The Firm And The Guild: A Perspective On The Future Of Knowledge Work And Information Technology

Marc Demarest

April 1995



Having exhausted the economic benefits of the automation of production work, and already committed to their strategies with respect to the automation of service work, commercial firms are now turning their strategic attention to knowledge management and the automation of knowledge work. These firms will adopt one of two generic approaches to process- and workflow-based IT automation of knowledge work: empowerment or control. The firms' strategic decision will be made not on the basis of market sector or segment, as has been the case in the past, but on the strategic basis of competition: design-centered process innovation, or cost-centered price leadership. Design-centered firms will select empowerment paradigms for the IT-based automation of knowledge work; cost-centered firms will select control paradigms for IT-based knowledge work. This paper examines this strategic bifurcation, and outlines directions for IT ethicists committed to empowerment paradigms.

History of Publication

This white paper was written for the Ethicomp '95 proceedings (March 1995). A revised version of this white paper will be published in The Ethical Computing Reader, in early 1996 by Basil Blackwell (London, UK).



The boundary between the commercial world and academia is more porous than at any time in recent memory, and no academic model is getting more attention, in business management and strategy circles, than the concept of the firm as a knowledge system. Less than a year ago, Wikström and Normann1felt comfortable suggesting that:

    Since all companies use and sell knowledge in some form or other, knowledge management is a crucial component of corporate strategies, even though people in the company would not put it quite like that.2

In fact, that is precisely how business management and strategists are putting it: knowledge management. Understanding how the knowledge that provides differentiation in the marketplace is (a) constructed, (b) embodied, (c) disseminated and (d) modified-through-use is increasingly ranked by CEOs as among their top strategic priorities. Consulting firms specializing in "knowledge management" and "knowledge-based systems" are appearing in the marketspace by the score. Traditionally staid business management forums -- including Fortune, Business Week, and, interestingly enough, the IBM Systems Journal, a full year before Wikström and Normann's comment was published -- devote entire issues to the problems and potentialities of knowledge management.

In fact, the topic has become so much a boardroom buzzword that a senior partner of a top-rank consulting form confessed to me recently that he feared that knowledge management, left untended and unframed by responsible parties in commercial circles, would become the "BPR of 1997" -- a once-rich conceptual vessel emptied of significance and usefulness by a spate of hastily-written, theoretically vapid and practically useless books, and the camp-followers of such books: gaggles of seminars, flocks of public lectures and hordes of misconceived consulting contracts.

Why this is so -- why knowledge management appears on the event horizon of academic and commercial theorists at more or less the same moment -- is not difficult to understand. At roughly the same time that Manuel Castells was suggesting, to academic audiences, that

    while, in the pre-industrial modes of development knowledge is used to organize the mobilization of greater quantities of labor and means of production, and in the industrial mode of development knowledge is called upon to provide new sources of energy and to reorganize production accordingly, in the informational mode of development knowledge mobilizes the generation of new knowledge as the key source of productivity through its impact on the other elements of the production process and on their relationships. 3

Peter Drucker was suggesting to the commercial audiences of the Harvard Business Review that:

    The traditional "factors of production" -- land..., labor and capital -- have not disappeared, but they have become secondary. They can be obtained, and obtained easily, provided there is knowledge. And knowledge in this new sense means knowledge as a utility, knowledge as the means to obtain social and economic results....knowledge is now being applied to knowledge.4

Generally speaking, I would assert that the academic discourse on knowledge management today is gathered around a fairly workable model of the firm as a knowledge system, but struggling to understand that system's laws and processes. I would further argue that academia arrived at this model via a fairly complex study of more ephemeral but essential macroeconomic trends: commodification cycles, transitions in laws governing the division of labor, the roles of government and non-governmental social agents in the construction of firms' market objectives, among others.

The commercial discourse on knowledge management, on the other hand, is today gathered around a fairly pressing set of financial problems caused by the abrupt shift in many markets to knowledge-intensive production, and information-intensive products and services, and with a workable model of the role of knowledge in the firm, and finally with no clear sense of the processes governing the production or distribution of that knowledge within firms generally The commercial discourse on knowledge management arrived here by quite a different route: intensive in-house analyses, not to mention soul-searchings, occasioned by the discovery of a substantial, embarrassing gap between the money spent deploying information technology in the firm, and the returned business value of that information technology.

Watching the macro trends, academia arrived at a systemic model of the firm as a knowledge system from the top down. Responding to the visceral effects of the macro trends, commercial strategists and business management arrived at the primacy of knowledge work as a set of (as yet mystifying) work practices from the bottom up.

