THROUGHOUT THIS BOOK we have not only identified causes of the knowing-doing problem, but have also provided examples from our research that show how these causes can be overcome or at least ameliorated. This chapter provides more detailed case information on three firms—British Petroleum, Barclays Global Investors, and the New Zealand Post—that have been successful at either avoiding the knowing-doing gap or transcending barriers to turning knowledge into action. Each of these more comprehensive cases shows the constellation of factors that create problems in turning knowledge into action as well as the actions and practices that help firms acquire and implement performance knowledge. The organizations are of different sizes, from different countries, operate in different industries, and confronted different challenges. This range of experience affords an excellent opportunity to learn as we consider the similarities and differences across companies.

British Petroleum

In the mid-1990s, British Petroleum (BP) was the fourth largest oil company in the world and the largest company in Great Britain, with 1995 revenues of $57 billion.¹ The late 1980s and early 1990s had been difficult for the company. Falling oil prices and an extremely diversified set of businesses that made the company almost a conglomerate had contributed to declining profits. In 1992, the company lost $811 million, its first financial loss in eight decades.² But just five years later, the company was enjoying excellent results, even though oil prices had remained low by historical standards. In 1997, the company earned $4.62 billion on total revenues of $71.27 billion³ and was receiving numerous favorable mentions in the business press for its management ability.

How had the company fallen on such hard times, and what did it do to turn around? The company was old, with a great history and tradition, having been founded in 1909. Originally owned, and then partly owned, by the government, the company was the first to develop the oil reserves of the Middle East and was a leading oil producer in the North Sea and Alaska. Described as “a curious mix of dashing adventurers and stifling bureaucracy,”⁴ the firm was experienced in finding, producing, and selling oil and oil products all over the world, and as a large firm in England, was able to attract outstanding talent. The problem was, to use our language, that British Petroleum was singularly incapable of transferring knowledge across its various internal units or using its expertise and its human and physical assets. In 1989,

Turf battles, buck-passing and bureaucracy were rampant, and decision making was slow and cumbersome. Head office alone had 86 committees, and each of the six managing directors attended over 100 board or other major meetings annually. Financial proposals required fifteen signatures before they could be accepted…. [The] head of BP Oil described the problem: “Control had gone wrong because all of us have concentrated too much on detail. People feel they need to know the answer to every possible question just in case someone asks it. We’d lost our way.”⁵

Committees, reviews, and measures provided the appearance but not the reality of effective planning and oversight. Much as at the Australian firm BHP, another natural resources company, talk substituted for action. Internal competition further hindered the ability to turn knowledge into action.

Management succession, triggered by the firm’s poor financial performance, at first only made the problems worse. Robert Horton assumed the chief executive position in the spring of 1990 and immediately began to downsize the company and slash capital spending. Unfortunately, the downsizing “was accompanied by a ‘proclamation of values, such as openness, care, teamwork, empowerment, and trust,’⁶ that was communicated through an extensive workshop and training program.”⁷ We say “unfortunately” because the juxtaposition of downsizing with the emphasis on values such as care and trust made no sense at all. This transparent clash between what top management said and what they did provoked cynicism, skepticism, and anger throughout the firm. Moreover, Horton had a managerial style that inspired fear rather than affection or respect: “Horton treated everybody as though they were head gardener. People could not bear to have any more sandpaper rubbed over them.”⁸

Horton’s approach attacked the symptoms—too many people, resulting in operating inefficiencies—but not the cultural issues that produced the problems in the first place. Moreover, an abrasive, almost abusive management style inspired fear in the organization, an emotion not likely to motivate people to do their best or to turn knowledge into action. Horton was fired two years after his appointment, on June 25, 1992.⁹ Over the succeeding years, the company was run first by David Simon and then by John Browne. Although downsizing continued, the company began to do some things to increase its ability to both capture knowledge that was being generated internally and to more effectively turn that knowledge into practice.

John Browne believed that “a critical determinant of his company’s ability to compete… was the extent to which it could actively foster learning across units.”¹⁰ He noted:

As a big company, we have more experiences than smaller companies…. So the question is “What do we do with that experience? How do we find it? How do we interpret it? How do we apply it?”… We can get leverage provided we understand how to use the experience we have…. If you step back and look at what BP does, it’s just a few things, repeated thousands and thousands and thousands of times.¹¹

British Petroleum took a number of actions to ensure that knowledge and experience would be captured and transferred within the company. First, they “developed a whole language and methodology for post-project appraisal”¹² to learn as much as they could from all of their activities, such as drilling wells, developing new oil reserves (which they call “assets”), and recovering and transporting oil. Perhaps more important, the firm implemented four mechanisms to ensure that the business units shared information among themselves and implemented what they knew: peer assists, peer groups, other federal organizations, and personnel transfers.¹³

