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The Knowledge Workers Shift - How people management is changing in the IT age

Some implications

This talk was given to Australian Department of Finance senior executive staff in August 2003

I will present some thoughts in relation to:
  • Management within the enterprise;
  • Cultural infrastructure we need to support a knowledge industry;
  • Thinking adults respond to inspiration;
  • Finally, we need meaning and purpose. This also is an enterprise issue;

But, first, a working definition of knowledge worker is someone who has to exercise during their work:

  • judgment
  • problem-solving and critical thinking skills
  • creativity, imagination
  • analysis skills
  • can transform information into knowledge

They have to know how to learn; and they have to be collaborators.

These skills nowadays apply as much to agriculture and manufacturing as IT and hospitality. In fact, to most workers in modern western societies.

So, to the issues of getting the most from them and retaining them in your workplace.

Management within the enterprise

Pay well and provide share options

The first imperative is to pay a reasonable wage.

Partly because, as Henry Ford once posited, pay them better than others and they will perform better than others.

Partly because people will eventually pursue the best relative pay they can get; and knowledge workers are generally more job mobile than workers in the past.

The important point here is that it's about social relativities more than wealth per se.

Prominent US economist Richard Thaler believes that "people are more concerned with changes in wealth rather than with their absolute level".

That is their capacity and opportunity to do better than others they see as their peers.

The more they see themselves within an international jobs market place, the more they will compare their salaries with London, New York and San Francisco peers.

Anyone who has worked in the IT industry will know that salaries are still higher than other industries at the moment, and particularly in the internet industry.

This puts a lot of pressure on available capital.

Start-up US IT companies have used share options as a way of making up for the fact that you can't give people the salaries they are getting in larger companies. While this went to absurd extremes at times, the basic principle still provides an essential strategy for cash starved companies, even in the economic provinces.

But there a lot of barriers here - it's the reason we need a revamped taxation regime for Employee Share Plans in this country.

There is a ton of stuff written on pay and on share option schemes, so I am not going to say any more.

In relation to keeping knowledge workers, what I have talked about is fits into the base of what pioneering psychologist Abraham Maslow's1 called the hierarchy of need.

Maslow was famous for developing a stepped pyramid model of human need(1). It essentially said that until your belly has food (the bottom tier) you won't be able to sort out shelter; you then need to sort out shelter before you will be able address "higher issues" such as a "sense of worth". And so on.

But pay is not enough.

Workers need support, not control

Famed management guru Peter Drucker has argued(2) that simply "bribing" knowledge workers by trying to satisfy their
"greed" is not enough any more. He says that performance in knowledge-based
industries "will have to be delivered by satisfying their values, and by giving them social recognition and social power. It will have to be done by turning them from subordinates into fellow executives, and from employees, however well-paid, into partners".

The second tier of this argument is about management of "thinking adults".

Professor Henry Mintzberg has written in Harvard Business Review(3) about the parallels between good management and being an "orchestra leader". That's a good term to use in discussing management in knowledge industries.

It's about partnership between workers and management. It is about support, not control.

I've got a friend who was until recently an executive in a very large IT firm. Despite being a senior manager, his boss still expected to see him in the office nine to five, and used to get upset when he wasn't there. Obviously it's been an autocratic company; and had a high staff turnover. This is changing now it's been taken over by a more enlightened US multinational.

On the other hand, former Netscape CEO Jim Barksdale used to talk how he spent half his day managing the egos of the IT specialists on the top floor and how important that was. Not telling them what to do, but supporting them, smoothing over the ruffled feathers, whatever. That is more of an orchestra leader role than traditional management.

You choose objectives, you let people loose. You lead, you link (and how often "linking" is neglected). You recognise, you counsel. You do not tell.

You need those factors if you want to have a culture where people can flourish and achieve.

This management imperative is not limited to the IT world; Drucker, Handy and many others believe it applies just as much to a manufacturing workforce, or a public service workforce, as in finance or computers.

So much for within the enterprise.

We need to build cultural infrastructure that supports knowledge industry

The next area I'm interested in talking about today, given the important audience here, is "cultural infrastructure" - factors beyond the enterprise.