But -- however arrived at -- the convergence of the two perspectives is on us, and the link, in commercial discourse on knowledge management, between the firm as a knowledge system, on the one hand, and information technology as the instrumentality of that knowledge system, on the other, forms the core of the looming ethical issue I want to address in this paper.

Changes In The Commercial IT Automation Paradigm

Put crisply, after over two decades of applying information technology to the automation of production work, firms discovered, in the late 1980s, that information technology applied to such work returned little or no business value. This was true regardless of the firm's sector -- goods or services -- but was most remarkable in the service industries, which by the end of the 1980s held about 80% of the worldwide commercial IT infrastructure, and boasted the lowest per-capita year-over-year productivity improvements: an embarrassingly small .8% on average.

Studying the relatively more substantial productivity improvements in the goods sector, information technologists and business strategists began to realize that production work in the goods sector had been automated under a fundamentally different set of assumptions than in the services sector. Manufacturing floor systems focused, almost always, on the flow of work on the shop floor: on, in other words, a process model of a value-creation process. Service-sector automation, on the other hand, had focused on isolated tasks, creating a bewildering and unmanageable forest of so-called stove-pipe IT systems in the data center, technically isolated from one another, and unable to deliver to the firm's management a coherent view of their markets and customers. As one Fortune 100 CEO put it to me in 1992:

    Apparently, we've sliced our customer into a hundred pieces. And we can't put the customer back together again. Our business -- from an information perspective -- is in expensively-maintained tatters.

When, in the late 80s and early 90s, leading-edge service organizations turned their IT organizations to focus on service workers in the firm -- the people who manned the interfaces between a firm and its suppliers, business partners and customers -- IT professionals and the companies that supplied those IT organizations with hard and soft technologies took to heart the lesson learned from the goods sector. Service worker automation projects focused on workflow: on the automation of the process of managing a supplier or business partner, or caring for a customer.

To understand this shift in practice, consider the customer support representative in the typical mail order catalog firm of the mid-1980s.

    A customer phones the catalog firm to determine the status of a recent order. The customer support representative takes the customer's "information" -- her name, address, telephone number, perhaps a customer number, and -- using a simple character-mode terminal -- enters the order entry system to search for the customer's order. Finding it marked "in shipping," the CSR forwards the customer to shipping, where a shipping clerk takes the customer's "information" once again, and -- again using a simple character-mode terminal -- enters the shipping system to locate the customer's order.

In all too many cases, the customer -- for whom, we must remember, the mail order catalog firm is supposed to be caring in the first place -- is passed from CSR to shipping to the warehouse and back to the CSR, who picks up the call and says cheerily, "Hello, Acme Gifts. How may I help you?" only to discover, on the other end of the phone, a now-thoroughly- irritated customer considering canceling the order the lateness of which prompted the customer contact in the first place.

Today, the "automated CSR" plays a very different role in the organization.

    Seconds before the CSR picks up the telephone call, the caller's telephone number -- delivered by automatic number identification (ANI) technology supplied by the phone company or PTT -- is pulled off the circuit and used to search an integrated firm database. On the CSR's graphical desktop appear a half-dozen windows: a complete dossier on the customer, including her name, the names of her spouse and children, ages and birthdays, clothing sizes and so forth; a window containing all information in the customer's preferred payment methods; a window listing all the customer's purchases in the last 12 months; another window listing all orders received but not yet shipped, with their exact location in the firm's packaging and shipment process. The CSR takes the telephone off-hook, bleats "Hello, Acme Gifts. This is Angela. How may I help you?" and waits for the customer to tell her what she already knows: the customer's name. The customer inquires: where is my order? The CSR consults her windows, and provides exact information, adding that -- for $20 above the actual shipping charges -- the customer can have the order shipped to her address (and here the CSR reads that address to the customer) overnight. While I have you on the phone, the CSR says, how is your husband enjoying that parka you ordered for him in September? And were you aware that the matching rain pants are on sale this month? You'd like to order them? Is your husband still a 32-inch inseam? Shall I put that on your American Express card? Anything else we can do for you today? Thank you for calling.

