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Faddish approaches may appeal to organizations that struggle with crisis-mode decisions. But crises occur long after the time to take action has expired. These approaches, like the devastating effects of radical medical intervention, may do the job, but as we will see in our discussion about reengineering in Chapter 7, they leave painful scars, even when they do succeed. Corporate instinct is not a fad. It is common sense and common technology tools applied in a consistent framework. If corporate instinct is radical to an organization contemplating its application, then it is because that organization has not yet faced its crisis. As Chrysler CEO Bob Eaton said to his board of directors shortly after taking the helm, "My personal ambition is to be the first chairman never to lead a Chrysler comeback." In other words, staying healthy is much easier than getting healthy. Unfortunately, many companies, like many people, will only invest in their own health care when a grave illness looms.

Richard Hamermesh talks about a call he once received when he was teaching at Harvard Business School, shortly after Tom Peters' and Bob Waterman's In Search of Excellence was published. The caller, from a Fortune 100 company, asked Hamermesh if he could help them create a corporate culture. Were it only that easy!

Instinct, as much as culture, is more than information or knowledge management. There are, in fact, some basic differences between these often-confused terms, information management and knowledge management:

Information management is the structured organization of predefined data.

Knowledge management is the ability to link structured and unstructured information with the changing rules by which people apply it.

But our intent is to go beyond even knowledge management by looking at two additional rungs of this ladder, intelligence and instinct:

Intelligence or intellect (used interchangeably in our discussion) is the application of knowledge within a specific known context.

Instinct is the spontaneous application of acquired and latent intelligence to unknown situations with an unspecified context.

Lately, organizations have been basing management restructuring on knowledge, as evidenced by the advent and proliferation of the CKO (chief knowledge officer) and the CLO (chief learning officer). However, these are often superficial efforts to link disparate sources of information. Knowledge requires more than the conveyance of information. It must also provide the basis for learning and the compounding of learning--that is, the ability to create longer term intelligence and ultimately what we term "instinctive" behaviors.

In a September-October 1994 Harvard Business Review article, Stan Davis and Jim Botkin did a wonderful job of describing the essence of knowledge as the ability to learn from the learned. According to Davis and Botkin, "Whether a piece of music becomes the stuff of knowledge--whether, that is, it enables those who hear it to learn--depends not only on the composition but also on the skill and purpose of the performer. For a beginning pianist, a halting rendition of a waltz can be a learning experience. The same waltz performed by a virtuoso can be a source of knowledge for his or her audience."

Corporate instinct certainly embodies knowledge, but is a significant step beyond knowledge management. Know-ledge management is rooted in the idea that mobilizing an organization's intellectual resources is essential in enabling the organization to compete in a world where the previously powerful product differentiators, such as brand loyalty, quality, functionality, and price are now increasingly common. Knowledge management has provided organizations with a way of breaking free from their rigidly held, yet seldom questioned, assumptions about the competitive touchstones of the past, and exposing them to competitiveness based on innovation. Yet knowledge management is only a first step. As the pace of environmental change increases, as competition becomes more intense and the array of technological, financial, and strategic options available to respond to these competitive forces continues to grow, knowledge management will be an insufficient glue to manage this change. Corporate instinct extends knowledge management in two ways.

• It decreases the organization's dependence on its memory of how things were done in the past, and enhances the organization's ability to respond to sudden change.
• It diffuses intelligence from centralized positions of authority across the entire organization, making intelligent responsiveness universal within the organization--thus the responsiveness becomes instinctive.

Change in the business environment need not imply that every case or sale in an organization is different from the previous one. In fact, in some of the most rapidly changing industries the processes involved remain consistent from customer to customer. What we mean by environmental change is not the customer-by-customer, day-by-day variations that occur on a microscopic level, but the tectonic shifts occurring on a strategic level--the annulment of previous rules for competition, the evaporation of traditional customer bases, the overturning of technological limitations, and their replacement with completely new markets, products, technologies, and rules for competition.

Twenty years ago the Jeep was a close descendant of the rugged, ubiquitous transport vehicle of the World War II. It was driven in difficult terrain and under extreme conditions, by people who were concerned primarily with functionality and not appearance. Since the 1980s, however, a wave of affluent baby boomers has transformed the rules by which Jeep plays. The car's market changed--new customers wanted performance, comfort, and aesthetic appeal in a family car that would be driven primarily in an urban environment. The product itself changed--into a luxurious, technologically advanced, high-quality recreational vehicle, and the resulting rules for competing changed. Jeep now has many competitors--even luxury car provider Mercedes--in a sophisticated, high-end market space. Yet from sale to sale, the process of building, marketing, and selling the car remains essentially the same, from car to car.

We can visualize the transition from corporate memory to corporate instinct as different levels on a continuum. The graph above shows how the rate of change in an organization's business environment dictates the complexity of responsiveness required. The faster the business environment is changing, the more complex is the responsiveness required of the organization.

