THE KNOWING ORGANIZATION:
How organizations use information to construct meaning, create knowledge and
CHUN WEI CHOO
An organization uses information strategically in three arenas:
1. to make sense of change in its environment;
2. to create new knowledge for innovation;
3. to make decisions about courses of action.
These apparently separate processes are in fact complementary.
Through sensemaking, people in an organization give meaning to the events and actions of the organization.
Through knowledge creation, the insights of individuals are converted into knowledge that can be used to design new products or
Finally, in decision making, understanding and knowledge are focused on the selection of and commitment to an appropriate course of
How do organizations use information?
Information is an intrinsic component of nearly every activity in the organization, so much so that its function has become transparent.
Current thinking in management and organization theory recognizes three distinct arenas in which the creation and use of information
play a strategic role in determining an organization's capacity to grow and adapt.
First, organizations search for and evaluate information in order to make important decisions.
The second arena of strategic information use is when the organization makes sense of changes and developments in its external
Organizations thrive in a dynamic, uncertain world and market forces and dynamics modulate the organization's success or failure.
The critical dependencies between an organization and its environment require the organization to be constantly alert of changes
and shifts in its external relationships.
The third arena of strategic information use is when organizations create, organize and process information in order to generate
new knowledge through organizational learning.
New knowledge is then applied to design new products and services, enhance existing offerings, and improve organizational
The creation and use of knowledge are a particular organizational challenge.
Knowledge and expertise are dispersed throughout the organization and are often closely held by individuals or work units.
ORGANIZATIONS AS DECISION-MAKING SYSTEMS
In the decision-making view, the essential features of organizational structure and function may be derived from the
characteristics of human decision-making processes and rational human choice.
What constitute the bounds that limit the capacity of the human mind for rational decision making?
Herbert Simon identifies 3 categories of bounds: the individual is limited
by his mental skills, habits, and reflexes;
by the extent of knowledge and information possessed; and
by values or conceptions of purpose which may diverge from organizational goals.
It is because individual human beings are limited in their cognitive ability that organizations become necessary and useful
instruments for the achievement of larger purposes.
Simon proposes that the organization influences its members' behaviors by controlling the decision premises upon which
decisions are made, rather than controlling the actual decisions themselves. Because of bounded rationality, the organizational actor behaves in two distinctive ways when making decisions.
First, he satisfies → he looks for a course of action that is satisfactory or good enough rather than seeking the optimal
A course of action is satisfactory if it is practical and exceeds some minimally acceptable criteria.
The search for a satisficing alternative, motivated by the occurrence of a problem, is concentrated near the symptoms or an
old solution, and reflects the training, experience and goals of the participants.
Second, the organization or organizational actor simplifies the decision process → he follows routines and applies learned
rules of thumb in order to avoid uncertainty and reduce complexity.
By restricting the range of situations and the range of alternatives available, performance programs greatly reduce the
cognitive and informational requirements of the decision-making process.
The key features of organizations as decision-making systems are shown in Figure 1.
Organizations seek rational behavior in terms of actions that contribute to its goals and objectives, but the behavior of
individuals is constrained by their cognitive capacity, information, and values.
A way to bridge the gap between organizational rationality and the individual's bounded rationality is to design decision
premises and decision routines that guide or control individual decision behavior.
The decision-making model remains a rational model.
There is a linear, input-output flavor to the model, with a focus on the flow of information in the organization's decision-
ORGANIZATIONS AS SENSEMAKING COMMUNITIES
The sensemaking view assumes that people in organizations are continuously trying to understand what is happening around
This assumption does not require them to be rational processors of information, they may impose their own meaning upon
experience and use the ascribed meaning as a basis for subsequent understanding and action.
In other words, people in organizations create their own subjective reality rather than try to discover some existing reality.
This sensemaking is done retrospectively since we cannot make sense of events and actions until they have occurred, and we
can then glance backward in time to construct their meaning.
An organization engages in sensemaking through four sets of interlocking processes: ecological change, enactment, selection,
and retention (fig. 2).
Ecological change: Sensemaking begins when there is some change or difference in the organizational environment.
This ecological change requires the organization's members to attempt to understand these differences and to determine the
significance of these changes.
In trying to understand the meaning of these changes, an organizational actor may take some action to isolate or bracket
some portion of the changes for closer examination.
Enactment: Thus, managers respond to equivocal information about the external environment by enacting the environment
to which they will adapt.
The result of this enactment is to generate equivocal raw data about environmental changes, raw data that will subsequently
be turned into meaning and action.
The enactment process segregates possible environments that the organization could clarify and take seriously, but whether
it actually does so, depend on what happens in the selection processes.
Selection: In the selection process, answers are generated to the question, "What is going on here?"
The selection process reaches into the past to extract history and select a reasonable scheme of interpretation.
Retention: In the retention process, the products of successful sensemaking are retained for future use.
The product of organizational sensemaking is an enacted environment - a sensible rendering of previous events stored in the
form of causal assertions and made binding on some current enactment and/or selection.
Because the enacted environment is based on retrospective interpretations of actions or events already completed, it is like a
historical document, stored usually as a map of relationships between events and actions, that can be retrieved and
superimposed on subsequent activities.
In the sensemaking view, the reason for existence of an organization is to produce stable interpretations of equivocal data
about environmental change.
Although the entire process operates to reduce equivocality, some equivocal features do and must remain if the organization
is to have the flexibility to survive into a new and different future. ORGANIZATIONS AS KNOWLEDGE CREATING ENTERPRISES
Nonaka and Takeuchi presented a comprehensive model of how organizations dynamically create knowledge.
Knowledge creation is achieved through a recognition of the synergistic relationship between tacit and explicit knowledge in
the organization, and through the design of social processes that create new knowledge by converting tacit knowledge into
Tacit knowledge is personal knowledge that is hard to formalize or communicate to others.
It consists of subjective know-how, insights, and intuitions that come to a person from having been immersed in an activity
for an extended period of time.
Explicit knowledge is formal knowledge that is easy to transmit between individuals and groups.
It is frequently articulated in the form of mathematical formulas, rules, specifications, and so on.
The two categories of knowledge are complementary.
Organizations need to become skilled at converting personal, tacit knowledge into explicit knowledge that can push
innovation and new product development.
Whereas Western organizations tend to concentrate on explicit knowledge, Japanese firms differentiate between tacit and
explicit knowledge, and recognize that tacit knowledge is a source of competitive advantage.
There are 4 modes of knowledge conversion (Fig. 3):
is a process of acquiring tacit knowledge through sharing experiences.
As apprentices learn the skills through observation, imitation, and practice, so do employees of a firm learn new skills
through on-the-job training.
is a process of converting tacit knowledge into explicit concepts through the use of metaphors, analogies, or models.
The externalization of tacit knowledge is the typical knowledge-creation activity and is most often seen during the
concept creation phase of new product development.
is a process of creating explicit knowledge by bringing together explicit knowledge from a number of sources.
Thus, individuals exchange and combine their explicit knowledge through telephone conversations, meetings,
memos, and so on.
Existing information in computerized databases may be massaged to produce new explicit knowledge.
is a process of embodying explicit knowledge into tacit knowledge, internalizing the experiences gained through the
other modes of knowledge creation in the form of shared mental models or work practices.
Internalization is facilitated if individuals can re-experience indirectly the experience of others.