In less than a decade, the CSR -- traditionally the most deskilled, disempowered service worker in the modern services firm -- has been transformed into the empowered arbiter of customer satisfaction. And in the process, into the best source of follow-on sales revenue the firm has. This transformation -- broadly desired but less frequently implemented -- was effected by applying information technology to the process of caring for the customer, instead of to the repertoire of tasks performed by the CSR. In other words, the system manages a set of events at an interface instead of automating a job description. Exhaustive studies of inbound customer queries identified the optimal set of information that needed to be pre-fetched to the CSR's workstation. Carefully-crafted and tested scripts, supported by that information and driven by the workstation itself, helped the CSRs move gracefully from answering customer order and account inquiries into selling situations. Intimate details about the customer were carefully dug up by the computer systems and deployed by the CSR to create a strong sense of intimate personal service, and to separate the customer from yet more of her money. And customers love it.

In some senses, this prototypical empowerment strategy represents what IT ethicists have argued, for many years, ought to be the focus of information technology: ennobling and enriching the work environment, enhancing the scope of control of the worker, creating conditions of satisfaction on both sides of the economic transaction. When the 1982 Club of Rome Report on Microelectronics and Society suggested that:

    Computer aids in the individual workplace could indeed contribute to reversing the tendency to split up work by restoring the continuous processes that had been characteristic of much clerical work before the advent of the computer5

in the process invoking a perhaps quite-mythical golden age of "self-control" before the arrival of information technology, this is clearly the end that was in view.

Yet the current emphasis, in information technology design circles, on putting information technology to work in the service of these "contiguous processes" does not lead, lockstep, to the empowered worker in the enriched working environment, in control of her work and of the firm's market performance. It can -- and does - as easily lead to precisely the same kinds of routinization and deskilling that characterized the automation of the shop floor in the wake of MRP disciplines and systems 6.

For example, consider the case of the upmarket retail bank in the United Kingdom, and of their customer service representatives responsible for processing requests for new accounts.

    After a rigorous examination of the process whereby the dozen CSRs open written requests for new accounts, examine applicant backgrounds and wherewithal, complete and execute credit checks, open new accounts or issue polite letters of rejection, a graphical IT system is introduced into the organization.

    The process is rigorously scripted and controlled by a central server, which pushes "work items" (that begin as letters fed into scanners in the mailroom by mail clerks who now look very much like Marx's dead labor, tending giant bits of IT) into the electronic in-baskets of CSRs who now perform one and only one part of the approval process -- verifying references or performing credit checks or executing open-account transactions. The central system drives each CSR's desktop to an optimal "work items per hour" index, and within 60 days, the CSRs have finishes each day's applications by 11:00 AM. 70% of the CSRs are, in the vernacular, made redundant, and the remainder -- again driven by the workflow system -- finish the day's applications with a comfortable hour or two to spare in the afternoon.

In this case, the same two salient features of new-age IT design -- process-orientation and workflow IT automation -- produce diametrically-opposing human situations. In this case, 70% of the working team disappears into that personal hell Charles Handy refers to as the flexible labor force, presumably to discover that their skills are increasingly devalued as more and more retail banks in their particular market -- driven by the much-publicized success of the bank in question, a success described strictly in terms of "cost savings" -- rush to adopt the new technology.

Knowledge Work: Empowerment Or Routinization?

In his pathbreaking handbook on process design, Thomas Davenport remarks that:

    Information technology, as we pointed out earlier, can support either culture -- control or empowerment. It can supply employees with information that enables them to make their own process decisions, or with instructions that dictate precisely how to perform each step....Control-oriented process cultures are most frequently seen in the service industries; fast-food and lodging are good examples. Low levels of employee commitment, slim profit margins, and the need for consistency and quality make a controlling culture likely if not inevitable. Firms in these industries constantly seek IT innovations to afford greater control and enable the capture and display of process knowledge.8

Davenport's explanation of why service firms so often choose control rather than empowerment is more or less correct, although a humanist would want to argue whether "low levels of employee commitment" are a cause or an effect of the decision to use information technology as a device for routinization and scrutiny.

My concern here is somewhat different, and speculative. The automation of the service worker, like the production worker before her, is largely complete in conception if not in practice in the typical firm today. We are too late to intervene in the process; companies have already by and large made their decisions for control or empowerment where the service worker is concerned, and (if my personal observations are representative of first-world economies at large) about 1 firm in 2 has opted for control: for the deployment of information technology to render the firm's service interfaces utterly regular, uniform and predictable.

My concern lies at the conjunction of this process-workflow model of IT deployment, on the one hand, and the rise of knowledge management as a strategic discipline, on the other, and can be expressed, at one level, rather simply:

  • Can the process-based, control-oriented model of IT deployment by applied to knowledge work in the firm?
  • What will drive a firm to opt for IT-as-empowerment or IT-as-control where knowledge work is concerned?
  • What are the likely responses of knowledge workers to the imposition of IT-based control over knowledge-creation and distribution processes? will they, like the production worker and service worker before them, offer no real resistance to the firm?
  • Can we make a case, grounded in economic reality, to firms for the ethical deployment of IT in knowledge work environments?