“A peer assist was a small project in which one or several business units lent members of their staff to another business unit in order to help that business unit solve a particular problem,”¹⁴ most frequently some technological problem. The practice had several positive benefits. First and perhaps most important, knowledge was transferred by and through actual people who had not only the explicit but also the tacit knowledge and skill required to solve complex problems. This was not just some intranet in which technical skills would be posted, but a way of actually involving people in the knowledge transfer process. Second, by directly moving people who had experience to the locale where the experience was needed, peer assists “cut through the managerial layers between the business unit leader and the technical people performing the actual work.”¹⁵

The obvious question is why managers of these business units permitted and even encouraged key people from their units to go to other units to solve problems. This sharing of talent was particularly unlikely to occur at first glance given that BP’s financial reward systems were focused on business unit performance. Sharing talented people with other units might help the firm as a whole but could negatively affect the short-term performance of the unit that had temporarily lost these skilled individuals. The amount of talent being shared was substantial. In some instances, “a large percentage of the workforce… could be offsite at any time.”¹⁶ One answer to why the units were so willing to help others, even at a possible short-term cost to themselves, was provided by a BP executive:

I’ve never turned down anyone, because of the benefits. First, there is the benefit of goodwill, which is significant. One day you’ll need the same. Second, there is the benefit that they come back better people. They know more than when they left.¹⁷

Peer groups involved establishing “confederations of business units that faced similar technological and strategic questions.”¹⁸ The groups met quarterly with the executive committee of British Petroleum Exploration. These quarterly meetings facilitated other interactions during the quarter because people had been together regularly and had come to know each other and better understand the business and technological issues each unit was confronting. In the peer groups, “the leader of a business unit would present his or her proposed goals for the coming year to the other members…. The members would critique the plan, offering information and advice.”¹⁹ Norms of reciprocity again dictated that all members participate actively. And the very establishment of these groups helped to build a common social identity that reduced the tendency for the units to view each other as only competitors.

When units faced similar operational or strategic issues that cut across peer groups, British Petroleum put together a federal group to focus on the common issues. Between the peer groups and the federal groups, a significant amount of managerial time was devoted to working collaboratively across units to solve problems, in the process both developing and transferring expertise. “John Leggate, a manager of the gas fields in the southern areas of the North Sea, estimated that roughly 50% of his time was devoted to participation in the peer group and these other asset groups, whereas the other 50% was devoted to actually running his own asset.”²⁰

Another example of how efforts to encourage knowledge sharing were implemented is seen in the pilot test for the Virtual Teamwork Program. The initiative was designed to build a network of knowledgeable people who could work together to learn and solve actual problems in real time as they happened. The experimental program was implemented in five groups over an 18-month period in BP Exploration between 1994 and 1996. The program made heavy use of modern information technology such as desktop video conferencing equipment, multimedia e-mail, shared electronic chalkboards, scanners, and a web browser. These technologies allowed rich real-time communication and the joint solving of problems by geographically dispersed people. But the program’s designers did not make the common mistake of treating knowledge as a “thing” stored away for later use. Rather, the goal of the program was to “build a network of people” across different parts of BP and “to let knowledgeable people talk to each other, not to try to capture or tabulate their expertise.”²¹ The project team also encouraged using technologies that would create rich communication between people in order to duplicate “as much as possible the nuances, variety, and human dimension of face-to-face communication” because these designers “understood that the value of individual expertise resides largely in just those subtleties and intuitions, which words alone cannot convey.”²²

The program was supported by a group of “coaches” on a “knowledge management team.” These coaches were expected to spend only 20 percent of their time training people how to use the technical systems. They were expected to spend the rest of the time working with people to discover how the information technology could be used to help them do their work in faster, better, and less expensive ways. The level of use, participant enthusiasm, and savings in time and money indicated that this program was successful in four of the five groups where it was tried. The group where it failed was the only one that did not spend the money to hire coaches. The success of the pilot program led BP executives to approve plans for expanding the program to other parts of the company in 1996 and to weave it into other efforts to create real knowledge sharing among units.

The following incident illustrates how the systems used by people in the Virtual Teamwork Program enabled them to share knowledge between different parts of the organization that enabled BP to save time and money:

When equipment failure brought operations to a halt on a North Sea mobile drilling ship one day in 1995, the ship’s drilling engineers hauled the faulty hardware in front of a tiny video camera connected to one of British Petroleum’s Virtual Teamwork stations…. They dialed up the Aberdeen office of a drilling equipment expert who examined the malfunctioning part visually while talking to the shipboard engineers. He quickly diagnosed the problem and guided them through the necessary repairs. In the past, a shutdown of this kind would have necessitated flying an expert out by helicopter or sending the ship (leased at a cost of $150,000 a day) back to port…. The shutdown only lasted a few hours.²³

Within the exploration division of British Petroleum, there was also an emphasis on moving personnel geographically to facilitate knowledge development and the transfer of wisdom. As with peer assists, the company recognized that it was not likely to be in any business unit manager’s short-term interests to move competent personnel to other units. This was true even if such movement benefited other units, enabled people who moved to learn and transfer new knowledge, and helped the firm as a whole because performance knowledge was spread more quickly and completely among business units. So, the firm established some formal mechanisms to ensure geographic mobility of people. “Once a year, business unit leaders met at a worldwide forum to help facilitate the geographic mobility of engineers. At this forum, individual people and individual jobs were discussed.”²⁴ The meeting forced management to collectively assume responsibility for personnel movement and ensured that such movement and the resulting people development and knowledge sharing actually occurred.

