that person’s competence status within the industry in which they are operating. It is assumed that a skills passport or card or certificate will be the mechanism for this. A business may comprise one individual in which case the overall business competence will equate with the competence of the individual. In many cases however, the sum of individual competencies will determine how ‘competent’ the whole business is.

In the organization or business setting, there are a lot of questions yet to be addressed:

1. How competencies are accounted in an individual?
2. Were it recognized and rewarded?
3. How to set motivation to gain more necessary competencies in support to the organizational competencies to achieve the overall organization’s objectives?
4, In this knowledge-intensive era, do companies or organizations still view learning/training as an expense rather than a strategic investment?
5. How to retain the competencies of an individual in the organization (when opted to leave)?

And there are a lot more issues to consider…

 

Competency In The Workplace From An Informal/Formal Acquisition (Rewarding or Not?)

Much of the education, training and professional development in the organization reflects the importance of technically specific subjects and the requirement for competency training. Non-accredited learning and informal continual professional development activities are particularly prolific in most organizations. This is especially true for the industries under manufacturing and service sectors.  Indeed, Lantra’s latest research shows that of those who stated that they take part in training or learning, 41.8% report that the learning done is informal, while 17.7% report that the learning is formal and 8.5% report that the learning that takes place is both formal and informal. Official measures of ‘skill needs’, as adopted in other sectors and in UK statistics are more often based on the achievement of accredited qualifications, and do not therefore accurately reflect the actual level of skills or competence in the organization. The use of qualification for measuring skills is further compounded by the following factors:

• Skill levels are likely to be underestimated because such a high proportion of learning does not lead to organizationally recognized qualifications (i.e. those nationally or internationally accredited by the regulatory authorities)
• Many qualifications which are seen to measure academic attainment rather than accredit actual technical skill and industry competence and be less relevant to the organization
• Given the nature of many of the land-based industries, many people have job related skills and generic skills which are not accredited. They perform a variety of roles within a business whose breadth is not assessed by traditional qualifications.

As well as informal learning, differing concepts have been offered as an alternative to this already contested term.  Alternatives to this concept are non-formal, incidental, implicit and tacit.  Whichever concept is used, however, it is true that the value of learning differs according to the perspective of learners and organizations.

Learning is a part of everyday workplace activity and so it is either taken for granted, or not recognized as learning at all. The resulting knowledge is merely seen as part of an employee’s general capability and is not codified.  People possibly equate learning to formal education and find it difficult to talk about their workplace expertise.

In order to move forward, it is proposed that informal learning could be managed to better contribute to the individual and organizational performance.  International evidence suggests that high performance working practices produce better performance/productivity and are closely aligned with informal learning. In terms of the future, it could be argued that what is needed is a move towards organizations understanding that learning is a product of and dependent upon their culture, vision, values and structures.

Individuals will respond positively to an expansive culture that values their skills and makes use of their knowledge.

Thus, if a competency framework can increase the recognition of informal learning, it may influence the approach that employers and employees have the continuous development and maybe then, perhaps, rewards and recognition (in HR context) can be more rewarding and promote greater motivation for the people in the organization.

This may not be only applicable to an informal learning acquisition but also to a formal one (people who are pursuing higher formal education while having a corporate work at the same time).

 

Knowledge Management Framework: A Consideration For Organization

As those who work in organizations knew, organizations are not homogeneous entities where grand theoretical systems are easily put in place. Change is difficult. A special challenge in deploying knowledge management is that it requires systemic change. Isolated initiatives fail, but are also impossible to revamp the whole organization in one sweeping wave of change.

A consideration for a knowledge management framework, therefore, is that it needs to address systemic change in organizations. In practice, the framework has to provide a coherent language and a point of view that enables the various organizational actors to see their activities within the overall effort to develop organizational knowledge management. This requires that the current state and the vision of the organization can be seen together, in a way that enables the organization developers to bridge the gap. Moreover, we need to take into account the simultaneous existence of several competing frameworks. In any large organization, it is impossible to develop one single approach to knowledge management and simply roll it out.

Knowledge management is already happening, and much of the organizational development is working on solutions to its problems. When we deploy knowledge management, we have to be able to show how it relates to the ongoing initiatives in the organization, as well as to point out those areas where new thinking is required. Those frameworks that do not take into account change, or address issues of migration and co-existence of old and new concepts, practices, and tools, rarely generate major impact. Still remains the questions of how are we going to do this. In practice, knowledge management can be viewed as consisting of several dimensions where change is needed, and we have to address all these to get knowledge management implemented successfully.

To understand and manage knowledge in organizations, we need to understand what knowledge is, how it is used, what its management consist of, and how we can improve organizational knowledge processes. The theoretical and conceptual basis for knowledge management requires a multi-disciplinary approach and rather sophisticated theoretical discussion. In practice, we cannot expect that everyone within the organization becomes an expert in the theory of organizational cognition, meaningful processing, or activity theory. Therefore, we have to package the theory in a way that suits the needs of the organization in question.

Second, as pointed above, we need to explicitly address change. Change is closely related to stability. Therefore, a knowledge management framework has to say something about the organization and their evolution. Change, in itself is created when knowledge changes. Before new knowledge changes knowledge structures and systems of activity within an organization, knowledge has to be accessed, understood, and accepted. Knowledge management framework, to change the organization, needs to include concepts for change management. One major aspect of change management is migration of old forms of activity into new forms. This requires coexistence of activities that are different versions of each other. In most cases this means that new activities are piloted as limited and isolated experiments, which in due course can be deployed more extensively within the organization.