Core to my thinking here is that developing a vibrant niche economy is about more than making individual companies successful. It's about successful social, political and economic climates for that success. A bit like macro-economic settings, but cultural in focus.

This is an essential ingredient in current theories of "cluster economies" (4).

The most interesting work on developing successful economies looks at the idea of "cluster economies".

Michael E Porter is perhaps the most famous exponent of the idea, first explored in his seminal 1990 book on "The Competitive Advantage of Nations".

He has more recently written on cluster economies (defined as "geographic concentrations of interconnected companies and institutions in a particular field") in the Harvard Business Review and in his book "On Competition".

Knowledge workers - I would argue all staff - not only need responsive and productive environments in the workplace, but in their broader intellectual and social community as well.

That external environment they work, network, live and think in is as important, if not more important than the office.

The stronger our education system is the stronger our industry will be

The first infrastructure need is for an effective education system.

Our education system forms the nursery for our intellectual property fisheries.

There is no substitute for an education system that's healthy and vibrant.

We need a system that delivers young intellectual talent with courage - that is the courage to explore new frontiers, human capital.

We need a system with adequate research funding, allowing people to explore new ideas.

We need flexible learning. (Twenty percent of our company's staff are doing part-time university courses.)

We need movement between education and industry, movement that allows cross-seeding of ideas and energy.

And we need more funds for education.

But it would be foolish just to say we need more funds, as I think we do, for the tertiary sector. We also more funds - and greater status - for primary and secondary levels of education. There has been a large amount of literature in the last few years about the vital nature of primary education in achieving successful economies.

The World Bank, for example, used to have a program of trying to support third world development by promoting tertiary education. About 15 years ago they recognised that focusing funding on tertiary infrastructure was by itself not doing the trick.

They "discovered" (as aid agencies had been telling them for years) that they needed to fund primary education infrastructure as the highest priority. Funding of tertiary structure was a later issue. They changed their policies during the 80s as a result.

Support for small and medium sized enterprise

The second point about cultural infrastructure is about support for small and medium sized enterprise (or SMEs, a terrible acronym). This is about how to support the development of clusters of small industry.

SMEs are the drivers of employment growth in our economy. Over the past 30 years the number of small businesses in Australia have grown from 180,000 to 950,000.

Whether you think this as good or bad, it is clearly linked to the disaggregation of large organisations - private and public - into more fluid collections of supplier companies.

We need a nurturing climate. We need incubators.

Wellington City Council in New Zealand has set up a series of incubators for small industry which have been very successful at getting people from an idea into a viable business.

IdeaLab in Silicon Valley is a privately run internet company incubator that has spawned, from one or two people, hundreds of internet enterprises. Some of these are now multi-billion dollar companies, including E-bay and Etoys.

We need low-cost business advice.

If you are a small company or a start-up company, especially if you're growing fats, you have zero cash. Yet you need access to management advice, exporting advice, legal advice.

You can't afford to pay the lawyers at the top end of town. You have to be a big company to do that.

We need long-term planning support. We more readily available business intelligence. We need data.

Small and medium sized companies can't do it themselves. Large companies, of course, don't release it; and private research company reports cost thousands and thousands of dollars. Ie. they're for the big end of town.

Government can help with that. Australia Bureau of Statistics research should be free, for example. The State Government could fund the tracking and reporting of global bio-tech market data. That could all be part of industry policy.

We need marketing co-operatives.

One of the most successful cluster economies in the world is the textile region of Prato in Italy. It's the area that took adds more value to Australia's wool produce than we do from the paddock to the export of all those bales of unprocessed wool. It's a hive of small (lots with less than 10 staff) and medium sized companies. Prato has a series of marketing co-ops which support small and medium size enterprise, and which have been vital in allowing small enterprise access to international markets. The coops were started by government and are now run co-operatively, locally.

We need to keep innovation in Australia

It is critical that any kind of industry policy focuses on keeping the vitality of small and medium sized enterprises.