Knowledge Work As Guild Practice

"The challenge for the early capitalists," the theorist Richard Whittington remarked recently, "was how to break the grip of skilled craft-workers over traditional production. Organized into highly secretive guilds, literally called 'mysteries,' these craft workers were able to control the pace, organization and quality of their work, immune from the intervention of outsider capitalists. Their control was based on both their exclusive knowledge of the necessary processes and their ownership of the tools of production." 9

Whittington is of course interpellating Marx, who, paraphrasing his master Hegel, once remarked that history repeated itself: the first time as tragedy, and the second as farce.

What I want to suggest is that the first-world, information-intensive, service-oriented corporation is, or soon will be, faced with a situation analogous to that faced by Whittington's "early capitalists," a situation that Marx would indeed find comic, and a strategic dilemma that, due to three critical factors at play in contemporary organizational design and organizational strategy, will offer those concerned with the longevity of the business far fewer options, and far lower rates of success, than our early capitalist forebears enjoyed.

The child's history of capitalism in the West suggests that craft production -- so-called cottage industry -- was superseded in the early decades of the 19th century by the mechanization of work in factories. Factories became useful, this history argues, because of three important shifts that occurred between roughly 1750 and 1815: the "engine" technologies build around water and later steam, the improvement of national transportation systems (roads and canals) and the creation of a fairly stable set of post-Napoleonic European nation-states. All of these shifts encouraged -- or brought about, depending on one's theoretical bias -- national and international markets, and as such created an opportunity for bright people with money and vision to bring together previously local and dispersed craftsmen into larger, more automated enterprises that could produce more goods faster from raw materials gathered at a distance and ship product to new markets far and near.

Nowhere in this history, we note, is there any mention of the kind of challenge Whittington and Marx identify: the formation of what we call today "industrial capitalism" was the rational response of capital to market opportunity and nothing more sinister.

More importantly, missing from this two stage history -- cottage to factory -- is the interim step, the real second phase of early capitalism from which the building called the factory got its name to begin with.

What the child's history neglects to mention is that factories developed not directly from sole proprietorships run out of people's homes, but from something known in the early 19th century as the factoring system. Factoring was what we would call piece-goods production: capitalists employed their capital in the purchase of raw materials, which were given to loose networks of cottage craftsmen, working in their homes, to be made into finished goods at piece rates. The finished goods were collected by the capitalists and delivered to market.

Capitalists developed the factoring system because they understood how to exploit the newer transportation systems for both the sourcing of low cost raw materials and the exploitation of (relatively distant) markets. Craft producers -- workers -- entered into factoring arrangements for non-economic reasons: the disappearance of local markets and local raw material supplies was, by 1815 or so, more common than history suggests, and the factoring system offered the craft producer a release from the most culturally and emotionally damaging eventuality of the nineteenth century: moving house to get work.

What was most important, for our purposes, about the factoring system was that the capitalist bore all transportation costs, and the craft producer controlled her shop floor (and so her work practices) absolutely within the terms of the piece rate price and schedule set by the capitalist.

What caused the factoring system to give way to the factory? Two key historical facts pertain. After 1815, market prices for most commodities -- flax, cloth, candles and so forth -- produced by factoring networks plummeted, and the costs of transportation and coordination inherent in the factoring system became too high for reasonable return on investment for the capitalist. Secondly, competition in these markets was sufficiently fierce for the more forward-looking capitalists to recognize that the process of production -- how the commodities were produced -- represented the best opportunity for price-based differentiation.

The factory (so named because it was the building into which the factoring system was miniaturized) became for the capitalist a way of driving logistics (primarily transportation) costs out of the factoring network, and a machine for subjecting to scrutiny and rationalization the previously highly-variable and self-managed work practices of the craft producer: the factory is a machine for driving cost out of the production process.

If we bothered to read deeply in the industrial literature of the first half of the 19th century, we would discover striking parallels between that period and ours. Early factory owners were concerned about best practices, process innovation and leveraging employee skills. They believed that management should understand the business "on the shop floor" and they frequently -- despite the stereotypic image of the dickensian shoe-blacking factory staffed by starving waifs provided (for a consideration) by the local beadle -- made "soft" decisions in favor of continued employment when strictly classical management notions would have demanded layoffs or factory closures.

