Knowledge Management's Social Dimension: Lessons From Nucor Steel

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Unless an enterprise generates new knowledge and pumps it efficiently throughout its network, it will soon be playing tomorrow's game with yesterday's tools. How are companies facing that challenge?

Many rely on an information-technology infrastructure; but no matter how sophisticated, it is not the key to effective knowledge management. Success, say the authors, depends more on the social system in which people operate — the social ecology of a company. Social ecology drives people's expectations, defines who will fit in, shapes individuals' freedom to pursue actions without prior approval, and affects how they interact with both insiders and outsiders.

Focusing on Nucor Corp.'s success in the 1980s and 1990s, the authors suggest that it was the company's social ecology that contributed to it becoming one of the most efficient steel producers in the world. Through effective management of knowledge, Nucor developed and constantly upgraded its main strategic and proprietary competencies: plant construction and start-up know-how, manufacturing-process expertise and the ability to adopt breakthrough technologies earlier than competitors.

With financial incentives to improve efficiency, operating personnel developed exceptional mastery of manufacturing processes. And Nucor's employee-oriented practices led to high retention. For example, in recessions, a "share the pain" program prevented layoffs through a shortened work week that affected everyone equally — and built loyalty.

Nucor's social ecology also allowed excellence in the tasks associated with sharing and mobilizing knowledge: identifying opportunities to share knowledge, encouraging individuals to share knowledge, building effective and efficient transmission channels, and convincing individuals to accept and use the knowledge received.

Routine measurement and distribution of performance data helped uncover opportunities to share best practices. Pay incentives for work groups instead of individuals were instituted to reward sharing. Nucor also passed along unstructured knowledge through face-to-face communication in plants that were deliberately kept small and through the transfer of people among plants.

The authors explain how others can maximize knowledge sharing by setting stretch goals, providing high-powered incentives, cultivating empowerment, equipping every unit with a well-defined "sandbox" for experimentation — and cultivating an internal market for ideas.

It's a difficult challenge. But its very difficulty means that companies tackling it successfully will have a competitive advantage that rivals cannot beat merely by buying the same software.

Anil K. Gupta is a professor of strategy and global e-business at the University of Maryland's Robert H. Smith School of Business in College Park, Maryland, and a visiting professor in the Standford Technology Ventures Program. Vijay Govindarajan is professor of international business and director of the Achtmeyer Center for Global Leadership at Dartmouth College's Amos Tuck School of Business Administration in Hanover, New Hampshire. Contact the authors at: vgcdartmouth.edu and agupta@rhsmith.umd.edu.

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