Organizational forgetting as strategy - SAGE Journals

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Organizational forgetting as strategy. Pablo Martin de Holan Instituto de Empresa, Spain, and INCAE, Costa Rica. Nelson Phillips Cambridge University, UK.
STRATEGIC ORGANIZATION Vol 2(4): 423–433 DOI: 10.1177/1476127004047620 Copyright ©2004 Sage Publications (London,Thousand Oaks, CA and New Delhi) www.sagepublications.com

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Organizational forgetting as strategy Pablo Martin de Holan Instituto de Empresa, Spain, and INCAE, Costa Rica Nelson Phillips Cambridge University, UK

After decades of research, the link between organizational learning and competitive advantage is clear: firms that are better at learning are better positioned to take advantage of emerging opportunities and deal with emerging threats, especially ones that require significant organizational change. Firms that are better able to create new knowledge, ‘learning organizations’, are able to innovate more effectively and adapt to changing environmental conditions more quickly and efficiently, gaining competitive advantage over firms that cannot. Research on the nature of organizational knowledge, the processes that support learning and the barriers that prevent it and the functioning of organizational memory systems has all accumulated rapidly. The result is a well-developed perspective on the management of knowledge that provides an effective framework for research and a useful guide for management practice. We find the progress made in understanding organizational knowledge and organizational learning impressive and the resulting framework useful and convincing. At the same time, based on the results of our research into the knowledge dynamics of international joint ventures (Martin de Holan and Phillips, 2003; Martin de Holan and Phillips, in press; Martin de Holan et al., 2004),1 we believe that one important dimension of knowledge in organizations deserves much more attention: the dynamics of organizational forgetting. We are convinced that competitiveness is not just about learning; it is also about forgetting the right things at the right times. Deeply entrenched stocks of knowledge can act as barriers to new learning, or even to the recognition of the opportunity to innovate a new product, service or business model. Unneeded stocks of knowledge require expensive management and can consume critical management attention, leading to a loss of competitiveness. Increasing numbers of collaborations mean increasing opportunities to pick up bad habits from partners that must be forgotten quickly before they adversely affect competitiveness. Furthermore, firms can overlearn from bad experiences, leading to organizational dysfunction, loss of competitiveness and a critical need to forget. We believe that managers must become as skilled at managing forgetting as they have become at managing learning and, we will argue here, management 423

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research needs an equally developed theory of forgetting in order to complete our understanding of the dynamics of organizational knowledge. This includes an understanding of strategies to challenge dominant logics, break down routines and practices and strategically manage stocks of knowledge. This topic lies at the intersection of organization theory and strategy, making it an important potential research area for Strategic Organization. The nature of forgetting and the underlying processes that drive it are core issues in the continued development of the organizational knowledge perspective in organization theory and strategic management. In fact, forgetting may be the key to the continued development of the knowledge perspective and of knowledge management practice. Based on these observations, our goal in this essay is twofold. First, we outline what is known about organizational forgetting and its strategic ramifications. While there has been remarkably little research done on the topic, there are some initial pieces and a range of related work that provides an introduction. Building on this foundation, we present what we see as the main areas of research that this nascent framework reveals. Our hope is to pique the interest of the readers of Strategic Organization and help build a critical mass of researchers and practitioners interested in the development of a theory of organizational forgetting.

Organizational learning and competitive advantage The existing literature on organizational learning has focused on two equally important and, in our opinion, complementary dimensions: learning as the ability to understand events in a different and often better way, the cognitive conception of knowledge; and learning as the ability to perform more effective and efficient actions, the behavioural conception. These cognitive and behavioural dimensions reflect the fact that organizational learning is, fundamentally, the ability of an organization to create a practical answer to a problem that needs to be solved or to create a better answer to an existing problem (Argote, 1999; Miner and Mezias, 1996; Miner and Anderson, 1999). Organizational learning, then, refers to the different processes by which organizations add to their stock of knowledge and to their repertoire of organizational capabilities (Cyert and March, 1963; Daft and Weick, 1984; March et al., 2000; Miner and Anderson, 1999; Schulz, 1998; Weick, 1979). From this perspective, organizations function by applying knowledge in specific ways to obtain a complex collective action (Douglas, 1986) and organizations can be usefully conceptualized as repositories of knowledge (Conner, 1991; Conner and Prahalad, 1996). Along with the idea that organizations may gain new knowledge, the notion that organizations may lose knowledge has also appeared in the literature. Two approaches to this phenomenon have been developed. First, various