But Whittington's essential point -- that capitalists felt compelled to open up the mysteries of craft production, and break the guilds, in order to sustain profitable enterprises -- is accurate in essence and in detail. Surveillance of workers on the factory floor was a common and open practice that as a matter of fact and policy continues to this day, though the mechanisms of surveillance have become increasingly sophisticated and even, we note with some historical surprise, embraced by the shop floor itself.

The next major historical shift with which we are concerned here, according to the child's history of capitalism, was the shift from individual proprietorships and family-owned businesses (up to and including the vast family-owned enterprises of the late 19th and early 20th century) to a managerial elite: paid professionals who were neither capital nor labor. Originally the most talented elements of the labor pool transformed through hard-won experience into trustworthy agents of the capitalist and his family, and later the product of universities financed in part by those same people, the professional manager was in theory the dispassionate agent of capitalism, acting in an entirely open and rational manner on the ways, means and ends of the enterprise over which he exercised stewardship, maximized value for the capitalist and later the shareholder. The professional manager, unlike the craft producer, had -- in theory -- no mysteries, no secret practices, no guild affiliations. He was transparent, the perfect agent.

The last decade or so has demonstrated fairly conclusively that this model of the manager, built very much into the center of classic strategic models from the 1950s onward, is badly at odds with the realities. Management compensation continues, in nearly all first world economies, to remain unindexed either to general economic conditions or to company performance, and, perhaps more importantly, management in the 1980s began, in a very brazen way, to violate the key tenet of professional management -- return on investment in the service of the shareholder -- in favor of strategies that, while creating empires, did little to return value to shareholders.

At the same time, the traditional sources of the next generation of professional management -- colleges and universities -- began to fail in their mission. As Charles Handy has noted in other contexts, while graduating more and more people, the university systems in first-world countries are producing increasingly inferior employees. Both consumer and business-to-business companies have begun resurrecting the "how our business system works" indoctrination programs popular at GM and DuPont in the 1950s and 1960s in an attempt to correct this deficit, with varying degrees of success.

But perhaps, more importantly, the managerial class is under attack: from below, by the rank-and-file, from above, by senior management and from outside, largely by university-based management scientists and theorists. Delayering -- the derascination of the managerial class -- is the rage. In place of the faceless, transparent managerial professional, we have in large measure resurrected the Victorian "culture hero": the charismatic leader, born of the rank-and-file, who rises dramatically to the top possessed of both the hard objectivity of the professional manager and a real feel for the "soft" needs and desires of the rank-and-file.

It is at this point that the child's history of capitalism ends: with us, and the mess we are in today. It is a mess, and after all, is a mess because we haven't yet written the history that will explain it to us.

However, we do know one thing: the people who sit, in these information-intensive, first-world firms, in participative, team-building, goal-setting multi-day retreats, hurling hard questions and pointed insights at their charismatic leader, are not craft producers valued for their labor. They are people valued for their learning ability, flexibility, responsiveness to customer demands and intuitive grasp of complex tangles of competitive forces. They are synthetic, creative, empowered. They are knowledge workers.

Most theorists writing on organizational transformation and charismatic leadership these days are quick to point out that every charismatic leader knows that he (and it is nearly always he, the statistics tell is) needs his workers to succeed: needs their creativity, insight and their intellectual and emotional commitment to the vision, mission and objectives of the firm.

What these theorists don't say, because they haven't looked into the past the future of which they are projecting, is that at some level, all knowledge-intensive firms are today factoring systems that are in fact run by networks of knowledge workers whose skills and relationships cannot be captured by the antique shorthand of the organization chart and the job description.

What these theorists don't say, perhaps because they are bad historians or simply don't get it, is that knowledge workers, like their craft producer forebears, control the means of production in information-intensive businesses. As more than one consultant has said, in a knowledge-intensive firm, the company's core assets go home at 5:00 PM.