All of these formal mechanisms required people at BP to develop a sense of shared social identity and a spirit of cooperation rather than unrestrained rivalry, particularly the unit managers. The senior leadership was conscious of this requirement and took steps to build a more cooperative culture that recognized the interdependence among the various units and their leaders. Nick Butler, policy advisor to the chief executive, put it this way:

In so many organizations there is a tendency for individuals to hoard knowledge and to think they are making themselves more powerful by doing so. Our aim has been to change this mental model by encouraging people to see that if they are open—both receptive to new ideas and willing to share their own knowledge—they will be recognized and rewarded.²⁵

The British Petroleum experience shows that knowledge transfer and knowledge use can be important to a firm’s financial performance. It also demonstrates the importance of using formal mechanisms for encouraging such transfer, and the need for knowledge to be carried by people, not just by and in management information systems. And the BP case shows the importance of actions by senior leaders. Those actions and what leaders said helped establish cultural norms that favored cooperation and a set of recognition and reward practices that reinforced cooperative behavior. Senior management’s willingness to try new ideas like the Virtual Teamwork Program also reinforced the message that, to move toward a culture of knowledge sharing, people were expected to experiment with new ways of working, to fail sometimes, and to keep learning from such trials and errors. The very different BP experiences under Robert Horton and John Browne also show that leaders who provoke fear and exhibit abusive behavior create organizational situations in which people focus on avoiding blame and punishment and concentrate on their own individual survival rather than the collective good. Leaders who induce fear discourage their people from turning knowledge into action and instead create organizations in which people learn it is better to do nothing or to keep doing things in less effective ways than to turn their performance knowledge into organizational action.

Barclays Global Investors

Barclays Global Investors (BGI) faced a different set of challenges than British Petroleum. Rather than trying to overcome knowing-doing gaps that were fueling declining performance, BGI faced challenges that were due, in large part, to the firm’s impressive financial performance and rapid growth throughout the world.

Barclays Global Investors is the largest manager of tax-exempt investments in the world, with more than $550 billion under management. The firm was founded in the early 1970s as part of Wells Fargo Bank’s trust department. The intent was to apply quantitative techniques and modern portfolio theory, being developed in universities, to the money management business. The unit later became a wholly owned subsidiary and profit center of Wells Fargo, and then was owned by a joint venture between Wells Fargo and the Japanese securities firm Nikko. In 1996, what was then called Wells Fargo Nikko Investment Advisors was purchased by Barclays, the large United Kingdom bank, for a price in excess of $400 million. The company has maintained its strong roots in academic finance and quantitative financial analysis. As a matter of ideology, people at Barclays do not believe in picking individual stocks, which one executive described as “get a hunch, buy a bunch, go to lunch.”

Barclays Global Investors faced three major management challenges in the 1990s: (1) significant and rapid growth, from about 350 people in 1993 to about 1,400 people in 1997; (2) the need to become a truly global firm, integrating significant operations in Japan, the United Kingdom, Australia, and Canada while trying to build and maintain a “one firm firm” culture and orientation; and (3) a change in corporate ownership from a joint venture between Wells Fargo Bank and Nikko Securities to Barclays Bank. Most significantly, BGI was involved in taking over the investment management activities of the firm that had bought them—sometimes referred to as a reverse takeover. The means that BGI used to meet these challenges provide several key lessons about how other firms can use their accumulated wisdom and experience and turn knowledge into action.

The heart of BGI’s business is turning knowledge into action. Fred Grauer spent almost 20 years in the company, including many years as either chairman or co-chair. He defined BGI’s core activities in this way:

Investment performance is actually not only about knowledge, it’s about action. It’s the ability to acquire the ideas and translate them into forms that deliver investment performance…. What you buy and sell is part of the process…. They [the pension fund managers] have a need to explain to others what you have done on their behalf…. And if you fall down in any part, there is an inference that you may fall down in other parts and put your entire relationship at risk. All of that is by way of saying that whether it’s knowledge or action, whether it is an investment return or the service proposition, all of it is governed by people. Our job was to very rapidly create an attitude that enabled people to gain knowledge and convert knowledge into action with a purpose of having our clients really feel as though they had experienced first-rate investment performance, not just the plus sign in front of the investment return.²⁶

Two of the three challenges BGI faced, the global expansion and growth in personnel, had similar consequences for the firm: It was becoming more difficult to transact business on the basis of long-standing personal relationships that were mediated largely by face-to-face interaction. Janet Campagna, a group leader in the asset allocation group, commented:

The bigger you grow and the faster you grow, with all the attendant structural changes that occur, the more difficult it is to maintain the kinds of relationships that allow you to find your way through the maze. And with the growth also came the loss of people and that makes maintaining relationships much harder. Because if you lose two or three of your key relationships and you’re now in this much bigger place, you lose a lot of your support system. And with the attendant growth that tends to keep you very, very busy, it’s harder to reach out and establish relationships. Trying to establish those relationships and have them work with the distance and the cultural differences has its own unique challenges.

