Journal of Knowledge Management Practice,

Journal of Knowledge Management Practice, Vol. 8, No. 1, March 2007

Why Not Use Incentives To Encourage Knowledge Sharing?

Jens Gammelgaard, Copenhagen Business School

ABSTRACT:

Managers implement knowledge management systems and incentive structures to help employees share knowledge and to encourage them to do so. However, a questionnaire survey producing data from 1,535 respondents from 9 different organizations localized in 4 different countries, demonstrates that employees are mostly intrinsically motivated and they prefer “soft” incentives like acknowledgements and personal development over increases in salary. In addition, the type of knowledge management system used – a system based on face-to-face transfers or one based on information technology (IT) systems - affects preferences for the intrinsically-motivated incentives. Finally, national and organizational cultures also influence individual preferences for incentives.

Keywords: Incentives, Knowledge Management, Knowledge Sharing, Motivation, Culture

Introduction

What motivates employees to share knowledge with their colleagues? Does “more money in the pocket” stimulate employees or is a long-term focus on professional and personal development preferable? Today, these questions are highly relevant to most organizations, since knowledge is the key source of competitive advantage. Its value is often represented by the use of expensive knowledge management systems (Boisot, 1998; Davenport & Prusak, 1998; Osterloh and Frey, 2000). However, organizations are missing out on a huge opportunity when their use of incentives does not take organizational and national cultures, or personal motivational factors into account. As demonstrated in this paper, individual knowledge sharing depends on the incentives offered, national backgrounds, type of organization, i.e. public versus private, and the knowledge management strategy implemented.

Knowledge Sharing Problems In Organizations

Organizations typically manage their knowledge either through a personalization strategy, i.e. knowledge flows through direct person-to-person contacts, or through a codification strategy, where knowledge is stored in databases and can be accessed by anyone in the company - typically through IT based search systems. According to Hansen et al. (1999), firms typically emphasize either the personalization or the codification strategy. However, regardless of which knowledge management system is implemented, individuals will typically hoard the knowledge they possess (Husted & Michailova, 2002). A lack of trust in fellow employees is one example of an obstacle to knowledge sharing (Szulanski, 1995), particularly when knowledge diffusion on the same hierarchical level is perceived to bring about a personal value loss and destroy future career opportunities (Empson, 2001). Another example is the “Not Invented Here” syndrome, for which Katz & Allen (1982) provided an early description of how tenure became a hindrance for knowledge sharing, since it led to a belief in the individual’s superiority and rejection of knowledge from the outside.

Therefore, the use of incentive systems is needed to motivate and encourage employees to share knowledge. An employee can be either extrinsically motivated, i.e. to obtain goals that are apart from the work itself, or intrinsically motivated, i.e. to gain personal satisfaction from doing the job (Amabile, 1997). Increased salaries, bonuses and promotions are included in the former, while organizations apply more “soft” instruments like acknowledgements and personal development to the latter. Researchers like Osterloh and Frey (2000) and Mudambi et al. (2004) indicate the importance of intrinsic motivation mechanisms to support knowledge creation and sharing in an organization.

Finally, knowledge sharing problems, along with the effect and use of incentives, might differ among organizational and national cultures. Hofstede (1980) and Kogut & Singh (1988) emphasize these national differences, and Martin (1992) has found the same effects for organizations. Hence, certain use of incentive might relate to specific cultures.

Based on this compressed literature review, the following research questions will be addressed in this paper:

RQ1: Do employees prefer intrinsically-based incentives to extrinsically-based incentives as a motivation to share knowledge?

RQ2: Does culture affect the employee’s preference for intrinsically or extrinsically-based incentives?

RQ3: What types of intrinsically and extrinsically-based incentives are preferred by employers for personalization and codification strategies respectively?

Methodology

The data used in this paper were collected through a web-based questionnaire. Nine organizations were approached in 2004 and 1,535 persons responded. In order to investigate the impact of national culture, six Danish organizations were compared to entities in countries in which one might expect to see substantial cultural differences, namely Bulgaria, Russia and Turkey. The sample’s division between five private firms within the industrial sector and four public organizations put an emphasis on the influence of organizational culture on individual knowledge sharing.

One organization (DAN1) is a Danish manufacturing concern within the food industry, while the Danish manufacturing firm DAN2 can be categorized as working in the pharmaceutical industry. Four public firms were included in the sample: a local government office located near Copenhagen, a ministerial directorate, a Danish governmental department, and a public service organization. To contrast the Danish data, a foreign-owned affiliate in Russia, active in the shipping industry, a Bulgarian software development company and a subsidiary of a Turkish conglomerate within the paper industry were included. The sample, therefore, varies in terms of culture, structure, size, and purposes.

What Types Of Rewards Encourage Individual Knowledge-Sharing?