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studies have emphasized the importance of discarding and unlearning knowledge that has ceased to be useful and is reducing efficiency or preventing new knowledge from being created or assimilated (Bettis and Prahalad, 1995; Crossan et al., 1999; Easterby-Smith and Lyles, 2003; Fiol and Lyles, 1985; Greve, 1995; Hedberg, 1981; Miller, 1990, 1994; Nystrom and Starbuck, 1984). Second, other studies have focused on the negative consequences of knowledge deterioration or decay (Argote et al., 1990; Benkard, 2000; Darr et al., 1995; Epple et al., 1991). Both of these approaches focus attention on the importance of organizational forgetting. However, while we believe these two approaches complement each other well, we also believe that there is more to organizational forgetting than these approaches reveal. Rather than being a simple complement of organizational learning, we believe that forgetting is an important tool that successful managers use to shape the knowledge of their organizations, a powerful mechanism to enhance the effectiveness of their strategic organizations and an under-researched source of competitive advantage.

Understanding forgetting The common thread in these two perspectives is the emphasis on forgetting as a reduction or deterioration of the stock of knowledge available to the organization and, given our discussion earlier, a corresponding loss of organizational capabilities. Accordingly, we can synthesize these two perspectives (and begin a wider discussion) by defining organizational forgetting as the loss, voluntary or otherwise, of organizational knowledge resulting in a change in the organization’s capabilities. The broad concept of organizational forgetting captures the essence of the current academic conversation about the factors and processes that contribute to deterioration of firm knowledge. In addition, it provides a useful umbrella to examine the different mechanisms through which organizations lose knowledge, finding themselves unable to act as they had previously done or much less effectively. Based on the existing literature and on our findings, we have developed a framework for understanding organizational forgetting that enables us to tease out the kind of knowledge being forgotten, predict its impact on organizational performance and, consequently, clarify the conditions under which forgetting is beneficial or detrimental. In so doing, we are able to clarify the impact of forgetting on the dynamics of organizational knowledge and specify its strategic importance to organizational success. In essence, we argue that the impact of forgetting on organizations is contingent on its context, and while it can be harmful when it leads to the unintentional loss of organizational competencies, it can also be a critical first step in organizational renewal when the organization needs to change.

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Types of forgetting We classify forgetting along two distinct dimensions: the intentionality of the forgetting process and the newness of the forgotten knowledge.2 Based on these two dimensions, we have argued for four types of organizational forgetting (Martin de Holan and Phillips, in press). The first type of forgetting occurs when an organization is unable to retain a piece of knowledge that has recently entered it. For example, Dougherty (1992), Dougherty and Corse (1995), Dougherty and Hardy (1996) and Dougherty and Heller (1994) have documented how a firm successfully developed a new product line once, but was unable to repeat the innovation process. The knowledge of how to innovate had somehow been lost. The second type of forgetting occurs when knowledge that has been stored in the organization’s memory system is lost over time. Think of a three-star Michelin restaurant that, after years of enjoying the prestige and economic success of belonging to a world-class elite, is unable to maintain the complex organizational routines required for the high-quality standards required and loses a star (Rao et al., 2003). The third and fourth types involve purposeful forgetting and are therefore of more strategic interest. One involves the removal of some piece of new knowledge from the organization before it becomes deeply embedded in the organization’s stock. Think of the recent actions taken by the top managers of Time-Warner to isolate the original company from the disruptive new-economy culture and ways of AOL. The managers embarked on a program to ensure that Time-Warner ‘forgets’ this disruptive knowledge. The last type occurs when established knowledge is purposefully removed from the organization’s memory. This last form of forgetting is perhaps the most important from a strategic perspective, but may also be very difficult, as deeply embedded pieces of organizational knowledge are generally locked in place by various other pieces of organizational knowledge that depend on them, and removing one implies modifying the others as well. Think of the arguments used by many governments to privatize state-owned enterprises, and the difficulties these newly privatized organizations face in forgetting their monopolistic service culture and ways of functioning. Crucial to the success of these new companies is the dismantling of the old ways of doing business and old ideas of what constitutes good service. Yet this has proven to be very difficult and in many cases attempts at reform have fallen far short of expectations.

Forgetting as a strategic issue The development of a theory of organizational forgetting points to a number of possibilities for research lying at the intersection of strategy and organization theory. We believe that three areas in particular hold promise. All three of these

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are forms of intentional or strategic forgetting: discarding unneeded knowledge, abandoning unwanted innovations and unlearning knowledge that makes organizational change difficult or impossible. We discuss each area of forgetting below.