Commenting on the challenge of operating as a global firm, Garrett Bouton, head of BGI’s human resources function as well as a business unit manager and member of the management committee, noted:

Just shortly after I arrived [in October 1996] it became clear to all of us in the top management… that we weren’t organized like a global firm needed to be organized. We were still run as a U.S. business, and a relatively small U.S. business…. We were very much U.S.-centered. The merger with Barclays required that we suddenly think quite differently.

BGI was and continues to be committed to operating according to a set of common values as well as a core set of principles that govern their investment work. This goal to be a “one firm firm” made the task of quickly integrating new people essential. Diane Lumley, the chief of staff, commented: “We wouldn’t be who we are if we said it’s okay to have a confederation of different investment managers with different philosophies and different principles, because that’s not us.”

The change in ownership compounded the problems of growth and operating on a global basis. This change was largely initiated by BGI because its top management believed it needed a different corporate parent to succeed in the future. Fred Grauer argued:

We’d gotten to the point where what Wells Fargo could realistically contribute to the business and what we could realistically contribute to Wells was very modest. There’s no fundamental reason why we needed each other…. The competitive environment was definitely changing from being a national business to being a global business. And we had a parent that didn’t have a global perspective or global motivation or a global culture…. There was a need to find ourselves.

Although Barclays Bank, the parent company, was global, operating in 16 countries around the world, this London-based bank had a very different culture from the entrepreneurial spirit of BGI. Barclays was quite bureaucratic and had never had a major subsidiary with its headquarters outside of England. The company was run by committees and had lots of meetings. Most important, the people at Barclays’ headquarters in England felt as if they should be in control, since they had been the acquirers. But that was not how it was to be. Fred Grauer and Pattie Dunn, the co-chairs of Wells Fargo Nikko, were put in charge of the combined entity, and its headquarters remained in San Francisco. Although some people from Barclays’ asset management group became managing directors in the new, combined entity, most of the managing directors came from the original Wells Fargo Nikko because it was much more successful in the investment management business, was larger, and had a longer history in that business. So, the change in ownership, accompanied by the requirement to integrate the investment management part of Barclays with what had been Wells Fargo Nikko, brought the issues of globalization and building a single firm culture to the fore. Garrett Bouton stated:

There was definitely an “us and them” feeling around the world. The British and the Americans definitely were in kind of a standoff…. And that was complicated by the fact that the British had come into this as the acquirers. And they had assumed that they were going to tell us what to do…. Suddenly the Americans had been empowered to tell them what to do… so it was doubly hard to take.

BGI had a number of underlying characteristics that helped it meet these various challenges, and the firm also took a number of explicit, planned steps that helped them further. One attribute the company had in its favor was a long culture and tradition of action orientation and self-reliance. For instance, when in the past the human resources function didn’t have the capacity to develop and deliver some badly needed training, “people took training into their own hands,” said Diane Lumley. “It became, let’s get people together from different areas and have them put on presentations for people and walk them through the investment process, rather than waiting for somebody else to do it for you. People started to organize on their own.” Describing the integration of Barclays’ asset management business, Fred Grauer noted, “A lot of businesses find themselves in some sense being molded by the sequence of events. They are reacting to events as opposed to driving events. And we wanted to come to grips with our future by driving events as opposed to being driven by them.” Diane Lumley concurred, “It’s like, ‘we’ve got to know it, we’ve got to do it, it’s got to be done by February.’ So, you had to charge ahead.”

This action orientation, this cultural characteristic of not allowing talk to substitute for action, helped BGI to address issues as soon as they emerged. Because people were used to acting and taking responsibility, they were better able to meet new challenges. This culture of action meant that people did not sit around waiting to be told what to do, denying that issues existed or hoping that the issues would somehow disappear. This action orientation also had costs. Several BGI people told us that the drive for action caused occasional problems when people worked at cross-purposes or did not coordinate sufficiently. But this was a small price to pay for the ability to quickly identify and address issues.

Another part of the firm’s cultural heritage that served it in good stead was a tradition of excellence. People at all levels of BGI had always expected the highest levels of effort and performance from one another. People talked about having to recommit periodically to the performance demands of the company. This emphasis on excellence was accompanied by clear views about the kinds of people the firm wanted to hire and develop. This clarity about what individual qualities were important, which included the ability to work collaboratively, led BGI to hire for both technical skills and cultural fit. When people came to the firm through an acquisition or the Barclays ownership change, they had not necessarily signed on to the culture, or the firm to them. So, BGI was, in the words of BGI co-chair Pattie Dunn, “ruthless” in weeding out people who would not sign up for the company’s values and business principles. Garrett Bouton described the firm’s commitment to its core values and principles and how that affected its personnel decisions:

One of the things we discovered was that there are certain basic things—values, vision, the culture of the firm—that are not up for discussion. You can discuss it in the sense of explaining it and understanding it, but it’s not something that is going to be changed. It’s important for people to understand that. When you become part of BGI, this is what you are signing up for…. And quite frankly, we’ve still got a small hard core of our managing directors that still are questioning it…. So we are at the point of saying to them, “Well, maybe it’s best that you go someplace else, because these things aren’t up for discussion.”