I happen to believe that we must avoid the giant sucking noise you get as small companies get taken over by large US and European companies, and their intellectual property, their best people and their profits get swept away to overseas capitals.

In the IT area this reduces our future local tax base, and makes it harder to locally develop the cluster economies that are the drivers of wealth creation in the world today.

If you want people, as well as profits, to stay here you need to foster small and medium-sized enterprises that have the local loyalty that multinationals (with US headquarters) do not have. Help them broker distribution and marketing partnerships, rather than having to get taken over to reach their markets.


Thinking adults respond to inspiration

Thirdly, in terms of cultural infrastructure, we need inspiration.

Henry Mintzberg3 also argues that knowledge workers need inspiration not supervision. They need it beyond the enterprise as well as within it.

We need opportunities to think and talk. We need open flows. We need visiting speakers. We need to fund people here to go overseas (and come back hopefully). We need journals. We need Research Centres, lots of Centres.

We need ferment.

We need to support intellectual bomb throwers. Give them money. Make them question what we are doing. It's critical for the development of our ideas.

We need a broader inspirational culture as well, a culture of arts, a culture of identity.

I think a sense of being Australian now is quite different to 20 or 30 years ago if you are a scientist trying to achieve.

Governments need to recognise that the excitement of political and cultural issues like identity development, the exhilaration of cultural confidence I believe we are experiencing in Australia, is an important part of supporting cluster economies in knowledge worker areas. They help lead to fresh ways of thinking; the excitement of fresh ways of thinking. We need arts policy too.

I suggest to you that a vibrant arts culture will lead to better industry. I was sitting at a conference function in Brisbane recently, listening to a performance artist. It seemed rather unusual at first, with grating music and odd actors, but the longer I watched the more I found myself musing on different ways to look at problems besetting me. I got very excited because I found I was thinking. Amazing I know. It helped me feel there were fresh ways to look at the work I was doing.

Impressionism, cubism, pop art, have all been important influencers of social and economic - change in the past.

Renaissance art, by altering the way people looked at things with its (at the time) revolutionary, realist way of depicting people, was a critical factor in freeing up people to look afresh at society, politics and science.

Finally, we need meaning and purpose

Discourse will eventually lead to wonder about meaning.

This is towards the top of Maslow's1 pyramid, the self-actualization end.

As Peter Drucker suggests in the quote at the beginning of this talk, knowledge workers need more than money and fame.

There is quite a lot of literature about this at the moment(5).

Red Herring magazine(6), a magazine about venture capital in the US, regularly carries stories about how many young knowledge workers in Silicon Valley are asking to feel like they are creating a better world. They are excited by the internet (as well as the big bucks of course) but they are also sold on the idea of creating a better world. They think the promise of the internet is part of this; but they also want to support good works.

A number of US companies have taken this even further, vesting shares in their stock exchange floats to charities as part of trying to achieve that. This is partly altruism on the part of the initial shareholders, and partly a strategy to keep workers loyal to their companies by positioning them as "making a difference to creating a better world". Of course this helps support the interesting phenomena evident in the tech-boom where many the hubris of entrepreneurs was accompanied by a self-referencing myth (?) of IT being about creating a better world.

Major corporations in Australia have picked up the idea of being "good corporate citizens" as an important device in improving flagging staff retention rates.

The AMP, for example, has created the AMP (good works) Foundation as an integral part of what it calls its Employer of Choice program.

Westpac has got the same thing. within their work.

I have to say, though, I think that model misses the point. Inconsistencies between externally focus good works programs and internal problems in relation to ethical behaviour (eg. At auditing firms) are putting such a strategy under pressure; at the end of the day educated workers will be looking for meaning and purpose.

A couple of days ago I was talking to a young woman in the IT industry and she said she had been lucky enough to be recently working on projects in the public interest. She had been bitten. She could not go back any more to the crassly commercial opportunities available to her. She would not be lured somewhere else just for money or for glory. She had to stay with meaning.

That is your knowledge worker retention strategy as orchestra leaders.

