The Generative Cycle: Linking Knowledge and Relationships

  • Jeanne M. Liedtka, Mark E. Haskins, John W. Rosenblum and Jack Weber
  • October 15, 1997

“The essence of strategy is the way a company defines its business and links together the only resources that really matter in today’s economy: knowledge and relationships or an organization’s competencies and customers.”

R. Normann and R. Ramirez1

Let us assume that mastering the capabilities to learn and to collaborate — to manage knowledge and relationships — is the foundation for competitive success in the future. Where should we turn for guidance in developing these skills? Which are the benchmarks, the best-practice leaders in the “knowledge” business, the firms whose source of competitive advantage resides in their capacity to tap the collective intelligence of members and to work together to create value for customers?

Those firms, we argue here, are professional service firms (PSFs); they are lawyers, accountants, doctors, consultants, and investment bankers. The best of them have been working for decades, honing exactly the skills that large, mainstream business organizations are increasingly eager to add to their repertoire. While these high-performing PSFs may not represent today’s business, they do represent tomorrow’s. They represent the kinds of “inverted organizations” that have captured managers’ interest.2 With their flat structures, service-oriented workforce, and participative decision processes, PSFs can provide a model toward which larger, more hierarchical organizations can turn for guidance as they become leaner, quicker, and more flexible. PSFs represent a pure form of “knowledge-based” business when many leading business theorists are arguing that the management of collective knowledge and the ability to work together to translate that knowledge into customer value are the critical competencies for the future.

We recently visited three leading professional service firms, each privately held partnerships recognized as outstanding performers in investment banking, law, and medicine, respectively.3 With a cross-section of partners, we discussed each firm’s approach to sustaining competitive advantage in an increasingly turbulent marketplace. We left these conversations believing that the organizations had mastered the capabilities for collaboration and learning that created value for the firms beyond the value of each individual’s skills. Those capabilities would allow them to sustain their success despite the significant changes in each field and provide a needed prototype for all organizations struggling to enhance and utilize their knowledge to broaden and deepen their customer relationships.