Tacit knowledge: why strategy cannot simply be handed over

In the video, in Italian, I quote a sentence I often hear, “We’re leaving the strategy to you, let us know how it goes,” and explain why it does not work. Here I bring in the chemist and philosopher Michael Polanyi, who gave a name to the deepest reason: a company knows more than it can say.

Video transcript (translated from Italian)

I often hear this sentence: “We’re leaving the strategy to you, let us know how it goes.”

That is not how it works.

Strategy is not something you delegate and wait for. It is work done by two. The strategist brings method, an outside view, the ability to read what can no longer be seen from the inside. But the company brings something irreplaceable: its deep knowledge of itself, its people, its rhythms.

Without this part the work has no substance. You produce analyses that stay on paper. And development plans no one feels are their own.

When instead the collaboration is real, when the client is present, takes part, challenges, something different happens. The strategy comes alive inside the organization. It becomes a common language.

It is not a service you buy. It is an alliance. And like every alliance, it works only if both sides commit with the same intensity.

Those who choose this path know it. And that is exactly why they deserve respect.

Recognizing a face among a million

“We know a person’s face, and can recognize it among a thousand, indeed among a million. Yet we usually cannot tell how we recognize a face we know.” With this example Michael Polanyi opens The Tacit Dimension, the 1966 book born from the lectures he had given at Yale four years earlier.

A strategy entrusted to an outsider without the company’s participation produces analyses that stay on paper.

Polanyi goes on with an example that has something of the detective story about it. The police, he observes, have found a way to communicate at least part of that knowledge: a large collection of pictures of noses, mouths and other features, from which the witness picks those of the face they remember, until the portrait looks right. But even that method works only because the witness can match the features to the memory, and how they do it, they cannot say. Hence the line Polanyi is remembered for: we can know more than we can tell.

A chemist who studied what formulas do not say

Polanyi was not born a philosopher. He was a chemist, and in the 1920s he worked in Berlin at the Kaiser Wilhelm research institutes. In 1933 the Nazi laws forced him to leave Germany, and in Manchester he took the chair of physical chemistry; in 1948 he left it for a chair in social studies. A man who had spent half his life writing formulas devoted the other half to the knowledge that does not fit into formulas.

He called it tacit knowledge. It is the knowledge of the shop foreman who hears from a machine’s noise that something is wrong, of the doctor who recognizes a seriously ill patient before the tests, of the sales manager who can tell on the phone that a customer is about to leave. It works perfectly well, and it will not be written down.

Why strategy cannot simply be handed over

A company is full of this knowledge. It knows its customers, its people, its rhythms, the compromises that hold departments together, the promises made to suppliers thirty years ago and never written down anywhere. In an interview it tells part of it. The rest it knows without being able to say, like the witness with the face.

Every company knows more than it can say: much of the knowledge a strategy rests on is tacit.

That is why the sentence in the video does not work, and not for lack of goodwill. Even the most willing company, if it hands over the strategy and waits, gives the strategist only the part of itself it can put into words. A strategy built on that part is consistent on paper and wrong in the departments, because it lacks what no one put in a document. These are the analyses that stay on paper I talk about in the video, and the plans no one feels are their own.

The strategist brings the features, the company recognizes the face

Polanyi’s example also suggests how to work. The strategist brings method and an outside view, like the police collection of features: hypotheses, comparisons, questions, examples from other companies. The recognition stays with the company, which alone can say “that’s it” in front of the right portrait. Shared work serves this purpose: to put enough features in front of the company for it to recognize itself.

In practice, in the work on organization and culture, it means being in the company, often every week, and talking to everyone, from executives to factory workers, because tacit knowledge does not all sit on the management floor. Often the most important thing about a customer is known by the person who delivers the goods, and the most important thing about a product by the person who repairs it.

In Italian family companies the issue has a precise name: the generational handover. Much of what the company knows is in the founder’s head, someone who knows every customer by name and every supplier by history, and who has almost never put it in writing. When the strategy is written without the founder, or against them, that knowledge stays out. When it is written with them, the shared work also becomes the way part of that knowledge passes to those who come next.

The strategist brings the outside view, the company brings its knowledge of itself, and strategy is born where the two work together.

The knowledge that stays in the company

In the 1990s Ikujiro Nonaka and Hirotaka Takeuchi made tacit knowledge a central theme of business studies. In The Knowledge-Creating Company (1995) they describe how a company can turn it into explicit knowledge and spread it, and the book became a classic. Some scholars, though, criticize it for reading Polanyi too optimistically: for Polanyi tacit knowledge is not a stock to be extracted and filed, but a way of knowing that lives in people while they work.

The difference has a practical consequence. If tacit knowledge cannot be extracted once and for all, neither can strategy be delivered once and for all: it must stay with those who hold that knowledge, and be updated with them. A consultant can help a company recognize itself, but cannot carry its knowledge away or hand it a new one ready to use. That is why I prefer long engagements, in which the strategy is built with the company and stays with the company.

What to do and what not to do

• Make available to the strategist the people who know, not just the documents.
• Plan time to work together in the departments, not only presentation meetings.
• Take for granted that part of the company’s knowledge is not written down anywhere, and look for it.
• Do not hand over the strategy and then wait for the result.
• Do not believe an initial interview is enough to get to know the company.

Sources

• Michael Polanyi, The Tacit Dimension, Doubleday, 1966, chapter 1.
• Ikujiro Nonaka, Hirotaka Takeuchi, The Knowledge-Creating Company, Oxford University Press, 1995.
• S. Gourlay, on Nonaka and Takeuchi’s reading of Polanyi, Kingston University. https://eprints.kingston.ac.uk/339/1/Gourlay-S-339.pdf