Some implications

1. Educated and involved workers are more informed consumers

2. Morality is creeping into investment decision-making.

Some years ago we saw the anti-apartheid campaign become a fairly successful shareholder divestment campaign. The campaign was aimed at concerned citizens who had share portfolios, and led to significant - successful - pressure on major US companies to divest themselves from South Africa while the apartheid regime remained in place. This was morality-based decision-making.

Investor focused political campaigns have become more common in recent years - witness the recent Rio Tinto targeted shareholder action that garnered 19% of votes at an AGM.

The same movement is leading to significant demand growth for "Socially Responsible Investment" (SRI) or "Social Environmental Ethical" (SEE) investment funds and superannuation investment choices

Luckily, this looks to be sensible in strictly financially terms as well as ethical terms. By a happy coincidence analysis of long-term investment returns suggests that companies that rate highly on SRI/SEE indexes are also the best performers financially.

The most notable index in this are is the Dow Jones Sustainability Index, which has outperformed the Dow and S&P indexes since its inception.

In Australia, the Commonwealth Super Board has been so impressed with this data that it has launched a portfolio risk review using Corporate Governance and SEE filters. It plans a strategy of constructive engagement with companies it invests in to get them to perform better on SEE matters - on the basis that it believes this will improve their financial returns

For educated knowledge workers, concerned citizens with money, this is music to their ears.

3. New complexities to "rational (economic and employment) behavior"

A community concern with sustainability, the environment and similar issues, and about the social impact of investments is leading to new complexity in decision-making for companies as well as government. You will see greater demand for decisions to be explained in terms of long-term impact as well as short term.

We are seeing more workers drawing comparisons between corporate and community ethical standards - and seeing this as important. Corporate giving, including those in-house grants bodies, are a staff retention strategy.

This is sea-change in Human Resources management. It will spread throughout the community.

To end up I'd like to remind you of that quote from Peter Drucker:

"'Bribing' knowledge workers by trying to satisfy their 'greed' is not enough any more. Performance has to be delivered by 'satisfying staff values', and by giving them social recognition and social power. It will have to be done by turning them from subordinates into fellow executives, and from employees, however well-paid, into partners".


1. Maslow was famous for developing a stepped pyramid model of human need. It essentially said that until your belly has food (the bottom tier) you won't be able to sort out shelter; you then need to sort out shelter before you will be able address "higher issues" such as a "sense of worth". And so on. See "Towards a Psychology of Being", Abraham H. Maslow, Richard Lowry (Editor). Published by John Wiley and Sons, 1998.

2. "Beyond the Information Revolution" by Peter F Drucker. Atlantic Monthly magazine, October 1999. Drucker is Professor of Social Science at Claremont Graduate School in the US, author of more than 30 books on management, and perhaps the world's best known writer on management issues. His most recent book is "Management Challenges in the 21st Century" (1999).

3. "Covert Leadership: Notes on Managing Professionals", by Henry Mintzberg. Published in Harvard Business Review, November-December 1998. Mintzberg is Professor of Organization at INSEAD (Fontainbleau, Paris) and Professor of Management Studies at McGill University in Montreal, Canada.

4. The most interesting work on developing successful economies looks at the idea of "cluster economies". Michael E Porter is perhaps the most famous exponent of the idea, first explored in his seminal 1990 book on "The Competitive Advantage of Nations ". He has more recently written on cluster economies (defined as "geographic concentrations of interconnected companies and institutions in a particular field") in the Harvard Business Review.

"The Competitive Advantage of Nations" by Michael E Porter, published by the Harvard Business School Press, 1990. Porter is Professor of Business Administration at the Harvard Business School in Boston, USA.

"Clusters and the New Economics of Competition" by Michael E Porter, published in the Harvard Business Review November-December 1998.

Further discussion on clusters can be found in Michael E Porter's new book called "On Competition", published by the Harvard Business School Press, 1998.

5 Charles Handy's books make useful reading on this topic. See in particular:

"The Hungry Spirit : Beyond Capitalism : A Quest for Purpose in the Modern
World", published by Arrow Books 1998.

6 See and the Wired article on IdeaLab for an interesting angle on this subject.