From Health Care to High Tech
The strategies of codification and personalization do not apply only to the world of consulting. We found that providers of health care and manufacturers of computers also need to choose a knowledge management approach that fits their needs and goals.
Access Health, a call-in medical center, exploits a reuse model. When someone calls the center, a registered nurse uses the company’s “clinical decision architecture” to assess the caller’s symptoms, rule out possible conditions, and recommend a home remedy, doctor’s visit, or emergency room trip. The knowledge repository contains algorithms of the symptoms of more than 500 illnesses. CEO Joseph Tallman describes the company’s strategy: “We are not inventing a new way to cure disease. We are taking available knowledge and inventing processes to put it to better use.”
Access Health provides a prime example of the benefits that come from reusing codified knowledge—in this instance, software algorithms. The company spent a lot to develop those algorithms, but it has been repaid handsomely for its investment. The first 300 algorithms that Access Health developed have each been used an average of 8,000 times per year. That level of reuse allows it to charge low prices per call. In turn, the company’s paying customers—insurance companies and provider groups—save money because many callers would have made expensive trips to the emergency room or doctor’s office when they could have been diagnosed over the phone.
Contrast Access Health’s reuse strategy with the highly developed personalization model used at Memorial Sloan-Kettering Cancer Center in New York City. The center provides the best, most customized advice and treatment to cancer patients. A variety of experts consults on each patient’s case, and managing the experts’ collaboration is, in essence, managing the center’s knowledge. Dr. James Dougherty, its deputy physician in chief, describes this collaboration as follows: “We coordinate intensive face-to-face communication in order to ensure that knowledge is transferred between researchers and clinicians and between different types of clinicians.” Employees work together in 17 disease-specific teams. The breast cancer team, for example, has 40 specialists—medical oncologists, surgeons, radiation therapists, psychologists, and others—as well as a core of basic scientists.
To make person-to-person communication easy, a team’s members are all located in the same area of the hospital. Each team has several face-to-face meetings per week that everyone attends. The meetings cover basic science initiatives, clinical findings, patient care, and ongoing research.
The center’s human resource policy is aligned with its knowledge management strategy. Top cancer clinicians are attracted by Memorial Sloan-Kettering’s state-of-the-art technology and excellent reputation. These clinicians are highly paid—most receive salaries that place them in the ninety-fifth percentile or above relative to their counterparts at other academic institutions. The center hires clinicians from two pools of candidates. Junior people are hired from top university residency programs and trained as fellows. The best fellows are moved into an “up or out” pyramid system. The center also hires senior, nationally recognized clinicians who often bring teams of people with them.
It is hard to imagine two business models in the same industry as different as those of Access Health and Memorial Sloan-Kettering. Yet both assess patients’ symptoms and make recommendations for their care, and both are highly successful. By providing reliable service at low cost, Access Health has captured 50% of the call-center market and is growing at 40% a year. One insurer using its services saw its emergency-room admissions drop by 15% and its physician office visits by 11%. For its part, Memorial Sloan-Kettering is consistently ranked as the top cancer research and treatment institution in the country.
Medicine, like management consulting and other services, is built on unique knowledge. But the two knowledge management models also apply in the industrial sector. Consider the very different approaches taken by two computer companies, Dell and Hewlett-Packard.
Dell’s competitive strategy is to assemble inexpensive PCs that are made to order and sell them directly to customers. A sophisticated knowledge management system lies behind that business model. Dell has invested heavily in an electronic repository that contains a list of available components. The system drives the operation: customers choose configurations from a menu, suppliers provide components based on their orders, and manufacturing retrieves orders from the system and schedules assembly. Dell does not deliver highly customized orders, and it raises its prices considerably for orders with special components.
Dell has to invest a good deal up front to determine and specify configurations, but its investment pays off because of the knowledge’s reuse. In 1997, Dell shipped 11 million PCs. Those systems were put together from 40,000 possible configurations (competitors typically offer only about 100 configurations), which means that each configuration was used on average 275 times. That level of reuse allows Dell to lower its costs and charge less than the competition. Propelled in part by its knowledge reuse model, Dell’s net income for 1997 was $944 million on sales of $12.3 billion; the company’s revenues have grown 83% annually over the last four years.
Hewlett-Packard, by contrast, uses a personalization approach to support its business strategy, which is to develop innovative products. For that strategy to succeed, technical knowledge must get transferred to product development teams in a timely way. The company channels such knowledge through person-to-person exchanges.
For example, engineers routinely use one of the company’s planes to visit other divisions and share ideas about possible new products. Rather than limiting travel budgets, executives encourage such travel. Every employee has access to the corporate airplanes, which travel daily between HP offices. Remarkably, the company manages effective person-to-person knowledge sharing despite its size—with 120,000 employees, HP dwarfs the largest consulting company, Andersen Consulting, which has about 60,000 people.
Consider this example. An HP team recently developed a very successful electronic oscilloscope with a Windows operating system and interface. Executives wanted to be sure that other divisions understood and applied the interface. To keep the costs of knowledge transfer low, they considered trying to codify the acquired know-how. They realized, however, that the knowledge they wanted to capture was too rich and subtle to incorporate in a written report. And they understood that writing answers to the many questions that would come from HP’s divisions would take an extraordinary amount of time. So they took the person-to-person approach and sent engineers from product development teams to meetings at divisions around the world and to a companywide conference.
The executives’ decision didn’t come cheap: by one estimate, the company spent $1 million on communication costs alone on this process. But the investment paid off as the interface gained widespread acceptance throughout the company.
In all the companies and institutions we examined, managers had chosen a distinct knowledge management strategy. Although their approaches differed slightly, there was a common pattern among them. Those that pursued an assemble-to-order product or service strategy emphasized the codification and reuse of knowledge. Those that pursued highly customized service offerings, or a product innovation strategy, invested mainly in person-to-person knowledge sharing.