Change often creates resistance. We would argue that in many cases this resistance actually, in itself, is a knowledge management problem, which results from problems with accessibility, acceptability, understanding, but also from problems in the management of attention. In effective organizations, people are busy doing those activities that they have understood to be the most relevant and urgent. Therefore any suggestions for new activities are competing with an existing set of relevant and urgent activities. In many cases, the newness of novel contributions of knowledge management is sufficient to make them less relevant and less urgent than items on the current agenda. This means that in practice there has to be some re-evaluation of priorities in the organization if the organization is going to deploy knowledge management practices. This, in turn, requires that the organization change its vision so that it explicitly includes some aspects of knowledge management. For example, the organization can create a vision of itself as an intelligent organization, and look back from its strategic needs to see how it should prioritize its organizational development activities.

In research organizations, one commonly used approach to deal with the problem of change is to keep the number of possible projects so large that there exist alternatives if the priorities change. This approach is used to make it easier for the researchers to develop their work identity around a strategic vision of the organization instead of specific “pet-projects” that for various reasons may change their priority. A similar management problem exists also for organizational development and innovation. To overcome this problem, the organization may develop a strategic vision from which a manageable portfolio of knowledge development projects is selected. At the same time there have to be processes that re-evaluate priorities from time to time. In knowledge management programs it is often reasonable to generate a set of high-priority implementation projects, and develop organizational knowledge management systems using a portfolio of strategically selected projects. Within each such project, change management, however, needs also to be addressed separately.

Third dimension is time. When organizations need to change, often the scarcest resource is time. Knowledge management is therefore also about management of time. This is so both at the macro-level and at the micro-level. At the organizational level, there has to be time to reflect on the organizational priorities and practices. If the organization is overloaded with current activities and existing initiatives, there is not much that can be done to manage organizational attention, and focus it toward knowledge management.

Time is critical also at the individual level. Learning requires that there is time for cognitive re-arrangement. Often, however, the drive for efficiency means that there is not much time devoted for reflection. A critical tool for knowledge management is, therefore, allocation of slack. Such “unallocated” time, however may need to be institutionalized and its use directed towards the strategic goals of the organization. If a strategic goal of an organization is to increase its competence, however, strategic allocation of slack may equal to making sure that there is enough time for consolidation of experiences, and radical re-framing of existing knowledge structures and competencies. In a knowledge intensive organization, appropriately allocated slack may be its most productive investment. It would be unwarranted to think that one organizational actor can design and implement change. As knowledge management touches more or less all the areas of organizational development, this leads, in practice, to the requirement of involvement of stakeholders in any knowledge management initiative. One way of doing this is, for example, to systematically integrate the change concept in knowledge management initiatives.

An especially important organizational institution is its system of incentives. This is also one of the major tools by which organizational change can be implemented. More generally, the third dimension in the framework relates to the problem of measurement of knowledge. Measurement is an important integration mechanism within organizations that directs managerial attention within an open field of potential interventions. Each measurement system implicitly defines a point of view. Therefore, the design of a measurement system is one of the most fundamental statements of organization’s goals. Measurement also enables us to see whether we are moving towards these goals.

The fourth dimension is informal and formal organizational structure. For knowledge management we have to be able to view organizations as knowledge processes, and discuss ways to implement formal, informal and communication structures that improve organizational knowledge processing. This includes defining new roles and responsibilities that are required for effective knowledge management. Such roles may include, for example, knowledge owners, knowledge publishers, knowledge harvesters, and organization coordinators. In many cases, these roles exist in any given organization, but they are not institutionalized or supported. Much of the most important knowledge management work is currently done simply because people in the organization understand that it is useful and should be done. Often, however, such work is invisible, and instead of promoting and managing it, organizations make it difficult and unrewarding.

The fifth knowledge framework dimension is that of knowledge content. If we view knowledge as a product in itself, the resulting product can be classified and categorized in various ways. To manage the products of knowledge processes, we need compatible and complementary typologies for knowledge. Content can also be related to skills of people. To manage content we may develop expertise directories, skill management systems, knowledge maps, or other meta-models of knowledge content. For example, categorization principles used by information services professionals embed decades of research on knowledge categorization. Especially in electronic environments, however, also issues such as version control and document reliability, quality, and life-cycle require conscious effort.

The sixth dimension of knowledge management is tools. These include various knowledge management methodologies and their representations, but also infrastructure that makes effective knowledge management possible. Most important, such infrastructure includes information and communication technology that can be used to support organizational knowledge processes and their management. For example, collaboration tools, document management systems, organizational memory support systems, innovation support systems, information retrieval tools, and data discovery tools may support knowledge management.

Although knowledge management is often seen as a technological issue, in practice it is widely understood that technology is a relatively small part of any successful knowledge management program. This is so because a tool can not be utilized without the corresponding practice. Although organizational change can sometimes be arranged around the introduction of a specific tool that symbolizes change, manages attention, and structures discussions, the criteria for successful deployment is behavioral change. For example, if the explosive growth of intranets, for example, would be measured by some quality criteria, we might see that the relative amount of actionable information, by any reasonable criteria, is decreasing. We might analyze this situation as a simple example of a situation where the link between knowledge products and activity systems that produce and use these products do not exist. Information is often produced without any clear model why someone would need it. More generally, in knowledge management similar waves of excitement and frustration follow each other when technology gets too much attention compared to organizational practice.