BGI’s clarity on values and principles helped the company sort fairly rapidly through people who fit and who didn’t. It made both hiring and retention decisions easier. This emphasis on values and principles had existed for a long time, so BGI had groomed a large and influential core group who shared a set of investment business principles. These core values could be transmitted to others because they were well understood and had stood the test of time, helped bind the geographically dispersed firm together, and provided a foundation for the task of building a single, unified, global firm. The cultural values and shared business ideas also helped people decide what was important and what was not.

Another positive attribute of the firm that helped it meet the various challenges was that its leaders were held to the same standards as everyone else. BGI’s leaders consciously tried to model behaviors that they were encouraging others to do and that they believed were central to the firm’s culture. The welfare of the firm came first, before considerations of ego or internal competition. Fred Grauer, when he was chairman of the firm, elevated Patricia Dunn to the position of co-chair. This was done voluntarily, to strengthen the senior leadership structure, not because of some pressure from the corporate parent. All the evidence suggests that the co-leadership structure worked quite well, as the two individuals had complementary skills as well as a great deal of mutual respect for each other.

The firm’s leadership was also committed to building a sense of security as well as high performance expectations. BGI’s leaders believed that driving out fear, especially the fear of failure, was crucial to the company’s long-term success. Fred Grauer explained:

One has to be prepared to accept criticism…. One has to be proactive in getting at the problems…. Vulnerability is part of the tool kit of leadership…. Modeling that behavior is important. It’s OK to be vulnerable. It’s OK to make mistakes, and it starts at the top. Nobody gets fired around here for being vulnerable. It makes you approachable. There is less pretense in the way in which people interact. Hopefully, the time required to get to the real issue is reduced.

Besides having some existing characteristics that helped it, senior BGI executives also took a number of specific actions to leverage the company’s core culture and capabilities to proactively attack the three challenges the firm faced. One thing they did was to reduce the number of job titles, changing from a long list of titles such as senior vice president, vice president, deputy manager, and senior deputy manager to just three corporate titles: managing director, principal, and associate. Diane Lumley, the firm’s chief of staff, said, “There was a lot of debate about this. Do you have senior principal, junior principal, senior associate, and so forth? And we said we didn’t want to make the lines between people more apparent than they already are, and those are the three titles and positions.” By reducing the distinctions among people and having as few status categories as possible, competition for status was downplayed and the structure emphasized building a shared identity within the firm. People felt they had a shared fate, that they were in it together, and there was less of a feeling of difference across classes or categories of people.

Another action the firm took was to build a global intranet, with a home page for the two co-chairs of the firm. This was a way of sharing information across large distances quickly. The firm also started a quarterly newsletter. BGI had always had meetings to bring people together. Now, the firm changed the number, composition, and most important, the content of what was discussed in the meetings. All the managing directors come together twice a year. There had previously been managing director meetings, but the focus of the discussion changed. Garrett Bouton stated, “Previously, we were talking about new investment ideas and talking about where the industry in the U.S. was headed and those types of things. Now, we’re talking about a much different type of topic, organizational and management issues, organizational culture, and what constitutes good management.” Management issues, including the core activity of turning knowledge into action, received much more focus at the senior leadership levels.

BGI also formed a management committee in January 1997. The committee is a global team, with people from BGI offices throughout the world, that meets in person once each month. The face-to-face interaction has helped to build relationships and to develop a stronger firm culture. To further encourage communication throughout the firm, Garrett Bouton said, “We asked that each of the members of the management committee have an executive committee of their direct reports. And that those committees meet on a regular basis, and that they would discuss the critical issues for their business or global functions in a way that empowered the people at that level to feel as though they were really part of the management team.” This structural innovation helped to involve more people in the decision-making process. It was critical for getting people throughout the firm to recognize and accept responsibility for solving the firm’s management challenges.

Finally, BGI hired an outside consultant, David Zenoff, to run a series of workshops titled “Reaching for Number One.” The workshops were designed to bring people together around a common learning experience, creating an opportunity for them to consider other business examples and models and also to focus on BGI management and leadership issues. This experience was remarkably successful in assisting in the organizational development of the firm. Garrett Bouton, who suggested this course of action in the first place, described the various outcomes:

We needed to bring the senior team together, as a team, as quickly as possible, to create a feeling of leadership throughout the management committee. Once our managing directors had completed that course, they were saying things like “This was a life-changing experience for me and I think it changed my whole attitude towards BGI.”