Forgetting for economy As organizations become better learners, and as memory systems in organizations become more effective at retaining knowledge, organizations are faced with the challenge of managing ever larger quantities of knowledge. This process has been going on for some time and is becoming an increasingly serious problem as knowledge management practices improve, making it easier to collect and maintain knowledge. One of the reasons this is a problem is that maintaining knowledge is not without cost. A knowledge management framework focused only on acquiring and maintaining knowledge leaves firms in an increasingly difficult position as their stock of knowledge grows. Either they incur increasing costs to maintain ever greater amounts of know-ledge or they risk losing critical competencies. A complete knowledge management strategy must therefore include a process for identifying knowledge that is no longer needed and the development of abilities to remove it from the organization. This is, obviously, a strategic decision as capabilities are lost along with the knowledge that supports them. But little has been written about evaluating knowledge or about how to remove unwanted knowledge from the organization. While this process may happen naturally, as the literature on knowledge decay has shown, in an organization with a highly developed knowledge management system there is a need for a much more deliberate and managed process of strategic forgetting to ensure that firms forget the knowledge that they no longer need and retain the knowledge that they do. Another area where the idea of managed forgetting has important potential application is in mergers and acquisitions. Newly merged or acquired organizations often have an overabundance of conflicting knowledge that needs to be managed and at least some of which needs to be forgotten. Much of the management challenge in these situations is therefore concerned with the aggressive management of processes of forgetting, perhaps even more so than it is about managing learning. But little has been done to develop a theory of forgetting in mergers and acquisitions, despite its clear applicability.

Discarding innovations But efficiency is not the only pressure increasing the need for managers to effectively manage forgetting. Just as better learners need to be better forgetters, so

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too do better innovators. New knowledge may be useful and build competitive advantage, but it also may erode competitive advantage and clash with existing stocks of knowledge. Therefore, following an innovation, new knowledge may need to be discarded quickly, before it becomes embedded in the organization’s memory. Furthermore, as organizations become better innovators, this problem becomes increasingly likely to occur and very good innovators need to be very good forgetters. But the management literature on innovation far outstrips the literature on how to forget the new knowledge if the innovation is not a success. By definition, innovations depart significantly from current organizational practices. As innovations involve defining problems in novel ways and attempting to create novel solutions, innovative activities often have a significant impact on the current stock of knowledge of the organization (Greve and Taylor, 2000) and may be quite disruptive to standard organizational practices. So much so that some researchers present at least some forms of innovation as illegitimate, quasi-subversive activities (Dougherty and Heller, 1994). An organization that is able to generate a great deal of new knowledge will also be generating a subset of unwanted knowledge, either because the innovation does not perform as expected or because it does not fit with the strategy of the firm. Retaining unneeded or unwanted innovations runs the risk of the innovation being put into practice or being leaked from the organization in some way (think of Xerox and the computer mouse). Organizations must therefore develop a program to monitor and forget unwanted innovations. This, we believe, is also a matter of controlling the most innovative parts of the organization, some of which often act as semi-autonomous units with little control or accountability. Forgetting, in this context, implies managing the link between stable and innovative parts of the organization, in a manner that reminds us of Thompson’s (1967) idea of protection of the technical core of the organization. Two distinct sets of skills are necessary to successfully forget innovations: identifying knowledge to be discarded and discarding unwanted knowledge once it is identified. The first process is a strategic problem of identifying and evaluating innovations in products or practices against strategic goals. The second involves developing systems to discard unwanted innovations. Little is available in the literature on how to manage either of these steps. This form of forgetting is therefore a potentially very important area for the development of a strategic perspective on organizational processes.

Forgetting for change Dominant logics are cognitive structures that define what the organization is and what it does, forming the basis for organized action. They are ‘the way in which managers conceptualise the business (they are in) and make resource allocation decisions’ (Bettis and Pralahad, 1995; Prahalad and Bettis, 1986). They shape how people in the organization see the environment, how they analyze the