What these theorists don't say, because they clearly haven't thought much about it, is that the "mobility" phenomenon in knowledge-intensive enterprises is in fact the effect of the nascent international guild of knowledge workers, whose primary loyalty is not, as it was with the professional manager, to the firm but to the knowledge worker's own development: his or her skill set and knowledge base, the core asset, the means of production. Knowledge workers move frequently, and in groups: a manager is head-hunted into a firm, and brings "her people" with her, people whose skill sets and knowledge bases augment her own, make her means of production more valued. A few moves, and the team is out, on its own, parlaying the skills and knowledge developed in a half-dozen companies into a start-up. Exploiting the developing international information infrastructure, knowledge workers are at this very minute bartering their companies' intellectual property in unsupervised electronic micromarkets, gathering information, trading data and insights with their peers in other firms (often in competitive firms) in a directed quest for closure on particular intellectual, practical problems. Knowledge workers are already organized into a factoring system that they themselves maintain, and, if the rise in teleworking and sole proprietor "consultancies" continues at present rates, 2 in 3 knowledge workers will, by the end of the century, be sole-proprietor units in a complex electronic factoring system that blankets the globe.

And what these theorists don't say, because it isn't intuitively obvious, is that, unlike their craft-producer forebears, and unlike the production and service workers with whom the knowledge worker shares the firm, the work practices of knowledge workers are invisible: capital cannot extract, define and rationalize these work processes by observing knowledge workers in action. Knowledge work is -- today at least -- magic: the product of a mind whose work processes are silent and inscrutable.

Given all this, people like me whose responsibility it is to see to the firm's welfare (perhaps I should see myself as the last vestiges of the dying managerial elite, the caretaker of the empty country home) have a serious problem on our hands. Given:

  • the rise of knowledge work as the means of production in first-world economies
  • the increasing scarcity of knowledge workers
  • the dramatic decline in knowledge worker allegiance to the firm, and the rise of a guild of knowledge workers allied with one another across firm boundaries, and committed to the development of their own productive capabilities at the firm's expense
  • the decreasing life expectancy of firms that do not embrace knowledge work as the basis for new competency in the marketplace

strategist have to be able to define, as a top priority:

  • how the firm intends to identify, source and use the best knowledge workers in the market
  • what its response will be to the knowledge worker guild phenomenon and the fact that the firm's very existence is controlled by its knowledge workers, while they are bound to the firm by mere temporary contract based not on common cause but on remuneration for knowledge created and "what I can learn from you before I leave".

As I suggested earlier, we are in a situation fairly analogous to that of the "early capitalists" -- we have, it appears, to break the guild's back. We have to use whatever tools are at our disposal -- and workflow automation technology springs to mind -- to expose the 'mysteries' of knowledge work to the light of day, so that we can wrest the means of production from the minds of the guild of knowledge workers.

Or do we?

How Will Firms Choose Between The Empowerment And The Routinization Of Knowledge Work?

Several observers, James Utterback and Drucker among them, have noted that innovation in an information-intensive economy is always driven by knowledge (and therefore by knowledge workers) and is more often based on process innovation than product or service innovation. That is to say, how an information-intensive firm differentiates itself in its markets is more often a question of how the firm does what it does than it is a question of the firm's product or service (what it does), which increasingly is presumed by the customer to be commodity: nearly completely interchangeable with a similar product or service from another firm.

In a process-competitive market, a firm has generically only two competitive strategies at its disposal: compete on visible process distinctiveness (such as excellent customer care) or on price.

  • Firms that choose to compete on process distinctiveness -- unique, value-adding processes -- commit themselves to a perpetual cycle of benchmarking and innovation as they seek best-in-world status, often -- as for example is the case with Federal Express -- driving themselves into another market entirely as their core process distinction becomes useful in new, non-contiguous markets.
  • Firms that cannot, or do not wish, to compete on the basis of distinct value-added process competency have no choice but to compete as the lowest-cost provider: equivalent or near-equivalent service at best-available prices.

One can see the possibility of a hybrid approach -- UPS in the overnight shipping business is an example, matching Federal Express' process competency in, say, tracking, while running "the tightest ship in the shipping business" -- but for the most part, the complexities and fragmentation of markets will drive firms to one extreme or the other.

The firms that commit to perpetual process-based distinction -- what I will call design-centered firms -- are driven by a top-line oriented model: increasing and developing new sources of revenue.

The firms that commit to price leadership -- what I will call cost-centered firms -- are driven by a bottom-line oriented model: decreasing the cycle time and associated costs of delivering value that is only ever as good as the norm at the lowest possible price point.