There were a couple of common threads in their comments. One was that the managing directors hadn’t really accepted that they were the top management of this firm. There was still an attitude that if things weren’t going right, you look for somebody to blame…. And I think that was one of the most important things that came out of this. People at the top of the firm realized that, in fact, there was no one else to point at. They were the ones who were responsible, and they had to make it work….

The second thing that was really important was that… we forced an integration of people from around the world. For the first time, the management group began to really appreciate each other’s views, and they were forced to sit there and listen to what the other people believed…. So we managed to come together as a global team in a way that wasn’t happening previously.

The firm then implemented a similar type of program for 160 midlevel managers the following year. An important feature of this second program was the mixing of people from different offices. The model was a training program in two parts, the first part occurring in the person’s home country and the second in one other country around the world. This sent the important symbolic message that all offices were important and that BGI was a global, not a U.S.-centric, firm.

BGI has done a number of other things to facilitate the integration of the different offices and to help build a strong, unified culture:

• There is one global bottom line and one global bonus pool. People therefore have an economic interest in helping the entire firm succeed and in learning enough about other offices and other departments to do so successfully.
• There is one review process using the same criteria and the same time frame for all people around the world.
• BGI moves people around a lot to other offices. This began almost immediately after the acquisition and has continued since that time. This practice helps build better networks and social relations across the various offices.

The available evidence suggests that the BGI interventions were quite successful. At the most basic level, BGI was valued at more than $1.3 billion within three years after Barclays purchased it for $400 million, an extraordinary return. As significant, voluntary turnover in the highly competitive asset management business actually declined. Relations with the various offices around the world improved. People from Barclays were integrated into BGI, and Barclays Bank developed a good working relationship with the senior leadership. The BGI story is about building a one firm firm and a truly global, integrated business. It entailed bringing leaders together to develop a common understanding of the business as a whole, with the intent of enabling people in various functions and offices to work together more effectively. Some events in 1998 illustrate the success of this effort and provide concrete evidence of effective integration of offices and functions.

In 1998, BGI spent seven months preparing for the introduction of the new European currency, the euro, on January 1, 1999. This was a large and important challenge. Jennifer Campbell, head of the European Economic and Monetary Union (EMU) team in Tokyo, noted that the shift to the euro affected everything BGI does. “When you look at the assets affected and the investment process, and carry through to taking the order from the client, to the broker, to trade operations, to trust accounting, to portfolio accounting… it’s the full investment process once you analyze where it reaches.” In the San Francisco office alone, the conversion project involved 167 funds, 99 clients, more than 900 accounts, and affected 30 system applications and more than 15 operational departments that had to modify their procedures.

When the conversion date came, it was, according to Diane Lumley, “a non-event. Everything worked perfectly. In fact, we are already prepared for the rest of the currency conversion that will occur over the next three years.” Lumley noted that in the past, the firm had failed at large-scale projects. She maintained that the tremendous success of this project reflected the ability of numerous functions and offices of the firm to work together effectively. This was a concrete indicator of the success of the training, the meetings, the communication, and all the other things that had occurred to knit the firm together.

A second event that demonstrated the effective integration of the firm occurred during the early fall of 1998. As the Asian markets fell, a large European client of the firm wanted to move $500 million out of Japanese markets and into Canada and Australia. This activity involved staff in London, Tokyo, San Francisco, Sydney, and Toronto, working across five different time zones and using multiple computer systems. “It took absolute teamwork and people who are all dedicated to making BGI a global company to pull this off,” according to Signe Curtis, senior contract officer in San Francisco. Commenting on this transaction, Diane Lumley said, “It never would have happened as effectively before, without a doubt.” As yet another example, the firm developed investment products that outperform various indexes in the countries in which the firm invests. Although operated out of different offices, the products all use the same investment model. Again, people at BGI said this would not have been possible in the past.

Perhaps the most important indicator of success in meeting the various challenges BGI had faced was this: Fred Grauer, a leader in the firm for years, someone who had so personified the firm that an article about it in Fortune had featured his picture on the cover, resigned in the summer of 1998. The firm continued without missing a beat, although people were obviously sorry to see him step down. The organization’s ability to readily handle an important succession provides additional evidence of the strength of its management practices and its culture, built through the actions we have described.

The BGI example is, first of all, very much concerned about turning knowledge into action. The fundamental business involves turning investment knowledge into products and services that are sold in the marketplace, turning knowledge of theoretical finance into investment product development actions. And the case illustrates how meeting challenges really entails the ability to act on knowledge about what to do. The challenges facing the firm were, at some level, not unusual or arcane—growth, global integration, combining two different firms successfully. Yet many firms fail at these basic tasks. How many firms have failed at managing rapid growth? How many firms have failed to build a global organization? How many firms have failed at merger integration? Unfortunately, probably many more have failed than have succeeded. These failures come not so much from not knowing what to do than from not doing it.