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information they receive and how they understand themselves. Dominant logics are an important part of the stock of knowledge of an organization. But the effects of strong dominant logics are not always positive. In some cases, dominant logics can act as a filter preventing critical information from getting to organizational members and thereby preventing the anticipatory measures that the correct interpretation of the information could have initiated. In other words, dominant logics may be so strong as to prevent managers from detecting a problem (even when some employees are fully aware of the need for change) and preventing an effective response to the new situation. In their retrospective assessment of their work, Bettis and Prahalad (1995) recognized the importance of organizational forgetting for change. In their view, organizations need to dismantle their current dominant logic before a new one can be constructed, and a lack of attention to this necessary first step (as well as the degree of difficulty) partially explains the high rate of failure of organizational change exercises. Dominant logics creates specific ways to view the world or, in other words, shared and relatively stable cosmogonies (Weick, 1988, 1994). Thus, we can safely assume that these dominant logics or cosmogonies shape, also in stable enduring ways, the stock of knowledge of the firm and the way the organization works through its technologies and routines, as claimed by Nelson and Winter (1982). This self-reinforcing relationship between dominant logics and organizational practices acts as a powerful barrier to organizational change, particularly when the change involves creating knowledge or routines that are outside the boundaries of the current dominant logic. We believe that this question of the role of dominant logics and the need to manage it is best understood as a form of forgetting, and the failure of researchers to deal with organizational forgetting has also led to a failure to deal effectively with the processes of forgetting that precede organizational change. Efforts to make major or radical organizational change will only succeed when processes of forgetting are actively managed, to dismantle both the routines that are the crystallization of knowledge and the dominant logic under which these routines emerged (see Greve and Taylor, 2000 for a similar argument). From this perspective, intentional forgetting becomes a fundamental part of change management and the skill necessary to manage the unlearning of dominant logics a crucial one. Our work on the topic indicates that generally organizations that are adept at change actively manage to dismantle unneeded routines and dominant logics, particularly when these interfere with the development of new knowledge and associated organizational change. As such, the difficulty of learning does not reside in the creation of the new piece of knowledge, but in the process by which that knowledge is incorporated into the organization. One hypothesis that has appeared in the literature is that the difficulty of incorporating new knowledge increases with the distance between the knowledge being created and existing knowledge (Henderson and Clark, 1990). But how we conceptualize distance

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remains unclear, as does how to measure it. There is clearly a great need for further research on the role of dominant logics and other forms of knowledge in processes of learning and change. Even more, there is a need for research that explains how dominant logics and other forms of knowledge can be strategically managed to allow learning and change; in other words, how to manage forgetting strategically.

Conclusions: towards the forgetting organization We believe that organizational forgetting is a critically important research area that has real potential to contribute to our understanding of the dynamics of organizational knowledge and its relation to competitive advantage. While some studies have been done on memory decay and related topics, very little has been done to explore intentional forms of forgetting and only a few links have been made to the strategic importance of intentional forgetting. This essay has been an argument for increased attention to forgetting, for the continued development of a unified model of forgetting and for a more balanced view of the dynamics of organizational knowledge. From a strategic organization point of view, this research direction has the potential to make several important contributions. First, organizational forgetting continues to highlight the power of concepts from organization studies to contribute to strategic management. The intentional aspect of organizational forgetting has the potential to add an important new aspect to strategic thinking about knowledge management. Second, organizational forgetting has the potential to significantly affect knowledge management practice. While we know a substantial amount about learning, we know very little about forgetting, despite its obvious importance. Third, forgetting provides an important new direction for increasing the strategy of knowledge management. Intentional forms of forgetting lie at the very heart of strategic management in the learning organization. As firms become increasingly good at knowledge creation, collaboration and innovation, the need for a better understanding of forgetting becomes more critical. A balance must be struck in theory and in practice between knowledge acquisition and intentional forgetting. It is time for the development of a theory of strategic forgetting and, perhaps, even the development of the forgetting organization.

Acknowledgements The authors would like to thank Thomas Lawrence, Henry Mintzberg, Deborah Dougherty, Fernando Olivera and Martin Schultz for their helpful comments and suggestions. They would also like to thank the Canadian Social Science and Humanities Research Council for their financial support.

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In our previous research we explored the dynamics of knowledge in joint venture hotels in Cuba. We studied attempts to transfer knowledge from the international partner to the joint venture over a four-year period and found that the challenges faced by the organizations we studied were as much about forgetting old knowledge or knowledge that was not useful as they were about learning. We have reported the results of this study at length elsewhere. We are thankful to Martin Schulz for helping us conceptualize this during previous conversations.

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Pablo Martin de Holan works at the Instituto de Empresa (Madrid, Spain), with a joint appointment with INCAE (Costa Rica). His current research, funded by the Social Sciences and Humanities Research Council of Canada (SSHRC), examines the unintended consequences of social action, particularly the voluntary and involuntary deterioration of organizational knowledge. He has published in Management Science, Sloan Management Review, Journal of Management Inquiry, and Strategic Organization. Address: Instituto de Empresa, calle Pinar 7, 1ra planta, Madrid 28006, Spain [email: [email protected]] Nelson Phillips is the Beckwith Professor of Management Studies at the Judge Institute of Management, University of Cambridge. His research interests include knowledge management, technology strategy, interorganizational collaboration and he takes a general interest in management in cultural industries. He has published over 40 academic articles and book chapters including articles in the Academy of Management Journal, Academy of Management Review, Management Science, Sloan Management Review, Journal of Management Studies, Journal of Management Inquiry, Journal of Business Ethics, Organization Science, Organization, and Organization Studies. He has also written a book with Cynthia Hardy, Discourse Analysis, which was published in 2002. Address: Judge Institute of Management Studies, University of Cambridge,Trumpington St, Cambridge CB2 1AG, UK. [email: [email protected]]

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