Australian companies get headstart on knowledge capital

by Onno van Ewyk

By June this year an estimated 6000 Australian enterprises will be registered to the ISO 9000 International Standard for Quality Assurance (also called AS 3900 in Australia until this year). This is one of the highest levels of implementation per capita of this Standard anywhere in world.

The driving force behind this has been policy initiatives by State and Federal Government agencies since the late 1980s which give preference to buying from companies which comply with the Standard. In effect, Government purchasing power has been used to force the widespread adoption of ISO 9000.

Motives for this have been both economic and political. There was a genuine desire by Government to get better value from its purchases by emphasising quality rather than price. The move also reflected a general concern that the quality of Australian products and services was below the world's best. Encouraging the application of Quality Assurance, it was felt, would lift the quality of Australian products and improve export competitiveness.

A number of recent studies have confirmed that this ISO 9000 push, along with other quality management initiatives, has improved Australian product quality and improved exports, in particular those with high value-added. But reactions from company executives and employees to this Government-sourced pressure to adopt the Standard have been mixed. Many have welcomed it as an incentive to introduce better management methods using the ISO 9000 Standard as a model. Others, however, have resented having to invest in expensive new systems which they see as more in line with authoritarian 19th century attitudes than the more flexible, entrepreneurial approaches needed in the 1990s and beyond.

A surface analysis of ISO 9000 supports the views of its detractors. It is a formal and legalistic set of documents, some parts of which are difficult to understand at first reading, and many other parts difficult to interpret precisely. But some deeper probing reveals that, at its core, ISO 9000 is in tune with a newly emerging, and critically important, concept in management theory - that of the 'knowledge worker' and an organisation's 'knowledge capital'.

Stripping away ISO 9000's formalistic overlay reveals that its basic objective is to make sure the people working within an organisation keep each other well-informed about the things they need to know to do a good job - in effect, knowledge sharing. It supports this objective by requiring systems for channelling knowledge down through the corporate structure to support quality outcomes, systems for feeding information back up to decision-makers to improve their knowledge, and systems for continually reviewing the organisation's knowledge to maintain its validity and integrity.

The concept of 'knowledge capital', and the importance of 'knowledge workers' to organisations belongs to management expert Peter Drucker. In his book The New Realities (Mandarin Paperbacks 1990), Drucker states "Knowledge now has become the real capital of a developed economy", and argues that "The next step in the use of knowledge - in full swing since 1970 - applies analysis and system to the productive process itself. Its essence is not machinery (the term 'automation' is quite misleading). General Motors learned this in the 1980s when it spent 30 billion dollars on 'robots' without much improvement in quality. The essence of automated production is a system organised around information. But once that system has been designed, the need for manual work soon goes down dramatically. The centre of gravity in production, and especially in manufacturing, then shifts from manual workers to knowledge workers."

In other words, 'knowledge' and 'knowledge work' have become the principal drivers of corporate success. By focusing on 'knowledge' as a key organisational issue in its own right, management improves the organisation's efficiency and competitive position. This aligns directly with ISO 9000's main thrust to develop robust, reliable, and flexible systems for transferring knowledge among employees and for leveraging it to get the maximum benefit.

According to Drucker 'knowledge driven' organisations will operate more effectively by enabling flatter structures, and by being better able to fit their form closely to their function. Drucker also identifies the major cultural change required in organisations taking a knowledge- based approach to their development. He states, "One thing is clear, though: the information-based organisation requires self-discipline and emphasis on individual responsibility for relationships and for communications." ISO 9000 promotes and reinforces this sort of self- discipline by requiring people to use systems to control, check, and validate the flow of information within the organisation to build its knowledge base.

The fact that ISO 9000 enshrines and promotes the concept of 'knowledge capital' is not yet widely understood. This means that its full potential is not being realised by those companies which have implemented it. To make the transition from 'ISO 9000 compliant' to 'knowledge driven' requires investment in a complete review of the structure of an organisation's key reference information and the application of new technologies to use and distribute it. Notwithstanding this, becoming 'knowledge driven' will be a lot easier for companies which already have ISO 9000 experience than those which do not.

Australian companies' world leadership in ISO 9000 provides a golden opportunity for them to steal a march on international competitors by using this experience to create organisations which are truly knowledge-driven.

23/6/1995

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This is one of a series of articles written by Phil Cohen and Onno van Ewyk, HCi . Most of the articles were also published in the Australian Financial Review. This article may be reproduced only with the permission of HCi Consulting (email HCi ). Copyright HCi, 1993-1998.