Think about what BGI did. Having meetings and off-site training, setting up both structural and other mechanisms to enhance communication, being clear about values and principles, holding high performance expectations and admitting mistakes, encouraging authenticity and vulnerability in interpersonal interactions—none of this is rocket science. The lessons from BGI are that these straightforward actions are effective and provide tremendous leverage in building an organization in which knowledge develops and is transformed into action. The specifics of BGI’s actions are no less important because they appear to be so simple and straightforward. They worked, and for good reasons.

The New Zealand Post

British Petroleum found ways to increase its ability to leverage learning and put knowledge into action throughout a geographically dispersed firm. Barclays Global Investors used its action-oriented culture and its skilled people to meet some demanding challenges. The New Zealand Post, our third case, faced perhaps the greatest challenge of all— reinventing itself as an essentially new organization with mostly the same people who had been part of the old organization. In this process, the Post took steps that offer additional lessons on how organizations can turn knowledge into action. Perhaps the most important lesson, from both the Post and British Petroleum, is that you don’t have to necessarily get it right from the start. These examples both show that it is possible, even for large and rather bureaucratic organizations, to make broad and deep changes in how people think and act despite daunting obstacles.

In 1986, when it was still a government department, the New Zealand postal system lost about $38 million (this and all subsequent figures are in New Zealand dollars) and faced the prospect of continuing losses into the indefinite future. The Post delivered only about 80 percent of the mail within the targeted delivery time. As a government department and an employer of last resort, this postal system had too many people, arcane work rules, a civil service mentality, and poor relations with its customers and its employees. In April 1987, the Post became a state-owned enterprise. This change meant that it was no longer a government department but was a corporation, expected to operate efficiently and to earn money for its shareholders, in this instance, the New Zealand government.

The Post’s transformation in operating results is remarkable and provides a dramatic backdrop as we consider what the firm did to achieve this substantial change. The story also suggests that profound organizational transformations need not take a long time to accomplish. In 1991, just four years after becoming a state-owned enterprise and beginning the process of change, the New Zealand Post was named “Government Enterprise of the Year.” In 1994, it was named by the Deloitte & Touche accounting and management consulting firm and Management magazine as the “Company of the Year,” the most prestigious business recognition award in New Zealand. These plaudits reflected substantial improvements in nearly every aspect of the firm’s operations.

By the mid-1990s, between 97 percent and 99 percent of the mail (depending on the type of mail) was delivered by the Post on time. This resulted in some 86 percent of respondents in a quarterly survey reporting that they were satisfied with the service they received. In the mid-1990s, the company implemented a “Quality Service standard that requires at least 95% of customers to wait no longer than two minutes before being served.”²⁷ The company measures performance on this standard and has mostly achieved it in every transaction.

The Post’s financial and operating results were equally impressive. Between 1987 and 1995, the company delivered 30 percent more mail, had achieved a 30-percent reduction in real unit costs, and had improved its labor productivity by 100 percent. The gains in productivity were achieved in part by eliminating positions that weren’t needed. Employment was cut from about 12,500 at the time of the change in the governance structure to 8,700 people in the mid-1990s. The company became profitable almost immediately, earning $72 million in its first year. In 1995, the company earned approximately 16 percent on total assets and in excess of 30 percent on shareholder’s equity. And the Post accomplished these outstanding financial results while decreasing the price of a stamp and becoming among the most efficient postal systems in the world. For instance, in 1994 it cost 45 New Zealand cents to mail a standard first-class letter in New Zealand. Comparable figures (in New Zealand currency) were 52 cents in the United States, 57 cents in Australia, 65 cents in the United Kingdom, 70 cents in France, and 105 cents in Japan.²⁸ Since that time the comparisons with other postal systems have grown more favorable, as New Zealand has not raised postage rates in the interim.

The operating principles used by the Post during its transformation included a simultaneous focus on common sense and simplicity and not relying on precedent, or even what other postal systems did, when those actions contradicted common sense and simplicity. For example, almost every postal system in the world prices mail by weight, and so did the old New Zealand postal service. The New Zealand Post analyzed this practice and found that (1) if a letter did not have enough postage, the company could either return it to the sender or try to collect the postage due, but both of these activities were costly; and (2) the biggest determinant of the costs of transporting a letter was not the weight of the letter but the size of the envelope—bulk was a more critical cost factor than weight. So the Post eliminated weight-based charges and instead introduced three postal rates based on the size of the letter or package.

The Post also defied conventional wisdom and common practice by taking over nearly all of its transportation infrastructure, including planes and trucks. Virtually every other postal system in the world contracts out at least some part, and in some instances almost all, of the delivery task, such as carrying mail by plane. New Zealand is a country that has many places that are difficult to reach and that frequently has stormy weather. The Post found that when its mail was carried on commercial flights, such flights were often late and occasionally cancelled during poor weather. Late flights made scheduling mail center operations difficult, and cancelled flights meant delays in delivering the mail, especially express mail. So the Post’s executives decided that to meet its service commitments, the company would build its own transportation system. In 1994, the firm had 600 vans, 100 trucks, and in a joint venture with Airwork New Zealand, owned three Metroliners and two Friendship F-27 aircraft and leased two other planes.²⁹ This investment in building its own transportation infrastructure not only helped the Post meet its service delivery targets, but also demonstrated to its union that even at a time of employment retrenchment, the Post would do things to grow employment when those activities made sense in light of the firm’s mission.