This is analogous to the way organisms have evolved in nature. For squids at the bottom of the ocean, the sea temperature and pressure have remained essentially un-changed for thousands of years. Their prey and their predators, too, are the same. As a result, these big animals have a remarkably simple organic structure, yet one that is well suited to the environment in which they live. On the other hand, humans live in a far more aggressive environment. The land is less hospitable than its marine counterpart; conditions can vary widely within days or even hours--weather, vegetation, and topography may change, and (at one stage) wild animals were a constant threat. The human brain was essential in enabling humans to respond effectively to this complex environment.

This complexity of responsiveness is dependent on two factors.

• The organization's memory. This refers to the organization's knowledge of, and dependence on, its multitude of past experiences, practices, and attitudes. When an organization's environment changes slowly or not at all, this memory can help it to decide how to approach future problems. However, when the environment is changing rapidly and profoundly, memory may serve to mislead the organization, trapping it into a mode of thinking it believes is applicable, but which in fact does not hold water in the new environment. Thus, the greater the rate of change, the less the organization is able to depend upon its memory.
• The organization's instinct. Instinct refers to an organization's ability to create new responses to new circumstances, based not on its memory of the past, but on its ability to understand the causes of current circumstances, and to use its insight and reason in generating the most effective response to them. Instinct is particularly useful where memory is unsuitable to guide thinking in new circumstances; thus, as the business environment changes more and more rapidly, so an organization's reliance on its instinct increases.

We can thus see how the rate of change in an organization's business environment can determine the most appropriate response to that environment. How do some organizations handle change more effectively than others? The secret lies in applying the most suitable response given the rate of change in the business environment.

Corporate Memory

When a company exists in an environment that is changing slowly or not at all, the most effective responsiveness can be achieved by simply applying the same or similar strategies that were previously applied in the same situation. All the information required to deal with the situation is at hand; it need merely be extracted and reapplied. As a result, we speak of memory (or a library of corporate information) as being the most effective approach. "Instinct" is not involved at this point, since there is little decision making to be done. There is a close mapping between the information required to address the present situation, and that required in previous situations. Processes, strategies, and industries that operate at this end of the knowledge continuum gain no competitive advantage from the content of their knowledge. As a result, the driving factors tend to be efficiency and cost.

Corporate memory was widely used as an approach in the more placid business environment of the past. Industries evolving slowly were able to dedicate themselves to fine-tuning their products and abilities, safe in the knowledge that the rules of the game would remain steadfast. Today, few companies have that assurance, and thus this approach is applicable to but a small number of companies and industries. Some heavily relationship-oriented industries are still dependent on their corporate memory, such as legal firms--here, the nature of the relationship is key to the product, and is not likely to evolve quickly.

Knowledge Management

When an industry or a company begins to experience change, one of the early warning signs is that the age-old rules that ensured success for so long seem insufficient to stop a gradual slide in profitability. The past becomes less and less of a mirror for the future, and corporate memory as an approach to dealing with the business environment begins to lose its luster. In fact, it may even inhibit an open-minded willingness to consider alternative ap-proaches. However, as long as the pace and extent of change remain moderate, these companies can succeed by using the knowledge garnered in the past as a point of departure for new approaches in the future. Knowledge management is the term given to this decision-making approach, which emphasizes the reuse of previous experiences and practices, with modifications to meet present circumstances. A line of cars, for example, that is no longer selling well may illustrate a shift in consumers' perceptions of the car. While an updated replacement model will need to be technologically and aesthetically more advanced than its predecessor, the manufacturer can rely on some basic truths about the product and its market, truths that have not changed even though consumers' taste for the product has. There is thus a marriage of a knowledge of the past with a fresh approach to the use of that knowledge.

Knowledge management is the force behind the current popularity of knowledgebases--central repositories for an organization's knowledge of its past. Knowledge management, however, implies that this information must constantly be contrasted with that derived from present circumstances, and the gaps filled in by organizational intelligence.

Corporate Instinct

Knowledge management has enabled companies to respond to the present by making decisions based partly on a knowledge of the past, and partly on a rational analysis of the future. However, in the most rapidly changing environments, where products, markets, and rules change on a month-by-month basis, the intelligence of a centralized group of decision makers may be too slow to translate intention into action, and may thus be as ineffective as no response at all. Huge new markets can be born very quickly and die out as suddenly, especially as the market as a whole becomes saturated with sophisticated products and satisfied needs. We need to be able to decentralize this knowledge, so that its entire force can be drawn upon by nimble teams tasked with meeting a particular challenge. Corporate instinct is the only approach combining intelligence and speed with enough vigor to ensure survival.

Corporate instinct is most effective in industries where rapid, ongoing change is especially common, such as the information technology industry. But it is beginning to spill into other industries. For example, the book-selling industry has been revolutionized by Amazon.com, the Internet-based book retailer, which has completely shattered preconceived ideas about the way in which books are sold, and has set an imperative for other, more established retailers to change their approach.

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Book excerpt from Corporate Instinct: Building a Knowing Enterprise for the 21st Century, Copyright, © Thomas M. Koulopoulos, 1997