Other industry observers have noted similar bifurcations. For example:

    In the same way that customers cluster into three different categories [price-oriented, product-oriented and value-oriented]...companies cluster into distinctly different value disciplines. These value disciplines are based not on industry, buy upon what kind of value proposition the companies pursue -- best total cost, best product, or best total solution....The choice of a value discipline shapes the company's subsequent plans and decisions, coloring the whole organization, from its culture to its public stance. To choose a value discipline -- and hence its underlying operating model -- is to define the very nature of a company. What sets the inner workings of market leaders apart from their also-ran competitors is the sophistication and coherence of their operating models: the operating processes, business structures, management system and culture, all of which are synchronized to create a certain superior value [within one and only one value discipline]. 10

In these bifurcations, we can locate the strategic rationale for opting for either the empowerment-oriented model of IT, or the control-oriented model of IT. Design-centered, value-centered firms do not need to break the back of the guild; in fact, they depend on the knowledge guild elements within their firm to drive the perpetual innovation engine that allows their design-centered strategy to work. On the other hand, cost-centered firms, like the early factory magnates, have to break the guild's back: the skills of the knowledge worker have to be extracted, demystified and codified -- using information technology -- so that the tasks of the knowledge worker can be performed, over and over again with ever-increasing efficiency, by service and even production workers at a much lower per capita cost. Drucker himself has argued for this approach in his now-famous metaphor of the jazz combo and the orchestra -- the apparently wildly-innovative output of the knowledge worker must be "scored" and handed to a "conductor" who directs the activities of compartmentalized specialists.

Factor in to this scenario what are by now generally-accepted projections of the characteristics of the emerging information economy:

  • smaller, single-purpose firms, electronically linked with other single-purpose firms into extended enterprises engaged in increasingly electronic, instantaneous commerce
  • knowledge workers that are (a) organizationally mobile, and significantly less available than today, due to the failure of state-subsidized education in most first-world economies, (b) electronically mobile, carrying their skills, network and heuristics with them from assignment to assignment in personal information bases (PIBs) managed by intelligent software agents located on personal computers owned by the knowledge worker and no by the hiring firm, and (c) significantly more cynical about traditional kinds of employee-employer relationships, including what are today givens: relocation, office work and the diminution of family.

It is fairly obvious that we are looking at a significant break, in the next decade or so, between cost-centered firms and their knowledge workers, as the firms attempt to compete based on a model that is fundamentally incompatible with their core employees' self-concepts, group affiliations and ideology.

How Will Knowledge Workers Respond To The Control Paradigm?

Knowledge workers in cost-centered firms will -- in fact, are today -- resisting strongly the inspection of their work practices, for practical and for philosophical reasons. We need look no further than the early and well-publicized failures of so-called groupware technologies in major multinational firms for evidence that knowledge workers recognize immediately when IT threatens their 'mysteries' even when -- as is certainly the case with Lotus Notes and other groupware technologies -- the technology lacks the functionality to actually inspect and rationalize work practices.

Beyond passive resistance is flight, and this is the fatal flaw in the cost-centered strategy. Cost-centered firms do not escape the necessity for knowledge: they must, to implement their strategy, offer their customers processes at parity or near-parity with those of their competitors, which implies a substantial competitive/analytic capability in-house. Yet the cost-centered strategy the firm has chosen drives out the very knowledge the strategy relies upon.

If projected conditions of scarcity do not accrue -- if the cost-centered firms' knowledge workers cannot operate as sole proprietors or gain employment in design-centered firms, and must remain with the cost-centered firm -- then we can expect to see significant "conscious withdraw of efficiency," as Veblen might have put it: sabotage. Knowledge workers in cost-centered firms can be expected to undermine systematically any attempts to extract and rationalize their work practices, to produce flawed or incomplete "information products" and in general to work against the IT-based rationalization process, leading again to the marketplace demise of the cost-centered firm.

So How Can We Make The Case For The Empowerment Paradigm?

What seems to me to be interesting about this projection is that we have the opportunity to make an ethical case on a profit-and-loss basis, an advantage not historically accorded to us very often. Moral commercial behavior, it might be said, has traditionally carried a significant (even disadvantageous) cost with it; here we are looking at a set of eventualities that argue strongly that the ethical path -- IT as the empowerment infrastructure for knowledge work rather than the control mechanism -- is also the economically sound path.

If we want to see workflow-oriented IT used for empowerment, rather than for control, rationalization and routinization, if we want to prevent what happened to production and service work from happening to knowledge work, then we have to make the case for design-centered approaches to competition in the worldwide information economy: the case for knowledge work as a revenue engine.

This implies that we can quantify, clearly, the economic benefits associated with the nurturance of knowledge work: that we can explain how empowered knowledge begets yet more empowered knowledge begets at least defensible market position if not market dominance.

And it implies that we can also make traditional financial models of the firm centered on cost containment reveal their inherent economic flaw: that costs are non-renewable strategic levers for the firm, that cost, once driven out, can never be returned to as a source of yet more marketplace longevity.