The Post made many other changes in its operations. It instituted a “clear floor” policy and redesigned postal stations and mail sorting centers so that leftover mail would be visible to all employees. The policy stated that at the end of a shift, all of the mail should be sorted or delivered—in other words, that nothing should be left to be done by the next shift. It changed the scheduling of people to put them on fixed, as contrasted with rotating, shifts. This change helped employee retention and labor relations, because rotating shifts make adjusting one’s lifestyle to accommodate working different hours almost impossible. The Post implemented what were essentially lean manufacturing operations practices, reducing buffers and emphasizing involving people in enhancing operations efficiency. The company continually sought ways to rationalize the process of providing postal service to reduce its costs, all the while maintaining a commitment to outstanding customer service so it could build its market.

But perhaps the most important changes the Post made were in its management practices. In a speech given in 1989, Harvey Parker, the Post’s managing director at the time, stated:

The transformation from an unprofitable government department to the cost-conscious, dynamic, customer-oriented and profit making enterprise the New Zealand Post has become required, and can largely be credited to, significant changes in management style and practices…. A new decentralized style and form of management was instituted, vesting accountability for operational decisions and resources at a local management level, at the closest point to the customer.³⁰

The Post is committed to recruiting outstanding talent. To best accomplish this objective, recruiting is localized. Individual managers in each location get to control the hiring process, not some central human resources function that may not be as familiar either with the specific jobs or with local labor market circumstances. The firm pays competitively and offers performance-based incentives. It has positive, collaborative relations with its union. As part of that collegial relationship, information about all aspects of the company’s business plans and operations is shared with the union and with all of the people in the company. The Post is committed to implementing the best business practices it can and to that end engages in extensive educational and developmental activities, using resources both in New Zealand and throughout the world. The Post accomplished a radical transformation in a short period of time with a workforce, including managers, who for the most part have spent their entire careers in the organization. It did this by rethinking everything and relying on common sense and business judgment, not on precedent or what other firms were doing. Harvey Parker explained:

Local managers were very quickly given authority to hire, promote and discipline their own staff and also clear accountabilities for managing, developing and recognising staff performance and for communicating the company’s business directions to their teams.

In decentralizing Personnel decisions it was not merely a case of changing the responsibility levels of the policies used by the NZPO…. To support achievement of New Zealand Post’s business goals and effect real change in its staff management practices a complete rethink was required—the start point was a blank page.³¹

Staff reductions were made humanely in ways that decreased rather than magnified fear.³² People could volunteer to leave, and some who the Post had intended to keep left so that others could stay. The company offered generous severance benefits. People left with dignity. There were parties, and people had an opportunity to say good-bye. Most important, the reductions in force were accomplished quickly and with plenty of notification and open discussion about what was occurring and why, getting the pain over and permitting the organization to focus on future growth and development.

The Post also encouraged its managers to experiment and innovate in building high-performance work arrangements. It has changed its organizational structure frequently, both to make substantive improvements and to forestall people from becoming entrenched in existing routines. Managers from throughout the firm meet regularly to exchange ideas. Elmar Toime, the current managing director, has encouraged opening more of the firm’s markets to external competition as a way of continuing to encourage people at the Post to improve performance. In a speech in 1995, he made the following points about the Post:

We put a premium on high productivity and performance. It justified the restructuring we have carried out over the years, with all the attendant pain people have withstood. We wish to keep prices down, so that we can encourage volume growth…

One of our challenges is coping with success…. Our profitability this year will better that of last year, even though we reduced some prices significantly…. Competition will keep us at the leading edge… It is not that we are arrogant about competition. We are just fired up.³³

The lessons from the New Zealand Post case are consistent with those of the other cases. The essential elements for turning knowledge into action are not complex. Don’t get stuck in the past. This was a company that made a fresh start and that reexamined every policy and practice to see if it made sense. When it didn’t, the Post changed, regardless of the past or what other postal systems were doing. Don’t be afraid to do what your managers think is best, even if it goes against conventional wisdom. The Post has sought deregulation, eschewed outsourcing, and actively involved its labor unions in the transformation process—none of these decisions fitting the mold. Involve people so that, just as in the British Petroleum and BGI cases, the firm gets the benefit of all of the knowledge and skill inside it and, more important, so that people are motivated to help each other.

None of these firms, or the others we have described in this book, is perfect. They all have things they can do better. They make mistakes. They face reversals of fortune. They are, after all, human, fallible entities. Nevertheless, these three examples offer some important lessons about turning knowledge into action. And, if nothing else, they should help convince you that it is possible to do so, even in large organizations that must break with the past.