The following table provides an overview of the findings regarding preferences for intrinsic and extrinsic motivation factors

Table 1: Employee Preferences For Specific Incentives In Order To Share Knowledge

	DAN1	DAN2	LOGOV	DIR	GODEP	PSE	RUS	BUL	TUR
Salary increase	3.00	3.09	3.23	3.15	3.38	3,20	3.10	3.33	2,84
Promotion	2.94	2,77	2.33	2.20	2.81	2,78	3.31	3.10	3,39
Acknowledgement of contribution	3.59	3.79	3.88	3.86	3.98	3,69	3.33	3.51	4,13
Increased reputation in the organization	3.39	3.48	3.35	3.45	3.63	3,48	3.50	3.58	3.99
Gaining status as an expert	3.24	3.57	3.09	3.28	3.36	3,42	3.65	3.92	3.80
Professional and personal development	3.80	3.96	3.91	4.02	4.04	3.98	4.02	4.10	4.23

DAN1 = Danish food company; DAN2 = Danish pharmaceutical company; LOGOV = Local government office; DIR = Ministerial directorate; GODEP = Government department; PSE = Public service organization; RUS = Russian company; BUL = Bulgarian company; TYR = Turkish company. N = 1,535 (DAN1=219; DAN2= 245; LOGOV = 193; DIR= 286; GODEP = 74; PSE = 263; RUS = 52; BUL = 76; TYR = 127.

Figures show mean values based on 1-5 point Likert scale.

As evidenced by Table 1, neither the extrinsically motivated incentives nor the type of incentives we normally assume are effective, such as bonuses or promotions, are most effective at motivating knowledge sharing. Instead, employees favor intrinsically-motivated incentives, such as colleagues’ acknowledgement and respect, improved reputation, and the possibility of professional or personal development. In fact, almost all employees in all types of organizations, regardless of country, ranked salary increases and promotions lower than the intrinsically-motivated incentives. If we collapse the data into two groups - one extrinsically motivated group and one intrinsically-motivated - for each organization, and then run a Two-Sample T-test assuming equal variances (two-tailed), we see significantly (99.9%) higher preference for intrinsically-motivated incentives. However, the significance level was 95% in the case of the Russian affiliate.

The cross-sectional and national research approach highlighted some differences between the three Eastern European entities and the six Danish organizations. Eastern European employees preferred to be promoted as an outcome of sharing knowledge to a significantly higher degree. This incentive was of the least importance in the Danish organizations, where staff members typically saw no relationship between promotion and knowledge sharing. Increases in salary showed no clear preference pattern, although they were rated lowest in the Turkish subsidiary and highest in the Danish ministry. In terms of the intrinsically-motivated incentives, the preference for collegial respect was higher in the three Eastern European organizations, while the desire for future professional and personal development found its highest mean in these firms.

Upon comparing the Danish manufacturing concern with the three public organizations, it is obvious that increases in salary were important in the private organization. To explain this phenomenon, one must be aware of that the Danish public service system builds in some stickiness in career paths and organizational job structures, since employees often have few promotion possibilities. In this case, it created a negative effect on knowledge sharing. In addition, the public wage rate is lower than private pay rates, which produces a higher desire for bonuses. In this light, the results here are not surprising, and personal development seems to compensate for the structural inefficiencies. The managerial implication is clear: incentive system must reflect these organizational structures in order to be effective.

As it is shown in Table 2, there is a distinct preference for IT-based knowledge management systems over personalized systems, which are more costly. The only cultural effect here was the extensive use of a codification strategy in the three Eastern European organizations and the lower attention paid to personalization strategies.

Table 2: Knowledge Management System Of The Organization

	DAN1	DAN2	LOGOV	DIR	GODEP	PSE	RUS	BUL	TUR
Personalization strategy	2.95	2.87	3.01	3.31	2.17	2.82	2.62	2.83	3.39
Codification strategy	3.58	3.49	3.28	3.84	2.78	2.99	3.92	3.92	3.70

Figures show mean values based on 1-5 point Likert scale.

The final question addressed was the incentives employees preferred in respect to the knowledge management system implemented. The regression analysis shown in Table 3 points to different preferences in relation to the two different regimes. Employees sharing knowledge through a direct, face-to-face mechanism prefer to be rewarded through two intrinsically-motivated incentives: (1) improved reputation in the organization, and (2) offered opportunities for professional and personal development. These findings makes sense, since an employee can increase his or hers value as an informant by being positively positioned as a trustworthy source of knowledge in the organizations. Second, attending professional and personal development courses can be helpful for future knowledge transfers, in which case incentives lead to a self-perpetuating process. Extrinsically-motivated incentives show no significant relationship to the use of a personalization strategy. In cases where employees dismiss knowledge via IT based solutions, only one incentive mechanism comes into play -being respected as an expert by colleagues.