To recap: having exhausted the economic benefits of the automation of production work, and already committed to their strategies with respect to the automation of service work, commercial firms are now turning their strategic attention to the automation of knowledge work. Such firms will be forced to adopt one of two generic approaches to process- and workflow-based automation of knowledge work: empowerment or control. The strategic decision will be made not on the basis of the firm's market sector or segment, as has been the case in the past, but on the strategic basis on which the firm chooses to compete: design-centered process innovation, or cost-centered price leadership. Design-centered firms will select empowerment paradigms for IT-based knowledge work; cost-centered firms will select control paradigms for IT-based knowledge work.

These looming top-level ethical questions regarding the application of process and workflow-oriented information technology to knowledge work are already being discussed in commercial circles in the United States. Alan Webber, the former editorial director of the Harvard Business Review, founder of Fast Company magazine, and one of the most passionate advocates of the empowerment paradigm, has written that:

    As technology transforms the logic of competition, technology disappears as a source of sustainable competitive advantage. As what has happened in steel and other manufacturing segments happens everywhere, and more and more companies enter the information economy, the ability of any particular company to master the new technologies ceases to confer any particular competitive advantage. Instead, technology drives the logic of the new economy to the next step -- to people, the knowledge workers, whose skills, abilities and commitment will ultimately determine whether a company can be successful. 11

Webber's observation is at least partly correct -- we have only to look at the broad-reaching, multi-firm technology cartels being formed in the oil & gas industry and elsewhere to see the early signs of technological sufficiency.

But the turn to people -- to knowledge workers -- as the core asset of the firm, while devoutly to be wished for, is not assured. If the history of IT automation of the working spaces of our lives is any indicator of the future of that automation, 1 in 2 firms in the emerging information economy will opt to subject their knowledge workers to routinization, extraction and deskilling, and, in betting the firm's future on the progressive routinization of knowledge work, to commit the firm to a slow, unpleasant slide into marketplace death.

To affect the statistics, to transform that "1 in 2" statistic to 1 in 3, or 1 in 5, will require both a compelling strategic case for IT as the empowering infrastructure of knowledge work (backed with sound cautionary tales about what lies down the cost-centered control paths), and an equally compelling economic case for the nurturance of knowledge work as an economic good for stakeholders in the firm.

Now, while the boundary between the commercial and academic spheres is open, and knowledge management is center stage, we ethicists ought to be focused on making this case as airtight and as compelling as possible before the leading edge firms make their strategic commitments to one paradigm or another and we are left to ponder, yet again, the inability of our ethical frameworks to get ahead of the technology adoption curve.


[1] Solveig Wikström and Richard Normann. Knowledge & Value: A New Perspective On Corporate Transformation. Routledge: London, 1994.

[2] Wikström and Normann, p. 71.

[3] Manuel Castells. The Informational City: Information Technology, Economic Restructuring and the Urban-Regional Process. Blackwell: Oxford, 1989, p. 10.

[4] Peter Drucker. Post-Capitalist Society. New York: HarperBusiness, 1993, p. 42.

[5] Guenter Friedrichs and Adam Schaff. Microelectronics and Society: A Report To The Club Of Rome. New York: Mentor, 1982, p. 265.

[6] It is worth noting -- though possibly irrelevant -- that the introduction of rigorous routinization and inspection technologies onto the shop floor coincided more or less with the introduction of TQM practices into the manufacturing organization, and -- happenstantially or otherwise -- allowed the shop floor worker whose work practices were being inspected and routinized to seek another outlet for his control and contribution needs: in the "employee involvement" design activities associated with TQM. Whether this is a meaningful elevation of the shop floor employee, or an ideological displacement, is a question worth examining.

[7] Charles Handy. The Age of Unreason. Boston: Harvard Business Review Press, 1992. passim.

[8] Thomas Davenport. Process Innovation: Reengineering Work Through Information Technology. Boston: Harvard Business School Press, 1993, pp. 105-6.

[9] Richard Whittington, What is strategy -- and does it matter? Routledge: 1993, p. 84.

[10] Treacy & Wiersema. The Discipline Of Market Leaders. New York: Addison-Wesley, 1995. pp. 29-30.

[11] James Utterback. Mastering the Dynamics of Innovation. Boston: Harvard Business Review Press, 1994.

[12] Alan Webber. "What’s So New About The New Economy?" Harvard Business Review. May-June 1993, p. 65.


Last updated on 06-22-97 by Marc Demarest (

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