Obviously, knowledge search processes can be a daunting task in large organizations, since overloaded platforms often lead to low usage rates (McDermott, 1999). Wenger et al. (2002) provide the example of the consultancy company, Ernst and Young, which had 1.2 million documents in its general unfiltered repository. In such cases, being recognized as an expert improves fellow colleagues’ search processes and means that the employee receives high ratings for his contributions, which can then be utilized for future career development. Surprisingly, increases in salary are negatively correlated to codification strategies, giving a systematically low preference for such increments in codification-based organizations. Employees do not see a direct effect of sharing their knowledge through such tools as an Intranet on the salary they receive.

Table 3: Regression Coefficients Of Incentives With Knowledge Management Systems As Independent Variable

Model Variable	1 Personalization	2 Codification
Increase in salary	-0.02 (1.05)	-0.07 (2.76)***
Promotion	0.00 (0.06)	0.02 (0.93)
Acknowledgement of contribution	-0.05 (1.22)	0.03 (0.71)
Increased reputation in the organization	0.08 (1.85)*	0.03 (0.63)
Gaining a status as an expert	-0.03 (0.82)	0.06 (1.69)*
Professional and personal development	0.13 (3.53)****	0.03 (0.89)
Constant	2.16 (15.24)****	3.14 (23.82)**
R²	0.03	0.02
Adjusted R²	0.03	0.01
F-statistic	7.58****	3.84***
n	1,458	1,458

T-values are set in parentheses.

*p < 0.10; **p < 0.05; ***p < 0.01; ****p < 0.001

Managerial Implications

A recurring feature across organizational and cultural boundaries is that employees prefer professional and personal development to salary increases and promotions. This surprising finding is essential, since much research has been focused on the “hard”, extrinsically-motivated incentives that directly relate to income, rather than the “soft”, intrinsically-motivated incentives that concern job satisfaction and personal development. The use of Human Resource Management practices for incentives is, for this reason, highly recommendable.

Managers must also pay attention to the organizational and national cultures in which they when designing incentive schemes. Apparently, the use of intrinsically-motivating incentives is more effective, but the context (public versus private, or Western Europe versus Eastern Europe) sets the trail for the use of incentives. Furthermore, implemented knowledge management systems create differences in individual preferences for incentives, which managers should remember when designing the incentive structure for an organization.

References

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Boisot, M. H., 1998, Knowledge Assets – Securing Competitive Advantage in the Information Economy, Oxford University Press, Oxford.

Davenport, T. and Prusak, L., 1998, Working Knowledge – How Organizations Manage What They Know, Harvard Business School Press, Boston MA.

Empson, L., 2001, Fear of Exploitation and Fear of Contamination: Impediments to Knowledge Transfer in Mergers between Professional Service Firms, Human Relations, 54(7): 839-862.

Hansen, M. T., Nohria, N. and Tierney, T., 1999, What’s Your Strategy for Managing Knowledge?, Harvard Business Review, 77(2): 106-116.

Hofstede, G., 1980, Culture’s Consequences: International Differences in Work-Related Values, Sage, Beverly Hills CA.

Husted, K. and Michailova, S. (2002), Diagnosing and Fighting Knowledge Sharing Hostility, Organizational Dynamics, 31(1): 60-73.

Katz, R. and Allen, T. J., 1982, Investigating the Not Invented Here (NIH) Syndrome: A Look at the Performance, Tenure, and Communication Patterns of 50 R&D Project Groups, R & D Management, 12(1): 7-19.

Kogut, B. and Singh, H., 1988. The Effect of National Culture on the Choice of Entry Mode, Journal of International Business Studies, 19(3): 411-432.

Martin, J., 1992, Cultures in Organizations: Three Perspectives, Oxford University Press, New York.

McDermott, R., 1999, Why Information Technology Inspired but cannot Deliver Knowledge Management, California Management Review, 41(4): 103-117.

Mudambi, R., Mudambi, S., and Navarra, P., 2004,, How to Motivate Knowledge Workers: An Empirical Investigation of Motivation Crowding Theory, Discussion Paper 316-04, March 2004, The Fox School of Business and Management.

Osterloh, M, and Frey, B., 2000, Motivation, Knowledge Transfer, and Organizational Forms, Organization Science, 11(5): 538-550

Szulanski, G., 1995, Unpacking Stickiness: An Empirical Investigation of the Barriers to Transfer Best Practice Inside the Firm, Academy of Management Journal, Best Paper Proceeding: 437-441.

Wenger, E., McDermott, R. and Snyder, W. M., 2002, Cultivating Communities of Practice: A Guide to Managing Knowledge, Harvard Business School Press, Boston, Mass.

Contact the Author:

Dr. Jens Gammelgaard, Associate Professor at the Copenhagen Business School, Department of International Economics and Management, Porcelænshaven 24, 2000 Frederiksberg, Denmark; Telephone: +45 38 15 25 12; E-mail: jg.int@cbs.dk